Channel Surfing: Albertson's

]>Competitors keep a close eye on the future of recently sold supermarket chain Albertson's, Inc. The sale of Albertson's, Inc., the nation's second-largest supermarket chain, to a consortium of investors including SuperValu Inc.; CVS Corporation; and an investor group led by Cerberus Capital Management, L.P., raised few eyebrows among retail analysts who have been speculating on the company's sale since it went on the market last September due to lagging sales and competition from discount chains and upscale grocers. But competitors are keeping close tabs on the sale, which may afford them an opportunity to expand into new locations and markets. Valued in the neighborhood of $17.4 billion in cash, stock, and assumed debt, the deal is expected to close in mid-2006.

While Albertson's representatives insist the transaction marks the beginning of a promising new chapter in the company's future, retail consulting firm Meridian Consulting Group notes that competitors such as Safeway, Inc., likely will gain market share in the wake of the sale, since Albertson's is expected to pull out of markets where its performance lags. Still, it's hard to deny the assertion the new company will combine: powerful brands, strong supply chain expertise, and highly competitive format differentiation across consumer segments. According to company executives, CVS is poised to acquire 100 percent of Albertson's stand-alone drugstore business, which includes approximately 700 freestanding stores, as well as a distribution center in La Habra, CA. By joining with CVS, Albertson's drug team will become part of a powerful nationwide pharmacy network, offering a more strategic and durable competitor than Albertson's previous smaller drugstore business. All stand-alone drugstores included in the transaction will be re-branded under the CVS moniker. The Cerberus-led consortium, meanwhile, is set to acquire 655 operating stores and 100 percent of the distribution centers and offices in Albertson's Dallas/Fort Worth division, as well as the Florida, Northern California, Rocky Mountain, and Southwestern regions. According to company representatives, the prospective owners plan to operate the stores under the Albertson's name. No doubt the biggest winner to emerge from the transaction will be SuperValu, which owns the Save-A-Lot and Shop 'n Save discount chains, and is positioned to become the second-largest grocer with the addition of more than 1,124 stores under the Acme Markets, Bristol Farms, Jewel-Osco, Shaw's, and Star Markets banners, as well as all Albertson's banner stores in Idaho, Southern Nevada, Utah, Southern California, and the Northwestern U.S. Also included in the deal are combo-store pharmacies that operate under the Osco and Sav-on names. These assets combined with SuperValu's existing assets will create a company with 2,656 stores in 48 states plus the District of Columbia and around $44 billion in revenues. The real question, though, is what Cerberus has planned for its Albertson's acquisitions. According to David Livingston, managing partner of DJL Research, the investment group could opt to sell the supermarket chain to its competitors, essentially wiping out the Albertson's name. "It's very unlikely an investment firm is going to be able to improve upon the operations," he says. "The investment firms are looking to make money for investors. They don't want to be in the business of operating supermarkets." Whether Cerberus is more interested in real estate or marketing remains to be seen. But the consortium did recently name Robert G. Miller (former Fred Meyer and Rite-Aid CEO) Albertson's new CEO.