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Albertsons Accelerates Technology Transformation

Operational improvements, new digital initiatives, and partnerships with Google and Adobe fuel an epic transformation at the grocer
Albertsons Accelerates Technology Transformation
Albertsons introduced a record 1,200 Own Brands last year and has set a 30% sales penetration target.

“Transformation” is a word used frequently throughout retail, but a company’s actions can often fall short of the hype. Efforts by some retailers to improve operations or enhance digital programs feel like a  routine part of the continuous-improvement process, as opposed to the type of step change that warrants use of the word “transformational.”

Not so with Boise, Idaho-based Albertsons Cos. When CEO Vivek Sankaran describes 2020 as a transformational year for the $69.7 billion operator of 2,277 stores, there are plenty of solid examples underpinning his assertion. For starters, the company transformed its ownership structure amid the sales volatility, supply chain disruption and uncertainty of a pandemic. It pulled off a public stock offering by selling 50 million shares at $16 apiece on June 25, 2020.

Finally, the company was free of the drama and distractions that come from shifting ownership structures. Albertsons’ recent history has been highly tumultuous, going back to 2014 and the announced merger with Safeway, followed by a planned but then aborted IPO in 2015, and a protracted integration process. That was followed by an attempted and then aborted acquisition of Rite Aid in 2018, which would have taken the company public.

Last year’s IPO may have been less than the originally planned 65.8 million shares at $18 to $20, but the completion of the deal was an important catalyst for Albertsons’ ongoing transformation and pursuit of a strategy to be locally great and nationally strong.

a group of people sitting at a table with food
More than 30 million people shop at Albertsons' 22 banners each week.

A New Era Begins

Albertsons is in the midst of an epic transformation, much of it involving technology and data, which could have a substantial impact on the food retailing landscape over the course of the next decade. It’s a transformation that began a little more than two years ago, with a series of unconventional senior leadership moves, the most notable of which involved Sankaran. When he became CEO on April 25, 2019, it was a turning point for the company, which had previously been led by veteran food industry executives Jim Donald and Robert Miller.

Sankaran was a veteran food executive, too, but he had taken a different career path, rising through the CPG side of the industry. He joined Albertsons after serving as CEO of PepsiCo Foods North America and also having led the company’s Frito-Lay division.

A few months after he was hired, Sankaran made several key executive moves that would be central to the company’s transformation. In September 2019, Geoff White was elevated to the role of chief merchandising officer after a previous stint as president of Albertsons Own Brands. White filled a role formerly held by veteran merchandising executive Shane Sampson, who left the company. Chad Coester was elevated to the role of SVP of Own Brands after having been group VP under White.

Having the former head of Albertsons Own Brands running all of merchandising would prove to be a key move, as Albertsons set a goal of increasing its Own Brand penetration rate to 30% from 23% in 2017. A precise timetable wasn’t given, but considerable inroads have been made since White’s appointment.

Albertsons Own Brands portfolio now consists of more than 13,000 items, of which 1,200 were introduced last year and more than 900 were introduced in 2019. That helped Own Brands sales increase 13% to $14.8 billion as the penetration rate topped 25%. The company plans to launch roughly 800 items annually in the coming years, in pursuit of a 30% penetration goal.

a woman wearing a purple shirt
Albertsons’ Chief Customer and Digital Officer Chris Rupp says the company can build disruptive grocery shopping experiences at an unprecedented scale.

A Year of Digital Achievement

Efforts in Own Brands have had an immediate impact on sales and profits, but it’s Albertsons’ efforts regarding digital transformation that have helped the company remain relevant with shoppers and positioned it for longer-term success.

While White’s elevation to head merchant was significant, the appointment a few months later of a former Microsoft and Amazon executive to lead digital efforts really stood out. Chris Rupp began as Albertsons chief customer and digital officer on Dec. 3, 2019, after having been the general manager for the Xbox business engineering team at Microsoft. Prior to her three years at Microsoft, Rupp spent 11 years with Amazon in merchandising roles, held the position of VP of Prime and was part of the team that launched the first Prime Day. Those are impressive digital credentials for a traditional grocer to add to its leadership ranks.

The increased focus on digital proved timely, and was a key driver of the 16.9% identical-store sales growth in the 2020 fiscal year ended Feb. 27. In the fourth quarter, digital sales growth accelerated 282%, and the company’s Just for U loyalty program gained new members and increased usage among existing members.

“Membership in our Just for U loyalty program continued to accelerate sequentially and has been up over 20% year over year each quarter, and it’s now at 25.4 million members, with a 93.1% retention rate,” Sankaran said during the company’s fourth-quarter earnings call. “These members have been a key driver of share gains, as they spend 2.6 times more than non-registered customers. We have also increased the number of actively engaged customers almost 10%, who spent nearly five times more than a non-active customer.”

The pandemic aided demand at Albertsons’ stores, as it did at other retailers, and the company moved fast to capitalize on shoppers’ digital preferences. In the fourth quarter, order-online-and-pickup-at-stores capability branded as Drive Up and Go (DUG) was launched at 343 more locations, giving Albertsons a year-end total of 1,420 stores with DUG service. 

“This puts us ahead of schedule, and we now expect to have DUG in approximately 2,000 stores, with 98% coverage by the end of fiscal year 2021, above our prior target of over 1,800 stores,” Sankaran said. “We are also extremely pleased about the profit curve in our digital business, particularly in DUG.”

The expansion of DUG was part of a $300 million investment in digital that also involved the development of micro-fulfillment centers (MFCs). Albertsons opened its third MFC earlier this year and plans to bring six additional facilities online before year end.

a person smiling for the camera
Albertsons advanced its technology transformation recently with the appointment of Danielle Crop as chief data officer.

More Innovation Ahead

More recently, Albertsons made another key digital move by appointing Danielle Crop as chief data officer. Like former Microsoft and Amazon executive Rupp, Crop brings to Albertsons a nonfood retailing background, having previously been chief data officer at American Express. At Albertsons, Crop is responsible for building and executing a world-class central data strategy that delivers benefits for the customer regardless of whether they shop in store or on the company’s digital platforms. Her work will use machine learning and advanced data science capabilities to enhance performance.

“How we translate what we get from data into an enhanced customer experience will further differentiate us as a locally great and nationally strong retailer,” Rupp said at the time that Crop joined the company.

All indications are Rupp, Crop and Albertsons merchants across its 13 divisions are going to have a lot more data to leverage, but they are also going to have two major tech leaders to help them leverage it. Since the beginning of the year, Albertsons has revealed major partnerships with Google and then Adobe. After collaborating behind the scenes for the past year, Albertsons and Mountain View, Calif.-based Google launched several enhancements, including shoppable maps with dynamic hyperlocal features, artificial intelligence (AI)-powered conversational commerce, and predictive grocery list building via Google Cloud.

“By combining the grocery shopping ecosystem of Albertsons and the AI, technology and platforms of Google, we can build disruptive grocery shopping experiences at an unprecedented scale,” Rupp tells Progressive Grocer. “Our partnership launched in April 2020 with a virtual Innovation Day in which hundreds of ideas were distilled into a mission to redefine how people shop. Since then, we have been experimenting with new experiences and shopping journeys that have begun to make an impact.”

As for San Jose, Calif.-based Adobe, Albertsons will work with the company to better harness data to drive increased personalization from the grocer’s growing Just 4 U loyalty program, among other things. With the help of Adobe, Albertsons expects to make sense of disparate sets of data and understand shopper intent as people move among different channels. The companies contend that actionable insights, available to any team, will make every interaction customized and relevant, and that deeper customer insights will help form a better idea of the kinds of offerings that shoppers will respond to best, as well as shape the development of new services.

“After growing our e-commerce business 258% year over year, equipping over 1,000 stores with curbside pickup and refreshing our mobile app, we are investing now in differentiated services such as temperature-controlled pickup kiosks, two-hour fulfillment and even remote-controlled delivery robots,” Rupp says. “As we boost our omnichannel offerings, we are relying on Adobe Experience Cloud apps to help us get more value from data and leverage cross-channel insights to improve the overall shopping experience. Partners like Adobe will help Albertsons reimagine the future of grocery shopping.”

a box filled with different types of food
Fresh departments and responsible sourcing practices are key elements of Albertsons' value proposition.

New Capabilities Loom

Albertsons’ willingness to partner with technology leaders such as Google and Adobe speaks loudly to a desire to achieve true transformation. Hints of what lies ahead for Albertsons shoppers can be found in the emerging technologies that all three companies are looking to exploit. For example, in the area of natural-language processing (NLP) technology, Rupp notes that there has been significant progress.

“Because voice is the most natural form of communication, we believe it is time for us to use this mode of interaction with customers in certain circumstances,” she says. “We are in the beginning stages of exploring use cases, and excited to partner with Google in developing innovative customer experiences.”

Beyond customer-facing applications, Rupp notes that Albertsons is “exploring various use cases for NLP to support in-store operations to empower associates to save time and make better decisions. Since Google is the leader in NLP technology, we are very excited about what lies ahead.”

The partnership’s rollouts will build on projects already implemented to improve the customer experience. Albertsons and Google are now making it even easier for customers to pick up groceries or have them delivered by providing pertinent information about online ordering from many Albertsons stores directly within a mobile search — a functionality coming to Google Maps later this year.

“Albertsons Cos. is leading the way in bringing innovative technologies to the grocery store aisle,” says Carrie Tharp, VP of retail and consumer, Google Cloud. 

According to the companies, they have an unprecedented strategic and technical collaboration that sets the stage for sustained post-pandemic transformation and momentum, because the surface is just being scratched. 

“We continue to partner with numerous teams at Google to combine the power of AI with grocery,” Rupp says. “The areas that we believe to be most impactful for our customers are creating a more convenient shopping experience and ensuring outstanding fulfillment accuracy. We are focused on driving innovation in these areas with Google.”

a person sitting at a desk in front of a store
Albertsons' customer experience is being enhanced through technology investments and partnerships with Google and Adobe.

Other Types of Transformation

Efforts to modernize and future-proof an organization can take many forms, and that process continues to play out at Albertsons. One of the company’s top strategic priorities is productivity improvement as a means to support reinvestment in the business and help offset inflation. Last year, Albertsons said that it achieved approximately $500 million in gross productivity savings, with major drivers of those savings being indirect spending, labor productivity and shrink production.

Given progress to date and incremental opportunities that the company sees ahead, its goal of $1 billion in gross savings by the end of fiscal year 2022 was increased to $1.5 billion. The additional $500 million is driven by new projects related to supply chain transformation, further optimization of promotional spending and additional cost reduction programs.

When asked about the source of an additional $500 million in expense savings during the company’s fourth-quarter earnings call, Sankaran alluded to potential structural changes to the supply chain and purchasing organization.

“One of the great things about our company is that we are incredibly locally nimble, and we have learned a lot through this pandemic, and how that is an advantage to us and how we are able to react with speed, but we have also learned through this pandemic what else is extremely important to preserve,” Sankaran said. “But we also have 13 divisions that have 13 supply chains and 13 buying organizations in the company. By changing some aspects of that, we get a lot of leverage both in the supply chain and the design of the supply chain, and make things easier for our supplier partners in discussions of how we buy. Those are two completely new topics that are substantial programs that we have launched and will continue over the next two years.”

Albertsons has made great strides since its IPO a year ago and the appointment of Sankaran as CEO two years ago. Its transformation, while far from complete, is progressing nicely and positions the company well to prosper in 2021 as it copes with the absence of the beneficial tailwinds caused by the pandemic.

  • Old-Fashioned Growth

    While Albertsons Cos.’s digital business has posted substantial growth numbers, the retailer hasn’t lost sight of more traditional drivers of sales that are enhanced by digital. In a move to keep its physical footprint fresh, the Boise, Idaho-based company opened nine new stores last year, closed 10 others, and executed 409 store upgrade and remodeling projects as part of a $1.63 billion capital expenditure program.

    In addition, opportunistic acquisitions remain a key element of Albertsons’ growth strategy. For example, on Jan. 23, about a month before the end of its fiscal year, Albertsons paid $98.1 million to acquire 27 Kings Food Markets and Balducci’s Food Lovers Market stores, which were in bankruptcy proceedings. Located in five Northeastern states, predominantly New Jersey, the acquired stores were rolled into Albertsons’ Mid-Atlantic division, which includes the Acme and Safeway banners.

    Albertsons could potentially make larger acquisitions in the future, as its level of indebtedness, while still substantial, has improved. The company had approximately $7.8 billion of debt outstanding, other than finance lease obligations, at the end of the last fiscal year, and had the ability to borrow $3.6 billion, according to disclosures made to investors. Albertsons CFO Bob Dimond also said that the company “generate[d] very robust operating free cash flow of $2.3 billion in fiscal 2020.”

    Additional acquisitions could help Albertsons bolster market densities in areas where it’s underpenetrated, thus improving expense leverage and its competitive position. While the timing and likelihood of any such deals are unknown, the company is clear that it plans to increase capital investments to keep existing stores fresh.

    Albertsons said that it expects to spend as much as $2 billion this year on projects such as store remodels and the acceleration of digital and technology investments. It hasn’t disclosed whether it plans to open any stores this year, and if so, how many.

    In addition, the company’s improved financial situation means that it was able to recently institute a 10-cent-per-share quarterly dividend payment, and even managed to spend $119 million last year buying back stock.

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