Albertsons Q4: setting the platform for four major initiatives

Date : 13 April 2018

We review Albertsons’ fourth quarter performance and the prospects for the year ahead as it sets to complete its merger with Rite Aid and push ahead with three other key initiatives.

Improving performance in the fourth quarter

Albertsons’ fourth quarter sales increased by 1.6% to $14.0bn, with identical store sales (ex-fuel) up 0.6%. The retailer’s net income increased from $34.6m to $388.3m, underpinned by an income tax benefit of $373m. For the full year, sales increased by 0.4% to $59.9bn. Albertsons’ performance improved in the final quarter of the year, as it saw better customer traffic trends and an increase in average ticket. The business will be looking to build on this momentum as it pushes ahead with four major initiatives this year.

1. Creating a retailing powerhouse through Rite Aid merger

The proposed merger with Rite Aid, the third largest drugstore operator in the US, is a transformational deal for the business. By adding over 2,500 drugstores, it will significantly expand its geographic presence, provide it with new growth levers and create a platform for stronger financial strength. The enlarged business is expected to generate sales of around $83bn annually, from a network of almost 4,900 stores, including 4,345 pharmacies.

Opportunity to deepen customer relationships

The deal will enable Albertsons to create an integrated health and wellness offer. It plans to rebrand most of its existing in-store Albertsons pharmacies to Rite Aid, while existing Rite Aid stores will continue to operate under this banner. It will also provide an opportunity to significantly improve the food and grocery offer at Rite Aid. The merger should also help Albertsons to deepen relationships with its most loyal customers and drive higher customer spend; Albertsons' pharmacy customers currently spend 2.5 times more on grocery items each week, compared to non-pharmacy customers.

2. Rolling-out Plated meal kits nationally

Having acquired meal kit company, Plated, last year, Albertsons is working on expanding the distribution of its meal kits through its store network following the launch of test earlier this year. Over the next few months, the company plans to make the meal kits available in hundreds of stores nationally including through its Vons, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market and Haggen banners. The retailer is building a multichannel offering in this area, including the traditional subscription-based service which the Plated model was developed on, making them available through Albertsons’ grocery ecommerce service and for pickup in store.

Source: IGD Research

3. Expanding ecommerce platforms

Albertsons is also expanding its ecommerce business to offer same-day convenience across food and health and wellness. The retailer is extending its store pickup program, Drive Up & Go, to 500 additional locations this year, up from 100 currently, while also doubling its same-day delivery partnership with Instacart to 2,000 stores by the end of this year.

4. Launching online marketplace

The retailer is also launching an online marketplace this year which will feature products from smaller suppliers and products in long-tail categories. This will enable Albertsons to significantly expand the range of products that it offers. It will initially focus on smaller, niche brands which are growing in popularity, especially with younger shoppers. The marketplace will initially operate as a standalone presence, before being integrated into the broader Albertsons ecosystem. This will enable Albertsons to boost its offering in key segments and enables brands, which may be too small initially to gain space within its stores, to gain exposure with its shoppers.

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Stewart Samuel, Program Director, IGD Canada: based in Canada, Stewart heads up all of IGD's research and coverage on Albertsons. He is also responsible for shaping IGD's research program across North America. Contact Stewart at [email protected] for further insight on the region's markets, channels and retailers. Follow Stewart on Twitter: