Larry Johnston is chairman of the board, president and chief executive officer of Albertsons, Inc. Before joining Albertsons in April 2001, he spent 28 years at General Electric. In his last role at GE, he served from 1999-2001 as president and CEO of GE Appliances and served as a member of GE's corporate executive council. Larry Johnston serves as a board member of the Food Marketing Institute (FMI) in Washington, D.C. and CIES, The Food Business Forum in Paris, France. He holds a bachelor of business administration degree from Stetson University in Deland, Florida.

You have talked about the ultra-competitive environment these days. What do you see as the major factors?
“We're talking about a new competitive paradigm driven by consolidation and a group of non-traditional competitors that have entered the business in the past 10-15 years. That's a major force in any industry and the supermarket industry is further behind the curve than any I've seen. About 50 to 60 per cent of the volume is still done by regional chains and small grocers. We consider ourselves one of the consolidators. We're one of the 50 largest companies in the United States. We're the second largest grocer and the fifth largest drugstore chain. We have 2,300 stores, 200,000 associates and account for 1.4 billion shopping trips a year. You need that kind of scale if you're going to survive.”

You have discussed lower prices and increasing promotions as a competitive advantage. Has that been accomplished?
“When I arrived prices were far too high. We were the leader or at parity with traditional competitors in only six of our top 20 markets. Over the past two and a half years we've made great progress. We've been very diligent and we're now the price leader or at parity with our major competitor in 19 of 20 markets.”

Recently, a Wall Street analyst said that Albertsons is still trying to price its way to profitability. What is your reaction to that?
“Some people don't have all of the facts. I deal with facts inside my own company, which they don't have. What we're trying to do is offer the customer the best shopping experience to make their lives easier. That requires a combination of things. One is convenient location and we have some superb ones. We've worked hard to know what the entire value proposition should be and that includes pricing and promotion. We've lowered prices and increased promotion and that's how you drive volume and positive comparable store sales.”

So you are at parity with competitors?
“We're moving and moving very fast with our traditional competitors. With competitors in the pure price segment, there will always be a gap. But only 35 per cent of people who walk into a grocery store say price is their principal reason for buying. It's an important reason but not the only one. Twenty years ago that number was 41 per cent. There's a myriad of other elements.”

What is your competitive advantage?
“We're the only major grocery chain with successful drug chains. Sav-on is number one in places like Los Angeles and all of Southern California. Osco is a leader in Midwest markets like Kansas City and Chicago. And we believe that dropping a full size branded drug store inside a branded food store creates shopping dynamics and power that no one else has. We've proved that with the Jewel-Osco chain and we've begun to expand that to other markets across the country like Tucson, Phoenix and Reno. Our next target is Southern California.”

How far can you take dual branding?
“It's a very interesting capital project. I can dual brand ten food stores for the same cost as putting up one free-standing drug store. So it's a very efficient use of capital. The shopping dynamics that occur inside the store after a drug store is dropped inside are very substantial. When you drop a drug store inside a supermarket, we've found that the pharmacy customer buys 30 per cent more food. We just completed dual branding all the stores in Phoenix. We'll begin work in Southern California once the strike is over.”

Are you focusing on growth in California?
“It's a significant part of our portfolio. We have a $1.5 billion capital programme in that state for the next four years. It's a very important part of our future. That's why we're so resolute during this labour negotiation to make sure we have the right cost structure going forward. We want to provide an offer that's fair to our associates. But at the same time, we want a cost structure that makes us competitive.”

Will combos represent the majority of Albertson stores and will there no longer be any conventional supermarkets?
“Absolutely. 1t is our intention that dual branded combo stores will represent the majority of Albertsons stores. If you look at Southern California, which is now the largest retail market in America, Sav-on is the number one drugstore. As we move around the country to areas where we don't have a drug brand, we have a couple of options. We can acquire a drug brand or import a brand like Sav-on or Osco.”

What about forming strategic alliances with other retailers?
“Brands are extremely important and it's the reason we are allying with strong ones inside our store. Toys R Us will be our exclusive toy supplier across the country and we'll have a Toys R Us 'Toy Box' in all 2,300 stores. The power of that brand and the advantages the alliance gives us in procurement, selection and seasonality far surpass what can be offered by other grocers in a market area.”

Have you developed other strategic alliances?
“We've done the same thing with Starbucks, Krispy Krerne doughnuts, we're testing it with office Depot and we're looking for others.”

There are some in the industry who say that this type of one-stop shopping doesn't work. What's your reaction?
“I'd say look at the consumer research. We just finished conducting a one-and-a-half year study that told us consumers want us to do one thing: make their lives easy. The major component of that is having convenient locations in their neighbourhoods for one-stop shopping. That's why we're adding convenience stores, fuel centres and many of the in-store partners I mentioned. Basically, we have to compete one store at a time and if you can adjust the offer to the ethnicity of the neighbourhood you can win. For example, two years ago we decided to go after the kosher market, which we felt was underserved. In just two years, we've become a leader in that market with a four-level kosher programme. It depends on the store and neighbourhood. The level four store, which is the most significant, even has a full time rabbi to ensure compliance with kosher law and to counsel customers. As you begin to work more closely with neighbourhoods, whether they're Asian, Hispanic or whatever, you begin to develop a liaison, a bond with the neighbourhood which drives repeat shopping.”

So shall we see more neighbourhood-specific marketing?
“You're going to see more one-on-one marketing at Albertsons. We get 1.4 billion shopping trips a year. Our ultimate goal is to make everyone of them a one-on-one experience. Obviously, by in-store marketing. Beyond that, technology will playa major role. We've begun to engineer a shopping experience we believe no other grocer in the world will be able to match. It's a six-phase programme to be rolled out over the next several years. It starts with the Internet. That's one reason why we've been pushing so hard on the e-commerce business. We now have the largest Internet grocery shopping company in the US. Our goal is to make sure that one day everyone of our customers is linked to a portal on the Internet offering shoppers their own highly secure home page where they can look at their complete shopping history, do menu planning and get nutritional guidance. In-store, customers can use handheld scanners and download their shopping list to the handheld device. Then, based on the footprint of the store it will route your entire shopping trip through the store via a GPS system. As you go along it alerts you to items you're near, scan them and even tell you to put it back if your family is allergic to it.”

Is it similar to what Metro Group in Germany has done with their Extra Future Store?
“There are some of the same elements. But this is really a different experience than anyone has yet provided.”

When will the project be completed?
“We haven't given any dates. I'd be misleading you if we did that. But I'd say we're ahead of schedule.”

Where are you in terms of strengthening market share?
“If you look at total markets or geographic sectors of the US, we have major strength in most areas. But our goal is to be number one or two in every market we're in. Still, we have a lot of work to do. As we look at markets where we're not one or two we have several different alternatives. We can grow organically or we can look for bolt-on acquisitions. Those options evolve constantly and we're looking at alternatives every day. There's a lot for sale out there. We deploy about $1.3 billion a year in capital. That's basically in three buckets: new stores, remodels and technology. Quite frankly we've begun to focus more on technology in the past couple of years because the return on invested capital is extremely high.”

Have you completed consolidating divisions?
“This is a focus on efficiency and communication. At the end of 2000 we had 39 divisions. Then we went to 20, 15 and now 11. And you'll see further consolidations, and de-layering. The fewer layers between the customers and the leadership of the company, the clearer the communication and the faster you can move. The challenge with American stores was putting two big entities together. I've done over 30 mergers and acquisitions in my career and when you bring entities together you have cultural issues, scale issues and inefficiencies you have to get out very quickly, usually in the first 100 days. If you don't, the company gets off track and takes longer to get back on. For the past two and a half years I've been doing things that should have been done at the time of the merger. We've set a goal of taking $750 million in cost out of the structure by the end of 2004. We're already past the $500 million mark and I believe we will have to accelerate that. We haven't given any numbers or timing on that. But productivity is on-going and the focus on this will never be over.”

Will additional stores be closed as part of this programme?
"We watch every store every week. Every asset in our portfolio is under intense scrutiny. There are no sacred cows anymore and unless an asset can return at least the average cost of capital it can't stay in the portfolio. This means we add and purge just like any retailer. There's a cleansing that goes on in the portfolio on a constant basis. We went through a major cleansing in the last two and a half years to catch up on what should have been done in prior years.”

In the past, one of the things to come up was Albertsons in-store strategy which was felt to be lacking or 'plain vanilla' by some standards.
“If you talk today to the P&Gs, Krafts and Pepsis of the worlds, they would tell you that a new competitor is evolving. One that is focused on executing in all 2,300 stores and doing it in an exciting way. We've set aggressive targets with them and try to create an excitement around things like new items. In fact, all 2,300 stores now have a new item end cap and I believe we're the first grocery company in the country to do that. In pilot tests we were able to get to 90 per cent ACV in three weeks and get new products to market 21 days faster than anyone in the market.”

At some point in time, does Albertsons have global aspirations?
“Our vision is to become the number one food and drug retailer in the world, but visions can take some time to achieve. We have a lot of work to do in the US. We started this conversation by talking about how there's not an industry this big that's not consolidated. There's also not an industry this big that is not globalised. There's really been almost no globalisation of the food and drug industry but I believe that will happen over time. If I can buy 100 million bananas a year instead of 10 million, I know I can offer consumers better prices. If I can continue to market one-on-one to consumers I can do as well in Italy as I can do in Philadelphia.”