Albertsons losses continue, comp sales fall

[pseudo3d]

The ones that can stand up to be sold whole (as opposed to in pieces) are the most profitable ones. Maybe not "most profitable", but it would set alarm bells ringing if something like ACME or Jewel-Osco was sold off to a third party, which effectively means that those markets are gone forever.

What alarm bells are you talking about? Wall Street is already somewhat alarmed at their performance. That's why they haven't been able to get an IPO done on good terms. Wall Street would be happy to fund their IPO is they can pay down some debt and start making money.

Chasing market share for market share's sake never works out well. Interest rates have been rising. The economy is cyclical and we are on year seven of an economic growth cycle. If the economy turns down and interest rates continue to rise they are going to be in a position of having to sell assets at fire sale prices. Better that they sell a division or two and use the money to reduce debt, invest in pricing and improve service.

Selling your most profitable divisions/assets is never, ever a good sign. The first sign that Safeway Inc. was going downhill was selling the Canadian division. Did anyone look at Sears selling Craftsman, and think "yup, just a strategic sale, they're just refocusing"? No, of course not.

The economy has been pretty bad (in the past eight years, home ownership has declined, median income has declined, labor force has declined), so there's no "turns down" just "gets worse" (plus, the eight year cycle isn't always true), and it's a bad time for grocery companies, EVERYONE is facing deflation and depressed stocks when other stocks are doing well. I suppose if divisions were to be sold, they should sell a majority of United back to the company.

[kr.abs.swy]

I think that selling Canada was more about them making Safeway more digestable for an acquirer. Cerberus certainly had to put a great deal of money into Albertsons to fund the Safeway acquisition; without the sale they would have had to put in even more. So I don't think Safeway selling Canada really is comparable to Sears selling Craftsman.

[klkla]

Selling your most profitable divisions/assets is never, ever a good sign. The first sign that Safeway Inc. was going downhill was selling the Canadian division.

I didn't say they should sell their most profitable divisions. But many successful companies have sold off non-strategic divisions especially when they are in a situation where they are not making money.

Selling the Canadian division was a sign that they were getting ready to cash out and nothing more.

The economy has been pretty bad (in the past eight years, home ownership has declined, median income has declined, labor force has declined), so there's no "turns down" just "gets worse" (plus, the eight year cycle isn't always true)

Wrong on so many levels. Unemployment is the lowest since the beginning of the great recession. The number of people employed is the highest since the start of the great recession. The best measure of economic activity is growth in GDP and the economy as grown at a steady level for over seven years now. The fact is the economy is cyclical and we are seven years into an up cycle. At some point there has to be a down cycle. This is not a political statement. Just a fact of life.

and it's a bad time for grocery companies, EVERYONE is facing deflation and depressed stocks when other stocks are doing well.

Yes, but not everyone is reporting losses.

[jamcool]

Most of the new employment is part-time, which doesn't grow the economy. And economic growth has been averaging around 2.5%, which is anemic. And many people have given up looking for work, which skews the unemployment numbers

[storewanderer]

I feel like the economy does not impact grocers as much as other retail types. People have to eat. Grocers that play their cards right can do better in a down economy as people eat out less and will buy more groceries. Even if people are trading down due to the bad economy, there are ways to profit on that too, such as the customer trading down to private label items from brand items where the private label is higher margin or if the customer spends whatever they just saved on the private label item on additional items in the store. There are so many ways. Conversely during a good economy the store can do better just on the virtue of customers who will buy more expensive cuts of meat, better deli meats, etc.

The economy impacts fad grocers or grocers with poor operations/poor pricing. No need to analyze chains here I think we all know the examples.

All one has to do is look at how well Kroger did during the lousy economy in the 2000's after they started to make the right moves operationally. It also helped them that many competitors were imploding at the time. WinCo also continues to do well and has been expanding steadily for decades now through both good and bad economies. Same for Hy Vee, Publix, etc. These companies have steadily been doing well, expanding. It doesn't seem to matter to them how the economy is.

Looking at situations like the large debt that may or may not be causing Albertsons to lose money, it is clear that the debt needs to be paid down. Operations are suffering under this debt as staffing levels and pricing are not good. Selling divisions won't paint a picture of growth which they have been trying so hard to paint ever since this merger with Safeway happened and they were talking about that IPO which is sure delayed for a long time... at this point the other issue may be a lack of interested buyers out there for unionized grocery stores. I feel like unionized grocery stores are a hard sell. All of these new up and coming concepts (Sprouts and its various copycat competitors, Aldi and all its various copycat formats, even many of the ethnic formats) are non union and also often smaller-much smaller footprint than a typical unionized grocery store. How many Dominicks reopened as unionized grocery stores?

[klkla]

Again this isn't about politics. The point is that the U.S. economy is in the seventh year of growth. It might be anemic growth and there is certainly something to be said about income inequality but it is growth none the less. And history has shows us time and time again that it won't last forever. And to the point of this post Albertson's is particularly vulnerable because as a result of their huge debt their prices are too high and there service levels are not good.

If they are still in this position when the next downturn hits the results will be very predictable.

[storewanderer]

Another issue that will impact the highly leveraged grocers (and Albertsons isn't the only one, there are others) will be what happens to Interest rates. If rates rise, and as their debts come due and new debt agreements at higher rates are all they can get, it will not be a good situation. If rates fall, well, not much room to fall now, a little, but not much.

I believe a big reason why Rite Aid has "recovered" was due to the prolonged period of very low interest rates which helped lower their borrowing costs so they were able to improve operations a little faster than they were able to back in the 2000's when they were just drowning in debt.

Meanwhile in Reno/Sparks, Safeway has yellow onions 1.99/lb or 3lb bag 3.99. Smiths has identical looking yellow onions 0.68/lb or 3lb bag 1.98. Even Raleys only wants 1.49/lb for yellow onions. Come on... I never thought I'd see Raleys being a price leader but they are lower than Safeway on numerous items.

[veteran+]

Selling your most profitable divisions/assets is never, ever a good sign. The first sign that Safeway Inc. was going downhill was selling the Canadian division.

I didn't say they should sell their most profitable divisions. But many successful companies have sold off non-strategic divisions especially when they are in a situation where they are not making money.

Selling the Canadian division was a sign that they were getting ready to cash out and nothing more.

The economy has been pretty bad (in the past eight years, home ownership has declined, median income has declined, labor force has declined), so there's no "turns down" just "gets worse" (plus, the eight year cycle isn't always true)

Wrong on so many levels. Unemployment is the lowest since the beginning of the great recession. The number of people employed is the highest since the start of the great recession. The best measure of economic activity is growth in GDP and the economy as grown at a steady level for over seven years now. The fact is the economy is cyclical and we are seven years into an up cycle. At some point there has to be a down cycle. This is not a political statement. Just a fact of life.

and it's a bad time for grocery companies, EVERYONE is facing deflation and depressed stocks when other stocks are doing well.

Yes, but not everyone is reporting losses.

Spot on!!

I would add that relative to where the economy WAS on all metrics the cumulative gains are more if you factor in the negatives PLUS the gains.

And those are hard unbiased numbers.

[reymann]

cerberus needs to start having a hard look at streamlining albertsons and safeway when it comes to pricing and the club card. i think they should do away with the club card at safeway and keep closing deadweight stores. they also need to have a vision for the future with safeway. save mart could keep eating into their market share in norcal as they continue to give foodmaxx a stronger presence.

[pseudo3d]

cerberus needs to start having a hard look at streamlining albertsons and safeway when it comes to pricing and the club card. i think they should do away with the club card at safeway and keep closing deadweight stores. they also need to have a vision for the future with safeway. save mart could keep eating into their market share in norcal as they continue to give foodmaxx a stronger presence.

Oh definitely. Getting rid of the club card itself from Safeway would do a lot for the company at no great cost (especially if the club card and J4U were merged). I have more doubts about FoodMaxx in NorCal, as Save Mart doesn't seem to be doing particularly well. If anything, Raleys and maybe WinCo would seem to be the ones eating NorCal's lunch, not Save Mart.