Ralphs Up while Albertsons Down (market share)

[krogerclerk]

Some of the lower volume Ralphs are former Alpha Betas as American Stores kept the best locations for conversion to Lucky's. Also many of the Boys and Viva markets were low volume locations due Ralphs being a more upmarket operation than Boys and Viva. Also many of the former Hughe's Markets duplicated Ralphs locations and the two cannibalized one another creating two low volume Ralphs in the same area. Most of the Alpha Betas, Boys, Viva and Hughes were too small to be converted to Food 4 Less and the stores were covered by the same UFCW contracts as Ralphs while Food 4 Less is a separate contract. All said, Kroger should either resurrect Alpha Beta or Market Basket for a strong mid-market supermarket banner. Stater Brothers would be a good fit for Kroger, but the duplication of locations would be a deterrent and its likely that the FTC would not go for such a transaction in Southern California.

Von's was able to integrate the Southern California Safeway division into their operations fairly effectively and most ex-Safeways had a considerable volume increase after becoming a Von's. Von's developed the upmarket Pavillions format and Hispanic oriented Tianguis format in the early 90's to much fanfare, but under Safeway ownership Pavillions is different from Von's(and Safeway) mainly in name, while the Tianguis format was shuttered before Safeway's acquisition. Safeway has considered renaming Von's as Safeway since the strike, and likely the name change would have little impact as the Safeway brand is found throughout the stores and most have received some version of the lifestyle remodel.

Albertson's will either have to grow or exit SoCal at some point. Reviving Lucky may be a case of too little too late at this point. SuperValu's other SoCal operation, Bristol Farms is non-union, though for the most part performing well in its upscale niche, but few ABS are suitable for conversion to Bristol Farms even if the UFCW didn't protest a conversion.

[Alpha8472]

Supervalu Albertsons, could turn around their business, but it would involve a large scale conversion to the Lucky name. When the Albertsons stores in the San Francisco Bay Area changed names back to Lucky, business increased like crazy. The Lucky stores in the Bay Area may not be the cheapest stores around, but loyal fans have returned to the stores. Their prices are not much better or worse than Safeway these days, but people love Lucky. Supervalu needs to do a huge marketing campaign and rename all of the Albertsons stores in Southern California to Lucky. They will see their business increase by tons. Commercials touting the return of Lucky would bring back customers. I am sure many people will be happy to see the Lucky name again. The previous few Supervalu owned stores that converted to Lucky only received a simple repaint and new Lucky signs. It seems like a cheap investment for guaranteed increased sales.

[klkla]

Stater Brothers would be a good fit for Kroger, but the duplication of locations would be a deterrent and its likely that the FTC would not go for such a transaction in Southern California.

Not only would the FTC not go for it but Stater Bros wouldn't go for it, either. Staters has been repositioning themselves as an acquirer, not a seller. They would only sell if something drastic happens to their financial situation. I would give better than 2 to 1 odds that they will try to buy out Albertson's, which would be a great fit for them, if Supervalu can't improve operations for that chain in the next year or two.

Safeway has considered renaming Von's as Safeway since the strike, and likely the name change would have little impact as the Safeway brand is found throughout the stores and most have received some version of the lifestyle remodel.

That would be a disaster IMHO. Name changes have never worked well in the supermarket industry. All Safeway has to do is look at Albertson's experience changing the Lucky Stores they owned to their own name, and Albertson's was still operating in Southern California at the time and should have had a better chance making it work. Safeway has not operated in Southern California since 1988 and despite maybe having seen their name on some private label items most consumers don't remember them, and if they do remember them they probably associate them with old dirty run down stores (Safeway's Southern California stores were in bad shape when they left).

Albertson's will either have to grow or exit SoCal at some point. Reviving Lucky may be a case of too little too late at this point. SuperValu's other SoCal operation, Bristol Farms is non-union, though for the most part performing well in its upscale niche, but few ABS are suitable for conversion to Bristol Farms even if the UFCW didn't protest a conversion.

Agreed.

[krogerclerk]

Stater Bros. is also closely held by its management. If the chain were ever put up for sale, it would likely indicate declining profitability. The fact that the chain is the only mid-tier chain in SoCal gives it a vunerable niche, but one that isn't crowded with competition like in many other regions. Lucky, if revived, would fill this niche, but the name was dropped 710 years ago, though more people would remember the name than they would Safeway's. But as time passes, the Lucky name losses cache, given that SoCal is one of the markets with the greatest mobility of residents in the US, the mortgage meltdown is only a short term factor in reducing mobility.

Another factor favoring Stater Bros. growth is that Riverside and San Bernardino Counties are the fastest growing counties in SoCal. Stater Bros. has more locations than Ralphs, Von's or Albertson's in the Inland Empire/Desert region.

Of the 3 independent regionals in California, Stater Bros. is the best ran and most focused. SaveMart is still having trouble digesting the Albertson's NoCal operation. The Bay Area Lucky's are doing strong volume, but the labor, leases and advertising costs are higher than what SaveMart is accustomed to. Raley's has a more diverse base, and is highly regarded in Sacramento and the Bay Area, but all indications are that it hasn't fully recovered from overextending into Las Vegas which has been sold to Smith's(KR) and Albuquerque which has been sold to Albertson's LLC.

SuperValu began as a wholesaler, so being the 2nd largest traditional grocer after Kroger is still a new business for the company. In the past SVU has been quick to cut its losses when a venture proves unprofitable. But many of their wholesale customers have left them since the Albertson's merger, which had often been a ready buyer for SVU when they put an operation on the market.

[luckysaver]

I think SV-Albertsons is doing well, staying competitive with the Staters and Vons Pavilions. Their 6 Lucky price-impact stores are quite busy (especially the Alhambra CA location). Its the Cerberus-owned stores in the Midwest and southeast that aren't doing so well (Cerberus licenses the Albertsons name and trademark from Supervalu). So far, Cerberus has closed several times more Albertsons stores than Supervalu, but when they exit an area, the week later, they acquire a few units from competitors, which makes Cerberus-Albertsons an up-and-down chain. The dimming of lights/removal of fluorescents found at some stores is part of a chainwide environmental program at all Supervalu-owned stores called "ValuEarth", where Supervalu emphasizes saving energy, use of tote bags, and overall waste reduction. As with Supervalu remodeling Albertsons stores, yes there are some aged stores - especially the former Fazio's on Sierra Madre and Michillinda in Sierra Madre, which still has the 1970's Fazio decor. It costs Supervalu over $5 million per store to remodel. They already closed 9 SoCal units this year.

Not all Ralphs locations carries Boars Head deli products - they are found only in the "Fresh Fare" upscale format. I think Ralphs Fresh Fare is overpriced and so is Vons Pavilions (which has always been overpriced since Safeway acquired the rest of Vons that it didn't own in 1997).

[klkla]

I think SV-Albertsons is doing well, staying competitive with the Staters and Vons Pavilions.

I'm not sure what you would base that on. Albertson's has lost more market share than any other major chain in the last couple of years in Southern California, falling from 2nd to 4th in market share (Ralphs/F4L is #1, Vons/Pavilions is #2, Costco is #3, Albertson's is #4 and Staters is #5). They started remodeling a few of their stores when SuperValu took over but admitted four months ago that there was no increase in sales or profits at the remodeled stores and that there has been no return on invested capital. The stores they have remodeled have a dull and boring white interior with no major improvements in product offering. Albertson's is clearly struggling in Southern California and needs to implement a new strategy soon. SV has also publicly discussed selling the division to raise funds for improvements to other divisions so it will be interesting to see what happens.

[storewanderer]

I think Albertsons has some pockets of success in the Southern California Division but also a lot of pockets of poor performance. I suppose this is better than an entire division performing poorly but from the sounds of things over at SVU these stores are in play and it is going to be a question of who buys them and for how much, not "if" they are going to be sold.

Ralphs is evidently continuing to have trouble being the subject of a big write down in goodwill over at Kroger. Kroger now has far less goodwill on the books as a percent of total assets than the other grocers. SVU has a bunch of goodwill on their books, a lot more than SWY. KR has almost completely eliminated goodwill from its books after this Ralphs write down.

I queston the ROI on most of these remodel programs. It is very evident Safeway's supposed success while doing lifestyle remodels was coming from drastic shelf price increases.

[klkla]

I queston the ROI on most of these remodel programs. It is very evident Safeway's supposed success while doing lifestyle remodels was coming from drastic shelf price increases.

I think in regards to Safeway it would be more accurate to say that the ROI came from increased margins as a result of better product mix rather than just claiming they increased prices.

For instance if a box of Tide was $6.99 before the remodel it was probably still $6.99 afterwards. But the remodels allow them to more effectively market higher margin products (examples would be more organics in produce and a larger floral selection) and attract higher income shoppers.

The problem with Albertson's remodels have been that they are basically just glorified paint jobs. They aren't doing anything different in their product merchandising that would attract new shoppers or increase margins.

[krogerclerk]

After Albertson's acquired Lucky's, they made two major marketing errors. The first and obvious was to lay to rest the Lucky's banner which had wider acceptance and better price perception in California than Albertson's. Secondly, they discontinued Lucky's rewards card, which was one of the better ran loyalty card programs in the industry at that time, at despite a segment that detests cards, was very popular. Albertson's used the "no card needed" advertising, fine and dandy, but then they rolled out their own card program after all but promising to never have a card. Now under SuperValu and Albertson's LLC, the card program at LLC has been eliminated while SuperValu has de-emphasized the Preferred Card without committing to eliminating or continuing it. All the while, there has been no merchandising changes. The price improvements that were instituted earlier this year only served to point out that Albertson's had become the most expensive of the SoCal Big 3. The success of some of the Lucky's seems to be more from being able to draw customers who had given up Albertson's back into the store, but if the store is not a return to the Lucky of old or is obviously an Albertson's with a name change and paint job and nothing else changes, retaining the new customers becomes the challenge. SuperValu learned from the first conversions that using the Lucky's name on a no frills operation was not accepted in Vegas or SoCal, so SVU is capable of learning some marketing principles.

The problem seems to be that SVU core is primarily a wholesaler and the Albertson's merger changed the business focus to retail. SVU's retail experience was primarily warehouse and no frills stores such as Cub, Shoppers, Shop'n Save, and Save-a-Lot which tend to minimize advertising and service found at traditional grocery formats with FarmFresh, Hornbacher's and Scott's(since sold to Kroger), being the traditional formats which were small regional operations and relatively new to SVU's stable.

Kroger writing down Ralphs goodwill resulted in Kroger showing a 3rd quarter loss, but it revalues Ralphs to the current market. Given the state of the SoCal real estate market, all SoCal retailers are likely overpaying on leases given the present value of the property. The goodwill write down seems to be tied to reducing the book value of Ralphs assets and the settlement regarding illegal hiring processes during the strike rather than Ralphs currently being a money losing operation. The reduction in value of assets should improve Ralphs ROI which can be used to improve Ralphs price competitiveness and increase the likelihood of remodels. At the same time, a low volume unit with poor lease terms becomes a liability and could be a candidate for closure.

[klkla]

Kroger writing down Ralphs goodwill resulted in Kroger showing a 3rd quarter loss, but it revalues Ralphs to the current market. Given the state of the SoCal real estate market, all SoCal retailers are likely overpaying on leases given the present value of the property. The goodwill write down seems to be tied to reducing the book value of Ralphs assets and the settlement regarding illegal hiring processes during the strike rather than Ralphs currently being a money losing operation. The reduction in value of assets should improve Ralphs ROI which can be used to improve Ralphs price competitiveness and increase the likelihood of remodels. At the same time, a low volume unit with poor lease terms becomes a liability and could be a candidate for closure.

During the most recent earnings conference call David Dillon, Kroger's CEO, said that capital expenditures for Kroger overall would be cut to $2 billion from $3 billion over the next three years. He also mentioned that Ralphs has increased it's market share slightly this year but that the fall in housing prices, high unemployment and a decreasing population has reduced the size of the grocery industry in Southern California as a whole. I would expect very few remodels of Ralphs stores as a result during the next couple of years. But being as most of their stores are in pretty good shape it shouldn't really be much of an issue for the time being.