Competition from premium grocers and discount outlets, rising costs of commodities and a crippling strike have created mounting pressure for the Albertsons supermarket chain. The sharp decrease in profits for the second quarter of its fiscal year has now raised serious doubts about its future.
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Albertsons, the second-largest grocery chain in the US saw its Q2 net income slump to US$104m, down from $162m during the same quarter last year, while same-store sales declined 1.5%. Total revenues increased 14% to $10.2bn, due to the acquisition of New England supermarket chain Shaw’s.
Albertsons is facing stiff competition from superstore Wal-Mart, which is expanding its presence in the grocery industry. Albertsons plans to sell or close 21 locations in the Omaha/Nebraska area and closed seven stores in New Orleans earlier this year – all apparently due to Wal-Mart competition. Discount chains, including Costco, have lured customers away and growing market shares for premium grocers such as Whole Foods are also costing the supermarket chain dear.
The company has tried to combat the competition by offering new merchandise. Partnerships with Toys R Us and Starbucks have seen toys and freshly-brewed coffee introduced to the stores while “extreme value” stores and drugstore-supermarket combination outlets have been opened to appeal to busier consumers. However, as yet, none have made an impact on the bottom line.
Adding to the company’s woes are increasing costs for commodities including milk and beef. A five-month long grocery workers strike in Southern California dealt the company another blow, costing $182m in lost sales. Albertsons incurred further losses due to a series of discounts used to win back California customers after the strike ended.
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By GlobalDataIn fact, the strike may have done long-lasting damage to the company. Many customers who were unable to shop at Albertsons during the strike have failed to return, now preferring superstores or premium grocers that remained open during that time. In the face of increasing competition from both high-end and discount outlets, Albertsons is finding itself squeezed from both sides, and its troubles seem far from over.
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