A&P’s Mays, Hertz, McGarry, Et Al Need To Be Terminated Immediately
Because they’ve done such an efficient and methodical job of planning to fire more than 25,000 store level associates, don’t you think now would be ideal time for the U.S. Bankruptcy Court to terminate the senior management team at A&P?
Seriously, after greedily mismanaging the bankrupt retailer for the past five years, why should chairman Greg Mays, CEO Paul Hertz and chief restructuring officer Chris McGarry be allowed to “earn” another dime from the company they helped destroy?
At this juncture of the Chapter 11 proceedings, A&P’s “big three” really serve no purpose; there are no stores they can manage and there are few remaining office associates (all on retention bonuses until they will be let go next month) that they can direct – virtually everything is run by the bankruptcy court and, as such, Judge Robert Drain should summarily fire all senior management and appoint a trustee to provide oversight at the company which will likely file Chapter 7 liquidation by the end of the year.
Oh, it’s not just Greg “Don’t Call Me Willie” Mays, Paul “Pay Me ‘Til It” Hertz and Chris “Be Wary” McGarry that need to go, other senior executives such as CFO Tim Carnahan, CMO Eric Kanterman and CIO Nirup Krishnamurthy should be ousted as well.
Is it a coincidence that those men were the ones who directly received $12.6 million worth of “trust fund” payments made a few months prior to A&P’s Chapter 11 filing in July? Take a guess.
On the playing field, things aren’t going too well for what remains of the company, either. The first two rounds of store auctions netted significantly less cash than the creditors were hoping for.
At presstime on October 16, more than 115 units remain unsold. While I expect more action in the near future (A&P plans to close all stores by Thanksgiving), the results so far have been disappointing.
“If A&P and the court want to sell more stores they need to reduce the minimum dollar thresholds they have placed on these supermarkets,” said a retail executive whose company has successfully bid on several A&P units. “Some of these minimums were ridiculous, especially for stores whose sales have been trending down for years and are in poor physical shape.”
Since there was relatively little action at the two auctions – held on October 1-2 and 7-8 – beyond the “stalking horse” bidders (Acme, Stop & Shop, Key Food and Wakefern), an additional “clean up” auction will likely be held at which lower qualifying bids could be allowed.
And you can expect even further action once the supermarkets remain closed for 30 days. That will allow non-union bidders a free and clear entry to stores (although at presstime, several UFCW Locals said they would waive union status for future stores acquired in return for guaranteed jobs for its thousands of retail clerks and meatcutters who are headed for the unemployment line soon). There will also be side deals between landlords and retailers once those real estate entities gain control of their sites (either by acquisition or attrition).
However, the fact remains that many A&P stores will stay dark. Too many stores are in awful condition (expect buyers to spend at least $1 million per store for basic refurbishments) and there simply aren’t enough active players (especially independents) willing to roll the dice in market conditions that remain over-stored and ultra-competitive.
All the more reason for the court to appoint an independent steward to supervise A&P for the final few months before its death.
And if that were to occur, there would be many associates and vendors who would happily say to A&P’s senior management team, “Adios – don’t let the door hit you in the wallet on your way out.”
Interesting Times At C&S
While tremendous scrutiny has been placed on A&P and its current bankruptcy/wind down process, not much attention has been paid to the role of its primary supplier and largest creditor, C&S Wholesale Grocers.
The nation’s largest wholesaler, C&S, as it currently stands, could be the biggest loser in the A&P debacle. The soon-to-be-defunct retailer owes C&S nearly $40 million in unpaid bills and settlement will likely be pennies on the dollar. Additionally, as A&P’s primary supplier there’s an estimated $2.5 billion in annual wholesale volume that will be departing. At presstime, based on A&P stores purchased by C&S-supplied retailers at auction (Stop & Shop, Key Food, ASG/Compare Foods, Best Yet and Foodtown), that $2.5 billion hit will only be minimally replenished.
As such, C&S announced that it has laid off a small percentage of its associates at various locations.
“As a family-owned company, we recognize the impact this restructuring will have on our employees and their families. Unfortunately, the reality of our industry is that we have to make changes, including the difficult decision to restructure some of our core functions and reduce our workforce, to ensure the competitive strength of C&S gong forward,” C&S CEO Rick Cohen said in a statement.
However, the news is not all bad for the Keene, NH distributor. Last month, Albertsons announced that C&S will retain the supply business for Safeway’s eastern division, albeit in a different form.
C&S’ Collington Services unit has been operating and managing the now Albertsons-owned distribution located in Upper Marlboro, MD since 2000 (Safeway built it in 1998). The wholesaler’s contract was due to expire next May and many in the industry thought that Albertsons’ sister firm Supervalu would be named to service Safeway’s approximately 130 stores in the Baltimore-Washington market. Clearly that was not the case.
In the new arrangement, C&S will service Safeway’s dry grocery needs from its York, PA warehouse, its perishables products from its North East, MD depot and its general merchandise
items from its Bethlehem, PA distribution center. About 700 unionized workers will be impacted. An older, smaller warehouse in Landover, MD will also be shuttered.
And there’s potential more good news ahead for C&S. If I’m a betting man, I’m betting big that the large privately-held wholesaler reaps significant additional business once the Ahold-Delhaize merger is completed next year.
‘Round The Trade
At Wal-Mart, the news continues to be less than joyful. Flat earnings and mediocre ID sales have led to the Behemoth laying off 450 workers at its Bentonville, AR headquarters, and at its annual investors’ day on October 14, the company announced that it will not meet its annual profit projection. Earnings could drop 6-12 percent for its current fiscal year which ends in January (a 4 percent earnings gain was originally projected). That led to a 27 percent decline in its stock ($20 billion in market value). Wall Street’s fears about the viability of Wal-Mart’s long-term improvement plan undoubtedly adversely impacted Albertsons’ imminent IPO launch which has now been delayed. Wal-Mart’s got big troubles that are far more severe than employee lawsuits, out-of-stocks and shoddy perishables. The very core of the nearly $500 billion merchant is being tested and, despite recognizing Wal-Mart’s issues, relatively new CEO Doug McMillon seems unable to turn the big, lumbering and inflexible ship around. Also at the Behemoth, Steve Bratspies has been promoted to chief merchandising officer-U.S. That post has been vacant since Duncan Mac Naughton exited almost a year ago. In his new post, Bratspies, who most recently was Wal-Mart’s executive VP of food, will now supervise all merchandise categories covering about 4,500 U.S. stores. That arguably makes Bratspies one of the most powerful grocery executives in the country…another company with issues (but not nearly as challenging as Wal-Mart’s) is Whole Foods. The Austin, TX-based retailer announced that it, too, will cut jobs – 1,500 of them, or 1.6 percent of its work force, over the next eight weeks in an effort to reduce internal costs and invest more heavily in price. Whole Foods said most of the riffing will primarily come at store level and that associates who are affected could apply for other jobs within the organization where it has 2,000 open positions and is currently developing about 100 new stores. In a statement, co-CEO Walter Robb said that “this is a very difficult decision, and we are committed to treating affected team members in a caring and respectful manner. We have offered them several options including transition pay, a generous severance, or the opportunity to apply for other jobs. In addition, we will pay these team members in full over the next eight weeks as they decide which option to choose. We believe this is an important step to evolve Whole Foods Market in a rapidly changing marketplace.” Although they have not publicly acknowledged it, this move smells of WFM’s desire to demonstrate to Wall Street that it can make hard business decisions when it needs to. The company’s stock has taken a huge hit in the past seven months (its share price closed at about $33 per share as compared to $58 per share in February 2015) and the retailer was embarrassed by a “short weight” scandal at its New York City stores this summer. Analysts have also expressed skepticism about the merchant’s new value-priced, millennial-seeking alternative store format – “365” – which will debut next year. As for me, I’m still a believer with reservations. There’s no doubt that as the company has gotten larger (it now operates about 425 stores with a target of 1,200 units in the U.S.), the caliber of its employees coupled with its overall in-store execution has waned. However, I believe the company will learn from some of its mistakes of the past year – especially in developing a better strategy to deal with Wall Street. Don’t forget, this is one of the few times that it has had to deal with adversity. Challenges aside, my long-term confidence in Whole Foods primarily stems from its still strong link with those millennials and Gen-Yers who comprise the majority of its customer base. While most other conventional supermarket operators aggressively seek to grow their business with those 18-35 year olds (with mixed success), WFM’s DNA still connects strongly with the age group that all retailers deem most desirable. Whole Foods doesn’t need to fish for those customers, they are already in the house. One more Whole Foods note: we can now all feel reassured since the company announced that it will no longer sell food made by prison inmates. The “good for you food” retailer had been working with a firm called Colorado Correctional Industries that paid prisoners to produce such items as goat cheese and farmed tilapia and trout. In explaining Whole Food’s decision to discontinue its association with the company, spokesperson Michael Silverman said that while WFM liked the idea of employing inmates, “We felt that supporting supplier partners who found a way to be part of paid, rehabilitative work being done by inmates would help people get back on their feet,” adding “we have heard from some shoppers and members of the community that they were uncomfortable with Whole Foods Market’s sourcing products produced with inmate labor”. And in order to stay “in-tune” with customers’ wishes, the natural/organics retailer came to its decision to stop selling the goat cheese and tilapia. And no, I have never bought goat cheese at my local WFM that came with a file in it…one more thought about the A&P meltdown: Ron Burkle, who remains the managing partner of the parent firm he founded in 1986, Yucaipa Cos., ought to ashamed. Burkle, whose DNA is rooted in the grocery industry (he began his career at Stater Bros. where his father also worked), used to be a stellar example that venture capitalists can also have a soul. Up until the new millennium, Burkle made several deals in which both the retailer he acquired and then sold and Yucaipa benefited (most notably he sold Fred Meyer to Kroger in 1999 for $13.5 billion). That hasn’t been the case with the Tea Company (although Burkle has not been part of A&P’s day-to-day operations since the end of the first bankruptcy in 2012). A&P is an unmitigated disaster and Burkle shares much blame for Yucaipa’s strategy and motives. As for other investments, the one-time buddy of former President Bill Clinton hasn’t been “rolling sevens,” either. His equity stake in Hollywood media giant Relativity Media, has gone bust (another Chapter 11 victim) and numerous news reports indicate that Yucaipa-owned Fresh & Easy Markets (which Burkle acquired from Tesco in bankruptcy for a song) is about to file Chapter 11 as well. While Judge Drain is at it, he ought to fire Burkle, too…Acosta has named Kevin George chief marketing officer and president of its Acosta Marketing Group. Most recently, George served as global chief marketing officer at Beam Suntory and served in various senior sales positions at Unilever…. Sam Duncan has announced his intention to retire as president and CEO of Supervalu on February 29, 2016, following the end of the company’s fiscal year. Duncan was named to those posts in February 2013 in connection with the sale by Supervalu of five retail grocery banners to Albertson’s. Under Duncan’s leadership and direction, the Eden Prairie, MN-based wholesaler/retailer has repositioned its three core business segments: independent business, Save-A-Lot and its five remaining regional retail food banners (Shoppers, Farm Fresh, Cub, Shop ‘n Save and Hornbacher’s), as well as helped deliver increases in shareholder value. Duncan, 63, said he is retiring to spend more time with his family in the Pacific Northwest. “Supervalu is a terrific organization and we have accomplished a great deal together during the past two and one half years,” said Duncan. “I have thoroughly enjoyed working with our employees and thank them for all of their hard work and dedication. I am also looking forward to finishing the year strong and continuing to drive sales and cash through my remaining time at the company, as well as providing time and support to ensure a smooth transition for my successor. After 46 years in the grocery and retail business, this is a bittersweet moment, but I am also excited by the opportunity to have more time for my family and personal interests following my r
etirement.” In a related announcement, SVU also announced that Bruce Besanko has been promoted to the newly-created role of executive VP/chief operating officer, reporting to Duncan, and that Susan Grafton has been promoted to executive VP/chief financial officer, reporting to Besanko. Both appointments are effective immediately. In his role as COO, Besanko will retain oversight of the finance function, and assume oversight of the Supervalu’s independent business operations, its regional food chains, and the company’s merchandising, marketing, and pharmacy functions. Supervalu said that Duncan’s impending retirement will not impact its continued exploration of a separation of its Save-A-Lot business. On a personal note, I have to say that no food industry executive has performed at a higher level than Duncan has for the past three years. He took a lifeless, moribund company and rebuilt it into a progressive and ambitious enterprise that treated its associates with respect and valued their opinions. After previous CEOs Jeff Noddle and Craig Herkert had spiritually bankrupted a once great organization, I didn’t believe Supervalu’s making it back to even sea level was possible. Sam Duncan’s achievements, both measurable and intangible, represent one of the greatest industry performances I’ve witnessed in my 42 years of writing about the grocery business…
Local Notes
Acme Markets/Albertsons (71 stores) and Stop & Shop/Ahold USA (25 stores) have both begun their conversions of the A&P units they acquired earlier this month. At Acme, about 12 units a week are being switched with a two-and-a-half day turnaround allotted for each store (an impressive process involving construction, cleaning, retail merchandising and training). All stores are expected to be done about a week before Thanksgiving. I visited the former A&P in Montclair, NJ to experience the turnaround and it was impressive (more than doubling the sales that A&P had been doing). At Stop &Shop, the first wave of stores – East Hampton, NY; Southampton, NY; 174th Street in the Bronx; and Atlantic Avenue in Brooklyn – opened on October 16 to be followed by the next group of converted units a week later in Greenvale, NY; Springfield Gardens and Howard Beach in Queens; Eastchester Road in the Bronx; and Orange, NJ. All converted stores are scheduled to open by November 13. Stop & Shop is closing most of its units for seven days to complete the extensive remodeling effort needed to improve the units which for the most part were in deplorable condition. “We are very excited to begin the store conversion process, and we will strive to minimize the inconvenience to customers,” said Don Sussman, president of Stop & Shop’s New York Metro division. “Stop & Shop is committed to improving the overall shopping experience in these 25 stores to meet the quality, selection and savings that customers have come to expect from us.” And one more note about Albertsons. A tip of the hat goes out to Albertsons executives Shane Sampson and Jim Perkins and division presidents Steve Burnham (Safeway), Dan Croce (Acme) and Jim Rice (Shaw’s/Star Markets) for their roles in last month’s Jewel/Osco Acme Shaw’s Classic, which was held this year in Boston. Along with the aforementioned executives, the entire Albertsons team made the vendors feels very much at home by providing a great evening at Fenway Park and wonderful day of golf at two of New England’s finest courses – Brae Burn and Charles River. More importantly, a lot of money was raised for charity. Good work, everyone!…Village Super Market announced that both sales and earnings increased in its recently completed fourth quarter ended July 25. The Springfield, NJ based ShopRite operator posted comp store sales gains of 2.3 percent and earned $6.9 million, an increase of 16.9 percent from the corresponding period last year. The 29 store retailer (Wakefern’s second largest member behind Saker ShopRites) said sales improvements were created by higher volumes at replacement stores, bigger average transaction size and increased customer counts. For its 52-week period, Village reported overall sales of $1.6 billion…Tops Friendly Markets has promoted John Persons to president and chief operating officer. Previously, the 30 year company veteran served as Tops’ executive VP-sales, marketing and merchandising. In addition to his current duties, he will now oversee all store operations for Tops’ 165 units…Wayne Pesce has been named president of the Connecticut Food Association (CFA). He will replace the legendary Stan Sorkin, who will be retiring at the end of the year. Pesce most recently was VP-national retail sales for Coca-Cola and has spent more than 20 years with the large soft drink bottler. He was inducted into the CFA hall of fame in 2013 and has also received the Food Industry Alliance of New York State’s annual leadership award on several occasions. We wish Wayne all the best, and to our friend Mr. Sorkin, may you be blessed with good health and good luck in all future endeavors…I recently watched the new video documentary – “Lessons in Leadership” – about the remarkable life of Food Lion (Food Town) founder Ralph Ketner, one of a handful of executives who helped reshape food retailing over the past years. The 51-minute documentary will become a part of the high school curriculum in North Carolina. While Le Lion is beginning to regain some of the mojo that Ketner created when he founded the company in 1957, it’s a shame that much of that energy and drive to offer very low prices to its customers was lost for many of the years of Delhaize’s ownership, which acquired Food Lion in 1974 and is now in the process of merging with Ahold USA… deaths of note over the past month include the passing of the legendary Lawrence Peter “Yogi” Berra. One of the greatest characters of all time, Berra, 90, led the New York Yankees to an incredible 10 World Series championships, while also serving as the heart of that dynasty which ran from the late 1940s to the early 1960s. Among his other achievements, Berra was selected to the All Star game for 15 consecutive seasons and was a three-time American League MVP. He was also perhaps the most clutch World Series player of all time and still holds the record for most games played, plate appearances, hits and doubles in the Fall Classic. Of course, the legend of Yogi Berra continued beyond his playing days because of his unique wordsmithing abilities. My favorite “Yogisms”: “When you come to the fork in the road, take it,” he said giving directions to his house (either path would have led to his house); “Nobody goes there anymore, it’s too crowded,” (regarding a very popular restaurant at the time); and “You can observe a lot by watching”… also passing away was Jimmy Olsen. Actually, Jack Larson, the young actor who portrayed the bumbling cub reporter on “The Adventures of Superman” TV series (1952-1958) has died at the age of 87. After virtually quitting acting after he found his stereotypical character made it difficult to find acting jobs, Larsen later became an award-winning playwright and producer. I can still hear Olsen’s “Golly, Mr. Kent” playing in my head… we also report the passing of Daniel Thompson. Daniel Thompson? He’s the man who in 1968 invented the automated bagel machine (Murray Lender was one of his first clients), which was a catalyst in the mass production of the tasty pastry. Thompson, 94, also invented the wheeled, folding Ping Pong table, a fixture in many households (mine included) for more than 50 years…entering the heavenly kitchen is Chef Paul Prudhomme, 75, the New Orleans chef known for popularizing Cajun and Creole cuisine in the early 1980s. His French Quarter restaurant K-Paul’s Louisiana Kitchen became one of America’s most popular dining spots when it opened on Chartres Street in 1979 featuring such items as blackened redfish, etouffe and gumbo. He also is credited with introducing the turducken to American cuisine (have you ever seen a turducken fly?). I remember Paul from his many years of attending the FMI show. He had lost a lot of weight and could be found riding in a golf cart, intently checking out the exhibits while smiling and gladly giving autographs to those who asked…and finally, I mourn the death of the Playboy centerfold. The signature piece of the magazine started by now 89-year old Hugh Hefner in 1953, the centerfold for years was a life force of its own. For many teenage boys in the 1950s, 60s and 70s, Playboy was their underground reading (and viewing) lesson plan about the stuff that Ward Cleaver never talked about. Beginning next April as part of a magazine redesign, there will be no nudity at all in the print edition of Playboy. Provocative poses and sexy images will still appear, but garments will not be fully shed. The reason is simple: the magazine’s circulation has plummeted from a high of 5.6 million to 800,000 currently.” The battle has been fought and won,” said Playboy CEO Scott Flanders. “You’re now one click away from every sex act imaginable for free. As so it’s just passé at this juncture. Sad, but true, especially for those baby boomers who derived a hidden pleasure from finding their father’s issue and sharing it with friends.
