Wegmans Keeps Growing With Richmond Expansion, Unveiling Of Smaller Prototype In Chestnut Hill, MA
When you’re one of the few supermarket operators in the country to have achieved significant growth over the past 10 years (both through organic expansion and identical stores sales), there are a lot of eyeballs on your performance. That’s the case at Wegmans and the Rochester, NY-based uber grocer has seldom failed to perform at a high level.
Two events that occurred in the past 30 days give reason to believe the regional chain’s high marks will continue. While the announcement that Wegmans would be entering the Richmond, VA market was surprising to some, the reality is that the family-owned retailer has enjoyed tremendous success in the Old Dominion, starting with its initial Virginia entry in Sterling in 2004. Not only does the state offer many great demographic opportunities in which the large-scale retailer can flourish, it also allows Wegmans to sell and merchandise its strong beer and wine effort.
Currently Wegmans operates six stores in Virginia with two others – Alexandria and Charlottesville (both great demographic fits despite being overstored) – slated to open in the next two years.
The Richmond opportunity is also a strong one for the company with both projected stores located in two of the capital region’s most affluent areas – Short Pump and in a new shopping center off of Midlothian Turnpike (11 miles from the Short Pump unit). There is already a moderate level of familiarity with the upscale grocer from transplants who have shopped at Wegmans previously or from making the 60 mile “destination” trip to Fredericksburg. However, there will be a fairly significant wait until the store opens – perhaps until late 2016 or 2017 – as the retailer awaits certain zoning approvals and has eight other new stores currently in its pipeline.
While the Wegmans expansion into Richmond is exciting news for its associates and customers, there may even be a bigger long-term story in play.
Late last month, the retailer opened its second Boston area store. And for the first time since the 1990s, the new Wegmans wasn’t a 130,000-140,000 mega market. On April 24, the ribbon was cut on an 80,000 square foot “fresh” model in Chestnut Hill, MA, a tony suburb about 11 miles from the Boston city line.
Wegmans didn’t intentionally seek out a smaller footprint, but the quality of the location made the site too hard to pass up. It took more than a year for the retail scientists in Rochester to develop a model that would resemble the large Wegmans units, but to quote one Boston based food broker, “It’s pretty much all in there.” Trade reports from several vendors indicate the store has easily surpassed the million dollar a week mark during its first three weeks of business.
If Wegmans can perfect this new format, its ability to build stores in affluent urban and suburban locations (where real estate availability and costs make it very difficult to expand) would be significantly enhanced. Can you imagine the impact of a Wegmans in Northwest DC, Bethesda or Tyson’s Corner? Seemingly the only limitation would be its internal ability to construct stores at a rate faster than its current pace of two or three per year.
It’s truly been an incredible run for the Wegmans team. In the not too distant future it will have to deal with transitional issues affecting family and several senior associates. But Wegmans has been working hard, too, on filling that pipeline from within, and the future looks bright.
The equation that Wegmans brings to the table remains very impressive: huge stores, high marks in all perishable areas, strong customer service and the “it” factor – an intangible perception that’s as strong as any merchant across the full retail spectrum.
Just ask the competition.
Weis Budgets $101 Million For Cap-Ex, Earnings Dip 26.6%; Wal-Mart Vet David Gose Named SVP-Ops
Weis Markets announced it would invest $101 million in its growth program in 2014. At the company’s annual shareholder meeting held on April 24 at its Sunbury, PA headquarters, Weis Markets president and CEO Jonathan Weis briefed shareholders on the company’s plans and its results.
“Since 2008, we have invested more than $500 million in our growth and improvement programs. During this period, we completed more than a hundred projects,” said Weis. “This year, we plan to invest $101 million in growth and expect to complete work on 16 projects in 2014.”
Weis noted that the company opened four stores in 2013 – Woodlawn, MD; Towson, MD; Hillsborough, NJ (all former A&P/Super Fresh stores); and Huntingdon Valley, PA (a former Pathmark unit).Weis told shareholders of several key company initiatives, including its supply chain.
“As a company that self-distributes, our supply chain is a vitally important area for us. Over the last year, we have increased our focus on maximizing efficiency by driving millions of dollars of cost out of the system, while maintaining our high standards for store service. This has helped us reduce store level inventories and improve freshness.”
Related to its supply chain initiatives, Weis plans to expand its 1.1 million square foot distribution center in Milton, PA in 2014.
The closely-held company also reported that its first quarter net income dropped 26.6 percent ($0.55 per share) to $14.8 million in its first quarter ended March 29. During the 13 week period Weis’ sales increased 0.6 percent to $687.1 million while its comparable store sales were down 1.3 percent compared to the same period a year ago.
The regional chain noted that its results were impacted by timing of the Easter holiday, which was observed in the first quarter of 2013 and the second quarter of 2014.
“We have met our first quarter sales goals. Adjusted for the Easter holiday shift, our sales increased 1.7 percent despite price reductions on thousands of items,” said Weis. “We achieved our sales goal by reinvesting in sales through our ‘Three More Ways to Save’ program, which has generated higher per customer sales and an increase in center store unit sales. These reinvestments are a key part of our long-term strategy to generate increased sales and market share.”
I have to agree with Jonathan Weis’ assessment. Over the past six months, Weis has refocused on driving sales through more aggressive merchandising and advertising. That’s going to impact margin and profits and in time, if it stays the course, both sales and earnings will improve.
The “back your way” into meeting earnings guidance by raising prices, cutting infrastructure and reducing labor almost always yields short-term results that ultimately produce adverse results.
Additionally at Weis, just before presstime, we learned that David Gose has been named senior VP-operations, a job that had been open for several months following the departure of Mike Mignola. Gose brings a strong store ops background to Weis having worked for Wal-Mart for the past 21 years, most recently as regional general manager for 92 Wal-Mart stores in Ohio. In that post, he supervised 12 market managers and more than 27,000 associates. Gose will report directly to COO Kurt Schertle.
‘Round The Trade
Supervalu continued to improve its financial performance with the announcement late last month that its fourth quarter earnings rose to $26 million for the period ended February 22. That compares to an operating loss of $174 million in the corresponding period last year, which marked the final full quarter of disastrous leadership under former CEO Craig Herkert. Fourth quarter ID sales increased 2.1 percent at its Save-A-Lot unit and 0.2 percent at its group of regional chains – Shoppers Food & Pharmacy, Farm Fresh, Cub, Shop ‘n Save and Hornbacher’s. “Fiscal 2014 was an important transition year for Supervalu as we stabilized the organization and set the foundation for our future,” said CEO Sam Duncan. Sales at the company’s independent (wholesaling) division dipped 0.6 percent to $1.82 billion. While the numbers are certainly impressive given the warm pile of manure that Duncan and his new management team inherited, there are still some red flags to keep an eye on. The way Supervalu is currently structured, Save-A-Lot remains by far its most valuable asset. Word on the street has it that banking agreements that would not allow Supervalu to sell any of its assets are due to expire in September of this year. It would be very reasonable to visualize that controlling partner Cerberus Capital Management would look to monetize its strongest unit, and the real estate and market share that Save-A-Lot controls would certainly be of interest to several potential buyers. With regard to its group of regional chains, although there was slight improvement this past quarter, none of them has shown any significant growth patterns over the past five years. Nor has Supervalu been inclined to spend significant cap ex monies to improve current stores or, more importantly, build new ones. As a matter of fact, trade reports have recently surfaced that Supervalu has been listening to offers for its Farm Fresh and Shoppers regional chains, something that the company has denied. As for wholesale, while it’s still a significant chunk of SVU’s business, it is the most fragile of the Eden Prairie, MN firm’s “three legged stool.” It would be hard to imagine that a business whose customers are committed through short-term contracts would be able to sustain itself as the prime entity in a publicly held firm if Save-A-Lot (or SVU’s regional chains) were sold. More Supervalu news: the company has elected Frank A. (Terry) Savage and Mathew M. Pendo to its board of directors, effective April 24. Savage and Pendo were both appointed to the board as designees of Symphony Investors LLC, a Cerberus Capital Management L.P.-led investor consortium. They replace Mark Neporent and Lenerd Tessler, who recently resigned due to conflicts concerning parent company Cerberus’s potential acquisition of Safeway. Additionally, Supervalu stands to be the big winner in the recently announced sale of 18 Rainbow Supermarkets in the Minneapolis-St. Paul area for $65 million in cash. Rainbow’s parent firm Roundy’s sold the stores to Supervalu and several of its independent retailers, including Lund Food Holdings (three units). Roundy’s said it is actively seeking additional buyers for its nine remaining Rainbow stores, and at the conclusion of that process expects to either sell or close those remaining stores and fully exit the Minneapolis/St. Paul market. In other related news, Bob Miller, currently CEO of Albertsons LLC (another Cerberus unit), recently told students at Boise State University that his company might consider changing banner names once the Safeway acquisition is completed. He added that decentralization will remain a key part of the newly expanded organization, saying, “I think we have a really great structure that gives people authority and responsibility at the local level that make our company successful. In other words, I don’t have to look too much.” There’s some “pushin’ & “shovin’” at one of Miller’s key divisions. – Acme Markets. The tussle involves Acme’s need to negotiate for planned obligated increases to its multi-employer employee benefit fund with UFCW Local 1776.. Acme emphasized that it will continue to pay current rates while negotiations continue on a new contract. The Malvern, PA based retailer has noted that its associates in Local 1776 had health care costs that were 25-100 percent higher than the four other UFCW Locals which represent Acme, and its costs were 400 percent higher than the national average. Local 1776 claims that Acme failed to make the required contributions to its joint welfare fund, noting that Acme owed the plan more than $1.6 million as of December 2013. As of April 26, both sides agreed to extend their labor contract for an additional 60 days…late last month, Amy Hahn officially began her new career as a retailer, joining Ahold USA as senior VP of marketing, replacing Erik Keptner (who was an EVP), who was shifted to senior VP-merchandising and sales at the company Giant/Carlisle unit.. Hahn spent more than 20 years with the Hershey, most recently as global VP/general manager for direct retail and licensing where she led a 700 person cross-functional team, expanding the big Central PA chocolate maker’s retail presence across North America, Asia and the Middle East. Corporately, Ahold CEO Dick Boer delivered his address to the retailer’s shareholders at the company’s annual general meeting held in Zaandam, the Netherlands on April 16. Putting a positive spin on what has been a somewhat rocky 12 months for the international merchant, Boer said “it is one of the most exciting times ever to be a retailer.” He expressed continued faith in Ahold’s “Reshaping Retail” strategy, while also acknowledging the challenging market conditions in which “customers remain focused on value and were cautious in their spending.” Boer noted that Ahold’s investment in its “fresh” offerings remains a “key area for us to differentiate ourselves versus the competition. It is where real loyalty starts with our customers.” He also touted Ahold’s “omni-channel” vision, which combines traditional stores and online shopping that will “provide a seamlessly connected online and offline experience.” In the U.S., Boer noted that Ahold will increase its grocery “Pick Up Points (PUP)” to at least 200 by the end of the year and will open a new Peapod warehouse in Jersey City, NJ this summer. Other U.S. initiatives include the construction of a 100,000 square foot greenhouse (in partnership with BrightFarms) that will allow Giant/Landover customers a wider and fresh selection of produce and a continued focus on food safety…smart acquisition by Baltimore-based independent retailers B. Green & Co. and Harvest Fare in adding four former Farmer’s Foods stores based in Virginia to their portfolio. Now with 12 stores in their basket, the group hopes to leverage its combined $200 million in volume to increase buying power and receive more attention from the local broker and vendor community…as mentioned recently in my monthly column, Wal-Mart has had more than a few stumbles in the past few months. However, one decision made by the Behemoth that makes a lot of sense is its partnering with Wild Oats, which is no longer a retailer but a line of organic products. Originally introduced in 1987, Wild Oats will relaunch at Wal-Mart starting this month with a new, more affordable price point covering a broad variety of categories – from salsa and pasta sauce to quinoa and chicken broth. Both companies said that customers will save 25 percent or more when comparing Wild Oats to national brand organic products. “We know our customers are interested in purchasing organic products and, traditionally, those customers have had to pay more,” said Jack Sinclair, executive VP-grocery at Wal-Mart U.S. “We are changing that and creating a new price position for organic groceries that increases access. This is part of our ongoing effort to use our scale to deliver quality, affordable groceries to our customers.” “By partnering with Wal-Mart, Wild Oats is star
ting a movement that makes it easier than ever for customers to access affordable organic and natural products,” said Tom Casey, CEO of Wild Oats. “Our availability at Wal-Mart will allow us to finally pass along scalable savings directly to consumers. We are reinvigorating our brand by bringing great tasting Wild Oats products to more customers than ever before.” In a “strange bedfellows” kind of way, the Wild Oats operation is partly owned by a unit of Yucaipa Cos., which directly competes against Wal-Mart with its A&P (Pathmark, Super Fresh, etc.) and Fresh & Easy Banners…expanding from Europe to the U.S. will be huge German retailer Lidl, Aldi’s main rival. Lidl is said to be looking to open as many as 100 stores on the East Coast beginning in 2018 (the original entry date was pushed back from 2015). It has established a U.S. office in Arlington, VA, headed by its Irish leadership team, who are currently gathering data for the expected launch. In Europe, Lidl is a real powerhouse, running nearly 10,000 small discount units in 28 countries. However, as many European retailers have learned (Tesco, Carrefour, J. Sainsbury, Marks & Spencer, Leedmark, etc.), operating in the U.S. poses different and challenging realities. And Lidl will be entering the United States during one of the most competitive, overstored and economically unstable periods in the history of food retailing…the first external effects of Kroger’s acquisition of Harris Teeter (which was announced last July, but was only cleared by the FTC in January) is starting to take hold. The Matthews, NC retailer, which is operating as a separate unit, has lowered thousands of prices in its stores in several North Carolina markets, including its core market in Charlotte. “Over the years, our customers have asked us to lower prices and we’ve listened by introducing various pricing and promotional strategies which drive value to them. This new program is the big change our shoppers have been asking for. Through our recent merger, we have achieved better efficiencies and have chosen to reinvest those savings into, among other things, lower prices for our customers,” said Catherine Becker of Harris Teeter. Expect the lower price initiative to spread across the entire HT spectrum, including the Baltimore-Washington market, where it could significantly impact market leaders Giant/Landover and Safeway…one of Harris Teeter’s prime competitors, Food Lion, continues to show improvement. The U.S. unit of the parent company, Delhaize America (Food Lion, Hannaford and Bottom Dollar Foods), posted a 4.1 percent revenue gain in its first quarter. However, underlying earnings decreased 8.2 percent to $155 million, reflecting price investments at Le Lion, and Hannaford. Delhaize CEO Frans Muller noted that competitor Market Basket’s (Demoulas) four percent price cutting plan impacted Hannaford’s margin. And while the battling family factions at Market Basket are at least for now not having an adverse impact on day-to-day operations, the skirmish behind the scenes continues. Arthur T. Demoulas, the president of the high volume 74 store regional chain, recently sent a letter admonishing the company’s board for replacing the retailer’s company-based trustees with an investment advisory firm, Evercore, based in Manhattan. While Arthur T. remains the leader of the Tewksbury, MA supermarket company, his estranged first cousin, Arthur S. Demoulas has control of the board. It’s a nasty internal situation, given the fact the Arthur T. still has the firm support of the rank and file associates and current senior management…no major surprise in the ouster of Target CEO Gregg Steinhafel, who paid the ultimate price after the company’s massive security breach of late last year that occurred on his watch. Steinhafel, who spent 35 years with the Minneapolis-based mass merchant, has been replaced on an interim bases as chief executive by current CFO John Mulligan. Current board member Roxanne Austin has been appointed non-executive chairwoman…Safeway reported a net loss of $76.5 million in its first quarter while also posting overall revenue and identical store increases (excluding fuel) of 1 and 1.8 percent respectively. The Pleasanton, CA chain is currently in that “gray period” waiting for its sale to Cerberus to be completed by the fourth quarter of fiscal 2014. And according to an SEC filing by Safeway, Kroger may have been closer to acquiring the big West Coast-based firm than many thought. According to the proxy, Company “A” (believed to be Kroger) contacted investment firm Goldman Sachs to inquire about its interest in selling all or part if the company. After nearly a month of discussions beginning in late February, Company “A” decided not to make a firm bid, citing costs associated with anticipated divestitures would not ultimately yield a sufficient return on its investment…some obituaries to note this past month include the passing of Jesse Winchester, 69, the great (and underrated) singer/songwriter whose eponymous first album in 1970 still remains one of the best debut records in my collection. Winchester, who was born in Louisiana and raised in the South, fled to Canada in 1967 to avoid the draft. He gained fame performing in coffee houses in Montreal and it was there that he met Canadian Robbie Robertson, lead guitar player and primary songwriter of the great roots group, “The Band.” Robertson produced Winchester’s first album which contained such unsung excellent songs as “Payday;” “Biloxi;” “Snow;” “The Brand New Tennessee Waltz;” and “That’s The Touch I Like.” With a voice not dissimilar to James Taylor’s and the ability to write and sing in a pleasing style, Jesse Winchester’s talents are certainly worth checking out…my sympathies to my co-worker Maria Maggio, her mom Rosalie, her two brothers, Michael and Larry, her children Gino and Rosalie, and the rest of the large Maggio clan on the passing of her father, Mario Maggio, last month. Mario Maggio was the former president of Maggio Cheese Co., an iconic Philadelphia brand if there ever was one, who led the family business that was started by his father Michael, in 1916. In 1998, the Maggio family sold the company to Crowley Foods (now owned by H.P. Hood). Although small in stature, Mario Maggio was a giant of a man – beloved by his family, admired by his associates and highly respected by his industry peers. Even at an age – 94 – that most of us will never realize, Mario was still cracking jokes, dressing as nattily as ever and enjoying life. May you rest in peace. Other deaths of note include Bob Hoskins, the terrific British actor who left this earth at the age of 71. Hoskins was best known for appearing as a live action character in “Who Framed Roger Rabbit” (1992), but some of his best work can be seen in several UK-made taut suspense films including “The Long Good Friday” (1980) and “Mona Lisa” (1986), which earned him an Oscar nomination for Best Actor. Another actor of note has also passed. Efrem Zimbalist Jr., best known for his role as FBI agent Lewis Erskine in the hit TV show “The FBI” (1964-1974). I first remember Zimbalist though from his earlier television series “77 Sunset Strip” (1958-1964), where he played swinging private investigator, Stu Bailey. Zimbalist, 95, had nearly 100 film and TV roles in a 62 year career that began in 1946.
