SUPERMARKET WARS CHECK IN ALBERTSON'S TO BUILD, REMODEL 112 STORES IN SOUTHERN CALIFORNIA.

Byline: Brent Hopkins Staff Writer

Arming itself for a food fight of billion-dollar proportions, Albertson's Inc. will spend $1 billion building new stores and refurbishing older locations across Southern California.

The Boise, Idaho-based chain hopes to strengthen its local presence over the next three years, shoring up its posture in the intensely competitive grocery scene. Though no locations were announced, the move will bring 30 new stores to the area and the remodeling of 82. And after jockeying for position with Ralphs, owned by Kroger Co., and Safeway Inc.-owned Vons and Pavilions, Albertson's has a new rival on the horizon - the world's largest store.

Wal-Mart Stores' announcement last week that it plans to open 40 Supercenters, immense retail centers that marry discount shopping and groceries, throughout California has left grocers nervous, industry followers said. Though the megachain has not yet announced locations, Albertson's move was seen partially as a defensive reaction, both against Wal-Mart and its rival Target.

``Obviously, they're pretty formidable threats, especially Wal-Mart,'' said Dan Geiman, an analyst with Seattle-based brokerage McAdams Wright Ragen. ``It's a different environment for food retailers. It's the pricing issue - Wal-Mart has those ultracompetitive prices, so they can take a large market share from traditional retailers.''

Peter Kanelos, Wal-Mart's community affairs manager for California, said other chains had nothing to fear. No definite sites have been determined yet, he said, but the entire state provides a target market.

``We encourage competition,'' Kanelos said. ``It's good for the consumer and there's room for everybody to exist in the market and still serve the customer.''

These sentiments were not echoed by a recent study by the Retail Food Industry Center of the University of Minnesota, St. Paul. According to the study, stores with Supercenters looming nearby suffer ``significantly lower sales per labor hour and sales growth,'' in addition to higher employee turnover and a decline in labor productivity.

Vons representatives did not return messages left Wednesday, but Ralphs spokesman Terry O'Neil acknowledged that Wal-Mart was indeed a tough rival.

``We see our main competitors as traditional supermarkets and mass merchandisers ... like the big boy from Arkansas,'' he said, referring to the Bentonville-based chain. ``There are more and more people getting into the industry. (Wal-Mart) isn't a big factor for competition in California yet, but that still remains to be seen.''

Albertson's did not address the threat of Wal-Mart, nor the other grocers, with whom it splits the Southern California market fairly evenly. Spokesman Miguel Gutierrez said the plan, which will also add 96 new Sav-ons and remodel 20 old ones, is merely an attempt to bolster current assets.

``We feel the investment is in an important area,'' he said. ``There's a lot of potential for growth. We don't have specifics yet, but it'll cover the whole Southern California area.''

The remodels would be best suited to former Lucky stores, said Andy Wolf, a retail analyst for BB&T Capital Markets, a Richmond, Va., brokerage. Acquired in Albertson's purchase of American Stores, the aging spots are ripe for a fix-up, he said.

``When they bought American Stores, they had to divest more (Albertson's) than they wanted to, almost twice as many as they'd expected,'' Wolf said. ``They also had to get rid of some of the better ones to make the anti-trust regulators happy. They ended up with fewer stores than they'd expected, and they got the short end of the stick in terms of asset quality.''

In the remodels, old coffin-style freezers will be yanked in favor of modern glass-door displays, check stands will be revitalized and bakeries and service delis will be added, as needed. According to Jonathan Ziegler, senior industry analyst for Deutsche Bank Securities Inc.'s San Francisco office, these remodels are key to staving off market erosion if Wal-Mart becomes a new neighbor.

``The remodels do a lot for the company and the customer, because it becomes a much more attractive shopping environment,'' he said. ``It could win back traffic they lost and get current customers to spend more. With Wal-Mart bringing in Supercenters, you need a nice loyal customer base when they come to town.''

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2 photos

Photo:

(1 -- color) This Albertson's store in Woodland Hills will be renovated, one of 82 in Southern California slated for remodeling.

(2) Checkout stands at dozens of Albertson's markets in Southern California, like here in Woodland Hills, will get upgrades.

David Sprague/Staff Photographer