The song remains the same: overstored markets featuring a diverse range of shopping options, a still unsteady economy and the continued growth of alternate channel operates made market conditions challenging, especially again for traditional supermarket operators. Add to that an 11 percent reduction in Supplemental Nutritional Assistance Program (SNAP) benefits (which affected the supermarket channel the hardest), the Mid-Atlantic marketplace remained a very difficult place to operate.
This year there were fewer winners (in terms of market share gains) and a lot of retailers whose identical store sales continued to trend downward. Wegmans, Whole Foods (despite its stock price decline), Trader Joe’s, Aldi, Kroger and its newest entity Harris Teeter (which it acquired last July) all proved they could continue to build sales, open stores and increase customer counts.
Conversely, perennial Mid-Atlantic market leader, Giant/Landover (a unit of Ahold USA) had a very difficult year with sales declining and store counts reduced. However, Giant wasn’t the only retailer to take it on the chin. Baltimore-Washington competitor Safeway also operated fewer stores than last year and found the competition extremely rugged. Others that produced sales declines during the past 12 months included Farm Fresh, Weis Markets, and the Shurfine/Shursave independent retailers who primarily operate stores in Central PA.
While supermarkets remain the dominant outlet in which to buy food, the combined growth rate (in sales) from mass merchandisers, drug chains, club stores, military commissaries and convenience stores now outpaces that of supermarket by nearly a 4-1 margin. Not only are those “alternates” currently adding more stores than supermarket operators, they are expanding their grocery offerings, too.
Our survey measures sales for the 12 month period ended March 31, 2014.
Here’s a look at how the top 10 retailers fared this year.
Giant/Landover remained atop the leaderboard, but as noted earlier, sales took a big hit, dropping nearly $113 million to $5.67 billion. The company operates three fewer stores this year (165 vs. 168) and Giant particularly felt the impact of Wegmans, Harris Teeter and its own internal issues.
Ranking second once again was Wal-Mart which gained extrapolated food and drug sales ($4.01 billion vs. $3.85 billion). However, the Bentonville Behemoth’s ID revenue was flat and its gains came on the strength of operating six more stores this year, including its first two stores in Washington, DC, two new SuperCenters and two Neighborhood Markets. Wal-Mart has proclaimed that it will be fast-tracking its Neighborhood Market and “Express” formats in the next three years.
After a decade of declining sales, making small positive strides this year was Food Lion. With the closure of six units over the past year (it now operates 299 stores in the Mid-Atlantic), Food Lion’s Mid-Atlantic sales declined slightly to $3.3 billion, but the Salisbury, NC-based unit of Delhaize did see positive ID sales results due to its store refurbishment and rebranding effort which was fully implemented chain-wide. The ultimate question for Delhaize America is that once its “rebranding” number fully cycle, can it sustain its modest gains?
Holding on to fourth place in the region was Safeway. To be blunt, it was not a pretty year for the company’s Eastern Division, which under relatively new CEO Robert Edwards, did lots of trimming – labor in its stores and at the executive level. Its consumer perception remained rather vanilla and with the competition targeting Baltimore-Washington leaders Safeway and Giant, Safeway’s sales dipped while operating two fewer stores than the year before.
For the year, Safeway operated 122 stores which amassed estimated sales of $3.11 billion. It will be interesting to view the company a year from now when Cerberus/New Albertsons takes the helm.
Giant/Carlisle remained in fifth place among all food and drug merchants in the region. For the only non-union unit of Ahold USA, it remained a tale of two cities. It performed relatively well (although not as well as in recent years) in its core Central PA market. However, in the Richmond area, where it faces a rugged daily battle with Kroger and Wal-Mart, results at its Martin’s bannered stores remain disappointing. It only looks like it will become even a tougher row to hoe in two years when Wegmans debuts its first two units in the capital of the Old Dominion. Giant/Carlisle operated 80 stores in the market which garnered $2.75 billion in sales over the past 12 months.
CVS remained the drug kingpin in the region. Like its rivals, Walgreens and Rite Aid, the Woonsocket, RI retailer increased its grocery offerings this year which helped increase sales at its 490 units, seven more than last year. Sales are estimated at $2.54 billion, up from $2.49 billion last year.
Another company that began to regain its form after seven years of declining sales was Shoppers Food & Pharmacy, which saw ID sales rise. While the unit of Supervalu has a long way to go before it regains its form of the 1990’s and early 2000s, new leadership and direction both corporately and regionally helped boost sales to $1.62 billion with the same 56 stores of a year ago.
For Target, the good news was that the Minneapolis-based mass merchant had a relatively solid first seven months of our measuring period. Then the company suffered a massive credit card breach which caused holiday sales to tank and put the once idolized chain into crisis mode which ultimately results in several management changes including Gregg Steinhafel as CEO. While it has regained some its mojo, Target will most likely be scaling a tall mountain for at least the next 18 months. And it didn’t help that its fledgling Canadian stores are underperforming, too. For the past 12 months, Target’s extrapolated food and drug sales at its 100 units (including more than 80 p-fresh hybrid stores and three Super Targets) are estimated at $1.58 billion.
One of the best performers of the year was Harris Teeter, now a unit of Kroger, the largest pure play grocery chain in America. The service-oriented retailer opened three new stores over the past year (it now operates 57 units) and grew overall sales by more than $75 million to an estimated $1.35 billion. With a new price impact program just unveiled in the Baltimore-Washington market and at least six new stores in the pipeline, Harris Teeter seems poised to grab more market share over the next 12 months.
Ranking 10th among all Mid-Atlantic food and drug retailers was the largest convenience store chain in the country – 7-Eleven. The c-store operator is yet another company that for years suffered from complacency and an inability to escape from the effects of being part of a large centralized bureaucracy. However, in the past two years, it has shown some vitality and creativity both in store design and merchandising. That has paid off in modest same store sales gains and new store openings. However, in the Mid-Atlantic market, the c-store competition remains brutal with Wawa, Sheetz and Royal Farms proving to be very formidable rivals. For the year, 7-Eleven operated 12 more stores (971) and compiled estimated annual sales of $1.39 billion a gain of $36 million over 2013.
Other retailers amassing more than one billion in annual sales included the 99 “International Markets” (these are ethic and specialty stores – primarily Hispanic and Asian units – that we have lumped together. Stores included in this market study must be over 10,000 square feet in size and/or produce annual sales of at least $5 million). The “International Markets” are one of the fastest growing food retail segments in the entire region and we estimate that the annual sales at those 99 stores to be $1.28 billion.
Club store giant Costco operated 28 stores in the region (two more than last year) and garnered annual extrapolated food and drug sales of $1.25 billion; Rite Aid, which has rebounded nicely over the past couple of years, saw its sales improve at its 383 stores in the region to $1.24 billion; and rival Walgreens (which maintained the highest per store average among all drug chains) opened 14 stores over the past 12 months (224 in the region) and accumulated estimated annual sales of $1.08 billion.
Other retailers of significance which moved the sales needle forward and continued to open new stores included: Wegmans, now with 14 stores in the market and estimated sales of $980.5 million; Whole Foods, with six new stores in the Mid-Atlantic pipeline, increased annual sales to an estimated $723.1 million; and Trader Joe’s which now operates 23 stores in the region (three more than last year) and increased estimated annual sales from $383.5 to $430.4 million this year.
By class of trade, Giant/Landover (165 stores, $5.67 billion in sales) topped all supermarket retailers; Costco (28 stores $1.25 billion in extrapolated sales) led all club retailers; Wal-Mart (143 stores; $4.01 billion in extrapolated sales) led the mass merchandisers; CVS (490 stores and $2.54 billion in estimated sales) led among the drug chains in the Mid-Atlantic; and 7-Eleven (971 stores and an estimated $1.29 billion in revenue) paced the c-stores. Additionally the 22 military commissaries rang up annual sales of $919.0 million
Viewed as a group, the 49 corporate chains in the market operated 4,626 stores and accrued $43.9 billion in annual sales, good for 97 percent of the Mid-Atlantic region’s $45.22 billion food and drug market.
Among all independent retailers (those operating between two and 17 stores), Baltimore-based Mars Supermarkets (17 stores with estimated sales of $210.2 million) continued to lead all non-chain operators in sales. Other independent retailers topping the $100 million sales mark included B. Green (six stores, $141.5 million in sales); and Karns Prime & Fancy Foods (eight stores including its newest store in Carlisle, PA, which compiled $127.5 million in sales).
As a collective group, the 18 independent retailing organizations in the Mid-Atlantic operated 87 stores which garnered sales of $1.06 billion (marginally up from last year). Independents controlled 2.35 percent of the region’s food and drug revenue.
The biggest stories of the year were Kroger’s acquisition of Harris Teeter and Cerberus Capital Management’s pending purchase of Safeway Stores. The Harris Teeter deal (agreed to in July, finalized in January 2014) has allowed the Matthews, NC retailer to continue to operate in its upscale, service-oriented style without any obvious intrusion from its parent firm. Kroger is expected to use its $100 billion clout to leverage buying power and infrastructure. And the first salvo dealt earlier this month when Harris Teeter lowered its prices by approximately 15 percent in the Baltimore-Washington market (a program that began in its core Charlotte market in May). That price reduction program will certainly aid HT’s growing presence in B-W.
Cerberus (AB Acquisition) expects to close the $9.4 billion Safeway purchase by year’s end (after federal regulatory approvals are gained). On June 13, the company announced that Safeway’s Eastern Division will be part of its New Albertson’s Inc. (NAI) unit, which also includes Acme, Shaw’s and Jewel/Osco, setting up the possibility that the Eastern Division could be part of a regional network of Cerberus owned properties.
Also during the past 12 months, Fresh & Greens (a unit of Natural Markets Food Group) closed its doors (its stores were originally acquired from A&P/Super Fresh in 2011) and all six stores are currently on the sales block. Also shuttering operations was Santoni’s Supermarket in Baltimore, which had served the Highlandtown community for 83 years.
And when times are challenging, there are usually more management changes to report. Such was the case over the past year, as changes at the top occurred more frequently than compared to the past five years.
Gordon Reid was named president of Giant/Landover after Anthony Hucker left for Schnuck’s in St. Louis where he currently serves as COO. Doug McMillon replaced the now-retired Mike Duke as CEO of Wal-Mart. Delhaize (Food Lion) named Frans Muller CEO of its international network of stores; he replaced Pierre-Olivier Beckers, who retired. Safeway blew up its Eastern Division management team, naming Brian Baer as president. Giant/Carlisle replaced popular president Rick Herring with Tom Lenkevich, a Central Pennsylvania native with long ties to the food industry. Shoppers Food & Pharmacy named veteran company executive Bob Gleeson as its new president, and sister firm Farm Fresh installed Micky Nye as its new leader. Additionally, Dave Hepfinger left his CEO post at Weis Markets and was replaced by vice chairman Jonathan Weis (who also continues to hold the post of vice chairman). Weis later named Kurt Schertle as COO. In a planned succession, Rodney McMullen became Kroger’s new chief executive, taking the baton from the highly respected Dave Dillon, who retired. And Target, which had a rocky year triggered by a massive credit card security breach, announced in May that it replaced its longtime CEO Gregg Steinhafel with former CFO John Mulligan, who will serve on an interim basis.
