Over the past five years, no retailer or wholesaler has been able to navigate the overcrowded recessionary waters better than Wakefern. The Keasbey, NJ wholesale co-op, which owns 45 PriceRite Stores in five Northeastern states and whose 47 ShopRite members operate 228 stores in six states, posted record retail sales of $11.8 billion for its fiscal year ended October 2, a solid 2.8 percent gain over 2009 revenues. Additionally, wholesale volume was $9.6 billion.
“In spite of the economy, we were able to grow,” said Joe Colalillo president and COO of the co-op. “We’ve entered new markets while our competitors are exiting them. We’ve opened new stores while many of our competitors are closing them. And our customers are rewarding us with their loyalty in the midst of some of the stiffest competition we’ve seen in decades.”
Indeed, over the past year Wakefern has made great strides in expanding its presence in Connecticut and Maryland with its ShopRite banner. During the past year, Wakefern members opened 14 new ShopRite stores and the company added an additional four new PriceRite units to its roster.
“To support the new growth and to ensure we have the capacity to respond to all our members and the increase in volume, we have expanded our Keasbey, NJ perishables warehouse by 90,000 square feet and are acquiring an additional 140,000 square feet of produce space, said Dean Janeway, veteran chief executive of Wakefern.
Also addressing the members at the East Brunswick meeting on October 28 was Joe Sheridan, executive VP of the organization. He spoke of the importance of engaging customers through the use of digital technologies, social networking tools (which is also a separate and funny Sheridan speech) and health and wellness initiatives that provide a more personal and interactive shopping experience.
The days when Wakefern’s clout was centered on the state of New Jersey, when it operated too many corporate (SRS) stores or when it had trouble attracting viable independent operators to join the co-op as well as perpetuate its current stores seem like ancient history.
In the entire supermarket industry, there is nobody doing better than the company that started with eight members in 1946. Passionate retailers, enlightened management and a gritty, tenacious operating style have put Wakefern at the top of its game.
And the numbers prove it.
Earnings Call: The News Only Gets Worse For A&P, Supervalu
“…However, there is uncertainty regarding whether our company can complete all or a portion of these efforts and, if these do not occur, there is substantial doubt about our company’s ability to continue as a going concern.”
If you guessed Edsel Ford uttered those words more than 50 years ago, you’d be wrong. No that sentence came from A&P’s recently released 10-Q filing. And for the first time, since its downward trend began 30 years ago to its death spiral since it acquired Pathmark In 2007, the Great Atlantic and Pacific Tea Company seems to be admitting that it is no longer “great,” but preparing for its own potential funeral.
But what’s left to dissect. Each successive quarter seems to be worse than one that preceded it or the corresponding period the year before (and that’s cycling off a long streak of bad sales and earnings – what’s worse, losing $781 million last fiscal year or posting severely declining metrics in every measurable category, quarter after quarter.
This recent period, its second quarter which ended September 11th, produced an almost unbelievable box score – overall sales down $200 million; comps decreasing 6.6 percent; an operating loss of $143 million, and the fact that it only has $181 million in operating cash and a debt of more than $1.4 billion.
New CEO Sam Martin seems to understand how dire the situation is. And while another new management team, another potential financial restructuring (unless the Haubs of Tengelmann and Ron Burkle of Yucaipa want to further invest in their own stuffed animal, don’t expect much measurable change) and another “new” merchandising plan recently have been or shortly will be unveiled, who really believes the once iconic supermarket chain with 151 years under its belt, can survive in any form related to its great past.
Sure, A&P has some outstanding real estate to proffer at an auction. But how much in terms of real dollars will it cost a prospective buyer, when considering if certain leases are assignable, how much time is left on each lease and whether the buyer will have to renegotiate with the landlord, all factors which will make many “plus location” opportunities difficult or more costly.
With capital still tight and fewer players in the game (including the possibility that private equity firms might sit this out), onerous labor contracts and several underfunded pension plans, there is no guarantee that a bankruptcy followed by an auction/liquidation would be as fruitful as some think.
At Supervalu, although the patient’s financial health is better (liquidity is not a concern at this point, and the retailer-wholesaler is still profitable), the trend line is almost as scary and the company’s leadership remains in question.
Once again, I listened to CEO Craig Herkert’s conference call, I read and re-read the transcript and I’ve got to wonder where his sense of urgency is. As I’ve stated before, former CEO Jeff Noddle and his team created much of this mess, but Herkert, who’s now been running the ship for 18 months, has only exacerbated the problems. In the past few months, although the numbers haven’t improved, there have been two key change agents. One occurred in late August when SVU’s share price tumbled below $10 per share (it closed at $10.34 on November 11).
The other change was more subtle. After Supervalu released its first quarter earnings in June (lowlighted by an industry worst negative 7.2 identical store sales), the financial analysts began to change their tune. Instead of further buying into Herkert’s rhetoric that placed many of the company’s problems on “economic headwinds” while spinning a new web of process driven initiatives (“SHE,” “WWP,” “America’s Neighborhood Grocer”), the metrics trend and falling share price have made Wall Street (as well as SVU associates, many of its vendors and other analysts), question the ability of its chief executive to actually execute a plan that would be creditable with consumers and achieve at least a little forward momentum.
And of course, lowering earnings and ID sales guidance in mid-stream is also a guaranteed way to irritate the money watchers.
Instead, when Supervalu’s second quarter results were announced on October 19th, ID sales slid to negative 6.4 percent (compared to 4.8 percent in the corresponding period last year) and the company lost a whopping $700 million in retail sales.
After playing “rope-a-dope” with its pricing strategy since he took office in May 2008, Herkert finally acknowledged that price cuts are needed due to “unfavorable value perceptions.” Those “unfavorable perceptions” should not have comes as an epiphany to Supervalu; they should have been visible in 40 point type the day Herkert took the job. To enter the price game now (and we don’t know to what extent the reductions will be) indicates to me that he doesn’t realize that ship sailed a long time ago (or is this still more rhetoric?).
Commenting on the wretched second quarter performance, Herkert stated, “…as the company moves into the next phase of its business transformation, we remain focused on our customers and taking actions that will better meet their needs. I remain confident that we have the correct strategy in place to achieve long term success.”
Exactly what is that strategy and how will it improve the sharply declining results? Achieving “backroom efficiencies” by whacking head counts, going way overboard with SKU reductions and forcing out key managers (and replacing them with untested or less skilled executives) hasn’t changed anything that the company can tangibly say has increased its most important measuring sticks – sales, earnings, customer counts, or transaction size.
If I were a Supervalu director or financial analyst, I’d like the chief executive to cite one example where the needle has moved forward in a manner that shareholder’s should feel good about today.
And by the way, where is Supervalu’s board on all of this? You’re paying your CEO millions of dollars a year and the results are awful. Intangibles at store level, such as morale, continue to erode; there is virtually no money at the division levels to invest in real estate or pricing initiatives, and several sources have told us that Supervalu is asking for a small fortune for its stores, many of which are too small, too old and saddled with challenging union issues.
Hey, the entire scenario is daunting and Herkert should not absorb all of the blame. Debt remains at $7.1 billion and virtually every facet of the company’s business is lagging. Spin and process aside, the time has come to change the plan.
If Supervalu is going to retain and grow its best assets – Save-A-Lot, Jewel and wholesale (supply chain) – then it’s time to dump the other banners – even if it means doing so at fire sale prices. The retailer/wholesaler simply can’t continue to operate in “stagger mode” for much longer.
And as an extremely well paid chief executive (especially when you analyze compensation against performance), its time that you, Craig Herkert, demonstrate to your associates and your shareholder’s that you’re capable of making potential game changing decisions, no matter how large and painful they might be.
It’s SVU’s only hope.
‘Round The Trade
I’m still shocked by the sudden departure of Hank Mullany from Wal-Mart. Obviously, overseeing more than 1,300 stores covering 19 states is a very challenging task and one that requires much travel and much sacrifice. I hope to talk to Hank in the next few weeks and get his view on the situation. In the meantime, his former company has been very busy with store openings and remodelings. Recently, Wal-Mart opened new 155,000 sq. ft. SuperCenters in Taylor Borough, PA (Lackawanna County);, Pittston, PA (Luzerne County), and a 204,000 sq. ft. expansion in Lehighton, PA. The Behemoth also expanded its Neptune, NJ unit into a 209,000 sq. ft. combo unit. Moreover, Wal-Mart units in Cedar Knolls, NJ; Lumberton, NJ; New Brunswick, NJ; Wilmington, DE; New Castle, DE; and Georgetown, DE have undergone major remodelings featuring new store layouts, low-profile shelving and brighter interior paint schemes…Winstanley Enterprises LLC, a Concord, MA based developer and property investor has agreed to purchase six Pathmark units from A&P for $89.8 million in an arrangement in which Winstanley will lease the stores back to the Tea Company. The units, which encompass about 329,000 sq. ft. of space, are located in Upper Darby, PA; Lawnside,, NJ; Wilmington, DE; Seaford, NY, Ozone Park, NY: and Baldwin, NY. We might see more of these types of deals in the next few months as real estate and private equity firms position themselves to gain valuable properties prior to what may in the industry view as a future auction process…Fresh Market, Greensboro, NC, which has struggled with its three Pennsylvania locations (Center Valley, Horsham and Glen Mills), but is doing very well in most of its 97 other stores, officially completed its $290 million IPO earlier this month. At the ringing of the opening bell on NASDAQ on November 9, CEO Craig Carlock said, “The Berry family, The Fresh Market’s founders, had the vision to see that people desired and deserved better quality, fresher food, paired with excellent service and an atmosphere that makes shopping for that food a pleasurable and satisfying experience. Our more than 7,500 employees – at each of our 100 stores and in our offices – work hard every day to provide our customers with amazing products and exceptional customer service. The success of our company is a result of our founders’ dream and our employees’ dedication to turning that dream into reality everyday.”…one retailer that may be going another route – from public to private – is BJ’s Wholesale Club. The Natick, MA based firm has reportedly hired Morgan Stanley to review options. This is not a new story, but one that seems to be gaining more traction, especially since private equity firm Leonard Green & Partners now controls about 10 percent of BJ’s and reportedly would like to acquire the whole enchilada. Given the uber-competitive conditions in all retail segments today and the pressure to “make the number” every quarter, a mid-sized, quietly successful company like BJ’s would be better served if it had a strong equity partner to help it develop and grow at a more comfortable pace…as you know by now, I believe that there are too many trade shows, most of which offer the vendors/exhibitors very little return on their investment. One exception was the inaugural New York Produce Show held earlier this month at the Hilton in Manhattan. Great retailer turnout, many interesting new products and a lot of energy…Charles Conaway, former CEO at Kmart, and another in a disturbing line of white collar cheaters that dotted the landscape about a decade ago, has agreed to pay $5.5 million to settle an SEC lawsuit accusing him of misleading shareholders prior to Kmart’s 2002 bankruptcy. Oh, Mark Hansen, where are you?…Grupo Bimbo has agreed to acquire Sara Lee’s fresh baking unit for $959 million in a deal that includes 41 U.S. baking plants…my first reaction was to laugh, but it’s no joke that Walgreens is suing Wegmans for logo infringement. Walgreens claims that it has been using the scripted “W” in its logo since 1951. However, Wegmans, which redesigned its current logo a couple of years ago, counterclaims that its current logo is a replica of the one the Rochester, NY retailer first used in the 1930s. Hey Walgreens, if you want to waste money, waste it on me!…kudos to ShopRite’s Jeff Brown, who was this year’s honoree at the annual MAFTO dinner dance held in Atlantic City earlier this month. A class act all the way, Brown is a much deserving honoree – humble, smart and philanthropic. He’s a man we can all learn a lot from. And on the news front, Brown will be opening his 11th ShopRite unit on the site of the old Tastykake facility at Hunting Park Avenue in Philadelphia. This will be the ultimate “food desert” challenge for Mr. Brown…Ajay Kanwar has assumed the duties of VP-merchandising for Acme Markets. He replaces Bob Gleeson, whose tenure in Malvern, PA was brief one before he returned to Maryland to work with new Shoppers president Tim Lowe. Kanwar comes to Acme from a corporate Supervalu post in (Little House on the) Eden Prairie. I recently toured about a dozen Acmes in Pennsylvania, Delaware and New Jersey and it’s clear that the struggling chain has lowered some prices and has added back some items that previously fell victim to SKU rationalization. But Acme is going to need a lot more, because so much toothpaste has escaped from the tube over the last four years. New president Dan Sanders is working hard and is very well liked by the associates, but he walked into an almost untenable situation, given the challenges of the economy, the ferocious, segmented competition and Supervalu’s inability to deliver programs at store level that are difference makers to consumers.
Local Notes
It looks like Genuardi’s is another Delaware Valley retailer giving clear indications that it doesn’t want to be a long-term player in one of the most competitive markets in the country. After closing its Lansdale, PA store last month (its fifth unit to shutter this year), the beleaguered Safeway division announced it has sold two stores -Warrington, PA and Feasterville, PA – to rival Giant/Carlisle (Ahold). Those two Bucks County units closed on November 13 and will reopen next spring when they are completely remodeled. Between Genuardi’s, Acme and A&P (Super Fresh, Pathmark) there’s likely to be some quality real estate available next year. Speaking of Giant/Carlisle, I was very impressed by the nifty new on-site replacement store that can be found on Lititz Pike in Lancaster, PA. That’s where Giant/Carlisle opened its new replacement store, and what an engineering achievement it was. About 35,000 square feet of “new” store was added over the past 16 weeks, while the adjacent original space remained open. The melding of the two pieces coupled with a spiffy overall décor package will certainly help Giant’s market share in one if its most underserved areas of Central PA. One more thing about Giant/Carlisle and Ahold USA. It’s been no secret that some vendors are frustrated by what they believe is slower than expected progress on the organizational restructuring which began just about a year ago. Some have also expressed concern that that final version might end up resembling more Stop & Shop’s model than Giant/Carlisle’s. Both CEO Ahold USA-Retail (and soon to be COO of the entire Ahold US platform) Carl Schlicker and executive VP of sales and merchandising Jeff Martin not only agreed to an interview during a very busy and transitional period, they answered every question open and honestly. No spin, no sugar-coating, no dodging and weaving – that’s not only refreshing for any reporter to hear, but it’s becoming unusual in an industry that often features executives who are inaccessible or who have become top notch spinmeisters…one of Ahold USA’s primary competitors, Weis Markets enjoyed another solid quarter as it continues to upgrade its stores, personnel and systems. The Sunbury, PA merchant posted a 4.9 percent earnings increase in its third quarter ended September 25. Overall sales grew by 2.7 percent while comps increased 0.1 percent. “We continue to produce solid earnings increases in a slow growth environment that continues to be affected by cautious consumer spending,” said CEO Dave Hepfinger. “We attribute our results to continuing operational improvements at store and distribution levels, increased efficiencies, improved cost controls and disciplined marketing and advertising.”…and swinging full circle back to Genuardi’s, at least in terms of its former associates, it’s good to see Don Ciotti back in the saddle as director of operations for Delhaize USA’s new Bottom Dollar operation in the Delaware Valley. When I visited the first Bottom Dollar store to open in the area in King of Prussia last month, I was impressed by the new store design and size (19,000 square feet) and particularly the walk-in produce box. However, I felt the store did not merchandise its low prices aggressively enough. When I returned a month later and visited the fourth (of about 20) store to open in Montgomeryville, PA, the signage was much improved, and with a recent radio campaign that has begun, Bottom Dollar has a shot to carve out some share. With a broad selection of national brands and a much larger number of overall SKUs, Bottom Dollar is clearly differentiated from other “extreme value” merchants such as Save-A-Lot and Aldi. During the next month, Bottom Dollars will also debut in Bensalem, PA; Allentown, PA; Willow Grove, PA; and Marlton, NJ. And after seeing Ciotti in Montgomeryville and meeting members of his team, I couldn’t help but wonder if I was in some late 90s time warp visiting a Genuardi’s store. And that’s a good thing…after many years as being perceived as a third party chain distributor, C&S is expanding its independent supply portfolio. On November 1, it began supplying the 66 store Iselin, NJ-based Foodtown group and has also been named as primary wholesaler for Geresebeck’s/Box ‘n Save operations, a three store retailer based in Baltimore. And on the third party chain front, the Keene, NH distributor will shortly begin overseeing Giant/Landover’s Jessup, MD distribution center… a few deaths to report this month, most notably Harry Kearney, 84, who in my opinion (along with Bill Watson) was “Mr. Fleming” for a 35 year period from the early 1960s to the late 1990s. Harry epitomized what truly is wonderful about the grocery business: he loved people, cherished his customers and enjoyed the art of the sale. Whether it was a store opening, industry dinner or trade conference, Harry was always Fleming’s man on the scene. I’ll miss his outgoing personality and loud laugh. May you rest in peace, my friend. Also passing away was Barbara Billingsley, who played All-American mom June Cleaver in the iconic 1950s TV series “Leave it to Beaver.” Billingsley 94, also had a hilarious role an equally hilarious film, “Airplane” (1990). For brevity’s sake, let’s just say she was fluent in “jive.” Another household name in television sit-coms, Tom Bosley, 83, has also passed on. As Howard Cunningham in “Happy Days,” Bosley provided the voice of reason to his son, Richie (Ron Howard) and friends during the booming 1950s in Milwaukee. But Bosley’s career encompassed a lot more than his 11 year run on the show. He acted for 55 years and won a Tony award in 1959 for his portrayal of former New York City Mayor Fiorello LaGuardia in the play “Fiorello.” And could it be that “Danno” is dead? It is sad to report that James MacArthur, who played Detective Danny “Book ‘Em Danno” Williams on “Hawaii Five-0,” has died. It is somewhat ironic that one of the most popular characters of the late 60’s and 1970s, has been reborn in a new TV version of the show, which is now the most watched new series in this fall’s lineup. MacArthur, 72, was the son of one of America’s greatest actresses, Helen Hayes. Finally, it is with a heavy heart to note the passing of Alex Anderson. Never heard of Mr. Anderson? That wouldn’t be unusual, but you’ve certainly heard of the characters he created – most notably “Rocky” (Rocket J. Squirrel) and “Bullwinkle” (Bullwinkle J. Moose) who were the centerpieces of arguably the funniest and most avant-garde cartoon series of all time, which first appeared in 1959. And if you’re a baseball fan, you, too are sad to hear of the death of hall of Fame Manager George “Sparky Anderson, who died last month from complications of dementia at only 76. Anderson piloted three World Series teams (the Big Red Machines of 1975 and 1976 and the Detroit Tigers in 1984.) And here’s a little Phillies trivia for you. Although Anderson made his mark as a major league manager, he had a very brief stint as a player, too. In 1959, he spent his only full season in the majors as a second baseman with the Phillies (he batted .218 in 152 games on an awful Phillies team that went 64-90 and finished last) before beginning a managerial career that produced 2,194 wins over a 26 year period.