C&S On Buying Binge To Expand Independent Base
Over the past 30 years, the phenomenal growth that C&S Wholesale Grocers has enjoyed has come largely as a result of its success in providing third party distribution and logistics services to some of America’s largest chains – Ahold USA, Bi-Lo/Winn-Dixie, Safeway, A&P and Target.
As the Keene, NH company continued to expand its geographical base (it is now a national distributor), it slowly began adding more independent retailers to its portfolio. But supplying smaller independents has never been viewed as C&S’ strength. In the Northeast over the past decade, many independent retailers told us that they have shied away from C&S because they didn’t think the voluntary wholesaler, whose annual sales are approximately $20 billion, could be masters of two universes – large chains and smaller independents. Others added that they wouldn’t feel comfortable utilizing C&S when the privately-owned wholesaler was also servicing many of their major competitors. That view is clearly changing, and changing rapidly.
Due to significant industry consolidation in the past five years, there simply aren’t as many third party retail supply opportunities available. Many of C&S’ key chain retail agreements were made in the last millennium (and to the company’s credit, remain in place today), but going forward where are those new third party opportunities going to be found? That portal, as it potentially relates to C&S, may also undergo some change in the near future – i.e., will Cerberus/AB Acquisition remain with C&S after it officially acquires Safeway? Now that Southeastern Grocers’ (Bi-Lo/Winn-Dixie) attempt at an IPO has failed, what’s the long-term future of that retailer?
C&S’ chairman and CEO Rick Cohen didn’t become one of the smartest (and wealthiest) executives in the grocery business by accident. His 40 pound brain (a 25 percent weight gain over previous years) is still working at warp speed.
He recognizes that the same industry consolidation that’s impacted large chains is also affecting wholesale grocers, which have found that their business models are changing, too. Because of those changes, Cohen has acknowledged that the company, which was begun by his grandfather in 1918, is putting “immense focus” on building its independent business.
In the past six weeks, C&S has hired Alejandro Rodriguez (ex-Pepsi) as executive VP of new business and market development and also has brought aboard Christopher Brown as senior VP-independent sales. Brown has enjoyed a very successful industry career for the past 30 years, primarily working for more independent-focused wholesalers. Both moves are designed to create infrastructure and connectivity as C&S’ accelerates its mission.
Backroom support is important, but not as important as gaining new customers. And in the past month alone, the company has unleashed its checkbook by announcing and/or finalizing three acquisitions.
Late last month, C&S purchased the store support, marketing, branding, accounting and IT services of Greenbax Enterprises, the parent company of Piggly Wiggly of Carolina, for $9.3 million. Nearly 50 Piggly Wiggly stores are in play and C&S had already been supplying those units for nearly a year.
And just before presstime, we learned that C&S has agreed to acquire the wholesale distribution and supply business of Grocers Supply. The acquisition will include Grocers Supply’s warehouse and distribution operations in the Houston, Dallas and Rio GrandeValley areas, along with its approximately 1,800 employees, but will not include any of Grocers Supply’s retail operations. The transaction is expected to close before the end of the year. About that deal, Cohen noted: “The Grocers Supply Company has a century-long legacy of providing the highest level of service to its valued customers, which are primarily independent retailers and regional chains. We very much look forward to partnering with the Grocers Supply team to continue this tradition and to expand the services and offerings available to its customers through the strength and scale of C&S. C&S is excited to enter the Southwestern United States market and to have the opportunity to service this growing and vital region.”
Grocers Supply distributes all major product lines, including grocery, frozen, dairy, meat, produce, general merchandise, and health and beauty care, and is also known as one of the leading distributors of Hispanic grocery products in the country, focusing on Texas-made and Texas-grown products. Grocers Supply’s largest customer is the Fiesta Mart chain of stores, which includes 60 retail locations.
And of course, there’s the AWI asset purchase, which among other things, is a credit to C&S’ administrative expertise (in case you’ve wondered why there are so many attorneys and finance professionals on the C&S team, the AWI saga should answer that question). Clearly from the day – September 9 – it was announced that the U.S. Bankruptcy Court granted the wholesaler “stalking horse” status, the AWI opportunity was C&S’ to lose. Although Supervalu bid aggressively (and if nothing else, elevated the ultimate sale price by $95 million), C&S, which already had leverage entering the auction, did what it had to do to close the deal.
Even after U.S. Bankruptcy Judge Kevin J. Carey announced that C&S had won the auction, industry observers continued to ask the same questions about the deal. What percentage of AWI/White Rose’s customers will C&S ultimately retain? Will unionized warehouses in Robesonia, PA and Carteret, NJ remain operational a year from today (C&S has enough non-union warehouses in the Mid-Atlantic to potentially seek a different distribution and logistics solution)? On a long term basis, how might the employee rosters change? Will procurement ultimately remain in Robesonia and Carteret? Will C&S look to sell the four corporately-owned Nell’s Supermarkets in Southern Pennsylvania, and if so, who might acquire them?
Those questions won’t be answered in the next few months. As “stalking horse” stewards before the asset purchase deal was finalized, C&S was already servicing most of AWI’s and White Rose’s customers, both from Robesonia and Carteret as well as from two other C&S warehouses in New Jersey. Since all retailers are currently focused on growing holiday sales during the busiest time of the year, there’ll be little if any customer switching now. And C&S, at least for the short-term, needs to show that it’s not going to rock the boat when it comes to distribution issues and personnel changes.
With the deal nearly completed and all parties much freer to discuss the unraveling of AWI and White Rose, we’ll have much more to add to this fascinating story in the next few months.
Never A Dull Moment At Delhaize America
Lots of stuff going on recently at Delhaize America, which in the past few months has named a new CEO, agreed to sell its Bottom Dollar Foods (BDF) unit, saw its Food Lion president exit, and posted very solid third quarter earnings.
With the first quarterly reporting period under his belt, new chief executive (and former Supervalu exec) Kevin Holt should feel satisfied with the company’s performance. Acknowledging that this past summer’s job action at Market Basket in New England resulted in approximately $100 million in new revenue during the fiscal third quarter for its Hannaford unit, parent firm Delhaize Group, posted strong sales increases in its U.S. stores. Overall sales in the U.S. increased 5.9 percent to $4.66 billion in the period ended September 30. Comp store revenue increased a very healthy 5.3 percent and operating profit jumped 10.2 percent.
However, more unsettling is the abrupt departure of popular Food Lion president Beth Newlands Campbell, who left the company for professional and personal reasons (might she have been unhappy over the rash of changes that have occurred recently in Salisbury, NC?).
That’s good news for Meg Ham, who was just elevated to president of the company’s largest banner. Ham moves up from her leadership role at Bottom Dollar Foods, the discount merchant which soon will seem like Russian history – here today, purged tomorrow. BDF, which had been on the sales block for the past two months, was sold earlier this month to Aldi, which undoubtedly will make better use of those 66 stores in the DelawareValley and Pittsburgh-Youngstown market. BDF never found a relevant spot in the hearts of consumers after it debuted in King of Prussia, PA four years ago. Keeping in mind that Aldi purchased BDF for only $15 million (not including inventory or fixtures), and with the transaction expected to result in an asset impairment charge of $180 million for parent firm Delhaize Group, it speaks volumes about what a colossal failure BDF was.
Following the earnings announcement, in a conference call with financial analysts which included Delhaize Group CEO Frans Muller as well as Holt, the global merchant noted that Hannaford’s sales gains were centered on 30 units that were nearest to Market Basket’s stores in Eastern Massachusetts, New Hampshire and Maine.
On the other side of the pond, Europe continues to be a major problem for the Brussels-based Delhaize Group. Operating profit in Belgium (by far its largest European market) fell 50 percent and as many as 2,500 jobs may be cut.
After years of wandering through the desert aimlessly, I give credit to Delhaize America for turning the ship in the right direction. However, I wonder if it’s too little, too late given the fact that the retailer still needs to make significantly more headway in the overstored markets in which it competes. Yes, its operating models are improved, but not enough to gain significant share, particularly at its biggest unit, Food Lion. Newlands Campbell’s departure is disturbing, considering how popular she was with her troops (culture, culture, culture), and the Bottom Dollar Foods experiment was just a debacle.
Also, when measuring fourth quarter sales and earnings (expected to released early next year), let’s see how much of the “Market Basket increased sales factor” remains in place and let’s also examine Delhaize America’s numbers when it cycles its new programs a full year later.
‘Round The Trade
One of C&S’ strongest rivals in the Northeast is Wakefern Food Corp. The co-op wholesaler and parent to ShopRite and PriceRite stores once again posted record retail and wholesale sales for its fiscal year ended September 27. Retailer revenue for the year rose 4 percent to $14.7 billion and Wakefern’s sales alone were $11.9 billion. Those numbers surpassed sales gains of the past two years ($14.1 billion (retail)/$11.8 (wholesale) last year and $13.6 billion/$10.1 billion in 2012). During the past 12 months, the Keasbey, NJ firm added six new ShopRites, five PriceRites (including new PRs in Rosedale, MD, Hyattsville, MD and Woodbridge, VA – its first unit in the Old Dominion) and six new Fresh Grocer stores to its base and expanded its “ShopRite from Home” services to included 214 stores. Joe Colalillo and Joe Sheridan, chairman/CEO and president respectively, were both re-elected to their posts at the annual meeting which was held on October 30 in East Brunswick, NJ…it appears that Whole Foods will be opening its first unit in Lancaster County, PA. A deal is in place for the “good for you foods” merchant to build a 40,000 square foot unit in a new shopping development on Route 30 and Fruitville Pike in Manheim Township. The development process has just begun, so don’t expect to see that new store open until 2017. More WFM news: after years of resisting any type of customer loyalty initiative, the retailer will finally get into the card program game. It plans to unveil a rewards plan in the next few weeks at its high volume Princeton, NJ unit with an eye toward a broader rollout later this year at its 10 other units in the Philadelphia area. The Austin, TX based natural/organics chain said it hopes to expand the loyalty program to all 399 stores nationwide…in what is clearly a belt-tightening move, Wal-Mart acknowledged that it will no longer offer health insurance to approximately 30,000 part-time associates (about 5 percent of Behemoth’s U.S. work force) who work fewer than an average of 30 hours per week. More Wal-Mart related news: Wal-Mart plans to open its second e-commerce fulfillment center in the Lehigh Valley. The new facility will be 1.2 million square feet in size and will be located in the Majestic Bethlehem Center. About a year ago, the Behemoth announced it would open a 1 million square foot e-commerce depot in the Lehigh Valley Industrial Park VII, also located in Bethlehem, PA. Together, the two new distribution centers will cost $96 million to build, will create 650 jobs and both will open next year. Susan Dickey, an Arkansas federal judge, rejected the Behemoth’s bid to toss out a lawsuit filed by the City of Pontiac (MI) General Employees’ Retirement System, which accuses Wal-Mart of defrauding shareholders by making misleading statements to regulators in response to claims it paid bribes to facilitate real-estate deals in Mexico. Judge Dickey agreed with previous lower court rulings that the case should move forward. And, David Tovar is no longer the company’s VP-communications after Wal-Mart officials learned that Tovar had falsified his resume, claiming he earned a B.A. from the University of Delaware, when, in fact, he never completed the required course load. There are more than a few of us in the media business who won’t miss Tovar, who was a robotic mouthpiece and an unbridled apologist for the planet’s largest merchant…Rick Mills, former Weis CFO who joined Tops Markets in a similar capacity in 2010, resigned from the Williamsville, NY-based regional chain earlier this month as its fiscal third quarter came to a close. Mills was among a group of six senior Tops executives, led by CEO Frank Curci, who acquired Tops from Morgan Stanley Capital Partners late last year…Grocery Outlet, the 214 store “extreme value” retailer based in Emeryville, CA, which owns 16 Amelia Grocery Outlets in Eastern and Central PA (and a distribution center in Leola, PA), has been acquired by private equity firm Hellman & Friedman from another PE player – Berkshire Partners – for an undisclosed sum believed to be in excess of $1.1 billion. Switching sides, in the “loser” news of the month, Sears Holding Corp. (Sears, Kmart) will be closing an additional 100 stores shortly, which will affect nearly 5,500 associates. Chairman and CEO “Fast” Eddie Lampert may be a Wall Street genius, but as a retail merchant he just plain sucks.
Local Notes
According to The Washington Post, Wegmans’ bid to build another smaller-footprint store (a la its highly successful 80,000 square foot unit in Chestnut Hill, MA) in Tysons Corner, VA has fallen through. The Post reported that Wegmans and developer Cityline Partners had been negotiating over a parcel in a huge planned 6.7 million square foot mixed use development called Scott Run Station South (on Colshire Drive in that extremely affluent and busy section of McLean, VA) that Cityline plans to build. With its smaller footprint model now successful, I’m certain this setback won’t deter the Rochester, NY-based uber-retailer from pursuing other opportunities in the Tysons Corner area, as limited as they might be…it’s been awhile since Ahold USA opened two “from the ground” up stores on the same day. Circle November 7 as athe red-letter day for that event. The big retailer cut the ribbon on a beautiful new 76,000 square foot Martin’s (Giant/Carlisle) replacement store in Midlothian, VA which it hopes will provide some spark to its struggling sales performance in the Richmond market (although it remains the market share leader). Also, after seemingly decades of planning and waiting, Giant/Landover finally debuted its Idaho Ave. NW DC unit in a new development called Cathedral Commons. Much like its store on 9th & O Streets in the District, which opened at about this time last year, the new 58,000 square foot replacement unit has been customized to fit the specific neighborhood, retaining some of the signage that was used at the original 19,000 square foot unit that Giant built in 1942 a few blocks away on Wisconsin Avenue NW that’s been closed for about 18 months…I’ve been hearing a lot of speculation about Lidl, the large German-based limited assortment retailer which is planning to open stores in the U.S. in the next 2-3 years. We’ve been told that, unlike its European model (it operates more than 10,000 stores in 28 European countries), its stores here will be in the 25,000 square foot range. MGP Real Estate, a large Bethesda, MD based real estate management firm, is reportedly overseeing site selection and our sources tell us that it is focusing on Balt.-Wash., Richmond, Pittsburgh and Philadelphia for prospective locations…very strong third quarter results for Weis Markets. Overall sales increased 3.4 percent to $638.9 million and comp store revenue rose 2.6 percent compared to the same period in 2013.The Sunbury, PA regional chain’s earnings jumped 17.2 percent to $13.7 million and its earnings per share increased to from $0.43 in 2013 to $0.51. “Our company continues to make progress in a market impacted by a stagnant economy. We attribute our increased sales to our continued investments in lower pricing and disciplined sales building programs. Our results also benefited from increased operational efficiencies and improved in-stock conditions at store level,” said Jonathan Weis, president and CEO. “As a result, we are generating an increased customer count and higher sales per customer. It is also important to note that we continue to achieve these sales increases despite a significant amount of self-imposed grocery deflation. We hope to build on our sales momentum in the fourth quarter, particularly during the key holiday sales period.” Weis noted that its third quarter net income benefited from a favorable comparison to the same period in 2013 when its net income was impacted by $8.2 million in one-time charges related to an executive severance agreement (former CEO Dave Hepfinger) and the impairment loss for four properties. And, Weis recently reported its is aiding two notable community causes. For the fourth consecutive year it’s joining forces with the Wounded Warrior Project (WWP) by launching its “Believe in Heroes” campaign throughout November to raise awareness and pubic financial support for injured service members. Over the past three years, Weis’ customers have raised $300,000 on behalf of the WWP. Weis also announced that it raised $90,000 for local food banks and emergency food providers in its 163 store service area during “Hunger Action Month” in September. “We are committed to the communities we serve. Over the past seven years, we’ve raised more than $1 million for local food banks and pantries throughout our area,” said Kurt Schertle, Weis’ chief operating officer. “This year’s donation total will benefit more than 100 local hunger organizations who serve thousands of people a day. Every dollar raised will provide up to six meals for those in need. We are truly grateful for our customers support.”…a tip of the hat to Alan Wilson, CEO of McCormick & Co., for his interesting and relevant talk to students who are in Saint Joseph’s University’s Academy of Food Marketing program. Wilson’s low-key, unassuming style really connected with the students whom he urged to focus on whatever duties they are assigned when they begin their food industry journeys. “Every job is important,” Wilson noted, harkening back to his early industry career when he was the diaper-tape buyer at P&G. “Truthfully, the job was very mundane, but I knew it was an important one so I really tried hard to do the best job I could for the company.” He also emphasized the importance of passion, teamwork, trust and relationship-building is vital components towards building a successful career. Wilson is a very nice guy, with a tremendous track record during his nearly seven years as McCormick’s chief executive. He spoke at the 20th annual Pat McCarthy Lecture Series held at the Erivan Haub School of Business on campus in Philadelphia. By the way, my friend “Reverend” McCarthy hasn’t lost a bit off his fastball, even at the age of 78…as it nears the final days before its integration into Albertsons (Cerberus/AB Acquisition), Safeway posted severely declining third quarter earnings. The Pleasanton, CA chain, which is expected to be merged into Albertsons during the next six weeks, said the large $85.6 percent drop in profit was primarily due to three on-time items valued at $99.4 million and a $21.2 million loss from continuing operations, Sales actually increased 2.6 percent to $8.3 billion. As we’ve said before, I’m sure Albertsons can’t wait to complete the deal, as Safeway’s market presence (at least in the East) desperately needs a pulse. Last month we listed several key Safeway executives who will comprise the overall new management team including new Safeway eastern division president Steve Burnham. Among those Safeway veteran execs who didn’t make the final cut were: executive VP Larree Renda, who has held many roles with Safeway during a distinguished 40 year career; Diane Dietz, EVP-marketing; and Pete Bocian, EVP and CFO. Expect more culling to occur once Albertsons/Cerberus gains control of the big chain…Shoppers Food & Pharmacy means another former Super Fresh unit acquired at auction in May 2011 has bitten the dust. With Fresh & Green’s six stores also now closed, that leaves two ShopRite locations (Lutherville, MD and Silver Spring, MD), three Giant/Landover stores (two stores were acquired from Fresh & Green’s, the other had been closed and acquired in 2012 after the auction) and B. Green’s Green Valley Marketplace unit in Elkridge, MD (which was also acquired after the auction) as the only remaining former Tea Company stores that were part of A&P’s market withdrawal in early 2011 that are still operational…speaking of B. Green & Co., kudos to Benjy Green, CEO of the Baltimore-based diversified retailer/wholesaler, who is this year’s recipient of the “Pete Manos Retail Executive of the Year” award. While Benjy steadfastly avoids the spotlight, his many notable industry and community achievements in helping continue to grow a company begun by his grandfather in 1915, should not go unnoticed. He is tremendously deserving of this honor and I’m proud to call him my friend….before I close, there were a couple of notable deaths to report this month. Passing on was the l
egendary Ben Bradlee, former executive editor of The Washington Post, who died last month at his home in Washington at the age of 93. Of course, Bradlee will be inexorably linked to the Watergate scandal which brought down President Richard Nixon. And while reporters Bob Woodward and Carl Bernstein did the heavy lifting for one of the most important news stories of the past 50 years, it was Bradlee who provided the inspiration and affirmation for two young reporters to fulfill their mission, despite threats and potential retribution from many fronts. According to the Post, from the moment he took over the newsroom in 1965, Bradlee “sought to create an important newspaper that would go far beyond the traditional model of a metropolitan daily. He achieved that goal by combining compelling news stories based on aggressive reporting with engaging feature pieces of a kind previously associated with the best magazines. His charm and gift for leadership helped him hire and inspire a talented staff and eventually made him the most celebrated newspaper editor of his era.” His aura and style certainly motivated me when I first elected to go to journalism school shortly after the Watergate scandal was first reported. I’m also sad to report the death of Jack Bruce, one of the best rock bass players of all-time. It was Bruce’s presence as a member of Cream in the late 1960s (along with guitar god Eric Clapton and phenomenal drummer Ginger Baker) who helped change rock & roll music. Along with The Grateful Dead, there was no better jamband than Cream, which could produce complex rhythms with great solos and vocals, despite the sparsity of musicians in the group. In my opinion, Cream’s second album – Disraeli Gears – is one of the top 10 rock albums of all-time. Among Bruce’s songwriting contributions to the group, which disbanded in 1968 after only two years together (they did perform at several reunion concerts in London and New York in 2005), were “Sunshine Of Your Love;” “White Room;” and “I Feel Free.” He later went on to have a more low-key solo career in which he record 19 solo albums in a 38-year period. Jack Bruce was 71.