Albertsons Companies reported a +1.4% comp-sales increase, driven by pharmacy as well as third-party delivery and curbside orders (which were up +23% combined). Loyalty members again increased an impressive +15% to 41M as Albertsons locks them in with frequent digital coupons and other inducements. Placer shows that traffic improved going to the end of its fiscal quarter (June 15) and that has extended into July.
As we’ve discussed, grocery is winning share-of-stomach as out-of-home has moved prices too high on a relative basis (at least until this summer's restaurant value wars). However, conventional grocery is losing a lot of share to discount brands like Aldi and Grocery Outlet and mass brands like Costco and Walmart.
For the quarter, Albertson’s +1.4% comparable-sales growth represents an increase +$311M in comparable revenue. This can be deconstructed into +$615M in revenue from delivery/curbside (which tends to be a more affluent customer) and +$325M from pharmacy (which is weight-loss drugs), offset by a -$626M decline in in-store grocery sales (representing a -3.2% decline). Given +1% inflation, that implies a 4% decline in in-store grocery volumes. Obviously, some of the decline is trade-off to delivery/curbside, but how do we square the -4% sales decline with the increases in traffic? Smaller basket sizes, as consumers seek out each competitor’s best value, offers, and coupons. That cross-shopping and the competition for market share is starting to really reveal itself in overall inflation and consumer behavior; the 2024 consumer wants deals and lower prices than last year.
Albertsons' earnings release quotes CEO Vivek Sankaran as saying, “We expect to see continuing headwinds related to investments in associate wages and benefits, an increasing mix of our pharmacy and digital businesses which carry lower margins, and the cycling of prior year food inflation. We expect these headwinds to be partially offset by ongoing productivity initiatives.” For the quarter, underlying gross margin contracted due to sales mix and higher shrink (theft). Higher operating expenses were also a headwind to profits; while there were a variety of contributors to the higher expenses, we were struck by the call out for “additional third-party store security services.” For the period, EBITDA declined by 10% (-$135M). Recall that one of our major themes for 2024 is that it’s going to be a tougher year for essentials-based retailers, which was one of the likely primary contributors to 99 Cents Only decision to close shop. Call it “survival of the fittest.”
