Albertsons vs. Kroger comp spreads

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storewanderer
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Albertsons vs. Kroger comp spreads

Post by storewanderer » January 12th, 2020, 12:13 am

This is very interesting. Over the past couple years, Kroger's performance has basically leveled off while Albertsons has gotten better and better. Kroger did way better in the lousy economy a decade ago than they are doing today. I find that ironic.

It seems Kroger in its efforts to centralize more and more and take away uniqueness from the regions has made their performance sub-par to that of Albertsons. In my view the number of mistakes Kroger has made and continues to make are very significant.

Conversely as Albertsons has been able to shed more and more Safeway leadership (who seemed to suffer from operating sort of environment where everything is centralized) and given its divisions more flexibility on merchandising, promotions, etc. they are seeing better growth in comp sales than they have seen... ever.

https://www.winsightgrocerybusiness.com ... -comp-pace

The other part of this story is Albertsons has paid down its debt to less than $9 billion by doing a ton of sale-leaseback transactions. This is still a lot of debt... but this is still another very meaningful change. Tough to say how this strategy will play out long term but that massive debt and the related debt service cost was/is a real problem. It will be interesting to see how much owned real estate remains and what happens to their expense structure with more leased property and less owned property. Tough to say if eliminating debt service costs and replacing with lease payments nets to a gain or what.

Safeway sat on a ton of decades owned extremely valuable real estate in California. I'm not clear how much of this has been part of the sale-leasebacks. Given the efforts in California to uncover more money for the state by trying to change the commercial tax structure under Prop 13, if those efforts are successful to change Prop 13, these companies with decades old owned real estate in that state sitting on historically low values will be in for a pretty significant property tax increase.

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Re: Albertsons vs. Kroger comp spreads

Post by rwsandiego » January 12th, 2020, 3:48 pm

Alnbertsons probably learned its lesson from the disaster that was the Albertsons/Lucky "marriage," not to mention the even bigger disaster (IMO) that was Supervalu acquiring them. Outside of Idaho, their brand is pretty meaningless and what works in one region won't necessarily work in another. Consequently, they are ceding some control to the local markets. Kroger has not learned that lesson yet. They seem to think that "Kroger" means something in the areas in which they did not have an existing footprint. It doesn't.

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Re: Albertsons vs. Kroger comp spreads

Post by pseudo3d » January 12th, 2020, 9:06 pm

To be fair to Kroger, there's not much room for improvement. Sure, they could always acquire another chain or two, but for the most part, their store fleet is in decent shape, their market share in nearly every city is decent (and either comparable or markedly better than Albertsons), their sales per square foot is better than Albertsons, and their private label is strong.

On the other hand, Albertsons is damaged goods. Their acquisitions have historically gone poorly, the closures over the years have left some spotty random markets, their stores are much smaller on average than competitors (not to mention some pretty cheap remodels), half of their divisions are second-class operations, and naturally, that leaves room for improvement.

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Re: Albertsons vs. Kroger comp spreads

Post by storewanderer » January 12th, 2020, 9:45 pm

pseudo3d wrote:
January 12th, 2020, 9:06 pm
To be fair to Kroger, there's not much room for improvement. Sure, they could always acquire another chain or two, but for the most part, their store fleet is in decent shape, their market share in nearly every city is decent (and either comparable or markedly better than Albertsons), their sales per square foot is better than Albertsons, and their private label is strong.

On the other hand, Albertsons is damaged goods. Their acquisitions have historically gone poorly, the closures over the years have left some spotty random markets, their stores are much smaller on average than competitors (not to mention some pretty cheap remodels), half of their divisions are second-class operations, and naturally, that leaves room for improvement.
I am finding Kroger has gone significantly downhill in the past few years. I think Smiths has held together pretty well (since it is still run by long term Smiths people who understand Smiths and its markets) but some of these other divisions like Fred Meyer, Ralphs specifically have really fallen over the years in store quality (not to mention the total lack of new stores...) and I think a big part of the problem is the people running them do not have a long history with the two divisions or with the regions these two operate in. It is so similar to how Safeway ruined its acquisitions in the early 00's...

Specifically quality in all fresh departments has declined. Kroger has taken a lot of bakery/deli products that the divisions had that were better than "standard Kroger offering" and in many cases replaced them with a substandard Kroger product offering. In stock condition in fresh departments and grocery center store needs serious work.

Pricing is not as competitive as it once was in certain markets. Smiths is still very competitive. Fred Meyer is not nearly as competitive as it was 5 years ago (Albertsons/Safeway beats a lot of their prices now which was very rarely the case before).

I think Kroger did a great job under CEO Dave Dillon building its store volumes up and gaining customer loyalty through low prices, well staffed stores, and great merchandising. It seems after that CEO retired, the store staffing levels fell and they started to centralize too many things with fresh department merchandising which has led to in a lot of cases a quality decline.

They are no longer nearly as customer friendly in pricing (too many "digital" promotions which before were automatic promotions), checkout (forced self checkout or wait in a very long line since they took so many checkstands away in remodels the past couple of years), things like a fee for debit card cash back in some markets (I get a fee for large amounts of cash back but seriously if a customer wants $20 back do not charge them a fee and figure out a way to have the system decline multiple transactions if people try that to get around the "large cash back amount" fee), etc.

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Re: Albertsons vs. Kroger comp spreads

Post by Bagels » January 13th, 2020, 5:05 am

storewanderer wrote:
January 12th, 2020, 9:45 pm
pseudo3d wrote:
January 12th, 2020, 9:06 pm
To be fair to Kroger, there's not much room for improvement. Sure, they could always acquire another chain or two, but for the most part, their store fleet is in decent shape, their market share in nearly every city is decent (and either comparable or markedly better than Albertsons), their sales per square foot is better than Albertsons, and their private label is strong.

On the other hand, Albertsons is damaged goods. Their acquisitions have historically gone poorly, the closures over the years have left some spotty random markets, their stores are much smaller on average than competitors (not to mention some pretty cheap remodels), half of their divisions are second-class operations, and naturally, that leaves room for improvement.
I am finding Kroger has gone significantly downhill in the past few years. I think Smiths has held together pretty well (since it is still run by long term Smiths people who understand Smiths and its markets) but some of these other divisions like Fred Meyer, Ralphs specifically have really fallen over the years in store quality (not to mention the total lack of new stores...) and I think a big part of the problem is the people running them do not have a long history with the two divisions or with the regions these two operate in. It is so similar to how Safeway ruined its acquisitions in the early 00's...

Specifically quality in all fresh departments has declined. Kroger has taken a lot of bakery/deli products that the divisions had that were better than "standard Kroger offering" and in many cases replaced them with a substandard Kroger product offering. In stock condition in fresh departments and grocery center store needs serious work.

Pricing is not as competitive as it once was in certain markets. Smiths is still very competitive. Fred Meyer is not nearly as competitive as it was 5 years ago (Albertsons/Safeway beats a lot of their prices now which was very rarely the case before).

I think Kroger did a great job under CEO Dave Dillon building its store volumes up and gaining customer loyalty through low prices, well staffed stores, and great merchandising. It seems after that CEO retired, the store staffing levels fell and they started to centralize too many things with fresh department merchandising which has led to in a lot of cases a quality decline.

They are no longer nearly as customer friendly in pricing (too many "digital" promotions which before were automatic promotions), checkout (forced self checkout or wait in a very long line since they took so many checkstands away in remodels the past couple of years), things like a fee for debit card cash back in some markets (I get a fee for large amounts of cash back but seriously if a customer wants $20 back do not charge them a fee and figure out a way to have the system decline multiple transactions if people try that to get around the "large cash back amount" fee), etc.
I agree fully with pseudo3d: Kroger's done everything it could to rejuvenate itself - it made its prices competitive with Walmart; it invested in modernizing its stores; it updated its footprint, expanding stores and removing those in close proximity to maximize sales, building new stores in growing areas and closing stores in decaying areas; and building private label brands. Kroger's decision to focus on national buys, as opposed to regional, gave them pricing power to better compete and was a big key to their turnaround.

We're in a period of transition: fewer people are shopping at traditional grocery stores every year (or, alternatively, spending less money at) and younger shoppers are completely snubbing them: the younger you are, the less likely you are to shop at a traditional grocery store. So for every shopper Kroger loses to Whole Foods, Walmart, Target, Sprouts/Fresh Thyme, Trader Joe's, Aldi, Winco, etc., the pool to replace them from is shrinking. Young people realize that technology, innovation and production has come a long way, and classic Campbell's soups, Chef Boyardee, Wonder Bread, Banquet meals, etc. are basically garbage (okay, I'm being a little harsh here).

Kroger's now focusing its attention on Whole Foods/etc., with plans to significantly increase organic, natural and premium offerings in its stores. They also plan to add more local products and flavors. It's probably a step in the right direction -- they'll never beat Whole Foods (for starters, it's a status symbol) but they can certainly steal sales from it.

Meanwhile, at Albertsons... Albertsons does well in the markets it holds a dominate position in, but I'd be curious to see its performance in markets it has to compete it. I've seen photos of recently remodeled stores in places like Chicago, Boise (and even Florida, which was a joke), and Albertsons proved it can create a store as nice as Kroger or Whole Foods. Heck, I've seen it with my own eyes at several Pavilions (although they got sloppy in some). Meanwhile, they renovated a store near UCI last year to the "Colorful Lifestyles" format. Basically, they replaced the signage and the paint underneath in some areas. That seems like it was it. The store, a legacy Albertsons (re: not Lucky), is a high-volume store (it's within walking distance of UCI, and is the only LA-area Albertsons/Vons I know to have a hot food bar) and you think they could've done better.

But I'm not surprised they had some solid comps: in SoCal, they've increased their loss leaders and have offered tons of promotions via the J4U app. One has to wonder how this has impacted their sales within the division. Some of their stores have so little traffic, that it wouldn't be hard to post YOY results.

Long-term, I just don't see Albertsons surviving in markets like SoCal. For starters, as you noted, they've sold off a ton of legacy Von and Lucky real estate. While it was done out of necessity (to keep the company afloat), it also means they could face some stiff rent hikes in the future. I believe Ralphs, OTOH, owns a significant amount of real estate. And with traditional grocers in decline, I see them as the odd man out in competitive markets.

Then again, in the mid-2000s, the Las Vegas Review Journal predicted that Albertsons would exit the Las Vegas market "soon", with their stores winding up either with Vons or purchased a la carte, mostly by Kroger/Smith's as replacements. And, of course, circa 2010 the Los Angeles times predicted a similar fate for the chain in that region (with stores being sold a la carte to the highest bidder). And yet, it's still here...

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Re: Albertsons vs. Kroger comp spreads

Post by veteran+ » January 13th, 2020, 7:13 am

No, Bagels, you are not being harsh:

"classic Campbell's soups, Chef Boyardee, Wonder Bread, Banquet meals, etc. are basically garbage (okay, I'm being a little harsh here)."

:)

I long for the days of Joe Albertson's and those incredible huge Skaggs/Albertsons combo stores with multiple special departments and truly helpful and friendly employees.

Mergers and Safeway totally ruined all that. Having worked for them I continue to suspect that there are still too many toxic Safeway folks from the top down that are hanging around.

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Re: Albertsons vs. Kroger comp spreads

Post by klkla » January 13th, 2020, 5:40 pm

Albertson's may try to do an IPO again soon:
https://www.supermarketnews.com/retail- ... eports-say

Their new CEO has had a very successful 1st year.
Let's get back to work! Test. Trace. Isolate.

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Re: Albertsons vs. Kroger comp spreads

Post by retailfanmitchell019 » January 13th, 2020, 6:17 pm

To me, there were three major problems that led to Albertsons being split up in 2006.

1. Expansion into areas in the Southern and Great Plains states where there was a lot of established competition, not mention Wal-Mart Supercenters starting to become a threat. This explains why San Antonio, Houston and Tennessee expansions proved to be failures which they got rid of in the 2001-2002 restructuring.
The Des Moines stores were failures too. ABS bought 3 stores from discount chain Super One Foods in 1998, before converting those stores to Albertsons. The problem with those stores is that they were located in lower-income areas, and they had a fairly low store count in the area. Albertsons considered building a store from the ground up in a higher-income Des Moines suburb (Clive) but the plan was ultimately aborted. None of the former Albertsons in DSM are occupied by supermarkets today. Here is a former Super One/ABS/Dahls:
https://www.flickr.com/photos/fourstarc ... 7249780961

2. The infamous Lucky/Albertsons marriage. This was real problem in the Bay Area, as ABS had very little presence there before the ASC acquisition. As such, Bay Area shoppers were very angry with the name change to Albertsons.
Lucky was not only a venerable name in the Bay Area where it began, but over most of California. To California shoppers, the Lucky name always meant low prices. The rest of the ASC acquisition did fine for ABS.

3. The $2.5 billion acquisition of Shaw's from UK-based Sainsbury. ABS already had troubles with expansion failures and the Lucky merger, not to mention they already sold off the Osco Drug stores in New England, plus their major debt load.

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Re: Albertsons vs. Kroger comp spreads

Post by arizonaguy » January 13th, 2020, 7:30 pm

storewanderer wrote:
January 12th, 2020, 12:13 am
This is very interesting. Over the past couple years, Kroger's performance has basically leveled off while Albertsons has gotten better and better. Kroger did way better in the lousy economy a decade ago than they are doing today. I find that ironic.

It seems Kroger in its efforts to centralize more and more and take away uniqueness from the regions has made their performance sub-par to that of Albertsons. In my view the number of mistakes Kroger has made and continues to make are very significant.

Conversely as Albertsons has been able to shed more and more Safeway leadership (who seemed to suffer from operating sort of environment where everything is centralized) and given its divisions more flexibility on merchandising, promotions, etc. they are seeing better growth in comp sales than they have seen... ever.

https://www.winsightgrocerybusiness.com ... -comp-pace

The other part of this story is Albertsons has paid down its debt to less than $9 billion by doing a ton of sale-leaseback transactions. This is still a lot of debt... but this is still another very meaningful change. Tough to say how this strategy will play out long term but that massive debt and the related debt service cost was/is a real problem. It will be interesting to see how much owned real estate remains and what happens to their expense structure with more leased property and less owned property. Tough to say if eliminating debt service costs and replacing with lease payments nets to a gain or what.

Safeway sat on a ton of decades owned extremely valuable real estate in California. I'm not clear how much of this has been part of the sale-leasebacks. Given the efforts in California to uncover more money for the state by trying to change the commercial tax structure under Prop 13, if those efforts are successful to change Prop 13, these companies with decades old owned real estate in that state sitting on historically low values will be in for a pretty significant property tax increase.
Albertsons / Safeway have been running a stronger ad and coupon program in the Phoenix market than Fry's has for about the last year or so. Everyday pricing is still higher but the specials tend to rotate fairly frequently and I can get most of what I buy if I plan it correctly at Safeway for less than I can at Fry's. Albertsons / Safeway have also renovated a number of stores and consolidated some locations and now have some VERY high volume stores that are clearly doing more business now than they had in the past. Safeway stores prior to the 2015 merger seemed lifeless and sterile and I don't get that feeling in most of their stores now (there are still a few low volume stores in questionable neighborhoods that I think have a clock inching closer to closure on).

Fry's is living off of the fact that they have really been the dominant chain in Phoenix over the past 22 years or so in terms of store count, advertising, and until recently pricing. They still have more (and typically larger) stores than Albertsons / Safeway and still do high volumes but it is obvious that the operation is slipping. They have never had (and generally still don't have) great perimeters. Their strength was strong promotions and center store and both are weakening.

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Re: Albertsons vs. Kroger comp spreads

Post by storewanderer » January 13th, 2020, 11:01 pm

I guess we will see what happens. Kroger definitely does higher volumes per store (way higher) and I think has a much better center store and private label program.

The other thing is Safeway/Albertsons is building a few new stores in selective locations across the west coast. Kroger is basically not doing any new locations on the immediate west coast, but did have a good string of development in AZ, UT, and NV in the past 5 years. I really think Kroger is going to seriously regret not building new locations out west and letting what will be some very good locations go to Safeway/Albertsons.

Now that it has become known Albertsons is going for IPO again they will certainly be trying to put their best food forward (I mean foot) so I am expecting more positive sales trends from them in the coming months. If it forces them to run stores better and draw in more customers, that should be good long term.

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