It was only a matter of time before the Genuardi’s exit from the Delaware Valley was made official, and now that the once revered family-owned regional chain is about to become history, the makeover of the $20 billion Delaware Valley food and drug market has begun.
While it is certainly tough news for the several thousand Genuardi’s associates who will be let go (although they will have a chance to be rehired at the 16 stores Giant/Carlisle is set to acquire and probably will have that same opportunity when other stores are sold), Safeway was left with little choice but to withdraw from the market given the original damage it did to the regional retailer a decade ago. Those self-inflicted wounds coupled with the growth of ShopRite and Giant/Carlisle as well as the entry of several new retailers into the market that possess strong and diverse operating styles made it nearly impossible for Safeway to regain any of the momentum it inherited when it acquired the company from the Genuardi family in 2001.
As Safeway eastern division president Steve Neibergall noted, Genuardi’s departure will allow the company to “focus our resources in those operating areas where we have a stronger presence.”
And by being the first chain to announce its departure and the biggest non-union operator in the Delaware Valley, Safeway was clearly able to sell a greater percentage of its stores, and at better prices. For Giant/Carlisle, the acquisition follows other recent “in-market” deals over the past several years including five Laneco stores, 14 Clemens Markets and two previous Genuardi’s stores which it acquired and re-opened in 2011
With 16 stores added to its growing Del-Val base, Giant/Carlisle could increase its market share to almost 10 percent of the 15-county market (which is even more impressive when one realizes that the company does not have stores in the five New Jersey counties in Del-Val or in New Castle County, DE). Its store count there would rise to about 65 units, all in Pennsylvania.
Less than a week after the Genuardi’s news, A&P announced another group of store closures in the Philadelphia and metro New York markets. This time 14 units will close after February 26 (the start of the Tea Company’s new fiscal year) and two of those units (both Pathmarks – in Egg Harbor Township, NJ and Upper Moreland, PA) are in the Del-Val market. After those stores are shuttered, A&P and its banner affiliates will have closed about 75 units during the past year.
And once A&P leaves the world of bankruptcy (probably in early spring), you can expect more sales and closings to occur. After all, are there many analysts who don’t believe future chairman Ron Burkle and his investment buddies are in this primarily as a real estate play?
And then there’s Acme. Enough has been written about Acme Markets and its poorly managed (impaired) parent company, Supervalu, by this reporter to fill a steamer trunk, but it doesn’t seem plausible that the once mighty Ac-a-me could sustain another full year of declining profit and sales as well as poor morale without actually selling or closing a significant number of stores.
On January 11, as I do each quarter, I listened to chief executive Craig Herkert’s follow-up earnings conference call to yet another poor quarter (see subhead on page 26). And for the past two years my reaction hasn’t differed (nor have the results) – Herkert just might be the most delusional or disingenuous CEO to have led a grocery company over the past 20 years. Either way, his performance remains dismal by virtually every current metric. When you consider that Supervalu is cycling many current results over five years of poor identical standards, the situation is that much bleaker. And Acme certainly is one of the darker chapters in the company’s current portfolio. Look for 2012 to be the year that Supervalu is forced to take more aggressive action with its once-mighty Delaware Valley chain.
Expansion-Wise, Safeway, Ahold Headed In Opposite Directions
As Safeway retreats from the Delaware Valley and Ahold USA continues to add more stores in the market (both from the ground up and via acquisition), the expansion mindsets of two of the largest pure play supermarket retailers in the country couldn’t be more different.
In addition to the aforementioned Laneco and Clemens purchases, Ahold, with a $3 billion acquisition kitty on hand, has been very aggressive in seeking to broaden its market share in the Mid-Atlantic and the Northeast.
In 2010, Ahold USA expanded Giant/Carlisle’s geography when it acquired Ukrop’s. Last year, the Dutch headquartered retailer increased its market share in metro New York with the acquisition of five Foodtown stores in Central New Jersey and three King Kullen stores in Staten Island, NY. While Ukrop’s (which now trades as Martin’s) continues to be a challenge (although the numbers are slowly improving), the other deals have worked out quite well and Ahold USA remains on an aggressive hunt to expand its portfolio. During that period, the company has also been decisive in cutting its losses, selling Bi-Lo and Bruno’s to Lone Star and dumping Tops on Morgan Stanley Private Equity.
As for Safeway, as great a leader as CEO Steve Burd has been for more than 20 years (he’s a certified first team Hall of Fame member by any account), acquisitions have never been his strong suit.
That seems obvious by the track record of major deals the retailer made during a three year period from 1998-2001. Those less than successful results speak volumes about Safeway’s unwillingness to get in the acquisition game over the last 11 years.
One key reason (at least from a historical perspective) that the two companies have had significantly different acquisition track records is the ability of Ahold to better assimilate itself into the culture of the acquired company while making the necessary improvements and changes that the retailer it acquired was unable to execute.
In Safeway’s case, we’ve seen little of that. In fact, in all three key acquisitions that Safeway made in the aforementioned three year period – Dominick’s, Randall’s and Genuardi’s – its unwillingness to utilize the strengths of those successful retailers was a prime reason those chains lost market share and suffered from diminished employee morale very shortly after they were purchased.
And specifically in the case of Genuardi’s, the rapidity of the plunge after its 2001 acquisition could be a case book study. Almost immediately, the company foisted its “corporateness” on one of the best groups of employees in the entire Northeast. As a result of the “vanilla-izing” of the look and feel of the once perishables-driven stores and a radically changing product mix, Genuardi’s, which was founded in 1920, lost a lot of its mojo during the first year of Safeway ownership. To be fair, leaders like Karl Schroeder (former president of the Eastern division who now runs Safeway’s largest unit in Northern California) worked hard to staunch the bleeding, but too much internal damage had already occurred. It didn’t help Genuardi’s cause either, that a slew of new and growing competitors entered the market and took share at the expense of the once strong performer.
Clearly, Safeway has learned that the “one size fits all” modus operandi of running stores doesn’t work anymore – today’s major markets are both overstored and filled with a multitude of diverse retailing styles.
While the $106 million in proceeds thus far will most likely be utilized for future store-related investment, the emotional and financial drain that Genuardi’s had become will now be eliminated and Eastern Division management can better concentrate on its core Baltimore-Washington stores.
Herkert ‘Spins Away’ As Supervalu Posts $750 Million Loss In 3rd Quarter
A quarterly loss of $750 million. A pre-tax charge of $907 million for the write-down of goodwill and intangible asset impairments. Identical store sales at negative 2.9 percent (still worst in supermarket class).
If you were running a multi-billion dollar publicly-traded corporation, you might be alarmed by those quarterly results. And, if those results were essentially repeated for nearly three years, you might be in full panic mode.
But associates, shareholders and vendors need not be worried, because Craig Herkert’s at the helm. And much like his previous messages to those concerned about the company’s future, the “Process King” will tell you, “I feel good about what this team has done and the direction we’re going and the pace with which we’re moving it.”
Hey, if your company paid you nearly $14 million over the past two years and Supervalu’s board (whose theme song must be The Who’s “Tommy, Can You Hear Me?”), continued to support your agenda, I guess you’d feel pretty good, too.
So what if the numbers continue to suck and Supervalu’s stock price is a ridiculously low $7.34 a share? Craig Herkert wants you to know he’s on the case and that the company’s new analytical measuring tools are really beneficial, as is Supervalu’s ability to leverage “high engagement, traffic-driving promotions” like its “Collect & Win” and “Wish Big, Win Big” games. It’s also great to hear him embrace the positive energy generated by the “Shoppers Value” private label and that real progress is being made on SVU’s “8 Plays To Win” corporate initiative.
However, I’m here to tell you that what’s being delivered from the Kremlin (I mean the executive offices in Eden Prairie) is mostly eyewash.
Let’s look at some real numbers delivered personally from the lips of Herkert and CFO Sherry Smith during the analysts’ conference call. Customer Counts: down 4.6 percent in the quarter. Transaction Size: up 1.7 for the 39 weeks (but with a 4.5 inflation rate to consider). Market Share: down 40 basis points this quarter in its Top 20 markets (which represents about 66 percent of SVU’s total retail sales). Independent Stores Sales: projected to decline by 4.5 percent. Save-A-Lot Expansion: 29 new stores this year (Herkert in 2009 predicted that approximately 1,200 new S-A-L units would open by 2014, an average of 250 per year).
And just to illustrate that the old spinmeister hasn’t lost his unique ability to not directly answer a specific question, check out this interchange between the “Process King” and Shane Higgins from Deutsche Bank AG.
Shane Higgins: How has your shift towards everyday fair pricing plus promotions positioned you guys versus competitors? And how close do you think you are to pricing parity today?
Craig Herkert: It’s a great question, Shane. Well, as I’ve mentioned in the call, we’ve begun to do it most importantly in the produce area where we’ve been fairly vocal about it and really like what we’ve done there. What we see is that we brought us much closer. We track it weekly. We are now on a base price level. We are very, very competitive and we still promote. What we see is, and this is the really good news, is we see a continued change in the mix from what we sell on promotion and what we sell everyday. Recall that our goal here is to improve the everyday mix that customers feel comfortable about shopping at our stores for products when they’re not on sale, as well as when they are on sale. So we do track it. We’re very, very happy with the movements that we’ve made and we have a ways to go.
Another “great” question, another not-so-great answer.
Shouldn’t it really boil down to assessing the performance standards by which any CEO should be judged: consistent profitability, sales growth, shareholder value, morale of the associates and leadership ability?
On all those counts, Herkert’s tenure as chief executive has been nothing short of calamitous
More specifically, in terms of measurable performance, how about some positive ID sales, some consistent earnings and sharp pricing (not “improved” pricing or “selective” pricing, but aggressive market pricing that consumers believe is truly competitive)? How about a few net new stores, something that would enhance value and create a positive vibe among the division associates? How about closing the culture gap that exists between the executive tower in Eden Prairie and the individual stores/divisional associates who feel little connection to the corporation they work for?
Herkert can “rope-a-dope” around the core issues all he wants, and the board can continue to serve as his ineffectual toadies, but the seemingly unending poor performance of what once was a great company will soon place it in a position that’s beyond repair.
‘Round The Trade
In more “thinning of the herd” news, Delhaize America announced a massive store closing/conversion program on January 12 that will primarily affect its Food Lion, Bottom Dollar Food and Bloom banners. Within the next 30 days the Salisbury, NC company will close 126 units, convert 64 Bloom and Bottom Dollar stores in Maryland, Virginia and North Carolina to Food Lion bannered stores (while also closing seven Bloom and six Bottom Dollar stores). In fact, the big Belgian owned retailer will eliminate its semi-upscale Bloom banner entirely. Delhaize America will also shutter a distribution center in Clinton, TN and convert one Food Lion unit in Lake City, FL to its Harvey’s banner, meaning that there will be no more Food Lion locations remaining in the Sunshine State. According to Delhaize America CEO Ron Hodge, the closings and conversions are part of the company’s overall brand repositioning and targeted growth strategy for its Bottom Dollar format. “These actions will continue to solidify our U.S. operations and enable our company to focus on our successful brand strategy repositioning at Food Lion and the expansion of Bottom Dollar Food in new markets,” said Hodge. “While these were difficult decisions given the impact on our associates, customers and communities, we believe these actions will enable us to better serve our customers in our markets with high density, while positioning the company for future growth.” As a result of these actions, approximately 4,900 associates will be displaced. The company said it will provide severance to eligible associates, and will work with government officials to assist with transition support. Associates are also encouraged to apply for open positions within the company. Most associates working at converted stores will continue to work at these locations. Delhaize America’s two banner presidents – Cathy Green Burns at Food Lion and Meg Ham at Bottom Dollar Food – commented on the closings and conversions. “Food Lion is focused on repositioning our business for future growth,” said Green Burns. “By closing underperforming stores, we will continue to position Food Lion for success, especially in light of our brand strategy results. We are very pleased with the reaction from our customers on the implementation of our new brand strategy work, which includes being recognized as a price leader, making our stores easier to shop, offering the greatest value in private brands and providing fresh produce. However, we also determined the most successful markets for these investments are areas where we have strong store density or high market share. As we move forward with implementing our strategy this year, Food Lion will launch its next market this quarter and expects to be substantially complete by year-end. We look forward to accelerating the Food Lion strategy and bringing the strategy to life in an additional 600 to 700 stores.” Meg Ham stated: “Bottom Dollar Food is a strong, emerging banner that is continuing to grow and be successful in our new markets. Customers have been very receptive to our discount grocer model, which includes a smaller format, the most popular national brands, a wide selection of private brand products, and fresh produce and quality meats at unbelievably low prices. We look forward to continuing to grow and win in our new markets.” According to the company, the Bottom Dollar stores being closed or converted are the banner’s larger format stores. By making these changes, Bottom Dollar will now operate its business with smaller format stores of about 18,000 square feet, which have proved to be more successful formats for the banner, a spokesperson for Delhaize America stated. Bottom Dollar will open 14 stores in Pittsburgh and Youngstown, OH, by the end of the first quarter, and expects to open another 10 to 15 stores by year-end in its new markets, which include the Delaware and Lehigh Valley areas. In addition, the company plans to continue aggressive growth of the banner by adding several hundred Bottom Dollar stores in the next five years. After the conversions and store closings are complete, and the additional stores open this quarter, Bottom Dollar Food will operate 43 stores in Pennsylvania, New Jersey and Ohio. Stores closing in Pennsylvania include two Food Lions in Sinking Spring and Shippensburg…in the biggest retail deal of the past 12 months, Bi-Lo has agreed to acquire Winn-Dixie. The transaction involves combining Winn-Dixie’s 480 stores with Bi-Lo’s 210 units to create a Southeast region chain designed to strengthen two retailers that both experienced Chapter 11 bankruptcy. The deal is a pretty clean one in that there is no geographical overlap and both companies have stabilized their operations in recent years. Under the terms of the agreement, Bi-Lo will acquire all of the outstanding shares of Winn-Dixie stock in the merger. Winn-Dixie shareholders will receive $9.50 in cash per share of Winn-Dixie common stock, representing a premium of approximately 75 percent over the closing price of Winn-Dixie common stock on December 16, 2011. “We are very excited about the merger of Bi-Lo and Winn-Dixie,” said Randall Onstead, chairman of Bi-Lo. “With no overlap in our markets, the combined company will have a perfect geographic fit that will create a stronger platform from which to provide our customers great products at a great value, while continuing to offer exceptional service. Bi-Lo and Winn-Dixie are both strong regional brands with similar heritages, compelling customer connections, and outstanding employees. Both have been an important part of the communities and families they serve, and we look forward to building upon these two iconic brands and serving loyal customers for years to come.” According to our old friend Peter Lynch (Acme, Albertsons), who did a fine job guiding the Jacksonville, FL chain through and out of bankruptcy since 2004, “This transaction with Bi-Lo provides Winn-Dixie shareholders with a significant cash premium for their shares. We believe this transaction is in the best interests of our shareholders. By combining Bi-Lo and Winn-Dixie, we anticipate building a company that is stronger than our individual businesses and creating opportunities for continued advancement through the cross-pollination of our people and the sharing of ideas across our organizations, all to the benefit of our guests, suppliers, team members and the neighborhoods that Winn-Dixie serves.” Expect Lynch to depart shortly after this deal is finalized…in the “weak get weaker” department comes news that Sears Holdings will be closing about 120 under-performing Kmart and Sears stores in the next several months. In the Mid-Atlantic area, the once iconic retailer will shutter stores two stores in Midlothian, VA (Hull Street Road and Midlothian Turnpike); three conventional Sears’ units (Norfolk, VA; Pottstown, PA; and Upper Darby, PA) and one Sears Grand Essentials store in Ellicott City, MD. The Hoffman Estates, IL based retailer also announced that it has hired Ron Boire as its new executive VP-chief merchandising officer and president of the Sears and Kmart stores. He joins the beleaguered Sears organization from Brookstone and also previously toiled for Best Buy and Toys R Us…on the other side of the desk, Kraft, which last year announced it was splitting into two companies (snacks and grocery), has announced its leadership teams for each unit. Current overall CEO Irene Rosenfeld will stay on as chairman and chief executive of Kraft Foods’ global snacks company and Tony Vernon will serve as CEO of the North American grocery business when the separation becomes official later this year. Current Kraft CFO David Brearton will continue as CFO of the snacks company, and Timothy Cofer will remain and head Kraft’s European business. Other key personnel appointments include: Sanjay Khosla, who will remain president of developing markets; Mark Clouse, who previously headed the biscuits global category team, will take over the North American business; Mary Beth West will continue as chief category an
d marketing officer, overseeing biscuits, chocolate, gum and candy in addition to marketing. West will also assume oversight of corporate affairs. Kraft Snacks is currently searching for an executive VP of strategy for mergers and acquisitions. In the North American grocery business that will be led by Vernon (and to be known as Kraft Foods), Timothy McLevish will serve as CFO. McLevish previously was CFO of the overall company and has been overseeing the company’s split. Other grocery unit changes include: Deanie Elsner, who will become president of beverages; Michael Osanloo, who will serve as president of grocery; Nicholas Meriggioli, who will become president of Oscar Mayer; George Zoghbi, who was named president of cheese and dairy; and Sam Rovit who will serve as executive VP of strategy with responsibility for mergers, acquisitions and information systems. This announcement follows the major news of last August when the big Northfield, IL packer announced its intentions to form two companies, a $16 billion North American grocery business and a $32 billion global snacks business. The North American grocery unit will include brands such as Kraft Macaroni & Cheese, Oscar Mayer meats, Philadelphia cream cheese and Maxwell House coffee. Kraft’s global snacks business will include the company’s European and international divisions and will feature such brands as Oreo, Trident, Tang, Cadbury and Jacobs Coffee…surprising fact of the month: according to Colliers International, the number of dollar stores operated by the four largest retailers in that milieu (Dollar Tree, Dollar General, Family Dollar and 99 Cents Only) has surpassed the number of drug units operated by the “big three” (CVS, Walgreens and Rite Aid). According to the report, the number of dollar stores operated by the four largest chains reached 21,500 units. Ann Natunewicz, national manager of U.S. Retail Research for Colliers International said: “The rapid evaporation of wealth (both real and perceived) has profoundly changed the way Americans shop and how they define value. Dollar stores now serve a larger consumer base, which is fueling unprecedented growth in dollar store leasing and a significant shift in types of retail space they take.”
Local Notes
Back to A&P, also on the list of those recently named 14 A&P closings are Pathmark stores in: Manahawkin, NJ; Kearny, NJ; Mount Vernon, NY; and East Islip, NY. A&P bannered units slated for closure include supermarkets in: Bayonne, NJ; Garfield, NJ; and Danbury, CT. Five Waldbaum’s stores are also on the list: Lake Ronkonkoma, NY; West Babylon, NY; Rockville Center, NY; Huntington Station, NY: and Commack, NY. Most of the stores scheduled to be shuttered have leaseholds with five or fewer years remaining and rents averaging about $20 per square foot. “We are continuing to take the steps necessary to position A&P to emerge from Chapter 11 with a strong future and ensure that we remain focused on our top priority – providing great value and service to our customers every day,” said Sam Martin, A&P’s chief executive. In other A&P news, thousands of unsecured creditors affected by A&P’s Chapter 11 filing weren’t happy to learn that they will only recover about 2.1 to 2.7 percent of their claims, according to a revised disclosure statement filed with the bankruptcy court. Landlords can expect to receive only 3.0 to 3.9 percent of the monies owed them and those former employees eligible for pension withdrawal claims will receive 4.9 to 6.3 percent of the compensation owed them. Expect these amounts to be contested at the February 6 hearing in White Plains, NY when A&P will also unveil its reorganization plan. It seems that A&P is a bit agitated with Ahold USA over the latter firm’s fear that its two of its banners (Stop & Shop and Giant/Landover) might be liable for increased pension contributions if A&P withdraws from several of its multi-employer pension funds which both Ahold banners are a part of. Other than the FELRA (Food Employers Labor Relations Association) plan in Baltimore-Washington (a market that the Tea Company has virtually withdrawn from), A&P previously has given no indication that it will no longer participate in those pension plans. Also in court papers, A&P asked U.S. Bankruptcy Court to disallow “vague” lease-related claims made by Ahold that the Tea Company said are intended to slow the retailer’s emergence from Chapter 11. “Ahold would undoubtedly prefer that the debtors liquidate and sell off their assets at a discount rather than reorganize in the best interests of the debtors’ stakeholders and emerge from bankruptcy as a formidable competitor – even if Ahold’s ‘claims’ were left worthless in the process,” A&P noted in its court filing. This issue and several others that have been brewing for the past two months will be heard at same February 6 court hearing. And it seems that Stop & Shop and its major competitor, ShopRite, have locked horns over whether Inserra’s Supermarkets should be able to build a new ShopRite store on the site of a long abandoned A&P unit in affluent Wyckoff, NJ. The proposed supermarket would be built adjacent to a recently expanded Stop & Shop location. The largest division of Ahold USA is claiming that a new store of that size would create safety, traffic and noise issues and that at 62,000 square feet, the site is not currently zoned for a big box. Inserra has been trying to gain town approval for the site since 2009…more New Jersey news: another antiquated law becomes history as, earlier this month, a new bill was passed that will authorize the state’s food retailers to offer fuel reward programs and allow petroleum dealers to distribute coupons that can be used at their supermarket partners’ stores. Previously, programs that allowed consumers to accumulate points on their loyalty cards that could have been redeemed for fuel discounts were not allowed under a statute that passed in 1932. A lot of credit for bringing New Jersey into the modern era of consumer practices goes to Linda Doherty, president of the New Jersey Food Council and her team …Food Circus, the second largest Foodtown member, will be closing its Berkeley and Hazlet, NJ stores on February 25 due to heavy competitive activity and the continuing sluggishness of the economy…Village Super Markets, the second largest ShopRite member, announced that it has named John L. Van Orden as its new controller and principal accounting officer. Veteran Kevin Begley, who held that title previously, will continue to serve as Village’s principal financial officer, treasurer and director…Wegmans is one of many mid-sized and privately-held companies that are objecting to a Securities and Exchange Commission (SEC) rule that requires non-public companies with more than 500 shareholders to file financial statements. Retailers such as Wegmans, Wawa and high tech firms like Facebook and Twitter have been lobbying to raise the limit (legislation was recently introduced to raise the limit to 2,000 shareholders). “As we grow, we don’t have the ability to retain and attract the number of people we’d like because of the restriction of this rule,” said Paul Speranza, vice chairman and general counsel for Wegmans.…since labor is a major topic of discussion in this issue, we’ve got two more related stories to report. The National Labor Relations Board (NLRB) has officially adopted a “final rule” designed to speed up union elections. From the unions’ perspective the new rule, which takes effect on April 30, will make it more difficult for employers to stall organization efforts. Obviously, management’s take is completely different. “the decision erodes employers’ free speech and due process rights and opens the door to rushed elections that will deny employees access to critical information and time to consider the issues at hand prior to entering the voting booth,” said Katherine Lugar of the Retail Industry Leaders Association. Almost immediately, the U.S. Chamber of Commerce and a coalition of trade associations, led by the National Retail Federation, filed suit seeking to challenge the ruling.”…a couple of deaths to report this month. One of my favorite character actors of the past generation, Dan Frazer, has died. Frazer, 90, was best known for his role as an often bewildered Capt. Frank McNeil, Telly Savalas’ boss on “Kojak” (1973-1978) Actually, Frazer acted in more than 60 films and television shows from the early 1950s until his last role in 2010 as Sol Epstein in “The Pack.” One of his more memorable moments came in the Woody Allen’s “Bananas” (1971) in which Frazer played a priest touting “spiritual” cigarettes in a mock TV commercial in the film. “New Testament cigarettes – I smoke ‘em and (then exhaling and pointing skyward), he smokes ‘em.” It is also with great sadness that I report the death of Cheetah, sidekick to Tarzan in many movies dating back to 1932. Cheetah lived to the remarkable old age of 80 and was always good for a number of laughs when he was asked to ham it up for the camera. In fact, I’m not certain who came first and who stole whose act – Cheetah or Jerry Lewis? And there was one more “lovable” trait about the chimp, according to Ron Priest, who cared for Cheetah at his Florida animal sanctuary: when he became angry or didn’t like someone, “he would pick up some poop and throw it on them. He could get you at 30 feet with bars in between.” Ah, don’t we all wish we could do that sometimes?