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Albertsons another Wal-Mart casualty?

By Steven Oberbeck
and Lesley Mitchell
The Salt Lake Tribune

It's Joe Albertson's supermarket - but its customers increasingly shop at Wal-Mart.
    And so on Friday, trustees of Boise-based Albertsons Inc. said they may put the grocery chain up for sale to increase its value for shareholders. And just like that, the company's stock shot up 11 percent - the biggest gain since at least 1980.
    "Wal-Mart is having a big impact in a lot of their markets, and Albertsons has had a hard time differentiating themselves from the competition," said Brad Houle, an investment adviser from Great Falls, Mont., whose clients have stock in Albertsons. "They're not the low-price leader. They're not the upscale whole foods market. They're stuck in the middle."
   As a result, many Albertsons customers now spend at least some of their grocery dollars at other stores.
   Marquise Garcia of Salt Lake City grew up shopping at Albertsons.
   "It's comfortable and familiar," Garcia said as he pushed Carly, age 13 months, in a shopping cart through the Albertsons store on North Temple Street. But, Garcia said, he is not particularly loyal and would be happy shopping at any grocery store that was close to his home.
    Barbara Jones, who was shopping at the same store, said she wouldn't care if Albertsons is taken over by another grocery chain. "As long as the prices stay the same, I'm happy," she said.
    Which helps explain why low-cost leader Wal-Mart, traditionally the bane of small mom-and-pop retailers, is increasingly blamed for the financial travails of larger competitors. Since 2000, Wal-Mart has more than doubled its presence in the grocery store industry, opening nearly 1,000 supercenters that offer food along with a traditional stock of discounted merchandise. The company plans to open another 250 supercenters this year.
    The result of the build-out is staggering. Last year, Wal-Mart brought in $54 billion from the sale of groceries, candy and tobacco - up from about $20 billion in 1999. Today, grocery revenue makes up 28 percent of the retailer's U.S. store sales; five years ago it was only 10 percent.
    Meanwhile, Winn-Dixie food stores filed for Chapter 11 earlier this year. And Albertsons, despite its frequent-shopper cards and home delivery service, has failed to gain more customers or come up with a strategy to offset increased competition from Wal-Mart and other rivals.
    "It looks as though they are conceding defeat," said Barbara Walchli, who manages the Phoenix-based Aquila Rocky Mountain Equity Fund that holds 10,000 Albertsons shares. "Management spent three years trying to restructure the company's supply chain but was never able to get it to drop down as profit to the bottom line."
    Albertsons, which posted revenues of $40 billion last year, has hired Goldman Sachs & Co. and The Blackstone Group as its financial advisers but doesn't intend to discuss any development. Still, there is plenty of speculation.
    Prospective buyers may include Tesco Plc, the U.K.'s biggest retailer, or private equity firms. It is unlikely Safeway and

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Kroger would bid because there would be too much overlap with Albertsons stores, said Gary Giblen, director of research at Brean Murray & Co. in New York.
   Some analysts said they were skeptical that Albertsons could find a buyer for the entire company, the nation's second-largest supermarket chain after Cincinnati-based Kroger Co. Prudential Equity Group analyst Robert Campagnino said private equity firms probably will not be interested in buying the entire company but may be interested in pieces of it.
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    ---
   Bloomberg News contributed to this report.


   Albertsons through the years

    Joe Albertson in 1939 opened a 10,000-square-foot grocery store in Boise - billed as Idaho's largest food store.
   * Created Albertsons Corp. in 1945 with six supermarkets.
   * Opened its first food and drug combination store in 1951.
   * Went public in 1959 in an effort to continue expanding.
   * Expanded in California in 1964 by acquiring a 14-store grocery chain based in Los Angeles.
   * Partnered with Skaggs Companies Inc. in 1969 to expand its food and drug combination stores. The companies later parted company, but Albertsons continued to emphasize food and drug stores.
   * Began to beef up its distribution network from 1972 to 1973, buying a food wholesaler in Boise and constructing distribution centers in California and Utah.
   * Joe Albertson died in 1993 at the age of 86.
   * Acquired several smaller chains in 1998, including Smitty's, Super One Foods and Buttrey Food and Drug.
   * Became the nation's second-largest food seller in 1999 with the acquisition of Salt Lake City-based grocery chain American Stores Inc. Also debuted an online/home delivery grocery service.
   * Disappointed Wall Street in 2000 with below-expected sales and profits after Wal-Mart started to lure away customers.
   * Unveiled Preferred Savings Card in 2001.
   * Purchased Shaw's Supermarkets Inc. in 2004 from J Sainsbury Plc for $2.48 billion.
   * Announced Friday that the company might put itself up for sale or explore ''strategic alternatives'' to increase shareholder value.
   - SOURCE: Albertsons Inc.

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