Out Of The Blue, Fred’s About To Enter Competitive, Overstored Northeast Market
For many months, trade analysts expected that Kroger would be the winning bidder for the hundreds of Rite Aid stores that the Federal Trade Commission (FTC) would mandate for divestiture by Walgreens Boots Alliance if it were to successfully complete the $9.4 billion acquisition of the Camp Hill, PA drug store chain first announced 15 months ago.
Not only would such a deal add to Kroger’s HBC, GM and pharmaceutical business, it would provide the industry’s largest pure-play supermarket operator with an entry into the Northeast, the largest remaining empty geography for the Cincinnati-based merchant.
Several of our Wall Street sources alerted us before Thanksgiving that Kroger was rethinking about moving forward, leaving an opportunity for another bidder to emerge.
When the smoke cleared and the curtain opened, Fred’s Inc., a regional drug chain based in Memphis, came away with the prize that would include 865 stores for $950 million in cash (about $1.1 million per store).
The proposed deal would more than double the size of Fred’s, which currently operates Fred’s 647 general merchandise discount stores located primarily in the Southeast that include 371 full-service pharmacy departments within its stores. Many of its stores are located in small towns.
Additionally, the deal requires Fred’s to buy additional stores if the FTC requires the divestiture of more than the 865 units.
While neither party would reveal the specific locations that were to be acquired before the merger is approved by the FTC, many of the overlapping Rite Aid and Walgreens stores are located in the Northeast. And that alone would give concern to how successful can any new operator be in the most overstored, competitive marketing area of the country.
“This will be a transformative event for Fred’s Pharmacy that will accelerate our health care growth strategy through our acquisition of 865 new stores located in highly-attractive markets,” Fred’s Pharmacy CEO Michael K. Bloom said. “We believe that this transaction will also create tremendous opportunities for both our new and existing front of store and pharmacy team members. We look forward to realizing the considerable benefits this transaction will bring to our customers, patients, payors, supplier partners, team members and shareholders.”
Bloom knows the Northeast well. For 20 years he served as a senior executive at CVS and prior to joining Fred’s in 2015 was president and COO of Family Dollar (which was acquired by Dollar Tree in 2014).
Not only will Fred’s be competing against larger and superior operators CVS and Walgreens, it will likely end up with the stores that Walgreens deemed inferior to the overlapping stores that the Deerfield, IL chain will keep. Additionally, the competition from other high-volume HBC, GM and prescription retailers not in the drug channel (i.e. Wal-Mart, ShopRite, and all the AUSA banners) will certainly be a lot different from the competitive landscape in Hueytown, AL.
Fred’s will also have to deal with other challenges such as logistics and culture integration. Part of the agreement calls for Fred’s continue to operate the stores under the Rite Aid banner for two years and would continue to employ all store associates and certain field and regional associates related to operations.
That alone might create some short-term stability, but remember it’s only been a couple of years since Rite Aid has progressed to “sea-level” status and it is still a distant third to drug chain leaders Walgreens and CVS. The integration of 3,600 Rite Aids will likely be easier for Walgreens than it will be for Fred’s to absorb 865 stores (and has never operated on either the East or West Coasts).
It’s a big opportunity for the company that began as a single store in Coldwater, MS in 1947. That opportunity comes with big risks.
Could Chris Lane’s Promotion Be Portent Of Wakefern’s Leadership Direction?
Changes of leadership at Wakefern Food Corp. are few and far between. And it’s been the company’s management stability that’s been one of the difference makers for Keasbey, NJ-based wholesale grocery co-op which in the past 45 years has had only had two chairman/chief executives – the late Tom Infusino (the Vince Lombardi of the business), who served from 1971 to 2005, and current chairman and CEO Joe Colalillo, who has masterfully led the co-op to record sales and industry innovation.
Even at the president/COO level there has been little change – only four day-to-day leaders in that same time period – David Silverberg, Jerry Yaguda, Dean Janeway and Joe Sheridan, who assumed the responsibility when Janeway retired in late 2011. All men have served as great stewards to their unique organization by growing sales, creating new membership opportunities, expanding geographies and helping develop new formats.
Earlier this month in typical Wakefern fashion – a news release was issued headlined: “Wakefern Food Corp. Names Executive Vice President” (without mentioning the person’s name). Well that person is Chris Lane, who has been a senior VP at Wakefern since 2011, first as head of non-perishables and most recently as supervisor of product divisions.
Why is Lane’s promotion important? Primarily because Chris Lane is one of the upcoming stars in the grocery business and that fact is being recognized by his bosses. He’s only 54, has been with Wakefern since 2003 and is a pharmacist by trade. Lane also is viewed by his peers and by the vendors as intelligent and fair with strong leadership skills.
“Chris has the smarts, the temperament and the overall leadership skills to become president of the company one day,” said one Wakefern member-owner. “His experience is well-rounded, both from within Wakefern and when he worked for Duane Reade, and he operates very effectively with the members. He’s a very good listener.”
Secondly, in what may be even more important than this current promotion is that the new job could be a precursor to possibly succeed Sheridan as president and COO of the co-op which serves as the distribution foundation for $15.7 billion of retail sales at Wakefern’s ShopRite and PriceRite stores and is the dominant market leader in both Metro New York and the Delaware Valley. There are no guarantees, of course, that this will happen and I don’t believe the dynamic Sheridan is going anywhere anytime soon, but if history repeats itself, Lane could become Wakefern’s next president.
And what history is that? In May 2011, Janeway announced that he would be stepping down as president, seven months before he left. Sheridan, having served as Janeway’s right hand man for years, was soon named as his successor. Obviously, succession planning is vital for a company that makes very few changes at the top and has had a stellar record of management chemistry for the past 45 years.
And Lane didn’t waste any time in restructuring his new team. Those changes include promoting Paul Patten to group VP-center store (from VP-grocery division); elevating Parag Shah from sales manager, grocery marketing to VP-grocery; naming Cathy Magistrelli VP-HBC (she was grocery procurement manager); Steve Henig, who was VP-corporate merchandising, will now move to a new vice president post in Wakefern’s digital commerce and innovation division where he will oversee ecommerce and data analytics; Chris Skyers, most recently VP-HBC, becomes VP-corporate merchandising; Kelly Schaefer-McSpirit now becomes director of corporate advertising (she was advertising manager); Charlie McWeeny has been promoted from director of the computer information services division (CISD) to VP-CISD; Bob Cerullo, formerly Wakefern’s “appy/seafood” manager is now director of seafood; and Natalie Menza-Crowe, who was manager of health and wellness, has been elevated to director of that department.
Those reporting directory to Lane are Bill Mayo, senior VP-logistics, technology and engineering; Jeff Reagan, senior VP-marketing; Dave Howlett, VP-dairy/frozen; Geoff Wexler, VP-foodservice; Terry Murphy, VP-fresh bake; Terry Sharkey, VP-appy/seafood; Joe Gozzi, director of distinctive products and the aforementioned Patten and Menza-Crowe.
If nothing else, we wish Chris Lane all the best in his new role. However, if I were a betting man…
‘Round The Trade
It will be very interesting to see how Whole Foods Market (WFM) responds to the two class-action suits it must defend. Both filings deal with the company’s “gainsharing” store level associate bonus program, which some store managers and employees feel was manipulated illegally. We’ll let the courts adjudicate the legal issues, but the decline of WFM over the past two years lies primarily with company management. The Austin, TX-based merchant certainly has lost its store ops crispness, and other consumer perception issues (such as accuracy in weights and measures) are a direct result of sloppiness, not intent in my opinion. Perhaps that’s one reason Walter Robb is no longer co-CEO and John Mackey is back as sole chief executive. However, it’s going to take more than one person to fix WFM’s problems. The company has lost many talented managers and executives over the past five years and in its quest for accelerated expansion, its laser keen operational disciplines at store level as well as the morale of its associates have somewhat diminished. These lawsuits will not help matters…two retailers with even bigger worries are Sears/Kmart and Macy’s. The former merchant continued its race to the bottom by announcing it will shutter 108 Kmarts and 42 Sears units over the next three months, meaning that the Hoffman Estates, IL-merchant will have closed more than 200 stores in its current fiscal year and has suffered a store decrease of nearly 60 percent since 2011. Many of the soon-to-be closed stores are located in the South, but the casualty list in the Mid-Atlantic will include one closure in Maryland (Kmart), 10 in Pennsylvania (6 Kmarts, 4 Sears), five in Virginia (4 Kmart, 1 Sears) and six in West Virginia (4 Kmarts, 2 Sears). And, Sears Holdings CEO “Slow Eddie” Lampert has personally guaranteed a $500 million line of credit (through his own hedge fund – ESL Investments) to maintain the company’s current liquidity levels. The ailing retailer reportedly has only $258 million cash in hand. Another sign of imminent demise: just before presstime, it was announced that Stanley Black & Decker will acquire Sears’ Craftsman business (one of its signature brands) for $900 million. Sears will still carry Craftsman merchandise at its stores in a deal in which the iconic retailer can sell those products royalty-free for 15 years. And, while it hasn’t yet sunk to the depths of Sears/Kmart, Macy’s is descending pretty quickly. Early this month, the department store provided clarification of its August announcement that more than 100 stores would be closing and more than 10,000 jobs would be lost. About 6,200 of those jobs will be lost through management riffing, with another 3,900 impacted by upcoming stores closings. Mid-Atlantic Macy’s on the closure list include locations in Bensalem, PA; Muncy, PA; Plymouth Meeting, PA: Alexandria, VA (Landmark SC); and Lynchburg, VA. Additionally, the big Macy’s store in McLean, VA (Tyson’s Galleria), will be sold and leased back to the company which will continue to operate that high-volume unit. Clearly both merchants have been severely impacted by the growth of ecommerce, but that’s only part of the problem. Whether it be Kmart,
Sears or Macy’s, the condition of the stores, the amount of labor on the floor and the level of associate training have all waned significantly in recent years…another retailer that announced store closings is Giant/Eagle. The Pittsburgh-based regional chain said it would close six stores in Ohio (five Giant/Eagle supermarkets and a Get-Go convenience store); two more Get-Go locations – in Altoona, PA and Frederick, MD to close…the newest “busiest man in the business” is Roger Wheeler who was promoted to president of Retail Business Systems LLC, the newly formed unit that will provide support services to the Ahold USA and Delhaize America local brands including such administrative areas as financial accounting, goods not for resale, people systems, IT, legal, own brands, and supply chain. He’ll oversee virtually every support function at the newly merged firm, excluding store operations and merchandising, which will still be under the aegis of the local banners…Kroger announced last month that it offered voluntary buyouts to about 2,000 associates who have until March to accept the buyout proposal. “Kroger would not be the successful company it is today without the incredible efforts of our associates. We believe a generous voluntary retirement offering is in line with our company values and recognizes the long careers many of our associates have had with Kroger. Kroger is committed to our operating model of lowering costs to invest in areas that matter most to our customers,” said CEO Rodney McMullen. The company currently employs approximately 430,000 associates…while shoppers in Washington DC and Montgomery County, MD have the option of paying 5 cents for a plastic bag, the independent city of Takoma Park, MD (which overlaps the Montgomery and Prince George’s County border) has taken away that choice by banning all plastic shopping bags. “We hope (this measure) finally gets people to remember to use their bags,” said Takoma Park Mayor Kate Stewart. “I think we have good intentions. We are hoping now that the plastic bags will no longer be available, that would be the extra incentive to remind people to take those reusable bags with them.”…Duncan Mac Naughton has a new job. Just before presstime, the peripatetic retail executive was named president and COO of Family Dollar Discount Stores, a division of Dollar Tree Stores. Mac Naughton has had no problem gaining employment at the executive level. However, keeping a job long-term might be an issue. In the past 20 years, he has worked for Kraft, H-E-B, Albertsons, Supervalu, Wal-Mart. Most recently, he served as CEO of Mills Fleet Farm, a family-owned company based in Brainerd, MN and Appleton, WI. Replacing Mac Naughton as CEO is his old buddy from Supervalu, Wayne Sales. Wayne Sales? It’s amazing to me that so many former grocery executives with questionable leadership skills find prominent jobs at other companies…word on the street indicates that Costco may shortly be increasing its membership fees. Costco CFO Richard Galante hinted at a price increase during his analyst conference call last month. The club store leader last raised its membership fees in November 2011…late last month, Philadelphia Judge Gary S. Glazer threw out a beverage industry lawsuit aiming to challenge the city’s 1.5 percent beverage tax which became law on January 1. The beverage industry and associated parties argued that the tax duplicated the state sales tax already imposed on soda and unfairly taxes drinks based on their size, not their price…Michele Buck has been promoted from COO to chief executive at The Hershey Co. Buck, who’s been with the big Central, PA chocolatier for 11 years, succeeds John Bilbrey, who will remain on Hershey’s board as non-executive chairman…a tip of the hat to two of our industry buddies who have recently retired. Packing it in after 35 years with McCormick is Rick Morse. Rick has held a variety of sales posts at the big spice maker including VP-sales. For the past six years, Rick, who now resides in beautiful Charleston, SC, has been VP-global customers. A talented salesman and a gentleman of intelligence and passion, we wish Rick all the best in his future endeavors. Also hanging up his merchant shoes after a 46-year career at Safeway’s eastern division is Steve “The Rock” Coomes. In his lengthy career with Safeway, his competency can be told in the many jobs he’s held for the organization beginning as a grocery night stocker in 1970 and culminating as produce procurement manager. Trustworthy, steady and loyal, Steve was a great team player with a tireless work ethic. Good luck to you, my friend… in a year with too many notable people passing on, our December obituary list includes mother and daughter Debbie Reynolds and Carrie Fisher. Reynolds, 84, once termed “America’s Sweetheart” for her wholesome girl-next-door look, died a day after her daughter succumbed to a heart attack. Reynolds’ film breakthrough came when she was 19, in the 1952 mega-hit “Singin’ in the Rain,” co-starring Gene Kelly and Donald O’Connor. All told, Reynolds appeared in 82 film and TV roles in addition to numerous Broadway appearances. Her daughter, Carrie Fisher, may not have had the stellar career of her mother, but certainly led a very interesting life, too. Her name and character became iconic after she played Princess Leia when the first “Star Wars” movie was released in 1977. Fisher also appeared in such popular movies as the original “Blues Brothers,” (1980) and “When Harry Met Sally,” (1989). Fisher, whose father was popular 1950s crooner Eddie Fisher, also displayed a great affinity for writing. Her first novel, “Postcards From the Edge,” (1987), drew on her real life battles with drug addiction, bipolar disorder and her often fractious relationship with her mother, and was later developed into a film starring Meryl Streep and Shirley MacLaine. In 2008, she wrote another highly personalized book, “Wishful Drinking,” which continued to chronicle her ongoing personal demons and dysfunctional family life (watch the HBO special of the same name “on demand;” it’s both hilarious and sobering). Fisher was 60 when she passed. We are also sorry to report the death of Robert Hulseman. Robert Hulseman? He was the former CEO of the Solo Cup Company, who succeeded his father Leo, who founded the company in Chicago in 1936. It was Robert Hulseman’s invention of the 16 ounce red Solo cup in the mid-1970s that changed the drinking habits of many Americans. “Nobody was drinking 16-ounce beers at that point,” said his son Tom. Other smaller sized cups and different colors were developed, but it was the 16 ounce red that stuck. If I’m not giving you a complete picture of the importance of the red Solo cup in American society, perhaps some of the lyrics from Toby Keith’s 2011 song can convince you: “Now a red solo cup is the best receptacle; For barbecues, tailgates, fairs and festivals; And you sir do not have a pair of testicles; If you prefer drinking from glass; A red solo cup is cheap and disposable; And in 14 years they are decomposable; And unlike my home they are not fore-closable; Freddie Mac can kiss my ass woo; Red solo cup I fill you up; Let’s have a party let’s have a party; I love you red Solo cup I lift you up; Proceed to party proceed to party; Now I really love how you’re easy to stack; But I really hate how you’re easy to track; ‘Cause when beer runs down the front of my back; Well that my friends is quite yucky; But I have to admit that the ladies get smitten; Admiring how sharply my first name is written; On you with a sharpie when I get to hittin’; On them to help me get lucky; Red Solo cup I fill you up; Let’s have a party let’s have a party.” (www.youtube.com/watch?v=BKZqGJONH68).
