Is The End For A&P Finally Near?
I’ve been sitting on this story from almost the day The (not so) Great Atlantic & Pacific Tea Company exited Chapter 11 bankruptcy in February 2012 with new owners Yucaipa Cos. pleading to its unionized associates that it needed financial and benefits concessions to survive and ultimately prosper. Similarly, it was looking for discounts from its primary supplier C&S and from many of its CPG vendors. Yucaipa pledged it would spend money on its once-storied brand, upgrade stores, empower its associates and make the company successful once again.
I would have turned on my laugh track machine if the situation hadn’t been so sad and absurd.
I got my first clue early on when the chain announced a significant refurbishing of its Weehawken, NJ Pathmark unit. Expecting to see a remodeling of major proportions, I viewed a store with a few new fixtures, a revamped product mix and several coats of fresh paint. There were a few other “remodelings” that followed the same formula, and then everything related to store ops improvement seemed to abruptly end.
That a private equity company should be primarily interested in cash flow and real estate shouldn’t surprise anyone. That Yucaipa, which at one time reinvested in its grocery properties including Fred Meyer and Dominick’s, should virtually ignore its stores and mislead its associates and vendors is unconscionable.
You reap what you sow, and for the past 30 months A&P has sowed a pile of crap. As poorly as the company was run under Tengelmann Group management, it’s far worse with Yucaipa pulling the strings. From a selfish perspective, it probably doesn’t matter to Yucaipa. The PE firm most likely has sucked enough cash out of its investment that at this point the failure of A&P will just become an accounting matter.
But to many of the 35,000 clerks and meatcutters who work in its 300 remaining stores, A&P has been their career, their lifeblood. It’s particularly sad when many of the associates exude more passion and sensitivity about the company than the owners do.
Since Yucaipa took full control in early 2012 after the exodus from Chapter 11, it reaffirmed its faith in Sam Martin who was named CEO in 2010 shortly after Yucaipa gained a stake in A&P (he previously worked with Yucaipa’s managing partner and founder Ron Burkle).
“Our vision is not to build out one brand, but to operate the best store in the neighborhood whether it’s a Pathmark in Bergenfield or The Food Emporium on the Upper East Side. The idea is to be the best store in the neighborhood and we will do this by becoming more relevant to customers in each specific neighborhood.” Martin told Bergen.com in an interview about his vision for the “new” A&P.
In referring to the aforementioned Weehawken grand re-opening, Martin noted in that same interview in late 2012, “This store and other stores illustrate our steadfast commitment to serving our customers through a neighborhood store that continually offers shoppers products that match their needs and cultural preferences.”
A little more than a year later, Martin was shown the gate. I’m not sure it was for pure underperformance or for smoking too many Tea (Company) leaves. He was replaced by Burkle acolyte Greg Mays, who was named interim CEO and still remains chairman of the train wreck that A&P has become. After several months of searching, the retailer settled on one of its own – Paul Hertz – another Burkle sycophant who still serves as chief executive of the grocery chain.
“I look forward to working with the board of directors and the talented associates of A&P in this new capacity,” Hertz said at the time of his promotion. “A&P is a valuable franchise and a cornerstone in the communities in which we operate. We will work hard to meet the needs of our customers today and in the future.”
Cue the laugh track. Or the crying track.
While some will argue that A&P never really stood much of a chance to make a successful comeback even after given a clean slate, many industry observers clearly believe it was Burkle, Mays and Hertz who helped accelerate the 157-year-old supermarket chain to its near end-stage status.
Whether the final result becomes a massive store sell-off or Chapter 7 liquidation, it seems obvious to this writer that Yucaipa never really did have a resurrection plan and was fully prepared to let the S.S. A&P sink once its booty was plundered.
Compared to this group of cunning and greedy clowns, Christian Haub would look like a savior.
‘Winning’ Retailers Prove Mettle At Store Level; Others Just Talk About Achieving Success
The SNAP benefits reduction has cycled through; gas prices, while creeping up again, are still down from the levels of 18 months ago; and consumers generally feel better about the overall economy. The result: increased spending at retail food and drug outlets (both bricks and mortar and online). Based on the past five years, it was a moderately good year for many merchants in the region, which were also aided by a small inflationary tailwind.
Let’s face it, food retailing will never be the same as we knew it from even 10 years ago. The growth of the major e-merchants alone (Amazon, Peapod and Fresh Direct) has and will continue to impact conventional shopping patterns. And when you add the one key factor that has remained constant ever since the great recession began in 2008 – overstoring and retail diversity – it’s a lot more difficult to be a successful food and drug merchant than ever before.
But clearly it’s not all doom and gloom. If you look at the evolution of the 70-county Food Trade News trading area, there’s a reason that ShopRite, Wegmans, Whole Foods, Costco, Aldi, Wawa and Sheetz have pushed the needle forward in a tough economy. They have done the best job of connecting with their customers, especially the millennials and Gen-Yers whose shopping habits are far different from those of baby boomers like me.
Cross-shopping is a way of life and millennials have proven they’ll spend their money across many channels. The decision making “moment of truth” mostly happens in the stores and those retailers listed above (and a handful of others, too) have proven that investing in their stores means more than just operating a nice physical plant. It begins and ends with people – proper staffing levels and quality training methods lead to a more successful experience, not only for the associates, but ultimately for the customers. What’s so hard to understand about the fact that the happiness of the associates is almost always the prime indicator of how the customer views his or her shopping experience?
Systems and process are necessary, but not at the expense of customer attention. You can’t outthink the competition, you’ve got to outwork them, and it all begins the minute the customer enters the store. As clichéd as it sounds, people really make a difference. As management guru Peter Drucker once accurately and painfully (to some) stated, “Culture eats strategy for breakfast.”
It’s that time of the year again, when I get to share my views on how the key retailers fared in the nearly $100 billion marketplace.
ShopRite – The 50 Wakefern members didn’t just sit on their already dominant share of market lead in our two biggest marketing areas – Metro New York and the DelawareValley – they extended it. During the period from April 1, 2014 to March 31, 2015, five more stores carried the ShopRite banner and two more new units opened as PriceRite discount stores (the first two that are member-owned). And in the three months since our measuring period ended, three more New Jersey ShopRites have opened (replacement/relocations in Howell and Wallington, and a net new store in Burlington). Despite the intensity of the marketplace, ShopRite also posted solid ID sales gains, which only builds the company’s stellar per store average volume of more than $1 million. The ShopRite formula is easy to analyze, but very hard to replicate. The passion of its member-owners, their role in the communities they serve coupled with some very smart people at parent company Wakefern have separated ShopRite from the pack for more than 20 years. And the momentum and results keep moving the needle forward. If A&P does indeed make stores available, look for Wakefern/ShopRite to be a prime bidder.
Giant/Carlisle – Still the best performer (in same stores sales measurement) among all the Ahold USA divisions. But based on where it was only three years ago, there’s been a noticeable drop off. Don’t blame relatively new G/C president Tom Lenkevich, who knows the business thoroughly and has tremendous people skills. You can attribute Giant/Carlisle’s semi-inertia to corporate AUSA’s “one size fits all” go-to-market, process-driven strategic approach. The only non-union division of the company should still be batting .320, but it’s only hitting .290. That’s a good batting average, but not as good as in the recent past. Certainly its poor performance at its nearly 30 Martin’s stores in Richmond has dragged the entire unit down, but the chemistry between the company and its customers division-wide has somewhat diminished, too. Please let the dogs out.
Stop & Shop (New York Metro) – A year ago, I wrote this, in part, about Stop & Shop: “…let’s face it – it’s tough to slug it out with ShopRite, Wegmans, Wal-Mart, Costco, Whole Foods and Trader Joe’s on a daily basis. But some of Stop & Shop’s issues are of their own making. The stores are becoming too vanilla and the real estate pipeline is no longer flowing freely, it’s trickling. Even the A&P carcass, which competitors have feasted on for years, has been picked pretty clean. If Stop & Shop wants to prosper as it did only a few years ago, it’s got to make a better connection with its customers on price, perishables image and the entire shopping experience.” Honestly, I haven’t seen a big change in either the ferocity of market conditions or the way Stop & Shop tries to gain market share since then. Primary competitor ShopRite seems to be constantly in attack mode while Stop & Shop’s offense is questionable and, like many other retailers, it’s had a hard time defending against new or more aggressive competition. As one vendor recently told us: “As tough as the battle is in Metro New York for Stop & Shop, it’s better than what’s happening to them in New England.” Like ShopRite, expect Stoppie/Ahold to be an aggressive player should A&P blow up.
A&P – Next. Oh, sorry. The funeral service will commence shortly in Room 3B.
Wal-Mart – Another flat year for the Behemoth with little new store activity in the entire $95.3 billion market. The good news for Wal-Mart remains the fact that its average sales per unit still places it into the elite category among all food and drug merchants in the market, and its basic mantra of “price, price, price” seemingly will always resonate with its core shoppers. But as relatively new CEO Doug McMillon has said countless times, certain fundamentals need to improve – particularly in-stock conditions (still horrid), and employee engagement/morale (still resembling an episode of “F Troop”). However, more than his predecessors Mike Duke and Lee Scott, McMillon is making some progress on those challenges and seems devoutly interested in executing change. Still, it’s a mighty big ship to turn around and after an extensive tour of Wal-Mart units in the Northeast over the past eight weeks, I would say that improvements aren’t yet noticeable. And with the Northeast apparently not targeted for many Neighborhood Markets (currently there’s only one in the region in Levittown, NY), expect another slow growth year for the planet’s largest merchant.
Acme Markets – Who would have thought that in the space of three years the perception of Acme (and Shaw’s and, soon, Safeway), when compared to one its main rivals, Ahold USA, would be reversed. Going back to the theme of this piece (culture over strategy), Acme has proven that despite many older and smaller locations and a not too distant image scores that placed it lower than whale dung, consumer perceptions can change rather quickly when your front-line sales people (store associates) believe in the message from the mountain top. Acme has indeed turned it around utilizing a simple (on paper) formula of cleaning up the stores, engaging its personnel in the stores and modestly lowering prices. The store associates now believe it because management really does “walk the talk.” Former Ahold USA VP Jim Perkins has done a masterful and selfless job of leading Acme down a new path. As Perkins moves up the ladder (he’s now head of New Albertsons Inc. – Acme, Shaw’s Jewel and Safeway-Eastern), it’s one of his protégés, Dan Croce, who’s been given the task of leading Acme further down that road. Clearly, Acme’s journey is not nearly complete, but given the turnaround that’s occurred in the last 27 months, there’s every reason to believe that more paydirt lies ahead. Especially when you consider that parent firm (Albertsons/Cerberus), now the second largest pure play supermarket company in the U.S., has a leadership team of Bob Miller, Justin Dye, Wayne Dillingham and Shane Sampson (another former Ahold USA executive) who are cut from the same “cultural cloth” as Perkins and Croce.
Wegmans – From a sales and new store perspective, it was kind of a flat year for the uber-retailer from Rochester. But don’t be fooled. Just because no new stores opened in the Food Trade News marketing area there’s plenty of activity happening in the Wegmans’ laboratory and, by later this year, the new store pipeline will be moving faster than ever beginning with Concordville, PA which opens in November. Next year, the family-owned regional chain with 86 stores, will open a record four stores. The success of its first smaller footprint unit in Chestnut Hill, MA (which opened in 2014) has given the merchant the confidence to expand that model, and a new Brooklyn, NY store was recently added to the roster (its first in the city of New York). Another recently announced smaller footprint model (75,000-80,000 square feet) will open in Tysons Corner, VA. Wegmans is also making progress on two other urban sites (no deals signed yet) in Washington, DC (Walter Reed Hospital) and Boston (near Fenway Park). If it can extend the success of these smaller sized unit beyond Chestnut Hill, then Wegmans may become the new 800 pound gorilla in the room that may open a new store near you. If it wasn’t scarier enough already.
Weis – A very steady year for the Sunbury, PA-based regional chain. ID sales growth was solid as Weis stayed true to its “drive sales first” mantra, which clearly impacted the company’s earnings and stock price (in the past three months). But CEO Jonathan Weis and COO Kurt Schertle are steadfast in their beliefs that price consistency will yield higher sales in the long-term. That mindset is certainly aided when the family controls the majority of the common shares, but Weis and Schertle are rebuilding a company that’s not a one-trick pony. Over the past year, David Gose has joined Weis (from Wal-Mart) to oversee store ops. And just recently, Weis hired Richard Gunn from K-VA-T to supervise merchandising and marketing. The stores are looking better, too and (are you tired of this theme yet?), the associates are more engaged and morale has also improved. Weis’ style might not wow you, but it is certainly getting the job done by steadily “matriculating” the ball downfield three or four yards at a time. The company is in a good place right now.
Wawa – How do you define success in the convenience store business? One quick measure is annual per store sales average. At $5.57 million per store (excluding fuel), Wawa is at the top of the charts, not only in its core Mid-Atlantic region but even at its relatively new Florida division.In the c-store industry, more process is necessary and a “one size fits all model” is the norm. But pay a random visit to Wawa’s stores. In a retail channel filled with hourly employees and plagued by rapid turnover, Wawa stands out. It certainly helps that the associates can qualify for equity under its quasi-ESOP model, but Wawa’s real success is its backroom training and its in-store execution. It also helps when you run clean c-stores, add merchandising and marketing ingenuity (strong deli foodservice, no charge ATMs) and, most importantly, execute at a very high level. Wawa is truly a unique organization – what other c-store operator in the country ranks as high as third among all food and drug retailers in a market comparably sized to Philadelphia? And produces per store averages of $107,000 per week?
Lidl Makes First Announcement About U.S. Entry:Will HQ In Arlington, VA, Build Depot In Fredericksburg
One of the retailers giving both Ahold (Albert Heijn) and Delhaize headaches in Europe is Lidl, which finally came out from the underground on June 12 and confirmed, as previously reported, that it will center its U.S. headquarters in the Potomac Yards development in Arlington, VA. It also announced that Brendan Proctor, who formerly ran Lidl’s Irish operation, will become the new president and CEO of Lidl U.S., and the German-owned discounter (owned by the Schwarz Group) will open a regional office and distribution center in the Fredericksburg, VA area (SpotsylvaniaCounty).
During a press conference held at Lidl’s headquarters in Neckarslum, Germany, Proctor said his company’s entry into the U.S. represents an initial $202 million investment – $77 million for its headquarters (a 217,000 square foot office building on South Clark Street in Arlington) and $125 million for the planned distribution center (at a yet undetermined site in Spotsylvania County). Virginia Governor Terry McAuliffe, who also participated in the press briefing, said that Lidl will employ approximately 500 people in Arlington and 200 in Spotsylvania.
Lidl, which operates about 10,000 stores in 26 countries, amassed nearly $100 million in sales last year. Proctor said the decision to locate in Virginia was made because of “the market opportunities, depth of the talented job force and strategic location that Virginia provides. Our philosophy is simple. We are focused on offering customers top-quality products at the most competitive pricing in convenient locations. We plan to build on the foundation that has made Lidl so successful in Europe.”
Governor McAuliffe has approved $5 million in grants from the Governor’s Opportunity Fund to assist Arlington and Spotsylvania with the project. He also approved $2 million in funds from the Virginia Economic Development Incentive Grant, a self-funded program of performance-based incentives that the state awards to exceptional economic development projects.
While no mention was made of store opening dates, it is expected that Lidl will open the first of about 100 stores in early 2018. And our friend Randy Hallman of the Richmond Times-Dispatch reported that plans for at least two Richmond-area Lidl stores have been filed by McLean-based MGP Retail Consulting, Lidl’s U.S. real estate arm. One plan calls for a 36,160 square foot grocery store at 5110 South Laburnum Avenue in eastern HenricoCounty, and the other calls for a 36,170 square foot store at 1301 Mall Drive near ChesterfieldTowneCenter in ChesterfieldCounty, county planning documents show.
According to Hallman’s story, the proposed Lidl store in Henrico would be on a 4.6-acre property that currently is home to part of the Bill Talley Automotive operation. Owner William H. Talley Jr. has said the property is under contract to be sold and he would move his operations to a nearby 18,000 square foot body shop building with plans to expand.
The Chesterfield site is currently a vacant lot.
Real estate brokers and developers have told us that over the past nine months, MGP has visited dozens of sites, looking to sign leases for stores in a wide-ranging area from the Delaware Valley through North Carolina. We’re told that they are looking at sites in the 25,000-35,000 square foot range (larger than European rival Aldi’s typical 18,000 square foot U.S. model). Lidl has also begun to look for headquarters and store personnel utilizing the Internet site “LinkedIn” as a primary job search tool.
‘Round The Trade
Whole Foods has revealed more about its alternative banner, which is designed to be more value-focused in an effort to expand its audience into fresh and healthy foods. The new stores will be called “365 by Whole Foods Market” and the first store will open next year. Jeff Turnas, a 20 year Whole Foods Market veteran, will serve as president of the new unit. Turnas, who has held various leadership positions on both the product and operations fronts, will be based at the company’s headquarters in Austin, TX. He recently led the “good for you” merchant’s efforts in the United Kingdom where WFM currently operates nine stores and has several other planned. “We are excited to introduce 365 by Whole Foods Market to bring healthy foods to even more communities with a fresh, quality-meets-value shopping experience that’s fun and convenient,” Turnas said. “A modern, streamlined design with innovative technology and a carefully curated product mix will offer an efficient and rewarding way to grocery shop.”…buoyed by appearances of entertainers Reese Witherspoon, Mariah Carey, Rod Stewart and Ricky Martin (should he still be considered an entertainer?), Wal-Mart held its three-day annual meeting before 14,000 enthusiastic shareholders and acolytes at the Bud Walton Arena on the campus of the University of Arkansas in Fayetteville. After the superficial thrills had ended, CEO Doug McMillon addressed several critical issues impacting the Behemoth’s business. This is McMillon’s first shareholding confab with a full year under his belt (he was promoted to chief executive in February 2014). With a greatly overhauled management team to work with led by U.S. CEO Greg Foran and COO Judith McKenna, McMillon focused on the “urgency and determination” of the company’s investments in people and technology. “The investments we’re making today will set the stage for strong and sustainable growth,” he stated. He thanked the company’s associates for their efforts and implored them to be “obsessed with serving customers.” As stated before, there’s little question that McMillon recognizes the enormous challenges his company faces and has addressed the key infrastructure issues during the past year. Now the question becomes, are those problems fixable (without radically deviating from the core Wal-Mart model) and if so, how long will it take before measurable progress can be evaluated? Judging store conditions (in-stocks, employee morale, store cleanliness, etc.) is the most visceral way to evaluate progress, but on the harder to measure technology front, Wal-Mart is losing ground to its “prime” competitor, Amazon, whose “innovation of the month” is lapping walmart.com’s effort to catch up. In other Bentonville-related news, Greg Penner has been elected Wal-Mart’s new chairman, replacing his father Rob Walton (one of Sam’s sons). Penner, 48, is only the third chairman in the history of the world’s largest retailer. I think it’s good to be related to a member of the Walton family…speaking of Amazon’s rapid innovation strategy, the Seattle-based online company is reportedly ready to jump into the private label grocery business featuring such items as cereal, milk, cookies, household products and baby food. Published reports have indicated that Amazon has filed for trademark rights in a host of additional categories, too, among them pasta, soup, water, pet foods and coffee, which it would market under its own Elements brand… with some reluctance, I went to the FMIConnect show in Chicago earlier this month. After last year’s underwhelming revival, I felt FMI CEO Leslie Sarasin and her team deserved another look. I was wrong. While the seminars and speeches were fine, the fulcrum of the FMI’s spring show has always been the action in the exhibit hall. And much like last year, there was no energy, no juice. The McCormick Place arena seemed half empty with significantly more equipment and software companies than traditional CPG vendors. After reading the stellar list of retailers who signed up for FMI, I can attest that many of them never made it to the exhibit floor. Which is a shame since FMI promised a better show. But don’t blame this solely on Sarasin and her team. It really does take a village and if the retail food industry’s top executives are too busy to walk the show for a few hours to engage with their vendors, why bother to aggressively market the event? Maybe FMI should once again consider ending its May/June show. Perhaps, with “Midwinter” (a great conference) and the more targeted meetings that occur throughout the year, that’s enough to serve the education and legislative needs of the retailers and suppliers. On the other hand, just across the hall, the United Fresh produce show was jumping. Everything from the lighting to the creativity of the booths had more pizzazz. United Fresh CEO Tom Stenzel and his team should be proud of their effort…in news from a little further south, Safeway’s eastern division, which has already made inroads against Giant/Landover and several other competitors with its new decentralized and local go-to-market approach (a la Acme), is investing more into store ops. The Lanham, MD-based division announced earlier this month that it will add approximately 2,000 jobs this summer across its four-state, Mid-Atlantic operating territory. Safeway said it expects many of the entry-level positions to be filled by teenagers, who may be in the process of securing jobs (for some, this could be their first work experience) for the summer. While the number of available jobs will vary by store, many Safeway locations will be hiring for a wide range of positions, including include courtesy, food and service clerks; cashiers; cake decorators; bakers; produce clerks; department managers; meat cutters and wrappers; and assistant store managers. Hiring for retail-level positions will be handled exclusively by the respective store directors. “We are very excited to have so many positions available across the region,” said Lisa Umali, eastern division HR director. “For many years, we simply hired to replace positions vacated through the normal course of business. However, this full-scale push to hire well beyond attrition is something we have not done for a very long time. Our customers will be the ultimate beneficiaries as we will have more employees available to serve shoppers. In addition, we expect that some percentage of those hired will become long-time Safeway employees. Historically, many of our retail executives began their careers in entry-level positions as high school and/or college students, and chose to make retail grocery a career after learning about the business and enjoying the work.”…it was huge opening day at the new Wegmans unit in Alexandria, VA on June 14. That area of south Alexandria should be an excellent one for the uber-retailer – isolated enough from the intense overstoring of much of Fairfax County – but in a population-dense and demographic-friendly area that will draw plenty of new customers. After more than a year of no new Mid-Atlantic activity, Wegmans is beginning a run of new store openings unprecedented in its history. Later this year new conventional Wegmans (125,000-140,000 square feet) will open in Westwood, MA and Concordville, PA to be followed by four Baltimore-Washington debuts in 2016 – both Richmond area stores (Short Pump, then Midlothian); Owings Mills, MD; and Charlottesville, VA. It will also be building a conventionally-sized store in Chantilly, VA (Westfield Boulevard), in the next few years. The family-owned merchant also recently signed a new lease and will open one of its smaller prototypes (about 75,000 square feet) in Tysons Corner, VA. The freshly inked deal will not only place the new Wegmans into one of the most demographically desirable locals in the Northeast, it will be part of the Capital One’s headquarters expansion development located at I-495 and Route 123. The 26 acre Capital One campus is scheduled to include 3.1 million square feet of office space (including the existin
g bank headquarters and conference center), 1.2 million square feet of new residential development with a minimum 800 units, 406,762 square feet of hotel space, 128,781 square feet of retail and a 30,000-square-foot community center. That Wegmans store is slated for a 2019 opening. Wegmans also recently signed on to build its first store in the City of New York. That unit will be 74,000 square feet in size and will open in late 2017 in the ongoing expansion/redevelopment of the old Brooklyn Navy Yard. And several sources have told us that Wegmans is close to signing a deal to construct a smaller-footprint unit near FenwayPark in Boston. Other new conventional Wegmans that will open in the next three years include sites in Montvale, NJ and Hanover Township, NJ… at Harris Teeter, I’m happy for both Rod Antolock and Fred Morganthall. Earlier this month, Antolock was named president of the Matthews, NC-based regional chain after many years serving as Morganthall’s “go to” compadre. It’s great to see that Rod’s going to get his shot as top dog. He’s smart, hard-working and very capable. As for Morganthall, who’s been president of Teeter since 1997, he is moving up to parent company Kroger, where he will serve as senior VP-retail divisions, overseeing six operating divisions, including Harris Teeter. It’s a wonderful way to cap a great industry career for Fred, and we wish both gentlemen much success in their new gigs…Target, which is beginning to regain its “land legs,” made it official by announcing its will open a 20,000 square foot TargetExpress unit on Wilson Boulevard in Rosslyn, VA in October. The new format emphasizes convenience and should serve as more of a “fill-in” shopping trip than its larger more conventional 135,000 square foot core model. The Rosslyn unit will be one of eight the Minneapolis mass merchant is scheduled to open in the Mid-Atlantic this year, including one that was previously announced in College Park, MD. And, just before presstime, Target announced that it is selling its 1,660 in-store pharmacies and 80 in-store health clinics to CVS for $1.9 billion. The move will allow Target to better focus on its core business. The deal will not only put CVS drug units inside Target’s national network, it will also allow the Woonsocket, RI drug chain to increase its presence in under-served markets such as Seattle, Portland and Denver. And, in the next two years, the two big retailers plan to jointly develop pharmacy inclusion in the aforementioned new TargetExpress format. And in Brooklyn, NY, Target will be opening another of its new smaller formats – CityTarget – next year.
Local Notes
Kudos to John Derderian on being named president of Allegiance Retail Services and Foodtown late last month. He replaces Mike Stolarz who will stay with the Iselin, NJ-based retail services co-op as a senior advisor through the end of the year. Derderian, one of the smartest marketing and analytics executives in the business, cut his teeth at Pathmark where he worked for 33 years. “The board of managers of Allegiance is grateful to Mr. Stolarz for his dedication and wisdom in guiding Allegiance through a challenging period for the independent grocery industry, and has every confidence that Mr. Derderian will provide leadership which will position Allegiance and its patrons for long term prosperity,” said David Maniaci, chairman and CEO of Allegiance and Foodtown…despite a management overhaul late last year, the bumpy road continues at Fairway Market. And as the company itself has stated, sales and earnings have been adversely affected by new competition and there’s more coming ahead. To wit: in April, Whole Foods opened its Upper East Side store East 87th Street), which has impacted the Fairway unit right around the corner on East 86th Street. A few months earlier, Food Emporium (A&P) shuttered its East 87th Street store (no fight in that dog) and now Morton Williams has confirmed that it will take over that Food Emporium location. It’s kind of ironic that after years of having limited shopping options and virtually no new stores at which to spend their ample disposable incomes, residents of the wealthiest section of Manhattan will shortly have plenty of choices. On the earnings front, the disappointing results continue. Overall sales for the 13 week period ended March 29 decreased 0.6 percent to $199.1 million and comp store revenue declined by 3.6 percent. Fairway’s loss for the quarter was $8.5 million. In the post-release analysts’ conference call, CEO Jack Murphy said Fairway had backed out of a plan to build a store in the developing Hudson Yards project in Manhattan (West 34th & 12th Avenue), but said the company would build a new prototype unit, a 40,000-square-foot store at a former Waldbaums site on Ralph Avenue in the Georgetown section of Brooklyn. That store will reflect a more capital efficient approach to building and operating departments and will open in about a year. “This location will be the prototype for our new store model. It will have a smaller footprint and lower cost structure than our existing stores with the same broad offering of fresh, specialty, organic and conventional products,” Murphy said. “We expect to further improve the profitability of the store by optimizing space allocations between departments based on learnings from recently conducted productivity studies.” Murphy also acknowledged that its other planned Manhattan new store in Tribeca will be delayed, but a previously announced Fairway in StateIsland is still a “go.” As I’ve said before, Fairway’s problems don’t lie in its ability to “sell more stuff.” But, because the back end of the business has been mismanaged for so long, the talented Murphy and his team are finding it difficult to right the ship, especially as new competitors challenge Fairway in both merchandising style and market leverage. These problems have continued since the company launched its IPO in April 2013 and, if Fairway’s shareholders are ever going to get full value from their investment, a sale seems like the best option right now…Bob “We Hardly Knew Ye” Sigel is out as president of the 388 store Associated Store Group (ASG), after less than a year of supervising the newly expanded Metro New York-centric marketing and retail services firm, which was acquired by former Goya COO Andy Unanue and his AUA Private Equity Partners Group in early 2013. About the time that wholesalers AWI and White Rose filed for bankruptcy last June, AUA acquired the Met and Pioneer banners (controlled by White Rose), which significantly expanded ASG’s store base, particularly in the five boroughs of New York City. Sigel was brought in to oversee the company’s day-to-day operations. Sigel formerly served as CEO of Millbrook Distribution Services, before selling that HBC/GM distributor to UNFI in 2007…it’s been a busy month for Ahold. In addition to the Dutch retailer’s continuing negotiations with Delhaize, the company announced its first quarter financial results. Not surprising to financial analysts and industry observers, ID sales in the U.S. remained marginally positive (0.1 percent, ex-fuel) and overall sales increased by a meager 0.4 percent, well below the results of its publicly-traded peer group. The Zaandam-based operator said after currency adjustments were made (the U.S. dollar is currently very strong against the euro), investments in price (“Project Thunder”) led to decreases in operating income and operating margin. The Northeast’s largest retailer also said that sales at its online Peapod unit fell into single digits, noting that its new dedicated warehouse in Jersey City, NJ has struggled to reach capacity. A week later, Peapod president and co-founder (with his brother) Andrew Parkinson was shifted to an advisory role and former COO for J Crew’s online business, Jennifer Carr-Smith, was installed as president (I think I need a new scorecard to keep up with the Ahold USA personnel changes). In Chicago, during the aforementioned FMIConnect show, Ahold USA threw an “After Party” for its key vendors to formally introduce its new simplified merchandising strategy. According to Mark McGowan, who recently changed hats from EVP-merchandising to EVP-operations and president of its largest division – Stop & Shop New England, Ahold USA’s new “Winning Together” strategy has taken a vertical rather than a horizontal approach with its vendors. The new approach will transform the merchandising team at the Carlisle, PA-based company into a more portfolio-centric organization, so that it can be more competitive and better drive sales. “In the past our merchandising teams were siloed, with each of our 18 portfolios overseeing its own functionality, merchandising and sales planning, which made it challenging for suppliers to partner with us. We had one-stop shops for customers but not necessarily for our business partners and we realize we were not the easiest company to do business with. Now we’re looking at the business differently – more vertically than horizontally – with each portfolio leader looking up and down the P&L statement instead of just at the top half. It was a great theory on paper, but we realized if we didn’t get serious about our support teams, we wouldn’t get the results we wanted. Now it’s like our portfolio leaders and their teams are seated around a large table, with each team having full functionality. Each one looks at the business up and down – at all the components – that should allow us to move faster, be better and bring our stores to life more effectively.” Also at the “after party” a presentation was made by executive VP-marketing, format, own brand, e-commerce and supply chain Jan van Dam (can we give him a longer titles) who along with senior VP-marketing Amy Hahn discussed the retailer’s launch of its new free magazine Savory- Fast, Fresh and Easy (which debuted on June 14). The new initiative also includes a digital component and is modeled after Albert Heijn’s publication, Allehande (translation: a little bit of everything). Hahn, who joined AUSA from Hershey in 2014 (that change was on my old scorecard), noted: “Savory was designed to help make every day a little fresher, a little easier and a little more delicious for our busy customers. It is a go-to guide with recipes and meal solutions that will help customers save time, save money, and eat well.” She termed the release of the new publication and related digital initiative as potentially “game changing.” Having attended the “after party” at the downtown Marriott, I can attest that many of the vendors I chatted with (more than 100 vendors attended), weren’t overwhelmed and
several expressed an “I’m from Missouri” (Show Me) takeaway. You can hardly blame them, given the fact that they’ve seen the old merchandising system break down (as McGowan inferred) while also dealing with diminished sales and increased demands. At its Giant/Carlisle division, the new 57,000 square foot replacement Martin’s in Waynesboro, PA opened June 19 and the store looks great. The new unit is “right-sized” and provides a real nice fit in a community where the retailer has long been dominant. At its Giant/Landover division, an Ahold USA spokesperson confirmed that the retailer is offering Voluntary Separation Incentive Program (VSIP) packages to associates with 30 or more years of service who are covered by the chain’s collective bargaining agreements with UFCW Locals 27 and 400. The buyout is limited to 250 associates (more than 25 percent of the eligible employees) “so we can maintain sufficient expertise and experience in the stores.” At its Giant/Landover division, an Ahold USA spokesperson confirmed that the retailer is offering Voluntary Separation Incentive Program (VSIP) packages rto associates with 30 or more years of service who are covered by the chain’s collective bargaining agreements with UFCW Locals 27 and 400. The buyout is limited to 250 associates (more than 25 percent of the eligible employees) “so we can maintain sufficient expertise in the stores.” One more Ahold USA tidbit: a year ago, then EVP-operations Bhavdeep Singh left his post to head up AUSA’s new formats unit. Late last year, the company opened a very small “laboratory” store on Walnut Street in Center City Philadelphia called “Everything Fresh” to test merchandising concepts and product mix, primarily in produce and prepared foods. The concept will go live this August, when the first “real” new format unit will open in the Allston section of Boston. Paul Kneeland, former VP-produce and floral for Kings/Balducci’s, has joined Ahold’s new formats division Kneeland is the first key “outside” executive the new unit has hired. A Boston-area native, who cut his teeth at Roche Bros., he will serve as VP-fresh marketing, and should prove to be a big asset to the new division.…sadly, it’s been a busy month at the obituary desk. Passing on earlier this month was one of the most dynamic, innovative and flamboyant independent retailers of the past 40 years, Mel Weitz, the former owner of Melmarkets’ Foodtown, which grew from a single store in East Rockaway, NY in 1972 to 17 Long Island stores before he sold the company to Stop & Shop in 1995. Mel Weitz was old school, way old school as in P.T. Barnum old school. “Pile it high and sell it low” was not only his company’s mantra, it was a religion to Mel. He loved the action and the pace of the business, worked tirelessly to improve his operation on any level and was really a pioneer among his independent peers when it came to store size (his supermarkets were usually more than 60,000 square feet when the industry norm was about 40,000), perishables (particularly produce) and ethnic/specialty foods. Mel, 93, was a man of sometimes mercurial temper, but more often displayed a heart of gold. Even though his active grocery industry career ended with the Stop & Shop purchase, he remained involved in a lot of causes in Florida for the past 20 years. In 1992, he told Forbes, “When you read my name in the obituaries, that is when I will retire.” Sadly, I think that time has come. Another grocery industry talent who has passed away is Russ Reynolds, former area sales director for Supervalu’s eastern region. I have so many fond memories of Russell, especially in our younger days when he was a food broker in Richmond and I was brand new to the market. Nobody worked harder and (at the same time) had more fun than Russell. And if you came along for the ride, your trip was always more enjoyable, too. When he transitioned to the “other side of the desk,” Russell’s work ethic was just as strong as it ever was (ask Dick Redner), and while the “crazy days” were behind him, he always arrived with a smile on his face, a firm handshake (or slap on the back) and usually a hilarious joke (that wasn’t always repeatable). You’ve left us way to young, my friend, and I’m going to miss you …from the musical universe, great alto sax jazz player Ornette Coleman has died. Coleman was the father of “free jazz,” a style of playing that focused on melody improvisation rather than chord changes. While his music sometimes seemed unorthodox and difficult to follow, Coleman persevered with his raw musical talent and stubbornness to change. Ultimately, he developed a very devoted following and became only the second jazz musician to receive a Pulitzer Prize for his 2006 album “Sound Grammar.” A true musical original, Coleman was 85 when he passed away…from the acting world, Christopher Lee, arguably the second great portrayer of Dracula (after Bela Lugosi), died earlier this month in his native London. During a career that lasted nearly 70 years, Lee, 93, appeared in 278 movie and TV roles, with more than 50 of those credits involving some genre of horror. Perhaps his best movie role was as creepy Lord Summerisle in the excellent (and mostly forgotten) 1973 chiller flick “The Wicker Man.”…Marques Haynes, 85, has passed on to basketball heaven. Arguably the greatest dribbler of all-time, the former Harlem Globetrotter played more than 1,200 games for the hoops entertainers and served as one of its all-time ambassadors, visiting more than 100 countries with the team. “Marques was a pioneer, helping pave the way for people of all races to have opportunities to play basketball, and for the sport to explode on a global scale,” said Kurt Schneider, current Globetrotters CEO said. “His unique and groundbreaking style of play set the tone for modern basketball as we know it. Anyone involved with basketball worldwide is indebted to Marques. He was the consummate Globetrotter.” The Globetrotters will dedicate their 90th anniversary tour in 2016 to Haynes and will wear a uniform patch in tribute….Vincent Musetto is dead. Who was Vincent Musetto, you may ask? Musetto, 74, was a retired editor and film critic for the New York Post, who, after a particularly grisly murder in Queens in 1983, penned what is, in my opinion, the greatest headline of all time: “Headless Body Found In Topless Bar.” Enough said. May he rest in peace.