What Would Joe Albertson Say?
Joe Albertson was a prototypical American entrepreneur. He was born in Yukon, Oklahoma in 1906. His family moved to Caldwell, Idaho in 1909. He dropped out of the College of Idaho after two years for financial reasons.
He worked 12 years for Safeway, learning the business, and then in 1939 struck out on his own. He opened his first store on 17th and State in Boise, Idaho.
He was a pioneer of the self-service supermarket. More than that, he had new ideas for his store. He offered free parking as well as a bakery, magazine rack, the first hot roasted nut machine, an automatic doughnut machine, a popcorn machine, and their own ice cream.
The big attraction of the then large 10,000 square foot store was service. Joe Albertson believed in service.
Success followed service. He opened one store, and then another, and another, in Nampa, and Caldwell, and Emmert. He had 17 stores by 1951.
The expansion continued, California, Nevada, the Rockies, the Pacific Northwest, Midwest, Southwest, and the Southeast, hundreds, and then thousands of supermarkets and drug stores.
He stepped down as Chairman in 1976, but remained as a director until his death in 1993.
I remember the ads decades ago from employees: “It may be Joe Albertson’s supermarket, but it’s my produce department.”
Service and pride.
He built large stores in growing suburbs.
And growth. Albertsons acquired other chains to become a national retailer: Acme, Jewel, Lucky’s, OSCO, Sav-on, and Shaws.
His successors grew Albertsons, reaching 2,500 stores at its peak 13 years ago, but could not sustain it. The debt load was too great.
The company was split up. CVS Drug Stores purchased the free standing OSCO and Sav-on stores. SuperValu Stores out of Eden Prairie, Minnesota acquired 1124 stores, including Acme, Bristol Farms, Jewel, Shaw’s, and 564 Albertsons.
The venture, or vulture, capital firm of Cerberus led a group of investors who acquired 665 Albertsons, operated as Albertsons LL.C. independent of the SuperValu/Albertsons.
The acquisition was too much for SuperValu to digest. Competition in the grocery business, especially from Walmart and then Target, was too great for SuperValu to cover its debtload and invest in the stores.
Cerberus’ group on the other hand has been cleaning up. Between store closings and refinancing, they’re received a return of roughly 500% on their original investment. Cerberus is not necessarily interested in running a retail grocery chain in the long run.
It’s in it for the real estate. That means a slow liquidation of the retail stores with sales of individual stores or lots in the future.
It has just been been announced; the Cerberus Group is buying five of SuperValu’s chains, including Albertsons. The two Albertsons will be back together under one owner.
If Cerberus is up to its old tricks (Mervyns, Chrysler, GMAC), it will spin off the real estate to a separate company, and squeeze cash flow out of the retail operations, with the goal of flipping the “profitable” company back to the public through a stock offering.
Service will go down the drain. Grocery retailing is a low profit margin, highly competitive business with little customer loyalty, except for companies such as Whole Foods, which has carved out a high profit, organic market for itself.
Joe Albertson believed sales and profits would flow from service and quality. He sold beans. Cerberus counts beans.
We know what Joe would think.