DECISIONS IN STORE

Although the formal merger of American Stores Co. with Albertson's is still at least four or five months away, Albertson's is facing a handful of key decisions, securities analysts told SN last week.One of the most significant decisions is likely to be what to call the stores it will operate in California -- Albertson's or Lucky -- where the two companies compete against each other.Chuck Cerankosky,

Although the formal merger of American Stores Co. with Albertson's is still at least four or five months away, Albertson's is facing a handful of key decisions, securities analysts told SN last week.

One of the most significant decisions is likely to be what to call the stores it will operate in California -- Albertson's or Lucky -- where the two companies compete against each other.

Chuck Cerankosky, an analyst with McDonald & Co., Cleveland, told SN, "California will be Albertson's first focus after the merger is completed because that's where it stands to gain the most distribution, advertising and operational efficiencies.

"Once Albertson's decides on its merchandising format in California, it may have to decide whether to retain either the Albertson's or Lucky name on those stores. It won't keep both."

According to Ted Bernstein, a high-yield analyst with Grantchester Securities, New York, "California will be the biggest sticking point. Otherwise, the geography is complementary, with little overlap." Among the analysts' other comments:

The Federal Trade Commission is likely to approve the merger, although it will probably force Albertson's to sell 50 to 75 stores in California and New Mexico, where the two companies' stores go head to head.

Albertson's may consider disposing of some American operations, with Acme Markets the most likely candidate if it does.

Albertson's has a variety of options for integrating its systems with those of American Stores.

American Stores' decision to sell was prompted by a weak earnings outlook.

Some analysts told SN they expect Albertson's to drop its corporate name and convert all the California stores to the Lucky banner, while others argued the opposite strategy. "Lucky is stronger in numbers and market share than Albertson's in California, but Albertson's might want to change the name to its own if it decides to remerchandise and reposition those stores," Cerankosky said.

According to Debra Levin, an analyst with Morgan Stanley Dean Witter, New York, "Albertson's could adopt the Lucky name because there are 410 Luckys and only 175 Albertson's in California. And besides a stronger presence there, Lucky also has a frequent-shopper program already in place."

However, Jonathan Ziegler, a San Francisco-based analyst with Salomon Smith Barney, New York, said Albertson's would probably prefer to leverage its name and private-label image with a single, uniform identity nationwide.

He said Albertson's will probably use a dual-banner advertising format for a while, "but it ultimately makes sense for them to convert all the stores to one name -- Albertson's." Mark Husson, an analyst with Merrill Lynch, New York, said he disagreed. "Lucky is very aggressive with its slogan, 'the low price leader,' and it has the stronger price image, especially in southern California," Husson said.

"Albertson's needs to operate as one company but not necessarily under one name. It can have different names on the front of the stores with more similarities from store to store inside," he said.

Cerankosy said there would be no point in changing the name of either Jewel or Acme "because each has its own consumer franchise."

However, Albertson's may have to decide whether it wants to keep all the operating companies it is buying from American Stores, analysts said -- and whether Albertson's opts to retain Acme Markets remains an open question, they said.

"Albertson's will have to study that situation," Levin said, "because Acme is a problem part of American Stores' operation because there are so many weak stores."

Husson said he agreed that there are "a lot of weak Acmes. But the newer, larger stores account for 55% of Acme's sales, so the company has nearly reached critical mass with those units."

Ed Comeau, an analyst with Donaldson Lufkin & Jenrette, New York, said Albertson's will probably hold on to Acme "because even with its problems it's only a small piece of the whole and the Northeast is an attractive market. And Albertson's could make an acquisition to strengthen that operation."

Levin said that operating the Acmes and Jewels, many of which are in urban locations, "will be all new for Albertson's," since most of its stores are in suburban locations, Regarding systems alignment, the analysts offered various scenarios for joining the two companies' technologies.

Ziegler said he anticipates Albertson's will adopt American's systems, "since all of American's systems are centralized in Salt Lake and are probably state-of-the-art, while Albertson's has traditionally lagged behind in investing in systems."

Levin said she disagreed. "I'm not sure American's systems will win out," she said. "Albertson's operating cash flow is very high, which indicates it's executing at store level and backstage, and although its systems are not centralized like American's, Albertson's systems work well, and I suspect Albertson's will use its systems for all supermarkets. "However, for the drug stores, Albertson's will utilize American's systems."

Husson said American Stores' systems are modular, "so Albertson's could pick and choose the modules it wants.