250 Parkcenter Boulevard
Remembering our heritage is critical to planning our future. As Albertson's Food & Drug enters new communities throughout the country, we will continue to offer the products and services our new customers want, employ friendly and helpful people and discover the best way to be your neighborhood store.
We will continue to evolve with the changing needs of our customers by conducting research and implementing new services and products. And as always, we'll "give the customers the merchandise they want, at a price they can afford, complete with lots of tender, loving care," just as Joe Albertson first did in 1939.
Albertson's Inc. is the second largest grocery chain in the United States, trailing only the Kroger Company. Following the June 1999 $11.7 billion acquisition of American Stores Company, Albertson's operated more than 2,400 stores in 39 Western, Midwestern, Southern, and Eastern states. The units include combination food-and-drugstores as well as conventional supermarkets (under the Albertson's, Acme Markets, Jewel Food, and Lucky stores names); warehouse stores (Max Food and Drug); and stand-alone drugstores (Osco and Sav-on). Albertson's had small town beginnings but evolved by the late 1990s into a suburban-oriented operation; it also was a predominantly Western chain. The addition of American Stores further altered Albertson's geographic makeup, adding the first two urban markets--Chicago and Philadelphia--and giving it a presence on the East Coast and a nearly nationwide penetration. The company's history turns on the expansion of the one-stop shopping concept upon which it was founded, which led to the growth of larger stores carrying more diverse products and eventually to the jumbo food-and-drugstores that were the key to Albertson's tremendous success.
In 1939 Joe Albertson left his position as a district manager for Safeway Stores and--with partners L.S. Skaggs, whose family helped build Safeway, and Tom Cuthbert, Skaggs's accountant--opened his first one-stop shopping market on a Boise, Idaho corner. Albertson thought big from the start--his first newspaper ad promised customers "Idaho's largest and finest food store." Indeed, the store was huge by contemporary standards; at 10,000 square feet it was approximately eight times as large as the average grocery store of that era. The store included specialties such as an in-store bakery, one of the country's first magazine racks, and homemade "Big Joe" ice cream cones. Customers liked what they saw, and the store pulled in healthy first-year profits of $9,000.
Albertson's grew slowly at first. Sales remained constant during the war years, and in 1945 Joe Albertson dissolved the partnership and Albertson's was incorporated. By 1947, the chain had six stores operating in Idaho and had established a complete poultry processing operation. In 1949 the Dutch Girl ice cream plant opened in Boise, and Albertson's adopted the Dutch Girl as its early trademark.
Albertson's expanded during the 1950s into Washington, Utah, Oregon, and Montana. In 1957 the company built its first frozen foods distribution house, which served its southern Idaho and eastern Oregon stores. Albertson's also operated a few department stores during the 1950s, but these were phased out rapidly as the company decided to focus on the sale of food and drugstore items. In 1959 Albertson's introduced its private label, Janet Lee, named after the executive vice-president's daughter. The company also went public in 1959 and with that capital began to expand its markets aggressively.
Albertson's moved into its sixth state, Wyoming, in 1961, and opened its 100th store in 1962. In 1964 the company broke into the California market by acquiring Greater All American Markets, based in Los Angeles. The same year, Albertson turned the position of chief executive over to J.L. Berlin, although Albertson continued to chair the executive board.
Under Berlin's leadership, the company strengthened its Californian position by merging with Semrau and Sons, an Oakland-based grocery store chain, in 1965. This added eight markets in northern California, which Albertson's continued to operate under the name of Pay Less. In 1967 the company purchased eight Colorado supermarkets from Fury's Inc., a Lubbock, Texas concern. Between these purchases and construction of new units, Albertson's operated more than 200 stores by the end of the decade and annual sales were substantially more than $400 million.
In the late 1960s, Albertson's set several company policies that would secure its snowballing success. One of these was the company's ongoing renovation program. In 1980 Vice-Chairman Bolinder pointed out that "almost every failure of previously profitable supermarket companies can be attributed to stores becoming outdated." Albertson's avoided this pitfall by constantly upgrading its facilities, remodeling and enlarging older stores, and closing those that had become obsolete.
Anticipating the ever increasing competition for profitable operating sites, Albertson's also took care during the 1960s to build a sophisticated property development task force of lawyers, economic analysts, negotiators, engineers, architects, and construction supervisors that allowed the company to stay on top of industry trends. In addition, it expanded its employee training and incentive programs to encourage employees to make a lifetime career with the company.
Combination Format in the 1970s
During its first three decades Albertson's primarily sold groceries, although it did introduce drugstore departments into units where possible. In 1970, however, the company pioneered a unique and exceptionally profitable concept in supermarket design. J.L. Scott, who had become chief executive officer in 1966, announced in 1969 that Albertson's would enter into partnership with Skaggs Drugs Centers, based in Salt Lake City, Utah, and headed by Albertson's former partner, to jointly finance and manage six jumbo combination food and drugstores in Texas. Whereas the average contemporary supermarket was 30,000 square feet or smaller, the combination stores covered as much as 55,000 square feet. In addition, while conventional stores carried strictly grocery items, which have a slim profit margin of one to two percent, the Skaggs-Albertson's combination stores stocked not only groceries but also nonfood items such as cosmetics, perfumes, pharmacy products, camera supplies, and electrical equipment. Banking on the higher profit margin of nonfood items as well as on an aggressive five-year plan, Scott also predicted in 1969 that Albertson's sales would double within five years. His optimism was not unfounded. By 1974, sales reached $852.3 million, with net earnings of $8.9 million.
The first Skaggs-Albertson's combination stores were opened in Texas in 1970, the year after the New York Stock Exchange began to trade Albertson's shares. In the early 1970s, Albertson's and Skaggs considered merging, but ultimately decided against the move. Albertson's continued its beneficial partnership with Skaggs until 1977, opening combination drug and grocery stores throughout Texas, Florida, and Louisiana.
Along with rapid growth, Albertson's faced some minor setbacks during the early 1970s. In 1972 Albertson's had acquired Mountain States Wholesale of Idaho, a subsidiary of DiGiorgio Corporation. In 1974 the Justice Department filed a civil antitrust suit against Albertson's, asserting that at the time of the purchase Albertson's was the largest retail grocer in the southern Idaho and eastern Oregon market, while Mountain States carried 43 percent of the wholesale grocery market, and that Albertson's purchase created an illegal monopoly.
Robert D. Bolinder, CEO from 1974 through 1976, claimed that the suit was without basis and that Albertson's had in fact preserved competition in the area by acquiring Mountain States. Bolinder still claimed that the Justice Department had misunderstood Albertson's reasons for buying the wholesaler, noting that the subsidiary was not financially integral to the company but accounted for only 3.4 percent of its total sales in 1973. The settlement, in 1977, required Albertson's to divest Mountain States and barred the company from acquiring any retail or wholesale grocery businesses in southern Idaho or eastern Oregon for five years.
Also in 1974, in the Portland, Seattle, and Denver areas, the Federal Trade Commission found fault with Albertson's advertising practices. The company complied with an FTC order requiring that advertised sale items be available to customers and that rain checks be issued when sale items were out of stock, although Bolinder maintained that Albertson's had not violated any laws and emphasized that compliance would not require any change in the company's previously established advertising policies.
In 1976, after chairing the board for 37 years, Joe Albertson became chairman of the executive committee. Warren McCain, who began his career with Albertson's as a merchandising supervisor in 1951, became chairman of the board and CEO. In the same year, Albertson's began to build superstores, which would carry an even higher ratio of nonfood items. A slightly smaller version of the combination store, the superstores ranged in size from 35,000 to 48,000 square feet and featured more fresh foods and perishables. It was during 1976 that the corporation slowly began to phase out its conventional markets. Although a few profitable ones remained open, most were closed or converted into larger stores during the late 1970s and early 1980s. Albertson's also installed its first electric price scanner in 1976. By the late 1980s, 85 percent of Albertson's stores used scanners.
Relying principally on outside distributors, Albertson's successfully penetrated markets located throughout a broad geographic area, but the rapid expansion of its markets during the 1970s called for expansion of company-owned distribution facilities. Two of the company's four full-line distribution facilities were built during this period. The first of these went up in 1973 in Brea, California, and the other was completed in 1976 in Salt Lake City. All Albertson's distribution facilities were built, and operated, as profit centers, contributing a return on investment that equaled or exceeded that of the company's retail stores.
Continued Expansion in the Late 1970s and 1980s
In 1977 Albertson's and Skaggs dissolved their partnership amicably, splitting their assets equally. For Albertson's, the breakup resulted in the formation of Southco, the company's Southern division. Southco assumed operation of 30 of the 58 combination stores formerly run by the partnership. Albertson's continued opening combination stores, concentrating them principally in Southern states, but also opening a few in South Dakota and Nebraska. In 1978 Albertson's strengthened its stronghold in southern California by acquiring 46 supermarkets located in the Los Angeles area from Fisher Foods, Inc.
In 1979 Albertson's took the "bigger is better" concept to the drawing boards again and introduced its first warehouse stores. As inflation drove prices up, Albertson's needed to cut overhead to preserve its profit margin. To this end, it converted, between 1979 and 1981, seven stores into full-line, mass merchandise warehouse stores run under the name Grocery Warehouse. These no-frills stores carried nonfood items but emphasized groceries, with substantial savings on meat and liquor. Although these stores continued to be successful, they did not eclipse the profitability of the more broadly appealing superstores.
The introduction of the combination store and the continuing readaptation of older stores (87 percent of the company's stores were newly built or completely remodeled during the 1970s) allowed Albertson's to prosper despite the economically hostile environment of the late 1970s and early 1980s. In 1983, just after the country's most severe recession since the Great Depression, Albertson's boasted 13 years of record sales. The combination stores, both jumbo and smaller, were in large part responsible for this success. In 1983 these units accounted for only one-third of the chain's 423 stores but were the source of 65 percent of its profits.
Since Albertson's had grown by expanding over a wide geographic area rather than increasing its dominance in a smaller area, it did not hold superior market share in many of the areas where it operated. But it was this diversification, in part, that had allowed Albertson's to weather the economic storms of the 1970s and 1980s so successfully. As it happened, the areas of Albertson's concentration were the areas of relative economic prosperity. In 1981 Albertson's was operating in 17 of the fastest-growing standard metropolitan areas, as identified by the U.S. Department of Commerce. Stores in relatively stable areas helped balance losses in more depressed markets.
Although Albertson's did break into the Nebraska and North and South Dakota markets in 1981, during the 1980s it concentrated principally on increasing its presence in established markets. For example, in an effort to expand its market in Texas, Albertson's modified its advertising strategy. In 1984 Albertson's reentered the Dallas-Fort Worth area, a competitive market that no new firm had entered since Skaggs opened its first store there in 1972. The standard advertising strategy was to offer gimmicks such as double-value coupons and promotional games to attract customers. Albertson's had used such techniques, but chose to approach the Dallas-Fort Worth market with an "every day low-cost" image instead. Store circulars explained, "We won't be advertising weekly specials ... we'll pass the savings on advertising costs on to you. Tell your friends and neighbors to help us keep prices down." The campaign sparked fierce competition, but the Albertson's units continued to prosper. Although the company traditionally held an upscale profile, it began to extend the new image to other suitable markets.
As Albertson's continued to build larger concentrations of stores, its behind-the-scenes operations continued to grow. In 1982 retail management was reorganized into four operating units/regions: California, Northwest, Intermountain, and Southco. This subdivision allowed each regional director and management team to more effectively focus marketing and retail sales strategies as well as to more closely guide employee and real estate development. Albertson's built another distribution center in the Denver area in 1984 and completed its first fully mechanized distribution center in Portland, Oregon, in 1988. In addition, the Salt Lake City facility was expanded substantially in late 1988 and the Brea, California center was expanded and mechanized in 1989.
Innovation and Improvements in the Early 1990s
The expansion of Albertson's distribution network, combined with new computerized inventory and checkout scanners, enabled the chain to begin to handle its own distribution in 1990. By 1993, almost two-thirds of the items purchased by Albertson's stores were distributed by its own system.
In December 1991 Albertson's announced a five-year expansion plan that called for a $2.4 billion investment in the construction of 250 new stores, the renovation of 175 older stores, and the acceleration of computerization chainwide. By the end of fiscal 1991 (January 1992), more than half of Albertson's stores had computerized time and attendance systems, all of the pharmacies had automated prescription systems, and 96 percent of the stores were equipped with checkout scanners. In 1992 the company acquired 74 Jewel Osco food and drugstores in Texas, Oklahoma, Arkansas, and Florida from American Stores, along with a nonfood distribution center in Ponca City, Oklahoma--all for a total of $442 million. Albertson's had ambitious plans at this time, especially considering that it took the company all of the 1980s to build or acquire 283 stores. Albertson's was targeting its growth for California, Texas, Florida, and Arizona, some of the United States' fastest-growing markets. CEO Warren McCain targeted growth for smaller cities and suburbs where plentiful, inexpensive land allowed Albertson's to maximize profits.
Gary Michael became chairman of the board and chief executive officer of Albertson's on February 1, 1991, and initiated the "Service First" employee award program. The plan recognized and rewarded excellence in customer service. Michael also implemented a quarterly video news program that promoted employee understanding of Albertson's goals and objectives. The employee relations efforts resulted in a 16 percent decrease in the worker turnover rate.
Public relations in the 1990s focused on "Service First" and a new advertising theme, "It's Your Store." It was hoped that the slogan would instill in customers a sense of partnership through convenience, quality, competitive pricing, and service. The HOPE (Helping Our Planet's Ecology) line of environmentally safer paper products reinforced Albertson's commitment to the ecosystem.
By January 1992, Albertson's ran 562 grocery stores in 17 Western and Southern states, employing 60,000 workers. The company's 1991 sales and earnings hit record highs for the 22nd year: net income rose 10.3 percent to $258 million and sales grew 5.6 percent to $8.68 billion. Sales surpassed the $10 billion mark in 1993, the year that Joe Albertson died at age 86. Although modern business sensibility had cultivated Albertson's multibillion-dollar success, the solid, small town philosophy of founder Albertson--giving customers quality merchandise at a reasonable price--was at its root.
Number Two Position During the Late 1990s
By the mid-1990s, Albertson's was the number four grocery chain in the United States, with about 800 stores in 19 states and revenues approaching $12 billion. The company continued building its distribution system, with a new, one-million-square-foot center in Plant City, Florida--a facility dedicated to reviving its struggling 74-unit Florida operation--opening in early 1994. By mid-1996, with the opening of a center in Houston, Albertson's had a total of 12 distribution centers. Meantime, in early 1996, Richard L. King, a 28-year company veteran, was named president and COO, with Michael remaining chairman and CEO. Also in 1996, Albertson's introduced Quick Fixin' Ideas. This concept included offering time-starved customers recipes and all the ingredients to make them in one convenient location, as well as offering several prepackaged entrees for heat-and-serve meals (the latter an example of the trend toward home meal replacement). Having been hurt by chains such as Safeway taking business away through their aggressive promotional programs, Albertson's began to put a greater emphasis on advertising and promotion to bolster its longstanding everyday-low-price approach, an approach that some analysts said bored customers. At the same time, Albertson's took steps to improve its customer service and speed up the checkout process.
Albertson's was the object of several class-action lawsuits filed in 1996 and 1997. The suits charged that the company systematically permitted its workers to work "off-the-clock," without paying them. Albertson's was potentially liable for about $200 million in back pay and damage awards. The management contended that the suits, sponsored by the United Food and Commercial Workers, were part of an effort by the union and its allies to unionize the company's stores, only a third of which were unionized.
During the late 1990s, Albertson's continued its ongoing program of store remodeling and achieved some growth through organic expansion. It was through acquisitions, however, that Albertson's vaulted to the number two position in grocery retailing by the end of the decade. At the end of the fiscal year ending in January 1998, Albertson's operated 878 stores in 20 states and had revenues of $14.69 billion. Less than two years later, the company had grown to a nearly nationwide chain of more than 2,400 units in 39 states, with revenues of approximately $33.4 billion, which trailed only Kroger's $43 billion (the latter the product of a May 1999 merger of Kroger and Fred Meyer Inc.).
During the year ending in January 1999, Albertson's made several acquisitions that added some 80 stores to its system and brought the company into five new states: Georgia, Iowa, Missouri, North Dakota, and Tennessee. These included the purchase of Seessel Holdings, Inc., which included ten Seessel's stores in Memphis, Tennessee; Smitty's Super Markets, Inc., which included ten Smitty's stores in southwest Missouri; three Super One stores in Des Moines, Iowa; 14 Bruno's stores in the Nashville and Chattanooga, Tennessee, metro areas; and Buttrey Food and Drug Stores Company, which included 44 stores in Montana, North Dakota, and Wyoming. To gain approval from the Federal Trade Commission for the last of these acquisitions, Albertson's had to divest itself of nine Buttrey stores and six Albertson's units.
In June 1999 Albertson's made its biggest deal ever--valued at $11.7 billion, including $3.4 billion in debt&mdashø acquire American Stores Company, the successor company to Skaggs Drug Centers, Albertson's former combination stores partner. At the time of the merger, Salt Lake City-based American Stores had 288 combination stores, 514 supermarkets, and 783 stand-alone drugstores. To gain FTC approval, Albertson's agreed to divest 145 stores plus four store sites (in overlapping markets in California, Nevada, and New Mexico), in what was believed to be the largest divestiture ever ordered in relation to a retail merger. As with other consolidation moves of the late 1990s, the acquisition was driven by projected cost savings from synergies created by the merged operations. Company officials estimated that $100 million would be saved in the first year, $200 million in the second, and $300 million per year thereafter. Albertson's also announced that it would take $700 million in after-tax charges over a two-year period to cover merger-related costs. Around the time of the completion of the merger, King resigned his executive positions to "pursue other opportunities," with Michael assuming his responsibilities, at least initially.
In addition to increasing the number of units it operated to more than 2,400, the acquisition of American Stores also provided Albertson's with its first freestanding drugstores (under the Osco and Sav-on names) and placed the suburban-oriented company into its first two urban markets, Chicago and Philadelphia. During the five years following the merger, Albertson's planned to spend about $11 billion on capital projects, including building 750 combination stores, 500 drugstores, and 600 fuel centers. The company had been experimenting with some success with fuel centers that had been added to its combination stores, featuring three to six gas pumps and either pay-only kiosks or small convenience stores. Albertson's also planned to remodel about 730 units. An area of possible concern was the meshing of Albertson's mostly nonunion work force with the three-quarters unionized American Stores staff. It was also likely that the purchase of American Stores would not be Albertson's last, as its strong cash flow and balance sheet enabled it to consider further acquisitions, with the goal to create a truly nationwide chain that would be better positioned to compete with the likes of behemoth Wal-Mart Stores, Inc., which was rapidly and aggressively delving into the food retailing sector.