Albertsons: incremental store pickup sales improving digital profitability

Date : 26 April 2021

Stewart Samuel

Program Director - Canada

We review Albertsons’ fourth quarter results, which contributed to an outstanding full year performance, with sales hitting a record $70bn. The retailer plans to press on with its strategic growth and cost savings initiatives, including plans to simplify its supply chain and product sourcing.

Q4 and full year key numbers

  • Sales and other revenue increased to $15.8bn, driven by a 11.8% increase in identical store sales
  • Digital sales grew 282%
  • Adjusted net income increased to $347.2m, from $194.2m in 2019
  • For the full year, sales and other revenue increased 11.5% to $69.7bn
  • Identical store sales increased 16.9%
  • Digital sales were up 258%
  • The retailer expects identical store sales to fall 6-7.5% in 2021, with two-year stacked growth of 9.4-10.9%

Accelerating progress against strategic initiatives

The COVID-19 pandemic was a transformational year for Albertsons as it dealt with the impacts of the pandemic and pressed ahead with its digital transformation. These events combined, enabled the retailer to attract new customers and significantly deepen its engagement with its existing base. The company plans to push ahead and further enhance these relationships through creating a differentiated offer centred around fresh foods and its private labels, extending the breadth of its offer, driving in-store execution and further developing its suite of omnichannel capabilities.

Valuable omnichannel shoppers

As with most retailers, digital has been at the heart of the retailer’s growth over the year, with over $300m invested to enhance the offer and deliver new capabilities. In the fourth quarter, digital sales growth accelerated to 282%. Albertsons ended the year with 3x the number of omnichannel households compared to 2019. These households spend more with the retailer and are more profitable. Total spend is 2x that of an exclusively in-store shopper. While delivery is not profitable, incremental sales through its Drive Up and Go model is driving profitability which will improve as the business scales.

Source: IGD Research

Profitable store pickup model

Investments are focused on improving execution and providing more options to capture consumer demand for more convenient experiences. Its Drive Up and Go programme is on-track to be live in 2,000 stores by the end of the year, while several other pilots are underway. These include automated delivery robots, walk-up counters and standalone kiosks. It has also improved its picking software, optimising and standardising the picking process to drive cost reduction to increase picks per hour, and improved order prioritisation. This month it will be opening its third automated micro-fulfillment centre, with a further six planned this year.

Improving digital engagement

Membership of its digital-first loyalty programme, Just for U, also continued to accelerate with 24.5m members and a 93.1% retention rate. Growing this has been important, given that members spend 2.6x more than non-members. By the end of the year, almost 11.5m more identified households were shopping its stores compared to 2019. This is providing it with a deep level of insight, enabling it to personalise the experience. The retailer plans to further enhance the rewards structure, adding in experiences and omnichannel related offers.

Changing how it buys

The company also made progress against it cost savings plan, delivering $500m in gross productivity savings during the year. Given its progress and incremental opportunities, it expects to exceed its $1bn 2022 target, increasing it to $1.5bn. The additional $500m will mainly be driven by new supply chain transformation projects and further optimisation of promotional spend.

Bigger changes underway?

Within the supply chain, the retailer plans to look at network optimisation and product sourcing given that it currently operates 13 supply chains and 13 buying organisations. This is likely to have a major impact for suppliers in terms of how it buys and the cost of goods. While Albertsons’ strategy has been to deploy its offer locally through a series of banners, while optimising its scale for loyalty, private label and omnichannel initiatives, consolidating its buying functions is a significant cost savings opportunity. This will have a major impact in terms of its merchandising organisation and supply chain and could potentially lead to a major restructure of the business.

Retail Analysis subscribers: see our latest report, Five ways US online grocery is transforming, to see our future forecasts for channel growth and the initiatives retailers are pursuing to improve profitability. 

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