If there’s one word I keep hearing about the Safeway-Albertson’s merger, it’s got to be “opportunity.” The multi-billion dollar deal between the two retail giants has been fraught with uncertainty since the day it was announced. Skeptics have long scrutinized the new procurement scheme, calling attention to Safeway’s mismanaged regional banners like Dominick’s and Albertson’s elaborate decentralized operation. A popular argument among optimists suggests that suppliers will have more opportunity than ever before. After all, Safeway’s centralized structure meant merchandising was always its forte, while Albertson’s decentralized operation has precipitated local and regional success.
In comparing the two, Albertson’s complex decentralized operating structure has entrusted each of its division offices with all of the financial responsibility and decision making authority, whereas Safeway’s corporate office in Pleasanton, CA, has held the most influence. Now that the two entities have combined, Albertson’s decentralized model will be the foundation of the merged company’s marketing and merchandising efforts. With the deal finalized, the questions still left on everyone’s minds are: Who’s going to be affected and what can we expect from a decentralized company?
Spanning three regions and fourteen retail divisions, the combined company will have two primary offices in Pleasanton, CA and Boise, ID, both of which are further supported by the accounting and call center offices in Phoenix, AZ. This decentralized model allows suppliers to form their own relationships with divisions of their choosing in hopes of getting products in certain regions, rather than being forced to go through a single corporate office. The goal is to have a clear, transparent, and efficient supply chain that gives suppliers an opportunity to build partnerships and customers access to products in demand. This enhanced distribution and supply chain also opens the door to a greater selection of offerings, as well as more robust fresh produce options.
To put it into perspective, Albertson’s and Safeway are looking for a middle ground approach in terms of how many and which items they should contract. On one hand, Safeway had plenty of contracted items, but on the other hand Albertson’s had very few – bagged salads and bananas, for example. Some commodities could be up for re-negotiation, signaling an opportunity for new supplier relationships to be formed and more product differentiation over several divisions. With the combined company, suppliers, large and small, can nurture their own independent partnerships with up to fourteen different divisions. That’s fourteen more possible avenues to move product and increase sales. It’s a much more level playing field. Together under a decentralized model, Albertson’s and Safeway are less likely to be a one-size-fits-all company. Suppliers can survive on “base hits” with several regions as opposed to a “grand slam” with one corporation.
That isn’t to say all companies will benefit from a decentralized operation. Fresh cut programs will be affected because Albertson’s does its own cut fruit. For companies that do their own value-added programs, it’s all based on what their product line looks like. If Albertson’s decides to do its own cut broccoli, for example, companies with value-added broccoli programs will need to offer an alternative to differentiate their line.
If there’s one thing you should take away from Albertson’s and Safeway’s decentralized model, it’s this: It’s going to take a lot of work and coordination between your company and these fourteen divisions. For the sales management team that puts together the ads and programs, relationship building will be the key to getting your products in stores, especially in this environment. Depending on the procurement buyer or manager, it stands to reason they would much rather conduct business with a company based on prior history.
From a customer standpoint, it’s going to be business as usual. As a shopper, when you go to a store in Phoenix versus one in Denver, for example, you are still going to get a similar experience from a branding standpoint, though each store can have their own wares. Promotions, however, are going to be specific per demographic and division. Consumers also benefit from the merger through the potential for more price reductions and in-store remodels and refurbishments.
Since the merger’s completion in early 2015, Albertson’s and Safeway executives have continually praised the results, reiterating the improved shopping experience.
Robert Edwards, former President and CEO of Safeway and current Vice Chairman, said in a press release, “We plan to be the favorite local supermarket in every community we serve. We will do this by knowing, listening to, and delighting our customers; providing the right products at a compelling value; and delivering a superior shopping experience. We will also continue to be active members of our local communities.”
Bob Miller, the CEO of Albertson’s, New Albertson’s, and Safeway, shared a similar sentiment, noting in a press release, “This merger creates a unified, strong organization that is dedicated to bringing a better shopping experience to more customers across the country. Our combined geographic footprint, vast range of brands and products, and service-oriented staff will enable us to meet evolving shopping preferences.”
The merger will create a diversified network that includes 2,230 stores, 27 distribution facilities, and 19 manufacturing plants with more than 250,000 employees across 34 states and the District of Columbia.
Below is a list of the Division Presidents for the newly combined company, who will report to the Chief Operating Officer for their respective regions.
· Dennis Bassler, Portland Division, North Region
· Paul McTavish, Denver Division, North Region
· Susan Morris, Intermountain Division, North Region
· Tom Schwilke, Northern California Division, North Region
· Dan Valenzuela, Seattle Division, North Region
· Shane Dorcheus, Southwest Division, South Region
· Scott Hayes, Southern Division, South Region
· Lori Raya, Southern California Division, South Region
· Robert Taylor, United Division, South Region
· Steve Burnham, Eastern Division, East Region
· Jim Perkins, Acme Division, East Region
· Jim Rice, Shaw’s Division, East Region
· Mike Withers, Jewel-Osco Division East Region
Since the completion of the merger, Albertson’s and Safeway have sold 146 stores in Arizona, California, Nevada, and Oregon to Haggen Holdings, LLC; two Albertsons stores in Washington to Supervalu Inc.; twelve Albertsons and Safeway stores in Texas to Associated Wholesale Grocers, Inc.; and eight Albertson’s and Safeway stores in Montana and Wyoming to Associated Food Stores Inc. Among these, Haggen was the biggest surprise, but it will remain to be seen how a relatively unknown grocer can compete in heavily saturated markets.
Over the past year, we watched as the Albertson’s and Safeway merger became a reality. As the dust settles, the outlook for many industry members continues to be an area of contention that we will continue to observe. Despite the number of uncertainties this merger brings to the market, one thing remains clear -- a merger of this scale will require significant, radical changes to succeed and prove profitable.