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Labor Pains Complicate Albertsons' Prognosis

Even before the strike and lockout, the supermarket chain had a cartload of woe, from weak sales growth and falling profit to challenges related to acquisitions.

November 02, 2003|James F. Peltz | Times Staff Writer

Two years ago, an ailing Albertsons Inc. tapped Lawrence Johnston as its first chief executive from outside the company's ranks, and Johnston launched a massive overhaul.

The supermarket chain was struggling to digest its $9.5-billion purchase in 1999 of American Stores Co., which gave Albertsons Lucky markets and Sav-on drugstores and a much stronger presence in Southern California.

Johnston, a former General Electric Co. executive with no experience in the grocery business, rolled out several initiatives. Among them: a bold plan to slash $750 million from annual costs and more price cutting to match rivals and maintain market share.

But Albertsons still has a long way to go. The company's stock has lost one-third of its value since Johnston, 55, took the helm in April 2001. Its sales growth remains weak, earnings are down, and its lower prices are eating into profit margins, which are razor thin in the grocery business. Citing those concerns, Moody's Investor Services Inc. downgraded Albertsons' long-term debt last month.

Los Angeles Times Saturday December 06, 2003 Home Edition Main News Part A Page 2 National Desk 1 inches; 41 words Type of Material: Correction
Supermarket strike -- In its coverage of the supermarket strike and lockout that began Oct. 11, The Times has said repeatedly that the labor dispute affected 859 union grocery stores in Southern and Central California. In fact, 852 stores are affected.

And despite Johnston's cost- cutting efforts, many of Albertsons' expenses -- mainly its workers' health-care and other benefits costs -- keep going up.

Which is why Johnston and Albertsons find themselves smack in the middle of the supermarket strike, now entering its fourth week, in Southern and Central California. Kroger Co. and Safeway Inc. also are involved, but the strike's timing is especially uncomfortable for Albertsons, which has yet to overcome all the kinks involved in merging Lucky and Sav-on into the Albertsons family.

Albertsons "is least well-prepared to go forward," said Merrill Lynch & Co. analyst Mark Husson in a recent report, given the company's "weaker market shares [and] brand loyalty than either Kroger or Safeway."

Along with Kroger, the parent of Ralphs supermarkets, Albertsons locked out its workers in a show of corporate solidarity after the United Food and Commercial Workers union went on strike against Safeway, owner of Vons and Pavilions, on Oct. 11. About 70,000 workers at 859 stores are affected.

A key dispute in the strike is the grocers' demand that workers start paying for part of their health insurance. The supermarkets say they must have relief in paying those costs if they hope to keep prices low enough to compete with the non-union mass merchandisers, including Wal-Mart Stores Inc., that are pushing deeper into the grocery business.

Johnston and other Albertsons executives declined to be interviewed, but people familiar with their thinking say Albertsons, like the two other chains, is willing to sacrifice near-term sales at its Southern California stores to win long-term savings in its health-care costs.

Those lost sales are adding up rapidly. Albertsons is losing $34 million a week, Husson, who has a "sell" rating on Albertsons' stock, said in a report last week. The three supermarket companies are losing a combined $131 million a week, he estimated.

A shift in the union's tactics Friday might inflict more damage on Albertsons and Safeway. The UFCW said it was removing pickets from Ralphs -- to assist inconvenienced consumers who have been honoring the lines, the union said -- but not from the two other chains. They could feel a deeper pinch as their regulars are free to shop at a picket-free Ralphs.

But an Albertsons spokeswoman, Stacia Levenfeld, said the company would not try to reach its own contract with the UFCW. Albertsons "has no intention of striking a deal different from" Kroger or Safeway, even though it is free to do so, Levenfeld said.

Albertsons has about 16% of the Southern California supermarket business, as does Kroger, which owns Food 4 Less in addition to Ralphs, Husson estimates. Safeway's Vons and Pavilions lead the group with 24% of the market, he says.

Figures from research firm Trade Dimensions International in Wilton, Conn., show that each chain has its strengths in certain counties. In Orange and San Diego Counties, Albertsons is the second-biggest operator behind Ralphs and Vons, respectively. But Albertsons does not have the top share in any of the major Southern California counties, figures show.

Albertsons also stands out because, unlike Ralphs and Vons, it does not offer "club" or "loyalty" cards in Southern California that provide discounts to returning shoppers. The company prefers to promote its prices as being routinely low, without the cards.

With 2,305 stores in 31 states, Albertsons is the country's No. 2 supermarket chain by revenue, behind Kroger, with sales last year of $36 billion. The chain was founded by Joe Albertson in 1939, when he opened a single grocery store in Boise, Idaho, where the company still has its headquarters.

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