JOHNSTON A STRATEGIST, NOT A RETAILER

BOISE, Idaho - Larry Johnston, chairman, president and chief executive officer of Albertsons here, was more interested in the big picture and less concerned with store-level nuts-and-bolts, according to industry observers contacted by SN.Johnston joined the company in 2001 after a career at General Electric and swiftly slashed Albertsons' store base and implemented several technology initiatives.

BOISE, Idaho - Larry Johnston, chairman, president and chief executive officer of Albertsons here, was more interested in the big picture and less concerned with store-level nuts-and-bolts, according to industry observers contacted by SN.

Johnston joined the company in 2001 after a career at General Electric and swiftly slashed Albertsons' store base and implemented several technology initiatives. He said in September 2005 that the company was approaching its "endgame" and that it was being put up for sale, a process that culminated last week with the announcement of a $17.4 billion agreement to be acquired by and split up among Supervalu, CVS and a consortium of other investors.

"Larry's strategic efforts were very good. Getting rid of underperforming divisions and re-examining every function at the company were good moves, and buying Shaw's was probably the single best move Johnston made," said Gary Giblen, senior vice president and director of research for Brean Murray Carret, New York. "But he didn't get the operational part of the business right because he didn't grow up in retailing and he under-appreciated the complexity and importance of the retail element. He needed people with a retail background to complement his skills, and the departure of Peter Lynch as president and chief operating officer [in mid-2003] was symptomatic of his whole approach and possibly the defining moment when any turnaround efforts were doomed to failure.

"Johnston felt big-picture strategies and abstract goals would create consumer interest in Albertsons, but the link between those goals and applications at the store were missing. That's where Peter Lynch could have helped."

Andrew Wolf, an analyst with BB&T Capital, Richmond, Va., also cited Johnston's lack of operational concern. "He did a great job generating large cost savings through retail consolidations and allowing the stores to control what took place at the distribution level, but he jettisoned a lot of his best executives, like Lynch, and went too far in the area of cost-cutting by having one store manager for every two or three stores in some divisions, which is not the way to go to market.

"There was a brief period when Albertsons had decent sales momentum, but then it tried to preserve earnings at the expense of sales at a time the competitive environment was down, but it wasn't price-aggressive enough when the environment improved to push sales upward."

Some of Johnston's problems resulted from Albertsons' acquisition in 1999 of American Stores Co., whose assets included Acme Markets in Philadelphia, Jewel-Osco in Chicago, Lucky Stores in California and the Osco and Sav-on drug store chains. Johnston, who could not be reached for comment, joined Albertsons in 2001, two years after the merger.

"American was a large, sprawling company that was never quite integrated into Albertsons," Wolf noted. "The management team prior to Johnston was unable to do it, and neither were Johnston and his team.

"The American Stores properties were a group of disparate stores that needed different strategies, but Albertsons never tried to differentiate them under Johnston - at a time when Kroger was differentiating itself with price and Safeway with its lifestyle approach."

Another analyst said Johnston did a good job "trying to fix the technology and distribution sides of the business, and the handheld scanners and plasma screens at the stores were innovative. But he failed to fix execution at store level, and a degree of creeping centralization took some of the local responsibility and flair away from the merchandising people on the ground."

Jose Tamez, managing partner with executive search firm Austin-Michael, San Antonio, said Johnston probably alienated some longtime grocery people in the Albertsons organization by bringing in too many people from outside the industry.

"Many longtime Albertsons people felt they were being left out of the loop and their voices weren't being heard," he explained. "That was certainly the message they got when Peter Lynch left the company, and that led to a lot of uncertainty in the divisions in terms of the company's direction."

Gerald Armstrong, an Albertsons shareholder and longtime gadfly at its annual meetings, also said Johnston made a serious mistake when Lynch left.

"He thought he knew everything," Armstrong told SN. "In fact, he said very early in his tenure that he was a quick learner, but he didn't understand what it took to make supermarkets spark to bring in more customers."

According to another observer, "It's hard to write a positive epitaph for Larry because, although some of the initiatives he introduced, particularly in the area of technology, were very good, his efforts at the GE-ification of Albertsons didn't work.

"It may be easy to be a Monday-morning quarterback, but black belts don't lend themselves to the food business, and putting managers through the Six Sigma program to turn them into black belts ignored the blocking and tackling issues needed to improve the way store personnel interacted with customers.

"Larry's focus on technology was an approach that might have succeeded in differentiating Albertsons in three to five more years," he said.