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MNB reported yesterday that Albertsons CEO Larry Johnston announced a new $250 million, two-year cost-cutting program that will target a reduction in administrative expenses and expanded centralized, chain-wide purchasing. Labor costs are not included in the new program, according to the company.

The plan comes in response to Albertsons’ most recent earnings reports, which were off 20 percent in 2004 compared to 2003, in part because of the long labor strike/lockout in Southern California, and in part because of the impact of a bad hurricane season in Florida.

Our comment: The problem is that you can’t save your way to prosperity… and we’re not sure if Albertsons is doing enough to create compelling shopping experiences that provide a differentiated experience compared to its competition. Centralized purchasing, for example, while it might make sense financially, isn’t necessarily the best way to be responsive to local tastes and requirements. It saves money, but it doesn’t always build a connection to local shoppers.

The jury remains out.

The jury of MNB user, on the other hand, wanted to be heard…

MNB user Woody Lynch wrote:

You are right on the money....Dull Dull Dull stores! Nothing to go there for that I can't get someplace else AND they want you to check yourself out (like my wife would say, "if I wanted to check groceries I would go to work at a grocery store and get paid for it"). The point here is that every time Albertsons' cuts something it comes out of the hide of the consumer. Then they took it from the hide of their employees (Dallas/ Fort Worth & Florida employee full time cuts). So now what - the hide of their suppliers?

MNB user Alan Shulman wrote:

You are right on in saying that Albertsons can't succeed by just cost cutting but ignore the key issue of making the shopping trip a satisfactory experience. We live in Southwest Florida. While some of Albertsons’ newer stores are well cared for, the older units for the most part are unkempt and do not show they care about the consumer reaction. In my view, this is why they continue to show unsatisfactory results here. Publix is a formidable competitor and even though they have some stores that are not always up to standard, they seem to have gotten the message across that they care about the customer. Perception more than any other factor motivates the consumer. Winn Dixie found this out only too late. Blaming Wal-Mart for everything is no solution to the traditional supermarket challenge. Blaming everything on someone else is easy - SUCCESS SPEAKS FOR ITSELF.

MNB user Holly Cooper wrote:

Improving service might go a long way to reducing costs. Albertsons tries to compete on price with all the buy one get one free sales, but the service and interactions I have had with the employees do not make the "savings" worth it.

I have had more problems in products being mis-marked or products marked at one price and rung up at another then at any other store in the area. I would rather shop at any of the other chains in the area or small grocery then deal with the bad customer service and disinterest in customer relations I have received from my local Albertsons.

Another MNB user wrote:

Kevin, I couldn't agree with you more. My family and I have lived this movie. We moved to Seattle 7 years ago from the Bay area and loved the original QFC high quality stores. Beautiful produce and butcher departments, great quality and selection. Unfortunately, the Krogerization of America has brought this once mighty chain down to the levels of either Safeway or= Albertsons. OK, perhaps not as low as Albertsons! While we still shop at QFC out of convenience, we do venture a little farther to experience Whole Foods. Yes, I used the word experience on purpose.

And yet another MNB user wrote:

I am wondering if these "cost cutting" programs also include higher slotting, reset and whatever else they can think of fees to their suppliers. As one who has been on the vendor side of the Albertsons experience (on several occasions) I have found this to be one expensive retailer with whom to deal. I know of many vendors who have quit dealing with Albertsons because they are, simply, too expensive. Their chargeback summaries give little or no explanation and, when pursued, it is difficult to get answers. When the vendor is losing money on the front end, it is tough to provide value to the consumers.

And another member of the MNB community wrote:

What you have to think about is how they get paid there. The key measure probably is to deliver year-over-year profit growth. It would seem that they're focused on only that one issue...making the number. If they can't increase the top line (sales) fast enough, the only way to get to the number is to continue cutting costs. Enhancing the shopping experience would cost they won't go in that direction.

We lived in Dallas, within three miles of two of their stores. We once were regular Albertsons shoppers. They were outclassed by three other nearby stores. One was HEB's Central Market and another was Whole Foods...both on higher quality. The third was Wal-Mart...where by comparison we found Albertsons to be overpriced by a wide margin on the same market basket. These other stores took our business. Why? On one side for a better shopping experience (even though it was clearly more expensive). On the other, we changed for better price/value on our routine restocking purchases.

MNB user Thomas D. Murphy wrote:

I disagree that centralized purchasing has to be a problem. If you centrally manage and procure the product that doesn't have local ties, i.e., Tide is Tide is Tide, you can gain administrative and supply chain efficiencies.

The next tier of product, that which has widespread appeal, but not everywhere, is also a possibility. The last tier, which you may be describing, is all the local "favorites". These take greater involvement from the local operating teams...but this is a process issue. The data and technology are still there to manage this centrally.

For the record, we never said centralized procurement “has” to be a problem. Just that it can.

Look at Dominicks.

And still another MNB user wrote:

You are right KC, Albertsons cannot save its way to prosperity. I remember it wasn't long ago that Winn Dixie announced a similar program. That worked out well, huh?

Regardless of what business you are in, you also cannot buy sales to achieve prosperity. Such as buying a regional chain like Shaws. Safeway tried this a few times and it blew up in their face (Randalls, Dominicks, etc). Spartan tried this with Food Town in Toledo and sunk that ship in 2 years. Look how A&P ruined Kohls, Farmer Jack, and Big Star. Implementing failed programs in a successful regional chain will only result in failure. Albertsons has already made huge labor cuts in its stores in the south by having a store director over 2-3 units. There were massive layoffs at Shaws. Odd, Shaws was doing pretty good before Albertsons with all that extra labor. Now with Shaws added to the mix, earnings are going down. When was the last time you heard Wegmans, HEB, Publix, Ukrops, Hy-Vee, or even Wal-Mart talk about embarking on a huge cost savings program? The only time I ever hear about companies implementing a huge cost savings program is when it’s too late and bankruptcy is looming over their heads. It's really scary because companies like Albertsons and Safeway are led by people with no meaningful supermarket experience and they are under the false impression that somehow if they go buy up some of the well-run regional chains, they can make them better. I think history will show that most companies have a zero batting average using this strategy.

And another MNB user chimed in:

Doesn’t this program have a familiar ring to it? Ahold reduced expenses by eliminating individual operating company autonomy and merged many headquarter operation including centralized buying. The result was they lost touch with lots of local consumers and destroyed value in the banners they purchased. The recent combined sale of Bi-Lo and Bruno’s for $600 million only 3 years after paying more than $500 million for Bruno’s by itself is a tough lesson for where “cost cutting” outside a compelling consumer strategy can lead.

And finally, MNB user Mark Heckman offered:

Further centralization and cost cutting, particularly when the majority of the cuts come out of store operations does not equal sales growth...just the opposite. Albertsons has always been good at cost cutting, not sure how much more they can do without having an effect on the shopping experience, which is already average at best.

I think the jury has a verdict!

If nothing else, we think we’ve hit a nerve…
KC's View: