Albertsons readies IPO
BOISE, Id. — Albertsons completed its acquisition of Safeway earlier this year to create a $57.5 billion company that now plans to return to public ownership with a major stock offering that has implications for trading partners and competitors.
Albertsons became one of the nation’s largest food and drug retailers after completing its acquisition of Safeway in late January. The company now operates 2,205 stores with 1,698 pharmacies and 378 fuel centers in 33 states under 18 banners including Albertsons, Safeway, Vons, Jewel-Osco, Shaw’s, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market and Carrs. Of the 121 major markets in which it operates the company claims to be ranked first or second in market share in 68% of them.
The company relies on what it says is a simply operating philosophy of running great stores with a relentless focus on sales growth. It contends there are significant opportunities to grow sales, enhance profits and generate free cash flow by further improving identical store sales, upgrading fresh, natural and organic offerings and expanding private label. Other aspects of the company’s strategy, which are identical to most other food retailers, involve driving growth by leveraging loyalty programs, capitalizing on demand of health and wellness services, upgrading its store portfolio, innovating and sharing best practices across its multiple divisions.
While many aspects of the company’s strategy sound familiar to competitors, the company claims it has developed a proven and successful operating playbook that differentiates it from competitors. For example, Albertsons employs a decentralized management structure in which division and district-level leadership teams are able to create a superior customer experience and deliver outstanding operating performance.
“These leadership teams are empowered and incentivized to make decisions on product assortment, placement, pricing, promotional plans and capital spending in the local communities and neighborhoods they serve,” according to the company’s S-1 registration statement filed with the Securities and Exchange Commission.
As evidence of its success, Albertsons points to a 7.2% identical store sales increase at non-Safeway stores and by implementing the operating approach at acquired Safeway stores the company is looking to build on the 3% comp increase that banner generated in 2014.
In addition to some solid top line sales growth, another aspect of the Albertsons story of interest to investors – but perhaps less so to suppliers and employees – is the company’s plan to extract a whopping $800 million in synergies from its acquisition of Safeway as a means to improve profitability.
“We expect to achieve synergies from the Safeway acquisition of approximately $200 million during fiscal 2015, or $440 million on an annual run-rate basis, by the end of fiscal 2015. Approximately 80% of our $800 million annual synergy target is independent of sales growth, which we believe significantly reduces the risk of achieving our target,” according to the company.
Big portions of the expense savings are expected to come from familiar sources such as simplifying business processes, rationalizing headcount and extracting more favorable terms from branded and private label suppliers.
“We anticipate extending the expansive and high-quality own brand program developed at Safeway across all of our banners. We believe our increased scale will help us to optimize and improve our vendor relationships,” according to the company. “We also plan to achieve marketing and advertising savings from lower print, production and broadcast rates in overlapping regions and reduced agency spend. Finally, we intend to consolidate managed care provider reimbursement programs, increase vaccine penetration and leverage our combined scale.”
Adobe, IBM partnership offers potential for personalization
An expanded relationship between IBM and Adobe promises to give retail marketers new dynamic personalization powers to increase sales.
Adobe announced an integration with IBM WebSphere Commerce that the companies believe give marketers the ability to create and deliver powerful experiences across all digital channels.
The new partnership is said to leverage the power of Adobe Experience Manager and IBM WebSphere Commerce to deliver highly personalized, experience-driven commerce. For example, the partnership allows marketers to automatically synchronize creative assets to provide a seamless flow from creation to execution for all content, creative and digital assets without relying on IT.
According to the companies, other benefits include the ability to personalize and curate assortments while optimizing the experience in response to real-time conditions and responding to unique shopping behaviors by seamlessly connecting digital and physical retailing environments.
According to Errol Denger, head of Adobe’s commerce program, being noticed and differentiating sites in today’s crowded digital world requires high fidelity shopping experiences that bring products to life or provide rich information to simplify complex procurements scenarios.
The Adobe and IBM integrated solution will empower line of business to create and deliver high fidelity experiences across all digital channels because the latest version of Adobe Creative Cloud automatically synchronizes creative assets while Adobe Experience Manager provides a seamless flow from creation to execution for all content, creative, and digital assets, according to Denger.
“Consumers and buyers expect iconic brand experiences which enable them to interact with a brand across any medium," said Adam Orentlicher, director of e-commerce offerings and strategy for IBM. "With this new partnership, our most creative clients can leverage the full power of IBM WebSphere Commerce and Adobe Experience Manager as a compelling option to deliver highly personalized, experience-driven commerce."
The problem is that most shopping sites are not meeting these needs, according to Denger. A 2015 study by Razorfish found more than half of all shoppers agree that online shopping sites need improvement. As customers switch channels, this dissatisfaction increases due to inconsistent experiences, lost context, and misaligned capabilities. The proliferation of new touch points such as wearables and interactive store displays further compounds these challenges, according to Denger.
For more of Denger’s thoughts on the topic of experience drive commerce, check out his blog posts here.