Albertson’s Inc.

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Albertson’s Inc.

250 Parkcenter Boulevard
Boise, Idaho 83726
U.S.A.
(208) 385-6200
Fax: (208) 385-6110

Public Company
Incorporated: 1945
Employees: 60,000
Sales: $8.68 billion
Stock Exchanges: New York Boston Pacific Midwest
SICs: 5411 Grocery Stores; 5912 Drug Stores & Proprietary Stores

In 1939, Joe Albertson left his position as a district manager for Safeway Stores and, with partners L. S. Skaggs, whose family helped build Safeway, and Tom Cuthbert, Skaggs’s accountant, opened his first one-stop shopping market on a Boise, Idaho corner. Albertson thought big from the start—his first newspaper ad promised customers “Idaho’s largest and finest food store.” And indeed, the store was huge by contemporary standards; at 10,000 square feet it was approximately eight times as large as the average grocery store of that era. The store included specialties such as an in-store bakery, one of the country’s first magazine racks, and homemade “Big Joe” ice cream cones. Customers liked what they saw, and the store pulled in healthy first-year profits of $9,000.

Today, Albertson’s Inc. is the sixth-largest grocery chain in the United States, operating more than 550 stores in 17 western and southern states. Yet Albertson’s has not forgotten the lessons of its small-town beginnings during its expansion. “Albertson’s is, in effect, a big store with a specialty store approach,” claims its corporate philosophy, adopted in 1973. “We must be ‘big’ in terms of low prices, convenience and wide selection of brands. We must be a ‘specialty’ store in terms of quality, personal service and specialized selection.”

Albertson’s fosters this small-town style both through management and consumer services. The corporation implements a strong employee incentive program which returns 15 percent of each store’s profits directly to its store director and department heads, and store management teams are kept informed of the accounting figures that make or break their unit’s profitability.

Among their specialty consumer services, Albertson’s stores provide personal service at in-store “scratch” bakeries, delicatessens, and meat departments. Larger stores carry ethnic foods geared toward the neighborhoods in which they are located, and, according to Forbes, Albertson’s is cleaned “with a Disney-like fanaticism.”

While Albertson’s may owe its style to small-town roots, its history turns on the expansion of the one-stop shopping concept, which led to the growth of larger stores carrying more diverse products and eventually to the jumbo food-and-drug stores that were the key to Albertson’s tremendous success.

Albertson’s grew slowly at first. Sales remained constant during the war years, and in 1945, Joe Albertson dissolved the partnership and Albertson’s was incorporated. By 1947, the chain had six stores operating in Idaho, and had established a complete poultry-processing operation. In 1949, the Dutch Girl ice cream plant opened in Boise, and Albertson’s adopted the Dutch Girl as its early trademark.

Albertson’s expanded during the 1950s into Washington, Utah, Oregon, and Montana. In 1957 the company built its first frozen foods distribution house, which served its southern Idaho and eastern Oregon stores. Albertson’s also operated a few department stores during the 1950s but these were phased out rapidly as the company decided to focus on the sale of food and drugstore items. In 1959, Albertson’s introduced its private label, Janet Lee, named after the executive vice president’s daughter. The company also went public in 1959, and with that capital began to expand its markets aggressively.

Albertson’s moved into its sixth state, Wyoming, in 1961, and opened its 100th store in 1962. In 1964 the company broke into the California market by acquiring Greater All American Markets, based in Los Angeles. The same year, Albertson turned the position of chief executive over to J. L. Berlin, although he continued to chair the executive board.

Under Berlin’s leadership, the company strengthened its Cali-fornian position by merging with Semrau and Sons, an Oakland-based grocery store chain, in 1965. This added eight markets in northern California, which Albertson’s continued to operate under the name of Pay Less. In 1967 the company purchased eight Colorado supermarkets from Fury’s Inc., a Lubbock, Texas concern. Between these purchases and construction of new units, Albertson’s operated more than 200 stores by the end of the decade and annual sales were well over $400 million.

In the late 1960s, Albertson’s set several company policies that would secure its snowballing success. One of these was the company’s ongoing renovation program. In 1980, vice chairman Bounder pointed out that “almost every failure of previously profitable supermarket companies can be attributed to stores becoming outdated.” Albertson’s has avoided this pitfall by constantly upgrading its facilities, remodeling and enlarging older stores, and closing those that have become obsolete.

Anticipating the ever-increasing competition for profitable operating sites, Albertson’s also took care during the 1960s to build a sophisticated property-development task force of lawyers, economic analysts, negotiators, engineers, architects, and construction supervisors that has allowed the company to stay on top of industry trends. In addition, it expanded its employee training and incentive programs to encourage employees to make a lifetime career with the company.

During its first three decades Albertson’s primarily sold groceries, although it did introduce drugstore departments into units where possible. In 1970, however, the company pioneered a unique and exceptionally profitable concept in supermarket design. J. L. Scott, who had become chief executive officer in 1966, announced in 1969 that Albertson’s would enter into partnership with Skaggs Drugs Centers, based in Salt Lake City, Utah, and headed by Albertson’s former partner, to jointly finance and manage six jumbo combination food and drug stores in Texas. While the average contemporary supermarket was 30,000 square feet or smaller, the combination stores covered as many as 55,000 square feet. And while conventional stores carried strictly grocery items, which have a slim profit margin of 1 percent to 2 percent, the Skaggs-Albertson’s combination stores stocked not only groceries but also nonfood items such as cosmetics, perfumes, pharmacy products, camera supplies, and electrical equipment. Banking on the higher profit margin of nonfood items as well as on an aggressive five-year plan, Scott also predicted in 1969 that Albertson’s sales would double within five years. His optimism was not unfounded. By 1974, sales reached $852.3 million, with net earnings of $8.9 million.

The first Skaggs-Albertson’s combination stores were opened in Texas in 1970, the year after the New York Stock Exchange began to trade Albertson’s shares. In the early 1970s, Albertson’s and Skaggs considered merging, but ultimately decided against the move. Albertson’s continued its beneficial partnership with Skaggs until 1977, opening combination drug and grocery stores throughout Texas, Florida, and Louisiana.

Along with rapid growth, Albertson’s faced some minor setbacks during the early 1970s. In 1972 Albertson’s had acquired Mountain States Wholesale of Idaho, a subsidiary of DiGiorgio Corporation. In 1974, the Justice Department filed a civil antitrust suit against Albertson’s, asserting that at the time of the purchase, Albertson’s was the largest retail grocer in the southern Idaho and eastern Oregon market, while Mountain States carried 43 percent of the wholesale grocery market, and that Albertson’s purchase created an illegal monopoly.

Robert D. Bolinder, chief executive officer from 1974 through 1976, claimed that the suit was without basis and that Albertson’s had in fact preserved competition in the area by acquiring Mountain States. Although Bolinder still claimed that the Justice Department had misunderstood Albertson’s reasons for buying the wholesaler, noting that the subsidiary was not financially integral to the company but accounted for only 3.4 percent of its total sales in 1973, the settlement, in 1977, required Albertson’s to divest Mountain States and barred the company from acquiring any retail or wholesale grocery businesses in southern Idaho or eastern Oregon for five years.

Also in 1974, in the Portland, Seattle, and Denver areas, the Federal Trade Commission found fault with Albertson’s advertising practices. The company complied with an FTC order requiring that advertised sale items be available to customers and that rain checks be issued when sale items were out of stock, although Bolinder maintained that Albertson’s had not violated any laws and emphasized that compliance would not require any change in the company’s previously established advertising policies.

In 1976, after chairing the board for 37 years, Joe Albertson became chairman of the executive committee. Warren McCain, who began his career with Albertson’s as a merchandising supervisor in 1951, became chairman of the board and chief executive officer. In the same year, Albertson’s began to build superstores, which would carry an even higher ratio of nonfood items. A slightly smaller version of the combination store, the superstores range in size from 35,000 to 48,000 square feet and feature more fresh foods and perishables. It was during 1976 that the corporation slowly began to phase out its conventional markets. Although a few profitable ones are still in existence today, most were closed or converted into larger stores during the late 1970s and early 1980s. Albertson’s also installed its first electric price scanner in 1976. By the late 1980s, 85 percent of Albertson’s stores used scanners.

Relying principally on outside distributors, Albertson’s successfully penetrated markets located throughout a broad geographic area, but the rapid expansion of its markets during the 1970s called for expansion of company-owned distribution facilities. Two of the company’s four full-line distribution facilities were built during this period. The first of these went up in 1973 in Brea, California, and the other was completed in 1976 in Salt Lake City. All Albertson’s distribution facilities are built, and operate, as profit centers, contributing a return on investment that equals or exceeds that of the company’s retail stores.

In 1977 Albertson’s and Skaggs dissolved their partnership amicably, splitting their assets equally. For Albertson’s, the breakup resulted in the formation of Southco, the company’s southern division. Southco assumed operation of 30 of the 58 combination stores formerly run by the partnership. Albertson’s continued opening combination stores, concentrating them principally in southern states, but also opening a few in South Dakota and Nebraska. In 1978 Albertson’s strengthened its stronghold in southern California by acquiring 46 supermarkets located in the Los Angeles area from Fisher Foods, Inc.

In 1979 Albertson’s took the “bigger is better” concept to the drawing boards again and introduced its first warehouse stores. As inflation drove prices up, Albertson’s needed to cut overhead to preserve its profit margin. To this end, it converted, between 1979 and 1981, seven stores into full-line, mass-merchandise warehouse stores run under the name Grocery Warehouse. These no-frills stores carried nonfood items but emphasized groceries, with substantial savings on meat and liquor. While these stores continue to be successful, they did not eclipse the profitability of the more broadly appealing superstores.

The introduction of the combination store and the continuing readaptation of older stores—87 percent of the company’s stores were newly built or completely remodeled during the 1970s—allowed Albertson’s to prosper despite the economically hostile environment of the late-1970s and early-1980s. In 1983, just after the country’s most severe recession since the Depression, Albertson’s boasted 13 years of record sales. The combination stores, both jumbo and smaller, were largely responsible for this success. In 1983, these units accounted for only one-third of the chain’s 423 stores but were the source of 65 percent of its profits.

Since Albertson’s had grown by expanding over a wide geographic area rather than increasing its dominance in a smaller area, it did not hold superior market share in many of the areas where it operated. But it was this diversification, in part, that had allowed Albertson’s to weather the economic storms of the 1970s and 1980s so successfully. As it happened, the areas of Albertson’s concentration were the areas of relative economic prosperity. In 1981 Albertson’s was operating in 17 of the fastest growing standard metropolitan areas, as identified by the U.S. Department of Commerce. Stores in relatively stable areas helped balance losses in more depressed markets.

Although Albertson’s did break into the Nebraska and North and South Dakota markets in 1981, during the 1980s it concentrated principally on increasing its presence in established markets. For example, in an effort to expand its market in Texas, Albertson’s modified its advertising strategy. In 1984, Albertson’s reentered the Dallas-Fort Worth area, a very competitive market that no new firm had entered since Skaggs opened its first store there in 1972. The standard advertising strategy was to offer gimmicks like double-value coupons and promotional games to attract customers. Albertson’s had used such techniques, but chose to approach the Dallas-Fort Worth market with an “every day low-cost” image instead. Store circulars explained “we won’t be advertising weekly specials … we’ll pass the savings on advertising costs on to you. Tell your friends and neighbors to help us keep prices down.” The campaign sparked fierce competition, but the Albertson’s units continued to prosper. Although the company traditionally held an upscale profile, it began to extend the new image to other suitable markets, and today about half of its stores operate on this basis.

As Albertson’s continues to build larger concentrations of stores, its behind-the-scenes operations continue to grow. In 1982, retail management was reorganized into four regions: California, northwest, intermountain, and Southco. This subdivision allows each regional director and his management team to more effectively focus marketing and retail sales strategies, and more closely guide employee and real estate development. Albertson’s built another distribution center in the Denver area in 1984, and completed its first fully mechanized distribution center in Portland, Oregon, in 1988. In addition, the Salt Lake City facility was substantially expanded in late 1988, and the Brea, California, center was expanded and mechanized in 1989.

The expansion of Albertson’s distribution network, combined with new computerized inventory and checkout scanners, enabled the chain to begin to handle its own distribution in 1990. By 1993, almost two-thirds of the items purchased by Albertson’s stores were distributed by its own system.

In December of 1991 Albertson’s announced a five-year expansion plan that called for $2.4 billion investments in: the construction of 250 new stores, the renovation of 175 older stores, and the acceleration of computerization chain-wide. By the end of fiscal year 1991 (January 1992), more than half of Albertson’s stores had computerized time and attendance systems, all of the pharmacies had automated prescription systems, and 96 percent of the stores were equipped with checkout scanners.

The company’s plans are ambitious, especially considering that it took Albertson’s all of the 1980s to build or acquire 283 stores. But Albertson’s is well-positioned for growth. In an industry that has been shaken by huge mergers and leveraged buyouts, Albertson’s is conservatively financed, with long-term debt at about ten percent of total assets. In southern California, Albertson’s competition consists of three chains hamstrung by debt: American Stores, Von’s, and Ralph’s. The company acquired 74 Jewel Oseo food and drug stores in Texas, Oklahoma, Arkansas, and Florida from American Stores in 1992.

Albertson’s is targeting its growth for California, Texas, Florida, and Arizona, some of the United States’ fastest-growing markets. Chief Executive Officer Warren McCain targeted growth for smaller cities and suburbs where plentiful, inexpensive land allows Albertson’s to maximize profits.

Gary Michael became chairman of the board and chief executive officer of Albertson’s on February 1, 1991, and initiated the “Service First” employee award program. The plan recognizes and rewards excellence in customer service. Michael also implemented a quarterly video news program that promotes employee understanding of Albertson’s goals and objectives. The employee relations efforts resulted in a 16 percent decrease in the worker turnover rate.

Public relations in the 1990s has focused on “Service First” and a new advertising theme, “It’s Your Store.” The slogan hopes to instill customers with a sense of partnership through convenience, quality, competitive pricing, and service. The HOPE (Helping Our Planet’s Ecology) line of environmentally safer paper products reinforces Albertson’s commitment to the ecosystem.

By January of 1992, Albertson’s ran 562 grocery stores in 17 Western and Southern states, employing 60,000 workers. The company’s 1991 sales and earnings hit record highs for the 22nd year: net income rose 10.3 percent to $258 million and sales grew 5.6 percent to $8.68 billion. Even though same-store sales growth dropped from 5.5 percent in 1990 to 1.1 percent in 1991, industry analysts forecast continuing growth in sales and profits through the mid-1990s for the United States’ sixth-largest retail food-drug chain. Distribution facilities are also headed for major expansion, as Albertson’s seeks to supply all its markets except North Dakota and Florida by 1993.

The key to Albertson’s success has been a steady sensitivity to the changing desires of consumers. It continues to groom its top executives the old-fashioned way, promoting from within the corporation. Most of the current top officers began in typical entry-level positions and have seen their careers grow with the company. Years of familiarity with Albertson’s strengths and style allow top executives to adapt the company to changing consumer desires effectively. And while this modern business sensibility has cultivated Albertson’s billion-dollar success, the solid, small-town philosophy of founder Joe Albertson—giving customers quality merchandise at a reasonable price—is at its root.