Albertson’s to Add, Change Stores

Supermarket giant Albertson’s Inc. said Wednesday that it would spend $1 billion in the next three years to remodel and add expanded food and drug stores in Southern California to better compete with rivals Ralphs and Vons.

Boise, Idaho-based Albertson’s has been struggling to gain a bigger share in this highly competitive market after acquiring the Lucky chain when it bought American Stores Co.

The investment will be split between its Albertsons and Sav-on Drug chains. Over the next three years, it will open about 30 new Albertsons stores and remodel 82 of its existing 268 locations in Southern California. Sav-on, the leading drugstore chain in Southern California, will remodel 20 of its 304 stores and open about 96 new stores, officials said.

Although rivals Ralphs and Vons have added pharmacies to many of their supermarkets over the last several years, many of the new Albertson’s stores will put a full supermarket and drugstore under one roof.

Albertson’s has run these hybrid stores for a number of years in markets such as Reno, Tucson and Chicago with much success.

“I believe these stores will really win over customers,” said Jonathan Ziegler, an analyst with Deutsche Bank in San Francisco.

Although it had cut prices and run more promotions, analysts said, Albertson’s smaller, dated stores, mainly former Lucky stores, put them at a competitive disadvantage. “Lucky hadn’t done a lot in keeping these stores current,” Ziegler said.

The Albertsonses and Sav-ons will be managed separately, but share the same space and checkout stands so customers can fill their basket and pay at one time.

“They already have customers in their stores; now they can just get them to buy a bigger basket,” said Meredith Adler, an analyst with Lehman Bros. in New York.

The first of the new hybrid supermarket-drugstores will open in about a year, officials said, and they will make up a large number of the remodels and new store openings.

However, officials declined to give specific locations or the number of these new hybrid stores planned.

“The reason we’re putting them together is to increase sales,” said Albertson’s President Peter Lynch. Its converted food and drug stores in Chicago have seen sales increase in the “double digits” from the make-over, he said.

Albertson’s last year declared its intent to boost business in California, the largest food market in the country.

Albertson’s had alienated many Southern California customers after it bought the Lucky chain in 1999 and changed its name.

With no club card discounts and fewer of the bargains its competitors offered, the chain had lost some ground with shoppers.

But over the last year, cost cutting and more competitive promotions have put the chain back on track, analysts said.

And with stores in mostly prime locations, the overhaul should help the chain, which operates 2,300 stores nationwide, to turn up the pressure on its rivals.

Safeway and Ralphs officials declined to comment on the increased competition other than to note the number of stores they have opened or remodeled in the last year.

The nation’s top three supermarket chains have struggled to stem the loss of food sales to club stores, drugstores and discounters like Wal-Mart Stores Inc., which announced last week that it was building 40 stores in California over the next four to six years.

News of the move pushed Albertson’s stock up $1.91 to $34.06 on the New York Stock Exchange.