However, Albertsons’ CEO Vivek Sankaran warned additional increases will be considered “on a case by case basis” as long as they stay within a “reasonable range” of under 3% to 4%.
“I know that some of our CPG companies are facing challenges in labor, challenges in transportation, etc. We have a large own-brands business, and because of that we get tremendous transparency into what is happening to cost. So, we end up having good and constructive negotiations with our supplier partners, and where warranted and legitimate, we will pass it through,” Sankaran told investment analysts during the retailer’s fiscal 2021 first quarter earnings call July 29.
He explained that as long as inflationary price increases continue to be under the 3% to 4% range, they can “actually be good for business – especially with a strong consumer” because “we get a lot of leverage when it gets not that range.”
So far product cost inflation has fallen far below this threshold with Albertsons CFO Bob Dimond estimating it at a “somewhat modest 1.5% to 1.7% during the quarter.” However, he was quick to point out that figure was increasing during the quarter and Sankaran said he expects it to be slightly higher towards the back half of year.
As national brands take price, Albertsons also might increase price on some of its own label products, Sankaran said. Whether it does and how much will depend in part on whether the products are “destination products,” which would allow it to be “a little more aggressive because we can compete well with national brands,” of if they are staples that help keep the stores overall daily prices within reach of consumers.
Conscious of ongoing supply challenges for some products, Sankaran said, Albertsons is not increasing pressure on brands for temporary price cuts or promotions to help offset increases in the everyday price of products.
“Promotions are about the same for the last several quarters,” he said, noting that the retailer is considering elasticity as well as supply.
Given these variables, he said, “it is going to be harder for us to do anything large. So, I think we are seeing the discipline in the marketplace.”
Finally, Sankaran noted, he has a higher threshold for price increases as long as the consumer remains “strong,” which he said is still the case.
“We continue to see households upgrading to more quality and premium products, indicating that the consumer is still strong. And so I am confident in our ability to continue to produce strong results” even while passing some price on to shoppers, he said.
Albertsons' results exceed expectations
Indeed, he said, despite any price increases, the retailer’s results exceeded expectations across all metrics in the second quarter, which ended June 19.
The company reported sales and revenue of $21.3bn in the quarter compared to $22.8bn in the same period last year – representing a drop primarily attributable to the company’s 10% decrease in identical sales as it lapped elevated demand at the onset of the pandemic in the first quarter of fiscal 2020.
Looking a two-year stacked basis to account for the sales surge early in the pandemic, the company reported identical sales growth up 16.5%. Using the same metric, it also reported a 276% increase in digital sales growth.
Net income over a two-year compound annual growth rate was also up 201.3% and gross profit margins increased 90 basis points, the company reported