Backstage Maneuvering Continues As AWI Nears Auction
While AWI members and White Rose customers and their associates as well as vendors await the upcoming auction of the now bankrupt wholesale organization, there’s been quite a bit of backroom action as those independent retailers continue to express concern over their future and competing wholesalers vie for a slice of AWI/White Rose’s $2 billion business.
In my opinion, C&S Wholesale Grocers is still in control of the process, given its stalking horse designation and the bankruptcy court’s interim approval for C&S to purchase the assets of the Robesonia, PA distributor. The Keene, NH wholesaler has agreed to pay between $132 and $152 million for those assets and has pledged to kick in an additional $18 million toward the $193 million Debtor-in-Possession (DIP) financing package.
Legally, there has been some pushback from the creditors committee which claims the DIP order makes no allowance for their $3.5 million in claims under a provision in the bankruptcy code -Section 503(b)(9) – which provides for vendors who provide goods to a company within 20 days of filing bankruptcy to make assets administrative expense claims. The creditors committee is comprised of nine members including such CPG heavyweights as Coca-Cola and Kellogg’s. According to the objection, AWI vendors are owed $23.1 million for such claims and the DIP budget makes no allowances for repayment, although it does include approximately $3.3 million in fees and expenses for bank lenders (primarily Bank of America). In its motion the creditors’ group said that if the sale to C&S goes through, AWI will have at most $5 million to pay off vendors and other administrative claims. AWI total vendor debt is listed at $72.1 million in addition to the $131.9 million it owes its lenders.
Separately, competing wholesaler Supervalu has also filed a motion with the court in which it claims that C&S received unfair favorable status during the bidding process and also notes that the way the agreement is currently constructed it would “essentially allow the potential purchaser to poach customers of the debtors before the auction and back out of the sale if customers of the debtors choose to do business with other parties.” Supervalu also objected to the court allowance of a potential $5.1 million for C&S, noting that the size of the break-up fee will have an adverse effect on unsecured creditors if the assets are sold to a party other than the potential purchaser (C&S). In that situation, “proceeds from the sale that could otherwise have gone to unsecured creditors must instead go the potential purchaser.”
U.S. Bankruptcy Court Judge Kevin J. Carey heard these objections at a hearing in Wilmington, DE on October 3. At presstime, he had yet to rule, but it would be surprising if he changes the course of events that already had been preliminarily approved (although legal analysts said he might open the door and agree that vendors should be paid under the Section 503 (b) (9)). Interested parties also told us that they hope a final date is approved for the auction. Currently, AWI has requested that all bidders be identified by October 22, with the auction to be held in the Philadelphia offices of AWI’s counsel Saul Ewing on October 24. They are asking for a “winner” to be declared by October 28.
The legal jockeying has not kept all interested parties from soliciting prospective customers. From the White Rose stable, key customers have opted to leave the Carteret, NJ wholesaler (for some only on secondary supply basis thus far). At presstime, Krasdale will be switching to Bozzuto’s for its dairy and frozen needs later this month; RMG (Thriftway/Shop ‘n Bag) has also increased its business with Bozzuto’s; Kings/Balducci’s will utilize the services of Wakefern; Associated (including Met and Pioneer) has chosen C&S as its supplier as has Fairway Market. Once the auction is concluded and as the AWI/White Rose independent retailers progress through the busy holiday season, some of these moves will likely be firmed up further.
As said earlier, this is C&S’s deal to lose. The country’s largest wholesaler already has been given “favored nation” status by the court. In purchasing AWI’s assets it also has partial control of those leases that AWI co-signed with their customers. Moreover, the front end systems of many members are tied in directly to AWI’s infrastructure. And with C&S currently helping to maintain the status quo in Robesonia and Carteret (jobs have been preserved and business is nearly back to normal), these will be huge hurdles for competitive wholesalers to overcome.
Also potentially aiding C&S is its recent hire of Christopher Brown. The veteran wholesale executive who left Nash Finch as president and COO last year joined C&S last month as senior VP-independent sales. Brown knows the Mid-Atlantic market and quite a few of AWI/White Rose’s customers from his many years at Richfood (Supervalu) and essentially has spent his entire 30-year career dealing with independent retailers. Brown’s talents aside, he’s going to help C&S improve its perception that some in the industry have about the privately-held distributor: that it’s an excellent third part distributor to large chains, but has not met that same standard when serving smaller independent operators whose needs and priorities are different. Brown should provide a huge asset in closing that perceived credibility gap.
The head start that C&S currently enjoys hasn’t prevented other wholesalers from attempting to “poach” customers. Supervalu and Bozzuto’s have been banging on doors relentlessly, trying to convince members to “switch sides.” And, AWI held a four day road show earlier this month visiting Delmont, PA, Scranton, PA, York, PA and Teaneck NJ in which C&S, Bozzuto’s and Supervalu all made separate 90 minute presentations to AWI’s members. And smaller specialty distributors (produce, HBC/GM) have also met with many of these independents, trying to convince them that they’re the best fit for those specific needs.
There are a few other issues to consider once the auction is completed. What will become of the corporately-owned Nell’s stores in southern Pennsylvania (there’s certainly a lot of interest in those four stores)? If C&S is declared the winner, will they keep the Robesonia and Carteret facilities open and the employee base stable in the long-term?
Stay tuned, we should know lots more by Thanksgiving.
Giant/Landover Rolls Out ‘Thunder’ in Balt.-Wash.
After initially testing the program at its Stop & Shop New York Metro division late last year, Ahold USA has unveiled the “Project Thunder” price impact initiative at its 169 Giant/Landover stores.
The price-cutting program broke on September 26 and based on my sources, Giant attained solid, but not spectacular sales gains during the first week. “Thunder” is one of the centerpieces in Ahold USA COO’s James McCann plan to change his nearly 800 stores from “good to great.”
While the program (which somewhat reminds me of AUSA’s VIP initiative in 2006) is being funded internally by cost-savings efforts throughout overall operations, the critical question for McCann and AUSA remains: can “Thunder” create enough of a sales bump to offset margin reductions created by lower prices?
Based on the trade reports and Ahold’s sales and earnings reports over the past year, the results thus far aren’t particularly encouraging. However, only about 50 percent of AUSA’s stores have been “Thunderized” prior to the Giant/Landover roll-out, so the initiative remains a work in progress. All stores are expected to be converted by early 2015. According to a talking points memo issued by Gordon Reid, president of the Landover unit, “Thunder” is more than just a pricing program. Giant claims it is investing in its associates with enhanced training opportunities which will lead to an overall improvement in the store experience for its customers. Other key components of the plan are a priority on upgrading Giant’s “fresh” departments and the further empowerment of store associates to take greater “ownership” of their departments.
As part of the initiative, Giant will replace its “Real Deals” and “Weekly Specials” with a single program called “Bonus Buy Savings.” New signage has also been created. Additionally, assortment has been improved (particularly in fresh departments) and Giant is “actively communicating with our customers about how they can maximize value across the store” while also upgrading its training.
The latter point is vital. After having observed the new “Thunder” model in about two dozen Stop & Shop stores in New York and New England, I believe the Northeast’s largest merchant has done a good job of creating an effective price reduction message with its customers. However in the areas of training and store staffing, both key elements needed to synchronize its message, Ahold USA still falls short when compared to other dominant service-oriented retailers that Giant/Landover, Giant/Carlisle or Stop & Shop competes against.
It’s also pretty late in the game to enter the price impact derby. Harris Teeter beat Giant/Landover to the punch by about two months by reducing thousands of retails in its nearly 50 B-W stores. Other “service” oriented retailers such as Whole Foods and Wegmans have gained market share during the past year and even third-ranked Shoppers Food & Pharmacy has achieved some growth during the past 12 months. That’s not even mentioning the continuing impact of low price players like Wal-Mart, Aldi, Save-A-Lot, Price Rite and the hundreds of dollars stores which now dot the B-W landscape.
That basically leaves Safeway for Giant to prey upon. During the past three years, the large Pleasanton, CA chain has done little to shed its unaggressive “vanilla” image and now that it is operating in the “quiet” period prior to its acquisition by Albertsons/Cerberus, its Lanham, MD-based eastern division seems practically inert. With so many locations near Safeway’s stores, Giant is poised to gain business at Safeway’s expense while the latter chain remains in lame duck mode.
‘Round The Trade
It’s been an extremely busy time at Ahold USA and just before presstime we learned that the Carlisle, PA-based retailer has revamped its category manager teams. According to a memo from Mark McGowan, executive VP-merchandising (who is also overseeing store ops until a new merchandising chief is hired), the realignment “is more than just a structural change; this is a cultural shift that will happen over time.” McGowan noted that “the new initiative will be more customer-driven to operate more competitively, improve support to the stores and drive sales; become portfolio and category centric, with stronger support for the portfolio leads and category teams; staffed at optimal levels. This means providing the right number of resources within clarified roles to support work and volume; become better organized for career progression. We have an improved approach for job progression to allow for more career path options; and finally, become more aligned with the other functions and with the divisions. We will have a strong merchandising leadership team to guide us through this and we’d like to announce the merchandising leadership team and our new portfolio leads, along with a bit of detail behind their category teams,” McGowan states in his missive to AUSA’s vendors. The new alignment shapes up like this: John Ruane remains senior VP-fresh and those reporting to him include: Kelly Krutz, floral; Tom Hurley, meat; David Lessard, produce; Travis Hubbard, deli/prepared foods; Patrick Killiany, fresh seafood; and Patrick Dwyer, bakery. Also remaining in place is Jeff Dichele, senior VP-nonperishables. Reporting to him will be: Tara Ponnett, warehouse beverage, main meals and enhancers; Jim Wonderly, general merchandise; Denise Mullen, beverage, rewards, beer and wine and commercial bakery; Todd Patti, dairy; Natalia Torres-Furtado, ethnic and specialty; Maria Ruisi, natural and organic; and Ken Kehres, fuel. The baking, breakfast and candy categories remain open. Kyle Kirkpatrick will be assuming the role of director of negotiation strategy, reporting to Dichele. Raymond McCall continues as senior VP-HBC, household, baby and pharmacy; reporting to him will be: Howard Sherr, HBC; Sheila Kostiuk, household; and Brad Dayton, pharmacy. McGowan added: “We’ll do our best to minimize disruptions to the smooth operation of the business and our relationship with our vendor partners. Until you are otherwise informed of a new Ahold USA partner, partners should continue to work with their current Ahold USA contact.” Over the past three months, AUSA has also restructured its store operations team, reducing the number of district managers and regional VPs while adding departmental specialists designed to better serve the retailer’s nearly 800 stores. By the way, Giant/Carlisle will be cutting the ribbon on its new replacement unit in Enola, PA on October 9… Steve Mayer, former senior VP-fresh for AUSA has joined St. Louis-based Schnucks as senior VP-produce and floral. He will be reporting to COO Anthony Hucker, who worked with Mayer when he served as president of AUSA’s Giant/Landover unit…Weis Markets has been awarded a $1 million grant that will be used to fund the retailer’s expansion of its cold storage distribution facility in Milton, PA. The Economic Growth Initiative grant will help retain 773 jobs at the facility, according to Pennsylvania Governor Tom Corbett. Weis plans to invest around $12 million to expand its Milton facility to an adjacent lot next to its existing center. The 104,000 square foot facility provides dairy, deli and packaged meats to 163 Weis stores…several sources have told us that the initial round of bidding for the nearly 70 Bottom Dollar Foods has been completed and there are reportedly two bidders who made it to the final round. We’re guessing that Supervalu might have made the cut, but we’re told that Aldi and future new U.S. entry Lidl have also expressed interest. We were also informed that parent firm Delhaize America is considering offers that would only include all of the nearly 70 BDF stores in the Delaware and Lehigh Valleys and in the Pittsburgh-Youngstown area…the battle to acquire Family Dollar still continues. The Matthews, NC discount chain agreed to be acquired for $8.5 billion by Chesapeake, VA based Dollar Tree Stores. Shortly after tentatively agreeing to the deal, Dollar General, the largest of all the dollar store operators, countered with an offer of $9.1 billion which it is now considering to make a hostile one. At presstime, Family Dollar said it still favors the Dollar Tree bid. However, Rick Dreiling, CEO of Goodlettsville, TN based Dollar General, said his company will continue to pursue the purchase of Family Dollar. At $9.1 billion, Family Dollar, a dollar store operator that has struggled in recent years, would fetch nearly as much as Safeway ($9.4 billion) did. Thus far, Family Dollar is still aligning itself with the lower Dollar Tree offer. A hostile takeover attempt is certainly possible…I had the pleasure of meeting many members of the new Albertsons management team who participated in the annual Acme/Shaw’s/Jewel charitable golf outing that took place late last month at the Philadelphia Cricket Club. While there are quite a few Safeway executives that made the cut (they basically will be overseeing Safeway divisions), I have a feeling it’s going to be a radical cultural awakening once Albertsons takes over the joint. For a company that for years was hindered, in my opinion, by process and bureaucracy, expect Albertsons’ more decentralized, self-empowerment model to serve as either revitalization or a career killer for those Safeway executives that are part of the new team…industry veteran Jack Murphy has been named Fairway Market’s new CEO. I’ve known Jack for many years beginning with his days at Purity Supreme in New England where he served as company founder Leo Kahn’s “Mr. Everything.” Leo and Jack came to Washington in the early 1990s to start Fresh Fields (along with Mark Ordan), which they ultimately sold to Whole Foods. Most recently, Murphy served as chief executive of Earth Fare, a 33 store organics retailer based in Asheville, NC. After a long search, Fairway made a great choice, hiring a talented, experienced, hands-on merchant who can help the Manhattan- based merchant properly structure an organization that can certainly sell “lotsa stuff,” but has struggled to turn a profit since its went public 18 months ago…a tip of the hat to Tom Dempsey, CEO of the Snack Food Association and former CEO of Utz Quality Foods, for hosting an interesting and enjoyable Executive Leadership Forum in Chatham, MA last month. The agenda was creative, the membership was engaged and the SFA team performed in stellar fashion…interesting story in Forbes about the Market Basket situation in New England. The bi-weekly biz mag claims that Arthur T. “Artie T” Demoulas wasn’t exactly deserving of the “white knight” status that has been ordained on him by the media. “Artie T constantly rejected any oversight of his decisions, repeatedly refused to share financial information with the board and concealed that profitability was down and total cash generated had fallen five years in a row,” the article states. Also noted in the story was that for the years that “Artie T” controlled Market Basket’s business (2008-2013), he spent $700 million of the company’s money on transactions with outside businesses owned by his wife and brothers-in-law. Hey, I don’t think anybody ever claimed that “Artie T” was without fault (especially if you believe the allegations in the article). But here’s the ultimate takeaway: did “Artie T” do anything that was proven to be illegal? Did he help the company grow sales and market share during his stewardship? What’s missing from the story is that, despite these alleged “maneuverings,” the connection and loyalty that “Artie T” had with Market Basket’s associates and the communities and shoppers that the retailer served was unmistakably deep and relevant. To wit: wi
th “Artie T” now reinstalled as CEO and about to acquire the entire company, Market Basket has been performing at record levels in the four weeks since the family dispute was settled…finally, I was deeply saddened to learn of the passing of Mike Warehime, 73, chairman of Snyder’s-Lance and former CEO of Snyder’s of Hanover, the Hanover, PA firm he helped build into one of the country’s largest and most successful snack food companies. Mike was also part owner of Seafood America. But more than a business leader, Mike Warehime was a wonderful person. His overwhelming kindness, graciousness and generosity earned him praise and respect from those he touched. I spent many days with Mike over the past 30 years discussing business and relationships while also sharing a few jokes and perhaps a cocktail. He helped many people along the way. If you met Mike Warehime on a park bench you wouldn’t know if he was a successful entrepreneur or a sales clerk. That’s how humble and unassuming he was. My condolences to his wife, Tricia and their three daughters Elizabeth, Kate and Susan. Mike Warehime, you will be missed.