Another New Owner For Kings, Balducci’s; Hopefully This One Brings Adequate Cap-Ex
After several years of searching for a buyer, New York-based private equity firms Angelo, Gordon & Co. and MTN Capital Partners LLC have sold their retail food subsidiary Kings Super Markets, Inc. and Balducci’s Food Lover’s Markets.
The buyer is KB Holding, Inc. a Delaware-based investment firm which was created by GSSG Capital (Ghanim Bin Saad Al Saad & Sons Group), one of the largest privately-held businesses in the Middle East nation of Qatar. This will be GSSG’s first U.S. investment, and sources at Kings/Balducci’s were excited that the new owners will actually bring new investment capital to the table.
As for the old owners, PE firm Angelo, Gordon (AG), good riddance. It wasn’t long after the Manhattan investment firm acquired Kings in 2006 from Marks & Spencer (another bad fit) for $61.5 million, that they began leveraging the company’s valuable properties, primarily in New Jersey. AG managed its investment like a typical private equity firm, utilizing real estate and cash flow to serve their needs, but inadequately investing into their high end stores. Over the past three years, AG’s focus seemed much more on an exit strategy than on improving market share.
The terms of the transaction were not disclosed, but we’re guessing the whole lot of 34 stores fetched between $35-40 million. Kings and Balducci’s will continue to be managed locally with Judy Spires remaining as chairman and CEO and Rich Durante as president. In fact, we were told that the entire management team will remain intact at both companies, which maintains headquarters in Parsippany, NJ (Kings) and Rockville, MD (Balducci’s)
“We believe this will be a great partnership for Kings and Balducci’s that will create significant opportunities for our business going forward,” said Spires.
“This investment will lay the foundation for expansion now and into the future,” Durante added.
The deal includes 25 Kings stores in Connecticut, New Jersey and New York, as well as six Balducci’s stores in Connecticut, New York, Maryland and Virginia, two Balducci’s Gourmet On The Go locations (New York City and Baltimore) and a Balducci’s Express at New York’s JFK Airport.
For many years, Kings, which was founded by Joe Bildner in Summit, NJ in 1936, was considered one of the best upscale independent retailers in the country. That began to change in 1988, when the Joe’s son Allen sold the company to British merchant Marks & Spencer, best known for owning Brooks Brothers. By the time Angelo, Gordon bought the company in 2006, Kings had lost much of its cachet. While there has been some improvement since those dark days, there has been little new store growth while other retailers seeking to attract the prototypical Kings customer have created a much more competitive environment.
Balducci’s has also had a record of ownership changes and limited growth. Founded in Brooklyn in 1916 by Louis Balducci, the one-store retailer subsequently relocated to Greenwich Village in Manhattan (where it became an institution) before being sold to Sutton Place Gourmet, a Washington, DC based gourmet retailer in 1999. Bear Stearns Merchant Banking Group acquired Sutton Place in 2003 before Angelo, Gordon added Balducci’s to its portfolio in 2009.
According to our data, Kings Food Markets and Balducci’s (excluding Balducci’s On The Go and Balducci’s Express) had estimated sales of $612.4 million at 31 locations.
With Kings’ and Balducci’s premium locations, the company has a very legitimate shot to grow ID sales and improve its image as a premium retailer (not just a good retailer with very high prices). Expanding the real estate pipeline is also vital if the retailer expects to stand out again.
Hopefully GSSM’s priorities are more focused and its pockets much deeper than the previous owners.
Weis Begins Heavy Lifting With Mars Conversions; Food Lion Remodels Next
Simply said, it’s the busiest period in the 112-year history of Weis Markets. Beginning on July 31 and culminating in late October, the Sunbury, PA based merchant will remodel and convert 43 stores that it recently acquired from other retailers in Maryland, Delaware and Virginia.
The first phase has already been completed with the five Baltimore area Mars stores that Weis purchased in May now operating as Weis units. Obvious changes include upgrades in produce and floral and overall expanded variety. Weis was careful not to radically change such core Mars departments as deli and bakery, which have been signature areas for the Baltimore independent which folded its tent last month after 73 years in business.
Next up are the 38 Food Lion units Weis purchased in the Ahold-Delhaize divestiture sell-off. Work on those begins on September 6 and will continue through the end of October. Weis held a meeting with its vendors on August 12 informing them on what they expect from their suppliers during the conversion/remodel process.
Much like Acme Markets did with its purchase of 71 A&P stores last fall, Weis is aiming for a quick turnaround to get the new stores reopened with modest upgrades. More capital is expected to be pumped into all acquired stores over the next 12 months as the regional chain attempts to further leverage its current sales momentum by featuring more perishable items and a broader selection of prepared foods.
It’s been quite a run for Weis over the past 18 months. It was only three years ago that Dave Hepfinger was forced out as chief executive, leaving a bad taste in the mouths of Weis executives and a sales track that was heading backwards.
Give credit to CEO Jonathan Weis, COO Kurt Schertle and their management team. In relatively short order they have regrouped, revitalizing the associates, bringing in new talent and setting an agenda that was dedicated to driving sales. It took more than a year for the new programs to gain traction and cycle out the poor sales numbers, but now Weis is in a good place, with revenues ascending, and profits solid.
Weis has always maintained a stellar balance sheet with no debt, but other than the 12-store acquisition of Giant Food Markets in Binghamton, NY in 2009, the opportunities hadn’t been there for Weis to purchase other food retailers. With the landscape continuing to consolidate, Weis was poised to strike when the opening arose.
By the time 2016 ends, Weis will operate more than 200 stores and will amass about $3.55 billion in annual sales. And perhaps more importantly, the culture at Weis has never been better.
‘Round The Trade
As it nears its IPO launch, Albertsons announced earlier this month that it would issue $750 million in new debt intended to repay outstanding borrowings. The big chain said the new Albertsons intends to use proceeds from the offering to partially prepay its senior secured term loan due 2023 and repay borrowings under its revolving credit facility. Late last month, the Boise, ID merchant posted solid ID sales of 2.9 percent for its more than 2,000 supermarkets during its first quarter that ended on June 18. And while it continues to lose money ($134 million on an actual basis; $43 million pro-forma), it narrowed its loss of $153 million last year. Of course, as been written here and elsewhere, Albertsons’ challenge, once it leaves the nest of current owner Cerberus Capital Management, is to prove to the financial community and its future shareholders that it can operate profitably and endure the pressure of having to produce quarterly earnings guidance. Another Cerberus controlled company, Supervalu, is seemingly getting closer to spinning off one its key assets, Save-A-lot. Just before presstime, SVU filed a motion with the SEC, detailing S-A-L’s separation plan from the parent firm. In the filing, Supervalu confirmed that it will retail 40 percent of Save-A-Lot’s stock, noting that it plans to dispose of at least half of those shares within two years with no plans to acquire S-A-L shares following the distribution. And then there’s been a lot of speculation from Wall Street that an IPO may not be the direction that Save-A-Lot goes. Reuters reported that an auction of sorts involving such financial entities as Advent international, Clayton, Dubilier & Rice, KKR, Onex, Thomas H. Lee Partners and TPG Capital may be held, possibly negating a public offering. It looks like the future disposition of Save-A-Lot may now occur before Albertsons’ IPO…Wal-Mart may not get much of a quick financial dividend from its $3.35 billion cash purchase of jet.com, but it will get intellectual clout with the company’s founders – Marc Lore, Mike Hanrahan and Nate Faust – joining Wal-Mart for a minimum of five years. Wal-Mart also gains credibility from Wall Street in acquiring a pure e-commerce company whose owners’ DNA is steeped in the digital world and are seen as a key component to becoming more competitive with Amazon.com. Still, spending more than $3 billion on a company that wouldn’t be profitable for years and – whose operating model, while unique, is still unproven – is risky. To me, it’s not Amazon that should be worried, it’s all the other medium-sized e-commerce players (both online only or online delivery) – Peapod, Fresh Direct, Instagram – that should be concerned that another power player has bulked up for the future…quoting the obvious, Business Insider reports that Kmart is on its last legs and will declare bankruptcy in the next year. Anybody wanna guess the exact date? Sales are now one-third of what they were 15 years ago and parent company Sears Holding experienced another significant earnings and sales decline in its 2016 fiscal first quarter: a loss of $471 million on an ID sales decline of 7.1 percent. It’s been typical of the company’s performance for nearly a decade and its Kmart brand is the worst of all of its components. Of course if you listen to Sears Holding CEO Eddie (“The Dreamer”) Lampert, there’s still hope. “While our operating performance still remains well below our goals, I am pleased to report that our first quarter adjusted EBITDA, excluding Seritage Growth Properties and joint venture rent, improved by $14 million compared to the first quarter of 2015, largely driven by reductions in overall expenses. Our Sears Domestic and Kmart apparel businesses continue to be negatively impacted by a heavily promotional competitive environment. We continue to focus on improving the overall performance of these businesses through changes to our assortment, sourcing, pricing and inventory management practices. We remain focused on restoring Sears Holdings to profitability by concentrating on our best stores, our best members and our best categories through innovative solutions leveraging our Shop Your Way membership program and our integrated retail offerings.” What’s he been smoking? Dead men walking.
Local Notes
As mentioned earlier, July 31 was the last day of business for Baltimore-based Mars Super Markets, which was started by the D’Anna family in 1943. Farewells are rarely pleasant, and it’s sad to see a once vibrant local independent fade and ultimately wither away. The D’Anna family handled the withdrawal process with class. For the more than 1,000 associates, many of whom spent their entire careers with Mars, the ending was difficult, but several that we talked to expressed admiration for the D’Annas and appreciation for their careers. About 400 associates have been hired by Weis, which acquired Mars’ five best stores and hopefully there’ll be opportunities for others in the market with existing retailers…speaking of Weis Markets, the Sunbury, PA retailer just announced that it has upgraded its “Reward Points Program.” The improved plan now includes the option of a five percent discount when customers use their Weis Preferred Shopper Club card and make a qualifying $100 purchase in a Weis Markets store. The discount can be redeemed on a customer’s future order. “We are in the business of offering our customers more choices, both in the variety of products we sell in our stores and now in the rewards we give back to our loyal customers,” said Brian Holt, Weis Markets’ VP of advertising and marketing. “Our new five percent discount is designed to benefit our customers who’d prefer to save money on their groceries over gas purchases. Either way, they can achieve significant savings.” The savings can add up for shoppers. “Weis Gas Reward points have helped our customers save serious money – the average redemption is nearly seven dollars on a tank of gas. We expect our new five percent reward to generate similar savings.”…an update of a story that we broke a few months ago concerning Lidl’s new Elkton, MD 754,000 square foot distribution center. Construction recently began at the new depot will create 100 new jobs and open no later than 2018 (when the German company will cut the ribbon on its first group of U.S. stores). “We are excited to announce a new hub of operations for Lidl US in Maryland, said Brendan Procter, president and CEO of Lidl’s United States unit. “This facility is an important step in building an efficient infrastructure that will allow us to deliver outstanding quality goods to our customers at the lowest possible prices. We selected Cecil County not only because it offers a central location for our distribution network, but also because it will be a great place for our employees to work and live.” Other Lidl warehouses are now under construction in Fredericksburg, VA and Mebane, NC…Wegmans opened its second Richmond area store in Short Pump on August 7 and while opening day wasn’t as “crazy” as its market debut in Midlothian in May, the store was plenty busy. Over the long-term, my guess is that Short Pump will outperform Midlothian and that both stores will continue to create headaches for all competitors within a five-mile radius of each location. Wegmans also confirmed that it has signed a lease to build a second store in the Raleigh, NC market (its first unit will open in Cary, NC probably in 2018), although company officials wouldn’t pinpoint the exact location. They also wouldn’t confirm that a lease has been signed for a new Wegmans to be built in Virginia Beach, VA, although I hear a deal is close. However, they did acknowledge that a deal to build a new unit in Marple, PA (Delaware County) has been scrapped as the entire large mixed use development planned for that area has fallen through…this just in: Whole Foods Market is not the “world’s healthiest grocery store.” That’s according to the U.S. Patent and Trademark Office which rejected the natural/organics retailer attempt to trademark the advertising slogan. The Patent office said the claim was an “exaggeration” and can’t be proven or has not been proven to be true. That disappointing news came a few days after the Austin, TX-based merchant posted another quarter of disappointing sales, reporting a decline in same-store sales for its fourth consecutive quarter. Comp sales dipped by 2.6 percent for the period ended July 3. At presstime on August 11, WFM’s stock price was $30.45 per share, not too far from its 52-week low of $28.07 per share…a tip of the hat to the fine folks at Bozzuto’s whose semi-annual trade shows remain unparalleled among its peers. Not only does the Cheshire, CT-based wholesaler treat their customers and associates with class, the respect and admiration for their suppliers is a testament that kindness, dignity and professionalism can still be difference makers… an interesting group of obituaries to report this month. Billionaire confectioner Forrest E. Mars Jr. has passed away at the age of 84. The reclusive Mr. Mars and his equally reclusive brother John were co-presidents of Mars, Inc., the largest confectionary company in the world, which remains privately owned. Forrest Mars officially retired from the company in 1999 when the manufacturer’s annual revenue was $18 billion. Current annual sales reached an estimated $35 billion this year and the company still touts one of the strongest brand portfolios in the entire grocery business – M&M, Milky Way, Snickers, Uncle Bens, Pedigree and Wrigley. Forrest Mars Jr. was worth a reported $25 billion….also passing on was one of my favorite character actors, David Huddleston. A veteran of more than 140 television and movie roles that spanned nearly 55 years, Huddleston, 85, appeared in two of my most beloved movies “Blazing Saddles” (1974) and “The Big Lebowski” (1998). In the former flick, Huddleston played bigoted Rock Ridge Mayor Olson Johnson (everyone in the town had the surname Johnson). As his town was being besieged by the bad guys (Harvey Korman, Slim Pickens), Olson Johnson was reminded that the German philosopher Nietzsche once said, “Out of chaos comes order.” He replied with a Mel Brooks’ classic line, “Oh, blow it out your ass.” And in “The Big Lebowski,” Huddleston played a millionaire philanthropist who shared the same name (Jeff Lebowski) as lead actor Jeff Bridges, also known as “The Dude.” When the two meet, Huddleston asks The Dude, “What makes a man, Mr. Lebowski?” “I don’t know, sir.” The Dude responds. “Is it being prepared to do the right thing, at whatever the cost? Isn’t that what makes a man?” counters Huddleston. “Sure, that and a pair of testicles.” The Dude replies…it is with great sadness that I report the death of Larry the Lobster, the 15 pound crustacean believed to have been as old as 110. Larry passed away during a journey from a Sunrise, FL restaurant to the Maine State Aquarium. He was found DOA when officials at the aquarium unpacked the lobster from his Styrofoam container. Contrary to reports, the clamshell container did not include any drawn butter.