business news in context, analysis with attitude

Last Friday, MNB user and Albertsons employee Greg Hall wrote us an impassioned email objecting to our characterization of the company, in its current state, as being in the death throes. He wrote:

Are you nuts? Death throes? We’re expanding, we’re hiring, we’re paying dividends every quarter and if we’re in trouble what does that say about Safeway and Kroger? Safeway can’t unload Dominick’s and Kroger can’t get into New England and they’re higher priced than we are and their stock closed at $18.99 a share which is lower than ours. Our 52 week low is $19.26 which is still higher than what Kroger is trading at today. Also, what do you mean by differentiation? We’ve got Pharmacies, Gas Stations/C Stores, in store butchers who’ll cut your meat and steaks to order, people go out of their way to buy their meat from Albertsons and the produce is top notch. You can pay at our checkout lines with credit cards, debit cards, check or cash and you can buy stamps too. You can use self checkout lanes if want too. We’ve got the best lighted parking lots in the industry, we’ve got on-line shopping and delivery. And oh yeah, if the other guys are so smart how come it was Albertsons that scored the coup with Shaw’s two years ago when we bought them from Sainsbury (who needed the cash to support their UK operations)?

Of course, we had to gently point out that we were hardly alone in our assessment, and that it is Albertsons – not Kroger or Safeway – that is for sale.

We got a number of emails about this exchange.

One MNB user wrote:

What Greg Hall writes about what is right about Albertsons is what many believe is what is wrong with Albertsons.

He says "We’ve got Pharmacies, Gas Stations/C Stores" but the problem is that pharmacy and gas is where Albertsons is depending on getting sales now and not grocery.

"You can use self-checkout lanes if you want to" because that is now a better shopping experience than dealing with an Albertsons cashier.

"We’ve got the best lighted parking lots in the industry" but they are turning off the overhead lights in the store making the sales floor look dark.

"If the other guys are so smart how come it was Albertsons that scored the coup with Shaw’s two years ago?" Because the "other guys" did not want to overpay for Shaw’s the way Albertsons did.

Another MNB user wrote:

Greg Hall is just another employee who is brainwashed by the company. It doesn't matter what happens to the company, its gone. Point Blank...Greg, you have your views but a reality check needs to be done here. Some CEO is making his money off the company as well as others. No need to argue anymore. It’s a done deal. It doesn’t matter how lit up the parking lot is or how you pay for your groceries, every grocery besides Albertson's offer's just the same. What matters in this day and age is the prices. Remember, we have a CEO that didn’t know squat about running a grocery chain, just what was in it for him...and now the time has come for which I am glad because this has been going on for 2 years. Time to start a new career.

Another MNB user wrote:

I read what the reader had to say about Albertsons buying Shaw’s and Star Markets from Sainsbury. I have to say this person most likely works for the Albertsons Division of the company. It seems rather evident that Albertsons put itself farther into debt to buy Shaw’s and Star for 2.5 billion, it would also seem logical for them to buy Shaw’s and Star Markets to boost profits and show increase in the profit lines and trading margins whereas the called Shaw’s a "cash machine".

Shaw’s was sold quickly to the fastest buyer and was not on the public auction block. If Larry Johnson had thoughts of selling the company 2 years ago he was smart to snatch up Shaw’s/Star to show a higher dollar value to the entire company. If the writer of the response looks at the first quarter results of 2005 it clearly states that one of the reason for increased profits was due to Shaw’s.

The facts are that Shaw’s/Star has some of the most advanced systems and programs in the supermarket industry and Albertsons has steadily taken from Shaw’s/Star to try to fix their problems. Unfortunately it hasn't worked. Is Albertsons really a premier retailer? I don't think so.

MNB user Amy Haefele wrote:

I hate to make a comment when somebody (the first that I've read about in a while) is enthusiastic about Albertsons - but aren't most of those "differentiating" points that he mentioned shared by a majority of other chains in the industry? Things like the acceptance of credit cards is an expectation these days, not a benefit.

We would like to say one thing about Greg Hall. Many of us may disagree with his assessment of the company, but let’s respect his loyalty and the passion that he showed for the place where he works. Albertsons would be better off if it had more people like that, not fewer…

More comments about the Albertsons situation.

One MNB user wrote:

I'll bet Joe Albertson is rolling over in his grave. Albertson's was and could have stayed a GREAT company. Poor decisions and even poorer management have ruined this hope and dream of Joe. For all the people who went to work every day and are still going to work everyday for Albertson's I feel sorry for you. As we all know, the company doesn't need money it needs a good leader.

MNB user Tom Murphy had a thought about some of Albertsons’ stores simply vanishing as the result of a sale:

Wouldn't hurt to take some underperforming floor space out of an already overbuilt industry!

And another MNB user wrote:

Like you, I am wondering what in the world Supervalu’s BIG strategy could be? Perhaps the parts being worth more than the whole, but still – who has sufficient at risk resources to start buying any meaningful sized chunks? This will be Jeff Noddle’s defining moment - either way. We echo the “good luck”.

On the subject of Los Angeles improving its school lunch programs, one MNB user wrote:

I applaud Los Angeles’s efforts to improve the school lunch program, however, any school trying to achieve this needs to make sure the food is visually appealing and it needs to taste good. I used to volunteer at my sons’ school in the cafeteria; they had good food but so much of it was thrown away because the kids didn’t eat it.

Improving the program is one thing, getting them to eat it is another. I hope the rest of the country follows their lead.

However, another MNB user observed:

Did you know that the Mayor is about to take over the schools in LA because they are being run so incompetently? LA Unified School District is one of the worst scoring school districts in the country and they have time to worry about this?

MNB user Matt Weeks had some thoughts about our story regarding the LA City Council preparing to pass legislation that would require supermarkets that acquire stores to retain the old stores’ employees during the transition. If finalized, the law would say that any employee who worked for the original company for at least six months would have to be kept on for at least 90 days unless there is a legal cause to terminate them.

Seems to me that there is an undertone to the proposed rule that no one is saying out loud:

-best way to slash a lot of cost is to furlough long-term (and presumably higher-paid) employees and replace them with inexpensive new-hires

-older workers are most often the ones that fall into this category, and oh, by the way, have substantial pension benefits

-if we can't make the numbers work in the merger using the old formula of "1+1 = more than 2," we'll do it the only other way we know how--- fiddle with employee costs.

It is NOT about keeping "good" workers and shedding "poor performers."

It is NOT about food safety.

It is NOT about anything relating to customer service or customer retention.

It is NOT (strangely) about maximizing shareholder value (though it frequently masquerades as such).

I was in the merger and acquisition business in the 1980s and 1990s and the one thing I can tell you is that the whole focus is on slashing costs fast to make Wall Street believe that the acquisition was smart.

That means the really challenging things, like integration of the brands, retention of best customers, etc. get left to "long term" initiatives, and the only thing left on the table is selling real estate, shuttering unprofitable or redundant stores and getting rid of expensive people. Shockingly it is quite simple to show a good bottom-line in the short term by easing out expensive, longer term employees. If you factor-in the often onerous defined-benefit pension plan liability of middle aged workers, the bottom line number looks great for a couple of quarters or even a year.

Unfortunately that is exactly what leads to poor customer service, erosion of loyalty and overall destruction of value to both brands.

Sad but true that most acquisitions destroy more value than they create. But in many cases it is still more expedient, simpler to explain and even more exciting for the exec team to acquire customers than to compete for them. So the learning here is that those companies not involved in mergers should take good care of their long term employees and use them as the competitive leverage to engage customers and differentiate in the midst of chaos. Is this Pollyanna? Of course I'm not drinking the Kool-aid here, but I HOPE that where there is good leadership and great vision the execs will take note of this.

I remain cautiously optimistic that there are great leaders in the exec suites and they already know all this. I'm just perplexed as to what seems to sabotage their attempts to 'do the right thing." Call me a reckless optimist.

As for the LA rule, it is probably going to be deemed moot, because there is already something on the books called the WARN act, which requires large employers to "notify" employees in the case of a plant or store closure at least 90 days prior to the closure, or pay them out at least 90 days after the layoff. In this case most supermarkets are too small to be applicable according to the letter of the law, but the large companies will probably comply anyway just to stay out of the news and out of court.

Another member of the MNB community wrote:

California continues to make it difficult to succeed in business...then wonders why businesses (and residents) are flooding out of the state!

And yet another MNB user wrote:

Living here in Southern California this activity does not surprise me. It seems that almost every local politician is in some way in the “pocket” of the unions or their organizations. While union employees make up a relatively small minority of the workforce, the unions yield unbelievable clout and are able to get the most amazing things passed that wind up even costing the taxpayers money, yet alone private employers. This legislation is aimed at Albertson’s no doubt for the conversion of a few stores to non-union Bristol Farms. There are a lot of companies being bought and sold every day here and now we have to single out this industry. Why? Because the unions want it done and the politicians figure it does not hurt them. I have a friend running for public office and the local government union “interviewed” him for their endorsement. During the interview they basically told him, you will do what we want or you will not be elected. We have a lot of money and we know how to use it for you or to defeat you. Which is it you want?

You’re probably right about the Albertsons-Bristol Farms analysis.

But we know one thing about Bristol Farms. If there are good employees who fit into its consumer-oriented, entrepreneurial culture, it will want to keep them. But if people can’t deliver, we can’t imagine how some law should be able to force the issue.

Finally, we commented last week that we’d eaten our first prune…and received an avalanche of emails pointing out that they aren’t prunes anymore – they’re called dried plums.

True. Except that the bag we were eating from is labeled “SunSweet Dried Plums - Pitted Prunes.”

You can call them whatever you want. We learned one lesson the hard way.

Never, ever eat more than four at a time.
KC's View: