Sales Accessible As He Presides Over SVU’s Asset Dump
Several of my independent retailer friends in the Mid-Atlantic have called me in the past month to note that they have either met with, been called by or received a letter from new Supervalu chief executive Wayne Sales.
What, a Supervalu CEO who actually communicates with his customers? Of those independents the consensus was that Sales was outgoing and a very good listener, and someone who clearly wants to change the company’s image of inaccessibility and clandestineness.
But good PR is not only good for Supervalu’s, customers, associates and vendors, it’s also good for Wayne Sales, who would love nothing better to see the sale of the beleaguered retailer/wholesaler happen quickly, smoothly and in one piece.
Although Sales is being well compensated for his role as Supervalu’s top dog, he is in a challenging and unique position – needing to improve the company’s morale while hoping his marketing agent – Goldman Sachs – can put some lipstick on this pig.
And the quicker that happens, the better it will be for the many (but not all) people involved in this process. Lord knows, Wayne Sales won’t get any relief from Supervalu’s upcoming second quarter earnings report (the period ended on September 8 and financials will be released on October 16), so he needs to keep all the intangible pieces of the company propped up until Supervalu can find a buyer.
As we reported on page 1 of this issue, it appears there is momentum that could lead to a relatively quick deal (perhaps by next month) involving a single buyer. That, of course, would be the best scenario for Sales and Supervalu. However, if the company is broken up, Supervalu would still be burdened by it cavernous debt ($6 billion), its continued participation in several underfunded pension plans and untold months of attempting to sell the many diverse and disconnected pieces of the company.
And let’s assume private equity firm Cerberus does walk away with the prize (?). Not only does that unshackle SVU from all if its problems, the new owners would have greater flexibility and more time to determine how to best utilize those assets.
For instance, Cerberus could hold on to Save-A-Lot (where licenses control more than 60 percent of the stores) and then flip it in a few years. And just because Kroger might have an interest in Jewel it doesn’t mean they’ll walk away with the 182 store chain. Despite downsliding market shares over the past five years, Jewel still has the best real estate in Chicagoland and remains a cash cow – two prized elements that might entice a PE firm to hold on to its tarnished gem.
We’ve heard from several sources who stated that Cerberus is very interested in Supervalu’s West Coast divisions (Southern California and Intermountain West) even though its stores in SoCal similarly are suffering from labor issues, underfunded pension plans and consistently declining market shares.
If Cerberus (or another private equity house) wanted to dump some of the original Supervalu retail divisions (Farm Fresh, Shoppers, Cub, Shop ‘N Save inSt. Louis, Hornbacher’s) it could probably sell most of those units to single entities.
So that would leave Acme and Shaw’s as well as Supervalu’s distribution and independent business on the table.
In the worst case scenario, Acme and Shaw’s units could be auctioned off in medium sized or individual pieces or an opportunistic buyer like Ron Burkle (Yucaipa) could parlay those two chains into his A&P foundation and become a real player in the Northeast. Based on the six month scorecard since he officially acquired A&P, we haven’t seen much improvement in store conditions, morale or sales, but Burkle is now operating a significantly skinnier model – one with favorable labor deals, a more efficient distribution arrangement with C&S and control of A&P’s valuable real estate portfolio (are you listening Food Emporium prospective buyers?).
Even though it would be a riskier investment (based on the recent performances of Acme and Shaw’s), Burkle’s angle would be potentially different than any other interested party.
As for distribution, this remains Supervalu’s strongest but least sexy asset. The company’s depots are all well run and in relatively good physical shape, but face the dilemma of supplying both its corporate banners and independent retailers from the same warehouses (in the Mid-Atlantic and Midwest) who at best have short-term supply contracts with Supervalu. You could make a case for C&S in this scenario, where a Cerberus would acquire those corporately-owned units with C&S in tow as its prime distributor while still potentially servicing independents who are also being currently under contract to Supervalu.
And that takes us back to where this story began. Because not only did those aforementioned independent retailers call me to alert me about how pleased they were to see Supervalu’s new CEO be so proactive, they also called to express their concerns about their future supply situations should Supervalu sell its wholesale division.
And all of them told me they are aggressively talking to other Northeast wholesalers, just in case the Supervalu wholesale outcome isn’t to their liking.
‘Round The Trade
Along with Supervalu, another company with stuff to sell is A&P. It will certainly be interesting to see what ultimately becomes of the retailer’s Food Emporium stores in Manhattan. Way back when (in the 1980s), the Food Emporium model was unique and very well run. But those days have been ancient history for quite some time as the Tea Company operated itsManhattanstores with its typical reverse Midas touch. It didn’t surprise many that Food Emporium would be chairman Ron Burkle’s first “dumping” because, despite its poor operations coupled with superior and newer competition from the likes of Whole Foods, Fairway and Trader Joe’s, Food Emporium still should attract many prospective buyers on the strength of its real estate value. Where else can you find 16 stores in the 20,000 square foot range in the country’s largest and best demographic area? This reporter likes Trader Joe’s (owned by the wealthy Albrecht family) as the early favorite, although this deal could also set up well for a financial/private equity player. And, once Food Emporium is moved, I still expect A&P to start selling off other assets… more tales from Manhattan. Fairway Market has officially filed the paperwork with the SEC to begin the process to go public (it’s trying to raise $150 million), something that’s been rumored for months. Sterling Investment Partners, which has owned 80 percent of the high-volume metro New York retailer since 2007, will still control the business after the IPO is completed. The registration statement noted that Fairway’s model could be expanded beyond metro NY as far as Mew England and Washington, DC and could support up to 90 stores in that region – a figure that I’d say is mighty ambitious and possibly a significant overreach. And as well as Fairway is doing on the top line ($554.9 million in revenue with nine stores through March 2012 (it has since opened two other units), it lost $11.9 million this year and expects to post losses at least through 2014. As great as Fairway’s stores are, it just shows how intensively labor and capital oriented the retail food business is, especially when perishables are your signature calling card…another IPO is also in the works. Safeway’s hugely successful Blackhawk gift card division will be spun off in early 2013. The move makes a lot of sense, given the unparalleled success of Blackhawk and the recent struggles of Safeway’s grocery business. Analysts believe that the offering will be well received, but several Wall Streeters wondered if, without Blackhawk, Safeway’s weaknesses would be further exposed. Over the past several months, Safeway and its longtime CEO Steve Burd have been hammered over flat sales and an unwillingness to deal with some the chain’s underfunded pension plans. With more competition also threatening Safeway’s long protected West Coast business, the shedding of Blackhawk will certainly put more pressure on the chain’s core supermarket business…big news from “Snackland USA” in Central PA. Hanover based Utz Quality Foods has agreed to acquire certain assets ofReadingbased The Bachman Company. Utz will purchase the Bachman brands (which also include Jax, Thin ‘n Right and Chipitos), its distribution, its intellectual property and its manufacturing facility inEphrata,PA.Bachman will retain ownership of itsReadingmanufacturing facility and will continue to produce salted snack items for Utz and other companies. The 125-year old privately-held firm will change its name to Savor Street Foods. The deal is expected to close later this month. Down the street inHanover, Snyder’s-Lance (which also operates from Charlotte, NC) has agreed to acquire Snack Factory for $340 million in an all cash deal. Princeton, NJ based Snack Factory, makers of Pretzel Crisps, was founded in 2004 by Sara and Warren Wilson (who also founded New York Bagel Chips). Snyder’s-Lance said it should consummate the purchase early in its fourth quarter…earlier this month Sheetz announced that will build a new $32.8 million distribution and food production center inBurlington,NC. The 245,000 square foot center is a key element in the c-store retailer’s rapid expansion plan for new convenience restaurants, particularly in theVirginiaandNorth Carolinamarkets. The depot will look much like Sheetz’s facility inClaysburg,PA(BlairCounty). TheBurlingtoncenter, which is slated to open in December 2014, will produce sandwiches, salads and other convenience foods. It will create 254 new jobs. Sheetz, based in Altoona, PA, currently operates 429 c-stores, with 46 of those units located in the Tar Heel State and an additional 59 units in Virginia…on September 12, Redner’s cut the ribbon on its newest store in Hegins, PA (its third unit in Schuylkill County and 42nd overall). The Hegins store is 40,000 square feet in size and features a fuel station…Kraft Foods, Inc (KFT) exists no longer. Effective October 2, the company has split its brands into two separate publicly-traded business units – Mondelez International (now trading as MLDZ), will now sell such brands as Cadbury, Nabisco, Oreo and Trident – and Kraft Foods Group (now trading as KRFT), which is larger and houses such well-known grocery brands as Kraft, Oscar Mayer and Maxwell House…a bit closer to our base, The Hershey Co. recently unveiled its new 340,000 square foot chocolate manufacturing plant. Hershey invested $300 million in the unit, which it calls the “world’s most technologically advanced chocolate making facility,” adding that the upgraded plant “positions the company for its next 100 years of global growth.” According to the company, the new development infused $70 million into Pennsylvania’s economy and created more than 300 construction jobs. About 700 Hershey employees transferred from the manufacturer’s old facility on East Chocolate Avenue to the new plant which is officially located in West Hershey…improving news for independent retailers: the National Grocers Association’s annual financial survey was recently released and showed that independent grocers posted an average net profit of 1.12 percent and raised same store sales levels by 2.6 percent. “Economic, market and shopper challenges are demanding that grocery retailers seek new ways to grow sales and profits and find further efficiencies in their businesses,” said Peter Larkin, NGA president and CEO. “It is extremely encouraging to see independents have done just that. They have pushed through one of the worst economic downturns in our nation’s history and continue to do so with much success.” The survey added that with continued economic woes and their far-reaching impact on the shopper, independents were faced with difficult decisions relative to pricing and margins in an inflationary environment. Same-store sales among independents increased over 2011 by 0.6 percent, but once adjusted for food-at-home inflation, the independent sector lost ground at a rate of minus 2.2 percent. However, the total store gross margin increased to 26.33 percent, with important gains in key departments. This ultimately translated in increased net profits before taxes of 1.12 percent of sales in 2011 from 1.08 percent in 2010. The survey was co-sponsored by our friends at FMS Solutions and included data from 123 independent grocery firms.
Local Notes
Mark McGowan, formerly president of Ahold USA’s Stop & Shop New England division and most recently executive VP- supply chain for the big retailer, will be adding new temporary duties. McGowan has been named interim EVP-merchandising. This announcement fills the void left by Jeff Martin, who supervised both merchandising and marketing before his unexpected resignation from Ahold USA last June. Since then, Ahold has split the merchandising and marketing functions with Erik Keptner being named EVP-marketing. McGowan will hold the expanded role strictly on an interim basis as AUSA continues the search for a new leader of its merchandising team…Giant/Landover, another Ahold USA banner, is looking to sell its 760,000 square foot (now vacant) former dry grocery warehouse in Jessup, MD. That dry grocery business was shifted to a C&S depot in York, PA last year and the old Jessup facility seems very saleable given that it is one of the single largest distribution centers in the state of Maryland and can house 340 trailers…also, be prepared for the battle of web-based grocers as metro NY based FreshDirect enters Philadelphia where it will compete with Ahold USA’s Peapod unit. FreshDirect, which recently celebrated its 10th anniversary, will begin home delivery to eightCenterCityzip codes and plans on expanding that radius next year. British grocery retailer Wm. Morrison Supermarkets invested $50 million in 2010 to acquire a 10 percent stake in FreshDirect, where sales are estimated to be about $325 million annually. As for Peapod, which has been delivering groceries through its internet portal in a bigger area of the Delaware Valley region since 2011, it recently expanded its virtual grocery-store billboards at more than 100 commuter rail stations in the markets where it operates (Chicago and the Northeast). I’ve seen the billboards and they are really cool. If I were in the prediction business, I might prognosticate that FreshDirect should be prepared to spend lots of money promoting its Philly expansion…reports indicate that another Trader Joe’s could be coming to Washington, DC and that a new Harris Teeter could also be part of two new developments in the District. The new Trader Joe’s would be located in a new apartment complex being built on 14th Street NW near U Street. A few blocks northeast, Harris Teeter is reportedly interested in a site onSherman Avenue NW, nearHowardUniversity. Further south, near its headquarters outside Charlotte, NC, “The Teeter” announced that it would convert two of its stores to a new specialty banner called “201central.” This new concept will focus on upscale convenience with an expanded wine and beer selection, artisan breads, specialty cheeses and an emphasis on local /regional products. The “201” name was taken from the company store number ofCharlotte’s first full-service supermarket. The two stores chosen – in Huntersville, NC and Wesley Chapel, NC – were two of the former Lowes Foods units that Harris Teeter gained in a store swap with Lowes earlier this year. Both stores are about 30,000 square feet in size…I had the opportunity to visit a really interesting store last month. Dawson’s Market, located in the newly refurbished “downtown Rockville (MD)” cut the ribbon on a 19,000 square foot organic/natural foods unit. The store is the brainchild of Rick Hood and his team, which run a somewhat similar operation, Ellwood Thompson’s Local Market, in Richmond. Dawson’s Market was named after one of Rockville’s founding families whose lineage dates back to 1740. In 1885, Hal Dawson opened the first grocery store in the largest city in Montgomery County. The new Dawson’s Market is beautifully designed and appointed. I was very impressed by the level of customer training of its associates and its diligence to abide by its “local” credo – most of its products are sourced within 100 miles of Rockville. We wish Rick and his gang much success…as the wheels keep spinning at Supervalu, the company announced that Gaelo de la Fuente has quit as president of its Farm Fresh unit and has been replaced by Bill Parker on an interim basis. De la Fuente, a former Food Lion executive, was named president ofVirginia Beach, VA based Farm Fresh after the retirement of the legendary Ron Dennis. Parker, who has been with Farm Fresh for 14 years, has spent 35 years in the business, many with Mr. Dennis at Albertsons’ Florida division. Also, Kathy Persian has been named Supervalu’s senior VP-chief information officer, replacing Wayne Shurts, who is leaving the company. Persian joined SVU in 2010 and most recently has been group VP-corporate planning, analysis and business process. Prior jobs included stints at Accenture and Best Buy. There’ll be more personnel shuffling now that Supervalu is on the selling block, but you’ve got to wonder if many of its key employees should have started their job searches several years ago. On the brokerage front, the industry’s two largest firms, Acosta and Advantage, have news to report. Acosta has been to appointed to represent Rich Products and Olde New England Seltzers for its east region. Additionally, the large sales organization has been named by Kemps LLC to sell its products in the Mid-Atlantic, Pittsburgh/Cleveland and New England regions and will be the broker for Butterball LLC in New England. On a national basis, Acosta will now represent Godiva Chocolates for the grocery, club and drug channels. At Advantage Sales & Marketing, Tanya Domier has been named chief executive of the Irvine, CA based brokerage company. She succeeds ASM founder and chairman Sonny King, who now becomes executive chairman. Domier joined ASM in 1990. She began her food industry career at the J.M. Smucker Co…there are several obits to report this month including B.J. Land, VP of Coca-Cola’s Minute Maid unit, and truly one of the nicest guys in the business. BJ died of cardiac arrest following a long bike ride. He was just 53. Steve Briggs, who worked with theBaltimorenative for many years summarized B.J.’s persona so well: “He was a terrific person to be around both inside and outside of work. BJ had such great qualities and his impact and emotional support on people is nothing like I’ve ever seen, and that was because of his personality, He impacted so many.”…also passing on was Harry Tsakalos, 93, a pillar of one of Maryland’s most successful businesses, H&S Bakery (he was “H” in H&S). In the 1930s Tsakalos met Isidore “Steve” Paterakis, (father of current H&S chief John Paterakis) and married Steve’s daughterLibertyin 1942. A devout family man, Harry Tsakalos was given the title of Archon of the Ecumenical Patriarchate, one of the highest awards offered to a layman by the Greek Orthodox Church…Art Modell, former owner of the Baltimore Ravens and Cleveland Browns, died last month at the age of 87. A former advertising executive who dropped out of high school in Brooklyn at the age of 15 to help his financially-strapped family after his father died, Modell purchased the Browns in 1961 for the then unprecedented price of $4 million and over the course of 43 years of ownership won two championships – the NFL crown in 1964 with the Browns and the 2000 Super Bowl with the Ravens. While Modell’s reputation in Cleveland suffered greatly after he moved the Ravens to Charm City in 1996, his philanthropic efforts in Cleveland helped many people in need. And his contributions to the National Football League were instrumental in setting the foundation for the league’s explosive growth over the past 40 years. Along with the legendary Vince Lombardi, Modell was responsible for completing the NFL’s first collective bargaining agreement and with deft negotiating skills derived from his advertising background, Art Modell was also the point man for the NFL when it gained its first large national television deal in the 1960s.