Albertsons took the lemons of a crisis, made lemonade

Vivek Sankaran took over as CEO of Albertsons Cos. 2½ ago after a decade with Frito-Lay, a subsidiary of PepsiCo.

He arrived in Boise to head a company saddled with debt, fueled by the 2013 SuperValu buyout and the purchase of Safeway two years later. Three months before Sankaran was hired, Albertsons reported long-term debt of $10.7 billion. At the end of the company’s second quarter, as of Sept. 12, debt totaled $8.46 billion.

Buoyed by huge sales jumps because of the coronavirus pandemic, Albertsons’ debt is no longer so worrisome. The company has responded to pandemic-altered consumer preferences and increased the number of stores offering online ordering and grocery pickups. And Albertsons in June finally began selling stock to the public, although investors haven’t begun earning much money yet.

Albertsons is one of Boise’s iconic companies. It’s the biggest company based in Idaho, with $62.5 billion in annual sales and more than 300,000 workers nationwide, including about 4,700 in Idaho.

“We are transforming the business,” Sankaran said during a video interview with the Idaho Statesman. “We are modernizing the business.”

Sankaran, 57, grew up in India, where he earned a bachelor’s degree in mechanical engineering before moving to the U.S. and earning two master’s degrees. He’s one of three CEOs of Boise companies from India: Sandeep Sahai, of Clearwater Analytics, and Sanjay Mehrotra, of Micron Technology, are the others.

For the first time since becoming CEO, Sankaran is granting interviews to Boise news media. Business reporter John Sowell asked Sankaran (his full name is pronounced Vuh-vek SHAN-kah-rahn) about Albertsons’ experience through the pandemic and other topics.

Question: Let’s talk a little bit about the coronavirus pandemic: what it’s meant for the company and where you see things going in the next few months.

Answer: We are 10 months into it now, and I think of this in three phases. The first phase back in March, April was all of us trying to figure out what this is about and how to make sure that we are keeping our associates safe, our customers safe and making sure there’s plenty of supply of product.

The second phase was about stability. We learned how to operate in this environment. Shoppers learned how to shop in this environment. They’re using delivery, or picking up groceries in the parking lot, or coming into the store.

Now, we’re going into a third phase, where we know we can see the vaccine. It’s closer than we ever imagined. But we still have a tough winter to go through.

And I think we’re going to go through it with a little bit of a spike in demand, like we’re seeing now. People are starting to pick up more paper products and things. I’m hoping that we’ll see continued stability of food products. And so I think we’re entering a phase where we’re all going to find a way to hunker down, be safe and get through this tough winter.

We have learned how to operate in this environment and celebrate really what we are great at — which is a fresh product, the produce, the meats. Because of that, we have gained a lot of market share. We are winning just about everywhere in the country, and what’s happened gives us a chance to not only continue to win, but to keep all of that business that we’ve gained.

The second thing we’ve learned is we’ve accelerated a lot of things like our e-commerce business. We’ve changed the capacity and the capabilities in that.

We are starting to think about meal solutions where it’s time to reinvent parts of the business so that we will be ready for the future. So disruptions sometimes can hurt you. Or if you have a great mindset, you can find a way to separate yourself from competitors. And that’s what we have done.

We had formulated a strategy where we were getting ready to accelerate it in late 2019 and the beginning of 2020. When the pandemic came, demand surged for e-commerce much faster than we imagined. We knew we had to get done in a few months what would have taken us a year or two to do. We opened up more locations where we can offer Drive Up & Go, where you order online and pull into the parking lot to pick up your order. We got to 950 locations in Quarter 2 and plan to get to 1,800 over the next 12 to 18 months.

We had to rewrite all our algorithms that predict demand and that allocate labor. We’re changing the interface for the customer, because they want it to be easy and fast.

Q: What percent of your sales are you seeing from e-commerce vs. people going into stores?

A: We don’t disclose the percentage numbers, but some of our competitors do (Kroger announced that digital sales more than doubled, up 127 percent for the quarter ending Aug. 15 compared with the same quarter a year earlier). We are a bit below that.

Let me put it this way: It is really a noticeable part of the business now, an important part of the business and a part of the business that ‘s growing really fast.

People started using it from a safety standpoint. Now, they’re recognizing the convenience of it. We’ve got to be really good at it. If you order produce or order fish and come home and open the package and it’s not high-quality, it becomes a huge disappointment. We spend a lot of time on the right quality. That’s part of the legacy of Joe Albertson.

Even though we offer delivery, the Drive Up & Go is growing faster. The reason I believe that’s happening is because you’re driving up to a store you’re familiar with. You’ve shopped there a long time, you know the butcher behind the block, you know the cashier, the produce clerk. So you feel more comfortable that that product is coming from that store. It’s just being picked by someone else.

Q: What does the future hold? When you look at the (some of your Boise-area stores) that’s quite a different model than the traditional Albertsons store.

A: When you see the store in Meridian and at Broadway, they’re close to home, and we have the luxury of experimenting. We put a lot of things in those stores to see what’s working and what’s not working.

The general theme you see in those stores you’re seeing in many of our new stores. It’s an experience. There’s beautiful colors from the fruit and the vegetables, you see the deli, you see somebody cooking, you go to the bakery.

We think there is a role for stores to provide that kind of an experience for people who care about fresh products. There’s also a section of the store that people think of as a chore: You’ve got the list, you’re going to go up and down the aisle filling the list and you want to do it as fast as you can to get out of that section.

And there’s the checkout area where you either want somebody to treat you really well and you feel like that was a good human interaction or you don’t want to remember it at all because it was so easy, smooth, or you checked out yourself.

And what you’re seeing in those stores is more of that experience. After the pandemic, I think people will come right back to it. If you had gone to the Broadway store during last year’s Super Bowl, it was packed upstairs with people watching the game. In a grocery store. That’s what we want.

Q: Debt has been a big issue for Albertsons for a number of years. The company has been paying down the debt. What’s the future of that?

A: We are at a very good place on that. The way to think about that is as the ratio of debt to our EBITDA, earnings (earnings before interest, taxes, depreciation and amortization, a measure of a company’s profitability and its ability to pay off debt). Back at the time of acquisition, it was close to five, 4.75. Right. During the last quarter, we were at 1.6. (A lower number indicates a company is not excessively indebted and should be able to repay its obligations.)

So we’ve paid down debt steadily over the last several years. And we’re now at a place where paying down debt is not a must-do to increase the safety of the company. The debt levels are very, very manageable today, and we’re putting more of our money into growth initiatives like, like e commerce, like a meals program.

Q: What do you say about Albertsons being founded here in Boise and Safeway being established in American Falls and the combined company is now the second-largest grocery chain in the country?

A: It’s a fantastic story about our company’s starting in Idaho and going through a series of challenges through our history. But here we are back together as one of the largest retailers and grocers in the country.

But what I’ll also tell you is that we are transforming the business, we are modernizing the business. We are putting investments with technology and such so that we’re going to improve and be stronger as the years go by. We’re going to come out of this pandemic stronger, so much stronger than we went into it.

CORONAVIRUS PANDEMIC BOOSTED STORE SALES

Albertsons, like other grocery chains, has benefited greatly from the coronavirus pandemic. As fewer people go out to eat at restaurants and families stay home, grocery stores have picked up much of the slack. Identical-store sales, an important indicator of a retailer’s strength, have risen 15.5 percent for the fiscal year.

Digital sales, including home delivery of groceries as well as orders customers place online and pick up at their local store, increased 243 percent in the second quarter. The service is so popular at the company’s store at 16th and State streets, Albertsons added additional parking spaces in front of the store for pick-up customers.

“It’s really a noticeable part of the business, an important part of the business and a part of the business that’s growing really fast,” Sankaran said.

Albertsons, the second-largest U.S. grocery chain, behind Kroger, was founded by Joe Albertson in 1939 in Boise.

In 2006, the original Albertsons Inc. broke apart amid continuing losses. Supervalu, a Minnesota grocery wholesaler, bought most of the company, including all the Albertsons supermarkets in Idaho and various chains under other names. Cerberus led a private-investment consortium that bought 660 supermarkets carrying the Albertsons name — stores Supervalu didn’t want — in the South and Southwest.

That resulted in two chains under the Albertsons banner. Both shrank. Supervalu failed to make its stores profitable, and in 2013 the Cerberus consortium, thriving with its 190 remaining Albertsons stores (still run quietly from Boise), bought Supervalu’s 877 remaining stores carrying multiple banners. What was left of the old company was reunited.

Then, in 2015, Albertsons bought California-based Safeway, an even bigger company. While gaining 1,325 stores, Cerberus saddled Albertsons with $8.9 billion in debt.

Albertsons announced plans for an IPO of 65 million shares but backed out after investors looked to pay $17 a share, much less than the $23 to $26 that Cerberus and its partners wanted.

In 2018, Albertsons planned once again to go public after agreeing to buy most of drugstore chain Rite Aid Corp. But the companies abandoned their $24 billion merger after one of Rite Aid’s largest investors criticized the deal as bad for Rite Aid shareholders. The IPO was shelved again.

Albertsons suffered heavy losses between 2014 and 2018 but has improved its bottom line since. The company has remodeled stores and opened larger stores geared toward foodies such as the Broadway Avenue Albertsons in Boise and the Albertsons Market Street store in Meridian.

The company also has invested in technology, sold off some of its real estate and added home delivery and store grocery pick-up options.

Albertsons operates under a number of banners, including Vons, Jewel Osco, Lucky and Haggen. It has 2,252 stores in 34 states and the District of Columbia, with annual sales of $68 billion

Albertsons went public in June, selling stock on the New York Stock Exchange. Shares were trading Thursday at 15.93, up 1.1 percent.

People started using (Drive Up & Go) from a safety standpoint. Now, they’re recognizing the convenience of it. We’ve got to be really good at it. If you order produce or order fish and come home and open the package and it’s not high-quality, it becomes a huge disappointment. We spend a lot of time on the right quality.”

Albertsons CEO Vivek Sankaran