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Larry Johnston chairman/CEO of Albertsons Inc., said yesterday that the company plans to sell non-core real estate assets, which he expects will allow management to focus on running a leaner, more profitable company.

"The announcement Friday that we are exploring our strategic alternatives including a possible sale of the company is important,” he said. “At the same time, I want to be clear that while we are going through this process we will also be aggressively running this company and continuing to execute on the same strategy that we unveiled when the turnaround began over four years ago. In that regard, we don't plan to slow down or take any time off. We are now at the point in our turnaround where we are clarifying our end game... preparing to exit even more underperforming markets in order to monetize their embedded real estate and business value for shareowners... driving even harder for operational excellence with programs like Six Sigma and Check The Price. This will enable us to focus on a strong and growing set of 'Core' assets that will form a smaller yet more profitable best-in-class company with leading market positions and a very exciting future."

Albertsons now owns approximately 70 million square feet or more than 60 percent of its nearly 120 million square feet of real estate.

The statement by Johnston came as Albertsons reported that its second quarter net earnings were $107 million, up from $104 million during last year's second quarter. Total sales reached $10.2 billion, which the company characterized as “just slightly higher than last year's second quarter revenue.”

Meanwhile, the Cincinnati Enquirer speculated that as Albertsons comes up for sale, there is at least the possibility that “Kroger Co. could be interested in buying some or all of it.”

The theory is that if Albertsons is broken up for parts, at least two of its regions – New England and Florida – would be very attractive to Kroger, which has no stores in New England and few in Florida.

While neither Kroger nor Albertsons commented on the speculation, analysts told the paper that because the two retailers are similar in approach, an acquisition/merger would in fact allow the combined company to have even greater economies of scale than currently enjoyed.
KC's View:
Maybe. But even if Kroger were interested, we wonder if it would be willing or able to make the kind of investment that might be needed to turn Albertsons around.

And make no mistake, the company needs to be turned around. If it didn’t, the thing wouldn’t be up for sale.

And that’s the real problem with Johnston’s statement yesterday. The company trumpets its achievements, ignoring the fact that to a great extent it has disenfranchised many of the employees that are on its front lines…has watered down its distinguished brand name to the extent that consumers don’t know what it stands for…and has failed, in the final degree to create a compelling, competitive shopping experience.

End game, indeed.

We know a lot of people who think that at this point, the most important contribution Larry Johnston could make to the company’s end game would be to start drafting a letter of resignation, conceding that what a retail company really needs in the CEO’s office is someone who understands marketing and retailing in his or her bones.