Potential Opportunity For Members To Own PriceRite Units Gives Wakefern Additional Edge 

It’s not official yet, but it seems likely that in the next few weeks Wakefern will allow its 50 members to own and operate stores that carry its discount PriceRite banner. Currently all 50 PriceRite units, which are located in New York, Pennsylvania, Maryland, Connecticut, Massachusetts and Rhode Island (plus a new store currently under construction in Johnston, RI) are corporately-owned by Wakefern and have operated under that status since the first PriceRite debuted in West Springfield, MA is 1995.

However, times have clearly changed, particularly from a competitive perspective. which has reset the landscape for many ShopRite owners. And while Wakefern has done a fine job of internally operating its discount division (I believe PriceRite is the best operated and conceived of the “extreme value” merchants, which also includes Save-A-Lot and Aldi), the co-op’s uncanny ability to adapt to the needs of its member/owners and react to current market conditions is a prime reason the Keasbey, NJ-based co-op has been able to build on its market share dominance in the Metro NY-Philly corridor.

Wakefern’s long-term competitive strategy is now becoming clear. Allowing Wakefern’s current members to own future PriceRite locations allows the independent retailers to better control their destinies when competing against the likes of dollar stores, ethnic markets and other extreme value merchants which focus on price in a smaller footprint. And let’s not forget about Wal-Mart (see lead story on page 1), which will certainly increase its presence against ShopRite in the next few years with the addition of Neighborhood Markets and/or Wal-Mart Express units.

And last month’s announcement that the co-op has acquired the trademark of The Fresh Grocer (as well as adding the seven store retailer to its member base) will allow existing members and potentially new ones to also add flexibility on the “fresh” end of the business when competing with the likes of Whole Foods, Trader Joe’s, The Fresh Market and Balducci’s.

Additionally, the potential to open stores in a 35,000 square footprint, be it an upscale unit or a limited assortment store, allows the membership to take advantage of smaller real estate opportunities, both in affluent demographic areas (The Fresh Grocer) or more urban locations (PriceRite) where land availability and cost are often major roadblock when attempting to build a new 80,000 square foot ShopRite supermarket.

Yes, there still are hurdles to clear, we’re told. One critical concern is the selection of member-ownership in existing markets where there is geographical overlap of territories. Of course, that has always been a factor at Wakefern, where the firm’s Site Development Committee (SDC), makes the final decision on potential territorial disputes involving new ShopRite locations. While Wakefern has done a good job of segregating its members’ geographies (e.g., Bernie Kenny’s stores – all located in Delaware; and the Klein family in Harford County, MD and BaltimoreCity), there is significant overlap in New Jersey and around Philadelphia. And while the members sometimes don’t like the final decisions made by Wakefern’s SDC, they recognize that the process is a fair and objective one. And overarching above what might seem like a potentially controversial political issue, is that the membership of Wakefern believes that the future growth of the co-op is much more important than any single member vs. member issue. And that is essentially the strength of Wakefern – the intensity, tenacity and stellar work ethic of its members, who at the end of the day remain focused on the long-term good of the organization.

At this point, Wakefern isn’t commenting on the status of the “member-owned” PriceRite issue. However, we’ve learned that one of the first stores under consideration is the recently closed Pathmark location in Camden, NJ, a site we’re told that the Ravitz family is interested in. That would make sense, given the Ravitz’s plan to open a new 75,000 square foot new store in that city in 2015, the first new unit to be built in more than 30 years in one of the state’s largest food deserts. A complementary smaller, more price-driven offset in Camden would make a lot of sense to add more market share in a large but economically challenged community. Actually, it’s a similar strategy that Steve Ravitz and his three sons, Shawn, Jayson and Brett, have deployed in a dramatically different demographic to build their business in the nearby Cherry Hill area.

Since both Wakefern members and vendors have been discussing the new PriceRite direction, we believe an announcement will be made shortly.

And with its recent acquisition of The Fresh Grocer name and the continuing expansion of its core ShopRite banner (Albany, NY, Baltimore-Washington and Connecticut), nobody in the industry represents the strength and creativity of the independent retailer better than the Wakefern Food Corp.

Dietz & Watson Recovering Well After Devastating Fire At Delanco, NJ Depot 

Dietz & Watson, the iconic Philadelphia-based deli manufacturer, had to swallow some tough news over the long Labor Day weekend. Its 266,000 square foot primary distribution center in Delanco, NJ was burned beyond repair. This was no ordinary fire, but a blaze of mammoth size – 11 alarms were rung in which about 50 neighboring fire companies were called in and involved approximately 200 firefighters. Fortunately, nobody was hurt at the depot which was built in 2007 and employs 130 people, all of whom have all been moved to other D&W facilities, primarily to the main plant on Tacony Street in Philadelphia. The cause of the fire is as yet undetermined. Louis Eni, CEO of Dietz & Watson and one of the classiest people in any business, expressed concern about the safety of his people and expressed his gratitude to the firefighters who fought the big blaze, which originally broke out on Sunday, September 1 at 1:30 p.m. and wasn’t contained for more than 24 hours. Eni noted: “We will absolutely have to rebuild. The Delanco facility was the main warehouse for D&W and it also housed a third party logistics cold storage facility. That has also been destroyed. The office was not destroyed, so they are salvaging paperwork, computers, etc. and bringing them back to Philadelphia.  The entire company has stepped up to the plate and everyone is working together to keep the company going. What is most important now is to get a sense of normalcy back. We are working 24/7 until we get all inventory levels back to normal.” He added that “the outpouring of support has been incredible from all sectors of the industry.” From a trade perspective, Dietz & Watson shipped its first order on Tuesday morning, September 3. The Philly driver/salesmen/jobbers were also on the street on September 3 with product serving customers. In addition, all tractor/trailers are being loaded from the main plant in Philadelphia.  The West Coast shipments went out just before the Labor Day holiday and they were heavier than usual (due to holiday demand), and the intention was to ship to the West Coast again closer to the weekend of September 7-8. The company’s manufacturing plant in Baltimore and its Greenville, SC warehouse are being used as satellite distribution centers.

‘Round The Trade

Major national industry news to report just before presstime: David Dillon will be stepping down as CEO of Kroger on January 1 and will be succeeded by current Kroger president Rodney McMullen, 53. Of the industry’s largest chains, nobody has been a more effective leader for as long as Dillon has. The 64 year old industry executive took the helm at the Cincinnati-based merchant in 2003 and has helped transform Kroger into a powerful and competitive player against all channels of competition. Dillon, who has spent 37 years at Kroger, has done it by giving more control to local managers and “walking” the price game, rather than just “talking” it. Although a CFO by training, a lot of Dillon’s success has come at diminishing “process” and opening an improved line of communications with Kroger’s associates, helping them react to competitive issues on a market-by-market basis. He will remain chairman of Kroger’s board until the end of next year…other big national news includes the announcement that Yucaipa Cos. is acquiring Fresh & Easy Neighborhood Markets (F&E) from Tesco, the British retailing juggernaut that failed with its initial U.S. entry that began in 2007. About 150 of F&E’s nearly 200 stores will become part of the Yucaipa organization, which will also acquire the perishables-driven small format retailer’s distribution and production facilities. Those stores that are not sold are expected to close in the near future. Fresh & Easy’s stores are located primarily in California. Tesco invested about $1.6 billion over a six year period but never realized a profit. Based on published reports, Tesco won’t receive any money for the deal and will essentially be paying Yucaipa to take on about $235 million in liabilities. Additionally, if Yucaipa does succeed in turning around F&E, Tesco would have the option to buy a stake in the company. Don’t be shocked if Yucaipa’s managing partner Ron Burkle ends up converting the stores to the Wild Oats banner, a company he in which he was heavily invested until the natural and organics retailer was sold to Whole Foods in 2007…. another private equity company that is also well versed in supermarket ownership, Cerberus Capital Management, has agreed to acquire United Family Markets, the Lubbock, TX –based retailer that operates 51 supermarkets and 22 gas stations in Texas. The company has been family-owned since its founding in 1916. When the deal closes later next month, United will become part of Cerberus’ Albertsons LLC unit. Robert Taylor, currently United’s CEO will remain as president and will report directly to Bob Miller, chief executive of Albertsons LLC, which will now operate nearly 1,700 stores nationally under such diverse banners as Albertsons, Acme Markets, Shaw’s and Jewel …at Safeway the action is really heating up, but it has nothing to do with sales and earnings. Jana Partners LLC, a New York hedge fund firm, earlier this month acquired a 6.2 percent stake in the Pleasanton, CA based retailer. Jana, which had previously discussed with Safeway management its concerns about shedding some unprofitable divisions, returning more capital to investors and divesting the retailer’s 73 percent stake in Blackhawk Network Holdings (the retailer’s gift card unit that went public earlier this year) surprised Safeway with its aggressive stock purchase. In turn, Safeway stepped up to the plate by putting in place its own “poison pill” that effectively blocks an investor from acquiring more than 10 percent of the retailer’s outstanding shares (that number climbs to 15 percent for institutional investors)  …in adjacent market news, Wegmans opened its 82nd unit on September 15 in Germantown, MD. The 123,000 square foot mega-store is the family-owned uber-retailer’s first Montgomery County unit and seventh store in Maryland. We’ve also talked recently about Wegmans’ potential interest in opening a new unit in the District of Columbia. According to a memo from Wegmans’ senior VP-real estate development Ralph Uttaro to Advisory Neighborhood Committee 4A (ANC) commissioners, that interest for a site in the soon to be redeveloped former Walter Reed Army Medical Center on 16th Street NW is real. However, Uttaro told the ANC that any possible deal at the location would have to involve DC-based real estate firm Roadside Development LLC, which Wegmans works with exclusively. Uttaro noted that Wegmans has been studying the Walter Reed site for more than 18 months and has worked with Roadside to develop a plan “that meets Wegmans’ needs to create a successful store.” Uttaro expressed his concerns to the ANC that other developers that made presentations about the site have included Wegmans’ logo in their proposals or claimed that the Rochester, NY-based retailer has been having discussions with them regarding Wegmans’ plans. By the way, Wegmans’ next opening after Germantown will be in Montgomeryville, PA on November 3…in more Kroger news, the chain’s first step of its five year $250 million market upgrade plan for the region (it now operates 10 units in the Tidewater area of Virginia) was a grand-slam. A 124,000 square foot Marketplace recently opened in Virginia Beach (on the site of a former SuperKmart unit) and sales have reportedly topped the one million dollar a week barrier for the past month (that’s better than the first Virginia Marketplace, which opened in Chesterfield County last December). Kroger also has other combo Marketplace units slated for Portsmouth and Suffolk, with more new store announcements expected soon…at Supervalu, Micky Nye has been named president of Farm Fresh, replacing Bill Parker, who departed about two months ago, and Bob Gleeson is the new president of Shoppers Food & Pharmacy, taking that job on a permanent basis from Bob Bly, who left the B-W unit of Supervalu about two months ago. We wish Micky and Bob well (some of you might remember Bob from his stint as senior VP-merchandising at Acme in Malvern, PA in 2010 before returning to a similar post at Shoppers where he began his career more than 30 years ago)… moving north apiece, the titanic intra-family battle between the two Demoulas families (Market Basket) continues as the company’s board, led by Arthur S. Demoulas, attempts to oust current company CEO Arthur T. Demoulas (they are first cousins). Most recently, the seven person board has agreed to delay a $300 million distribution payment to shareholders which Arthur T. Demoulas has sought to block, arguing that the disbursement would be harmful to the company’s shareholders. The truth of the matter is that Arthur T. is not only unusually popular with Demoulas’ associates, he has led the company to significant growth over a 15 year period and has helped create the reputation that Market basket is one of the best regional food chains in America. Sadly, this is another family battle centered on greed.  …the National Grocers Association (NGA) has released its 2013 Independent Grocers Financial Survey. Some of the other nuggets from the report include: improvement on net profit in 2012 compared to 2011 – from 1.12 percent to 1.65 percent; inflation-adjusted increases in overall comp store revenue to an average of 1.46 percent; total store margins gained slightly to 26.48 percent; and healthcare costs continued to spiral upward, increasing 7.6 percent over 2012 levels. The survey found that the economy continued to improve and that lower unemployment proved to be a positive factor in gains made by the more than 250 independent retailers surveyed.  “Fiscal year 2012 was quite the comeback year for independent food retailers,” said Peter Larkin, president and CEO of NGA. “We found vast improvements in financial performance, much higher levels of store development, stabilized payroll and lower levels of theft-related shrink for the majority of respondents.”

Local Notes

While we’ve written that it’s possible that the former Pathmark unit in Camden, NJ could become Wakefern’s first member-owned PriceRite, the other two South Jersey Pathmark units that had been targeted for closing – in Cherry Hill and EdgewaterPark – were shuttered on September 6. About 350 associates lost their jobs. Parent company A&P also announced that the Pathmark in Howell, NJ will close on October 6 (now that the sales “exploration” process has begun for A&P with the guidance of Credit Suisse, can the painful end of this once great American business be far off?). Another former Pathmark store that recently reopened under a new banner was Weis’ 55,200 square foot Hillsborough, NJ unit which has been totally refurbished and looks great. In November, Weis will  open at the site of another former A&P unit in nearby Flanders, NJ, the western New Jersey berg where the Sunbury, PA regional chain once operated (that store is now a high-volume ShopRite). Weis also announced that the new Hillsborough unit, as well as stores in Newton, Franklin and Hackettstown, NJ along with stores in Conshohocken, Doylestown, Norristown (all former Genuardi’s locations) and Lansdale, PA has been added to the retailer’s online shopping service. With the addition of those eight units, Weis’ online service is now available at 14 locations…who likes the Affordable Care Act (“Obamacare”)? Apparently not many people, including the United Food and Commercial Workers Local 1500, which admitted it is struggling to make progress in bargaining a new contract with King Kullen and Stop & Shop (the existing pact expires on September 28). “The Affordable Care Act is presenting tremendous and unprecedented challenges to these negotiations,” said Bruce W. Both, president of UFCW Local 1500. “The complexity of this 22,000 page law, combined with confusing interpretations of the law by various federal agencies, such as the Department of Labor, IRS and Treasury Department, has left union negotiators with no choice but to proceed slowly and cautiously as we negotiate the legally required changes. The one factor that has not changed during these negotiations, compared to previous ones, is our union’s commitment to provide the members of UFCW Local 1500 comprehensive healthcare. For decades the healthcare plans, mutually agreed to between UFCW Local 1500’s union members and participating employers, has provided health insurance to thousands of New Yorkers. UFCW Local 1500’s healthcare plan has been a model of efficiency, achieving better cost savings than for-profit insurance carriers that ensured a large percentage of every dollar spent goes to patient care. Savings in healthcare cost frees up money to negotiate fair wages and secure pensions. The Affordable Care Act has greatly complicated this respected and successful labor bargaining model. It is very difficult to negotiate an entire contract with the fair wages and comprehensive benefits our 23,000 truly deserve with so much time being spent consulting with healthcare consultants on the ACA and bracing for additionally confusing regulations from Washington D.C All our members wanted was what Congress promised them, when this bill was passed: a law that would not require them to change their coverage or their doctors. They did not get that from this law. Regardless of what takes place in Washington DC, the leadership of UFCW Local 1500 is going to fight any effort by anyone to undermine the excellent union contracts our members have fought for and earned over these many years.” Local 1500 is New York State’s largest grocery workers union and about 10,000 of its members work for King Kullen and Stop & Shop covering stores on Long Island, New York City and Westchester, Putnam and Dutchess Counties… a few final thoughts about the recent surprising departures of Giant/Landover president Anthony Hucker and Delhaize America CEO Roland Smith. I was disappointed to hear the news about Mr. Hucker. Anthony is an extremely intelligent and engaging personality who, unlike his predecessor, Robin Michel, was genuinely liked by Giant’s associates. There’s no question that the transition from his expertise in strategic management to a more operational-driven job was a challenge, but Anthony worked hard to make Giant a better place to work and a more visible presence in the community. In the end, it’s always about “the numbers” and clearly Giant has been struggling due to many factors that include economic and competitive issues and some that involve Ahold USA transitioning into a changing organization following the integration of many functions to Carlisle, PA. There’s also a new management structure in place led by James McCann, another talented Brit with an extremely high level of smarts and perhaps a different vision and makeup than the person who originally helped choose Hucker – the now retired Carl Schlicker. Sometimes the chemistry doesn’t work out, particularly if business at Giant (and for many retailers in the Baltimore-Washington market) isn’t clicking on all cylinders. With the search for a future fourth president in five years now under way, Giant not only must deliver better results, but it needs more management stability. We wish Anthony the best of luck in his future endeavors. As for Roland Smith, clearly the changing of the guard at parent company Delhaize Group (and subsequent loss of control of day-to-day U.S. operations) was the probable cause of his exit. It’s hard to evaluate Smith’s tenure, which lasted less than a year. While we heard the moniker “Chainsaw Jr.” tossed around by associates and vendors, it’s only fair to note that Smith was brought in to tighten the ship (he sold DA’s losing unit in Florida to Winn-Dixie) and change the culture, so “whackin’ and hackin’” would have been the first offensive deployment for any new leader. And while the trimming of the executive team and the brand “repositioning” of Food Lion has helped same store revenue and earnings, there’s so much more that’s needed to restore most of the Delhaize America store fleet back to sea level. It’s difficult to fathom any supermarket executive being able to successfully complete that task, given the damage that the Belgian retailer has inflicted upon it is flagship Food Lion unit over the past decade and the ferocity of the current competitive environment. Ask yourself this question objectively: given the convenience of its locations and the recent pricing and merchandising upgrades, is there a significantly more compelling reason to make Food Lion your primary shopping destination today than there was 18 months ago? Even Beth Newlands Campbell, who late last year was named Food Lion president replacing the ousted aforementioned Cathy Green Burns (one of Smith’s first moves), acknowledged in a recent Charlotte Observer interview: .“we have to get better.” Clearly, Newlands Campbell, a 26 year alumnus of sister firm Hannaford, gets the big picture, admitting that “…there’s an imperative to set us apart, You can’t be middle of the road.” But talkin’ it and walkin’ it in Food Lion’s case are still miles apart. Somehow, me thinks that a new non-American CEO (Frans Muller) based in Brussels, isn’t going to offer Delhaize the best opportunity to improve its U.S. business…more obits than usual to report this month and that’s never a good thing. Passing away last month was Joe McCarthy, one of the great old line warriors in the food business. McCarthy, who began his career with First National Supermarkets in the late 1940s after graduating from Villanova, spent 30 years at that now-defunct chain, rising to the position of senior VP. He later joined Grand Union for a four year stint (1977-1981) and spent the last nine years of his career with A&P where he started as senior VP of the company’s Metro New York group and later became EVP and COO for the entire Tea Company. Joe McCarthy was a no nonsense, tough, old school executive who knew virtually every aspect of the grocery business, and
despite his gruffness, was always kind and helpful to me when I first began my career in 1974. He died in Naples, FL at age 91. One of the great modern crime novelists of our time, Elmore Leonard, has also died. Elmore was still writing almost every day (he wrote all of his books in longhand on unlined yellow pads) until nearly the end. His volume of work, which began in 1953 with “The Bounty Hunters,” was one of the most prolific and interesting of the past 50 years. Among his many novels which were ultimately made into motion pictures were “Out of Sight” (1998), “Jackie Brown” (1997), “52 Pick-Up” (1986) and one of my all-time favorite movies “Get Shorty” (1995). Born in New Orleans and raised in Detroit, where he lived most of his life, Leonard’s spare writing style and gritty realism made most of his novels a fun and absorbing read. Leonard was 87. And although he wasn’t very well-known and only recorded a limited body of work, it’s sad to note the death of rock and roller Jackie Lomax, 69, one of the first artists to record on Apple Records, the label founded by The Beatles. In fact, Lomax’s first album on Apple – “Is This What You Want?” –  included the excellent single “Sour Milk Sea”  penned by George Harrison. Among those who played on the album were Harrison, Paul McCartney, Ringo Starr and Eric Clapton. The album is kind of hard to find, but worth hunting down if you’re a fan of the pop-rock genre that was an important part of the late 60s-early 70s music. Also passing on was Robert R. Taylor, 77, one of the greatest (and most unsung) entrepreneurs of the past 50 years. Among dozens of enterprises he was involved with, two stand out as genius. In the early 1980s, for $1 million, Taylor acquired the rights to Obsession, a fragrance developed by fashion designer Calvin Klein that was failing miserably. Taylor bankrolled a sexy, glitzy $15 million ad campaign that hyped Obsession – “Between Love and Madness Lies Obsession” – that amassed $30 million in sales in 1985, the first year it hit the stores. In 1980, a small Minnesota company he also founder – Minnetonka Corp. – introduced a revolutionary new product that he developed in his home after years of testing – Softsoap. Fearing that his formula would soon be replicated by industry giants P&G, Unilever and Colgate-Palmolive, Taylor made the ultimate “bet the company” move. He secretly ordered 100 million of the little plastic pumps that were at the time used to dispense various lotions. That tied up a full year’s production of the pumps’ only manufacturers, giving Taylor time to establish his brand without rivals. In 1987, a few years after the soap giants caught up, he sold Softsoap to Colgate for $61 million.”The best way for an entrepreneur to compete in today’s marketplace,” he told the New York Times shortly after the sale, “is to avoid competition – or at least find ways to circumvent it.”