Albertsons Cos. this week filed an amended stock registration statement that adds a significant wrinkle to its pitch to public investors—namely its roaring business performance during the coronavirus pandemic.
“I am keenly aware that this pandemic has brought significant changes to the way we operate,” Vivek Sankaran, president and CEO of the Boise, Idaho-based retailer, wrote in an introduction letter included in the stock prospectus, which updated a version first publicly filed days before the virus was declared a pandemic in early March. “The way we have responded to this crisis, however, gives me greater conviction in our long runway for growth. At Albertsons, we are just beginning the next chapter in our rich history, and we welcome you to join us on this exciting journey.”
Albertsons, which has been held by a group of private investors led by Cerberus Capital Management for 14 years, has made several attempts to spin into public ownership in recent years, but it finally might be nearing a successful offering. As previously reported, the chain has seen sales and profits skyrocket since the declaration of a national emergency that designated it as an essential business. Identical-store sales soared by 47% in the first weeks of the pandemic and were up by 34% through the first eight weeks of its fiscal first quarter, which began March 1.
Sources say the larger market will need to cooperate in order to execute a successful public launch. Initial public offerings typically do not occur in times of high market volatility that have also come along with the pandemic. Specifically, IPO experts say the Chicago Board of Trade’s Volatility Index—known as the VIX –needs to stay below 30 for at least a month to give the market confidence.
But there’s a little good news for Albertsons in that too: The VIX on May 8 crossed below 30 for the first time since late February. If it can stay there, there’s a good possibility Albertsons could be listed on the New York Stock Exchange by early summer.
Sankaran’s message about Albertsons’ response to the crisis was among hundreds of changes to the May 5 S-1 filing, which WGB compared to the initial March 6 document with the help of financial data company Sentieo. The documents illustrate how profoundly the business climate and outlook has transformed in just two months, with Albertsons taking note of the pandemic’s effects in everything from its e-commerce outlook to its market densities and its plans to cut costs—not to mention a thorough rewrite of the document’s “risk factors” section addressing the potential for supply challenges, legal action from infected employees and other potential negative outcomes.
Market Share Gains
One significant revelation in the updated document is a note about market share. Albertsons said in March that it maintained a No. 1 or No. 2 share in 66% of its markets; that figure is now updated to 68%, indicating it now was No. 1 or No. 2 in 82 of the 121 metropolitan statistical areas where it currently does business, vs. 80 in early March.
That supports Albertsons’ contention in the filing that greater share of the overall U.S. food market is shifting to large grocers generally—between 2013 and 2018, the share of the top 10 food retail companies increased from 44% to 55% on the basis of industry retail sales—but also the accelerating effect of the pandemic on that dynamic. “Since the onset of the coronavirus (COVID-19) pandemic, we have gained market share across the majority of our markets,” an amendment to the initial document noted. “We believe that our competitive position will continue to strengthen as a result of customer receptiveness to our response to the challenges of the … pandemic and the strength of our supply chain.”
Market share in food retail is highly correlated to efficiency benefits, sources note.
A redlined portion of Albertsons Cos. S-1 statement shows changes since a previous version was published in early March, courtesy of Sentieo.
The pandemic is also providing Albertsons with what it called a “significant” opportunity to drive incremental e-commerce growth. The revised document indicates that Albertsons had added 100 click-and-collect locations, which it calls Drive Up & Go, in the past two months, from 550 to 650, and increased ambitions to add new Drive Up & Go from 1,400 to 1,600 locations in the next two years.
Rival Ahold Delhaize indicated this week it was also increasing the number of planned click-and-collect locations in relation to increased demand from the pandemic.
“The coronavirus pandemic has driven significant e-commerce volumes that have caused us to accelerate our omnichannel investments and our Drive Up & Go build out. Additionally, we are refreshing our entire digital interface to create a more personalized, easy-to-use and fully integrated digital experience. We are improving our mobile applications to enable more personalized rewards and services like advanced basket-building tools and product, meal and recipe recommendations,” Albertsons said.
The company is also investing in new technologies to aid its business. The revised document for the first time indicates Albertsons is soon to announce a data-driven assortment, pricing and promotional technology.
“These new advanced analytics and simulation tools will incorporate machine learning and pattern recognition to drive promotional effectiveness and productivity while automating the pricing and inventory tracking processes,” it said. “We will continue to improve our merchants’ access to rich information on products, customers and suppliers provided by our data analytics capabilities so they are able to make smarter decisions on pricing, promotions and assortment in each local market.”
Lots of Risk
The section on “risk factors”—typically a lengthy read in any stock prospectus—has been thoroughly updated since March, with much now relating to business conditions that could be impacted by the pandemic. It acknowledges, for example, impacts to the supply chain from meat suppliers with plants affected by COVID-19 outbreaks.
“Currently, the supply of meat products has been impacted by the shutdown of certain key production facilities due to workforce illness. We have good working relationships with major meat suppliers, smaller domestic suppliers and international suppliers, and we stay in regular contact to assess production capacity and product availability. Nonetheless, we have experienced allocations on a range of meat products, and we have had to expand our supplier portfolio or make adjustments to our merchandising plans to support in-stock conditions for our customers,” the filing said.
“Based on current discussions with industry leaders, we anticipate that the meat supply chain will remain challenging for the near future. The supply of each product will return to pre-coronavirus ... levels at different times, and that there can be no assurance that our efforts to ensure in-stock positions for all of the products that our customers require will be successful.”
The filing also notes that new investment and operations changes associated with the outbreak has paused certain initiatives at the company, including elements of a newly launched $1 billion productivity initiative. “While certain projects are well underway and contributing as expected, in other cases, we have temporarily paused some of our initiatives to ensure we are first taking care of our customers and our communities, while focusing on the safety of our associates during the coronavirus pandemic.”