Viewing the Delaware Valley landscape over the past year, it’s clear that there were no layups for any of the merchants that operated in this overstored, fiercely competitive market, where the heavy hand of the economy, deflation and a very diverse retailing base made significant forward motion as difficult as it’s been in our 32 years of market coverage.
But more so than any other market in the Northeast, the Greater Philadelphia region is shaping up as a territory of players (ShopRite, Giant/Carlisle, Wawa, Wal-Mart, Target, Wegmans, Fresh Grocer) vs. those retailers that may be non-stayers (Acme, A&P/Pathmark, Genuardi’s) if they don’t change their “go-to-market” strategie, improve their execution at store level and increase the morale of their associates.
Of course, these situations just didn’t appear overnight – the problems at these three companies have been systemic for many years. At Acme, which lost its share of market lead this year in the 15 county Delaware Valley area (it was the market leader for more than 40 years), you’ve got to wonder how things could have gone so wrong with the great locations they control and the talented staff they have (where many have unfortunately left or are not allowed to fully utilize their skills).
In the case of A&P, well it’s been a train wreck for such a long time now, the realities of the marketplace (competition and the economy) have finally moved the patient from serious to critical condition.
At Genuardi’s, things began to go downhill nearly a decade ago (has it been that long already?) when Safeway “vanilla-ized” a once strong regional chain that had a distinct identity of its own.
The one common consumer perception that plagued all three retailers was that their everyday retails were too high (although Genuardi’s did cut prices last summer without gaining much credit for it).
In this value-minded economy where price had to move up on every retailer’s priority chart, those three retailers (including Pathmark, now part of A&P), which 10 years ago controlled a combined 33.8 percent of the Delaware Valley market (they now control 24.3 percent), got steamrolled by the competition, and their failure to make the necessary investments and adjustments cost them significantly. That’s a huge drop when you consider one share point roughly equals $195 million in sales.
So, here it is: my perspective on how the Delaware Valley market leaders fared over the past year and how their view might look in the near future.
ShopRite – If there was a supermarket organization in the entire country that had a better year than the independent retailer owners who comprise the ShopRite network, I’m not aware of it. Overall revenue growth was a whopping 10.4 percent and ID sales gains were above four percent, an astonishing number when you factor in deflation, the effects of the economy and the diversity of competition that exists in DelVal. ShopRite’s continued success demonstrates how well independents can fare when they fully utilize their flexibility, entrepreneurial skills and tenacity, which usually translates into a high level of execution at store level and a lasting customer connection. What makes the future bright for parent company Wakefern is that new stores continue to open (Marmora, NJ this past year), others are on the planning board and the retailer/wholesaler is able to add new members to its fold (Joe Cowhey in Warminster, PA and two new members in Connecticut) while also further expanding its geographic base into Maryland and southern New England. ShopRite continues to increase market share every year in the Philadelphia area and isn’t afraid of any comers. When heavyweights Wal-Mart and Wegmans can attest to that, think of the growing competitive edge ShopRite has against Acme and A&P/Pathmark.
Acme Markets – The old cliché of “if you’re standing still, you’re really going backwards” applies here. Take that adage one step further in Acme’s case, because they were already going backwards when new Supervalu CEO Craig Herkert (a former Acme president) took the helm a year ago and had even stumbled further when Dan Sanders replaced Judy Spires (who is now CEO at Kings in northern New Jersey) two months ago. It was another year of no new store openings (and none are planned for 2010, either), more talent either shifting roles or leaving Acme headquarters in Malvern, PA, and as intransigent a business model as I’ve seen over the past 20 years. One can justifiably criticize Supervalu’s SuperFusion centralized merchandising model (in my opinion the most dysfunctional plan of its type) and also scratch your head and wonder how a company can cut 20-25 percent of items in key categories/departments and still call itself “America’s Neighborhood Grocer.” But unless Acme gets much more realistic with its everyday pricing structure, the rest of its problems (which are significant) become secondary.
We know SVU’s debt is still above $7 billion which creates huge limitations in many areas and that there are many other banners to nurse back to health, but if the once mighty market leader is going to survive it needs to get back in the game very quickly. Good luck, Mr. Sanders.
Wawa – When you take a great business model and execute at a high level in the stores, you’ve got a winning formula. That’s the Wawa story in a nutshell. There is no other market in the country where a c-store chain ranks as high as third in ACV share, and to do it a market as large and diverse as the Delaware Valley is even more impressive. Sales gains over the past 12 months were as impressive as ShopRite’s and the company, under the low-key leadership of the very talented Howard Stoeckel, continues to make a trip to one of its 368 stores in the region an exciting and interesting venture. Here’s all you need to know about Wawa’s sales success: its annual per store average is nearly $5 million a unit (excluding gas), a number untouchable by its c-store competitors.
Giant/Carlisle – Another excellent year by the formerly unsung unit of Ahold. Even though Ahold USA CEO-retail Carl Schlicker has returned to Carlisle as part of the company’s huge restructuring, his “We’re just simple country grocers” mantra no longer applies. Giant/Carlisle, now headed by Rick Herring, has done a fine job in his short tenure, is not only growing in the Delaware Valley, but now has spread its wings into the Richmond market (acquiring Richmond based Ukrop’s) as well. Giant opened one net new store over the past 12 months in Doylestown, PA and another replacement unit in Pottstown, PA and has future new stores planned for Springfield, PA and its first ever Philadelphia city store (Grant Avenue). As witnessed by its solid sales gains made this year, it’s clear that Giant/Carlisle was well-positioned to deal with the rough economy over the past 12 months with its modified EDLP program and stores that are clean, well-stocked and offer variety in all departments. It’s clear that the retailer will continue to be a major factor in the four Pennsylvania counties in DelVal where it currently operates stores.
A&P/Pathmark – It’s fourth down, 32 yards to go, there’s less than a minute left on the clock and your team is already losing by a wide margin. What do you do? In the case of A&P/Pathmark (Super Fresh, Food Basics), you’d better hope for an act of God, because what you’ve been doing over the last 30 years hasn’t worked. But now, with economy and competition more clearly separating the “haves” from the “have-nots,” and the Tea Company creating a near FUBAR situation with its Pathmark acquisition (which is even worse in Philly), it looks like the once mighty American icon of the past 151 years may be nearing its end as we’ve known it. ID sales were down more than five percent, two stores closed and the retailer simply didn’t bring much to the table to attract new customers, much less hold on to some of its existing ones. Now, with financially driven CEO Ron Marshall in control, the whacking and hacking has already begun. Head count reductions and belt tightening aren’t going to help A&P operate better stores, so the next logical move (especially with partner Yucaipa Cos. gaining more equity) would appear to involve some type of asset sale in the future. The company still has many quality locations, but the longer those sites continue to lose sales, the less value they’ll have. Oh! What was that sound? The final gun going off. Game over!
Wal-Mart – A steady year for the planet’s largest merchant, which fared better around the Delaware Valley than it did in some other major markets where it operates. The Behemoth opened its first combo in Bucks County (Tullytown), and continued to gain share with the clout of its growing SuperCenter network in the Philadelphia area which produced very healthy per store average volumes. The conversion of approximately 35 Target stores to its more perishables-oriented PFresh model definitely affected Wal-Mart where the two big mass merchandisers compete, although Wal-Mart is very well-positioned for the future with potential SuperCenters to be built or converted in Oxford, PA; Royersford, PA; Hilltown Township, PA; Pottstown,, PA; Deptford, NJ; and Somerdale, NJ. And while the economy is still shaky, Wal-Mart is unrelenting in pushing “rollbacks” and other low price offerings onto consumers’ plates.
Wegmans – While it operates only six stores in the region, Wegmans continues to demonstrate that it is not only one of the true innovators when compared to all styles of retailing, it can also potentially crater any given market area when it comes to town. This year’s earthquake was felt in the Collegeville, PA area where Wegmans opened a new 140,000 square foot uber-store. This version contained the company’s first “Pub,” its version of an in-store restaurant and tavern which incredibly allows customers to purchase beer and wine in the store (a huge leap forward given the Keystone State’s Draconian alcohol laws). Next up on July 18 is another new mega-unit in Malvern, PA which is close enough to Acme’s headquarters to create an uncomfortable view of the competition. Wegmans also has another unit planned for King of Prussia, PA (late 2011/early 2012) and in the past decade has fallen in love with the states of Pennsylvania, Maryland and Virginia. However, it’s not just Acme that’s felt the sting of Wegmans’ clout; when you take $1.2-$1.5 million per week out of any marketing area, everybody feels the pain.
Ahold Readies For June 23 Vendor Meeting
As More Of New Org Chart Is Revealed
As Ahold preparers for its first ever consolidated vendor meeting on June 23 at the Giant Center in Hershey, more personnel changes have been announced both at the Ahold USA corporate level and at the four operating divisions the company will operate under the new structure.
The big retailer, whose U.S. portfolio has grown to $24 billion in annual sales has named new corporate positions involving real estate (headed by senior VP Jim Ferraro), retail operations support (headed by executive VP-CIO Peter Labbe) and finance (where Paula Price will serve as EVP-CFO and Patty King is senior VP-comptroller).
In real estate, Jim Sylvia, who will be based in Quincy, MA, has been named senior VP-real estate development; and Steve Krupski is the new senior VP-store development, maintenance and office services. He, too, will be based in Quincy. Additionally Wayne MacLeod is AUSA’s new VP-not for resale. He will be based in Carlisle. In retail operations support, Nick Montepara has been named senior VP-retail operations, based in Carlisle. Reporting to Montepara will be Gina Ventre, VP-customer service (based in Quincy); Stephen Strohecker, senior director of labor work force management; and Dan Alonso director of store communications. Both Stohecker and Alonso will be based in Carlisle. The company also plans to name a senior director of operational excellence in the near future.
In the finance office, Dave Hooper will serve as VP-Ahold Financial Services (AFS). He will remain based in Carlisle. Kristina Rota will serve as VP-accounting and controls, based in Quincy. Also under the supervision of Price and King are Kris Murphy, senior director risk and controls (based in Carlisle) and Tony Matala, senior director of investment planning who will also be based in Carlisle. Moreover, Mike Shull, based in Greenville, SC, will continue to manage the finances for Ahold Information Services (AIS).
Also part of that announcement was the unveiling of the new strategy, process efficiency and program management team headed by Marissa Nelson, senior VP, who will be based in Quincy. Nelson’s new team will consist of: Piet Jan deBruin, senior director of strategic planning and analytics; Sean O’Keefe, senior director of process efficiency; and Julie Cummings, who will now serve as senior director of program management. All three executives will be based in Quincy.
At the divisional level, the key appointments under Rick Herring (Giant/Carlisle-Martin’s), Ron Onorato (Stop & Shop-Metro New York) and Mark McGowan (Stop & Shop – New England) were made last month. More recently, the new leadership team at Giant/Landover, under the aegis of president Robin Michel, was announced. Shane Sampson will be senior VP-store operations where he will oversee all store activities for the 177 store chain. Additionally, Jim Nazzaro will be the new VP-sales and merchandising based in Landover, MD. Nazzaro will work with Michel to tailor products and marketing to meet the needs of the chain’s local constituencies. And Brian Shelton will serve as Giant/Landover’s VP-division controller.
In the very near future, Ahold USA’s category managers will be announced and the retailer’s huge IT revampment should be completed next month. Everybody should be in place by July 15th, with a “go” date for implementation to occur in the fourth quarter of this year.
‘Round The Trade
Since Wal-Mart first announced it was going to reduce its SKU count at its stores last year, many other retailers in the industry have followed the Behemoth’s trail. Now a Nielsen Company survey indicates that more than half of consumers are likely to shop elsewhere if they notice a reduced product selection. The survey noted that about 42 percent of the retailers they polled have acknowledged decreasing their assortment. The irony of this whole scenario is that Wal-Mart acknowledged that it went too deep in its cuts and has since reinstated a good number of products, while a company like Supervalu whose CEO, Craig Herkert, came from Wal-Mart, has been bullish abut the importance of SKU rationalization to the company’s success. We should hear an update about SVU’s item delistings, progress in its current second quarter and other timely news when the company holds its annual shareholder’s meeting on June 24 in Minneapolis. We hear that the meeting will be attended by a group representing Boston area Teamster Local 155 who have been on strike at the company’s Shaw’s division perishable warehouse in Methuen, MA since March 7…Ahold announced its first quarter financial results (ended April 25) and for the first time, the Amsterdam based retailer combined sales and earnings in one report. Sadly, in another change, the company now lumps together sales and earnings data for its combined U.S. operations, instead of breaking out Giant/Carlisle and Stop & Shop-Giant/Landover into two segments. However, in the end, the numbers remained solid in the U.S. Net sales were $7.1 billion, up 4.2 percent, partly due to the acquisition of 25 Ukrop’s stores which contributed $99 million to the top line. ID sales were up 1.7 percent (down 0.1 percent excluding gas) and operating income was $295 million (4.2 percent of net sales), down $18 million. The company said price investments and higher operating costs related to acquisitions and its reorganization in the U.S. negatively impacted operating margin. Specifically, those losses included $12 million related to acquiring Ukrop’s (including conversion costs), a $12 million charge resulting from the alignment of inventory valuation across its newly formed U.S. divisions, and $5 million of IT integration costs. Additionally, Ahold announced that the purchase price of five former Shaw’s supermarkets in Connecticut, which the retailer acquired from Supervalu in April, was $36 million… one of Ahold’s prime competitors in New Jersey and Pennsylvania, Village Supermarket, Inc. (ShopRite), reported that its third quarter earnings decreased 17 percent to $5.21 million for the period ended April 24. Overall sales increased 2.6 percent, primarily as a result of the opening of its Marmora, NJ unit in May, 2009 and the debut of its Washington, NJ replacement store in February. For the period, same store sales declined 1.5 percent, which the Springfield, NJ merchant attributed to cannibalization of another of its ShopRite stores (Somers Point, NJ) from the Marmora opening and reduced sales in two other stores due to competitive openings…I was surprised by the news that Rick Anicetti, former Food Lion CEO, has left the Delhaize America organization, which recently reorganized its top management team, much like Ahold. Before announcing his resignation last month, Anicetti was CEO of a new division of the company called Delhaize Shared Services. His former counterpart at Hannaford (where Anicetti began his career in 1980), Ron Hodge, was named CEO of retail operations for Delhaize America. After Anicetti’s departure, veteran company executive Cathy Herndon was named to fill that post. She and Hodge will report directly to Delhaize Group CEO Pierre-Olivier Beckers, who is based in Brussels. More Delhaize news: it’s been no secret that the big global retailer has been exploring sites over the last few months in eastern and central Pennsylvania. It appears those labors have borne fruit as several new Bottom Dollar extreme value units are slated to open later this year. Leases have reportedly been signed in Allentown, PA, Montgomeryville, PA, Reading, PA, Exeter Township, PA, two in Philadelphia (Island Avenue and Cruisetown Road) and another in Bellmawr, NJ as the chain seeks to expand its discount format into the Keystone State. There are currently 28 Bottom Dollars in Maryland, Virginia and North Carolina…Costco, which posted an impressive earnings gain of 45.7 percent on a comp store increase of four percent (excluding gas), said that it would like to boost its percentage of private label sales (Kirkland Signature) to 37 percent of total revenue, which might be the highest number of any major retailer in virtually any class of trade (excluding Save-A-Lot and Aldi),
Local Notes
One the best retail executives of our generation is coming out of semi-retirement to take the helm of a major private label marketing company. We’re speaking of Allan Noddle, former CEO of Giant/Carlisle, who still works with Ahold as a consultant. Noddle has become interim president of Daymon Associates. He replaces Alex Miller, who resigned from the Stamford, CT international firm after 30 years. Noddle, who also serves on the company’s board, will work with Daymon co-founder Milt Sender, who after stepping down as CEO earlier this year, will return as chief executive. Daymon lost two key accounts in the last several months – Safeway and Supervalu…there’s plenty of Wal-Mart news to report this month. The Behemoth’s comp store sales numbers remained fairly flat (1.1 percent drop in its recently released third quarter), overall sales grew six percent to a whopping $99.1 billion for the period ended April 30. Earnings also rose 9.7 percent to a healthy $3.3 billion profit for the quarter. One would think that with the current depressed, value-oriented economic state retailers have faced for the past 18 months that Wal-Mart’s sales would be better. And it might be true that Wal-Mart may have hit a (temporary?) plateau in the U.S. with international sales growing at a substantially higher rate. It’s obvious that Wal-Mart is not going to be deterred by a little bump in the road. It has continued to aggressively lower prices in key categories (ask Coke and Pepsi how many 24 pack cases they’ve sold in the past six weeks) and when the planet’s largest retailer held its annual shareholder’s meeting earlier this month in Fayetteville, AR the mood was bullish as 16,000 associates joined celebrities Jamie Foxx, Mary J. Blige, “American Idol” winner Lee DeWyze and Mariah Carey gave praise to all things Wal-Mart. Company CEO Mike Duke announced that 500,000 new jobs will created over the next five years. “We need to recruit the best talent and identify the best talent in our ranks,” Duke told an enthusiastic audience at the Walton Arena on the campus of the University of Arkansas. “Then we need to develop leaders and help them become global citizens. Currently, the company operates 8,400 stores in 15 countries and employs more than two million associates. Sales last year were a staggering $405 billion, with its international division surpassing the $100 billion mark for the first time. In Wal-Mart legal news, the retailer has settled yet another “off the clock” lawsuit, agreeing to provide as much as $4 million to 28,000 former employees at its stores in Oregon. And according to a very interesting story in the New York Times involving company changing litigation involving gender discrimination, Wal-Mart could have avoided a potential multi-billion judgment or settlement if it had listened to the findings of one of the law firms – Washington based Akin Gump Strauss, Hauer & Feld – which revealed widespread gender disparities in pay and job status while also offering advice on how avoid liability. The Akin Gump et al findings occurred in 1995, six years before the original suit was filed. Recently, a U.S. Appellate Court in San Francisco ruled that the case could continue as a class-action suit. Wal-Mart has criticized the New York Times story and said it will fight the gender discrimination litigation all the way to the U.S. Supreme Court. And in another fascinating story that appeared this month in The Wall Street Journal, Wal-Mart does not come off as the heavy. According to the Journal story, an Illinois firm, Saint Consulting Group, was essentially in business to stop Wal-Mart’s rapid development by deploying local activist groups and unions to help derail Wal-Mart’s efforts to build new stores, In the story, Saint, a former newspaper reporter (please, don’t paint me with that same brush), called his staff “Wal-Mart killers and described his company’s tactics as “black arts.” Among Saint’s clients named in the story were Supervalu and Ahold… departing from the planet in the last month was Dennis Hopper, 74, one of the most talented and versatile Hollywood personalities of the last half-century. Hopper first gained fame as the sidekick to James Dean (who died in 1955 and was no relation to former country and western crooner and sausage king Jimmy Dean “Big John” who also passed away this month) in “Rebel Without A Cause” (made when Hopper was 19). He endured a series of ups and downs over the next decade before acting in and directing the classic cult biker film, “Easy Rider,” in 1969. Other memorable films (there were many – Hopper acted in more than 200 movies and television shows) included, “True Grit,” “Hoosiers,” and another cult epic, “Blue Velvet.” A true talent who seemed to live his adult life on the edge, Dennis Hopper will be missed. And arguably the greatest coach in any sport passed on earlier this month. John Wooden, legendary basketball coach, who guided UCLA to seven consecutive national NCAA basketball titles and oversaw the team’s incredible 88 game winning streak, died at the age of 99. Wooden’s greatness came not only from his coaching ability, but from his incredible leadership skills, which countless former players treasured until he died on June 4. One of his former players, and one of the greatest basketball players of all-time, Kareem Abdul-Jabbar (who entered UCLA as Lew Alcindor), perhaps said it best: “He set quite an example. He was more like a parent than a coach. He really was a very selfless and giving human being, but he was a disciplinarian. We learned all about those aspects of life that most kids skip over. He wouldn’t let us do that.”…a special salute to two of the nicest people, not only in the grocery business, but in any walk of life – former Weis CEO Norm Rich and his wonderful wife, Phyllis – who celebrated their 50th wedding anniversary in June. Mazel Tov!