Taking Stock

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‘Round The Trade

With the Rite Aid-Albertsons deal close at hand (expected mid-July), executives from both the big drug chain and the virtually national supermarket retailer addressed analysts at a four-hour meeting on May 5. Among those participating were Rite Aid CEO John Standley (who will become CEO of the newly combined organization); Albertsons president and COO Jim Donald (who rejoined the company on March 5); Rite Aid president and COO Kermit Crawford; Albertsons EVP and chief operating officer Susan Morris; Albertsons EVP and chief marketing and merchandising officer Shane Sampson; Albertsons EVP and CFO Bob Dimond; Rite Aid senior EVP of Rite Aid stores Bryan Everett; Rite EVP of pharmacies Jocelyn Konrad; and Rite Aid senior EVP, CFO and chief administrative officer Darren Karst. The meeting was extremely detailed (more than 100 slides) with seven distinct “chapters” – Combination Rationale; Albertsons Overview; Rite Aid Overview; Synergies; Omni-Channel Approach; Financials; and Bringing It All Together. Among the key talking points emphasized by the speakers were the size and strengthened scale of the newly combined company ($83 billion in annual sales with 4,868 stores); the maintenance of the decentralized operational and merchandising of the Albertsons organization (14 operating division supervised by 13 presidents – Jim Perkins is president of both Acme and Safeway-Eastern); the unique opportunity to build narrow networks and drive significant loyalty among both pharmacy and grocery customers; the continued enhancement of its omni-channel approach and its ecommerce capabilities; and expected revenue opportunities and $375 million in projected cost synergies which will create a “compelling financial profile.” On the grocery side, speakers Donald and Sampson emphasized the growth and success of its “own brands” portfolio where annual sales exceed $12 billion, of which $930 million is driven through its 20 manufacturing facilities (including its new milk plant in Hatfield, PA which opened last year). Four of Albertsons private labels – O Organics, Lucerne, Signature Select and Signature Café – broke the $1 billion sales barrier last year. In promoting the benefits of the merger in which Albertsons would control 70 percent of the current equity and the company would become public if shareholders approve the deal (Rite Aid is already publicly-traded), the speakers highlighted other key selling points including: leveraging its diverse store portfolio which appeals to multiple demographics; its continued investment in store portfolio; its supply chain strength; and its ongoing effort to become a differentiated leader in food, health and wellness; leveraging the strength of both organizations’ banners to build strong omni channel offerings; and developing proprietary technology as a competitive strength and powerful enabler. It was great to see Jim Donald back in the saddle again with the company where he cut his teeth in the industry. His folksy, self-deprecating personality played well in a room filled with financial wonks who most likely won’t be returning to Earth in their next lives as stand-up comedians. And he probably uttered the best line of the day when he explained that the company’s “4 F’s and 1 C”, store operations initiative (fully-stocked stores, quality fresh departments, friendly and engaged associates, fast service provided by well-trained associates and clean, safety-conscious stores), resembled his grades in his first half of his freshman year in high school. The Albertsons-Rite Aid deal has a chance to be very successful, but there are hurdles facing both merchants. While Standley certainly has improved Rite Aid’s standing over the past five years (and turned it into a profitable organization again), there’s still a large gap in image, technology and innovation when measured against its two prime competitors – CVS and Walgreens. For Albertsons, it is imperative that it convert much of its backroom planning to actual execution at store level. To be fair, when Albertsons CEO Bob Miller and his team took over the “new” Albertsons in 2013, it was woefully behind the curve in many areas, ranging from technology to merchandising. The team has worked hard to catch up and prepare for the brave new world of shoppers and their related behaviors; now is the time to demonstrate whether it has the ability to offer consumers an improved shopping experience…and one of Albertsons main rivals, Walmart, enjoyed an excellent first quarter, with comps up 2.3 percent in its first quarter and e-commerce sales jumping 33 percent. While there’s no doubt that the Behemoth’s huge capital outlay for technology will impact profits, the planet’s largest merchant still earned a “meager” $2.13 billion in its most recent 13-week period. Walmart also announced that it has sold most of its stake in its UK operation, Asda, to British grocer J Sainsbury. The Bentonville, AR retailer will retain 42 percent of the company and will also receive $4.1 billion cash from Sainsbury. If regulators approve the deal, Sainsbury will become the largest grocer in the UK with about 2,800 stores. And in a moment I’m sure he’d want to leave on the cutting room floor, Sainsbury CEO Mike Couple was caught on camera singing “We’re In the Money,” just prior to his interview with British broadcaster ITV about the Asda deal…and another Albertsons competitor, Amazon.com., just announced that it has begun offering its “Prime” members a 10 percent discount on sale items and rotating weekly specials at the company’s Whole Foods stores. At this time, only the 28 WFM in Florida are eligible, but the program will be rolled out nationally later this summer. “Prime” members can scan an app or input their phone numbers at checkout to receive their discounts.