Albertsons, the nation's No. 2 conventional supermarket retailer, was on the verge of being sold and broken up as 2005 ended, demonstrating the intensity of competitive pressures during the year.
Those pressures also forced two chains into bankruptcy filings - industry giant Winn-Dixie and regional operator Buehler Foods - and prompted several other companies to consider strategic alternatives. Among them are Associated Grocers, Seattle; Marsh Supermarkets, Indianapolis; and Fresh Brands, Sheboygan, Wis., which this month said it had reached an agreement to be acquired by another wholesaler.
Boise, Idaho-based Albertsons surprised the industry just before Labor Day when it said it was contemplating a sale of the company to increase shareholder value, a decision that apparently stemmed in part from a frustration by chain management over its inability to raise its stock price despite generally positive efforts to improve productivity and supply-chain logistics, which competition forced it to pass through in lower prices - what one analyst said was "a wake-up call for the industry to do something about its standing on Wall Street."
Other reasons for Albertsons' decision, analysts said, included the chain's inability to cope with intensifying competition from alternative formats, including Wal-Mart and Whole Foods at opposite ends of the spectrum; escalating labor costs; an inconsistent consumer message that alternately stressed price, perishables or formats; and the misfortune of having strong market shares in weak markets like Dallas and weak shares in strong markets like the Intermountain region.
Potential buyers were lining up as the year ended - primarily consortiums comprised of investment groups, banks and real-estate companies, some of them teamed with retail distributors - who were expected to either buy the chain as a whole and then sell it off in pieces to various entities or bid on certain parts of the company.
While Albertsons' decision came as a surprise, the decision by Winn-Dixie, Jacksonville, Fla., to file for Chapter 11 protection in February did not.
The filing came a few weeks after Peter Lynch, the former president of Albertsons, was named Winn-Dixie president and chief executive officer, at a time losses were mounting from poor sales - resulting in large part from competitive pressures exerted by Wal-Mart and Publix Super Markets - and vendors were beginning to demand tighter terms.
Over the course of the year Winn-Dixie followed through on its plan to sell or close 326 stores, encompassing all locations in Virginia, North Carolina, South Carolina and Tennessee and sections of Georgia, Alabama, Mississippi and Louisiana, and by year's end Winn-Dixie was expected to be down to 587 stores.
In May Buehler Foods, a 66-store regional chain based in Jasper, Ind., filed for Chapter 11 protection as a direct result of its acquisitions months earlier of 16 Winn-Dixie stores.
In making the filing, Buehler cited significant financial losses caused by the delay in assuming control of those stores.
As 2005 ended, Buehler had closed or sold all of the 16 stores as its bankruptcy continued.
Nearly 23 months of bankruptcy ended for Penn Traffic Co., Syracuse, in April, marking its second emergence from Chapter 11 since 1999. However, that development was mitigated by an investigation by the Securities and Exchange Commission and the U.S. Attorney General into the chain's promotional and allowance practices in prior years, which delayed the release of financial information by the company.
Competitive pressures prompted Associated Grocers, Seattle, to explore potential strategic alternatives the company said could lead to a sale or merger, although the member-owned cooperative did not announce any long-term decisions by last week. The company said the move was not related to the company's financial condition, which it said was strong, but to the realization that companies of its size need to prepare for a future in which vendors are likely to continue to reduce the number of sales calls they make on smaller companies like AG.
Marsh Supermarkets this month said it retained Merrill Lynch to pursue strategic alternatives as the regional operator faced increasing pressures in its market from larger, better-capitalized players, including Kroger, Cincinnati, and Wal-Mart Stores, Bentonville, Ark. It is considering selling itself, it said, although some observers said that could be a challenge.
Fresh Brands, meanwhile, was able to find a buyer in Chicago-area wholesale Certified Grocers Midwest, which agreed to pay $100 million for the operator and franchisor of the Piggly Wiggly and Dick's chains in Wisconsin.