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How Albertsons Got Its Groove Back

After 12 years of creative deals, the retailer might be finding a way

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An online shopping strategy. A foodie-focused small format. A debt relief plan. A management succession. Momentum.

Albertsons LLC arguably didn’t have any of those things a year ago, but don’t look now.

The Amazon-Whole Foods deal may have dominated the headlines, but it’s hard to argue any food retailer transformed itself any more in the past 12 months than Albertsons, which—through determination and a little creativity—is suddenly looking at a wealth of new possibilities. That’s not to mention the changes since 2006, when the organization was “born” as a collection of stores deemed too insignificant to be included in the deal that broke up the first Albertsons, known then as Albertsons Inc.

A reminder of the convoluted history is in order here: Albertsons LLC was backed by private-equity fund Cerberus Capital Management, Kimco Realty and other real estate entities that facilitated Albertsons Inc.’s 2006 sale to Supervalu by taking on the stores Supervalu didn’t want. While Supervalu found the transition from wholesaler to retailer a nightmare, even with the so-called “crown jewels” of the organization, it was the Cerberus-backed LLC group that made something of the losers, profiting from selling off many, but retaining some as well. Those were put in the care of a management team that dated to the glory days of Albertsons Inc.

When Supervalu admitted defeat in 2013, the LLC group acquired its stores on the cheap, reuniting the chain. From there, it made a clever acquisition of United Supermarkets in Texas (more on that later), then bought Safeway Inc. in 2015. Those deals allowed Albertsons LLC to surpass the annual sales volume of its predecessor at its peak; today, after buying still more stores from the Haggen and A&P bankruptcies, it operates nearly as many units (2,323) as Albertsons Inc. did at the time it broke up back in 2016 (2,471). 

A private equity-backed retail chain doesn’t acquire all those stores without racking up considerable debt, which takes us to where we were a year ago. Albertsons had the relative size and geographic coverage of the biggest guys in the industry; had more than $60 billion in sales; was moving to a single back-end system; and had a team of old-school operators running the “Albertsons Playbook” (local banner decisions, emphasis on service, promotional excitement). But with big debts to manage, big competitors badly out-investing them, record food deflation killing sales and an unfriendly stock market convinced of a “retail apocalypse,” it was frankly difficult to see how this was all going to work out for them.

Now look what’s happened. The meal kit market roared on Blue Apron’s IPO, then immediately crashed to earth, giving Albertsons an opportunity to pick up competitor Plated for a song. Instacart, which Albertsons had been somewhat reluctant to engage with, became more willing to make deals following the Whole Foods-Amazon tie-up. This year, Albertsons is on pace to succeed Whole Foods as Instacart’s largest customer.

And when the FTC downsized the Walgreens-Rite Aid merger into a sale, look who ate another plate of leftovers. The newly announced Albertsons-Rite Aid deal, when and if completed later this year, would add some $22 billion in annual sales and grow the combined company to nearly 5,000 U.S. locations, most holding top-two share positions in their markets. It provides diversification, the potential for cross-pollination, management succession and a private-equity exit strategy: Rite Aid’s John Standley would take over for Albertsons CEO Bob Miller, and the reverse-merger deal structure will get Albertsons onto the public stock market after all, where it can raise funds and use synergy savings to address its debts.

Albertsons, in the meantime, is doing some interesting things on its own. It tapped the expertise of the United Supermarkets group, and for the first time is looking to inject a shot of that division’s retail success to other parts of the company, announcing a new take on its Market Street format to address the foodie culture. It acquired an interest in El Rancho Mercado to get a better handle on the booming Hispanic retail market. Albertsons is also getting there on trends toward pickup (it has 80 Drive Up & Go locations today, but wants 480 by year-end), and it looks ready to leverage its experience in delivery. One of these days—maybe soon—we’ll see what the chain has in mind with having completely revamped its only three stores in Florida under the Safeway banner, but it probably rhymes with Skin Pixie.

It will all be quite a lot to manage, and so the company also engaged another skillful leader from the old Albertsons bench, Jim Donald, to join as its new president and COO.

In the meantime, the retail deflation that Albertsons fought so hard against while seeking an IPO and pivoting on deals by year-end had turned around, and, according to Miller, same-store sales are coming back along with it. There’s still a long way to go, but Albertsons LLC is finally looking like it might get there.

Tips and comments are welcome. Reach out jspringer@winsightgrocery.com or Twitter (@_JonSpringer).

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