Albertsons Outlines Priorities Following Merger Failure
Since the potential merger between Kroger and Albertsons Cos. was first announced in 2022, Albertsons has been focused on four priorities:
- Driving customer growth and engagement through digital connection.
- Enhancing the customer value proposition.
- Modernizing capabilities through technology.
- Driving transformational productivity.
While the merger has died, Albertsons is still focused on these priorities, identifying its next moves and new opportunities as a separate company.
The retail giant has invested in four digital platforms: e-commerce, loyalty, pharmacy and health, and integration of the mobile app into stores, Albertsons CEO Vivek Sankaran said during its Jan. 8 third quarter earnings call.
“These platforms are designed to drive increased sales, more deeply engage our most loyal customers, increase customer lifetime value and generate digital space and robust data for the Albertsons Media Collective [AMC],” Sankaran said, before breaking down each “platform” more closely.
E-Commerce
Albertsons’ investments in e-commerce have driven sales penetration to over 7% of grocery revenue, with its top-performing market over 9%.
“This growth, which is higher in our first-party versus our third-party business, has been driven by the development of new capabilities in our fully integrated mobile app and improvements in [DriveUp & Go] and in-home delivery.”
While Albertsons has grown this business “significantly,” Sankaran said it is still “under-penetrated compared to industry benchmarks and is one of our biggest growth customer acquisition and customer retention opportunities.” To capture these opportunities, the retailer is rolling out a store-based five-star certification program to deliver a “consistent and elevated” level of customer service, as well as a series of targeted marketing initiatives to grow sales and penetration.
Loyalty
Albertsons’ For U loyalty program is integrated into its retailer app and is a key engagement tool for its business. Sankaran called it “the entry point” for digital and personalized marketing and a primary contributor of data to its retail media business. In Q3, loyalty members increased 15% to 44.3 million.
In April 2024, Albertsons launched a simplified program to make it easier for customers to earn points and redeem coupons and fuel and grocery rewards. For the first time, it also allows customers to redeem points for dollars off their grocery bill.
"Since the launch, we've seen more frequent engagement, higher retention and increased customer spend," Sankaran added. "Going forward, we expect to continue to see increased adoption and we will leverage strategic partnerships to provide our members with even more ways to get rewarded."
Mobile App, Store Integration
Sankaran said the integration of the retailer apps for use in stores is supported by "excellence in store-level execution."
"When our customers are in our stores, we want them to engage with us digitally," Sankaran said. "To enable this, we launched an in-store geo-located mobile feature that delivers real-time coupons, helps shoppers locate products and plan meals, and assists customers with their shopping lists. By the end of 2024, we expect over 8 million of our customers to have used this in-store feature."
Going forward, Albertsons expects to see continued increases in customer usage, and it will launch additional capabilities to drive deeper engagement over time, he added.
[Also Read: The Next Frontier of Digital In-Store Innovation Is the Retailer App]
“All these platforms working together are generating eyeballs, digital inventory and data with [AMC], which was brought in-house in fiscal 2022,” Sankaran said. Since then, Albertsons has invested in building technologies to “deliver an easy-to-use, dynamic and transparent measurement platform,” which Sankaran said is improving endemic and non-endemic brand reach.
He also noted how the retailer has improved its ability to define shopper audiences, run targeted media campaigns, enhance product offerings and achieve parity in campaign measurement.
"Looking forward, we will continue to invest in delivering consistent omni-execution for brand campaigns across our digital and physical assets," he said. "In addition, we expect to build new partnerships that add even more eyeballs, digital inventory and capabilities to our platform. AMC continues to be one of the largest opportunities we have to fuel reinvestment into our business."
Modernization
Albertsons is also prioritizing the modernization of its technology capabilities.
“Our north star has been to use technology in everything we do,” Sankaran said. “Over the last few years, we have invested strategically to make technology the key enabler of all major future growth and productivity initiatives. These investments include migration to the cloud, the launch of our end-to-end e-commerce capabilities, the digitization of pharmacy and health, state-of-the-art tools for pricing and promotion, the enablement of self-checkout, productivity tools to manage replenishment, shrink and labor, new supply chain systems and an industry-leading retail media platform. These investments have created long-term capabilities that will continue to allow us to accelerate the transformation of our operating model going forward. They also position us well to take advantage of the evolution of AI and machine learning to elevate our core business processes.”
Retail Media
Sankaran said Albertsons’ retail media business is growing, despite being a little behind other major players in the market.
“We're growing fast from a smaller base, [but we] think [AMC] will become very material in the next three-year horizon. And the fact that we are starting later, it doesn't mean we cannot build a great business because we still have our customers. … We've got everything we need, and now we're just focused on building [and] selling the business rather than just building the platform to do the business.”
Sharon McCollam, president and chief financial officer, Albertsons, said, “What we've been building and where we're seeing success [is within those] four digital platforms. That is what was necessary in order to create the robust inventory that we need for the Albertsons Media Collective, and we have invested heavily in those over the last several years, especially in the last two years. So, we are now prepared to step up and to really be able to start capturing our fair share of that market.”
Post-Merger Sentiment
"We continued through the merger to invest capital in the remodel of our stores," McCollam said. "So moving forward, we expect to do the same, and there has been a consistent strategy, as [Sankaran] described, to continue to maintain our stores and invest in that deferred maintenance."
"We are a stronger company today than pre-merger, and the initiatives that have driven these results affirm our confidence in our future," she added. "We delivered solid operating and financial performance during the quarter across all key metrics in an environment where the consumer remains cautious."
Other initiatives Albertsons is focusing on to enhance its customer value proposition and overall business include:
- Working with vendor partners to strategically invest in price in certain categories and markets, and increasing own brands penetration.
- Enhancing supply chain through automation and rolling out a new warehouse management system (WMS) to improve in-stock conditions, differentiate fresh quality, lower the cost to serve and improve end-to-end data analytics capabilities. By the end of 2025, Albertsons expects 30% of its distribution volume to be automated and its WMS to be fully implemented company-wide.
- Improving store operations through enhanced efficiency, customer experience and associate engagement. For example, Albertsons implemented AI technologies that provide a prompt for missed scans to reduce inventory shrinkage.
- Expanding use of technology in produce departments.
