We’ve long praised Saint Joseph’s University for providing the best academic forum for preparing graduates of its food marketing program to enter the grocery industry. The entire Food Marketing Enterprise also offers us industry veterans with some wonderful learning opportunities.
One of the best “opportunities” is SJU’s annual Food Industry Summit, now in its sixth year. Without exception, all of the “Summits” have been interesting, lively and thought provoking. And while at first blush, you might think that this year’s theme “Eat With Us…Leveraging Digital Technology for Profitable Meals” may not have been meaty enough for those primarily interested in retail, a closer examination would produce a different perspective.
As the grocery industry as a whole continues to undergo great change, one emerging commonality is that all segments of the food business are becoming more interconnected.
Last year’s summit focused on the growing importance of social networking and digital marketing as its primarily affected retail channels.
Many of the same themes were discussed again this year, but with a foodservice twist.
Todd Hale, VP-consumer and shopper insights for Nielsen kicked off the forum and noted the importance of convenience and quality and the growth of the “foodie” movement, particularly on college campuses. He stated that that health and wellness are gaining even more momentum, with chains such as McDonald’s testing items like apple fries as “better for you.” Hale asserted that the line between the retail and foodservice channels is becoming more blurry, but noted common factors impacting both segments include continued spending restraint and increased use of social media (e.g. Houlihan’s tweeting live on billboards in Chicago and ShopRite utilizing YouTube to demonstrate recipes using its private label products). In further illustrating the ambiguity between channels, Hale noted these up and coming “hot” concepts: healthy vending machines, gourmet food trucks and using your iPad as an “instant sommelier.”
Hale was followed by Larry Pulliam, executive VP of Sysco, who has been with the nation’s largest foodservice distributor since 1987. Pulliam entertained the audience of more than 200 industry executives with the early history of Sysco and some of his personal experiences in his 25 years with the company. One hilarious story involved Pulliam’s sudden shift from warehouse manager to chief information officer when he couldn’t even turn on a computer. And while Pulliam is certainly “old school” (the business needs more people like him), his message was very timely: technology is vital, but nothing is more important than the relationship between Sysco and its customers.
Kim Bartley, VP-marketing and menu development atWhiteCastlerestaurants followed Pulliam and was very entertaining and insightful in her own right. Bartley emphasized the importance of creativity and risk taking in competing against bigger quick serve restaurants like McDonald’s and Burger King. As a privately-held organization with only 410 company-owned stores nation-wide, Bartley noted that thinking outside the box was integral toWhiteCastle’s success. She illustrated how her company has benefited from social media marketing by promoting such unique entities as “Finger Football” and offering reserved seating on Valentine’s Day. “We’re fully aware that social networking can accentuate our brand, separate our brand and reinforce our brand image,” she said.
Prior to lunch, Brendan Foley, president of Heinz’sU.S.foodservice business addressed the group, and what an impressive speaker he was. It doesn’t hurt that the man possesses a 30 pound brain, but Foley’s intelligence was combined with a very interesting presentation about customer engagement and digital marketing. Foley noted that improving how Heinz connects with its customers is a key first step to a successful relationship. That would include blogging, which has led to making available more detailed nutritional information. On-line customer feedback has also helped the company develop a “frequently asked questions” link and a new mobile application. “The potential of the Internet is endless,” Foley explained. He viewed its potential as a kind of “virtual” salesperson for Heinz. More specifically, he demonstrated a board game Heinz developed with one of its key customers – Chili’s. In 21 days, the “mash up” contest generated 39,000 fans and nearly 3,300 winners. He then showed a short “web film” designed to create excitement over the packer’s new “dip and squeeze” ketchup pack. which has proven to be a big winner particularly at customers like Chick-fil-A. And Heinz has also been successful in using the web as a platform to introduce its new “plant” bottle (the technology is licensed from Coca-Cola). Heinz’s theme was “plant one on every table” and its eco-friendly, sustainable message resulted in two million visits to its website and one million mobile application hits.
Leading off the afternoon session was Mark Allen, CEO of the International Foodservice Distributors Association, the primary trade group representing foodservice distributors. Allen brought the audience up to speed on the industry global standards supply chain initiation (GS1) which hopes to have items representing 75 percent of all foodservice revenue GS1 standardized by 2015.
Allen was followed by Edna Morris, another “old school” foodservice veteran who had executive stints at Red Lobster, Quincy’s and Blue Coral Seafood & Spirits. Today, Morris is a managing director at Axum Capital Partners, a private equity company. She is also CEO of a new restaurant concept, CityRange. Much like Larry Pulliam, Morris spoke with passion on customer engagement: “Marketing is the entire product, not just the guest experience.” She framed her view of the new digital age by noting its “immediacy;” the “loss of control” that comes with the speed and reach of the Internet; and the “transparency” that the webs offers. Morris noted that the fundamentals of positive customer engagement aren’t much different than when she began in the industry 30 years ago, but grasping the speed of the digital age is much faster so we all need to “get our agility muscle in shape.”
Danna Vetter, VP-customer strategies for Aramark, was arguably the most intuitive digital marketer of all the speakers. Like several of her predecessors, Vetter spoke about the importance of customer engagement. She noted how the consumer decision process has changed and explained that marketers must understand that a combination of knowledge and engagement can create a competitive advantage. She also told the audience that mobile media is emerging as a dynamic marketing tool and that today’s “connected consumer” most likely owns a smart device, is utilizing digital signage and is a significant social media user. Hearing Danna Vetter speak so fluently about digital marketing was very impressive.
Wrapping up a full day of brain food was the venerable Howard Stoeckel, chief executive of Wawa. Having heard Howard speak many times, the takeaway is always impressive. In his fluid and low-key manner, Stoeckel talked about Wawa’s history which dates back to 1803 (“from cannonballs to meatballs”), and the retailer’s upcoming expansion intoFlorida(TampaandOrlando), where the dynamic c-store retailer will debut this fall. He noted that Wawa’s gas and convenience store foundation will remain in place, but theSunshineStateunits will have more of a restaurant look with space for outdoor dining. With nearly 600 stores now in five Mid-Atlantic states, Stoeckel said plans call for an additional 300 units inFlorida. And in his typical humble manner, Stoeckel praised the effort of Wawa’s associates (who own 30 percent of the company) and the difference that servant leadership has contributed to Wawa’s success. And if anybody doesn’t know how successful Wawa really is, consider these factoids: Wawa is the number three retailer from all channels of trade in theDelawareValley; it’s the number eight seller of coffee in theU.S.; and it controls 1.5 percent of all gasoline sales in the country (although its sells gas in only 286 stores).
A great way to end a productive day with one of the top CEOs in the entire grocery business delivering a very relevant message.
A&P Goes Private; Ron Burkle Is King Of A New Empire
It’s official. Ron Burkle is the new king of the A&P empire. True, the territory may not be the vast fiefdom that once operated nearly 14,000 stores (1925), but Burkle has deftly maneuvered himself over the past seven years (since he first gained control of Pathmark) to now reign over what was once one of the most iconic brands in America.
While A&P’s business won’t ever again resemble the powerhouse it once was, there’s clearly enough of a trove to warrant the attention of the greatest hedge player in the history of the grocery business. So, if it doesn’t seem likely that Mr. Burkle can significantly turn around the 40 year history of operating losses and sales and market share declines at The Tea Company (if he could, that would surpass any of Houdini’s greatest tricks), then where’s the potential treasure?
Aye-aye matey, it’s in the real estate.
Whatever one thinks of Mr. Burkle as a merchant is really moot at this point. It’s true he grew up in the business (in Southern California with Stater Brothers where his father was president) and in his many successful conquests of grocery chains over the past 25 years (Food 4 Less, Boys Markets, Alpha Beta, Smitty’s Ralph’s Fred Meyer, Dominick’s and Wild Oats) Burkle has done a much better job than most private equity firms of improving the fundamentals of many of those organizations before selling them off to other larger grocery entities.
But times have changed, and for once-mighty supermarket powers like Pathmark and now A&P, trying to “fatten the calf” through improved operations and keener marketing and merchandising programs is almost impossible when considering the vast levels of overstoring in most markets and the number of diverse retailing styles that exist today. So, much like he did with Pathmark which he acquired for $150 million in 2005 and then sold his equity to the Tea Company for $650 million two years later, Burkle is playing with house money and has a real opportunity to cash out big – not by significantly improving A&P’s market share in metro New York or in the Delaware Valley – but in taking advantage of A&P’s real estate portfolio.
After all, wasn’t that the true rationale behind Lone Star Fund’s acquisition of Bi-Lo and Bruno’s from Ahold in 2005? And don’t you think that Winn-Dixie’s real estate assets weren’t the driving force behind Lone Star’s recently announced tentative purchase of thatJacksonville,FLchain with more than 475 stores?
Do I believe Burkle, who will serve as chairman as the soon-to-be privately owned firm, will invest money to improve A&P’s physical plants and infrastructure? I vote “yea.”
Do I expect associate morale to improve under new ownership, too? Once again, “amen.” Certainly with millions of dollars of debt swept away after exiting Chapter 11, very favorable labor (at least compared to A&P’s other unionized competitors) and supply contracts and a cap-ex plan that is more aggressive than any A&P has put forth since the 1980s, Burkle can make ripples, at least early on.
But to think that A&P has a real chance of putting a dent in ShopRite, Wegmans or AholdUSA’s Giant/Carlisle and Stop & Shop units isn’t probable from my perch.
However, selling the company’s 16 Food Emporium stores in Manhattan, dumping many of its unprofitable stores in the Philadelphia market and selling a large parcel of properties on Long Island is the smartest and most logical way that Burkle and his partners, Mount Kellett and Goldman Sachs and its lenders Credit Suisse and J.P. Morgan Chase can make hay with this deal.
And with the vision of a new A&P with 150-175 stores located primarily in Central and Northern New Jersey and Westchester County, NY where there are still enough “favorable” leases, and in some areas, protection from the whuppin’ that ShopRite has laid on the company over the past 30 years, the chain should be able to claim some small victories. However, “small” victories wouldn’t seem to fit Mr. Burkle’s modus operandi. There are larger triumphs to be gained with the properties that the new chairman will have sway over.
As several of our readers have noted, with so few PE deals occurring over the past five years, due in part to a shrinking group of potential strategic buyers available, who could or would buy the entire company, especially if sales and earnings don’t improve substantially?
Today, there is not one strategic buyer that comes to mind. But look at it from another perspective. Don’t be shocked if Burkle takes another run at Supervalu, this time focusing on the inept firm’s most distressed Northeast properties – Acme and Shaw’s.
In 2006, shortly after Supervalu acquired five key retail divisions from Albertsons, Burkle planned to acquire about 12 percent of SVU for about $680 million. Ultimately, sources have told us that his investment in the Eden Prairie, MN retailer/wholesaler was much smaller (we told you he was a smart guy), but his interest in attempting to acquire the former Boise, ID based chain, then led by Larry “The Milkman” Johnston, predates the Supervalu and Cerberus Capital Management (Albertsons LLC) deals.
So, if the end game in this process is indeed a real estate play, and Supervalu continues to be unable to find a buyer for its beleaguered Northeast chains at their price, wouldn’t the
addition of 115 Acme stores and 160 Shaw’s units make the Burkle’s asset portfolio that much stronger?
Ron Burkle is a great poker player, brings a mountain of cash to play with and possesses the talent and risk-taking ability to become even a bigger winner in the new rules of supermarketing.
Local Notes
It’s encouraging to see Delhaize America place so much faith in its Bottom Dollar Food banner (eight new stores in New Jersey, 14 more that opened earlier this year in Western PA and Youngstown, OH), but those units will have to show a lot more pop before this reporter considers them a success. As I’ve said earlier, initial per store sales average were not impressive (although a recent store tour indicates some improvement) and I still find it difficult to capture what BDF’s real store identity is. While Delhaize Group CEO Pierre-Olivier Beckers recently touted the potential of the company’sU.S.initiatives, the fact remains that as Food Lion goes, so goes DelhaizeAmerica. Even with perennially strong contributions from Hannaford and enhancements at Sweetbay, Delhaize won’t come close to meeting its objectives without vast improvements at Food Lion. And if Beckers believes the geographic expansion of its Food Lion “repositionings” (a la Raleigh, NC and Chattanooga, TN) are going to be game changers in the markets in which Food Lion competes, his rose colored glasses are working better than mine…Wal-Mart is clearly “walking the talk” when it comes to pricing aggressiveness. Numerous suppliers have told us that Wal-Mart is pushing back hard against price increases (“it reminds me of the 90s,” said one vendor) and is also taking its pricing image to the competition. In theCharlotte,NCmarket, where the chain is the market leader, Wal-Mart recently debuted a series of ads featuring head-to-head pricing comparisons with its closest rival, Harris Teeter. Expect this program to expand to other markets, especially where Wal-mart’s primary competitor is not a “price player.” And expect Wal-Mart’s new “small format” model to begin making inroads later this year in the northeast. Retailers and developers have both told us that Wal-Mart is aggressively seeking sites in the 30,000-60,000 square foot range in metroNew Yorkand theDelawareValley. The Behemoth has already committed to build 12 stores in Chicago and six in Washington, DC, areas it believes to be vastly underserved…lots of financial news to report this month so let’s begin with Wal-Mart, which seems to be righting its ship to some degree on the sales front. The planet’s largest retailer announced that its fourth quarter U.S. ID sales rose 1.5 percent, marking the second consecutive period that IDs trended positively after nine straight negative quarters. The company’s aforementioned more aggressive “old school” pricing mindset has helped the Bentonville, AR retailer’s stock price rise 29 percent in the past six months, but earnings have suffered. The company posted a marginal profit gain in the quarter of $5.19 billion (from $5.02) billion last year. Overall sales increased 5.8 percent to $122.3 billion…Safeway’s fourth quarter earnings dipped about 6 percent to $215.6 million, but veteran CEO Steve Burd remained confident in his company’s strategy going forward. “Our business continued to grow,” said Burd, “With ID sales growth remaining steady and costs well-controlled, we increased earnings per share 8 percent. As we move into 2012, our personalized marketing efforts and innovation in private label brands should contribute to our growth.” Safeway’s ID’s rose 1.5 percent (ex-gas) on an overall sales gain of 6.2 percent. During the fourth period, thePleasanton,CAmerchant invested $412.2 million in capital expenditures in the fourth quarter of 2011. The company opened 11 new Lifestyle stores, completed 10 Lifestyle remodels and closed 14 stores. For the year, Safeway invested $1.09 million in capital expenditures, opened 25 new Lifestyle stores, completed 29 Lifestyle remodels and closed 41 stores…one of Safeway’s chief rivals in many markets, Kroger, posted a fourth-quarter net loss of $306.9 million. But in this case, the nation’s largest pure supermarket chain’s red ink was totally due to a real one-time transaction (not the questionable write-downs that Supervalu and A&P are best known for). TheCincinnati,OHretailer announced in December that it was going to spend $650 million on pension-related costs at four of its unions. While the one-time contribution was costly, Kroger said the move is expected to reduce costs over the long term. As for the “through the cash register” numbers, total sales grew 7.7 percent and ID revenue jumped 4.9 percent. “All of the data we are seeing suggests the overall economy and customer sentiment are improving,” CEO Dave Dillon said. “Both give us reason to be optimistic.” He’s right about the economy finally start to improve, but with gas prices beginning to spike again, retailers are still hesitant to make any long-term predictions about growth…two of the best financial performers over the past year have been Costco and Whole Foods. AtIssaquah,WAbased Costco, now under the helm of new CEO Craig Jelinek, net income rose 13 percent in its second quarter to $394 million and its same store sales grew by 7 percent (ex-gas). The country’s largest club store operator also noted that its customers spent 2.4 percent more per visit during the quarter. The frequency of visits also rose 5.2 percent. “We’re always going to match or try to be lower than our competitors,” chief financial officer Richard Galanti said. Revenue from membership fees also rose to $459 million from $426 million. AtAustin,TXbased Whole Foods Market, the stellar results continued. In its recently completed third quarter, WFM produced a 21 percent first quarter earnings increase (to $283 million) in the 16 week period ended January 15. The natural and organics merchant saw overall sales increase 13 percent to $3.4 billion while comp store revenue jumped a mighty impressive 8.7 percent. “We continue to execute at a high level, delivering a great shopping experience for our customers while delivering great returns to our shareholders,” said Walter Robb, co-chief executive officer of Whole Foods. “This quarter we produced a 28 percent (earnings per share) increase on a 13 percent increase in sales. We are pleased with our sales momentum and are confident we will continue to leverage our sales to the bottom line as reflected in our increased operating margin and earnings outlook for the year.” Locally, Whole Foods cut the ribbon on the former Genuardi’s unit in Glen Mills, PA on March 14 and I was very impressed with how they reformulated the 38,000 square feet of space they had to work with. That store, which was originally slated to be built inWilmington,DE, will certainly affect both Acme’sConcordville,PAunit and The Fresh Market’s store just up the road in Glen Mills. Whole Foods also gained approval to build its first store inBrooklyn, a 52,000 square foot unit that should open in early 2013. The Gowanus site was purchased in 2004, but has been delayed for this long because of environmental and NIMBY (Not In My Back Yard) concerns. And there’s speculation that Whole Foods is eyeing a second Brooklyn site in the upscale Williamsburg section…at Springfield, NJ based Village Super markets, ShopRite’s second largest member (and only public-traded retailer), it was a good fourth quarter for the men and women from “Sumasville.” Second quarter earnings rose 38 percent to $9.1 million and same store sales jumped a healthy 6.6 percent. And those results included losses at its two newMarylandstores (former A&P units), which it is investing in to build brand awareness. Village also acquired Charlie Shakoor’sOld Bridge,NJShopRite for $4.35 million. That brings Village’s store total to 28. It’s tough to say goodbye to Charlie, who spent his entire career in supermarketing. His knowledge, tenacity and ability to work effectively within the ShopRite organization despite owning only one store was impressive and we wish him well in his future endeavors… kudos to the folks at Weis Markets, which not only opened a beautiful new 62,000 square foot replacement unit in Bellefonte, PA (whose opening week sales total of a reported $1.5 million broke a 100 year old company
record), the Sunbury, PA regional chain, also posted magnificent numbers in its recently completed fourth quarter and yearend. The transformation of Weis under the stewardship of CEO Dave Hepfinger over the past three years has been very impressive to watch. Also just before presstime, we learned that Weis will be changing private label brokers from Daymon Worldwide to Marketing Management Inc. (MMI). The change becomes effective April 28.
‘Round The Trade
Oh, those ingenious folks at Wegmans, garnering a liquor license contiguous to its store inWoodbridge,NJ. The new wine shop will be controlled by Joan Wegman Goldberg (Danny’s sister and the daughter of founder Robert Wegman). And in the least enlightened comment of the month, Paul Santelle, president of the New Jersey Liquor Store Alliance and owner of Garden State Discount Liquors in Perth Amboy (about three miles away from the Wegmans stores) said,” Wegmans has successfully circumvented the two license limitation law with the help of family members. They’ve been doing it all over the state and they’re hurting scores of businesses.” Two points to be made here: the basic statute is unfair and unconstitutional (bravo to the Wegmans) and as far as I know, we all operate in a free enterprise system. You don’t think that Mr. Santelle’s interests might be self serving, do you?…Allegiance Retail Services has named John Derderian as its new VP-sales, marketing and member development. John’s got a vast sales and marketing background from his many years at Pathmark and the choice by the fledgling allegiance organization (which was formed by the Foodtown cooperative last year to provide both Foodtown and non-Foodtown members with marketing, advertising and other support services) is an excellent one…Target is slowing its pace of P-fresh (hybrid food) conversions to about 230 units this year, about half the number of retrofits it completed in 2011. The primary reason: many of the high-volume market conversions (its first priority) have been completed and the lower volume store conversions are not at the same urgency level…it didn’t take Brian Cornell long to find a new gig. The former EVP of marketing at Safeway, CEO at Michaels and most recently chief executive of Sam’s Club (Wal-Mart) rejoined his old company as CEO of PepsiCo Americas Food. He will oversee Frito-Lay North America, Quaker Foods and Snacks North America, PepsiCoMexico,South Americafoods and PepsiCo customer teams. He will be based at Pepsi headquarters in Purchase, NY and report to company CEO Indra Nooyi… in the Baltimore-Washington market where labor negotiations continue between UFCW Locals 400 and 27 and Giant/Landover and Safeway (their four year contracts expire at the end of this month), both UFCW organizations have demonstrated their unhappiness with the bargaining approach that B-W’s two largest retailers are taking. The unions are claiming that, despite years of unfettered profitability, Safeway and Giant are “demanding a long list of concessions” from their union members. “Our members have sacrificed for many years to make Giant and Safeway the profitable powerhouses they are,” said Local 400 president Tom McNutt, following recent “action” rallies held at 20 Giant and Safeway stores on February 22. “Yet management has the audacity to demand givebacks that would block many of our members from ever climbing the ladder to the middle class. What these two companies have failed to realize is that our members are united in their fierce determination to start receiving their fair share of the prosperity their hard work generates — and they are ready to do whatever it takes to achieve this goal. Today’s remarkable outpouring of support should prove a real eye-opener for management.” About 17,000 retail clerks and meat cutters are employed at more than 300 stores operated by the chains. Shortly after that rally, UFCW Local 400 issued another press release in which McNutt claimed that Giant and Safeway management is “going nuclear” in its attempt to “ram through” a new contract. As their deadlines approach, it should be an interesting and lively final few weeks of bargaining…also in the B-W market, JOH, the regional food broker based in Billerica, MA announced the acquisition of CBS Brokerage, LLC in the Mid-Atlantic region effective March 1, 2012. Dick Hartzell and Bob Reitz will bring their veteran team of confection and grocery specialists to the JOH family of companies. They will report to Kevin Shea, executive VP of confection. This addition, the company noted, solidifies JOH’s full service coverage for all trade classes in the New England,Albanyand Mid-Atlantic markets. John Saidnawey, president and COO of JOH, commented, “The addition of CBS is a perfect fit and allows us to provide additional value-added service with local accountability to our clients and customers in the Mid-Atlantic region. Dick Hartzell, president of CBS commented, “We are thrilled! JOH is a strong organization enabling us to grow in this changing environment.”…former Pathmark chief executive and Starbucks CEO Jim Donald just can’t seem to sit still. The peripatetic Mr. D last month was named CEO of Charlotte, NC based Extended Stay Hotels. While this is JD’s first foray outside the food and beverage business, you know he will lend his boundless energy and superior people skills to help majority owners Blackstone Group, Paulson & Co. and Centerbridge Partners (which acquired the 700 unit hotel chain in bankruptcy in October 2010) turn their troubled business around. … a couple of recent obits to report: Ben Gazzara has died at the age of at the age of 81. TheNew York Cityborn actor often played quiet and brooding characters. Two of his best roles were in “Anatomy of a Murder” (1959) in which he played an Army officer charged with a revenge killing, and “Husbands” (1970) when he played one of three buddies trying to get over the death of another close friend. And Zalman King, the film producer and director who is generally credited with bring soft-core movies to late night cable TV, has passed away at the age of 70. Born and raised inTrenton,NJ, King acted in and produced manyHollywoodmovies including the much underrated “Roadie” (1980) and the controversial “9 1/2 Weeks” (1986) starring Kim Basinger and Mickey Rourke. In 1992 (before “Skinemax”), King created “Red Shoe Diaries, starring David Duchovny, which ran for 67 episodes…and finally, a possible messy crisis has been averted in Trenton as two organizations have stepped in to contribute toilet paper to the city’s buildings. If not for those donations, all city buildings in the state capital would have run out of TP due to a budget standoff. Talk about a potential crappy situation!