McCann’s Ambitions Aside, Ahold USA Remains Far From Resembling Wegmans
James McCann is a controversial leader. By his own admission, he’s tough and stubborn. From the perch of trade observers, including former and current Ahold USA executives, he’s perceived as being highly intelligent and somewhat aloof.
I’ve written several pieces in the last 24 months about McCann’s ability to engender and improve Ahold’s culture, which for so many years was among the best in the retail food industry. McCann hasn’t avoided addressing the less-than-stellar or apathetic morale issue among the associates; instead he has viewed it as sort of expected collateral damage associated with the radical changes he believed were necessary for AUSA to survive and once again prosper.
In a recent video that was disseminated to suppliers and some media (including me), McCann reviewed the company’s progress as it continues its journey from “good to great.” The 46 year old British COO emphasizes how the “business wheel” (save money, invest it back, drive ID sales, accrue cash and then reinvest it back into the business) and the “promise wheel” (become a better place to shop, become a better place to work and be a better neighbor) must both work in unison for the “good to great journey” to be effective. McCann also notes that the results are beginning to show signs of success as the $26 billion company has improved sales and earnings in recent quarters.
However, all formulas contain intangibles and at one point in the video, McCann states that “we’re not setting out to get to the middle…but rather to become a retailer like Wegmans – they (consumers) really, really love to go beyond the functional place to buy groceries – to becoming part of those families’ lives. That’s the journey we’re on.”
Whoa, hold your horses. In no way, and I mean that in the most emphatic of terms, should the current state of Ahold USA be compared to Wegmans.
Let’s give the Carlisle, PA-based organization its due: “Project Thunder” has produced higher ID sales and improvements are very noticeable in those perishable areas where “Thunder” has been implemented. But here’s the dirty little secret that continues to exist under McCann’s 38-month tenure: store labor (hours) and training continue to be substandard by comparison to most retailers, let alone the one iconic merchant whose DNA includes depth of employment at its stores and a stellar associate training program.
Morale might have improved somewhat from the awful levels of 18 months ago, but as a group, the store associates at many AUSA stores generally remain a not-happy and/or indifferent bunch. Show me some passion at store level! Moreover, there simply aren’t enough associates (and store hours) to serve Ahold USA’s consumers effectively, which makes any comparison to Wegmans a non-starter at this point. I have a lot of respect for James on many levels, but I can’t even view his comments about Wegmans as being aspirational because, when it comes to effective labor utilization and employee training, Ahold USA isn’t even close to converting realistic aspirations into the level of store execution that Wegmans demonstrates.
On a larger scale, now that shareholders of both Ahold and Delhaize have approved the merger, it shouldn’t be more than 90 days until the marriage is official. And while the FTC has not officially released its list of stores divestitures, it seems that both retailers are anxious to move the process forward by putting stores on the market that they feel will be deemed geographically conflicting.
It shouldn’t be surprising that a total of 83 stores are on the selling block – 71 in the Mid-Atlantic region (including Richmond) plus nine in New England and two in the lower Hudson Valley region of New York. Most of the units up for sale are Food Lion locations (43 stores). Selling stores in their “tweener” size range (30,000-35,000 square feet) might be challenging, given the over-stored nature of the entire marketplace. Even Lidl, which would seem to be a candidate “on paper” isn’t a likely suitor, having chosen to build its new network of stores from the ground up. From my perch, the Food Lion stores on the Eastern Shore and in Southern Maryland would seem like the units likely to create the most interest.
My guess is that there will be more interest in the stores than some originally anticipated, especially if the FTC realizes that Ahold/Delhaize can’t find a buyer for some of its stores in the first round (usually the FTC initially mandates that the stores be sold to another financially sound enterprise) and the “must sell” mandate is ultimately lifted (all six Giant/Landover bannered stores that are on the “for sale” list are unionized).
One market where selling stores will be difficult is Richmond where AUSA trades as Martin’s and Delhaize America operates its Food Lion banner (there are 20 Martin’s on the list). Although both are non-union operations, Martin’s and Food Lion will significantly suffer once the Wegmans express comes to town in a few months, and if Kroger continues expanding at its current dynamic pace. And let’s not forget about
the entry of another new Whole Foods and the debut of Publix into the market in 2017.
Martin’s has already announced it will close three stores in Richmond this summer and if the remaining 20 units are sold, it will be a resounding black mark on Ahold USA’s failed 2010 purchase of Ukrop’s.
Albertsons Keeps Acquiring Stores
Albertsons hasn’t been shy in declaring that it would like to reach $100 billion in sales in the next five years. The huge Safeway acquisition last year elevated the Boise, ID chain’s annual revenue to $57.5 billion
and with its IPO likely to be launched in the next few months, the big merchant will be in a stronger position to make more deals in the years ahead.
One of those deals might occur in Florida, where the company recently converted three Albertsons stores – in Fort Lauderdale, Altamonte Springs and Largo – to its Safeway banner and placed them in retailer’s Eastern division. Those stores were formerly part of Albertsons’ Houston unit. With only three stores remaining from what was once a large Albertsons fleet in the Sunshine State, one might think that an acquisition could be in its future plans.
More recently, Albertsons has been on a buying binge, part of which might be slightly below the radar. Not under the radar were the 35 Haggen stores it acquired in the past six months. Many of those were former Albertsons or Safeway (Vons) units that the FTC ordered to be divested as part of the retailer’s January 2014 acquisition of Safeway. In one of the worst deals in recent supermarket history, Haggen, controlled by private equity company Comvest, filed for Chapter 11 bankruptcy last fall, and has been attempting to sell the 146 stores that it acquired from Albertsons in December 2014. And in the past week, Albertsons has acquired 29 Haggen stores in that failed retailer’s core Washington (22 stores) and Oregon (seven units) markets for $106 million. Three other original Haggen units were not part of the deal and will be closed.
Albertsons has said that it will keep the Haggen banner on 15 of those units. All but one store – a former Safeway in Oak Harbor, WA – were originally Haggen stores, with the remaining 14 supermarkets switching back to their original Albertsons flag.
And there is seemingly no deal too big or small that will deter Albertsons from building its store base. Earlier this month, the chain agreed to acquire seven stores in Texas and New Mexico from Lawrence Brothers, a regional chain based in Sweetwater, TX. Those units will become part of Albertsons’ United Supermarkets division. Four of the newly purchased stores will operate under the United banner, two New Mexico supermarkets will trade as Albertsons and a lone store in Seminole, TX will reopen as a Super Saver Foods. Lawrence Brothers will continue to operate its 17 remaining stores.
A few weeks prior to that deal, Albertsons went hunting for some home cooking when it agreed to acquire Paul’s Markets, a seven store independent group with Idaho stores in Boise, Homedale, Kuna, McCall, Caldwell, Mountain Home and Nampa. The first four stores will open under the Albertsons banner, with the latter three units set to be shuttered by Paul’s and will ultimately become Albertsons properties as well. The chain was founded in 1955 by Paul Zatico and was operated by his sons, Steve and Stan Zatico.
UNFI Has Busy Month With Haddon House, Global Organics Acquisitions; Earnings Take A Hit
UNFI, the Providence, RI-based national distributor of natural and organic foods, specialty foods, and related products has had a busy month, acquiring two regional specialty and organic distributors and reporting disappointing second quarter earnings which dropped 19 percent for the period ended January 30.
Late last month, the company announced that it entered into a definitive agreement to acquire all outstanding stock of Haddon House Food Products, Inc. and certain affiliated entities as well as certain real estate, in a cash transaction for approximately $217.5 million, subject to certain customary post-closing adjustments.
Founded in 1960 by the Anderson family, Medford, NJ-based Haddon House is a distributor and merchandiser of natural and organic and gourmet ethnic products throughout the Eastern United States
which has two distribution centers in Howell, NJ and Richburg, SC. The company currently employs approximately 1,300 associates and has a diverse, multi-channel customer base including conventional supermarkets, gourmet food stores and independently owned product retailers.
“Haddon House has a unique product and service offering that we expect to play an important role in our ongoing strategy to build out UNFI’s gourmet and ethnic product categories across the country,” stated Steven Spinner, UNFI’s president and CEO. “The Haddon House team has demonstrated exemplary customer service and growth over the last decade while also building a distinctive private label brands business. We are excited to have them join the UNFI family as we venture into new channels and markets together. I look forward to working with David Anderson Sr. and David Anderson Jr., both of whom will remain at the company in leadership roles, as we move this exciting service offering and product category across our companies and throughout the U.S.”
“This transaction will provide us with greater operating scale and resources to further develop our product and service offering as we work with the UNFI team to broaden our geographic reach and route to market across complementary and new customer bases. We are excited about the opportunities this combination will create for consumers, employees, suppliers, and our stockholders,” stated David Anderson Sr., president of Haddon House.
Then one week later, UNFI acquired certain assets of Global Organics/Specialty Source, a Sarasota, FL perishables distributor which will be integrated into the company’s Albert’s Organics unit.
It’s been a challenging year for the company, which first made its name as the key organics supplier to Whole Foods more than 20 years ago. In the past 12 months it took a big hit when it lost the Albertsons’
business nationally to Kehe. CEO Spinner said that UNFI would be restructuring its business into regional divisions so it can position itself better to a rapidly changing landscape for natural and organic foods.
‘Round The Trade
Is there ever a month without Wal-Mart news? The Behemoth posted a comp-store sales increase of 0.6 percent at its U.S. stores in its fourth quarter ended January 31, while operating income declined 5.3 percent as a result of increased hourly wages and investments in e-commerce. “While customers have benefited from lower gas prices, we experienced significant headwinds from deflation in meat and dairy products,” CEO Doug McMillon told analysts on the post-earnings conference call. “Additional sales pressure came from warmer than normal temperatures early in the quarter and delays in IRS tax refund checks impacted the very end of the quarter.” Not unexpectedly, Wal-Mart is forecasting flat sales in fiscal 2017. However, one stat that continues to impress: overall 2016 global sales for the planet’s largest retailer were $499.4 billion (reflecting currency exchange rates). In other Wal-Mart news, the mega-merchant will be rolling out a new design plan called “Fresh Angle” in 3,300 of its U.S. stores later this year. The new layout features improved lighting and lower produce displays. According to Wal-Mart CMO Steve Bratspies, who spoke at the Raymond James Investment Conference in Orlando, FL on March 8, the produce department will be dramatically changed with the implementation of the program. Along with the new look, Wal-Mart is adding a fresh operations manager in each store to train and build capabilities on an ongoing basis in its SuperCenters. Improving “Fresh” is a major priority for the Behemoth as it attempts to create more balance and higher revenues at its big boxes. “Fresh Angle” has already been unveiled at 180 combo units…he may be a financial genius, but as a merchant Sears Holdings CEO “Slow” Eddie Lampert might be the village idiot. According to a Reuters report, Lampert said that Sears Holdings’ inability to effectively compete in the marketplace is at least in part due to moves to increase the minimum wage and that there are different tax rules for online retailers like Amazon. Is that really the reason that his company has lost nearly $9 billion in the past five years? Meanwhile, the bloodletting continues as seven more Sears and Sears Auto Centers will close by year’s end and another 46 Kmarts will shutter their doors in the next nine months. Of the Sears closings, two are in the Northeast (Staten Island, NY and Utica, NY). Nine Kmart burials will be held in the Northeast and include units in Colonial Heights, VA; Virginia Beach, VA (Hilltop – once a SuperKmart); Virginia Beach, VA (Cedar Bluff); Hopewell, VA; Chantilly, VA; Frackville, PA; Mt. Pocono, PA; Parkville, MD; and Vineland, NJ…Aldi, which will open its first group of California stores – eight discounts units in all – on March 24, has named Brent Laubaugh as a co-president. He joins David Behm and Chuck Youngstrom as co-presidents. Laubaugh was VP of the highly successful discount merchant’s Saxonburg (near Pittsburgh), PA division. He will report to Aldi U.S. CEO Jason Hart…why is it that every time I hear Anthony Hucker’s name I start humming Ricky Nelson’s old song “Travelin’ Man.” The peripatetic British grocery executive has left Schnuck’s and joined Southeastern Grocers (Winn-Dixie, Bi-Lo) as chief operating officer. He’ll report to another UK lad – Ian McCleod. Many of you remember Anthony from his days as president of Ahold USA’s Giant/Landover unit. He began his grocery career at Aldi and spent seven years at Wal-Mart, where he ultimately became the company’s head of strategy and business development for the U.S. (“I’m a travelin’ man, I’ve made a lot of stops all over the world, and in every port I own the heart…”)…Stop & Shop and five UFCW Locals based in Metro New York and New England have resumed negotiations over new labor contracts. The original agreements, which affect 35,000 clerks and meatcutters, originally expired on February 27. Earlier this month, the five Locals issued a statement, criticizing Ahold for failing to reach an agreement. In part, the statement said: “Despite the continued profitability, earning in excess of $10 billion in profit last year, they continue to demand cuts to their employees’ hard earned wages and benefits.”… Tom Haggai, 85, truly an iconic figure in the food industry, will become chairman emeritus of IGA effective April 1. Dr. Haggai (he’s an ordained Baptist minister), has been involved with IGA since the early 1960s and became the non-executive chairman of the merchandising, marketing and advertising group in 1976. “IGA is incredibly grateful for Tom Haggai’s leadership and innovation,” said his successor Mark Batenic, who now adds the chairman title to his current duties as president and CEO. “Tom has been an ambassador to IGA for nearly 60 years now, and he will always be the inspirational face of IGA. Our retailers, manufacturers and IGA staff from around the world can’t thank him enough for his contributions to this community-focused family business.” I’ve known Dr. Haggai for more than 30 years and here’s a recent story that typifies the man. I was at the Bozzuto’s trade show earlier this month at Foxwoods in Connecticut and while I was being shuttled back to the Providence airport, the driver asked me if I know elderly, white-haired gentlemen who also attended the trade show. I asked if his name was Tom Haggai and the driver said, “That’s him.” I wondered how he would know Dr. Haggai. He responded: “I took him to the airport, too, at 4:00 a.m. this morning. And I had a tire blowout on I-95.” I asked if everybody was OK and he said, yes,” and added, “I went out to replace the tire on the shoulder of a busy highway and here was my passenger standing next to me in the pitch dark, concerned about my safety. What an incredible person!” Enough said.
Local Notes
Weis Markets continues to successfully grind along, posting a comp store sales increase of 2.8 percent and an earnings jump of 21 percent in its fourth quarter ended December 26. Profit was $16.6 million on sales of $734.1 million for the 13-week period. For its 52-week fiscal 2015, earnings were $59.3 million, a 9.1 percent gain on a 3.6 overall sales increase to $2.9 billion. “In 2015, our overall results benefited from strategic pricing investments and the ongoing improvement of our store assortments by market. In addition, improved store level, supply chain and store support efficiencies helped us deliver a better customer experience, which helped us increase customer traffic and our overall market share,” said Weis chairman and CEO Jonathan Weis. The Sunbury, PA-based regional chain also announced that Crystal Osunde has joined the company as director of pharmacy operations and Ed Sheedy, an Ahold USA alumnus, is Weis’ new director of category analysis, promotional income and retail strategies. And, Steve Davis, one of the real good guys in our industry, is the new chairman of the Global Market Development Center (GMDC), the large international trade association based in Colorado Springs, CO. Steve, who serves as Weis’ director of center store, GM/HBC and non-foods for the 164-store chain, is one of the most knowledgeable non-foods gurus in the business…I’m constantly amazed at how the financial community criticizes food retailers whose results might have slipped a bit, but still perform at an ultra-high level. Such is the case with Kroger, which posted comp-store sales of 3.9 percent (excluding fuel) in its recently completed fourth quarter ended January 30. Almost immediately, Kroger’s stock took a 7 percent dive while several financial analysts wondered if Kroger had lost some of its mojo. Of course, that’s the tunnel vision thinking we’re used to on Wall Street, where store visits are scarce as Granny Clampett’s teeth and street instincts are about as strong as rubber bands. For the record, Kroger earned $559 million in its fourth quarter, and now has achieved positive IDs for the 49th consecutive quarter. Within a week the stock price had rebound to nearly $39 per share (the 52-week high is $42.75 per share). And here’s a couple more facts that the skybox jockeys on Wall Street should know or know better: 1) primarily because of deflation, sales have been flat for the past two months across all food channels; and 2) nobody has performed better over a five year period than Kroger has. In other Kroger news, the retailer has promoted Mary Ellen Adcock to serve as its group vice president of retail operations, effective May 16. She succeeds Marnette Perry, whose retirement was previously announced. Adcock currently serves as vice president of operations for Kroger’s Columbus division. Adcock joined the company’s Country Oven Bakery in Bowling Green, KY in 1999. She held several leadership positions of increasing responsibility in Kroger Manufacturing, including vice president of deli/bakery manufacturing in Kroger’s general office in 2009. In 2014, Ms. Adcock was named vice president of merchandising for Kroger’s Columbus division…Food Lion will shortly begin its “Fresh, Easy & Affordable” (FEA) renovation program at its Charlotte division. The Salisbury, NC-based retailer, which hopes to complete the project by October, will spend about $215 million at its 142 units which will feature lower retails, a more diversified assortment and improved service. This will complete the FEA upgrades in the Tar Heel State, with Food Lion’s Raleigh stores having been remodeled last year, preceded by supermarkets in Wilmington and Greensboro in 2014….there are several deaths to report this month. From the world of music, Sir George Martin, the iconic music producer whose affiliation with The Beatles made him a rock music legend in his own right, died earlier this month at the age of 90. He first met The Fab Four in 1962 on the recommendation of a friend. Initially, he was not impressed, noting that the early Beatles songs were weak with uneven tempos. However, he believed that the boys from Liverpool were talented, if they could refine their sound. Serving as both a father figure and a polished, classically trained producer, Martin produced 13 Beatles albums and 22 singles in a nine year period. Martin was a member of the Rock & Roll Hall of fame and was made a Commander of the British Empire in 1988 and was also awarded a knighthood in 1996. Also passing on was Keith Emerson, one of the great rock and roll keyboardists of the last 50 years and leader of the progressive rock trio, Emerson, Lake and Palmer. Bandmate Carl Palmer said, “Keith was a gentle soul whose love for music and passion for his performance as a keyboard player will remain unmatched for many years to come. He was a pioneer and an innovator whose musical genius touched all of us in the worlds of rock, classical and jazz.” The great character actor George Kennedy, 91, has also passed on. The beefy actor is probably best known from his Academy Award winning role in “Cool Hand Luke” (1967), in which he plays Dragline, a prisoner who resists and then befriends protagonist Luke (Paul Newman). But, out of more than 180 film and television appearances in a career spanning 55 years, my favorite remains his portrayal of Sgt. Ed Hocken in the first Naked Gun movie – “Naked Gun: From the Files of Police Squad” (1988). In one of the funniest movie scenes of the last 30 years, leading man Leslie Nielsen (Lt. Frank Drebin) attempts to disable villain Vincent Ludwig (Ricardo Montalban) with a tranquilizing cufflink dart. Things go terriblyawry when Ludwig staggers backwards and falls off of the top concourse of Dodger Stadium and topples to his death. Lying face down on the asphalt below, Montalban proceeds to get further flattened by a bus, a steamroller and finally, the University of Southern California’s marching band. At that point, Sgt. Hocken is uncontrollably sobbing after looking down at the trampled body. As Lt. Drebin tries to console Hocken, the sergeant turns and says, “My father went the same way.”… finally, another death of sorts to report. Mexican brewer Dos Equis has decided to retire its “Most Interesting Man in the World (MIMITW)” ad campaign after a great nine-year run. The character, played by actor Jonathan Goldsmith, will be forever immortalized for his catch phrases. “I don’t always drink beer, but when I do, I drink Dos Equis,” and “Stay thirsty, my friend.” Among my favorite lines in the phenomenally long running MIMITW series are: “He gave his father ‘the talk;’” “The circus ran away to join him;” “He once won a staring contest with his ownrefl ection;” “Mosquitoes refuse to bite him, purely out of respect;” and “He lives vicariously through himself.”