Staying the course on its “transformation strategy,” Albertsons Cos. reported favorable third-quarter 2021 results during an earnings call Jan. 11.
Net sales and other revenue for the Boise, Idaho-based company was $16.7 billion during the 12 weeks ending Dec. 4, 2021, as compared to $15.4 billion during the 12 weeks ending Dec. 5, 2020—an increase driven by the company’s 5.2% increase in identical sales, as well as higher fuel sales and sales related to stores acquired and opened since the third quarter of fiscal 2020, Albertsons said. Retail price inflation and incremental sales related to administering COVID-19 vaccines contributed to the 5.2% identical sales increase. On a two-year stacked basis, identical sales growth was 17.5%.
Digital sales increased 9% in the third quarter of 2021, which on a two-year stacked basis represents sales growth of 234%. Albertsons further reported net income of $425 million and adjusted net income of $457 million for third-quarter 2021. Its adjusted EBITDA was $1.05 million or 6.3% of sales for the quarter.
“We are pleased with our third-quarter results as we continue to execute against our transformation strategy. A favorable economic backdrop together with the heroic performance of our front-line retail, distribution and manufacturing teams contributed to these better-than-expected results,” said Vivek Sankaran, CEO and director, in a statement. “Also driving these results was our continued focus on in-store excellence, acceleration of our digital and omnichannel capabilities, and delivery of our productivity initiatives. During the quarter, we continued to gain market share in both units and dollars and saw ongoing improvement in both the in-store and online customer experience.”
Sankaran, who has repeatedly identified the four pillars of Albertsons’ transformation strategy (driving in-store excellence, accelerating digital and omnichannel capabilities, increasing productivity, and talent and culture), provided an update on each element during the Jan. 11 earnings call.
As part of its commitment to in-store excellence, Albertsons said it completed 146 remodels and opened nine new stores through the end of third-quarter 2021. It also reports investing in tools that allow for additional customer engagement.
“Driving in-store excellence anchors everything else we do, and our commitment to enhancing our customers’ experience continues to drive innovation and transformation,” said Sankaran on the third-quarter earnings call, according to a Sentieo transcript. “This year, as customers consume more meals at home, elevating our fresh offerings and introducing new technologies were a top priority. To this end, we have been automating production planning and simplifying tasks in our fresh departments, resulting in better quality, higher in-stocks and more time for customer interactions.”
These efforts continue to drive better-than-expected results in fresh, he continued. Albertsons reports that during the third quarter of 2021, identical sales in fresh outpaced center store by 500 basis points year over year and over 400 basis points vs. two years ago.
To encourage more time for customer interaction, Albertsons has provided mobile tablets to store management to review daily sales, schematics, orders and offer associate training.
“This allows store management to spend more time on the sales floor assisting customers, ensuring improved store conditions and interacting with and training employees,” said Sankaran.
Albertsons also continues to see “strong growth” and “improved margins” in its Own Brands portfolio, Sankaran noted. Third-quarter sales penetration increased 15 basis points year over year to 25.1%, with the strongest performance in the deli and foodservice departments. Year to date, Albertsons has launched 540 new products, including 143 in the third quarter. The company said it’s on track to launch over 800 in 2022.
When it comes to what excites the Albertsons CEO most about the strides made in the third quarter of 2021, customer retention tops the list.
“In Q3, [what] I am most excited about is our retention rates of customers. They’re going steadily—up overall from Q1 to Q2 to Q3,” said Sankaran. “It’s something we’ve put a lot of energy into, the increasing [of] the loyalty base that we have, connecting them more with the pharmacy and connecting them more with e-commerce, and we are seeing that retention.
“And I think the fresh portfolio is also playing to our advantage, because you’re seeing people eating at home. And our fresh is growing faster than the rest of store,” he added.
Albertsons continues to see the benefits from its digital and omnichannel investments, including the ongoing expansion of Drive Up & Go and the opening of its first Midwest microfulfillment center, the CEO added.
Pointing to the company’s 9% year-over-year digital sales increase in third-quarter 2021 and its 234% sales increase for the quarter on a two-year stacked basis, Sankaran noted that omnichannel households decreased by four times vs. the third quarter of 2019, while sales retention remained strong.
“As omnichannel households spend three times more than in-store-only shoppers, we continue to increase our investments in digital omnichannel and loyalty, which drove increased identified households and higher customer engagement and retention,” said Sankaran. “In the Just for U Loyalty Program, ongoing benefit enhancements continued to accelerate membership growth, which increased 17% year over year to 28 million members, and actively engaged members continued to increase.”
Albertsons defines actively engaged members as those that are redeeming fuel or grocery rewards and, on average, spend four times more than nonactive members. In addition, the retention rate of actively engaged members continues to be over 93%, said Sankaran, who added: “Collectively, these results demonstrate the momentum being driven by our transformation strategy and the benefits of a strong consumer backdrop.”
In August of last year, Albertsons launched a trio of tech offerings, including a subscription delivery service, augmented shopper loyalty program and a new unified mobile app that consolidates the customer’s entire digital experience into one place where they can shop, download deals, request pharmacy services and use gas and grocery rewards.
“Since the launch, we are seeing increasing downloads, higher traffic and deeper customer engagement,” said Sankaran on the earnings call.
Albertsons expanded the availability of its Drive Up & Go curbside pickup program in the third quarter to offer 96% of its households first-party pickup offerings. It also rolled out faster pickup options. And heading into the fourth quarter, over 80% of Albertsons households have access to Drive Up & Go.
In online delivery, Albertsons has forged a number of third-party partnerships to accelerate the speed of delivery while reducing delivery cost per order. It has also partnered with DoorDash to allow customers to combine grocery deliveries with an additional delivery from another retailer or restaurant in one trip through DoubleDash.
In November, the company announced the launch of the Albertsons Media Collective, a retail media network that will offer business partners a digital marketing platform and omnichannel solutions to reach our extensive customer network.
Today, it’s impossible to address productivity in grocery without discussing inflation.
“The cost increases are real,” said Sankaran. “We are seeing it in our supply base [and] I think they’re seeing it in ingredients, packaging, transportation, labor.”
To offset the cost of inflation and fund future investment, said Sankaran, “our next priority is to continue to identify and drive productivity across all disciplines in our business. During the quarter, we continued to benefit from the retail and supply chain operations, merchandising and procurement initiatives that we have previously laid out. And we continue to expect to achieve the targeted $1.5 billion in annual gross savings by the end of fiscal year 2022.”
Sankaran further addressed inflation and Albertsons’ approach to strategically pass on inflationary costs to its customers during the question-and-answer portion of the earnings call.
“When we think about what we are passing through—the net we have passed through—the inflation we have passed through is less than the inflation we’ve incurred. And the way we do that is to make sure that we are judicious about the categories where we pass it through,” he explained. “We don’t pass through as much on the essential categories that customers need every day. And we try to balance that out.”
Talent and Culture
Albertsons’ fourth priority is strengthening its talent and culture and supporting the communities it serves.
“To find ways to enhance culture, our senior leadership recently conducted listening tours in our stores to personally connect with our front-line associates,” said Sankaran.
Additionally, Albertsons recently conducted an associate experience survey across its organization. The company aims to take the learnings from this survey, the CEO said, to create “an even better work environment and culture.”