Mars To Close Depot; Bozzuto’s To Supply Balto. Independent
Although it’s been widely speculated for several months, Baltimore-based Mars Super Markets announced on January 8 that it will close its distribution center on Edison Highway March 9.
About 75 warehouse associates and truck drivers will be impacted by this move.
In turn, Bozzuto’s, the fast-growing voluntary wholesaler based in Cheshire, CT, will begin supplying the 17 Mars stores for all departments except frozens and HBC/GM, which are already being serviced by Burris and AWI respectively.
Bozzuto’s has been servicing some of Mars’ dairy SKUs since September in a cross-docking arrangement and expects to fully phase-in all other departments (grocery, meat, deli, candy) by March.
This is a huge move for both Mars and Bozzuto’s. Despite a more challenging and competitive landscape and the continued aging of an already inefficient warehouse (the old 300,000 square foot Food Fair depot which was built in the 1940s), the D’Anna family, which owns Mars, had steadfastly continued to serve its stores on a direct basis for most of its departments.
Certainly part of that had to do with local control, but Mars’ strong connection and loyalty to its associates have reportedly been important considerations in its minimal use of outside distributors in the past.
However, times are continuing to change for all supermarket operators as retailers, from the largest chains to one1store independents, seek greater efficiencies and productivity. That said, Bozzuto’s will certainly enhance those qualities by helping expand Mars’ product line, utilizing its buying power to extract better deals and giving Mars a broader perspective and periphery about the entire business.
We’re told that Mars’ current merchandising/procurement staff will remain intact and that the regional operator will still be handling product decisions, ad planning and strategic merchandising objectives from its Baltimore headquarters (although product will be drayed from Bozzuto’s large depot in Central Connecticut). Several sources told us that it was important for Mars to stay closely connected to the local vendor/broker community.
Sources have indicated that Bozzuto’s will occupy some, if not all, of the space in the Mars DC and could rehire some of the warehouse workers who were impacted by the depot closure.
For Bozzuto’s, the addition of the Mars business represents a potentially major opportunity – not only in the volume of new business that will be gained, but in the fact that it positions the family-owned wholesaler for greater growth in the Mid-Atlantic and southward.
We’ve heard from several independent retailers in the Mid-Atlantic who were visited by Bozzuto’s in the past few years. All said they were impressed with Bozzuto’s presentations and recognized their strong reputation with the independent retailer community. However, they were reluctant to switch to a wholesaler with a limited customer base in the region and one that might have distance issues in terms of potential drayage.
Now, with the addition of Mars’ business, Bozzuto’s gains further credibility and traction in terms of supplying a foundational customer in the region. Additionally, we’ve learned that Bozzuto’s is exploring sites in the northern Maryland/Delaware area to build a potential one million square foot new distribution center which would certainly resolve the drayage/distance issue.
Having known the Bozzuto’s leadership team for many years, don’t underestimate their talent, resolve and risk-taking abilities to expand their business.
Are Safeway’s Belt Tightening, New Vendor Practices Related To Cerberus Capital’s Pursuit Of Large Retailer?
Things are changing at Safeway – and perhaps not for the better. After last month’s major upheaval involving the four highest paid executives at its eastern division (president Steve Neibergall; VP-merchandising Rick Stein; VP-CFO Glenn Davis; and VP-retail operations Henry Bash), numerous sources have told us about the chain’s aggressive cost-cutting strategy, which call for reduction in senior level personnel (Safeway has been slashing labor in its stores for the better part of the year), an elimination of corporate charitable events (including its annual Easter Seals fundraiser locally and its sponsorship of an LPGA golf event held annually in Phoenix), and even new vendor practices that have drawn the ire of some of the country’s leading CPG firms.
You’ve got to wonder if these belt-tightening moves are aimed at enhancing Safeway’s market share and consumer image, or if they are primarily a method to improve the bottom line so that potential suitor Cerberus Capital Management will sweeten its offer to possibly acquire most, if not all, of the chain.
I’m betting on the latter.
So, let’s examine these pieces and explore whether these moves make Safeway a better retailer. First of all, we wish new eastern division president Brian Baer the best of luck. We’re told he’s extremely intelligent, has excellent people skills and possesses a strong financial background. He’ll needs to utilize all of his skills, because Safeway’s morale and market share are sliding. But don’t put all the blame on the previous eastern division leadership. The truth be told, despite some of the best locations in the market, Safeway hasn’t stepped up to the plate when it comes to dealing with the realities of new and merging competitors; it simply hasn’t been aggressive enough in terms of localized marketing; its pricing strategy isn’t competitive with most of the retailers in the market and it has cut so much labor in its stores that customer service and training have consistently deteriorated over the past two years; and the division remains in dire need of a broader-based remodeling and new store program – replacing primarily its best stores is only a partial solution. These shortcomings cannot be blamed on local managers – these are strategies developed corporately, and like an increasing number of retailers, are designed to create short-term profits rather than creating a stronger long-term foundation.
As a retired retail executive (who worked for a publicly-traded grocery chain for more than 30 years) has told us: “It’s OK to sell less stuff as long as we hit our earnings objective and placate Wall Street.”
And perhaps Baer (who only has been involved in retail operations/division leadership positions for a couple of years) and Brad Spooner (a good guy who’s never been involved in merchandising) will rise to the occasion and provide the spark that Safeway needs. But it ain’t gonna happen if the corporate poobahs in Pleasanton continue to operate one of the most centralized, process-oriented systems (with a distinct West Coast slant) in the entire food and drug industry.
As for Cerberus, there’s no guarantee that an acquisition will take place. However, if you gave me $20 and ask me to bet it, I’d go directly to that window and bet it all.
Why? Cerberus has proven its desire to be a bigger factor in the grocery business and with talented industry veteran Bob Miller supervising its retail food growth under its New Albertsons unit, the company will soon operate nearly 1,200 supermarkets nationally. That number has been significantly bolstered over the past year with the acquisition of Supervalu’s five large supermarket divisions and a pending purchase of about 70 United Markets in Texas. Cerberus also came in second to Kroger in the Harris Teeter acquisition derby.
And what a fit Safeway would be. If you excluded Southern California (Vons) and Seattle-Portland because of existing overlap and possibly even excluded Northern California (Safeway’s most profitable division with no overlap) to preserve some continuity for Safeway if it remained a viable regional organization, Cerberus/New Albertsons would get four existing divisions – Eastern, Phoenix, Denver and Texas – that have struggled in recent years under Safeway’s leadership but would be ideal for a private equity investor who would see little overlap while gaining key real estate control and significant cash flow.
On a different level, Safeway is also an ideal candidate to be targeted by Cerberus. That’s because recently retired CEO Steve Burd practically invented the book on how to trim fat and create efficiencies in the supermarket business. And his successor, former CFO and president Robert Edwards, seems to be taking the knife sharpening to an even higher level, showing no hesitancy to create more shareholder value by selling Safeway’s Canadian operations at a premium price to another PE firm – Empire Co. – and withdrawing from Chicago (Dominick’s) despite the fact that only 15 of its 72 stores were able to be sold before that division was shuttered on December 28. With little excess fat remaining at Safeway and a very vanilla merchandising and marketing approach, the retailer is easily the best large chain turnkey opportunity for Wall Street investment firm to pursue.
And while cost cutting and seeking greater efficiencies are noble efforts in the “seeking greater shareholder value” objective, there’s a point when the belt gets too tight and restricts normal breathing. And, if you listen to a number of senior managers at the top consumer packaged goods firms in the U. S., Safeway’s recent tack of trying to extract additional vendor funding for 2013 is heavy-handed, unfair and perhaps even illegal.
We first started hearing about Safeway’s attempt to receive additional funding from several suppliers in late November. During the course of the next 30 days, more complaints came our way and I did some additional digging, too, noting the vitriol that was displayed by key executives at these large national manufacturers.
So here’s a collective summary of the events, according to senior executives at 10 of the biggest CPG companies that do business with Safeway.
The specific tack, according to the vendors I spoke with, involves an approximately 30 minute meeting with a Safeway executive and a consultant who offer a PowerPoint presentation detailing Safeway’s current performance with the vendor and claiming that the vendor has underfunded Safeway based on its analysis. The PowerPoint lasts for about 25 minutes. At the end of the presentation, vendors are given a bill (seven or eight figures, representing an increase of 25-40 percent over previous mutually agreed upon funding levels for 2013). Vendors told us that there was no right to redress at the meeting and that any follow up questions should be made in writing (several vendors submitted questions and said that their inquiries were not adequately answered). The term “resetting the economics” was mentioned by several of our vendor sources as a phrase that Safeway used at the meeting to seemingly justify its new vendor initiative.
Of the 10 major CPG vendors who I spoke with, all said the data that Safeway presented was either erroneous or ambiguous.
Also noted was that the Safeway executive at the meetings said that 2014 budgets would not be discussed until the 2013 bill was settled (vendors said that the payment window was only about two weeks from the time of the original meeting). Several vendors also noted potential Sarbanes-Oxley implications since contracts had been mutually agreed to and signed many months ago.
Vendors believe that Safeway is trying to strong arm its leading suppliers (I’m told the “hit list” includes the chain’s top 100 vendors), an approach that none of those vendors claim that Safeway has ever deployed, which they regard as heavy-handed and unfair.
“It’s a money grab, pure and simple,” said one senior VP at a leading CPG company. “ ‘Pay us the ransom money now or there will be repercussions later’ was clearly my take away from the meeting. No follow up questions were allowed. The data they presented was in my opinion subjective and open to interpretation and the whole episode reeked of corporate thuggery.”
Another senior executive a major manufacturer noted: “We were caught completely off guard by Safeway, of all retailers, using this strong-armed approach. But that’s only part of the issue. The amounts they are seeking are astronomical – way out of line. To me, it seems like this was a consultant-driven initiative. Maybe Safeway needs to be reminded that they are a significantly smaller company than they were a year ago with the sale of its Canadian operations and its withdrawal from Chicago. I can tell you our company is not going to acquiesce to their demands and if it comes down to it, we’ll move on and restructure our programs with our more productive customers.”
When presented with this overview, Safeway spokesman Brian Dowling responded: “We routinely meet with our vendor partners to discuss a range of mutual issues focused on how we can better serve customers.”
2013: Oh, What A Year It Wasn’t!
When the going gets tough…retailers make changes. And rarely – or ever – has it been more difficult for the majority of food retailers (particularly supermarket operators) than it was over the past 12 months. And were the changes been as vast as they were in 2013.
Let’s look at a review of the key events and issues that helped create such market turmoil. The shaky economy remains a huge factor, particularly for the middle, lower-middle and lower class consumers. Virtually every retailer in the Northeast and Mid-Atlantic (a geographic swath that extends from New England to the Tidewater region of Virginia) has felt the sting of overstoring (and within that realm an increasing diversity of retail formats and styles). In fact, the growth of “other channel” retailers (mass, drug, club, dollar stores, on-line) is now growing at a rate of nearly four times that of conventional supermarket merchants. Government regulation and interaction (reduction of SNAP benefits and implementation of the Affordable Care Act) have adversely affected most retailers and things could get worse next year if a new Farm Bill isn’t passed and there’s more micromanaging by the USDA.
So, against that backdrop – and a few other intangible factors that aren’t necessarily directly related to performance issues (family squabbles, personality clashes at the executive level, planned transitional management changes) – here’s a list of changes and key events that occurred in 2013 in the marketing areas we cover (listed alphabetically):
Ahold USA – James McCann replaced retiring COO Carl Schlicker as the Dutch company’s top U.S. executive. AUSA also replaced Giant/Landover president Anthony Hucker with Gordon Reid.
Delhaize America – After only a year on the job, chief executive Roland Smith resigned (that job is still unfilled). Pierre-Olivier Beckers, CEO of parent firm The Delhaize Group, retired and was replaced by European grocery executive Frans Muller.
Farm Fresh – Replaced president Bill Parker with Micky Nye.
Fairway Market – Led by majority investor private equity firm Sterling Investment Partners, which controlled the company since 2007, successfully completed public offering.
Kroger – Announced that Rodney McMullen will replace retiring CEO David Dillon. Acquired Harris Teeter.
Market Basket (Demoulas) – Arthur T. Demoulas remained CEO amidst re-escalating family feud with first cousin Arthur S. Demoulas, whose faction still controlled the board of directors.
New Albertsons – Cerberus Capital unit acquired 877 stores from Supervalu and named Jim Perkins president of Acme and Shane Sampson president of Shaw’s.
Safeway – Robert Edwards replaced long-time CEO Steve Burd as top executive. Retailer sold Canadian unit, reshuffled leadership team at its Eastern Division and announced withdrawal from Chicago market with Dominick’s store closings.
Supervalu – Cerberus Capital gained control (30 percent equity stake) of struggling retailer/wholesaler. Bob Miller named chairman, Sam Duncan elected CEO.
Tops Friendly Markets – After six years of control by Morgan Stanley Capital Partners, the private equity firm sold the business to Tops’ management, led by current CEO Frank Curci.
Wal-Mart – Announced that long-time executive Doug McMillon will replace the retiring Mike Duke as CEO. Pledged to build more than 200 smaller stores (Neighborhood Market, Wal-Mart Express) in next three years.
Wawa – Chris Gheysens appointed chief executive, replacing veteran CEO Howard Stoeckel who retired.
Weis – Weis Markets CEO Dave Hepfinger resigned. Vice chairman Jonathan Weis assumes chief executive post on an interim basis.
That’s the biggest single year of change we’ve seen in the past two decades, and 2014 promises to bring another 12 months of tumult as retailers struggle with declining identical store sales and marginalized earnings.
Yes, there’s even more short-term pressure emanating from Wall Street, and the growth of private equity control in the retail food business will only ramp up those pressures. For all retailers, but particularly the unionized operators, the ramifications of “Obamacare” are still not fully known, but are likely to increase costs to both merchants and their associates.
For those who believe that change is good, they ought to take the temperature of the current state of retail food industry in the Northeast. Current temperature: chilly. Future forecast: chillier.
It ain’t your father’s grocery business, anymore.
‘Round The Trade
It looks like the time has come for the periodic housecleaning at A&P. Although the company isn’t confirming it, multiple sources report that CEO Sam Martin is out, as are several other key executives at the Montvale, NJ-based chain. Also being widely speculated is that the Tea Company is close to selling a batch of stores in the Metro New York area with Wakefern and Stop & Shop being mentioned as likely buyers. None of this should come as any surprise, especially since the struggling retailer has engaged Credit Suisse to explore a potential. Given its recent pitiful performance and its amalgam of stores, a single buyer sale has been unlikely from the outset. Breaking up the company in pieces seems like the most logical strategy, especially with still some attractive sites to offer in Northern and Central New Jersey and in the suburban areas that surround New York City. As for those supermarkets south of Trenton, except for a handful of still productive (but declining) stores, dumping those units might result in a fire sale….C&S Wholesale Grocers, which supplies all of the Tea Company’s banners, has named Mark Verdi as its president, a new position for the large Keene, NH-based wholesaler. Verdi, a native of nearby Springfield, VT, comes to C&S from the accounting and consultant industries and will officially join C&S on March 1. C&S current chairman, CEO and patriarch Rick Cohen, will remain in his position but transition to a role driving strategy and innovation at the wholesaler, C&S said. This is potentially a huge change for C&S, the nation’s largest grocery wholesaler and also for Cohen, who helped revolutionize the retail distribution business and has been a hands-on, innovative game changer since taking over from his father, the great Lester Cohen, in the late 1970s. We wish Verdi well – he’s got a huge challenge to fulfill. More C&S news: New York State recently announced that the big wholesaler has been awarded $3.6 million in development aid by the Empire State to build a new automated distribution center on Long Island (Suffolk County). C&S’s grant was the largest of $716 million in aid announced by New York Governor Andrew Cuomo this month. C&S plans to build a 500,000 square foot, $130 million automated facility at a yet undisclosed location that would potentially employ 400 workers. C&S once operated a 526,000 square foot depot on “the Island” (Central Islip), but closed the DC in 2007, electing to service those customers from other depots in New York and Connecticut…a few thoughts about the recently settled labor contracts affecting Giant/Landover and Safeway with UFCW Locals 27 and 400: this was the most difficult and challenging negotiating that I’ve witnessed in my 40 years of writing about union/management issues. And that’s primarily because of the complexities and uncertainties surrounding the Affordable Care Act (ACA). Even though “Obamacare” is now operational, nobody still knows what the long-term ramifications of the law will be, and probably won’t know for at least 18 months. One thing is almost certain: costs are going to increase and while “Obamacare” will certainly help those who were formerly uninsured, most of us who are in current health plans, or those who seek to switch to the federal or state exchanges, will be being paying more and/or receiving inferior benefits. As part of the whole bargaining process, the approximately 600 meatcutters who work for Giant Food voted separately on their deal, which was ratified on January 7. That’s because of the future impact of Ahold USA’s new case ready plant which opened late last year in Lower Allen Township, PA. The opening of that facility allows Giant to send pre-packaged case ready meats directly to its stores, which in turns would allow the chain to reduce its number of meatcutters. About 60 of its most tenured meatcutters were offered buyouts (about $40,000) with a second round of buyouts reportedly to be offered next year. It’s anybody’s guess what the ultimate reduction in staff will be, but I’m betting that it will be substantial. I certainly understand the need for efficiencies, however, there are existing customers (me included) who don’t like the gas flushed product, and by further diluting its meat labor force, it’s one more level of potential disconnection from its customers. One more Giant/Landover note: I recently met with new Giant president Gordon Reid, who after several months of training in Carlisle, PA and Quincy, MA is fully ensconced at his desk in Landover, MD. I was impressed by Reid’s candor, enthusiasm and willingness to confront his significant challenges head-on. His background in store operations will also certainly be beneficial. Good luck, Gordon…MOM’s (My Organic Market), the Rockville, MD organics retailer with 10 locations in the B-W market (and an additional four more units reportedly planned), will open its first store in the Delaware Valley, a 17,000 square foot former Borders store in the Main Line suburb of Bryn Mawr, PA perhaps as early as next month…in national news, Aldi said it will accelerate its new store development in the U.S., with a goal of 650 new stores in the next five years. Plans call for the discounter to open about 130 new stores per year. One reported growth target is the Richmond/Charlottesville area. Additionally, Aldi’s growth plan includes the construction of a Southern California warehouse and headquarters to be located in Moreno Valley, CA, which will serve as a foundation for the German retailer’s entry into SoCal. “We’re ramping up our expansion plans to meet growing demand for Aldi from customers across the country,” said Jason Hart, president of Aldi. “Recently, we successfully entered new markets such as Houston, and expanded our presence in competitive markets like South Florida and New York City. At Aldi, we believe that great quality can be affordable, and we are eager to bring the Aldi difference to new markets like Southern California.” Aldi currently operates 1,300 stores in a geography that ranges from the East Coast to as far west as Kansas. Late last month, the extreme value merchant also said it would soon launch a natural and organic brand called Simply Nature…the recent data breach that occurred at Target sent chills down my spine (40 million customers who made credit and debit card purchases from November 27-December 15 may have been affected). The overall learning from this should be that all retailers, no matter how protected and secure their networks, are vulnerable. In a recent article that appeared in American Banker magazine, here’s how industry experts viewed the situation. “While (trade association) The Payment Card Industry’s (PCI) data security council provides merchants and issuers as much information as possible to keep data safe, it is somewhat in vain because it is just too easy to perpetrate fraud against the magnetic-stripe product,” said Mark Horwedel, CEO of the Merchant Advisory Group. “Merchants, acquirers and hardware providers continue to be frustrated by this, and it is never going to end because there is no sunset rule on magnetic-stripe.” Magnetic-stripe data is a frequent target of fraudsters. Stolen data from a magnetic-stripe card can be written to any other type of card, even a hotel room key, and used to make swiped card payments. If the fraudster has a stolen PIN, the cloned cards will enable ATM withdrawals as well. “As long as mag-stripes are still on cards and POS devices, no matter how much we spend on PCI, you can’t protect the public from this kind of breach,” Horwedel added. Such a notion is frightening, considering 24 of the nation’s gross domestic product comes from card payments, said Gray Taylor, executive director of the National Association of Convenience Stores (NACS). The U.S. payments system needs to “totally rethink” its approach to data security, Taylor noted. “We have to stop thinking we can make pristine computing environments and need to start thinking of
how we can process secure transactions in the dirtiest environment,” Taylor asserted. “Until we take that total rethink, even under EMV (Europay, Mastercard, Visa – the global standard for inter-operation of chip-driven “smart” cards), I don’t think we will ever be away from these types of hacks.”…sadly, a number of obituaries to report as we enter a new year. Our condolences to Benjy Green, CEO of B. Green & Co., and his family on the death of his brother Charles, last month. Charles Green, who in recent years had been living in Las Vegas, was once a fixture in the B-W grocery business, working for the original wholesale business with his brother, Benjy, and his late great father Bernie Green. Charles was one of the first people I met when I came to town in 1978 and I’ll remember him for his provocative sense of humor and his kindness. May he rest in peace. Outside the food industry, also passing on were two excellent baseball players. Jerry Coleman, former All-Star second baseman for the New York Yankees and a hero of both World War II and the Korean War (the only major leaguer to have actively served in both wars), has died. Coleman was part of four World Series championship teams (he was the MVP of the 1950 series against the Phillies) and for the past 40 years served as an announcer for the San Diego Padres (his hometown). He also did color analysis on TV and radio for the Yankees (he was famous for his malapropism including, “I see Rich Folkers throwing up in the bullpen,” and “Dave Winfield goes back to the wall; he hits his head against the wall and it rolls off! It’s rolling all the way back to second base. This is a terrible thing for the Padres.” Coleman was more proud of his military career as a Marine Corps pilot in which he flew 120 missions and was awarded two distinguished Flying Crosses, 13 Air Medals and three Navy citations. A great American, Jerry Coleman was 89. Another underrated baseball player has passed away. Paul Blair, former outfielder for the Baltimore Orioles died suddenly last month at the age of 69. In all my 54 years as a baseball fan, I never witnessed a better center fielder than Blair (and that includes Willie Mays). Nobody played shallower than Blair and his startling first step quickness, overall speed and knowledge of his pitcher’s tendencies were unmatched in his era (1964-1980). During his career he won eight Gold Gloves, appeared in two All-Star games and helped the Orioles win two World Series. And from the world of music two icons from the world of country and country pop have died. Ray Price, 87, passed away last month at his home in Mount Pleasant, TX. For those unfamiliar with Price, suffice it to say he had one of the greatest country music voices ever. During a career that spanned 65 years, Price had seven number one hits and had more than 100 songs appear on the Billboard Magazine country charts (“including Willie Nelson’s “Crazy Arms” and Kris Kristofferson’s “Help Me Make It Through The Night”). He was elected to the Country Music hall of Fame in 1996. And, just before presstime, Phil Everly ascended to harmony heaven. The youngest of the two Everly Brothers, Phil, 74, and his brother Don revolutionized rock and roll music in the late 1950s with their unique sound which blended beautiful melodies with incredible high harmonies. While hit songs such as “Wake Up Little Suzie” and “Bye Bye Love” defined their careers, the Everlys’ catalogue included many dark, haunting songs with beautiful lyrics that also captured their signature harmonious sound. The Everlys were also one of the charter members of the Rock and Roll Hall of Fame in 1986. Bob Dylan perhaps summed it up best when he said: “We owe these guys everything. They started it all.”