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Albertson’s Plans Upscale Push With Expansion

BY ANDY FIXMER division have been meeting to Staff Reporter identify where the conversions should take place, said sources familiar with the process. Albertson’s Inc. is planning an Potential sites are in Santa aggressive expansion of its Monica, Studio City, Sherman recently acquired Bristol Farms Oaks, Encino and communities in chain, potentially tripling the Ventura, Orange and San Diego number of stores under the counties. By late 2006, Bristol upscale banner. Farms may open Northern Sources familiar with the plans California locations. said the Boise, Idaho-based “They are working on it now,” chain wants to add said Greif, president of L.A.- about 10 new locations next year, based Greif & Co. “The task with the first three to be presented to executives at Bristol announced as early as January. More: Size of chain could triple by Farms is: ‘How fast can you Another 10 could open as soon as grow the chain and what Albertson’s executives have 2006. synergies can you come up been mostly silent about their The expansion of the chain’s with?’” intentions for Bristol Farms. current 11 units will take place Kevin Davis, Bristol Farms’ During a recent conference call through the conversion of president and chief executive, did with analysts to discuss third existing Albertson’s properties not return calls. Lilia Rodriguez, quarter results, Chief Executive and the purchase or lease of new an Albertson’s spokeswoman, Larry Johnston said the locations. said, “I cannot comment on acquisition was a long-term “Albertson’s is like a little kid industry rumors.” investment aimed at entering the in a candy store,” said Lloyd high-end grocery market. Greif, the investment banker who Consistent with strategy The Bristol Farms deal, represented Oaktree Capital estimated at about $135 million, Management LLC in its sale of Albertson’s plan to expand closed Sept. 21 and was seen by a Bristol Farms. “Unlike other Bristol Farms is in keeping with number of analysts as a way for grocery stores, Bristol Farms is what the company, the nation’s Albertson’s to gain market share undersaturated. They have barely second-largest grocery chain, has and win back customers lost scratched the surface of the done in other markets, according when unionized grocery workers chain’s potential.” to Mitchell Corwin, a went on strike in late 2003. Bristol Farms stores average supermarket equities analyst with During the call, Johnston said 15,000 square feet, and first on Morningstar Inc. that sales at Albertson’s stores, the list of conversions will be In Texas and Louisiana, unlike those operated by its smaller, older Albertson’s Albertson’s is converting both competitors Co. and and Sav-On drug existing and vacant stores to Inc., have returned to stores in communities without a discount supermarket concepts pre-strike sales levels in Southern significant high-end grocery under the banners of recently California. presence. (Sav-On is owned by purchased chains Super-Saver He told analysts that Bristol Albertson’s.) The standard and Max Foods, Corwin said. Farms had plenty of “opportunity Albertson’s store can be as large “What they would do with for organic growth,” and that it as 55,000 square feet. Bristol Farms makes sense,” he would continue to be run by a Executives with Bristol Farms said. “It’s the same thing they are separate executive team more and Albertson’s real estate doing elsewhere.” familiar with the needs of the Bristol Farms. If it’s a lower stores’ “demanding clientele.” income area, they can put in a “The performance of the stores Super-Saver.” continues to be strong,” Johnston While Greif wouldn’t comment said, “and they continue to hold on which Albertson’s and Sav- onto gains made On stores would be converted to during the Bristol Farms first, he said the supermarket strike.” formula for finding candidates Still, Albertson’s third-quarter was pretty simple. earnings were shy of “Basically take a map of every expectations. Executives blamed Bristol Farms location and super- price-cutting aimed at staying impose a map showing where the competitive with wholesale median income is above discount stores, and the loss of $100,000,” he said. “You’ll find wealthier customers to markets there are plenty of gaps that need such as Monrovia-based Trader to be filled.” Joe’s Co. Inc. and Austin, Texas -based Inc. Albertson’s reported net income of $110 million, compared with $92 million for the like period a year earlier. Sales were $9.99 billion, up from $8.72 billion. Price cuts and promotions during the last six months of the year were expected to drag earnings to the bottom of its initial forecast of $1.40 to $1.50 per diluted share. “Supermarkets are getting squeezed at the low end and the high end of things,” said David Dietz, chief investment analyst of Point View Financial Services, which manages investments in Albertson’s and other companies. “What Albertson’s is trying to do is experiment with the ‘If you can’t beat them, join them’ concept. They hope to stay competitive by converting some stores or chains to the very low end or very high end.” Corwin said the expansion was also part of Albertson’s strategy to place stores in wealthier neighborhoods. “To be the supermarket of choice for their customers, they want to have different concepts to tailor stores to different demographics,” he said. “If they have a higher-end consumer they are going after, they can put in a