My name is Dean Rosenblum. I am the new Bernstein Hardlines Broadlines Retail Analyst, replacing the illustrious Brandon Fletcher, who is moving on to a next chapter. I am pre-launch, so I won't be tipping my hand to any sort of points of view on individual stocks. But I am very excited to get to talk to Sharon McCollam today, from Albertsons. Just a couple of quick notes for the conversation today. As much as we'd like to hear about it and get insight to it, I won't be asking Sharon about any of the Q1 business trends. It's just not something that the company speaks to, during the quarter. Also, when I use the word brand today, I'm talking about products, not banners. Just for clarity, a lot of retail analysts talk about brands as banners.
Banners are banners, brands are products. I would encourage you to enter questions into the pigeonhole as they occur to you. We're monitoring them and flipping them up to me real time, so feel free to do that. With that, I am very excited to welcome Sharon. You know, when I drop the ticker ACI, a lot of people don't know what it is. When I say WMT or TGT or COST, everybody knows exactly what that is. You know, I say ACI, they look at me with kind of this blank stare. Then I say, "Oh, well, let's try it this way. Safeway?" "Vons? Jewel-Osco, perhaps." "Oh, Albertsons." And the light goes on. You know, Albertsons is by store count, the number two pure play grocer in the
2,300-ish stores, 18 banners. The top, oh, goodness, four of which represent something like 80% of your doors, something like that. It's a company that has a presence in the local market that goes back hundreds of years.
Yeah.
Over 100 years.
Literally.
I'm pretty excited.
Yeah.
To be talking with you today and covering it. Sharon, you joined in?
September of twenty twenty-one.
Of 2021.
Yeah.
If anybody looked at the stock chart, if you go back to, goodness, what was it? It was July of 2021, the stock price jumped from 20 to 29 on the news of your impending arrival. Then when you did join September 7, the stock bounced up over 30. I think that's a testament to your reputation. I wanna talk a little bit today about some of the things that you're seeing, that you're excited about, what keeps you up nights. Does that make sense?
Yeah, that'd be great. I might just opine on your comment about the stock price. I joined coming off of several of the most phenomenal operating quarters that the company had. I would love to say that that's the story, but unfortunately, that would not be the story. The story would be that it was recognition to the company of the performance that they had been delivering throughout COVID, and I got to be part of the next chapter of that, which was very exciting for me. It was that opportunity, I will say, that made Albertsons such an interesting choice for me. As you know, I came out of a semi-retirement, a lot of board service, things like that, and I really believe that I could see the opportunity at Albertsons.
It was impressive to see how they managed through COVID. The online capability that was created during that time was unprecedented. They started in that timeframe during COVID with virtually no significant online capability, no ability to ship out of those stores.
Not alone, by the way, right?
Right.
The entire grocery segment was caught largely flat-footed.
Yes. Through the building of that team, which I know we're gonna talk about later, it was a fairytale story of how they brought those banners together and then started executing.
Cool.
Anyway, a little insight into that.
Yeah.
July to September, October timeframe.
Counterpoint.
Yes.
If you put the stock prices of you and your peers up, your bounce is higher than theirs.
Okay.
strangely coincidental.
Okay.
I'm just saying. Look, I wanna start with some really sort of top of mind topics just quickly.
Yeah.
Inflation, there's two sides, right? What are you seeing from the consumer? My real question is, how are you guys managing through cost inflation from your suppliers, from your brand costs to price on shelf?
Mm-hmm.
where are you trying to land in terms of gross margin rate? Are you trying to hold rate and take the penny profit? Are you trying to hold the penny profit, rate will come down? Clearly you're not eating the cost.
Yes. We have been very effective, as has the industry in total, in flowing through the inflation. It is critical that we are on this every day. Prices are changing frequently, and we anticipate that it will continue for some period of time into 2022.
Sorry, I wanna clarify.
Yes.
You're talking about the % increase year-on-year?
Yes.
Just to drill on that, are you expecting a continued level of inflation lapping what we've seen at the very beginning of 2022 as we go into 2023?
Let's talk two-year.
Yep.
As we looked at the two-year inflation level coming into our Q4 press release.
Yep.
There is something that I think is important for the listeners of this to recognize, and it will come up in our discussion. Target, Walmart, Kroger, they all have January approximately year ends, and ours is in February. We were able to have an entire month post their press releases in order to be able to inform our view on 2022. That happened to also be the unfolding of the Ukraine situation, and this is when gas prices started to go up, and we got a very clear view of supply chain. That four weeks, five weeks of supply chain and fuel prices and other insights was very valuable and helpful to this discussion, Dean. At that time, we saw a double digit, 10, north of 10 inflation on a two-year basis.
It was our expectation that would, on a two-year, stay in that 10, north of 10% range.
Right.
Now, at this point, we would tell you that we believe there's a scenario under which that doesn't hold in a two-year over 10-plus, and that you could see something slightly higher than that going into the back half. As far as flowing it through, we are flowing it through, but we are very focused on being competitive.
Mm-hmm.
There are categories, we call them highly sensitive categories.
Yeah.
Where you have to be incredibly price sensitive. As far as your question, very simply, are we focused on margin dollars or margin rate? We are focused on effectively flowing through the inflation, which by definition, unless you flow through, you only need to flow through 70%. But above and beyond that, it's going to have a rate impact.
Yeah.
unless you flow it through 100%.
Yeah. Full disclosure, Sharon McCollam sat on the board of PetSmart, where I ran strategy. One of my roles was pricing, and we faced this when the tariffs hit in-
Yes.
in the sort of 2017-18 range.
Yep.
You know, we had this balancing act of, look, we can't eat the cost, but, you know. We ended up trying to hold penny profit.
Yes.
We saw rate declines. To your point, it was all about the category, right?
Right.
There were some categories that are very price aware and price sensitive, and others not so much.
Mm-hmm.
It was all about still maintaining a compelling value.
Yeah. Here's the opportunity for us and something that differentiates us. We have been on a major productivity agenda, right? It is part of the DNA of the company.
It's one of your strategic.
We had a $1.5 billion productivity agenda over three years. That started two years ago. This is the last year of that. With that is a tremendous tailwind into the gross margin.
You and Vivek both talk about, look, we're not looking to expand gross margin rate. We're looking to maintain gross margin rate while compelling, delivering compelling value, and correct me if I'm wrong, through these gross margin tailwinds, which are a product of your productivity initiative?
That's right. Coming into 2022, we gave very clear insight into how we saw the year. The productivity agenda is driving tremendous benefit to the gross margin. The offset to that, of course, is the possible impacts that inflation could bring. More importantly, it is the loss of the benefits from COVID vaccinations. Absent the variants that we've seen in pharmacy around COVID, we would have had a margin expansion this year. The COVID pressure from last year or the good news we had last year from COVID puts us in a near flattish, slightly lower position.
I mean, for the fourth quarter, you were down 20 basis points on gross margin versus prior year, 28.9% for the fourth quarter of 2020, 28.7% this past year.
Mm-hmm.
Slightly bigger gross margin decline, 50 basis points on a full year basis. It seemed like that was driven disproportionately by-
Well, coming off of 2020 also.
Yeah. Well, that's what I was gonna say, is on a full year basis.
Yeah.
The decline in basis points was slightly greater on a full year basis, which suggests the first half of the year was a more challenging decline, due likely to the fact that there was such a high concentration of vaccinations in early 2020, Q1, Q2.
That's correct.
Cool. I wanna shift gears to another topic. Again, kind of a quick one, but before we dive, this is a Strategic Decisions Conference, so I think we'll talk strategy in a minute. Coming out of COVID, e-grocery was 2.5% of the category pre-COVID. By the third quarter of 2020, it was in the high single digits. By the end of 2020, early 2021, it was low double digits, you know, sort of 11, 12%, depending on whose data you read.
Right.
Clearly a massive shift in consumer behavior.
Yes.
On top of that, grocery exploded as calories away from home became calories at home because of quarantining and social distancing and pandemic. In 2021, your online growth rate was, I'm gonna call it flat on a two-year stack of like 265%. So 260% last year, another 5 points or so this year.
Right.
What are we seeing in terms of consumer behavior, specifically coming out of COVID trips, frequency, basket and grocery online versus grocery in-store, people returning to store, et cetera? What are we seeing?
Both. We're seeing both. We absolutely are seeing return to the store and have consistently. The online side of our business, first of all, it is a focus for many grocers, but I think that grocery is gonna follow virtually every other category. I remember years ago, people said you'd never buy any type of furniture online, right? 20 years ago, they said you'd never buy a couch online. When you look at what's happened and the way it happened, COVID accelerated it, right? Materially accelerated grocery online, and it stairstepped. Then it's smoothly moving up. Adoption is continuing. As the grocers get better and better at it, then it's going to continue to get that consumer drawn in. Now, I would tell you that grocery is a space for people who love cooking, that there is an experience in the grocery store.
They wanna pick it, they wanna go through the store. It's unlike a category where I can see it online, I can get a sense of what it is, et cetera. It's very different. There is a tremendous percentage of our customers that love that experience. Now, on the other side of it, there is also the customer who is now returning to work, who had experienced it during COVID because it was really the safest way in their minds to get groceries. They now are very busy. Drive Up & Go, we now have that in 2,000 stores, serving the majority of our customer, 99% of our customers. That opportunity allows them to do their shopping through the app, and then they can pick it up, and we are filling their trunks in three minutes, okay.
Our goal is to make it less than that, right? Three minutes is still three minutes of a person's life. Now, when you think about the acceleration and why would there be acceleration, and I would say this is a tide that will raise all boats from this standpoint. Why is it engaging for us to encourage multi-channel, omni-channel customers? They are the most deeply engaged customers that you have.
I know that that's true.
Yes.
I'm gonna suggest there's a selection bias there as well, right? Because you're taking the population for whom shopping with you is the best answer for them, and they're engaging with you in ways that are more convenient depending on the moment for them. Right? It is true that what I guess I'm saying is I'm not sure I would conclude that engaging multi-channel is causal. I think it might be more a result.
We can debate that. I believe that the more opportunity you have to serve a customer in the way that they want to be served as conveniently as possible.
That I agree with.
It makes them a better customer.
Mm-hmm.
They want to do business with brands that can serve them in whatever method that the customer chooses, but you have to do them both extremely well.
That's true.
The key is.
Yeah.
It doesn't work, and I would agree with you. If you're not good at the other side of it, if you're not an omni-channel player and you are not good in the online space, and it's not a great experience, I couldn't agree more, Dean.
Yeah.
When you get it right, I think it is magical. Then I wanna talk about the app because
before you talk about the app, 'cause we're gonna get to that, we're gonna talk at length about that.
Okay. Yeah.
Time permitting. We'll talk about the app, I promise.
Yeah. Sure. It's the only way to get into it.
I just wanna see if I could get a crisp understanding. Let's presume just for fun that digital as a percent of grocery is now at 11%, and that's the new watermark. Are you anticipating that penetration of digital as a percent of total grocery will continue to grow from here?
I believe that.
Okay. Cool. Thank you, 'cause, that's obviously one thing we're gonna watch for a host of reasons.
Mm-hmm.
Okay. I would like to dive into strategy.
Okay.
You and Vivek have articulated four strategic pillars. I'm gonna take a shot at this, correct me if I'm wrong. Driving in-store excellence, accelerating digital for a host of reasons.
Mm-hmm.
Perpetual productivity.
Mm-hmm.
Talent, culture, and communities. Those are sort of the four big pillars.
That's perfect.
Each of those has a series of priorities within them, right?
Yes.
I'm gonna go through these, just dive in on a couple of topics.
Sure.
If I may. On productivity, we talked about this just a moment ago. Are you thinking about productivity as being a gross margin tailwind predominantly, or are you thinking about the productivity as flowing through to operating profit? Two-part question, right? One is if it's a gross margin tailwind, I presume it's in logistics, supply chain, et cetera, as opposed to stuff that might be below the gross margin line.
Yes. I would say, again, it's both. When you look at the history of productivity the last couple of years, you have seen both. You have seen significant investment in the digital capabilities in the supply chain in all the areas that you talked about in the stores. It's also a portion of that has flowed through to the bottom line, as you can see from the expansion of the adjusted EBITDA margin. Moving forward on the next
Sorry, just to clarify, pre-COVID, your operating margin was in the high ones. In the last two years, you've put up north of 3%, adjusted operating margin. That's maybe GAAP, but-
Yes.
A pretty significant step change.
On a GAAP basis.
Pretty significant step change.
Significant
in operating profit.
Absolutely. Part of that's volume, part of that's productivity, of course. When you think about the flow-through and the investment, the biggest portion of this next phase of productivity will be invested in the business, and we've been clear about that, and offsetting significant inflationary headwinds. I can tell you that if we were sitting here today without a $500 million from this year and $750 million we've already announced on the next phase of our productivity. We have seen inflationary increases across the entire P&L, and we can start with labor. I don't think I need to tell anyone on this call or in this room that labor increases have reached record levels from a frontline and distribution point of view.
Are you seeing labor increases commensurate with the market? I mean, as a union shop, I would have presumed that at least some of that would have been baked into the contracts, both in terms of higher starting and also baked in, constraints on market pressures on raises.
Yeah. I would say that perception and the distance between being in the union and not being in the union needs to be held by the unions, right? Otherwise, you could argue.
So they're pushing-
Why be in the union?
Yeah. They're pushing up against the
Of course.
To maintain the gap between.
Dean, I think you can think very much in terms of market rate increases in the unions.
Okay. Sum up, some of that productivity is above the line and flowing to COGS, others of it is below the line.
Mm-hmm.
And we're-
It's not just in COGS, it's also coming through on the SG&A lines as well.
Yeah. That's right. That's exactly where it's going. Some of it is flowing through in the SG&A line, and some of it will flow through to operating profit. Much of it is being reinvested.
Yes.
Thank you. You know, when you look at your fresh mix as a %, not a % of sales, 'cause that's a ridiculous stat, right? When you include fuel and general merch and stuff.
Right.
If you just look at perishable and non-grocery, fresh versus non-perishable. Explicitly non-perishable. Non-perishable includes things like dairy, frozen, et cetera. Fresh is like produce, meat, deli, bakery, pretty hard, straight-up fresh. Your mix is substantially higher than your number one peer.
Fair.
I'm going to assert that you might actually expect that to increase as you bring online your prepared meals capability.
It is a top priority for us to continue to serve our customers through fresh. We believe it is one of the biggest value adds that you can add to a consumer, and it is important to their lives. From our perspective, penetration and fresh is a top priority. You looked at Customers for Life, and we read our last transcript. It's part of that agenda.
Mm-hmm.
Is to make sure that you can't go anywhere else and find fresher. Now, that is a journey. You don't start and wake up one day and say, "That's my objective." There's investments that we are making in that space, so.
I just want a clarifying question.
Yeah.
When you say penetration, you're talking % of sales?
Yes.
Okay.
Yes.
A lot of times I've heard penetration be sort of household penetration or basket penetration. You're talking straight up percent of sales. I think it was in the
Let me say this, it would be all of the above.
Well-
So.
Clearly, the metric, though, I think you're talking about is percent of sales.
That's exactly right.
Yeah.
We believe that, and that ends up coming from the basket and from where the customer shops in our stores.
Clearly.
So.
Just to clarify, you said.
That's what we're saying.
Low 25% right now on percent fresh as of year-end 2021, yeah, with an eye toward 30%.
The 30% is our own brands.
Own brands. My apologies.
No problem.
I take that back.
Just to make sure that everybody's with us, what he's referring to there is our private label business, which we said at the end of the year was in the 25.6% range, when we did the IPO, and we reiterated in the fourth quarter that our goal there is to get to approximately 30%. A portion of that is in the area that Dean is referring to. That's the relationship between them is in prepared meals and other items that are flowing through in the fresh side of our business. It is an area where the customer really looks to us for that, and we think that that's a tremendous opportunity for us, Dean. Quite frankly, it has been a strength of this business.
The various banners have had a strength in this area, and it is opportunistic to invest in that space because we're starting with a very good baseline with our customers.
One of the things I thought was interesting is Vivek had talked about the idea of defining the sandbox, right? He says, "We could either see ourselves as participating in the grocery business, which is whatever, $800 billion. Or we could see us participating in the food business, which is $1.6 trillion." We choose the latter, which is ambitious, but I think there's something to be said for dreaming big.
Exactly. I think that it's somewhere in the middle of that. There will be areas that, of course, we don't touch, but you have to look at that because quite frankly, the consumer behavior has changed.
Yes.
Food away from home and food at home, the mix of that, and people's lives have completely changed.
We talk about this all the time as a consumer team.
Yes.
Yeah.
I mean, there's no question about it. For the grocery space and for the food space, the customers are no longer returning to work five days a week.
That's your statement.
They are eating substantially more meals at home. Now, during COVID, we would talk about this and people would say, "Do you believe that it's going to go back to the way that it was pre-COVID?" In 2020 people believed that that was possible. 2021 people said, "Well, I think it could go back substantially, but it sounds like everyone's going back to the office at least probably four or five days a week." That was pretty much the sentiment through the very back half of, you know, 2021. Now I don't need to tell you guys, the companies that have decided to implement much greater flexibility for their team members is substantial.
You've got companies that are really only having people come in every other week for presence for purpose is a common term or some version of presence for purpose. That is important because, Dean, to your point about fresh, that brings in an entire menu and an entire life, because now this is permanent for me. What do I want to include? I want it to be healthy. People are very focused on health. We're all still working on our COVID pounds.
Yeah.
I think that this is an area that is ripe for substantial expansion with customers, and I do think it affects the food away from home category.
I do too. You know, look, there's a difference between the hot side of the deli counter with the rotisserie chicken and the fried chicken and the chicken tenders and a couple of sides versus a dedicated place in the store for thoughtfully prepared meals.
Yes.
that I can literally grab and go.
Absolutely. I know you've seen that in our stores.
That's actually where I was going.
Yes.
Remodels.
Yes.
You've done a bunch of remodels.
We have.
A couple of hundred in 2021.
Yes. I think you can just think about us having remodeled approximately 10% of our store fleet every year. That's sort of been the metric. Since the Safeway acquisition, we're at about 70% of our stores.
Mm-hmm.
Each one is different. Each store needs something different. We're a large collection of banners, as you know. That is maintaining our stores and keeping them fresh for our customers. Remember, part of Customers for Life and underlying in-store excellence is making sure that there is an environment that is inspiring for customers.
Yep.
Today it is a top priority, and what are we doing in the stores?
I was literally gonna ask.
Yes.
So if I walked into the-- so I have-
Yeah.
An Albertsons and several Safeways pretty close to me. I live in the Phoenix metro area.
Sure.
If I walked into a new Safeway that had been remodeled that I was familiar with.
Mm-hmm.
What would I see that's different, that's new, that will make me go, "Oh, look at that.
First of all, the stores are lighter, they're brighter, and from an environmental point of view, they are better for our planet. Wherever we're doing this, we are very focused on the ESG agenda, which is no surprise. We all need to be focused on that. As you think about the areas of the store, you're seeing new types of refrigeration in the store, much more visually inspiring. Also very temperate. Freshness is so important to the customer. Doors on some of the refrigeration, but ones that you can actually visualize the product, but that keeps the temperature at a level that is moderated. This is very important, you guys. If you actually leave milk out or fruit out or other products for even an hour to two hours, you're taking off the shelf life, Dean.
Yeah. One hour is one day.
With that, we have been very focused, and of course, this plays into a very important aspect of the margin discussion that we had a little bit earlier.
Sure.
As part of productivity, which is shrink. The investment is driving a lot of different things. You're gonna see ready meals expanded in our stores.
I was so hoping you would say that.
Yes.
What does that look like?
Yes. What ready meals looks like is you've got your delis, and those delis now where we're doing investment in those is there's a lot more automation in the delis, stackers and slicers and things. Then right in front of the deli, 'cause you're going there for something prepared, it's logical for the customer usually to the right, there is gonna be an entire section of a variety of meals. Depending on the store, remember, food is very regional, it's very local, so different stores have different things. Take a Tom Thumb in Texas, as an example. You're gonna see a, ethnic assortment.
You're gonna see some Chinese food, you're gonna see some Italian food, you're gonna see various types of alternatives, ready to eat, ready to heat. Different salads, of course, packaged and, you know, focusing on things like the packaging, not spilling in the cart. You know, all the things that, you know, if you have something in it, every detail is being obsessed over as it relates to how convenient is this, throwing it in the microwave, et cetera. Meals is a huge category for all of us, by the way. It's not limited to Albertsons, and don't think the competition isn't thinking the same thing we're thinking. We believe that our platform bodes well for us.
The other thing about freshness that may not be well understood and a differentiation for us is that in most of our stores, we still have a butcher, and we are cutting meat every day. We also, adding to that, are cutting fruit in our stores. Guacamole is made in our store that day.
Which gives you a chance to have fresher product.
Exactly.
To use the avocados that are ripe before you throw them out.
That is, to your point, but more importantly, Dean, that means something to our customers.
Oh, I completely.
I think that.
It's a virtuous approach.
Exactly.
It's not a short putt.
No.
Right?
It's not.
'Cause now you're-
It's hard to do.
You have hourly employees on the floor.
Yeah.
Now you have to motivate hourly employees to put out a quality product every day and to have processes in place to make sure that they know how to do that and that they are doing it that way and that it's flowing through the customer.
Yeah. Dean, I would tell you about the team members in the stores. They are so proud of that. There is a pride that comes in that. Take the cake decorating activities that we do. They actually invite the cake decorator often to the birthday party. They are so pleased. They are really part of the community. They are doing the graduation. They are doing these things. In the fresh side, on the fruit side, the people are in the store generally when the customers come in, and they talk about, "Oh, do you have any more of that? That's so fresh." Makes people very proud. Dean, right now, people want a reason and a meaning in their work. These we want it. These individuals are no different.
I can tell you that over the years, the brands that have come together to be Albertsons, the employees are very proud to work there. I'll walk into a store and have an employee that's been there for 55 years still telling me how proud they are to work for those brands. I think this adds to employee experience as well as customer experience.
Great. Okay, lightning round. I want to take a couple from the audience. Can you talk a little bit to your efforts at reducing food waste?
They're constant. We've implemented several technologies to help us plan for especially in the fresh area. We implemented OpFresh. We're just starting. We're early in that. It's helping us do both forecasting of need and then management on the floor of best if used by dates. This initiative is being even more amplified by our ESG initiatives, which we just launched on Earth Day this year, put out a whole report around our ESG initiatives. The solution around that, around food waste, is going to be to continue to improve your forecasting on what you need, where you've got a shelf life that is going to cause an expiration. Now, I will tell you that it's important, but let me talk about the food waste. It's not waste. It's food that is near expiration.
Let's call it that for a second.
I was actually gonna just check in.
Yeah.
I think the question is, are we making sure stuff gets used and goes where it can be used?
Yes. Yes.
So-
Oh, that was an audience question.
No. I know. I just wanted to make sure.
Yes.
We get to that.
Let me talk about that. When we are at that point, we are donating hundreds of thousands and millions to the local food banks, and they depend on us to do that. In the communities we serve, we are a big part of that community. By the way, our employees are also very, very proud of that. That would be the usage, Dean, of food on the other side, where you do end up with the possibility of shrink to the extent possible. That would be shrink for us, of course.
Mm-hmm.
That is going to homeless and food banks and people who are in need.
Another question from the audience, complete non sequitur, full disclosure. You joined Best Buy, where I think, in hindsight, certainly the consensus was there was a lot of low-hanging fruit.
Yes.
You came through that process, obviously to great result, and now you've come into Albertsons coming up on a year. Can you discuss how those experiences were similar or different in terms of low-hanging fruit versus, you know, less low-hanging, higher reaching, I guess?
Sure. So when I came into Best Buy, let's just talk about the backdrop of joining. Best Buy was in serious trouble, and virtually some might say, had they not gotten through that fourth quarter, possibly on the verge of bankruptcy. That was not the situation at Albertsons. Let's just talk about the direness of the situation. They don't look anything the same, so we've got to start there. The other thing at Best Buy was productivity was not in their DNA, right? Vivek is really. I attribute so much of this to Vivek and his leadership. They came in, and it is part of the DNA of this company. They know that forever you need productivity tailwinds to invest and to offset the inflations that will come in this industry. They were along that path.
However, they were early in that, right? They were a $1.5 billion program had been announced, and about a half, about three quarters of a billion, almost half or two-thirds of it was starting to be delivered at that point. The big magic in that was winning model. That is what winning model is, Dean, for those of you that haven't read a lot of our press releases, is Albertsons, prior to 2021, was buying at the division level. They had not consolidated purchasing as a total company. Your largest division was your largest scale. This is like open-heart surgery.
Sorry, is a division a banner?
A banner.
in your world?
A banner.
Yeah. Okay. Got it.
Yes.
Safeway would have been big.
Um-
Albertsons would have been big.
Yes.
It gets smaller.
We have 12 divisions.
Got it.
There could be two banners.
Okay.
In a division.
Got it.
With that, this has brought enormous benefit. Let me tell you the other benefit that it brought. We have always operated as divisions. There's 12 of those. We have more banners than divisions. Small divisions get put with larger divisions. We had advisors come in and really work on the how do you do this? How do you keep the divisions energized, keep them motivated, keep local? The theme under this was nationally great and
Locally strong.
Locally strong or locally strong and nationally. Locally great, nationally strong is really how it goes. The opportunity, we're early in that. Dean, we just really got going, and we're doing it by wave. When I say this is heart surgery, guys, I'm not kidding. This is huge in a grocery retailer with the number of SKUs and the number of vendors. So, but what it's also done, Dean, is give the divisions confidence that you can go nationally strong in a lot of other things, right? Because their businesses have not been negatively impacted by the implementation of such a strategic opportunity. So I think over time, to that point, that is a tailwind for us.
Yep.
It's a tailwind that is in its infancy at this point in time, as it relates to everything besides the winning model. I think that going forward, when you're trying to compare it to Best Buy, there is tremendous opportunity. I joined because I believed in the work that they had done. Let's talk about the most unprecedented number that I believe that they delivered, and I of course knew when I joined that the number was growing materially. Over on loyalty, we talked about the fact.
Over 30 million now?
We're pivoting to loyalty, but we started in 2019 with 21 million loyalty members, and we ended the year at 30. That is a 45% increase on a scaled base. Some people would say there's dotcoms out there that can do 200%. We're talking about a 20 million base and growing that over a 2-year period of time. I could not think, Dean, of a better platform for growth than that. And I mean, you guys, this requires them to give us their personal data. People would rather have root canal surgery than give you their phone number, right? Their cell phone. So I really believe that, this is a substantial difference. Now, that was not the case when I joined Best Buy.
When I joined Best Buy, we were in a decline on consumers, and Amazon was of course aggressively going after the company and was winning.
It's a different-
Don't count out. We live in a complete state of paranoia of Amazon. Don't worry. We are all very focused on the formidable competitors that will come out of the online space. It's a different backdrop, Dean.
Cool. Thank you. We have about eight minutes left. Wanna get through just a couple.
Yes.
Couple super quick if we can.
Yes.
One other question from the audience. You talked about the private label, and I just wanna clarify, there's a difference in my mind, there's a big difference between private label and own brand.
Yes.
Those are different things in my mind.
Okay.
The question is, what's the strategy, if any, for private label? I'm gonna call it own brand.
Yes.
Private label also probably.
Well, we call it own brands internally.
Yeah, I know. Specifically in pharma and consumer health products.
Own brands in pharma and consumer health products.
Yeah.
That has not been a primary focus for us, and I think we have such substantial opportunity in the other categories that in the prioritization and the capabilities that we have, I think that that would be an area that would not be one that I think would be the most material for us going forward.
I'm gonna editorialize-
Yeah.
Just for a second. When I did strategy for all the years that I did at PepsiCo and Aramark and PetSmart, I had a slide that I made that was framed, that I pointed to a lot, and it said, "We can do anything.
Right.
We just can't do everything.
Right.
I like the fact that you're able to say, "Look, it's a thing, but it's not the thing.
Right.
It's not part of our focus." I appreciate that.
Yes.
Okay. Want to just touch base on digital quickly.
Mm-hmm.
From my conversations with Melissa and Cody, my understanding is percent of sales, digital or e-commerce or e-grocery is mid-single digits percent of sales right now.
Good estimate.
Okay. The order origination for me is a very interesting thread. I don't know if you can speak to it again briefly. Any sense of what the mix is of first party origination versus third party? Forget app versus website, et cetera, but when orders come into you, how many are coming in through your portals versus, let's say, the Instacart app? Ballpark.
Yeah. We have not disclosed that, and so I won't be disclosing it here. Let me just talk about the possibilities for our customers because we think strategically we made the right decision. Today, if you want to engage with Albertsons from a digital perspective, if you're a store customer, you download our app. We just launched this new consolidated app. We used to have several apps. We now have a unified mobile app.
UMA.
You can do pharmacy and food.
UMA.
Yeah, UMA, pharmacy and food. You can engage with us like that. If you are a DoorDash customer, and many people have DoorDash subscriptions, I might add, you can also place an order through DoorDash, also through Instacart. Uber Eats. There are various ways for you to engage with our business, and this gets into a strategic decision that we've made, Dean. It has to be how you want to engage. Our goal when we see these digital engagements is we have our own subscription, which we are in the earliest days of FreshPass, and we would love to convince these customers that that would be the ideal way for you to engage with us. Over time, we're seeing that moving, but we're perfecting it.
Yeah.
The thing that you don't do is roll out a service like that. Remember, we just finished getting our DUG stores rolled out.
DUG, Drive Up & Go.
Our Drive Up & Go. Drive up and pick up in store. Drive online, pick up in store.
Dedicated entrance, dedicated parking spots.
Yes.
Dedicated people. Text when you arrive.
Three minutes to the trunk. You just place your order, you let us know. We actually are tracking you, and then when you arrive, you press okay.
Track, tracking in a good way.
In a good way. Yes. We're there for you. Okay?
So-
We just built that capability. Dean, on the delivery side, we are very thoughtful about the NPS scores, and we will maintain that. As we get better and better and better at it, that's when you market it. You don't start making major marketing splashes around things that you're not fully perfecting yet.
NPS, Net Promoter.
Yes.
Okay. Let me just explain why that's an important question to me as an analyst, right? I've shared this with Cody and Melissa.
Yeah.
I think about order origination, for me, if your order origination, and I know you're not discussing this, but if it were at 90% first party, that's sort of one extreme.
Mm-hmm.
Versus 20% first party, it says two very different things about your customer's orientation, not just to your store, but to what they believe to be true about your mobile capability. I'll tell you explicitly.
They don't know that you have mobile capability, Dean, right?
Well, yeah. That's where I was going, right?
Right.
Sprouts, as an example, we shop at Sprouts regularly. They don't have a mobile capability. If we need you know, fresh cilantro and, you know, organic sour cream from Sprouts, you know, that's gonna be an Instacart. Not that we use it a lot, but that's the only.
Yeah.
That's the only game.
That's the only game.
If you want to order from Sprouts.
Yes.
That's something that I think we'll be talking about over time.
Yes.
Likewise, the percent of sales from digital.
Yes.
Like, as that matures for you, certainly that's something we'll be asking about on a pretty regular basis.
Right.
We have two minutes left. I'm gonna ask a pretty open-ended question here. Of all your strategic priorities, which one do you think matters a lot about which you have the least certainty?
I would say that I don't have a strategic priority that I have the least certainty. When you narrow down to four strategic priorities, I will say that anyone that you talk to that has 10, it's too many. The wonderful platform that has been built prior to my joining around staying focused on the path of the strategic pillars, it governs virtually everything we do, Dean.
Mm-hmm.
There are clearly different people, different resources, and different levels of sophistication within the organization on enhancing and accelerating digital engagement and loyalty, bringing customers to life, et cetera. I think I've given you some statistics.
Yeah.
That says we've been extremely effective at that. Driving productivity, I think you guys have seen the numbers. We talked about it, $1.5 billion over three years and now another $750 million on the table. That has been very successful for the organization. There is, of course, in-store excellence. I think we're investing, we're making progress. It's the biggest lift that you have. You're dealing with hundreds of thousands of individuals to make that work.
Two hundred and seventy thousand.
Yes. With that would be the hardest, right? From an execution point of view.
Still you feel good about it.
I feel wonderful about it. I feel that we need to give them the tools. We can talk about pain points for a minute, because I would say that this is something that we did share with Best Buy.
Mm-hmm.
Going to work in a grocery store, in a deli, in these various areas, there are immense numbers of pain points, Dean.
Yep.
Over the years, they grow and the people find ways to work around them, and technology and other capabilities can solve so much of that. That is, we even mentioned in the fourth quarter conference call that addressing those pain points was a top priority for us.
It's good for the employees, it's good for customers.
It is a crusade. By the way, I would call that a crusade.
Well, let me tie it back to something you said earlier, the take-home meals. That a President and CFO, and I'm gonna argue Chief Transformation Officer maybe, is talking about having the right containers so that the take-home meals don't spill in the car. That's a level of attention to detail you don't hear every day.
Fair enough.
Oh, it's counting up now, so we're out of time. I wanna give you one last question, if I may.
Yes.
'Cause I know we talked about it.
Yes.
You talked in your Q4 release about a project that you're running in concert with the board to look at strategic alternatives?
Yes
For a whole host of the balance sheet things, predominantly, if I recall. I know that's on the mind of investors. Any updates there? Anything you wanna talk about there?
Yeah. I don't have an update, obviously, here today, but what I can say is that we have consistently said, what would the process look like? We were open to all strategic alternatives. To your point about the share price, I think that's interesting, but from an operational point of view and the success the company has had, we felt that the company was undervalued and versus our core peers. With that, we said, "You know what? We owe it to our shareholders with this kind of underlying performance and opportunity in front of us to look at and be sure that we're doing everything we need to do in order to create the value that we believe is absolutely there.
Bless you.
That was the foundation for the announcement. We are looking of course at our real estate. We have a tremendously valuable real estate portfolio, pre-IPO. In 2019, it was valued at about $11 billion. In order to do an appraisal of that real estate, I'm not gonna bore everybody in this room, it is a very intense process. There's a certain type of appraisal that has to be done, called a FIRREA appraisal. It takes a fair amount of time with as many properties as we own. We're looking at what is the value, even of what the assets we have, and since so much of it's West Coast based, it has had, we expect, appreciation.
Beyond that, we will continue to look at all opportunities and have discussions as you would expect us to be having at this point. My guess is that, you know, we're still a period away, and we're not in a hurry, by the way. The world is changing around us as we think about these things, but the foundation of our business is strong, and we believe that that is the primary focus is focusing on execution in this business. Secondary would be seeking strategic alternatives.
stay tuned.
Stay tuned.
Ladies and gentlemen, I would like to first of all thank Melissa Plaisance and Cody Perdue, who spent time with me helping prepare for this. Obviously, I'd like you to help me thank Sharon for joining us today. I enjoyed our conversation immensely. I look forward to continuing the conversation.
Well, Dean, we thank you and appreciate the investment of time from the Bernstein team. We so much enjoyed getting to know you and look forward to your coverage. Great. Thank you.