(Sept. 3) The cost of doing business on a tilted playing field appears to be taking its toll on Albertson’s Inc., and traditional retail grocers in general.

Boise, Idaho-based Albertson’s — No. 3 in the U.S., behind top-ranked Bentonville, Ark.-based Wal-Mart Stores Inc. and the No. 2 Cincinnati-based The Kroger Co. — said Sept. 1 that promotions designed to regain business lost to last year’s record-breaking strike in Southern California had cut into its second-quarter profits.

Albertsons said sales were down by about $182 million because of the Southern California labor dispute that lasted nearly five months — the longest retail grocery strike in U.S. history — and ended in February. The dispute also involved Safeway- and Kroger-owned stores in the region.

One analyst, who requested anonymity, said that Albertson’s is making daring moves in a keenly competitive atmosphere.

“I think they are in a very difficult industry, and I think the latest results showed that it’s getting increasingly difficult to grow the top line without bringing down gross margins, which is what happened in the second quar-ter,” he said Sept. 2.

Remnants from last year’s strike remain, the analyst noted.

“They say they’re recovering still,” he said. “Their sales are still 10% below where they were before the strike in the last year.”

Robert Toomey, managing director and securities analyst at RBC Dain Rauscher, Seattle, said that the effects of the strike have dissipated.

“They’re not too much different from the others,” Toomey said.

Produce sales are not immune to the caprices of the marketplace, said Ed Odron, president of Produce Mar-keting Consultants, a Stockton, Calif.-based retail-consulting firm.

“Produce sales are 10% of store sales,” he said. “When sales are down, produce volume is going to be down. That’s just what happens. And, all across the board, it’s kind of soft right now.”

Albertson’s has not stood still in the wake of the five-month-long strike that affected as much as three-quarters of the retail market in Southern California.

Less than a month after the strike ended in February, Albertson’s announced that it was purchasing the East Bridgewater, Mass.-based U.S. grocery business of British supermarket chain J. Sainsbury PLC for more than $2.1 billion. The major component of that business was Shaw’s Supermarkets Inc., one of the top-ranked chains in the Northeast.

The deal gave Albertson’s 202 Shaw’s and Star Market stores in the region.

Early indications from the third quarter don’t portend much change, Larry Johnston, chief executive officer of Albertson’s, told analysts during a conference call.

Albertson’s also left two markets — Omaha, Neb., and New Orleans — that it deemed unprofitable.

But, early in 2004, the company also launched Extreme Inc., which is rolling out its first price-impact Super Saver stores, in Dallas and Baton Rouge, La.

NOT ALONE

Albertson’s wasn’t the only major retail grocery chain in the doldrums during the quarter, however.

Jacksonville, Fla.-based Winn-Dixie Stores Inc., which operates primarily in the South, saw its shares fall 14% — a drop not seen in a decade — on the New York Stock Exchange.

Shares of Pleasanton, Calif.-based Safeway Inc. and Kroger were down, as well. Safeway shares closed at $20.46 Sept. 1, having ranged between $18.99 and $25.83 in a year. Kroger shares closed at $16.72, with a range of $14.70-19.70.

Albertson’s, Safeway and Kroger have launched various promotional campaigns and cut prices as a way of competing with industry giant Wal-Mart.

But Wal-Mart continues to be the juggernaut of the industry, with its Supercenter format. Wal-Mart shares closed at $52.63, with a 52-week range of $50.50-61.31.

But even Wal-Mart stock has trended downward since peaking in early March.

The general slump has two explanations, said Kurt Barnard, president of Retail Forecasting Group, Upper Montclair, N.J.

“No. 1, the Americans have been bankrupted by the gas pump,” he said. “It leaves them with fewer dollars than they need to do ordinary shopping. No. 2, there’s a pervasive sense in America that jobs are hard to get and easy to lose.”

Barnard said that he does not expect things to improve in the near term.

Toomey said that all traditional retailers were dealing with the same challenges.

“They’re all being impacted by this soft economy that we’re going through,” he said.

Stock prices show strike’s effect
CLOSING PRICE

  • Shares for Albertsons, Boise, Idaho, closed Sept. 2 at $24.91 on the New York Stock Exchange. The stock has a 52-week range of $19.20-27.07.


  • The company, which operates 2,500 stores under the Albertsons, Jewel-Osco, Shaw’s and other banners, said profit in the quarter that ended July 29 fell to $125 million, or 34 cents a share, from $162 million, or 44 cents share, for the same period in 2003.