Albertson's woes
The announcement of an auction for supermarket-operator Albertsons Inc. is the latest sign that traditional grocers have lost their grip on the U.S. food-retailing market to discounter Wal-Mart Stores Inc.
That's the lede in a Wall Street Journal article ("Albertsons Plan For Auction Shows Wal-Mart's Reach", 9/6/05). It gets it about right. Albertson's is the nation's second-largest traditional supermarket company, with chains like Albertson's, Acme, Shaw's, Star Markets, and Jewel under its flag. It's national with some 2,500 stores. But it lost money last year, mostly because of increasing competition with Wal-Mart.
The article sees that Albertson's, like rival Safeway and Kroger is in trouble. They beat a strike when they tried to squeeze union benefits in Southern California, but all three got badly hurt in the process. "Its biggest problem may be that it is stuck in the middle of an industry divergence. Wal-Mart and other discounters are grabbing the bottom of the market, while Whole Foods Market Inc. and other upscale chains siphon off a small but lucrative batch of customers at the top."
The sale is not definite, for the question is who thinks they can turn the company around. Some are betting on private equity companies, who will buy the chain mostly for its square footage of prime retail space, which could be divided and sold. (That was a big motive in the Kmart-Sears deal last year.) Rivals Kroger and Safeway are not in a position to buy the whole chain, but they may nibble away parts. Some think that European rivals, especially UK's Tesco may want to march in. Another solution may be to discard money-losers and become a smaller company.
Albertson has been, like its rivals, on an acquisition spree over the last few years. (It bought the Shaw's chain in 2004). But the Wal-Mart juggernaut could not be avoided.
