BOISE, Idaho -- Albertson's here is redirecting its approach to customer service and merchandising.After extensive consumer surveys, the company is unveiling an array of measures geared to improving in-store efforts and bumping up the top line.The nation's fourth-largest supermarket chain suffered through a troubling and uncharacteristic drop in identical-store sales, which fell from plus 3% at the

BOISE, Idaho -- Albertson's here is redirecting its approach to customer service and merchandising.

After extensive consumer surveys, the company is unveiling an array of measures geared to improving in-store efforts and bumping up the top line.

The nation's fourth-largest supermarket chain suffered through a troubling and uncharacteristic drop in identical-store sales, which fell from plus 3% at the end of 1994's first quarter to minus 0.1% by the middle of 1995. According to analysts, the everyday-low-price operator watched competitors -- particularly Safeway -- become more successful with promotions. Moreover, the chain, always known for its efficient execution, recognized the need to enhance the quality of its in-store service and prepared-food offerings.

In an interview with SN, Richard King, a 28-year Albertson's veteran who became president and chief operating officer in February, outlined a roster of new activities that are altering the store's approach.

King and Gary Michael, chairman and chief executive officer, are overseeing an agenda that includes new meal programs, a revamped pricing and promotions framework, the creation of destination departments, better customer service, speedier checkouts and savvier neighborhood marketing.

Strong first-quarter numbers indicated that some of those programs are beginning to lift financial results. The chain's identical-store sales rose 2.4% in the quarter, compared with 1.9% in the fourth quarter of 1995. Albertson's programs represent an attempt to snatch back momentum from competing operators -- including supermarkets, restaurants and category killers -- by pinpointing the needs of the chain's consumers, King said.

"I don't think we ever lost sight of the customer," King said. "But I think we got hung up with where the business was going, whether it's to the restaurants or fast food or the PetsMarts or Office Depots of the world. We got hung up on worrying about them rather than on what we could do for the customers we have coming into our store every day. Our moves fall under the heading of re-emphasizing the customer."

The new outlook is a key element of an overall growth agenda that includes aggressive square-footage expansion and capital expenditures plus possible acquisitions down the road. The new projects can pay off quickly, given the chain's size and its expansion potential.

With nearly 800 stores in 19 states and some 650 million people traveling through the front end last year, Albertson's calculated that selling another item to each customer would have monumental results for overall sales. The chain, with $12.6 billion in volume last year, plans to operate almost 1,100 stores by the end of 2000. "If we sold just one more item, at an average cost of $1.50, we could add about $1 billion in sales," King said. "So it's important to speed up the front end to allow the people in the back to suggestive sell, so people may buy items they haven't thought of buying."

King is winning early kudos from financial analysts for his efforts. Gary Giblen, a financial analyst at Smith Barney, New York, said, "Dick King knows Albertson's methods and can think outside the box to bring in new ideas. He's moving faster on promotions, meal solutions and getting new stores up and running. And he's got inherent assets: first-class stores and top-notch field management. So he's able to turn things around fast."

Albertson's has a good chance of succeeding in executing changes but needs a long-term horizon, said Ed Comeau, an analyst with Donaldson, Lufkin & Jenrette, New York. "They tightened the operations screws too tightly, especially in the front end and service departments. They erred on the side of efficient execution but didn't meet customer needs. They've made a very extensive review of their business. I'm convinced they can change things without blowing up the bottom line. But they'll have to loosen pricing. A big ship is being redirected, and it will take time to turn." Albertson's has moved assertively to speed up service by adding a bonused front-end manager position (with equivalent status to a perimeter department manager) to each store. The chain also added a front-end manager position in the corporate office. Those moves were the prerequisites to building service elsewhere in the store. A new meal program is an integral part of Albertson's agenda. Some analysts have said Albertson's fell behind certain competitors in that regard. "The deli/food service was high-volume, high-tonnage but not done with flair," Comeau said. "You ended up with a bland department."

Albertson's is putting a lot of focus on a new food-service concept called Quick Fixin' Ideas. Introduced in the southern California division and now being rolled out to other parts of the chain, the program offers customers takeout meals in microwavable trays with see-through packaging. Signs bear a Quick Fixin' logo, which pictures a clock pointing to 5 o'clock and adjacent eating utensils.

"We came up with nine service-deli items that we feel are the best, and the movement will vary by area," King said. "The items range from stuffed pasta to fried chicken. Now that we've got the right packaging and label, we're ready to roll it out."

Comeau noted that Albertson's has chosen to go the meal route with in-store preparation rather than a central commissary, a signal that the chain is committed to fresher and more customized products, he said.

The Quick Fixin' signs are used throughout the store to trumpet grocery products, including frozen items, that lend themselves to quick preparation. Albertson's also promotes easy recipes and groups the ingredients together on endcap displays. The Quick Fixin' program is emphasized and promoted in in-store circulars.

Cross-merchandising between departments is encouraged. "We found some good recipes and are trying to build our end displays around them," King said. "We put in a display for meal recipe ideas. They can buy the rice, soup, etc., at the display and then go into the perimeter departments for the chicken or ground beef that goes with it. This concept started with our Italian Days festival promotion, where we started with the recipes and tied in the items." Carrying the meal theme further, Albertson's is underlining the importance of sampling and suggestive selling, including on-floor preparation of products. "Meal planning is what's really important to our customers," King said. "So we feel if we can give them those ideas while they're shopping, we'll sell that one more item. We can tell them, 'Don't forget the parmesan cheese, don't forget the mushrooms.' And we have to get them in the parking lot as quickly and conveniently as possible."

The success of merchandising and promotional programs, in part, hinges on local decision-making because of trade areas' differing needs, and Albertson's "Neighborhood Marketing" program is a response to that requirement, King said. "We believe in giving people autonomy at the division level to run their operations. We're putting in a schematic program in the divisions to allow them to do their resets off the sales of their items. They can do it by division and by store so it's right for that location."

A major quandary for Albertson's has been how to tinker with its everyday-low-price philosophy to include the excitement inherent in promotional programs. "We've said we're EDLP. We've worked hard on our EDLP concept. But that is boring to a certain extent. So you have to put in a little bit of romance for the customer and for our own employees."

Comeau noted that Safeway was squeezing Albertson's business with aggressive promotions in such areas as Denver, Seattle and Portland, Ore.

Albertson's new pricing approach is to layer promotional concepts onto an EDLP framework, King explained. "When you talk about our core business, we want to be an EDLP operator, with the overall food bill competitively priced in the marketplace. But you still have to have some excitement and something going on. Whether it's the Quick Fixin' or promotions or page ad items, you have to do that. We can still pass on values. Our suppliers give us deals, and we can pass them on through advertising and temporary price reductions. We've always had some promotions going on; we've probably just put more emphasis on it now."

The driving force for those efforts is coming from the top. Albertson's is putting together promotions with national companies and filtering them through the divisions, which are fine-tuning them for local needs. In another move to boost the consumer's in-store experience, Albertson's is sharpening its focus on certain departments -- such as the pharmacy, baby and pet areas -- to make them stronger destinations. The chain hired more corporate office personnel for pharmacy and is moving the departments to the front of the store for more exposure. In the baby area, Albertson's is ensuring that it assembles the right mix of products, ranging from diapers to bottles to baby food. "The [baby] department is like a store-within-a-store, and we want to make sure it's set up right," King said. "We're rolling it out first in southern California, and we even put together a baby safety book that includes coupons for Albertson's baby products."

Similarly, the chain is revamping the pet care centers -- a proactive strike against gains by category killers. "We looked at the PetsMarts and wondered how we'd compete," King said. "But we've finally said, 'Are we advertising pet foods like we need to, like we used to do before PetsMart came to the marketplace?' We decided we weren't doing as good a job as we should have, so we added plenty of displays advertising those items . . . and the right mix of items. It started in southern California, and we're extending it to make sure the sets are right throughout the company."

Albertson's also deemed it important to retool private label. Its store-label share, 14% of total sales, is small vs. that of some other major operators. But about half the chain's top-100 selling grocery items are private label, so the business is of prime importance. The retailer is now introducing newly designed labels, after an extensive review that included a rethinking of suppliers. A major move was streamlining labels and products in areas from grocery to baked goods. "We had the Albertson's brand, Janet Lee and Good Day," King said. "We've converted most everything into the Albertson's name brand. How many names do you need? This allowed us to eliminate duplications of product as well." Albertson's is already seeing signs that its early moves are paying off. Identical-store sales began turning around in 1995's second half and climbed to plus 2.4% by the end of this year's first quarter. Analysts noted that a number of other chains also saw improving like-store sales in the first quarter.

"There are no excuses to be made for our sales. We haven't kept up with some of our competitors in the area," King said. "But we feel sales are rebounding."

Currently, Albertson's best sales-growth areas are southern California, Texas and Florida, King said, adding that the divisions needing greatest performance improvement include northern California and Seattle. Albertson's top line will be boosted by its ambitious expansion and capital expenditure plans, he said.

"They're growing their store base more aggressively than anyone in the supermarket business," Giblen said. "They can finance that growth with their own cash flow."

The 1996 cap-ex figure is about $660 million, King said. The chain expects about 8% square footage growth a year, with about 20% to 30% growth in new markets. Operations currently include 19 Western, Midwestern and Southern states, supplied by 12 distribution centers. Albertson's will invest $3.8 billion over the next five years in capital programs. That figure includes $2.8 billion to open 388 new stores, $613 million to remodel 265 stores and $178 million to enhance the distribution system.

Many of the growth plans are directed at advancing earnings. Jonathan Ziegler, an analyst at Salomon Bros., San Francisco, noted that quickening the pace of earnings growth is a prime goal. Albertson's first-quarter operating profit rose 11.6%, after a number of quarters in which the chain failed to break the 10% growth mark in operating earnings.

"They've kept good profit growth, but now they want to accelerate it," Ziegler said. "They want to be a mid-teen grower in operating earnings."

Albertson's store base chiefly consists of food-and-drug combination units, its growth vehicle. However, Albertson's has a small percentage of conventional stores and about 40 warehouse stores under the Max Foods banner.

In 1995, Albertson's entered the Houston market with 10 stores, and it will have 16 there by the end of this year. The company expects about six new stores a year in that market for the next few years, King said. This year, Albertson's plans to open a total of 68 new stores. Much of the future growth will be fill-ins in existing markets in Texas, California and Florida. The company hasn't yet set the next major new market entry.

"There's nothing planned as big as Houston," King said. "We will be going into the Jackson, Miss., area with three sites, probably beginning with the early part of 1997. We're also looking at additional sites there."

Growth areas will be determined by distribution center locations. Albertson's new Houston facility, the chain's 12th, will aid its entry into Mississippi. King was unable to forecast where the next distribution center would be located. "It's impossible to predict until we determine where we move the company next," he said. "Despite the growth set for Florida, I don't see the need for a new distribution center there." Albertson's is counting on acquisitions to fuel part of its near-term growth, but so far there are no clues to what deals are likely. The most recent deals were small, including the takeover of a single California unit from Smith's Food & Drug Centers, Salt Lake City.

"We will need acquisitions for our growth plans; we are constantly looking at acquisitions and talking to people," King said.

More than 100 Albertson's stores are competing with supercenters, whose draw is the big, weekend-oriented shopping trips, King said. Still, he noted, the chain is holding its own and its intensified merchandising and customer service focus will boost those efforts. So will larger and more extensive service departments. About 90% of the store base will be remodeled or replaced during a 10-year period. This year, 43 remodels are planned. Remodels include expansions, where possible, to fit larger frozen and fresh foods departments, King said. The remodels and new units embody the company's future. While Albertson's is building versions of its food-and-drug format in numerous sizes, the larger prototypes are 50,000 to 55,000 square feet. "With that size we can get everything we want, from expanded perimeter departments to additional self-service island cases," King said. "And our goal is to get more people out on the floor working visibly instead of behind the scenes."