Taking Stock

New Ownership Aside, Acme Must Earn Back Respect From Vendors If It Wants Improved Partnerships

March 21 will mark the dawn of a new era for Acme Markets. That’s when the beleaguered retailer is scheduled to become part of New Albertsons Inc., the non-Supervalu portion of Cerberus’ expanding retail empire.

And this is truly a good thing, a very good thing. The fact that Acme will no longer be part of the ineptitude that’s existed for the past six years in Eden Prairie, MN and that paralyzed the once-mighty Malvern, PA retailer is a victory in itself. Add to that the fact that the new Albertsons team will be headed by Bob Miller, a great merchant with a stellar industry track record, which will hopefully mean that the revitalized company will get back to the blocking and tackling of selling groceries at reasonable prices with improved merchandising from a more local perspective.

Now for the sobering news.

The sales numbers are still poor, morale in the stores is apathetic at best and the company needs huge amounts of capital infusion to make it competitive again. That’s not usually the atmosphere in which private equity companies like to operate.

Earlier this month, I received a memo (via several sources) from Dennis Clark, Acme’s VP-merchandising, that addressed to the company’s ‘vendor partners.’ “We are excited about the future of Acme and our partnership with you…,” the letter begins. The purpose of the memo was to invite suppliers and brokers to a series of meetings that the retailer will host on March 25.

I’m sure Clark, a knowledgeable industry veteran who stuck it out through the bleak Supervalu days, is as hopeful as anyone that the company can indeed reverse its fortunes.

It’s just unfortunate that none of the 10 vendors I spoke to feel there’s much to be hopeful about.

“Although I’m certain this was never Acme’s intent, they abandoned us,” said one regional food broker, who admitted he lost a good chunk of his business when Supervalu implemented its ill-fated SuperFusion centralized procurement and merchandising program five years ago. “Why should we be so quick to re-embrace them?”

One direct rep for a large CPG company, who plans on attending the meeting on March 25, noted, “The game has changed considerably since Acme last had local control. We’d like nothing better than to engage with local Acme programs where they have some control of price points, marketing and advertising. But for years, we’ve gotten little return on our investment with them, so Acme is going to have to prove to us that their deals with us are more balanced and capable of moving cases. The onus is on them, not on the vendor.”

And one DSD vendor, who told us that he probably wasn’t as affected as local brokers (who lost commission dollars) or regional manufacturers (who got lost in the shuffle in Eden Prairie), explained, “I have no doubt about their sincerity in trying to resurrect Acme. The folks in Malvern were also held in Purgatory during the (Jeff) Noddle and (Craig) Herkert regimes. But in 2013, it’s about performance. Nobody is going to reward Acme just because they are better positioned theoretically. They are going to have to sell more stuff and be more reasonable about their margin expectations. And beyond that, there’s a strong belief that this new Acme team is just place holding until the banner can be sold or broken up.”

I, too, am hopeful that better days are ahead at Acme. I’ve written many columns over the past five years decrying the incompetence that prevailed in Eden Prairie while also empathizing with the many associates who soldiered on bravely in Malvern, even as they saw many of their friends get riffed and demoted. And, along the way, the retailer was losing control of its business which for many years was the dominant retailer in the Delaware Valley.

The vendors and brokers certainly would like some resemblance of the old Acme to return. That’s a win for everybody. But the patient has been seriously scarred and damaged. A new transfusion brings optimism, but also reality.

Will Cerberus/New Albertsons put earnest money on the table for desperately needed improvements? Is this Acme “repositioning” really just enhanced “housekeeping” and a prelude to a future sale? And, given how much Acme has frittered away over the past five years, who is the company going to take business away from in one of the most competitive areas in the country?

Dennis Clark better wear his best selling shoes.

 Harris Teeter ‘Sales Exploration’ Sounds Like ‘Sales Declaration;’ Ahold Seen As Leading ‘Explorer’

In my career I’ve written close to 50 stories about retailers or major consumer packaged goods companies seeking to explore strategic options or alternatives. The end of that pursuit almost always results in the “exploring” company selling.

So, I’m not buying the implication that Harris Teeter’s hiring of investment firm J.P. Morgan solely because two private equity firms expressed interest in acquiring the extremely desirable Matthews, NC retailer is just that. I think there’s more to the story.

Sure, it’s important for Harris Teeter to let its associates know that it wants to remain independent and strong and that its hand was forced when two Wall Street firms came a courtin’ (those types of inquiries are certainly material to the interests of HT’s shareholders). However, does anybody believe that, at the end of this process, Harris Teeter won’t be sold? It’s obvious that when you’re the hottest girl on the dance floor, there’s never a shortage of partners waiting in line.

And with the passing of every year, the upscale, service-oriented retailer seems to be getting better looking. From a measurable perspective over a five year view, virtually every metric – overall sales growth, earnings, share price, ID revenue and real estate expansion – have placed Harris Teeter among the leaders in its peer group.

And with intangibles such as morale of the associates, training and customer service, perception of its private label and overall enjoyment of the shopping experience, Harris Teeter also grades in the upper percentiles. And, did I mention that Harris Teeter’s 211 stores are all non-union?

Surely other suitors have come knocking on Harris Teeter’s door in the past, only to be told the company is not for sale. So why might this time be different?

Beyond the aforementioned fact that “The Teeter” has never been hotter are two thoughts: family perpetuation and Publix.

While Harris Teeter is publicly-traded, the stock is closely held by the Dickson family (a scenario similar to that at Weis Markets), who will no doubt have the primary say in the future of the company it acquired in 1969. At this point, CEO Tad Dickson is the only member of the family on the board. His father, R. Stuart Dickson left the board in 2006 (along with his brother Alan, who passed away last year). Tad Dickson is 58 years old and, like his father and uncle, cut his teeth in the thread business at American & Efird, a company that was sold in 2011. There seems to be no clear line of family leadership succession and much of the company’s success can be attributed to the work of Harris Teeter’s dynamic president Fred Morganthall and his team.

So, if there’s no clear path of succession and your company is rolling on all cylinders, wouldn’t the timing be right to consider selling?

And then there’s the Publix challenge. Although the two retailers are similar in style, appeal to a similar customer demographic and compete in several urban markets in the Southeast, the announcement last year that Publix would enter HT’s backyard in Charlotte couldn’t have been heartwarming news to the folks in Matthews.

Publix announced thatCharlottewould serve as a separate operating division for theLakeland,FLmerchant, its northernmost expansion to date (it has already opened two stores in suburbanCharlotte.)

While it won’t be easy to take business away from HT in its core region, Publix’s skill and patience will certainly adversely impact the long-term market share leader.

And Harris Teeter knows as well as anyone (just based on the number of sales inquiries it’s received over the years) that it is a very desirable commodity.

Don’t count out Kroger or Publix (which has never acquired a company as large as HT) as potential suitors. And while private equity started this process and always has access to a lot of capital, this strikes me as more of a strategic deal than a financial one.

That leaves Ahold. Flush with cash (especially after gaining another $3.1 billion for selling its 60 percent stake in Scandinavian grocer ICA in the past month) and hungry for acquisitions, Harris Teeter would be an ideal fit for the Dutch grocer, given the type of company it would desire and the adjacencies Harris Teeter would provide to its other stores.

If Ahold were to gain control of Harris Teeter, its network would encompass nearly 1,000 stores with dominant locations and strong market shares in New England, Metro New York, Delaware Valley, Central Pennsylvania, Baltimore-Washington, Richmond and (potentially) Tidewater as well as the key markets in North Carolina and parts of South Carolina.

So, my bet’s in: Harris Teeter will be sold by the end of the summer and I’m predicting that Ahold will pay handsomely for that prize.

 Metro New York Minutes

It took until the 11th hour, but Mayor Michael Bloomberg’s fanatical effort to ban all sugary drinks larger than 16 ounces at restaurants, food carts, movie theaters and other establishments is dead for now. Calling the proposed law “arbitrary and capricious,” New York State Supreme Court Justice Milton Tingling overturned the ruling, which was passed by the New York City board of health last year. Tingling’s ruling came a day before the controversial law was to take effect. Bloomberg’s team has already appealed the judgment (an appellate court will hear those arguments in June), but, isn’t this whole episode a huge waste of time and money? Nobody’s denying that obesity is a growing national problem, nor should those naysayers be too critical of Bloomberg, whose concerns about public health issues have been consistent and well-meaning. But in the end, it’s all about personal choice and the role that any form of government should play in making decisions which should not be part of their domain…big catch for Bozzuto’s in being named to supply the 17 store Bogopa/Food Bazaar group. And a tip of the hat to the whole Bozzuto’s gang for once again hosting one of the best regional trade shows in the business and especially to CEO Michael Bozzuto’s continued philanthropic work, In addition to the company’s Dream Cruise motorcycle rally for Special Olympics, Michael was instrumental in raising money to buy a $75,000 Leica 3D camera, a new piece of technology that will aid law enforcement in mapping out crime scenes, which was sadly an important factor in the mass homicides that occurred on December 14 in Newtown, CT. During the Cheshire, CT based wholesaler’s “Retailer & Supplier Excellence Awards” dinner held at Foxwoods earlier this month, Bozzuto called up many of the first responders from that horrible day in Newtown and thanked them personally for their efforts…AUA Private Equity Partners, the firm that specializes in investing in U.S. Hispanic-oriented and/or family-owned businesses, announced that it has completed a recapitalization of Associated Foods Holdings, LLC in partnership with the company’s owners. AUA Equity’s strategic partnership with Associated’s owners and management team will allow the company to accelerate its growth by adding new stores to its existing network and increasing its financing capacity available to its customers for remodeling and expansion. Terms of the transaction were not disclosed. Established more than 50 years ago, Associated is a specialty distributor of grocery products to branded independent (predominately Hispanic owned) retail supermarkets in the New York metropolitan area, one of the largest retail food markets in the United States. Associated provides grocery distribution, financing, marketing and promotional services to approximately 250 independently owned and operated grocery stores, which typically carry the “Associated” or “Compare” trade name. Harry Laufer and Ira Gober, Associated’s co-CEOs, will continue to lead the company through its next stage of growth with AUA Equity. Andy Unanue, managing partner of AUA Equity and chairman of Associated commented: “We are pleased to partner with Harry Laufer and Ira Gober who are true icons in the New York City supermarket industry. Associated has an outstanding business model and Harry and Ira have done a tremendous job building the company over the past 30 years. We look forward to partnering with them to help grow the company and increase its profitability.” Gober added, “Over the past few years we have been thinking about bringing in a strategic investor and I believe that we have now found the right partner to help accelerate our growth plans. We are excited to be in partnership with the AUA Equity team. They understand our Hispanic customer base and their collaborative approach has shown me that they will add true value.” Laufer commented, “We have known Andy and his father Joe for many years and we believe that Andy’s experience in the Hispanic market will allow Associated to continue to successfully expand our presence in New York City and other markets.” Unanue added: “This is a quintessential investment that fits squarely within AUA Equity’s wheelhouse – a Hispanic-oriented and family-owned business. Our investment team’s complementary skill set and appreciation, understanding, and know-how of the industry allowed us to successfully consummate this recapitalization. I am proud to be connected to a company that has done so much for the New York City Hispanic supermarket community.” In addition to Unanue, the AUA Equity deal team was led by partners Steven Flyer and David Benyaminy, VPs Kyce Chihi and Nancy Rocha and associate Jack Lin, counsel to the company. And with a seasoned and skilled pro like Joe Garcia joining its ranks, it seems like Associated’s future is very, very solid…I, like many, was very surprised to hear that Fred Brohm, executive VP, has left Kings/Balducci’s after 32 of service to the Parsippany, NJ upscale merchant. Kings/Balducci’s CEO Judy Spires praised Fred for all his hard work, noting his departure was due primarily to the overlap of duties between her and Fred…and it appears that the battle for e-commerce grocery business in Manhattan is heating up. Peapod, the nation’s largest web-driven grocer is seeking to cut into FreshDirect’s reported 80 percent share of NYC wealthiest borough by lowering prices, offering free delivery and turning up the marketing dial. Peapod has been serving the City for less than two years (Fresh Direct began in 2001), but do you think it’s merely coincidental that Peapod’s turning up the heat because of FreshDirect’s recent entry into the Philadelphia area, a market that Peapod has had a presence for quite a few years? And what do you think will happen to the e-commerce/home delivery business when Amazon Local gets its engine cranked up?…on the earnings front, Springfield, NJ-based Village Super Markets, which is celebrating its 75th anniversary this year, posted flat profits ($9.10 million this year vs. $9.14 million in 2012) in its second quarter ended January 26. Overall sales at the 29 store ShopRite operator increased 5.4 percent to $382.2 million and same store revenue jumped a healthy 3.4 percent which the company said was because of “strong sales at several stores that reopened quickly after Hurricane Sandy” and improving sales at its two Maryland units.

Local Notes

I was fortunate enough to be invited to Carl Schlicker’s retirement dinner in Philadelphia last month and it was really a special evening. Not only was it great to see so many old friends, Carl’s speech to the 150 attendees was truly touching. The highlight for me was when Carl spoke about his nearly 40 year journey in the food business and noted that his days as a store manager represented “the best job I ever had.” Intelligent, humble, hard working, self-deprecating, street-wise and charitable – that’s a special combination. And speaking of charitable, hats off to Ahold USA and its “Our Family Foundation” for donating nearly $67 million to charitable endeavors through its retail banners last year. About $31 million of that amount came in the form of hunger-related donations. Ahold USA also announced a new three-year initiative to distribute $9 million in “Fighting Child Hunger” grants from its foundation. In financial news from the big Dutch retailer, it was a very good fourth quarter for the men and women from Amsterdam and Carlisle. For the period ended December 29, 2012, Ahold’s overall sales rose 5.1 percent to $10.1 billion and underlying operating income jumped 4.1 percent to $461.5 million. At AUSA, net sales were up 4.3 percent to $6.1 billion and ID revenue increased 2.4 percent. Operating income was up $16 million to $255 million and the retailer’s 765 U.S.supermarkets provided a 4.2 percent operating margin. “During the year, customers were focused on price and promotions, without compromising on quality. In response, we were able to simplify our business and save costs so that we could invest more into offering great value to our customers. We were able to increase the target for our 2012-2014 cost reduction program from $455 million to $780 million by further driving our efforts to simplify our business where we see opportunities, such as optimizing our commercial processes and driving own-brand profit. As part of our strategy we are broadening our offering to customers. Our U.S.businesses are improving their own-brand product lines to give customers more choices at different price points to fit their budgets. We are building our online business on both continents to give customers more shopping alternatives, and we continued to achieve double-digit online sales growth in food. Our acquisition of online retailer bol.com enabled us to provide Dutch and Belgian customers with a far wider selection of non-food products. Customers appreciate the convenience of the pickup points we opened during the year, including the first Peapod pickup points in the United States, and our first pickup points in the Netherlands,” said Ahold CEO Dick Boer. Also, something that bears watching at Ahold USA: one of the first important moves made by new COO James McCann is the abandonment of the company’s slow-moving, expensive and labor and capital intensive Oracle Retail Solutions project, which was begun several years ago and designed to create a modern and efficient technology tool set. Over the past two years, I’ve heard plenty of criticism from Ahold associates and vendors about the bureaucracy that the Oracle project had become, pulling key people away from their primary duties at the company and costing Ahold tens of millions of dollars. Glad to see McCann step forward and clear the decks for what hopefully will result in more simplified, efficient solutions. And at AUSA’s Stop & Shop-New England division (its largest unit), five UFCW Locals (328, 371, 919, 1445 and 1459) representing 40,000 clerks and meatcutters have agreed with the retailer on new three year contracts, retroactive to February 24. At another UFCW Local (400, which covers Giant/Landover store associates in Maryland, Virginia and Washington, DC), a new election will be held in the next few months after United Food and Commercial Workers International president Joe Hansen found merit in claims that former president Tom McNutt (who resigned late last year) may have violated union bylaws by working on his campaign during working hours (not vacation time) in the previous Local 400 election held last October. The allegations were made by candidate Ralph Ramirez who finished third in that election. However, after further review, this seems more like a technicality since Ramirez received fewer than 500 votes from the largest UFCW Local in the country with about 35,000 members. Actually, new Local 400 president Mark Federici has done a fine job since taking the helm late last year, providing a calmer, more balanced approach than his predecessor…at Weis Markets, which had two strong new stores openings earlier this month in Towson, MD and Woodlawn, MD, Rick Seipp has been promoted to VP-pharmacy operations, replacing Joseph Douglas. Seipp came to Weis from Rite Aid in 2010. The Sunbury, PA regional chain, which was feted at the annual Multiple Sclerosis dinner/fundraiser at the Marriott Waterfront Hotel in Baltimore on March 2 raising $460,000, also elevated one of the hardest working men in the business, Mike Mignola, to senior VP-store operations, a well-deserved promotion…I often write about the unpredictable and sometimes illogical thinking of financial analysts and Whole Foods’ recently completed first quarter (ended January 20) is an example of how Wall Street process jockeys formulate their opinions when the Austin, TX retailer posted numbers slightly below expectations. Here are the hard numbers and I’ll let you judge how “disappointing” (the word that several analysts uttered) the fast-growing retailer’s performance actually was: net income (profit) increased 24 percent (to $146 million); overall sales gain was 14 percent (to $3.9 billion); and identical store sales increased 7.9 percent. Additionally, Whole Foods opened 10 stores in the first quarter and has opened one store so far in its second quarter and will debut another five new units in the current period. It has also signed 11 new leases including units that will open in: Toronto, Canada; Berkeley, CA; Los Angeles, CA; West Palm Beach, FL; Lafayette, LA; New Orleans, LA; Westford, MA; St. Louis, MO; Cherry Hill, NJ(the former Genuardi’s unit at Ellisburg Circle); Colleyville, TX; and Newport News, VA.These stores currently are scheduled to open in fiscal 2014 and beyond. The company also terminated one lease for a 57,500 square foot store in development believed to be the Riverdale, MD project in Prince George’s County. I think co-CEO Walter Robb framed the quarter correctly when he said: “We opened a record number of stores and delivered another quarter of strong sales and earnings growth. We are well-positioned to internally fund our expansion plans and have the pipeline and infrastructure in place for square footage growth to accelerate through 2014 and hopefully beyond.”…Safeway also enjoyed a solid fourth quarter with profits up 13 percent to $244 million, overall revenue gained 1.3 percent and ID sales (excluding gas) increased 0.8 percent. In his conference call to analysts following the financial release, Safeway CEO Steve Burd, who will retire from the chain he has led for 20 years in May, touted the early success of its new “Just For U” digital platform and said that the program’s success could enable the big Pleasanton, CA chain to eliminate print newspaper ads perhaps as soon as the end of this year. A few weeks later at its annual investors’ conference, the large corporate chain said it is exploring whether to put its Canadian property assets into a real estate investment trust (REIT) as a method to generate more cash…in the past month A&P, which continues to struggle with top line sales, announced a slightly different real estate strategy noting that it was selling or selling and leasing back some real estate in a few non-core store locations. The pending deals are expected to generate in excess of $130 million. Specific locations were not identified, nor were the proposed buyers revealed. “This opportunity to unlock substantial real estate value from some of our owned and leased properties will pr
ovide additional liquidity as we continue to execute on our strategic initiatives and invest in our stores for growth,” Sam Martin, A&P’s president and chief executive noted. It would be nice to see A&P invest those proceeds into improving its pricing, merchandising and physical plants…despite predictions of gloom and doom regarding first quarter sales, Wal-Mart had a solid quarter with total sales jumping 3.9 percent to $127.5 billion and earnings increasing 7.9 percent to a whopping $5.6 billion for the period ended January 31. Comparable store sales at its U.S.units grew by 1 percent. The Bentonville Behemoth also acknowledged it has spent $157 million thus far on its internal investigation concerning the role Wal-Mart executives played in the 2004 Mexican bribery scandal. And, there’s an interesting Wal-Mart story that appeared in Bloomberg News concerning rising out-of-stocks at the planet’s largest retailer. Bloomberg reportedly got hold of some minutes from an internal memo from U.S. CEO Bill Simon, who said that the problem is “self-inflicted” and getting worse. Simon added that out-of-stocks posed the biggest risk to Wal-Mart’s growth. However, Wal-Mart spokesman David Tovar said the company was “very pleased with our out-of-stock position.” Huh? Have they let Tovar out of Bentonville in the past three years to visit stores occasionally? Perhaps if Mr. Tovar spent less time at his “spinning” class and actually recognized that Simon’s statements were painfully spot-on, he’d have more credibility with the media in general. And at an investors conference a few weeks later, Simon noted that the Behemoth’s smaller format stores are making headway against competitors such as dollar stores, pharmacies and supermarkets and will play an important role in Wal-Mart’s future. He added that this will be the busiest year ever for small format units (under 60,000 square feet) with approximately 115 new stores (under the Neighborhood Market or Wal-Mart Express banners) to open representing about 40 percent of the retailer’s total new store count in the U. S. (the big merchant will also open about 125 SuperCenters in 2013). By 2016, Simon expects Wal-Mart to operate about 500 Neighborhood Markets.…in follow-up news to the proposed sale of H.J. Heinz to Warren Buffet’s Berkshire Hathaway group and Brazilian businessman Jorge Paulo Lemann (3G Capital) for $28 billion, the deal’s FTC approval might be slowed by an SEC inquiry that froze the assets of an unnamed Swiss trading account which the agency made $1.7 million from options purchased the day before the Heinz deal was announced…another excellent “Food Industry Summit” at St. Joseph’s University earlier this month This year’s topic, “Leveraging Consumer Insights at the Moment of Truth,” was not only a sellout at the Haub School of Business, it attracted 10 excellent speakers from the grocery and technology industries. The highlights for me were the presentations of Erik Keptner, executive VP-marketing at Ahold USA who teamed with Jeff Gregori, VP-consumer and shopper insights at Nielsen; and Cheryl Williams, VP-digital commerce and innovation at Wakefern, who partnered with McCormick chief information officer and VP-digital commerce Jerry Wolfe. There’s always choice meat to be devoured at the annual Food Summit confab…several deaths to report this month, all from outside the food industry. Departing terra firm recently was Pennsylvania native C. Everett Koop, 96, perhaps the most influential surgeon general in U.S. history. Koop, who served eight years as the “nation’s doctor” during the Reagan administration, was a game changer in terms of his stance against the evils of tobacco and his role in candidly informing the public about the emerging AIDS epidemic. Long before he became surgeon general, Koop was widely recognized as a pioneer in the field of pediatric surgery. Two musicians from opposite ends of the spectrum also passed away last month. Van Cliburn, the classical pianist who stunned the world by winning the first International Tchaikovsky Competition in Moscow in 1958 when he was only 23 and the Cold War was at its peak, has left us. Cliburn’s performance at the Moscow musicfest was so impressive, even Russian Premier Nikita Khrushchev, the most evil of men in the eyes of the U.S. government at the time said, “If Cliburn’s the best, then give him first prize.” Cliburn died in Forth Worth, TX at the age of 78. And bluesman “Magic Slim” (born Morris Holt and not be confused with other blues legends “Magic Sam” or “Slim Harpo”) has also died. Born in 1937 in Torrance, MS,  Magic Slim followed other blues greats Muddy Waters and Howlin’ Wolf up from the Delta to Chicago to hone his craft. During his career, the guitarist and singer released more than 30 albums and won the 2003 “Blues Music Award.” “If you were going to take somebody who’d never seen the blues to one of Magic’s shows, it would be like putting them in a time machine and putting them in 1962,” said Marty Salzman, his manager. “No frills, no rock ‘n roll. It was just straight-ahead, real-deal blues.” Great description; I would have liked to visit that place in time. Also dying unexpectedly was Alvin Lee, founder of the pioneering rock band Ten Years After (one of my early influences) and a very fine guitar player to boot. Lee was only 68 when he passed away during a routing surgical procedure. Ten Years After was formed in 1967 in England, but made its first big mark on the music scene at a memorable performance at Woodstock in 1969 (great Lee solo on “I’m Going Home”). All told, Lee released more than 20 albums in a variety of musical genres and recorded with many of the rock’s greatest musicians including Steve Winwood and George Harrison…and my best laugh of the month came at the aforementioned Bozzuto’s trade show held at Foxwoods in Connecticut when the company honored independent retailer Richard Schmidt (Elmer, NJ IGA) with its first (and probably only) “Unique Customer Service” award. Richard earned that achievement by “handling” an unruly customer at his store in January. Apparently, the customer confronted and threatened several of the store’s associates and when Richard noticed the situation from his manager’s office, he sprang to action, quickly taking down the offender in a style worthy of Rambo. In presenting the award to Richard and showing a video of the incident to a crowd of 1100 people, Bozzuto’s executive VP Steve Heggelke may have come up with an Oscar wining title for video: “Paper, Plastic or Concrete?”

Jeff Metzger can be reached at [email protected]