After 83 Years, Santoni’s Closes; Shuttering Hastened By Nation’s Most Anti-Business Mayor
I was saddened to hear the news that another independent grocer, Santoni’s Super Market, which operated in the Highlandtown section of Baltimore since 1930, has closed its doors, effective October 23.
However, this isn’t just another story of an independent retailer struggling with capital, technology and perpetuation issues in a very competitive playing field, The demise of Santoni’s can be directly linked to the mayor of Baltimore (Stephanie Rawlings-Blake) and the awful bottle tax legislation that took effect in 2010 that she helped revamp in 2012 that raised the tax from two cents per bottle to five cents per bottle.
According to Rob Santoni Jr., who was the CFO and general manager of the 28,000 square foot unit (the store was owned by his father Bob Santoni and his uncle Paul Santoni), the City of Baltimore’s beverage tax was the sole reason the business failed.
The younger Santoni noted that since the beverage tax levy went into effect in July 2010, his store has realized a total sales loss in excess of $4 million (18 percent of total revenue) and that sales in the store’s beverage category declined 28 percent. Santoni also stated that customer traffic count decreased 20 percent. Additionally, Santoni’s will lay off more than 80 employees.
“The damage done by the beverage tax is irreversible and proves that Baltimore retailers were right all along (in aggressively opposing the bill’s passage),” Santoni declared.
The Highlandtown store on Eastern Avenue was close to the original Santoni’s Market, opened by Rob Santoni’s grandfather, Savino, in 1930. It has served thousands of families in the tight-knit but evolving section of East Baltimore for the past 83 years. The supermarket’s closing also means that the independent retailer will end its “Virtual Supermarket” program which provided fresh food to underserved “food desert” communities via Santoni’s on-line shopping service. Santoni’s will also cease operations of Baltimore’s only free supermarket shuttle service which transported individuals living in food deserts to and from their store.
“The mayor has refused to listen to small business leaders. She is stubborn and will not admit that the beverage tax was a wrong decision on her part. Her insistence that Baltimore retailers carry this burden has not only cost my family our business, but the jobs of my employees. What has taken 83 years to build has been torn down by one person and one bad law. The mayor’s political arrogance is appalling. She obviously does not possess certain skills needed to run this city. The city has lost a great retailer and the Highlandtown community is losing a passionate and charitable partner.”
Following Santoni’s announcement of his store’s imminent closing, Mayor Rawlings-Blake released a statement defending the tax.
“I’m deeply saddened to learn that Santoni’s Super Market will be closing. Linking its closure to the bottle tax may be a good sound bite, but it doesn’t square with the facts,” the mayor said in a statement released through her office. “By the supermarket’s own admission, business struggled in recent years, which isn’t surprising given the depths of the nation’s recession and its impacts on local governments and businesses. My administration supports small businesses, which is why we worked in partnership with Santoni’s to establish our nationally renowned ‘Virtual Supermarket’ program that has provided healthy food choices to low-income residents and drove additional customers to the supermarket.
“It’s important that we not lose sight of the facts. The beverage tax was critical to helping Baltimore close a massive budget deficit without cuts to city services and provided a dedicated funding stream to help secure a historic investment of $1 billion in school construction funds. No one likes tax increases, but kicking the can down the road when it comes to our financial solvency and investing in our children is not an option.”
Santoni’s said he hopes to find a local buyer for the store.
Nobody’s arguing that the upgrading of the BaltimoreCity public school system isn’t a priority. But, that need should never come at the expense of a business that has nothing to do with the issue. That not only applies to Baltimore, but also New York, Philadelphia, San Francisco and other municipalities that have tried to extort food retailers to pay for services not directly connected to their businesses. And there are other concerns with the mayor’s statement. “Kicking the can?” What is Mayor Rawlings-Blake talking about? This is the Santonis’ family enterprise and has been for 83 years. The end stage of their business shouldn’t be viewed as collateral damage to the mayor’s other initiatives.
And then there’s the “my administration supports small businesses” mantra. I don’t think you can find one independent retailer that does business in Baltimore City who would agree with that statement. After talking with the majority of the independent supermarket operators who run stores in the city, I think they would describe Rawlings-Blake as being aloof, inaccessible, uncommunicative, and by their view, strongly anti-business.
Even if you believe in bottle taxes (which, clearly, I don’t) what other city imposes a levy as high as five cents per bottle and also taxes water? Water?
Clearly, there were other issues that plagued Santoni’s in recent years. But with the beverage category a major part of total overall sales, you can easily see how an additional 60 cent levy on a 12-pack of soda (or $1.20 on a 24-pack of water), would result in a significant loss of revenue and drive business to other retailers in nearby BaltimoreCounty.
It’s a sad day for Rob, Bob and Paul Santoni whose great family legacy has vanished. And there won’t be any joy in Mudville for other Charm City retailers either, as long as the nation’s most anti-business mayor is allowed to subjectively impose her will on the food retailing community in Baltimore.
Private Equity Reviving Interest In Supermarkets
So it’s come to this. Are you a bona fide merchant or just another retailer whose primary focus lies in seeking to maximize profits each and every quarter? Those lines are a lot blurrier than they have ever been and that’s great news for private equity firms who are back big-time in the supermarket acquisition business.
Actually, it’s pretty easy to separate the true merchants (be they publicly-traded corporate chains, privately-owned regional retailers or local independents), who are aggressively trying to move more boxes and whose vibe is clearly evident once one enters their stores (Wegmans, Kroger/Harris Teeter, ShopRite, Whole Foods, Eddie’s of Roland Park and Trader Joe’s) from the earnings chasers, who clearly care more about meeting quarterly guidance expectations than they do in how their stores are viewed by their current customers when judging such critical touch points as training, staffing, pricing, private label perception and overall shopping experience. Of course, there’s the “all other” category which consists of companies that seem somewhat clueless (Delhaize America, A&P) or are organizations that are attempting to dig themselves out of such deep holes that their current grade reads “incomplete” (Supervalu).
I recognize that we’re not living in North Korea and that profits are a good thing. Only not as good as when those profits are achieved at the expense of selling more cases (and units) with secondary regard to what’s rung up at the register.
And that again leads me back to my main point – if you’re in the private equity/venture capital business, mediocrity or decline is good when evaluating a potential retailer to target. And right now, business is very good in the PE world with even greater promise on the horizon.
After a lull of about a decade, private equity, led by Cerberus Capital Management, has been on a tear over the last 18 months. During that period, Cerberus and its subsidiaries have acquired or taken control of Supervalu (including its former Albertsons stores which were spun off into a separate unit) and United Family Markets. Cerberus also came in second place in the Harris Teeter auction and is reportedly hot to trot to acquire Safeway. During that same period Dallas, TX-based Lone Star Funds (and its affiliates) acquired Winn-Dixie and combined it with Bi-Lo (which it acquired in 2005) to form a solid base in the Carolinas and Florida (it also acquired 165 Sweetbay, Harveys and Reid’s units from Delhaize America to bolster its presence in Florida, Georgia and South Carolina). Other active PE players in the supermarket division are Yucaipa Cos. (which owns A&P and is currently on the trail of Tesco’s Fresh & Easy stores on the West Coast) and Empire Cos., which recently acquired Safeway’s 233 store Canadian operation.
Expect the trend to continue. Why? Because private equity is currently looking at a “perfect storm” scenario. With very deep pockets and a resurgent debt market, supermarkets are a prime targets because of the real estate they own or control, the large amount of cash they generate and the general undervaluation of the companies’ stock price.
And while one could argue that private equity’s ownership has created improvements at the companies they purchased, none of these PE-driven deals has resulted in transforming any of these retailers into honor roll performers. Then again, when your modus operandi is to squeeze out the assets, manage the overhead tightly, treat cap-ex conservatively and then ultimately flip the investment, how can greatness ever be expected?
Of all the recent supermarket deals consummated, only Kroger’s acquisition of Harris Teeter (which is not yet finalized) was executed by a strategic player whose share price was already well above the industry norm and whose management consistently focused more on the top line than the bottom one.
So, what do Winn-Dixie, Supervalu, New Albertsons and A&P have in common? Their performance grades were “C” or lower, but they all possessed the qualities that PE desires: real estate, cash flow and disappointing stock price.
And while Safeway’s performance is above those other PE-acquired chains, the Pleasanton, CA operator possesses many of these same core attributes. And because of the obsessiveness to eliminate waste by former CEO Steve Burd, Safeway is very streamlined to become somewhat of a turnkey operation for a prospective financial buyer.
I’ve said this many times before: when a company hires a Wall Street firm (Goldman Sachs) for advice or to explore its future options, that company is as good as sold. In Safeway’s case, I wouldn’t make book on it, although I’d still make a decent sized wager that it will happen. Shareholders have been disappointed with Safeway’s performance for several years and new CEO Robert Edwards seems all about maximizing shareholder value (a sale of the company or even rumors of a sale are a good catalyst to lift share price).
For Safeway, it doesn’t seem like there’s a strategic buyer interested, but there may be more than just Cerberus bidding among PE firms.
While it’s not always an indicator of final destination, it should be noted that a number of key Safeway executives have sold significant blocks of stock in the past six weeks since Jana Partners amassed its 6.2 percent stake and the Cerberus speculation arose. President Robert Edwards sold 273,000 shares (a cash out of nearly $9.1 million); executive VP-marketing Diane Dietz sold almost 300,000 shares of Safeway stock (worth about $10.5 million); and executive VP-human resources Laree Renda sold 50,000 shares (valued at approximately $1.8 million).
Other Safeway senior vice presidents who sold significant shares include: Robert Gordon (151,000 shares valued at more than $5 million); Jerry Tidwell (44,000 shares worth $1.5 million); David Stern (5,000 shares worth almost $165,000); and Russell Jackson (2,800 shares valued at almost $100,000).
There’s nothing illegal or immoral with company executives reaping the rewards of their hard-fought efforts. On the other hand, doesn’t it make you think that they believe that initial private equity interest may serve as the catalyst for bigger things to come?
There’s definitely smoke here. It won’t take too long to recognize whether there’ll be fire, too. Not only at Safeway, but at other retailers that possess the formula that the newly emboldened private equity firms desire.
Weis Hosts Best Ever Vendor Meeting
If, as they say, “the third time is a charm,” then the fourth time must be the “ultimate.” As one DSD vendor told me, “this is not only the best vendor meeting Weis has ever staged, it’s one of the best I’ve ever attended and is a giant leap from its first meeting in Hagerstown (MD) four years ago.”
I didn’t attend that initial confab in swingin’ H’town, but I can also attest that this year’s summit was the retailer’s best session that I’ve been to.
Why? The meeting was fact-filled, the speakers were concise and on-topic and the entire Weis executive team was accessible and willing to answer any questions or concerns that were on the minds of the nearly 500 sales reps, brokers and distributors who attended. Perhaps as importantly, Weis conducted its review in four hours (which included an hour for lunch) and its use of three “breakout” sessions focusing individually on center store (Kevin Broe), fresh (Dan Koch) and logistics (Wayne Bailey) was a creative and effective approach to take a deeper dive into those areas with Weis’ vendors.
As for content, after Jonathan Weis welcomed the audience and gave a brief overview of current events and future direction, he then passed the baton to executive VP Kurt Schertle who provided details about four key areas of focus for the retailer: the economy, Weis’ financial results, its future investments and category trends.
When analyzing the still struggling economy, Schertle noted several key areas as negatively impactful, including the continuing 13 year drop in the national labor participation rate (to a current low of 63.2 percent) to a steady decline in household income (a 6.6 percent decline – $3,700 since 2007 and the lowest since 1988). Schertle also detailed the effects of inflation since 2000 when a gallon of gas cost $1.51 (now $3.49); individual monthly health insurance was $49.85 (now $163.87); annual college tuition was $21,856 (now $34,247); and you could buy a Super Bowl ticket for $325 (now $2,600).
Schertle noted significant increases in SNAP (Supplemental Nutritional Assistance Program) spending among its customers which now account for six percent of Weis’ total weekly sales, too. He added that as SNAP usage increases, the number of participating retailers (c-stores, gas stations, dollar stores) that are now participating in the federal program has increased by seven percent over the past year and with Congressional cuts looming, the reduction of SNAP benefits could play a huge role in terms of sales for all retailers.
He also addressed Weis’ private label initiatives, which are an area of priority for the retailer. However, unlike other retailers, including prime rival Ahold, who have set specific sales target for “own brands” (Ahold would like to see private label revenue constitute 40 percent of total sales in the next three years), Schertle explained that there is no specific external goal they are seeking, noting that private label volume will continue to grow because consumers are more value-focused and that, in an arena of intense multi-channel competition, private label creates a clear point of separation for Weis.
As for future growth, Schertle noted that the company’s investments in improving its store base and IT infrastructure over the past five years (10 new stores, 63 major remodels, 20 minor remodels and the addition of 11 fuel centers), have made Weis more competitive and have provided a foundation for future improvements. This year Weis will spend $130 million on capital improvements, a 60 percent increase from five years ago. Other ongoing priorities include Weis becoming more of a sales-driven organization which includes delivering strong customer service and greater focus on in-store execution (Schertle stated that Weis is not laying off associates at store level as are some other retailers and has added a “load the car” program at its 165 units). Key to that initiative is Weis’ $2.9 million budget for development and training associates.
Continuing to improve its fresh departments and developing merchandising programs for “meaningful localization” are also hot button items on Weis’ plate. Schertle declared that over the past year his company’s fresh business has grown in all segments – produce, seafood, foodservice, meat and bakery – adding that growth trend needs to continue, but not at the expense of center store where he asserted that opportunities lie in a number of categories – cake, cereal, canned cat food, laundry, aseptic, mayo, paper, soda and pasta.
In describing his version of “meaningful localization,” Schertle said that each store needs to be assessed on its customer base and then tailored to best fit that base. He noted that sales at Weis’ store in Lebanon, PA have improved once a more Hispanic product mix was implemented as also was the case at the retailer’s State College, PA stores whose expanded Asian product presentation better reflected that college town’s population. Schertle also addressed Weis’ newly upgraded weekly circular (unveiled on October 6) which offers a “lowest price guarantee,” strong fresh image, sharper feature pricing and an overall improved design.
All of these programs, Schertle declared, are intended to increase Weis’ sales, which have flattened out over the past year. And while earnings remain strong, driving revenue both at new units and existing stores is a vital component in determining Weis’ future results.
Part of that sales initiative will be in full view next month when Weis celebrates grand re-openings at its two State College units (November 3) and four other stores on November 17 (Pasadena, MD; Odenton, MD; Danville, PA; and Brodheadsville, PA). Moreover, Weis will open the former Pathmark store in Huntingdon Valley, PA on November 10.
With Schertle’s newly added store operations responsibilities he will be one busy dude.
Following Schertle’s presentation, Weis veteran Wayne Bailey (who seemingly has had just about every job at the chain in his 37 years of tenure – he’s now VP/supply chain and logistics) addressed the vendors about Weis’ changing supply chain objectives.
Bailey admitted that for many years Weis did not prioritize or efficiently execute its supply chain initiatives.
With an annual budget of $7 million, Bailey, who was named to lead supply chain in February, has focused on improving overall service levels (now up to 97.4 percent) while also reducing inventory. Some of those gains have been achieved through Weis’ new computer generated ordering (CGO) system which has aided in inventory management and significantly reduced out-of-stocks and corrected distribution voids (a 34 percent reduction in dairy alone). Bailey said the focus on supply chain has opened his eyes in several areas including the fact the 74 percent of unsalable items are not from damage, but rather from code date expirations, an area that can be readily addressed. He added that because of the increasing importance of supply chain, he would like to schedule annual vendor review meetings in which specific targets are set and evaluated. “Our goal is simple: we want to offer our customers the freshest products possible,” Bailey declared.
Brian Holt, VP-advertising, marketing and public relations, delivered a very professional and engaging message about the Weis “brand,” its “gold” loyalty card and its digital platform.
He noted that Weis’ “brand architecture” revolved around relevant rewards, customer service and “meaningful localization,” which specifically meant more differentiation, better overall service and strong community affiliations.
In focusing on its “gold card,” Weis is hoping to increase the total spend for those customers who represent 13 percent of Weis’ total and reduce cross-shopping.
Individualized enhancements for gold card members include free items, dedicated sweepstakes and personalized deals. Holt noted that since the ramping up of its top-tier loyalty program in 2012, the results have been very good.
He then provided an overview of Weis’ online shopping program (formerly known as iShop). Currently there are 14 stores participating in the program and Holt expects another 20 units to come on board in 2014. He is encouraged that the “basket size” of online ordering is four times greater than conventional shopping and, even in its early stages, has produced a $1.5 million sales gain. Holt also noted that Weis’ mobile application will be expanded next year to include a GPS locator, push notifications for “specials” and a link to easy prescription refills. Much like Schertle, Holt addressed the importance of Weis’ fresh departments in creating big per transaction sales increases (ranging from 50-150 percent over purchases that don’t include perishable items).
“There are three key ways to deliver on our promise – service, selection and solutions,” Holt asserted. “Our goal is to under promise and over deliver.”
After lunch, Broe, Koch and Bailey hosted individual breakout sessions for an hour and then Weis presented its Strategic Achievement Awards to its top suppliers. Winners this year included Catalina Marketing, EMD Sales, Huntsinger Farms, Inmar, McCormick, Pepperidge Farm, Samuels Seafood and Sanderson Farms.
Having been to a number of vendor meetings in my 40 year career, this gathering was one of the best I’ve ever attended and the finest presentation that Weis has ever offered.
‘Round The Trade
Kroger has named 38-year veteran Mike Ellis president and COO effective January 1, 2014. Ellis will assume the post held by Rodney McMullen, who will replace retiring Dave Dillon as CEO. Ellis, 55, is currently senior VP of Kroger’s retail divisions. Just before presstime, Kroger held its annual “investor day” in New York. Key takeaways from the meeting included the big Cincinnati chain’s desire to accelerate its “fill-in” strategy by adding stores in both existing markets and newer areas (think Baltimore-Washington market after the Harris Teeter deal gains FTC authorization). Outgoing chief executive Dillon noted that while market adjacencies are important, Harris Teeter would have been a prime acquisition candidate no matter where it operated because of strong management, a reputable name in its markets and an established infrastructure. Dillon also inferred that the Internet won’t be as dominant in food purchasing as some analysts believe. “I wouldn’t be too quick to assume that the leap to home delivery ends up replacing everything,” he noted, adding that there remains a large percentage of customers that like to get out and have interaction with friends and neighbors in their community as they walk through the store…well as it turns out, the Delhaize Group is actually looking for a U.S. CEO to replace Roland Smith who resigned in September after Frans Muller was named group chief executive. Also resigning, effective October 31, was Stefan Descheemaeker who presided over Delhaize’s European operation. As for the currently vacant Delhaize America (DA) job, whoever gets that post will certainly earn whatever compensation they agree to. With its core Food Lion unit still struggling (yes, there’s been some improvement, but not enough to make a discernible difference) and its Bottom Dollar Foods discount banner still posting red ink, you have to wonder how much shelf life remains for its U.S. stores. One of the better moves that DA made under the short reign of Smith was dumping its Sweetbay, Harveys and Reid’s banners to Bi-Lo Holdings (165 units were sold at the ridiculously discounted price of $265,000). Now Bi-Lo’s parent firm, run by veteran grocery executive Randall Onstead and part of private equity firm Lone Star Funds (which got into the supermarket acquisition game in 2005 with the purchase of Bi-Lo and Bruno’s from Ahold, also acquired Winn-Dixie in 2011 and recently bought 22 Piggly Wiggly units ), has filed with the SEC to go the IPO route. The name of the new entity will be Southeastern Grocers and it is looking to raise $500 million for the public offering. Separate but related news is that Bi-Lo will retire the Sweetbay and Reid’s names and convert the former chain to the Winn-Dixie banner and the latter group to the Bi-Lo banner. Harveys Supermarkets, with 73 stores in Georgia, Florida and South Carolina, will retain its name. So with Bi-Lo’s newly added Piggly Wiggly stores and Harris Teeter adding 12 units formerly owned by “The Pig,” the Charleston, SC market is shaping up as a new battleground between the two firms, which already compete against each other in the Carolinas. I haven’t seen the refurbished Bi-Lo units, but I can tell you that HT is spending mucho dinero on its Charleston expansion…now that U.S. Bankruptcy Judge Kevin J. Carrey has granted court approval for a November 19 auction, it looks like the path has been cleared for Yucaipa Cos. to officially bid on about 150 Fresh & Easy stores on the West Coast that current owner Tesco seeks to dispose of. As per Carrey’s ruling, made last month in Wilmington, DE, all potential buyers must submit offers by November 15. The company would hold the auction only if it receives a competing qualifying bid. If that happens, a hearing on November 21, would determine the auction winner…remember Hank Mullany, ex-Genuardi’s president, who also headed Wal-Mart’s Northeast business and later served as CEO of ServiceMaster? Mullany has a new job as president of Toys “R” Us, where he will oversee all U.S. merchandising, marketing, e-commerce and store ops for the struggling 878 store toy firm which is based in Wayne, NJ, not too far from his Philadelphia roots…at its annual investor conference held in Bentonville, AR, Wal-Mart said it expects earnings this year to fall in the 1.9-3 percent range compared to the five percent earnings increase it achieved last year. Moving forward, the Behemoth also said it plans to reduce its cap-ex in fiscal 2015 by approximately $200 million (to between $11.8-$12.8 billion). “We’re spending in a disciplined manner by setting up a more streamlined real-estate process,” Mike Duke, president and CEO, stated. “As we continue to improve our sales per square foot, Wal-Mart will continue to grow through new stores and e-commerce while expanding our logistics and fulfillment network in critical markets.” The world’s largest retailer said it plans to open 115 supercenters in fiscal 2015, compared with 125 this year; and will also accelerate the growth of small-format stores, mostly Neighborhood Markets, projecting between 120 and 150 next year, compared with 120 this year. According to Bill Simon, president and CEO of Wal-Mart U.S., “We will accelerate growth of our Neighborhood Markets because of their strong returns, consistent comp-sales performance and double-digit net sales increases; and we will continue to build and leverage the supercenter format, which remains our primary format for growth. The combination of our large and small-store formats allows us to strengthen our market share position and give customers convenient access to shop for food and general merchandise, as well as access to our e-commerce offerings. We believe our multi-format portfolio will fuel the next generation of retail; enable the convergence of digital and physical store locations through e-commerce; and unlock value, giving our customers anytime, anywhere access to Wal-Mart.”
Local Notes
It’s coming down to the wire for a contract settlement between two UFCW Locals (27 and 400) and the two largest chains (Giant/Landover and Safeway) in the B-W market. As we go to press, it appears that both sides are far apart as an October 31 deadline has passed and negotiating continues. According to UFCW Local 400’s Union Leader magazine (fall issue), clerks and meatcutters employed at Giant and Safeway are mobilizing for “what could be a long, challenging, fierce battle” for a new collective bargaining agreement. The union accuses both chains, which it claims have achieved an “obscene level of prosperity” of seeking to squeeze workers even more by demanding givebacks at the bargaining table. “Our members need to understand the environment in which this bargaining is taking place,” said Local 400 president Mark Federici. “The attitude in corporate boardrooms these days is to maximize profit at all costs, to enrich themselves and their shareholders, and to treat workers as not their most valuable asset, but as a cost to be driven down to the lowest possible level. This is true in California where Safeway is headquartered and in the Netherlands where Ahold executives call the shots.” In the story, Federici acknowledges that the growing cost of its health care plan, caused by the Affordable Health Care Act (ugh!) presents another bargaining challenge. He also noted in another story, that despite the difficulties in ratifying its new contract with Kroger’s Roanoke division (which included a five month extension), a deal was struck between the two sides that resulted in a total compensation increase of nearly $2 per hour, maintenance of health and retirement benefits for current employees and expansion of job classification that will create the number of lead positions. Federici termed the three-year agreement “as good as any in the country.”… a tip of the hat to Wakefern Food Corp. which posted retail sales of $14.1 billion for its fiscal year that ended September 28, an impressive 3.9 percent increase for the cooperative that oversees the business of ShopRite and PriceRite stores. The Keasbey, NJ firm also posted consolidated wholesale sales totaled $11.4 billion. It’s often been stated in this column that there is no more tenacious conventional supermarket retailer in the Northeast (only Market Basket on a smaller level is comparable) than the independent owners who operate ShopRite stores. And now that the co-op will reportedly allow its 50 members to open and own discount PriceRite units and will also allow those operators to open “fresh” oriented stores under its newly acquired Fresh Grocer banner, Wakefern has thrown down the gauntlet even more aggressively, essentially telling all comers (including Wal-Mart, Wegmans and Costco) to “bring it on” because we’ve now got the formats, operating skill, capital and intensity to compete on any level…at Supervalu, the turnaround continues as the slimmed down company earned a net profit of $40 million in its second quarter ended September 7. A year ago, SVU posted a loss of $111 million. While CEO Sam Duncan noted that he was pleased with the company’s accomplishments, he added that “we must remain focused on driving sales and generating cash. A big difference made during last year was at its corporately-owned Save-A-Lot discount unit where same store sales increase 4.6 percent. Including its Save-A-Lot licensed stores (about 75 percent of the fleet), same store revenue decreased 0.3 percent, still an improvement over recent quarters. Sales at SVU’s wholesale grocery (independent business) segment declined 1.6 percent to $1.84 billion and same store sales at its five conventional retail banners (Shoppers, Farm Fresh, Shop ‘n Save, Cub and Hornbacher’s) were at negative 0.9 percent, as compared to negative 3 percent in SVU’s first quarter (same store sales numbers have been negative every quarter dating back to 2008). Clearly, Duncan and his team have done a fine job over the past nine months with limited resources. Like a lot of turnaround stories, much of the early saving have resulted from “trimming the hedges,” rather than significantly increased sales. However, Duncan and chairman Bob Miller are now running the business professionally and are much more focused on execution and problem solving. On the obverse side of the coin, the significant cap-ex investment that’s sorely needed to improve its current store base and build new units hasn’t materialized yet and the competition in all of the company’s markets continues to become more aggressive and diverse. For corporate parent Cerberus, the deal is already a great one, having paid $4 a share for 30 percent of the company and operating control (when we went to press on October 31, SVU shares were trading at $7.03). And like many other PE companies, Cerberus still has assets it can potentially sell – its five conventional supermarket banners as well as Save-A-Lot. So, from an investment perspective, the deal is already a home run. And even from an execution point of view, the company is far better off than it’s been in at least five years. But, taking in the full view, SVU is not gaining significant traction or market share in any of the areas in which it operates, hasn’t spent enough yet to indicate it wants to “get back in the game” and its wholesale business hasn’t added any significant accounts since Duncan & Co. took over (and like other wholesale grocers, always remains in jeopardy of a key independent retailer switching suppliers or closing stores)…here’s an example of why I believe the view of many Wall Street analysts who cover the grocery industry is misguided. Costco recently released its fourth quarter and year-end financials. For its fourth quarter (ended September 1), the Issaquah, WA-club store retailers posted an overall sales increase of 0.8 percent, a comp store gain of 5 percent (in the U.S.) and its earnings rose 1.3 percent to $617 million. And Costco’s fourth period this year was 16 weeks compared to 17 weeks last year. Additionally, Costco’s CFO Richard Galanti told analysts that 36 new stores are planned to open in fiscal 2014 and the high-volume merchant plans to increase its cap-ex from $2.1 billion to $2.5 billion next year. I’d say those were pretty strong numbers delivered by one of the industry’s best retailers, especially given the state of the economy and the ferocity of the competitive landscape. Apparently, I must be reading from a different hymnal, because the view of many financial analysts was that Costco’s numbers were “disappointing,” “soft,” or “struggling.” You gotta wonder if many of these Wall Street residents have recently gotten off their butts and visited a Costco store…Whole Foods, in the midst of one of the most aggressive expansion plans in recent food retailing history, will be building a new 35,000 square foot store near the Washington Nationals baseball stadium in southeast DC. The New Jersey Avenue unit will be WFM’s fifth District store and will be close to the Harris Teeter supermarket (4th Street Southeast) that is currently under construction…a few deaths to report this month. Gerson “Barney” Barnett, former SVP of grocery operations for Giant/Landover, passed away last month at the age of 90. “Barney” was one of the most powerful and influential executives in the BW grocery market for many years, essentially serving as head buyer for the region’s largest grocery chain. A man of integrity and discipline, Gerson Barnett pretty much wrote the rules on how buying was done at Giant. For me, “Barney” was a great teacher who often guided me in the “rules of the road,” not only as it pertained to Giant Food, but the industry as a whole. I was also saddened to hear of the passing of rock & roll legend Lou Reed. Reed, who had a liver transplant in March, died at age 71 late last month. While Reed’s musical style and voice were often difficult to relate to, he was truly a man devoted to all things rock – from history to innovation. His first album in 19
67 as the lead singer of the Andy Warhol inspired band, Velvet Underground (who were inducted into the Rock and Roll Hall of Fame in 1996), was one of the first vinyl discs that I owned and its ferociousness burned an imprint in my mind that I can still remember. Despite heavy drug use and an overall lifestyle that later led to his health issues, Reed was like a misguided missile – moody, unpredictable and powerful – who also managed to write two of the greatest rock tunes of all time – “Sweet Jane” and “Rock & Roll,” which both appeared on the Velvet Underground’s 1970 album “Loaded.” Also leaving terra firma last month was Ed Lauter, one of the great movie “that guys” of the past 40 years. Lauter, 74, who appeared in more than 200 film and TV roles, usually played a cop or a bad guy. He described himself as a “turn” actor, someone who shows up at some point in a film and suddenly turns the plot in a different direction. Among his best known and most visible roles were as brutal prison guard Captain Knauer in the original “The Longest Yard “ (1974; he also appeared in the 2005 remake); as sleazy gas station attendant Joseph Maloney in Alfred Hitchcock’s last film, “Family Plot” (1976); and as violent cop Richard Shriker who assists vigilante Charles Bronson in “Death Wish 3” (1985). You may not know Lauter by name, but one look at his face in any of his movie roles and you’ll know exactly whom I’m talking about…on a personal note, I am deeply saddened to report the death of Bill Speakman, 73, who for the past 35 years served as secretary-treasurer of our company, Best-Met Publishing. Bill was much more than the financial guru of Best-Met, he served as confidant, friend and many times inspiration to me. In fact, when Dick Bestany and I acquired Food World in 1978 (and Food Trade News 18 months later), he not only engineered the deal, he told us where to set up shop and developed our first year budget. Along with being one of the most intellectual people I’ve ever met, Bill also possessed a keen street sense and uncanny ability to read people and quickly assess the situation at hand. He was a person who made a big difference in my life and I’ll miss him dearly.
