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TOUGH SELL

NEW YORK -- Large food-retail and wholesale companies are identifying niche growth opportunities in an environment marked by extreme competition and little-or-no industrywide growth.Top corporate executives speaking at the Credit Suisse First Boston Food and Drug Retail Conference here said their companies are pursuing initiatives such as collaborative programs with suppliers, value retail formats,

NEW YORK -- Large food-retail and wholesale companies are identifying niche growth opportunities in an environment marked by extreme competition and little-or-no industrywide growth.

Top corporate executives speaking at the Credit Suisse First Boston Food and Drug Retail Conference here said their companies are pursuing initiatives such as collaborative programs with suppliers, value retail formats, local marketing, private-label expansion and emerging product categories.

Safeway, Pleasanton, Calif., is continuing to comb the retail landscape for acquisition candidates, but is finding most asking prices unrealistically high.

Explained Steve Burd, Safeway's chairman, president and chief executive officer, "We've said 'no' to most companies we looked at because the value they were seeking -- the difference between the ask and the bid -- was too broad."

Burd said the best of times for sellers was 1998, when earnings multiples were high. However, regional independents currently need to "become more realistic regarding their valuations," he added.

A&P, Montvale, N.J., views private label as a key growth area for the company, said Beth Culligan, executive vice president and chief operating officer. Culligan said that at 12% sales penetration, A&P's private label is well below the 16% U.S. industry average and far below the 20% mark for best-of-class operators.

"We can go at least to the 15% level," she said. "Every point is about $5 million in EBITDA [earnings before interest, taxes, depreciation and amortization] because of higher margins. In 2001 we've already improved the penetration by one point."

Other areas of opportunity for A&P include driving down costs, improving marketing and brand recognition, and increasing collaboration with suppliers.

"There are great opportunities for us and all retailers to improve relationships with vendors," Culligan said. "We want to build the vendor's business at the same time we build ours. We want to tap into marketing and discretionary monies that come from building that business. We've made inroads in 2001 and will continue."

Albertson's, Boise, Idaho, is addressing a number of opportunities to build growth momentum, said Larry Johnston, chairman and CEO.

A core opportunity is the continued rollout of the chain's combination food-and-drug stores, which include "complete drug stores, with cross merchandising on each side," Johnston said. To facilitate the combo-store growth, Albertson's has streamlined management for the drug and general merchandise areas and introduced common management reporting.

Albertson's also plans to strengthen its private-brand programs in 2002 with new marketing; increased advertising, merchandising and promotions; and opportunity for premium-label items.

Pathmark Stores, Carteret, N.J., is seeking collaborative opportunities with vendors to grow its ethnic marketing for consumer groups including African-Americans and Hispanics, said Jim Donald, chairman, president and CEO.

"Manufacturers are trying to increase their earnings in these markets and we would partner with them, and they can then bring their earnings elsewhere," Donald said. "The vendor feedback we've had on this initiative is good. They want to play with Pathmark." Frank Vitrano, Pathmark's executive vice president and chief financial officer, said the chain has been pursuing major technology initiatives to increase productivity and profitability. These include an upgrading of the wide area network to help speed approval of debit and credit card transactions. A major 2002 store-level priority is the replacement of all point-of-sale equipment on the front end, Vitrano said.

"We've been testing self-checkout for the last few months," he added.

Supervalu, Minneapolis, is focusing on expanding its retail presence to a total of 2,500 corporate and franchise stores over the next few years, which would more than double its store base.

Jeff Noddle, Supervalu's president and CEO, noted that the company plans to add 100 stores per year, most of which will operate under the Save-A-Lot price-impact banner, to meet that goal.

"The price-impact formula is one that can be rolled out easily and also keeps operating costs low," he said.

Meanwhile, 7-Eleven, Dallas, will continue its efforts to blur the difference between its convenience stores and traditional supermarkets by adding more fresh foods.

Most 7-Eleven stores now have daily delivery of fresh milk thanks to the company's proprietary infrastructure, observed Jim Keyes, 7-Eleven's president and CEO.

This year, he indicated, the company is going to test in two markets a fresh-foods program that uses one successful 7-Eleven brand, the Big Gulp, to sell a new food-service program called Big Eats.

"We're going to borrow brand equity that 7-Eleven is known for to communicate the quality and value of our fresh-foods program," Keyes said.