From a financial perspective, the performance of Albertsons is very much in the eye of the beholder. Same-store sales figures look solid: 3% in fiscal 2023 (fiscal years end the following February), 2% the following year, and a guided 2%-plus in the recently-concluded FY25. On the whole, those numbers roughly keep pace with rival (and former suitor) Kroger. But they’re not keeping pace with the grocery figures from Walmart and Costco, which continue to take market share.
At first glance, profit numbers admittedly seem more concerning. The company’s outlook for fiscal 2025 suggests that Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) will decline about 18% across three years.
But the first few years of this decade were obviously a boom time for supermarkets – Albertsons itself saw Adjusted EBITDA jump 60% in fiscal 2020 alone – in terms of both demand and pricing. Some level of normalization is not surprising (though, to again take the contrary side, Kroger’s profits will be basically flat over the same three-year stretch).
Even the performance of Albertsons stock since its June 2020 initial public offering can be viewed in different ways.
Including dividends, investors are up about 76% in a little under six years, for annualized returns over 10%. That’s decent performance for a grocery name in the broader context (and particularly given the struggle the chain’s private owners had in getting the business public at all). But the stock has mostly trailed the sector over that period, and hit a four-year low at the beginning of this year.
The takeaway is that Albertsons’ performance this decade clearly hasn’t been abysmal – but also hasn’t been good enough.
Albertsons’ Five-Pillar Fix
Claiming Albertsons has struggled seems particularly true in the context of the threat from Costco and Walmart in particular (some observers might add Amazon to that group as well). Notably, that takeaway has been delivered by Albertson’s own leaders.
Last January, then-CEO Vivek Sankaran put it simply on an earnings call: “We have a mass retailer and a club retailer that are growing much faster than us.” And under Sankaran and then his replacement, Albertsons lifer Susan Morris (who began her career at a customer service desk in Colorado), that concern clearly has been top of mind at the top of the company.
In October, on her second earnings call as CEO, Morris noted that she had spent her first months at the top conducting “deep dives” across the business. Those learnings drove a
strategy consisting of five pillars, each of which aims to make Albertsons more competitive against its rivals in grocery, and against those increasingly encroaching on the industry’s turf.
But here, too, there’s an argument that what Albertsons is delivering isn’t terrible – but still not good enough. The first priority is “driving growth and engagement through digital connection” – and on this front Albertsons has had some success. E-commerce sales are growing at a 24% annualized clip over the past three years. A new artificial intelligence chatbot in the Albertsons app allows for conversational search; per the third quarter call earlier this year, it’s already boosting basket size by about 10%.
Yet of course it’s not as if rivals are standing still on this front; if anything, they appear to be further ahead.
Albertsons’ Strategy Still Lags Industry Leaders
Albertson’s strong e-commerce growth can be seen as much as the company playing catch-up as potentially taking a lead in that channel. The same is true of the second priority, building out a media business, where executives in the past have noted that Albertsons is somewhat late to the game. (Walmart, notably, spent more than $2 billion for television manufacturer Vizio as just a small part of its overall media strategy.)
“Driving productivity” and “enhancing the value proposition” for shoppers are two sides of a single strategy: Albertsons last year began a $1.5 billion, three-year cost savings plan. That plan includes layoffs at the corporate level, but the savings are simply going into efforts to narrow price gaps across the portfolio.
Here, too, there’s been some success, but the worry about whether the efforts are quite enough: after all, once the program ends, the ability to find half a billion dollars in annual savings likely goes with it.
At that point, investors worry Albertsons won’t be able to keep up with the scale of Walmart or the reach of Amazon or the leadership of Kroger. And the very description of the final pillar – “modernizing capabilities through technology” – is a tell. Even Albertsons isn’t targeting leadership on that front, but more simply a move to where its peers (in most cases) already are.
And that gets to the concern here in the market, and why relative to earnings Albertsons stock trades at a discount to other players in the space. It’s one thing to play catch-up in an industry where rivals are doing the same, or to execute that strategy while also holding more permanent, structural advantages (such as scale or geographic reach).
It’s another thing for a company that isn’t the biggest or the best player to play catch-up – particularly when it’s competing against some of the most admired and well-run retailers in the world.
Vince Martin is an analyst and author whose work has appeared on multiple financial industry websites for more than a decade; he’s currently the lead writer for Wall Street & Main. As of this writing, he has no positions in any companies mentioned.
Food for Thought Leadership
In this episode, The Food Institute‘s Chris Campbell sits down with Hunter Thurman, Founder of Alpha-Diver, to break down how the market has shifted from a simple private label vs. national brand debate into a three-lane landscape: value brands, owned brands, and national brands.
