With Jim Donald, Albertsons Wins Where Walgreens Stumbled

Soon after announcing its merger with Rite Aid, Albertsons Cos. today named as its new president and COO Jim Donald, former president and CEO of Starbucks and Haggen, who also once held a senior leadership role at the Boise, Idaho-based grocer and sat on the board of the Camp Hill, Pa.-based drug store chain. One expert believes that the appointment helps Albertsons succeed where rival drug chain Walgreens failed.

Lawyers for Walgreens, when it was working on a merger agreement with Rite Aid, seriously mismanaged the acquisition with the Federal Trade Commission (FTC), costing the Deerfield, Ill.-based chain a fortune in fees, according to longtime supermarket observer Burt Flickinger III, managing director of New York-based Strategic Resource Group. One of the key reasons behind the “half-failed deal,” Flickinger says, is the company’s failure to communicate that when Walgreens purchased Duane Reade in 2010, prices at the New York drug store chain skyrocketed. For instance, following the acquisition, the cost of a half-gallon of milk rose by $1 almost immediately.

Walgreens also failed to inform of price increases at another drug store chain in the Northeast following its acquisition.

“There was a drug store chain in Delaware that had a 70 percent market share and was a low-price leader: Happy Harry’s,” which also operated stores in Maryland, New Jersey and Pennsylvania, until Walgreens acquired it in 2006, Flickinger told Progressive Grocer, “and Walgreens, when they bought them, took Happy Harry’s from low-price leader to one of the highest-price retailers in the industry.”

On the other hand, Donald has a history of lowering prices for consumers whenever he's had more buying efficiencies, Flickinger observed. For instance, in 1988, retail legend and Walmart founder Sam Walton hired Donald away from Albertsons when Walmart was struggling with its Hypermart USA format, intended to combined groceries and general merchandise under one roof, at low prices. Donald developed and opened the first 200 Walmart Supercenters, which now number in the thousands worldwide.

“Jim helped create for the Walton family and for Walmart the greatest food-retailing empire the world’s ever seen,” Flickinger asserted.

Donald now joins Bob Miller, Albertsons’ current chairman and CEO, who's also a low-price leader in milk, the No. 1-selling SKU, Flickinger said. So considering that many of Rite Aid’s customers are blue-collar Americans living from paycheck to paycheck – from depressed Rust Belt areas to impoverished inner-city neighborhoods in California – a Walgreens acquisition could have been disastrous. However, an Albertsons buy, along with subsequent leadership of Donald and Miller, could easily be seen as an attractive deal to the Federal Trade Commission, whose job it is to encourage competition.

“So the Rite Aid consumer that has a record amount of credit-card debt, backbreaking tuition debt, car payments, transportation, high mortgage debt and higher rent is going to get an extra $5 to $10 a week in his pocket,” Flickinger noted.

Vendors will also love this deal in that they only had a few places to sell a lot more product: Winco in the west, Wegmans and Wakefern in the East, Costco and BJ’s Wholesale Club multiregionally, and Walmart internationally, Flickinger offered. Recently, for example, within 50 days of Albertsons' going national on pet-food brand Blue Buffalo – along with pet food being the No. 1 shelf-stable category – Blue Buffalo sold at a huge premium to General Mills.

“People knew that Albertsons was helping people save not just on the food they bought for themselves, but also for pet,” he said. “So the brand suppliers will move  merchandise, shoppers will save significantly more money, and the markets will get increasingly more competitive."

The “proverbial checkmate move” by Albertsons in its game against Kroger and Target now positions the grocer as the top food-and-drug combo retailer at a time when Kroger is selling off its convenience stores and Target is outsourcing supply and competing less on price.

“So Target’s vulnerable, Kroger’s had an important leadership change, and Albertsons is capitalizing competitively,” Flickinger said, “and consumers who were losing in a lot of these key markets are going to be winning by saving much more from this deal.”