Is Turnaround Possible At The New Leaner Supervalu?
The new Supervalu era officially began on March 21. The organization is significantly lighter, no longer having to carry the burden of hundreds of unproductive supermarkets (half-sister firm AB Acquisitions now carries that load) and now possesses a much more enlightened management team to hopefully lead them back to the pre-2006 glory days. Supervalu’s debt load also has been significantly lessened and overall morale has improved with associates just knowing that the company is in the hands of experienced grocery professionals with proven track records.
That said, the outlook on Supervalu’s remaining businesses (independent wholesale, its five regional chains and Save-A-Lot) doesn’t give this reporter great hope that the company can move the needle forward significantly in the near term.
It is vital that Supervalu first create an infrastructure that will allow it to better compete in the future, and the Eden Prairie retailer/wholesaler has begun to do that with a debt restructuring and the whacking of 1,100 jobs (mainly at headquarters). It has revamped almost all of its senior management team with Janel Haugarth (president of independent wholesale) the most significant holdover and will scrap SuperFusion, one of the most poorly executed centralized merchandising programs in the history of the grocery business. In turn, the new organization plans to bring more focus to “Local” – pricing, merchandising, marketing/advertising and item mix.
It all sounds promising. However, this isn’t 1995 when the playing fields in all of Supervalu’s markets were not as crowed or diversely populated with so many alternate channel competitors. Let’s take a micro view of Supervalu’s business in the Mid-Atlantic.
Its two regional chains – Shoppers and Farm Fresh – have been slipping for the past four years, plagued by higher price perceptions, virtually no real estate cap-ex and declining morale in the stores. Those two regional retailers were once led by two of the best leaders in the business – Bill White at Shoppers and Ron Dennis at Farm Fresh.
Both have retired and were replaced by managers with different styles who didn’t command the respect of perform nearly at the levels of White or Dennis. Of course, whether it was Dick Bergman or Tim Lowe at Shoppers or Gaelo de la Fuente at Farm Fresh, continuing the excellent report cards of their predecessors would have been virtually impossible given the constraints and the ineptness of Supervalu’s flawed corporate management team and its centralized policies.
Now it’s Bob Bly’s (Shoppers) and Bill Parker’s (Farm Fresh) turn to change things. It’s not going to be easy, even with the increased flexibility that the new SVU is offering. From a market competition perspective in Balt-Wash, can Shoppers gain share in a very crowded field? Carving some sales from market leaders Giant/Landover and Safeway will be challenging enough, but with more Harris Teeters, Wegmans and Wal-Mart SuperCenters entering the fray (not to mention new Weis and PriceRite which have recently opened stores that go head-to-head with Shoppers’ locations), can Bly and his team change the view? A lot of toothpaste has been squeezed from the Shoppers tube over the past five years, and regaining its former strong price image will be very tough.
At Farm Fresh, Bill Parker certainly knows the drill. As an ex-Albertsons store executive and key confidante of Ron Dennis, he certainly understands the new culture and the challenges that lie ahead. And in one sense, he’s got an advantage over Bly, not just in local market experience, but in dealing with unique playing field that exists in the Tidewater region. That area of southeastern Virginia has always been fiercely competitive and, truthfully, hasn’t changed as much as other markets where Supervalu operates. In fact, with the weakening of market leader Food Lion (another retailer with major problems), there is a bit more breathing room for Parker and his team.
Conversely, Kroger is set to make a big expansion play in Tidewater, the entry of Whole Foods and the addition of more Harris Teeter stores (both prime competitors to high/low Farm Fresh), will also make market share gains challenging. Still, Parker’s biggest task will be to re-establish the type of discipline and execution (and ultimately respect) that the Virginia Beach based regional chain earned under Dennis. Once again, other than more local control, will SVU give Parker the tools (enough cap-ex money for store remodels and new units and enough local control of pricing and merchandising) to make a difference?
Although it’s still early, it was distressing to hear of some recent local layoffs at both Shoppers and Farm Fresh. Some of those jobs we’re told are repositionings and the fact that department merchandisers are being added back to the fold (the removal of which was one of many horrible decisions made under the Craig Herkert regime) is a good sign. However, working even leaner than the previous organization, which was already operating on a pretty thin level, will be another hurdle that Bly and Parker will have to overcome.
As for Supervalu’s independent business in the region, I’m amazed that eastern region president Kevin Kemp and his talented team have been able to maintain virtually all of Supervalu’s customers despite the corporate tumult that has existed for the past five years. Supervalu is the dominant wholesaler in the region and new CEO Sam Duncan has made preserving and building the company’s largest division a priority. However, over the past four months since the Supervalu/Cerberus deal was first announced, we’ve spoken to more than a dozen Supervalu independent customers and – while all of them are praiseworthy of the efforts of Kemp and his team – several were outspoken in noting that significant changes by the new management team will have to be made (private label, pricing, item mix) to keep them satisfied for the long term. That’s not to say that current Supervalu customers are close to leaving the company, but it’s clear that other wholesalers – including Bozzuto’s, C&S, AWI/White Rose and MDI – have all visited SVU supplied retailers and independents are poised to strike if given the nod.
While Save-A-Lot remains a solid contributor, the discount retailer’s sales and earnings have declined over the past two years, and in my opinion, the chain now offers the third best offering of that type (behind PriceRite and Aldi) in the Mid-Atlantic. That shouldn’t be surprising given that the company is now on its third president in less than two years. The scuttling of former top dog Bill Shaner in 2011 sent a huge negative ripple throughout the organization, and the lack of real estate expansion and cap-ex for corporate remodels coupled with Supervalu’s need to continually increase its inside margin all have contributed to the unit’s decline. In my mind, Save-A-Lot remains the top candidate to be sold down the road.
So, before we get too excited about the promise that may lie ahead for the new Supervalu, let’s not forget that the company is controlled by a private equity firm. The PE philosophy is a consistent one: maximize profit, operate as lean as possible, and ultimately flip the investment.
Cerberus has historically shown greater patience than most private equity firms, but the end game isn’t going to change. In the meantime, the new management team will have plenty of day-to-day heavy lifting to repair the many problems it inherited from the worst run publicly-traded grocery company of the past generation.
‘Round The Trade
Ron Burkle has stepped down as chairman of A&P and will be replaced by board member Greg Mays whose ties to Burkle and his Yucaipa organization date back to his stints at Pathmark as a director and Wild Oats as CEO. Most recently, Mays was chief executive at Source Interlink, the publishing company that is also controlled by Burkle/Yucaipa. There have been several reports that A&P is starting to show improvement, but a recent eight-store tour of Super Fresh, A&P and Pathmark units in Pennsylvania, Delaware and New Jersey area certainly didn’t indicate that, as sales were mediocre at best, store conditions weren’t stellar and associate morale continued to be indifferent. A&P, which has been trying to peddle its 16 store Manhattan based Food Emporium unit since late last year without success, announced that it will sell and subsequently close two of those stores (2008 Broadway and 475 6th Avenue) to private equity investment real estate firm Madison Capital next month.That deal is part of a larger plan to sell and/or leaseback certain properties which the Montvale, NJ based retailer believes will generate about $130 million. Thus far, only four other units – Pathmarks in Clifton, NJ and the Inwood section of Manhattan and A&P units in Clifton, NJ and Briarcliff Manor, NY – have been affected, which has raised $25.8 million in proceeds to the Tea Company…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 last month, Bozzuto called up many of the first responders from that horrible day in Newtown and thanked them personally for their efforts… 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…in Wal-Mart news, U.S. CEO Bill Simon said at a recent investors’ conference 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. An interesting story appeared earlier this month in the New York Times about Wal-Mart’s poor perception as a “fresh” retailer. Citing internal information gleaned from a meeting of top Wal-Mart managers held last month, the Behemoth’s consumer confidence level about its fresh produce was 48 percent compared to a 71 percent rating at Safeway. The Times piece added that Wal-Mart’s labor in its stores has also been reduced contributing to the problem (ah, that labor scheduling reduction – it always seems to ultimately bite retailers in the butt). Related to that was this gem from the manager’s meeting: “1 hour out of refrigeration = 1 day less of product life.” The truth of the matter is that, at end of the day, Wal-Mart’s price image at its SuperCenters remains its strongest magnet. The company can talk all it wants to about residual gains made by it “green” initiatives, its new format development or its “better citizen” image, but in the end what it does better than any other merchant is offer the lowest prices in a one-stop-shop box that ranges from 80,000-215,000 square feet. And in that regard, that’s plenty of might that trumps the world’s largest retailer’s many other shortcomings…Fairway Market, the unique New York City-based retailer, officially announced that it has raised $163.8 million in for its upcoming initial public offering (IPO) which should officially occur on April 16. According to its SEC filing, Fairway (with 12 stores and sales of $482.5 million) investors are offering 13.7 million shares in the $10-12 per share range. Fairway’s controlling equity partner, Sterling Investment Partners, would remain the retailer’s majority owner with a 33 percent stake. Fairway was founded in 1933 by the Glickberg family and grandson Howie Glickberg remains vice chairman of development. Last year, when the retailer announced its intention to go public, it projected an ultimate goal of 90 stores stretching from New England to Washington, DC. That remains a very lofty goal in my opinion based on given Fairway’s “New York centric” way of going to market. The company posted a net loss of $56.2 million for the 39 weeks period ended December 30, 2012. The new company will trade on NASDAQ under the symbol FWM. Also now officially going the IPO route is Blackhawk Network Holdings, Safeway’s gift card division, of which the big retailer holds a 96 percent stake. Blackhawk filed its offering with the SEC last month. The IPO should raise about $200 million and shares will be sold by existing shareholders. It will also be listed on NASDAQ under the symbol HAWK. Safeway still plans to keep a large stake in Blackhawk after the IPO. In 2012, Blackhawk posted net earnings of $50.3 million on sales of $949 million. More Safeway stuff: kudos to Bruce Everette, Safeway’s executive VP-retail operations, who is hangin’ ‘em up after a stellar 44 year career with the chain. I’ve known Bruce for many years (he began his career in the old Richmond division) and he’s one of the real good guys in our business. We wish him well in all his future endeavors. He will be replaced by Kelly Griffith, who most recently was Safeway’s president of merchandising…published reports indicate that Wegmans is very interested in opening a store in the city of Boston. The uber-retailer reportedly has its eyes on a location in the Landmark Center, a huge office and retail complex that it being redeveloped near Fenway Park… Supervalu isn’t the only private equity controlled firm that’s blowing up its management team and cutting employees. Lone Star Funds, which acquired Winn-Dixie late last year and already controlled Bi-Lo, has installed Anthea Jones, a 14 year veteran of the company, as the new president of its Greenville, SC unit, replacing the popular Michael Byars. And with the shift of headquarters to Jacksonville, FL, the combined entity has reportedly riffed 130 office jobs in Mauldin. The new corporate management team includes: CEO Randall Onstead (whose family founded Randall’s in Texas and has been associated with Lone Star since 2008); Mark Prestridge, executive VP- chief operations officer; Brian Carney, CFO; and Larry Stablein, chief merchandising officer. Prestridge worked with Onstead at Randall’s; Carney was previously Bi-Lo’s CFO; and Stablein was most recently senior VP-marketing & merchandising at Bi-Lo. Isn’t it funny how these grocery-driven PE deals usually result in a strong degree of cronyism?
Local Notes
It was good to hear new Delhaize America CEO Roland “Chainsaw Jr.” Smith address the analysts following the retailer’s earnings conference call last month (see story on page 1), but I’m still clueless on what his vision or plan is to turn around the troubled retailer. Overall sales, comp revenue and earnings are still declining (not Smith’s doing), but all I’ve witnessed thus far are about 45 store closings and restructured management team that doesn’t include significant new blood and asks the executives who survived the whacking to absorb more responsibility. I’ve been visiting Food Lion stores and Bottom Dollar units more regularly since Smith took the helm from the retired Ron Hodge last October, but I haven’t seen any game changing moves that I believe will significantly improve the company’s current “stuck in the middle” image or volume potential. Maybe we’ll learn more at Delhaize’s “Capital Markets Day” on May 8, the same day the retailer will release its first quarter earnings…two new “stores of the month to note: Safeway’s reconstructed Alexandria, VA (Belleview Boulevard) unit is a real winner. The 45,000 square foot store reopened last month (it had been closed since September 2012) and the new version was crafted beautifully with outstanding fresh departments and an impressive décor package. The Belleview location is unique too: a favorable demographic that it still protected from competitive overstoring – it’s a neighborhood store that will pay big dividends for Safeway. Another neighborhood unit, this one also in an overstored local market – Ellicott City, MD – opened earlier this month and will certainly upset the competitive of that upscale berg. I’m talking about the new 48,000 square foot Harris Teeter that opened adjacent to Turf Valley Golf Club on Route 40. While there’s no shortage of shopping choices in the town where I reside, the new HT did it right with its typical perishables-driven, service-oriented style. And when you make the seven mile drive from the Howard County line to the new Harris Teeter, you’ll find plenty of shopping choices, but not much excitement in terms of new physical plants or merchandising sizzle. Harris Teeter also announced that it will reopen its Potomac Yard unit in Alexandria, VA later this year. That store, which debuted in 2007, has been closed for nearly a year due to an interior flood. The new store will be virtually rebuilt. Harris Teeter has also broken ground on a new 50,000 square foot unit in Gaithersburg, MD at the site of the former Crown Farm (Sam Eig Highway and Route 270). The new store, which should open next year, is part of 180 acre mixed use development. And, nothing more specific to report about the Teeter’s “sales exploration” process to report, but I expect a prospectus to be on the street with the next month. I’ve been hearing some rumbles from my Wall Street friends that if the company is sold, this no longer is setting up as a private equity deal…there’s an interesting little battle going on at the site of the Rotunda in Baltimore. Ever since Giant/Landover left that site after a 41 year run (it acquired the old Super Fresh-Fresh & Green’s site at nearby 41st Street), the iconic mall has been seeking a new tenant as it also undergoes a major facelift. It appeared that Graul’s Market had the inside track (which would be a great fit for the neighborhood), but apparently the Rotunda’s developer, Hekemian & Co., is reviewing all proposals, which now reportedly include strong interest from MOMS (My Organic Market) and The Fresh Market…also in Baltimore: it appears that Wal-Mart’s long-term interest in the site of the former Pemco International plant in East Baltimore (across from the Johns Hopkins Bayview campus), is back on again with the potential sale of the 19 acre parcel…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. 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…happy to hear of the promotion of one of the hardest working men in the business, Mike Mignola, to senior VP-store operations at Weis Markets. Also deservedly being elevated recently was Jan tenPas, from director of finance and operations at the Maryland & Virginia Milk Producers Cooperative (Marva Maid, Maola Co.). I’ve known Jan since his Richfood days and he’s one of the hardest working, brightest dudes in the dairy business… a belated tip of the hat to my buddy, Tom Potter, who recently retired after a sparkling 45 year career in the grocery business. Tom has spent the last 12 years as a VP for Acosta, but cut his teeth in his 30 years with Campbell Sales. A tireless worker and a true student of the business, it was Tom’s candor and no BS approach that made him a unique individual among all peddlers. Best of luck my friend, in all things that you seek to do down the road. ..another excellent “Food Industry Summit” at Saint Joseph’s University last 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…Peter Ackerman, the founding investor of web-based grocer FreshDirect and managing director of Rockport Capital, a private equity firm has been appointed to a three-year term as a director of the Capital Area Food Bank,… some obituaries of note this month to report. From the food industry, I was very said to hear of the passing of Don Zettle, 83, who for many years served as director of advertising for Safeway’s eastern division and, all told, spent an incredible 49 years with the Pleasanton, CA retailer. Don was a true gentleman who mentored many people in his long career with the company. Also passing on was Bill Heintzelman, veteran food broker in the Balt-Wash market (Mid-Atlantic Sales & Marketing) who left this good earth on February 28. I received a lovely note from his wife, Shirley, who expressed how much he loved the food business, adding that his passion for selling never wavered, even during his illness. It’s sad to say goodbye to another good guy who was part of the strong fabric that binds the grocery business…dying unexpectedly last month 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 routine 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…
Jeff Metzger can be reached at [email protected]
