Working Hard to Make Life Easier for Our Customers
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Working hard to make life easier for our customers 2004 ANNUAL REPORT How do we define easier? Fresh new products and ideas. Faster, more convenient service options. Better value on everyday shopping needs. More choices to suit more lifestyles than ever before. These are the ideas reshaping our enterprise, re-energizing our associates and redefining our brand promise at Albertsons today. Around the store, around the neighborhood, across a vast enterprise, everyone at Albertsons is working hard to make life easier for our customers. 11010_PGS.01-17.1 5/11/05 7:58 PM Page 1 It’s a fresher shopping experience… 11010_PGS.01-17.1 5/11/05 7:58 PM Page 2 with a wild harvest of organic choices... 11010_PGS.01-17.1 5/11/05 7:58 PM Page 3 a leading edge store design to serve every neighborhood’s needs. 11010_PGS.01-17.1 5/11/05 7:58 PM Page 4 It’s a faster response... 11010_PGS.01-17.1 5/11/05 7:59 PM Page 5 with 24 hour pharmacy service... and a fast lane self-checkout... 11010_PGS.01-17.1 5/11/05 7:59 PM Page 6 with convenient service options built into every store. 11010_PGS.01-17.1 5/11/05 7:59 PM Page 7 It’s bigger, better, broader value on items you buy every week. 11010_PGS.01-17.1 5/11/05 7:59 PM Page 8 It’s a premium quality product line minus the premium price... 11010_PGS.01-17.1 5/11/05 7:59 PM Page 9 and 10 for $10 national specials to stock your pantry shelves. 11010_PGS.01-17.1 5/11/05 7:59 PM Page 10 It’s more choices for more lifestyles than ever before… 11010_PGS.01-17.1 5/11/05 8:00 PM Page 11 with strong brand partnerships 11010_PGS.01-17.1 5/11/05 8:00 PM Page 12 and a low price format from Super Saver... 11010_PGS.01-17.1 5/11/05 8:00 PM Page 13 with exciting new banners, from Shaw’s... to Bristol Farms. 11010_PGS.01-17.1 5/11/05 8:00 PM Page 14 page 14 ALBERTSONS 2004 ANNUAL REPORT Making life easier for our customers Larry Johnston Chairman of the Board, Chief Executive Officer & President 11010_PGS.01-17.1 5/11/05 8:00 PM Page 15 ALBERTSONS 2004 ANNUAL REPORT Making life easier for our customers page 15 Letter to Shareholders As I travel the country visiting our stores, I’m sometimes asked, “Larry, have we hit the target? Is the restructuring over? When is the transformation complete?” My answer is always the same — Never! When you operate in an industry that is constantly changing, you must have an organization that is always adapting. Most importantly, when you serve a target customer who is constantly redefining her needs — not to mention discovering new ones — you need a team that never stops innovating! That’s the kind of enterprise we’re building today at Albertsons. Let me give you a progress report on what turned out to be another economically and competitively challenging year for food and drug retailers. Our 240,000+ associates continued their focus on the five imperatives that drive our success: 1) A customer-focused approach to growth; 2) aggressive cost and process control; 3) maximize return on invested capital; 4) a company-wide focus on technology; and 5) energized associates. Here’s what was accomplished during the year! Tot al sales grew +14% to $39.9 billion. Cash flow from operations grew +38% to $2.1 billion. Delivered total net earnings from continuing operations of $474 million or $1.28 per diluted share, despite the challenges associated with the largest labor dispute in the industry’s history and the four hurricanes that hit Florida. Tot al retail square footage grew +11% to 104.2 million square feet. $1.3 billion was invested in new company infrastructure and technology. We paid a dividend with an average yield of 3.2%, ranking Albertsons in the top 20% of S&P 500 companies. This, coupled with our 5.4% increase in market value during calendar 2004, gave our shareholders a total return of over 8%. Our share of the important Southern California grocery market returned to historical levels and above, following the labor dispute. Our core grocery business was expanded on both a geographic and a market segmentation basis as we completed the acquisitions of Shaw’s and Bristol Farms and also launched a new price-impact format, Super Saver. We passed the $1 billion mark in total cost savings since the turnaround of our company began in mid 2001, reaching the target one full year ahead of schedule. 11010_PGS.01-17.1 5/11/05 8:00 PM Page 16 page 16 ALBERTSONS 2004 ANNUAL REPORT Making life easier for our customers The rollout began for a new industry-leading pharmacy buy of the week” promotions have in some cases automation system that is revolutionizing how we serve been so successful that we have literally sold out the customers, ultimately providing them with access to their available inventories of our suppliers. prescriptions, account information and pharmacy records at any of our 2,000 pharmacies, by telephone or via any Our ability to design and implement such effective computer they wish to use. customer focused programs is, in turn, a direct result Finally, in one of my proudest moments since taking the of the significant progress we have made in building helm at Albertsons four years ago, I watched in awe and a faster, better integrated consumer demand chain. respect as our Florida associates and the men and women The speed and efficacy with which we are monitor- across our enterprise who support them, pulled together ing consumer desires and meeting them with compet- in a truly heroic effort to reopen our Florida stores in itively priced merchandise is growing every day. areas of the state that were ravaged by four consecutive Price optimization and promotional effectiveness hurricanes. Despite personal loss and tremendous physical tools are just two dimensions of our new surgical obstacles, they had almost every one of our hurricane- pricing systems. Our increasing power to move large affected stores reopened and serving critical customer volumes of product in effective, nationally coordi- needs within 48 hours. nated promotions has also caught the attention of our vendors. As these coordinated promotions What was perhaps most exciting about 2004 was become better integrated into our consumer demand that we began to see the mounting impact of our five chain, opportunities to capture even greater savings strategic imperatives, and how their applications are will continue to emerge. beginning to drive change across the vast Albertsons In addition to better value, Albertsons customers enterprise. now have more choices than ever before in how and That impact centered directly on our customers – where they shop. During 2004 we continued the the focus of everything we do at Albertsons today. rollout of our new Renaissance drugstore format. Following more than three years of success in extract- This new format provides a more exciting shopping ing costs from our operations, last year we accelerated experience through the addition of enhanced beauty the reinvestment of a substantial portion of those care, digital photo and an expanded food offering. savings in nationally coordinated pricing and mer- Nearly 100 drugstores as well as the drug side of chandising strategies that are putting smiles on the our grocery stores now include elements of the faces of our customers and vendors, while boosting Renaissance format. our market share. In April 2004, we completed the acquisition of a At the heart of this strategy is a new pricing program. highly regarded food retailer with market-leading “Check the Price” is simply a commitment to deliver positions in the six New England states where it competitive, everyday value pricing on a broad array operates. The Shaw’s supermarket chain is an of items that our customers buy every week. This is a innovative merchandiser and marketer that brings long-term strategy designed to win customer loyalty significant synergies and human capital to the and the early results have been very encouraging. Not Albertsons leadership team. We acquired the com- only are we recapturing old customers and attracting pany for approximately $2.5 billion, an investment new ones, but we’re also delivering significant base that was immediately accretive to consolidated sales growth in affected product items and categories. earnings. By the end of the third year following deal closure, the Shaw’s acquisition is expected to Other, more targeted merchandising programs deliver annual savings in operating expenses of have been equally successful in both food and drug $100 to $125 million. The integration is on track stores. Our weekly “10 for $10 Sale Mix or MatchSM ” and actually delivering synergies ahead of schedule. program encourages customers to stock their pantries at competitive prices. In addition, our “extreme value 11010_PGS.01-17.1 5/11/05 8:00 PM Page 17 ALBERTSONS 2004 ANNUAL REPORT Making life easier for our customers page 17 In September, we also entered the price impact installed. Meanwhile, our Shop 'n' Scan system is segment, launching our new Super Saver chain with being used by consumers in over 100 stores primarily the opening of the first seven locations in Texas and in the Dallas-Fort Worth metroplex as we test new Louisiana. This new format is operated through an applications and ready the system for expansion. independently managed entity and offers a limited assortment of high quality food items, and when The company also made major strides in 2004 to space allows, an Osco or Sav-on pharmacy in a further energize associates and develop a stronger bright, clean environment with minimal services in bond in the communities where we live and work.