Weis To Open 43 New Stores In 90-Day Period
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 that 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 units begins on September 1 and will continue through the end of October. Weis held a meeting with its vendors on August 12 informing them of 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 is 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.
Target Still Scuffling With Grocery
It was another tough (second) quarter for Target Corp. and CEO Brian Cornell partly blamed its challenging grocery results for the Minneapolis-based mass merchant’s negative 1.1 percent comp store sales decrease.
Cornell said that Target would lower its comp store guidance for the second half of the year and would also revisit its overall food presentation, promotional activity and assortment. Target also lowered its comp store guidance for the second half of the year to flat to negative 2 percent.
Cornell said he was disappointed with comp-store declines in food during the second quarter, and said the mass merchant would “revisit” presentation, assortment and promotion during the second half of the year. In the post-release conference call with financial analysts, Cornell pointed to deflation for part of the retailer’s problems in grocery, adding that lower pricing affected sales by about 20 basis points in the quarter. He also cited a more competitive overall grocery environment. “We’re looking very specifically at food by market across the country because we face a number of regional competitors and we better make sure our presentation, our promotion, our approach enables us to compete market by market.”
Prior to the earnings release on August 17, there was a lot of buzz about a recent Wall Street Journal story that claimed Target’s board was reluctant to support the necessary investment required to remain competitive in the grocery arena. Cornell refuted that speculation.
“Despite what you may be hearing, we have absolutely complete support from the board to make sure we’re investing capital behind the initiatives that will drive future growth. We’re not playing for just the short term. We’re playing for the long term. Those capital investments have to be done on behalf of the guests and our shareholders but we’re looking right now at a number of different opportunities to continue to invest to drive growth. There is no hesitancy at all in making those investments,” the former Pepsi, Safeway and Wal-Mart executive asserted.
For its second period which ended July 30, overall sales totaled $16.2 billion. Net income for the quarter was $680 million, a 9.7 percent decline. The nation’s second largest mass merchant noted that digital sales increased by 16 percent during the quarter, adding that comps in its “signature categories” (style, baby, kids and wellness) outpaced overall comps by approximately 3 percent.
“While we recognize there are opportunities in the business, and are addressing the challenges we are facing in a difficult retail environment, we are pleased that our team delivered second quarter profitability above our expectations,” Cornell said in a statement. “Looking ahead, we remain focused on our enterprise priorities as we continue to see the benefits of investing in signature categories, store experience, new flex-format stores and digital capabilities. Although we are planning for a challenging environment in the back half of the year, we believe we have the right strategy to restore traffic and sales growth over time.”
‘Round The Trade
Following its recent addition of Marsh Supermarkets to its wholesale roster, Supervalu landed another big retailer earlier this month when the company announced it has reached a long-term supply agreement for The Fresh Market, the 185 store Greensboro, NC-based perishables-oriented retailer which was founded in 1982. Earlier this year, a unit of Apollo Global Management acquired the struggling publicly-traded retailer for $1.4 billion and almost immediately closed 13 underperforming units in Texas, Iowa, Missouri and Kansas. More changes were expected as the company, under the relatively new leadership of former Food Lion CEO Rick Anicetti, said that it needed to refocus on certain critical areas. “The Fresh Market is a terrific organization with a tremendous store base and a great consumer offering,” said SVU CEO Mark Gross. “The stores offer a great shopping experience. They are extremely well merchandised, meet customer demand with a keen focus on fresh, and provide a wonderful mix of traditional and specialty products. This is an excellent example of how our experience, strong distribution network and overall wholesale capabilities can serve larger grocery chains while also being flexible to the needs of specialty-focused retailers.” Anicetti stated: “We are excited about this relationship with Supervalu. Supervalu’s experience in wholesale grocery and logistics capabilities aligns well with our strategic vision and will make them a valuable strategic partner for our future. This new relationship will be highly beneficial in enhancing our customer experience, with a focus on providing superior quality and freshness at a greater value.” Supervalu will supply The Fresh Market with grocery products across a range of categories including meat, deli, bakery, grocery, frozen foods and dairy. SVU anticipates it will begin serving some of The Fresh Market’s stores in the fall and will take on additional stores as the transition continues…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 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, will be 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 retain 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 ultimately 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 won’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. Just before presstime, Wal-Mart announced improved second quarter sales at its U.S. stores. The Bentonville Behemoth posted a 1.6 percent comp store revenue increase. More specifically, comps at its Neighborhood Markets unit jump 6.5 percent and even its traditionally sluggish Sam’s Club division saw same store sales tick up 0.6 percent. Store traffic at its U.S. units also increased 1.2 percent while sales at its online Walmart.com division grew 11.8 percent…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, which 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). That new depot is expected to service Lidl stores in New Jersey, Pennsylvania, Delaware and Maryland. “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 North Carolina unit will open in Cary, 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’s 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 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 18, WFM’s stock price was $30.26 per share, not too far from its 52-week low of $28.07 per share…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 year
s 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
A few thoughts about the Kings/Balducci’s acquisition by Qatari-based GSSM: the potential to improve both banners is evident, but not without significant capital investment. First up must be a rethinking of the retailer’s pricing strategy. Lose the insult pricing quickly and place an even greater priority on improving “freshness.” Kings/Balducci’s perishables departments are very good, but the perception differential doesn’t place them above Whole Foods or some “world class” ShopRite stores. And the gap between Kings/Balducci’s and Wegmans remains significant. The new owners must invest in the company’s strengths and look to refill its stagnant real estate pipeline as well. Then again, almost anything will be an improvement over the lame duck approach that former owner Angelo, Gordon & Co. had about its only supermarket investment for the last three years…in other ownership news, Wm Morrison Supermarkets plc, Britain’s fourth largest supermarket, has sold its 10 percent stake in Fresh Direct back to the Long Island City online grocery delivery firm for a reported $58.7 million. Morrisons, which has been trying to divest its interest in Fresh Direct for more than two years to focus on its core grocery business, acquired its equity stake in Fresh Grocer in 2011 for $40.4 million…more Weis stuff: 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.”…after extensive remodeling of two former Pathmark stores acquired at the A&P auction last October, Food Bazaar (Bogopa) late this month cut the ribbon on those two units located in Elizabeth, NJ and Brentwood, NY. Additionally, the ethnic merchant opened another new unit in the on E. 163rd Street in the Bronx, NY, its fourth supermarket in that borough. Food Bazaar still has three former A&P stores in the remodeling stage – Fairview, NJ (Food Basics); N. Bergen, NJ (Food Basics); and on Flatlands Avenue in Brooklyn, NY (Pathmark) – that are expected to open later this year. When all of the newly acquired stores are opened, the family-owned retailer will operate 25 metro New York units. …UNFI, which has been on an aggressive buying spree over the past six months that has included Haddon House, Nor-Cal Produce and Global Organics/Specialty Source, has agreed to acquire Gourmet Guru, the Bronx, NY-based perishables-driven distributor. UNFI will acquire all of the outstanding stock of Gourmet Guru for an undisclosed price in an all-cash transaction. Gourmet Guru had sales of $50 million for the 12 months ended June 30. The transaction is expected to be neutral to UNFI’s fiscal 2017 earnings and modestly accretive to UNFI’s earnings in fiscal 2018, the Providence-based national distributor noted. “We are excited to strengthen our expertise in identifying new and fast-growing health and wellness brands with the strategic acquisition of Gourmet Guru,” Steven Spinner, UNFI’s president and CEO, said. Gourmet Guru CEO Jeff Lichtenstein will remain at the company in a leadership role. Lichtenstein commented: “UNFI recognizes the importance of helping exciting and new producers of fresh and organic foods and Gourmet Guru is proud to become a part of UNFI. We look forward to helping UNFI bring exciting and differentiated products to market.”…Tops Markets, which is reportedly in the running to acquire Price Chopper, posted another quarter of disappointing number for its second quarter although there were some signs of improvement for the Williamsville, NY-based regional chain. Tops’ loss for the quarter ended July 16 was $2.9 million, down from a $37.5 million loss in the second quarter of last year. Same store sales dipped 1.1 percent while overall revenue increased 0.6 percent, primarily due to the addition of seven new and acquired supermarkets opened since May 2015, contributing $12.8 million of incremental sales. CEO Frank Curci tried to put a positive spin on the results: “We delivered solid performance in the quarter as higher margin sales and strong cost control drove a 6 percent increase in adjusted EBITDA,” Curci noted. “Along with the rest of the supermarket industry, we continue to be challenged by food cost deflation, particularly in meat and dairy categories, which drove a small decline in same stores sales in the quarter. Despite those persistent headwinds, we continue to improve Tops’ earnings power through our growth as our net loss improved 92 percent and the adjusted EBITDA improvement was our third consecutive quarter-over-quarter increase.” Blah, blah, blah, blah, blah…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…a
lso passing in the animal kingdom was Bill 35, the Angora goat which served as the U.S. Naval Academy’s mascot for the past two years. Fortunately for Navy, its depth chart included three other goats. Utilizing its “next goat up” strategy, Bill 35 will be replaced by his brother Bill 36. Apparently that means Bill 37 and Bill 38 will now get more practice reps.
