Taking Stock

Clock Ticking On Future of AWI/White Rose 

It’s been more than two months since AWI announced it was attempting to sell its Carteret, NJ  based White Rose business while also naming Matt Saunders as the wholesaler’s new CEO. Saunders replaced the suddenly “retired” Chris Michael.

While there’s been much behind the scenes strategizing and planning, including the consideration of a possible sale of the entire AWI enterprise, the Robesonia, PA co-op still has nothing tangible to report to its members – and that’s not a particularly good thing.  And, just before presstime, we learned that Joe Fantozzi, president of the wholesaler’s White Rose unit, has left the company after 33 years of service. We’ve also learned that Doug Booth, along with Saunders, has played a key role in managing AWI through this crisis. Booth is a partner at Carl Marks Advisory Group LLC, which is serving as the de facto outside restructuring firm consulting with AWI.

In the past six weeks in more than a dozen conversations with White Rose customers and AWI members/owners, almost all have expressed frustration in getting a deal done. The same vibe is also being felt among the many associates employed at both companies.

Certainly this is a complex situation, hastened by much untended baggage left behind by Michael, who led AWI for 34 years. AWI’s board also bears some responsibility for allowing the problems to become so deeply rooted that it took a patronage shortfall to galvanize the owner/members to demand change.

But time is of the essence to get a deal done. Competing wholesalers, particularly Bozzuto’s, C&S and Supervalu, have been aggressively targeting AWI and White Rose customers, urging them to consider switching suppliers. One White Rose customer – White Plains, NY based wholesaler Krasdale Foods – has announced it will move its dairy and frozen business to Bozzuto’s in October and another account, RMG (Thriftway/Shop ‘n Bag), has reportedly made contingency plans to change suppliers should things descend to a situation in which service levels become threatened (those Delaware Valley retailers were burned by Fleming a decade ago).

At AWI, some members have confirmed to us that at least one wholesaler has offered to forgive/make good any potential debt that those operators may face in light of the outcome of the attempted sale process if they change to that distributor and sign a long-term deal.

However, several AWI owners have noted that their biggest concern has been the lack of communication between the members and those handling the potential sales process (that group includes AWI’s senior management, the special committee formed to explore of sales and Lazard Middle Market, the investment firm overseeing the process).

There are other issues to ponder, all with negative ramifications, if AWI cannot successfully resolve its problems in a timely manner. Those include: How much of a factor is the company’s under-funded retirement plan when analyzing a possible sale? Will AWI’s creditworthiness with its suppliers ultimately become a significant factor? And if the enterprise can’t be sold at the number that AWI needs to make itself whole, will Chapter 11 bankruptcy become a consideration?

The situation becomes more critical every day.

Acme, UFCW Local 1776 Agree To New Six-Year Contract 

After working under an extension agreement for the past 18 months, United Food and Commercial Workers Local 1776 and Acme Markets have ratified a new six-year labor contract which will affect approximately 3,000 clerks and meatcutters at 36 stores in Philadelphia, Montgomery, Delaware, Chester and Bucks counties.

UFCW Local 1776 is the largest labor union working at Acme’s 110 stores. Sister unions Locals 27, 152, 1360 and 1245 have all bargained new labor agreements with Acme within the last year.

Wendell W. Young IV, president of UFCW Local 1776, said the contract provides three hard wage increases of 30 cents per hour and one lump sum bonus over its term. “In addition to wage increases,” Young said, “this contract provides benefit security and improved job security.”

The contact, which will be backdated to February 1, 2012, and the hourly wage increases will be doled out this year, in 2015 and in 2017. In 2016 there will be a lump sum payment based on the number of hours worked annually by associates at the additional $0.30 increased rate.

Young thanked Acme members for their patience and solidarity throughout the long process of negotiations, saying, “Local 1776 Acme members deserve the credit for reaching this agreement with Acme Markets. I applaud their courage and willingness to not settle until a fair contract agreement was reached.”

In a phone interview, Young also said he recognized the contributions of the new Acme leadership team which he said was willing to listen and ultimately compromise on several tough issues.

“We’re in a different era today, “Young noted about the changing dynamics of labor-management relations. “With the implementation of the Affordable Care Act and the challenging competitive conditions which have changed the retail landscape, all parties must be willing to increase their flexibility and broaden their vision. This was a difficult but ultimately rewarding bargaining effort.”

He added: “This agreement gives Acme’s loyal employees what they deserve. And by avoiding a job action, Acme members are able to service their customers and keep the company in a competitive position. The members’ decision to accept this proposal is promising for Acme’s future. We’re all pleased and ready to move forward.”

A spokesperson for Acme stated: “Over the past 18 months, we have been working hard with all of our union partners to negotiate new labor contracts that are mutually beneficial and recognize the hard work of our Acme associates while also recognizing the increasingly complex and competitive marketplace in which we operate. We are pleased to announce that we have reached an agreement with UFCW Local 1776 for a new labor contract that will run through February 1, 2018. This agreement, which has been ratified by our associates, recognizes the dedication and passion of our outstanding associates and also positions us to execute on our commitment to restoring Acme proud heritage of excellence.”

With Shareholders’ Consent, Cerberus Waits For FTC Approval To Complete Safeway Deal 

So far the strategy has worked seamlessly. Cerberus (which as most of you know also owns Acme Markets) agrees to pay $9.4 billion to acquire 1,300 Safeway stores, which would make the private equity firm the second largest supermarket player in the country. Safeway, whose CEO Robert Edwards seemingly worked from his first day in office in May 2013 to shape the company to be sold, has now gained approval to go forward with the deal. All that awaits is the final seal of approval from the Federal Trade Commission (FTC) which will make its ruling on any potential store overlap issues.

On paper, based on previous FTC rulings, you could make an argument that as many as 400 Albertsons and Safeway bannered stores might have location conflicts, but I don’t believe the final number will be anywhere close to that.

While FTC policy and decision-making are often tough to read, I think the agency’s “overlap” standards are changing as the retail landscape becomes more crowded and diverse. To wit: the recent Kroger acquisition of Harris Teeter. Based on proximity, approximately 30 stores could have been viewed as conflicts between the two grocery chains in the Tidewater and Charlottesville areas of Virginia and in the Raleigh-Durham market in North Carolina. Final number of stores that the FTC determined needed to be divested: zero.

Now, you can argue that Kroger had excellent counsel stating its case (which is true), but in the end the usually slow-footed FTC acknowledged the fact that the competitive base to be considered should also include food and drugs sold by mass merchants, c-stores, club operators, dollar stores and military commissaries. Even the argument put forth by Kroger that certain shoppers enjoy their experience at Kroger while others were loyal to Harris Teeter had merit in the eyes of the FTC, which should make its ruling on the Safeway deal in the next four months.

However, there’s another more intangible issue that the new owners will have to deal with. I’ve been covering Safeway’s eastern division since 1978 and never have I seen the level of apathy at store level (and to some degree at headquarters in Lanham, MD) that exists today.

Part of this has been evolving for several years as the chain has cut store labor to a minimum and continues to merchandise and market itself in a very vanilla fashion. Also contributing to the malaise is the pending sale, which inevitably creates increasing indifference among the associates. Safeway certainly isn’t making any noticeable strategic or tactical changes (even though Harris Teeter and Giant/Landover have recently lowered prices) and new owner Cerberus is forbidden to involve itself in Safeway’s affairs until the deal is consummated. Typically that leaves the associates to wonder what their new role will be (or if they’ll have one) under the new ownership as current management more or less serve as stewards until the changing of the guard is completed.

It’s certainly not a healthy situation but one we’ve seen often in the transitional “quiet” period. In the meantime, the Baltimore-Washington market continues to be ultra-competitive and grossly over-stored, which will make it more challenging once Cerberus and its New Albertsons. Inc. subsidiary gain control.

About a year from now, when new ownership is firmly entrenched and has had enough time to implement the changes its desires, we should have a pretty good idea of what the “new” Safeway will look like, both here and corporately.

‘Round The Trade 

Just before presstime, Supervalu acknowledged that it may have suffered a data breach at its corporately owned regional chains (180 units trading as Shoppers Food & Pharmacy, Farm Fresh, Cub Foods, Shop ‘n Save and Hornbacher’s) during the period June 22-July 17. The Eden Prairie, MN based retailer/wholesaler hasn’t determined if any cardholder data was actually stolen and there’s no current evidence of the data being misused, but admitted that hackers accessed a network that processes store transactions. The company also said that related criminal intrusions may have occurred at sister companies Albertsons LLC and New Albertsons Inc., adding that the possible data breach did not impact corporate or licensed Save-A-Lot stores or any of the independent retailers it supplies. Supervalu also noted it has released the information out of “an abundance of caution,” adding that it believes that the intrusion has been contained and the company remains confident that consumers can safely use their credit and debit cards at its stores. In more positive Supervalu news, we heard from several independent retailers who attended the wholesaler’s first annual national sales expo and all left with a positive impressions of the trade show called “Sales 4 All Seasons” which was held in St. Paul, MN August 12-14. More than 3,900 industry executives (including independent retailers representing about 1,250 stores) attended the premier event which featured more than 20 educational sessions and more than 330 expo booths. There was particularly good news for several of SVU’s Mid-Atlantic customers. Orwigsburg, PA based Boyer’s Food Markets received an overall master marketer award in the larger tier one group and also was recognized in the private brands category for its Mrs. B’s Pie Extravaganza. Telford, PA based Landis Market received an award for its 75th anniversary celebration (tier two). Yardley, PA based McCaffrey’s Markets was recognized for its “industry promotions” achievement with Nutella (tier two). On an overall basis, St. Cloud, MN basked Coburn’s received the top award – “2014 grand master marketer” – for its comprehensive marketing campaigns over the past year…it was another challenging quarter for Wal-Mart as the planet’s largest retailer reported flat U.S. comparable store sales and a 2.4 percent decline in U.S. operating income during the fiscal second quarter ended July 31. Overall net income was up marginally. The Bentonville, AR-based merchant also noted that higher health care costs and further investments to drive e-commerce initiatives would adversely impact earnings during the second half of the year, lowering its anticipated annual earnings per share to a range of $4.90 to $5.15 from previous forecast of $5.10 to $5.45. The Behemoth said comps at its Neighborhood Market stores increased by 5.6 percent during the quarter, but that U.S. SuperCenters and Sam’s Club both had flat non-fuel comparable sales. “We see opportunities to improve in merchandising, pricing and store level service in our SuperCenters, and we are working to close those gaps,” Doug McMillon, Wal-Mart’s CEO, said. “Our investments in e-commerce and mobile are very important, as the lines between digital and physical retail continue to blur. Our customers expect a seamless experience, and we’re working to deliver that for them around the world.” And late last month, the large retailer arguably made the most significant move under McMillon’s tenure (he took the helm at WMT in February) when it named Greg Foran, as president and CEO of its U.S. stores (4,200 units with annual sales of $279 billion) replacing Bill Simon who “retired” (translation: is being removed from his job on an involuntary basis) from the post he held for the past four years. Foran, a native of New Zealand, joined Wal-Mart in 2011. He most recently ran Wal-Mart’s Asian business and previously served as chief executive of Woolworths, one of the biggest retailers in Australia. In acknowledging Foran’s talents, McMillon noted “…his passion for fresh food…and commitment to e-commerce will help serve our customers even more effectively for years to come.” …in naming Brian Cornell as its new chairman and CEO, Target chose the best qualified man for the job. With leadership experience at Wal-Mart (Sam’s Club), Michael’s Stores and Safeway on the retail front and at PepsiCo on the CPG side, Cornell is someone who not only has the experience and talent to lead the struggling Minneapolis-based merchant, Target has found a leader with the right temperament. But let’s not forget that Cornell’s challenges will be tall ones as he tries to repair a company whose perception and performance had been declining even before the credit card breach problem. Among Target’s other issues are declining U.S. ID sales, a drop in customer counts and a pending disaster in Canada ($1 billion in losses), which Target entered in 2013…Paula Price, former executive VP/CFO of Ahold USA, has been named to the board of directors of Dollar General Corp. Price, who left AUSA last year, is currently a senior lecturer at Harvard Business School and formerly served as senior VP, controller and chief accounting officer at CVS Caremark. Dollar General, based in Goodlettsville, TN was rumored to be buying Family Dollar, but instead Chesapeake, VA-based Dollar Tree Stores will acquire the Matthews, NC discount merchant in a deal valued at $8.5 billion…while Delhaize still has a long way to go to make a substantial impact with U.S. consumers, give new CEO Frans Muller credit. He’s conducting business in a straight ahead and no-nonsense manner (unlike his predecessor, the inert Pierre-Olivier Beckers) and sales in the U.S. continue to modestly improve. In its recently completed second quarter, comp sales increased 3.3 percent and overall revenue jumped 4.7 percent. Unfortunately, the scenario is quite different in Europe, particularly in its core Belgium market where the Brussels-based retailer lost $60.2 million compared to positive earnings of $140 million in last year’s second quarter. Regarding its decision to potentially sell its struggling Bottom Dollar Foods unit, I believe Muller is also cutting his losses while he can. Judging by the data that we received about BDF’s stores in eastern PA and southern NJ, sales were not justifying basic overhead costs, especially the large initial investment that Delhaize made in real estate. Most of the leases at its 66 stores run until about 2030 with average rents in the $10-12 per square foot range. While Muller noted that Bottom Dollar was inching closer to break-even status, the realistic possibility of its small format discount division ever sustaining consistent growth and profitability in markets as competitive as the Delaware and Lehigh Valley regions was a long shot at best. In recent months, I’ve frequently written about the pressures and impact of over-storing ultimately forcing a “thinning of the herd” market correction. With a potential sale of BDF, nearly one million square feet of space will become available in a 100 mile radius ranging from East Windsor, NJ to Reading, PA.

Local Notes 

Ahold USA is realigning its field support structure in an effort to provide more store support at the divisional level. In the new field structure, which will be in place at all four AUSA divisions (Stop & Shop-New York Metro, Stop & Shop-New England, Giant/Carlisle and Giant/Landover), new district support teams have been created. These specialists’ objectives will be aligned with their districts’ stores and division objectives as well as the objectives of their functional support areas at AUSA. The retailer noted it will help ensure that everybody from the category teams based in Carlisle, PA to the divisional teams to the department leaders in the stores have the same priorities and objectives. These positions will have dual reporting, both to their district director and their division functions director. Team members include specialists in produce/floral, deli/bakery, meat/seafood, center store and one human resources manager per district. The team will also include a front end specialist and asset protection manager for every two districts. Moreover, there will be realignment within the districts and regions. AUSA will be shifting from three regions to two regions at both Stoppie divisions and at its Giant/Landover unit. At Giant/Carlisle (Martin’s), there will now be three regions (down from four regions). Each regional VP will now expand their oversight from approximately 60-70 stores to about 100 units while each district director will expand their span from about 10-12 stores to 16-18 units. The Northeast’s largest retailer will make some further tweaking of the new structure by the end of August. Related to these divisional changes, Ahold USA is also offering some associates who are at least 58 years of age a voluntary option to consider a change in their work or to retire early. The VSIP (Voluntary Separation Incentive Payment) agreement is being offered to fewer than 100 associates at all four AUSA divisions…late last month, AUSA also announced that it acquired the Eastside Marketplace, the trendy, organic and prepared foods store based in Providence, RI. Eastside Marketplace has been owned by industry veteran Scott Laurans since 1981 (Laurans once served on the board of Giant/Landover and his uncle Ray Laurans was CEO of former wholesaler Roger Williams Foods). It’s interesting to note that the new acquisition will not be part of Stop & Shop’s New England division, but seemingly will act as a stand-alone unit that will serve as a learning laboratory for Bhavdeep Singh, newly named EVP of AUSA’s recently created new formats unit, and his team to explore. Incidentally, general manager Brian Pacheco and his staff of 168 associates will remain in place…one of Ahold’s chief competitors, Weis Markets, posted interesting second quarter results. The regional chain saw earnings decline 47.1 percent to $24.2 million while overall sales grew by a healthy 4.5 percent and comps rose 2.9 percent. Jonathan Weis, president and CEO stated, “This is a year of planned recalibration for our company and one where we are reinvesting in increased sales and market share to better ensure our long-term growth. We have achieved these sales results despite self-imposed grocery department deflation due to our pricing initiatives. Our investments in these price reductions and other sales building programs have resulted in higher sales per customer and an increased customer count.” As I’ve said previously, Weis is taking the proper course to ensure long-term stability and potential success. Driving sales at the expense of short-term profits is sometimes painful in the short run, but much more effective than “chasing the quarterly earnings rabbit,” deployed by too many operators who no longer have the courage to face Wall Street if occasionally there’s a sales shortfall that’s driven by strategic planning and new policies. And once Weis is able to cycle a full-year of its price impact program, earnings will certainly improve, too. One more Weis note: the company has opened two more in-store beer cafes at its units East Norriton, PA and Doylestown, PA (both stores were former Genuardi’s supermarkets) in what the Sunbury, PA-based merchant termed a natural evolution of its business. The new cafes offer 300 varieties of beer and can seat 35 customers. Weis now has 20 in-store beer cafes among its 163 stores… and a tip of the hat to Weis, Ahold USA and Redner’s for once again hosting three terrific golf outings. All three retailers continue to show that charity and philanthropy remain top priorities while also providing a fun experience for their vendors and associates…Fairway Market opened its 15th store late last month in Lake Grove, NY (SuffolkCounty). The 50,000 square foot Long Island unit, which features a new store design and improved signage and lighting, is the nicest suburban unit the “not like any other retailer” has opened to date. However, the emerging upscale retailer is still finding the going rough on the bottom line. In its recently completed first quarter, the Manhattan-based merchant posted a loss of $27.9 million and saw same store sales decline by 1.7 percent, which the retailer said was caused by cannibalization of other new Fairway stores and the impact of a recent competitive opening. On the analysts’ conference call after the earnings announcement, Edward Arditte, Fairway’s CFO and co-president, said that Fairway would slow its new store growth in the next few years with only one or two new units to be opened annually. As previously announced, Fairway plans to cut the ribbon at its Tribeca store (Lower Manhattan) next year and is scheduled to open a store in Manhattan’s Hudson Yards (West Side) in fiscal 2017. Another previously unannounced new store is planned for fiscal 2016 on Staten Island, which would be the regional retailer’s first unit in New York City’s smallest borough…Big Whoop of the Month: Pathmark, like its sister banner Waldbaums did last month, has elected to discontinue its loyalty card in a plan that apparently will allow it to lower prices. However, at A&P, Super Fresh and Food Emporium stores, cards were still being accepted (yawn). Kudos to our buddy, Larry Weaver, VP-consumer sales for the Dairy Farmers of America, who has retired. Larry’s been in the biz for about 40 years and his professionalism, wit and candor, have long made him one of the best peddlers in the industry. We wish you nothing but health and fun in all your future endeavors…Karl Albrecht, founder along with his brother Theo (who died in 2010) of Aldi, has passed away at the age of 94. Karl and Theo took their parents’ grocery store in the western German city of Essen and built it into an empire that now encompasses nearly 10,000 stores operating in 17 countries. In 1979, the brothers acquired specialty grocery chain Trader Joe’s. According to Forbes, the very reclusive grocery genius had an estimated worth of $25.9 billion…it is also with sadness that we report the passing of the great James Garner. One of my favorite actors of the past 50 years, Garner’s self-deprecating “everyman” style made him a notable exception to the typical good looking Hollywood leading man. He first made his mark in the TV western “Maverick” (1957-1962) and played notable roles in such popular movies as “The Americanization of Emily” (1964); “Support Your Local Sheriff” (1969); and “Murphy’s Romance” (1985). However, the best example of Garner’s charm and guile could be seen in his role as private investigator Jim Rockford in “The Rockford Files” (1974-1980), which remains one of the best roles in television history. For me, one of Garner’s best roles also came as former RJR Nabisco CEO F. Ross Johnson in the 1993 movie “Barbarians At The Gate.” If only Johnson was that talented and funny in real life. James Garner was 86 years old when he passed away at his Los Angeles home…Lauren Bacall has also died. The sultry, husky-voiced actress made her screen debut at age 19 in the great Howard Hawks film “To Have and Have Not” (1944) wher
e she would meet her future husband Humphrey Bogart. In an all-time classic scene (and her only one in the movie) in which she is leaving Steve’s hotel room (Bogart’s character’s nickname), she murmured: You don’t have to say anything, and you don’t have to do anything. Not a thing. Oh, maybe just whistle. You know how to whistle, Steve? You just put your lips together and blow.” In a long career that spanned 70 years, Bacall (born Betty Joan Perske) won two Tony Awards, a special Academy Award and appeared in more than 70 films and TV shows and also starred in six Broadway plays…finally, I’m still in disbelief about the sudden death of Robin Williams, who hung himself at the age of 63. Despite immense talent, Williams could never rid himself of his personal demons – alcohol, drugs and severe depression – a very sad and heartbreaking situation. His improvisational comedic abilities were unparalleled. Sometimes his antics were so frenetic that they would tire you out, but you’d always laugh (and sometimes cringe, too). As for his acting abilities, they were also terrific (but often underappreciated). From over-the-top comedy roles like “Mrs. Doubtfire” (1993) to intense dramatic roles such as in “Good Will Hunting” (1997) for which he won an Academy Award, Williams’ performances were almost always top-notch, even if his movies didn’t always achieve those levels. Barry Levinson, who directed Williams in the excellent 1987 film “Good Morning, Vietnam,” captured his persona so vividly when he eulogized his friend: “He was amazingly funny. Not the usual tell a joke funny. Some other kind of funny. A funny that defies all imagination. When he was on, he was the human version of a fireworks display. Funny ideas and characters traveling almost at the speed of light. ‘How is that possible?’ More than one person has asked me over the years when Robin would go on a long wild comedic routine off the top of his head, ‘Where does he come up with this? Where does it come from?’ There is no answer to the question. Genius cannot be explained. There are only a few among us who pass through this world with an ability that can’t be described or the process understood. What makes his death so difficult to understand is the question ‘How can someone so funny be so sad?’ We can reflect on it, try to understand it, analyze it, but nothing will truly answer the question. The fragility of the man, his sensitivity, his deep feelings for life….all that allowed for him to carve his comedic sensibilities, were the same feelings that took his life. He felt too much perhaps? There was always a kindness to Robin. An inquisitive man trying to understand the madness of mankind. But when the comedy motors were off, you could sense the vulnerability of the man. There was always a sense that he could easily be hurt. And if he were hurt, how quickly could he heal? A bleeder in a world of sharp edges. There was an innocence to his thoughtful intelligence. If there were an endangered species list for mankind, he would have been first on that list. He was perhaps too delicate for this difficult world. We lost one of a kind. We all lost a friend.”