Bottom Dollar Foods (BDF) has made it clear it has come to the Philadelphia market to stay. That’s according to Gene Faller, VP-operations for the unit of Delhaize America, who addressed about 100 guests at the March 31 AMR/MAFTO dinner meeting at the Radisson in Valley Forge, PA. Flanked by his local management team of former Genuardi’s executives Don Ciotti and Joe deGrazio, Faller noted that 17 BDFs have opened up since last fall in the Delaware Valley and Lehigh Valley, noting that an unspecified number of new units are in the pipeline.
Faller gave the audience a clear picture of the vision for the newest discounter to enter the market. The retailer has positioned itself as having the “best everyday prices delivered in a lighthearted, candid and energetic manner.” He added that the BDF banner appeals to a broad base of the population, noting that the company’s research indicates that after the consumer goes into a BDF for the first time, they will return.
The Delhaize exec also highlighted some of BDF’s unique attributes: approximately 13,000 sq. ft. in size, carrying approximately 6,500 SKUs featuring a balance between private label and national brands. The stores also merchandise produce in a cooler, has no back room storage and features quality fresh meat and uncluttered aisles. No shopping bags in any form are provided, so BDF shoppers are encouraged to bring their own. However, BDF provides boxes on a limited availability basis.
The retailer’s mission, Faller asserted, is to make BDF stores a fun place to shop. End caps are reserved for special deals and bin displays have seen continued growth, especially for bakery items. There is also flexibility within the stores. For example, Faller noted that the Allentown, PA store has an aisle of Goya products, which is not part of the plan-o-gram of every store.
Faller answered his own question of ‘why another retailer in the already overstored Philadelphia market?’ He explained: “We are a soft discounter. We offer the best prices and services and products you won’t find in Save-A-Lot and Aldi stores.” Shopping at BDF is a much different experience than those two extreme value retailers, he stressed.
BDF originally started in North Carolina in 2005 as a deeper discount alternative to Delhaize’s core Food Lion model (another banner, Bloom, debuted at about the same time offering higher end goods and more customer service). Those original units, which ultimately expanded into Virginia and Maryland, were approximately 25,000 square feet in size. That original model proved too large and a smaller footprint was developed with a produce cooler to make the store more differentiated and more profitable.
Faller closed by saying that two more area stores were expected to open in 2011 with “many more” to come. Most recently BDF has announced its expansion into the Pittsburgh, PA market and is expected to be a player if A&P closes or sells some of its stores in New Jersey and Pennsylvania.
Modest Profit Doesn’t Change Long-Term Supervalu Outlook
I’ll give Craig Herkert his due. He’s very good at process. He can cut expenses, find new, more efficient systems or tools to tighten the ship and has done a solid job of debt reduction. And certainly, Supervalu’s profit of $95 million in its fourth quarter was a noticeable leap forward from the retailer/wholesaler’s third period loss of $202 million. Still, on a comparative earnings basis from fiscal 2010’s fourth period, earnings lagged 2.1 percent, overall revenue dropped from $7.2 billion to $6.7 billion and ID sales remained near the bottom of its class at negative five percent. Additionally, the Eden Prairie, MN company continued its trend of declining customer counts (a drop of 4.6 percent) and lost 40 basis points this quarter on average basket size.
It’s been two years since Herkert replaced Jeff Noddle as SVU’s chief executive. Each quarter, the former Albertsons and Jewel executive trots himself out to put his own personal spin and respond (sometimes vaguely) to questions from Wall Street analysts.
And while his “chat” on April 14 had a more somber tone (he must have discarded the happy pills for this session), Herkert still doesn’t get it.
Beyond the 24 month tour that Herkert’s been on, let’s not forget these terrible fundamental metrics are being cycled from equally awful numbers since he was called upon to lead the company (to be fair, the numbers were also poor under Jeff Noddle’s regime). Between Herkert and his CFO Sherry Smith, they used the word tool or tools 25 times to illustrate how SVU is improving its performance (shelf in-stock position tools, point of sale transaction data tools, analytical tools, process tools, etc.). In fact, Herkert said the word 22 times and Smith three times in the hour long session with the analysts (I guess as the head tool, Herkert entitled to more “tool time”).
Even though he came across on the earnings call as more sincere and focused, there were still plenty of examples of “vintage” Herkert. Early in his tenure, there seemed to be a plethora of not so witty slogans coined by Herkert, (“SHE” – Simplify Her Experience, “WWP” –Win With Produce, “Hyperlocal,” etc.), but more recently he has been relatively low key with the rah-rah stuff.
However, on this conference call he created the phrase “Eight Plays To Win.” Two of those “plays” focused on growth opportunity (continued expansion of Save-A-Lot and the expansion of its independent retailer base), while the other six plays address Supervalu’s traditional business.
And there couldn’t be one conference call without Herkert dancing around a question. After spending much of the session, inferring greater transparency, here’s how he responded to a query from analyst Jonathan Feeney from Janney Montgomery Scott:
“Craig…I’m not sure how much granularity you want to give here. But what I’m trying to get at is how you mentioned Chicago (Jewel) being below average (in ID sales performance from the corporate average). When you think about profitability across the many different banners without getting specific about any one, I mean, can you give us a flavor if there’s any pockets where there are real outliers, either positive or negative, when you talk about profitability? The reason I asked that question is just trying to understand – if you fix one or two things – do you see a step function in profit and/or comps? Can you give us any color around that?
Herkert: No. I will tell you though, what we are doing is we are focusing on the enterprise. We had a great Store Directors Summit here about mid-March, and we brought, for the first time ever, all of our traditional store directors together in one place at one time and laid out in really granular detail the tools that we’re providing to them, the new rules of engagement that we’re providing to them, the new incentive program that we’re providing to them. And this was everybody and it was regardless of which banner, and they were all here. And so we’re trying to think of this business holistically. And clearly, making sure that if there are banner-specific marketing initiatives that we still do that, we still have banner leadership, it is part of our being hyperlocal. But we are not picking and choosing who wins and who loses in this race.
That response merits another “Huh”? I’ve heard hundreds of conference calls in my career and this guy can’t even give this analyst a bit of “color” or direction.
Nothing has really changed. And it won’t until Herkert gets more engaged with the stores and the associates who run them. Process and expense cutting can only take a company so far. Negative five percent on identicals is a bad number, made even worse when every quarter under Herkert’s regime has been significantly negative. And Herkert boldly predicted that for the fiscal 2012, which began on February 27, SVU’s ID sales will improve to negative 1.5-2.5 percent. Time will tell, but he may be out on an island with that prognostication.
If you listened to the conference call closely, you would have heard two other “nuggets” that were much more relevant than the hype and spin that dominated most of the session. First, Herkert admitted that despite inflation, ID revenue at its “golden child” – Save-A-Lot were flat in Q4. And, about midway through the call, Sherry Smith acknowledged that Supervalu suffered market share losses in its top 20 DMAs (designated market area) during the second half of the year. That is an incredibly telling statement.
Here are a few questions for Herkert that I’d like to ask: if, as you say, retail pricing has improved and is now “fair,” at which banners have sales improved? How are you attempting to upgrade morale at the divisions and in the stores? Where are you making gains against your competition? And instead of more transformational “tools,” how about delivering meaningful positive results that can be tangibly measured by shareholders, associates and financial analysts.
It’s been two years of the same rope-dope tactics. Craig, show us the beef!
Holy Krimpets! Flowers Puts the Frosting On Tastykake; Pizzi to Exit with $3 Million
For most of the 430 associates employed by Tasty Baking, the recently announced sale of the company will probably be a good thing – they will remain employed by a stable, expansion-minded company that will most likely coddle an iconic brand which previous management had long bungled. For the buyer, Georgia based Flowers Foods; the opportunity to acquire one of the most popular names in Philadelphia for nearly a century gives the baker a catalyst to continue its growth northward while also legitimately giving the Tastykake brand an opportunity to fully expand into new markets.
However, nobody should be happier than soon to be outgoing Tastykake CBO (Chief Bungling Officer) Charlie Pizzi who will walk away with more than $3 million as part of his exit package when the sales of the company is completed..
Yeah, we all know Pizzi’s “Mr. Philadelphia” reputation back when he served as president of the city’s Chamber of Commerce from 1989-2002. He was a popular guy who could make things happen for a city that didn’t have much going for it back then. And truthfully, he did a good job.
But running a publicly-held company with shareholders in a situation where he had to be accountable for increasing sales and earnings and gaining credibility with Tastykake’s associates? Well, Charlie wasn’t quite so good at that. When Pizzi assumed the helm of the snack packer in the fourth quarter of 2002, Tasty Baking was struggling, but its stock was trading in the $14 range. The last eight-and-a-half years have been riddled by consistently poor earnings, declining sales and a boatload of excuses However, as the company’s value plunged in recent years, Charlie Pizzi remained faithful to his biggest fan base: himself. It didn’t seem to matter that key executives left or were forced out, because with Charlie in charge, things would be all right, wouldn’t they? Of course, Tastykake’s board must share some of the blame, too. But then again, this was a group of insiders who also must have been drinking the same flavor of Cool Aid that Charlie was guzzling.
Even moving Tastykake’s antiquated bakery from Nicetown to the site of the old Philadelphia Navy Yard wasn’t as productive as Charlie had planned it to be. Those damn commodity prices must have affected Tasty Baking more than any of its snack food competitors, and it really caught Charlie off guard when A&P surprised the free world by filing chapter 11.
The company will be in a better place with Flowers at the helm. The Thomasville, GA firm has proven it can maintain a consistent level of product quality on the shelf, has a strong distribution network that can adequately service the stores (which will now include perhaps Tastykake’s strongest asset, its route drivers) and has successfully expanded its business over the last decade into Baltimore-Washington and most recently Central Pennsylvania.
Oh, I wouldn’t shed any tears for Charlie Pizzi. Tasty Baking has treated him very generously over the years and, despite a poor track record of leadership, he can leave with his reputation and wallet still intact.
And now that he’ll have a lot more free time on his hands he might consider spending time with an industry cohort who can share similar tales of overcompensation and underachievement. I suggest Craig Herkert could fit the bill. After all, they both have common ties to Philadelphia, they’ve served their respective companies as chief executives and both of their homes probably contain a lot of mirrors.
It’s Not Always Fair, But Unions Must Objectively View Landscape
This is a Baltimore-Washington market story, but it could well apply to any market in the country.
Ritchie Brooks, president of Teamsters Local 730 based in Washington, DC, is correct when he stated that his members helped Giant/Landover grow and prosper for many years. Brooks, a former warehouse associate at Giant himself, who has been around labor/management wars for decades, is trying to protect 430 of his members who are employed at Giant’s Jessup, MD facility, that is now being managed by Jessup Logistics, a unit of C&S Wholesale Grocers.
Those warehouse workers are facing May 14th contract expiration and the strong possibility that Jessup Logistics, will take Giant’s non-perishables business to one of its many non-union facilities, probably in York, PA.
Labor issues circa 2011 are complex and emotional. Losing one’s job (even if buyout packages are offered as they were in this case) after many years of dedication and loyalty to an employer rarely comes with any good vibes. So, while it’s tough not to be empathetic towards Brooks’ members or those of Teamsters Local 863 in Mountainside, NJ where 1,300 warehouse associates were recently scuttled in a similar C&S related “outsourcing” move, the unions also must shoulder the burden for their inability to organize new employers which would certainly level the playing field for those old-line unionized retailers whose primary competition is now overwhelmingly non-union.
For those senior level employees, making top dollar and receiving maximum benefits, labor unions remain vitally important – those associates were raised in an era where unions helped raise their compensation and improve job standards to their current levels. That older faction also believed that organized labor, more than any other factor, kept employers in check.
Unfortunately, those at the top of the wage and “Benny” scale are evolving into extinction, in part because of attrition (age and buyouts) and also because of the introduction in the past 20 years of multi-tier contracts, where starting wages are much less and benefits are often qualified for through earned time eligibility.
I’ve heard for years that organized labor has been unrealistic with its wage and benefit demands when negotiating new contracts. I don’t believe it. The “cost out” of virtually every new labor agreement involving the food industry in the past decade has been well below that of other industries in terms of increased compensation (don’t even compare it to the increases in executive pay during that period). The nub of the issue remains the inability of organized labor to unionize virtually every new retailer selling food and drug (at store and warehouse levels) which has entered any market in the Northeast in the past 20 years.
Wal-Mart, CVS, Target, Walgreens, BJ’s, Whole Foods, Wegmans, Trader Joe’s, Aldi, Save-A-Lot, Fresh Market and Bottom Dollar (Delhaize America) have all entered the market or significantly expanded their presence with little or no fear of being organized.
Certainly retailers have gotten smarter on how they treat their associates, both in compensation and attitude. Many of these “new entry” merchants have worked hard to develop a culture that’s considerate of and sensitive to their associates’ needs. So, if wages and benefits are comparable between “new tier” organized associates and their non-union clerks, meatcutters or warehousemen, doesn’t it boil down to work rules and union dues?
Organized retailers believe that work rules are constrictive and inflexible. Clearly, chains such Wegmans, Harris Teeter and Whole Foods feel they are much more productive and efficient by imposing their own set of work standards, which they obviously feel are fair. And if you judged the productivity of the average clerk at one of those companies, you’d probably find a generally happy employee (that’s not to say that clerks at Giant/Landover, Safeway, Shoppers, Kroger, A&P, ShopRite and Stop & Shop are unhappy). Perhaps they wouldn’t be quite as happy at Wal-Mart or Walgreens, but if they were that disgruntled, it’s logical to believe that at least one of those retailers would have become unionized this decade.
When you weigh the “employee contentedness” factor of these “new entry “retailers against a potential $50 per month in union dues, well¼the scorecard speaks for itself.
With all Northeast markets being vastly overstored, and new channel retailers growing more quickly than traditional supermarkets, the organized chains are seeking any relief they can.
So, if C&S can lower Giant’s warehouse costs; if Cloverland Farms can co-pack Safeway fluid milk more efficiently than the chain can and if H&S Baking can offer their huge line of bakery products to retailers in the Northeast, then that’s the route that retailers will continue to seek.
In a nutshell, if the labor movement really wants to become as relevant as it was 30 years ago, then it needs to offer a meaningful message to those employees at the non-union chains that would be viewed as a difference maker.
Or could it be that other than those senior, tenured well-compensated clerks, meatcutters or warehouse associates, the labor movement has lost its focus and no longer represents the core of American workers today?
As it relates to the grocery industry, that’s a question that the United Food and Commercial Workers International and the International Brotherhood Teamsters need to look in the mirror and answer that question objectively.
‘Round The Trade
Another large national food retailer is going the centralized merchandising and operational route (translation: whacking heads and closing offices). This time, it’s 7-Eleven, the world’s largest convenience store merchant, which will be shuttering divisions and shifting many of its merchandising and marketing decisions to corporate headquarters in Dallas. Actually, we received a “heads up” about the major restructuring from several vendors who were made aware of the pending reorganization last month. According to our sources, more than 100 jobs will be eliminated and that the company’s current eight regions will be replaced by 14 zones, most of will be supervised by managers working from their homes. While it may not seem as critical from a merchandising perspective to move to a national platform (primarily because of the number of overall SKUs), there is still a regional flavor for any retailer. And as 7-Eleven tries to better to compete with higher volume competitors by upgrading its 7,100 units in the U.S. and Canada, the “one size fits all” footprint would almost seem counterintuitive, especially when you add in the fact that the company wants to add 500 new North American stores this year. But in the end, based on the scorecard results of a half a dozen other retailers who have undergone centralized reorgs, the overriding issue is more about increasing the bottom line for the Mothership than they are about gaining efficiencies… Wal-Mart’s moment of reckoning at the U.S. Supreme Court has begun. On March 29, the highest court in the nation began hearing arguments from both the retailer and attorneys representing the plaintiffs as to whether the potential multi-billion gender discrimination suit against Wal-Mart should be upheld as class action litigation. The legal sparring has continued for more than a decade since six women originally filed suit against Wal-Mart Stores. The women claimed that company executives failed to stop local store managers from making sexist decisions about promotions and pay. Instead of seeking redress for their individual claims, the six plaintiffs have won several decisions in lower federal courts preserving the right to press their suit as a class action representing what could be as many as 1.6 million female employees at the nation’s largest retailer. It is expected that a final decision by the Supreme Court will be handed down early this summer determining whether the suit will go forward as a class action. It marks the court’s first look in 12 years at the standards that plaintiffs must meet to mount a class action. Invoking a familiar justification for class actions, the plaintiffs’ lawyers say many of the workers don’t have enough money to gain to justify suing individually. Of course, the parties have the option of settling the dispute out of court, which some analysts feel may be Wal-Mart’s best choice if the Supreme Court rules that the case can continue as a class action suit. Wal-Mart has continually denied any intentional wrongdoing, despite the fact that the retailer was reportedly warned by their lawyers in 1995 that a sexual discrimination lawsuit was possible after it was found that men earned 19 percent more than women and were five times more likely to be promoted. The company contends that the accusations are too numerous and too diverse to be tried as a class. A class action defeat could cost the retailer billions of dollars. More than 20 U.S. companies have filed papers in support of the company’s position. In a decision that was substantially upheld by the Ninth Circuit U.S. Court of Appeals in San Francisco, U.S. District Judge Martin Jenkins held that rough justice is better than having no remedy for any class member. In upholding this decision, appellate Judge Michael Daly Hawkins emphasized that having a class action suit was better than clogging the court system with individual suits stating that size alone does not make a case unmanageable.
The suit, which was filed in 2001, covered women who have worked at the retailer’s Wal-Mart and Sam’s Club stores since 1998. The Ninth Circuit limited the class to what the majority of the appellate judges estimated would be 500,000 current employees. Lawyers for the women want to add workers who were hired after the 2004 district court ruling. “I have no doubt that the class would exceed a million,” says Brad Seligman, the lead plaintiff’s lawyer. Allowing such a broad class would prevent Wal-Mart from defending against the claims of each woman individually, argued the retailer’s lead lawyer, Theodore Boutrous. “Class actions can be helpful for efficiency, and there’s an attraction to that. But at some point they can start chopping away rights.”
The case centers on the federal rules requiring that class claims raise common questions and that representative plaintiffs be typical of the larger group. Seligman maintains that the Wal-Mart workers – a group that includes the six women seeking to serve as class representatives and more than 100 who have filed sworn statements – have encountered similar workplace problems. The plantiffs described more junior male employees as well as male friends of supervisors being promoted ahead of them. Wal-Mart officials say that, with almost 1.4 million employees, some of them – including supervisors – are going to have errors in judgment. If I’m at the $2 window at Aqueduct on this one, I’m betting that the U.S. Supreme Court will remove the class-action status from the suitWal-Mart announced that it has again realigned its divisional structure. Rosalind Brewer, executive VP of Wal-Mart U.S. who joined the retailer in 2006, will now serve as president-Wal-Mart East from her base in Atlanta. Brewer’s territory is a large one, covering 20 states and nearly 1,600 stores, including all Wal-Mart formats (except Sam’s Club) on the Eastern Seaboard…
Local Notes
A&P is asking the U.S. Bankruptcy Court for permission to sell 25 Mid-Atlantic Super Fresh units (22 in Maryland, two in Delaware and one in Washington, DC). A&P believes these mostly underperforming stores could be sold by June. As of presstime (April 15), no W.A.R.N. notices of closures had been filed, so whether some of the unsold stores would ultimately remain open is not clear, but I would say is doubtful. Among the best stores in the group are Super Fresh stores in Timonium MD and on 41st Street in Baltimore City. The 25 stores on the sales block generated sales of $330 million last year. Conspicuously absent from the list were the Tea Company’s two profitable stores in Ocean City, MD and its high-volume unit Rehoboth Beach, DE. Actually the process to sell those units began last fall (prior to bankruptcy), with little success (two units were old – Mars acquired the store in Bel Air, MD and the Fresh Market will open a new store at the old Dulaney Valley Road site in Towson, MD). Shortly after its Chapter 11 filing on December 12, A&P began utilizing the services of Hilco Real Estate to supervise the sale process. Additionally, A&P and Stop & Shop (Ahold USA) have settled their legal issues concerning Frank Vitale, the former A&P regional VP who left the company to join Stop & Shop where he will oversee Stoppie’s Long Island stores. The Tea Company originally filed the suit on April 4 and was seeking a court order enjoining Vitale, who resigned from the company on February 14, from going to work for Stop & Shop during the 18-month period set forth in two separate non-compete agreements. A&P also sought a judgment ordering Stop & Shop to pay at least $1 million in compensatory damages and punitive damages of $1 million… LiDestri Foods, Fairport, NY (Francesco Rinaldi, private label packer) has acquired Zeigler’s & Sons, the Lansdale, PA based family-owned maker of fruit juices and teas, for an undisclosed price…earlier this month I attended the National Frozen & Refrigerated Association (NFRA which is based in Harrisburg, PA) executive conference in Tempe, AZ and heard two excellent speeches by senior executives with Mid-Atlantic roots – Alec Covington, CEO of Nash Finch (and former president of Richfood, now Supervalu) and Jeff Martin executive VP-sales and merchandising for Ahold USA Retail. Covington, a man with a 30 pound brain, sang a familiar tune – how events around the world are creating some major grocery industry challenges. In addition to global population increases, declining food stockpiles and spiraling price hikes in fuel and fertilizer, natural disasters, such as the recent Japanese earthquake and tsunami, have contributed to significant inflation in rice, wheat, corn and soybeans. Covington said that price increases in the first eight weeks of 2011 have been ballooning at record rates and have left both manufacturers and retailers with few options. Among those choices manufacturers are utilizing are: price increases, reduction of package sizes, lower trade allowances, substituting less expensive ingredients and continued consolidation/reduction of workforces. Covington also noted that the economy, among other factors, has changed consumer habits dramatically, adding that private label sales have grown significantly in recent years. He asked vendors to reevaluate their mission, which he noted should include: maintenance of brand identity, focus on the customer, build relationship on trust and loyalty, continue to seek product innovation and focus on value. Later in the session, the popular Jeff Martin told the group of about 150 that understanding your customers has never been more important. Ahold USA is working with a company called EYC (Engage Your Customer) to utilize new analytics that allow AUSA to create greater customer loyalty, create an emotional bond with its customer and deliver overall greater relevance to its audience. “Its all about being customer driven,” said Martin, who oversees the sales and merchandising for the $24 billion retail organization. “We utilize the five ‘Ps’ to engage our customers. That’s price, promotion, products, place and people.” He added that his company is taking a deep dive into social media and digital marketing and is using every tool available – newspaper, FSI, Catalina Marketing, direct mail, email, and most recently, mobile applications, to engage the customer in a personalized experience. When calling on AUSA in Carlisle PA, he asked the vendors to bring their “A” Team, which includes their number one sales rep, their number one marketing associate and their top consumer insight rep. Those sales reps should be prepared to bring their knowledge and experience in category marketing, innovative idea development and also be prepared to work with AUSA on pilot and test programs. “This has to be a collaborative effort. We are looking for ‘win/win’ relationships that can create mutually strong customer loyalty.” Also, a tip of the hat to Skip Shaw and Jeff Rumachik, respectively president and senior VP of the NFRA, for putting on an excellent conference…we are sorry to report the death of Tom McGrath, 76, of Dallas, PA. Tom devoted his entire 43-year career to the sales and distribution of national food products. Thirty-three of those years were spent with food brokerage firm Hagerty-Schwartz Associates of Philadelphia, Harrisburg, and Wilkes-Barre. Tom also was responsible for Lender’s Bagels (a Schwartz-Hagerty principal) initiating the tradition of distributing thousands of green bagels on St. Patrick’s Day. He first gave the idea to founder Murray Lender, who passed them out in the St. Patrick’s Day Parade in New York City, and the rest was history…also passing on was of one of the great unsung directors of the past 50 years. Sidney Lumet, 86, died earlier this month in New York. Among the Philadelphia native’s best known films are “Serpico” (1973),” “Dog Day Afternoon” (1975), “Network” (1976), and one of my all time favorites “12 Angry Men” (1957). Other personal Lumet favorites are “The Pawnbroker” (1964) and “Fail Safe” (1964)…entering keyboard heaven last month was on was one of the great and unsung bluesmen of all-time, Willie “Pinetop” Perkins. Perkins was 97 when he played his last 12 bars on the piano. Born in Belzoni, MS in 1913, Perkins played with such blues greats as Muddy Waters, Sonny Boy Williamson and Ike Turner. One of his most recent collaborators, Bob Corritore, said this of the two time Grammy winner: Pinetop could find the cracks and fill them in and be the glue and mortar of the whole band.” I personally recommend his 2007 album, “Last of the Great Mississippi Delta Bluesmen: Live in Dallas,” which he recorded when he was a mere 91 years of age¼