In a moment of historic shifts in food retail, Albertsons Cos. is determined not to let any opportunity go to waste.
The retailer said this week it would increasing spending on capital projects by $100 million in its new fiscal year as it invests to grow digital shopping and other technologies quickly to maintain and grow what its CEO this week said was a larger share of the pandemic grocery bounty than many of its competitors.
At least part of the new capital budget, which is now expected to be $1.6 billion from earlier projections of $1.5 billion, will help Albertsons double the rate at which it is adding click-and-collect shopping, known at Albertsons as Drive Up & Go, or DUG. The Boise, Idaho-based retailer said it intends to have 1,400 of 2,252 stores offering the service by the end of the year—a goal the company initially envisioned over a two-year time frame. That also means nearly doubling the 731 locations offering Drive Up & Go by the end of its fiscal first-quarter on June 20—a key to a 276% increase in digital sales growth in the period.
“We are excited about Drive Up & Go. It is the fastest-growing [business] in our portfolio, and so we're pulling it forward,” Sankaran said, according to a Sentieo transcript.
Albertsons has added about 130 new stores to the program since the beginning of the year and has developed “a formula on how best to expand,” Sankaran added. “The biggest constraint is less so the capital and the technology and such. It’s always about getting the right people and embedding it in the team the right way. And the team has been working on that.”
Sankaran added that Albertsons was also looking at microfulfillment strategies to more efficiently orchestrate picking of online orders. The company currently has two units built as part of existing stores, but Sankaran said the company is considering expansion to new markets and different configurations of the robotic picking that might be located outside of stores. “It’s a critical part of our journey,” he said.
Sankaran has said that “supercharging” technology is one of the retailer’s core strategies. “While the trend toward omnichannel was already occurring, the pandemic has dramatically accelerated this trend,” he said. “And we have positioned ourselves to support our customers with the solutions they want and need right now. We're committed to supporting this expansion with the full resources of our organization.”
The pandemic has also made its own argument for additional tech investments, Sankaran added. With much of the country still facing severe curtailing of business and a recession, technology companies have fewer projects. “We are a place where there's plenty of work," he said.
‘Several Million’ New Loyal Customers
Albertsons’ grew comps by 26.5% in the 16-week quarter, which began Feb. 29. Although the final figure indicated the pace had slowed in the final weeks and was running in the “mid-teens” this month—the comp figure and 28.9% quarterly margins were both better than many of its rivals reporting over a similar period. Sankaran attributed this in part to executing better than rivals, saying the company was growing market share across its footprint, but faster in places it did not have No. 1 share already.
“It all comes down to execution … and I think we have out-executed much of the competition in some of those markets,” Sankaran said.
Key to this has growth has been Albertsons’ ability to increase participation and retention in its loyalty programs, he added. The company grew new households in its loyalty database by 27% in the quarter while seeing members in the program increase their redemption of deals and coupons by 32%. These tend to be the company’s highest-spending shoppers, and they are spending more with the company, as evidenced by more than 40% of them “moving up the ladder” to expand the amount of personalized offers and perks.
Asked by an analyst to quantify the number of new shoppers, Sankaran replied “several million,” and compared the growing activity among loyal shoppers to those participating in an airline loyalty program
“If you're not traveling a lot, you don’t care about the airline loyalty program [but if] you’re traveling a lot, it matters a lot,” he said. “And if you're shopping to be eating at home a lot, the loyalty program matters, and it’s proving out to be true.”
‘Winning the Summer’ at a Cost
Historically an enthusiastic promoter, Albertsons joined peers in curtailing widespread promotions due to pandemic-triggered supply issue in the quarter, though they were some exceptions. The company flexed its promo muscle to be certain it wouldn’t lose any sales momentum during the lead-up to Memorial Day and Father’s Day, offering specials on meat. These events coincided with a period of rapid meat inflation and appears to have been a source of consternation among investors disappointed margins didn’t finish the quarter as high as they looked earlier in the period.
Sankaran judged the program a success, saying that “winning the summer” was important and citing share gains in the meat category, despite what he confessed was an unusual collision of fast-rising costs for meat and dropping prices.
“It was important for us to make sure that we didn’t give our shoppers any reason to go anywhere else when you got into these big holiday windows,” he said.
Albertsons’ stock was down by more than 5% in late afternoon trading.