Albertsons gave you a free COVID-19 shot. How much did the Boise grocer profit from it?
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COVID-19 vaccines have provided Albertsons Companies with a shot in the arm, boosting the grocery chain’s profits, executives said.
During the quarter that ended the first week of December, the Boise company’s 1,700 pharmacies nationwide administered 3 million COVID-19 vaccinations. Overall, Albertsons has provided 11 million coronavirus vaccinations and boosters since early 2021.
The surge has helped create repeat customers and has boosted pharmacy and grocery sales, raising gross profits, executives said.
“This has been a major initiative for us, not only from a business perspective, but also from a social perspective,” Albertsons President Sharon McCollam said during a conference call Tuesday with investors.
It’s not just Albertsons that has benefited.
CVS, which operates nearly 10,000 drugstores across the country, reported Tuesday that it has provided about 59 million COVID-19 vaccinations and 32 million coronavirus tests. Walgreens, with just over 9,000 stores, has administered 56 million COVID-19 doses, including 9 million booster shots.
Albertsons operates 2,278 stores in 34 states. It operates under 20 banners, including Safeway, Vons, Jewel Osco, Market Street and Tom Thumb.
Neither Albertsons nor the other chains reported how much the rise in profits was tied directly to COVID-19 vaccinations.
“We have not quantified the amount of revenue coming from the COVID-19 vaccine, and we won’t be quantifying that, of course,” McCollam said on the call. “That’s very competitive.”
Albertsons has taken in hundreds of millions of dollars from its administration of COVID-19 vaccinations.
Drugstores paid to administer COVID-19 shots
Pharmacies were initially paid $16.94 for the first dose and $28.39 for the second dose of the two-shot regimen for the Pfizer and Moderna shots and the higher amount for the one-shot Johnson and Johnson vaccine. In March 2021, the reimbursement increased to $40 per shot, including boosters.
Albertsons would have taken in $200 million for the 5 million vaccinations the company reported giving since the end of March 2021. Hundreds of millions more would have gone to the company for the other 6 million doses.
Because pharmacies don’t pay for the vaccines, as the cost is underwritten by the federal government, the administration fee is nearly pure profit.
For the quarter, Albertsons reported earnings of 79 cents a share on sales of $16.7 billion. Analysts had expected the Boise company to earn 59 cents a share on revenue of $16.1 billion.
The administration of COVID-19 vaccines, along with higher prices, led to sales growth of 5.2% compared with the same quarter a year earlier, McCollam said.
Higher prices, but not for ‘essential’ groceries
Inflation has brought higher prices, Albertsons CEO Vivek Sankaran said. Food prices in December rose 0.5%, although it was less than the 0.83% average for the previous three months, according to the Consumer Price Index.
“The cost inflation is absolutely real,” Sankaran said. “The inflation we have passed through is less than the inflation we’ve incurred, and we are judicious about the categories where we pass it through. We don’t pass through as much on the essential categories that customers need every day.”
Albertsons, along with other grocery chains throughout the country, has benefited greatly from the pandemic. People ate out at restaurants less, making food at home and buying more food from grocery stores.
Before the pandemic, in 2019 the average U.S. household spent $113.50 per week on groceries. That jumped to $161 after the pandemic began in March 2020, according to The Food Marketing Institute, a grocery trade association. While it has dipped slightly since then, it remains at $144 per week.
While sales growth at Albertsons have cooled slightly, during the most recent quarter sales were 18% higher than during the same period in 2019. With the omicron variant raging, Sankaran said people are eating at home more again.
The variant poses a new problem for manufacturers and others in the supply chain, he said, as more workers are out sick. That situation is expected to escalate in the next four to six weeks.
“That’s creating this challenge, Sankaran said. “What I expect would happen is that as we get past Omicron, we are able to see more of that capacity coming into the market.”
During the quarter, sales of fresh foods grew at a higher rate than sales from other sections of the store did.
Even higher profits have been offset by increased wages and overtime costs to deal with worker shortages. Costs have also risen for ingredients, packaging and transportation.
Digital sales rose 9% during the quarter compared with the year before. It has more than tripled from two years ago. The company is continuing to invest in e-commerce, including pickup options and warehouses for online orders.
Albertsons stock closed Wednesday at 29.63. Shares have nearly doubled in value since the company’s initial public offering in June 2020. That day, they closed at $15.45. The stock rose 2.9% Wednesday.
