Deflation hits Albertsons’ sales

Date : 27 October 2016

With deflationary trends in several key categories, Albertsons’ identical store sales were flat in the second quarter.

Focused on driving store traffic and volumes

Albertsons is not alone in seeing sales growth impacted by deflation. The retailer noted that deflation in certain commodities, such as beef and eggs, held back its performance in Q2, although it continued to gain food market share. Identical store sales at the acquired AB Acquisition and Safeway stores increased by 0.1%, compared to growth of 2.9% and 3.9% respectively in the first quarter. While it anticipates that the deflationary trends will continue through to the end of the current financial year, it will focus on remaining price competitive to drive customer traffic and volume.

Leveraging group best practices to drive performance

The retailer continues to make significant progress with regards to the integration of the Safeway business, and leveraging best practices. Private label ranges have been relaunched across the group, drawing on Safeway’s strengths in this area, while Albertsons is also extending Safeway’s expertise with grocery ecommerce to other banners. Investment is also being undertaken to develop new stores and to remodel existing locations, with capital expenditure expected to be around $1bn this year. This includes testing the conversion of some Albertsons stores to the Safeway banner. Three stores have recently been relaunched in Florida, enabling the retailer to develop a more differentiated shopping experience in the region, with a view to potentially broaden the use of the Safeway brand.

Cost savings on track, and achievable despite sales slowdown

Albertsons continues to make good progress on achieving cost synergies from the Safeway acquisition. By the end of fiscal 2018, it expects to deliver annual run-rate synergies related to the acquisition of approximately $650m by the end of the current financial year. These are being driven by savings related to corporate and division overheads, private label harmonisation, supplier funding and advertising cost reductions. Although sales growth has slowed, the retailer remains confident of delivering on its longer-term $800m annual synergy target, given that 80% of this is independent of sales growth.

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 retailer and regional trends.
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