Ahold Delhaize Decentralization Plan Is Solid, But Can AUSA Improve Store Level Execution?
I was encouraged to hear that phase two of Ahold Delhaize’s integration/synergy plan in the U.S. is to focus on a more decentralized approach, giving the banners (“brands” as AUSA COO Kevin Holt terms the divisions) more focus with more boots on the ground in Quincy, Carlisle (division, not corporate headquarters), Landover, Skokie (Peapod), Salisbury and Scarborough. The latter two divisions, which are part of Delhaize America, already had established separate headquarters where local merchandising and procurement decisions were made.
If you’ve read my editorials over the years, you’ll know I think the industry’s seismic shift over the past 15 years to a more centralized merchandising approach has only been effective in saving backroom money. And despite almost every industry executive claiming that the individual divisions will still have significant input into local buying decisions, it never seems to work out as well as planned. That’s because at the end of the day, the category manager (or other decision maker) at corporate headquarters is the one signing that purchase order and essentially controls the deck.
In the past few years, we have seen some retailers shifting back to a more decentralized approach. Most notably, Albertsons has bought into this concept fully, re-establishing regional infrastructures at its 14 operating divisions. While we do not expect Ahold Delhaize to make the type of financial investment or level of local commitment that Albertsons did in 2013, it’s clear that Holt is a big believer in a “brand-centric” system, which will almost certainly be an improvement over the current dysfunctional merchandising system that has existed in Carlisle for at least the past four years.
However, improvement is always relative and in the case of Ahold’s brands, the success of this new initiative will be measured by both tangibles and intangibles. Tangibly, can the AUSA “brands” improve the negative 0.2 percent ID sales results from its most recent quarter? While deflation and intense competition remain major impediments to all retailers, the peer group ID sales average (for publicly-traded grocery merchants) over the past year remains in the positive 2-2.5 percent range. Ahold USA hasn’t been at that benchmark in quite a while.
Of course, the biggest (and most important) intangible component that will affect the ultimate success (not just enhancement) of this new brand-centric model is how the AUSA banners will improve their image with their customers. It’s too simplistic to say that the company’s stores look too vanilla, or more cap-ex needs to be deployed into accelerating remodelings or building new stores. Those facts are true, but the underlying core issue for Ahold USA, as it seeks better results, is its approach to its store level associates. Ever since the Ahold Delhaize merger was announced in June 2015, I’ve never seen this issue addressed specifically. Unless the newly united retailer commits more labor to its stores, vastly upgrades its training and improves associates’ morale at store level, decentralization or any other synergistic efficiency will fall short, because in any form of bricks and mortar retailing, the perception of the store associates is arguably the most important component in advancing consumer image.
Not surprisingly, we’ve been bombarded by calls and emails from associates and vendors wondering what other changes may be occurring at Ahold Delhaize in the U.S. for the rest of 2017.
Since Ahold Delhaize wasn’t doling out more specifics at this time, here are some questions from our “mailbag”: With the recently announced brand-centric approach, will vendors need to make six separate appointments at AUSA, Delhaize and Peapod to present same suppliers’ offers; or will it remain a one headquarter call? With the new local model to be implemented, how many merchandising jobs will be affected at corporate headquarters in Carlisle, either by relocations or terminations? With the new localized brand-centric plan, relative to their size, will there be a proportionate number of local merchandisers assigned to each banner? Will there be a change in job titles and responsibilities in the merchandising departments of both AUSA and Delhaize America, so that both companies are aligned as one? Is C&S being considered to supply the banners it already doesn’t service (Food Lion, Hannaford)? In order to gain nearly $400 million in U.S. synergy savings, how many associates will lose their jobs at Ahold USA and Delhaize America?
Stay tuned, it may take awhile, but most of those answers should ultimately be revealed.
Walgreens Cuts Rite Aid Price As FTC Seeks More Divestments, Fred’s Deal May Be In Jeopardy
Walgreens Boots Alliance and Rite Aid have agreed to reduce the price for each share of Rite Aid common stock to be paid by Walgreens to a maximum of $7.00 per share and a minimum of $6.50 per share, or $7.37 billion to $6.84 billion, down from the $9 per share or $9.4 billion under their previous merger plan announced in 2015.
Additionally, the Deerfield, IL drug chain will be required to divest up to 1,200 Rite Aid stores and certain additional related assets to obtain regulatory approval. Both parties have also agreed to extend their merger process date to July 31 to allow additional time to obtain regulatory approval, a sixth month extension from their previous January 27 deadline.
With more than 300 stores added to the newly expanded divestiture list, several sources have questioned whether original Walgreens’ divestment partner Fred’s Inc., which agreed to purchase 865 overlapping units from Walgreens, might be out of the running.
According to our own financial sources and to semi-paraphrase the great Curtis Mayfield: “Freddy’s (Almost) Dead…That’s What I Said.” That’s reportedly because of the FTC’s concerns that the Memphis druggist might not be able support an acquisition of that size, especially when the agency got burned by allowing Haggen to buy 146 stores from Albertsons in 2015.
And according to the New York Post, private equity firm Cerberus Capital, which controls both Albertsons and Supervalu, has emerged as a possible white knight to fill the void to acquire the Walgreens “overflow” should Fred’s fail in its bid. According to the Manhattan- based tabloid, which is owned by Rupert Murdoch’s News Corp. organization, Cerberus made its original bid to acquire the divested units through its Albertson unit at an auction in December. While the newspaper claims it lost out to Fred’s, it also claimed that Cerberus’ bid was actually higher than the $950 million that Fred’s paid for those rights. The story also notes that the nation’s largest drug chain accepted the Fred’s offer because Walgreens was concerned about potential FTC approval of a PE buyer. Cerberus denied that it ever contacted the FTC about the transaction or the bidding process.
If the merger falls through, Walgreens would be required to pay Rite Aid a termination fee of $325 million, which would double to $650 million “in certain circumstances,” according to a previous filing.
‘Round The Trade
For years, Amazon.com posted incredible quarterly sales but disappointing earnings as the company remained stalwart in its resolve to build its innovation and revenue platforms at the expense of profits. In the past two years, earnings are rapidly catching up to still eye-catching sales growth. In its recently released fourth quarter ended December 31, 2016, profit increased 55 percent to $749 million while sales jumped 21 percent to $43.7 billion (which, not surprisingly, was disappointing to Wall Street). With any of Amazon’s recent moves and ensuing results, including financial performance, is there any sane reason to be disappointed in virtually anything that Amazon attempts? Sure, they’ve had a few duds in recent memory (Amazon Elements diapers, Fire Phone), but who has a better track record for innovation over the past decade? Nobody’s even a close second. And 2016 was arguably the best year in its 22-year history. But alas, somebody’s got to hold down second-place in the ecommerce standings. And that company would be Wal-Mart. Late last month, the Behemoth said it would offer its U.S. customers free two-day shipping on a minimum order of $35 in an attempt to compete with Amazon’s popular “Prime” shipping program. The new free shipping program will replace the world’s largest retail merchant’s “Shipping Pass,” another two-day shipping program that had an annual membership fee of $49. Amazon’s “Prime” program charges customers $99 a year for two-day shipping that also comes with additional perks such as a streaming video service (after Wal-Mart’s announcement, Amazon lowered its free shipping minimum to $35 for non-Prime members). On the brick and mortar side of the business, you’ll soon be able to purchase your new automobile at Wally World. The big retailer is planning to partner with several dealership groups including AutoNation, the nation’s largest new vehicle retailer, to sell cars in 25 Wal-Mart units across the Southwest. According to Automotive News, staffers will be on hand to help buyers through the process, which is centered at a CarSaver kiosk within the store. The story notes that the utilization of the CarSaver technology would allow interested buyers to connect with a dealership within 15 miles of that Wal-Mart and is aimed at reducing the stress and pressure of the typical car shopping experience while saving customers potentially $3,000 on a car’s average sticker price. Additionally, Wal-Mart is again experimenting with a new c-store format that it debuted earlier this month at the entrance of an existing SuperCenter in Rogers, AR. The 2,500 square foot unit features a hot bar, walk-in beer cooler, soft-serve ice cream machine, pre-made sandwiches and salads and a limited number of staple grocery items…also entering the convenience store business for the first time is Dollar General, which currently operates more than 12,500 stores in 43 states. The Goodlettsville, TN-based discounter opened its first DGX c-store in Nashville, TN last month. The 3,400 square foot, based 15 miles from its corporate headquarters, features groceries, pet supplies, snacks and some HBC items to go with “grab and go” sodas, sandwiches, and coffee. Another store will open shortly in Raleigh, NC… Whole Foods continues to be plagued with a myriad of problems – declining financials being one of them. The organics-driven chain posted disappointing first quarter sales and earnings with comp store revenue for the period ended January 15. Comps dipped 2.4 percent, marking the sixth consecutive quarter that the “good for you foods” merchant had declining same store sales. Net income for the 16-week period fell to $95 million from $157 million a year ago. Additionally, co-founder and CEO John Mackey said that the company will no longer seek to reach 1,200 stores in the next decade (it currently operates approximately 460 units) and instead said it will “double down” on its most loyal customers, continue to lower prices and take other steps to improve profitability and efficiency. WFM also announced that nine stores will close before the end of its 2nd quarter (none in the Northeast). Currently the retailer has 93 new stores in development. One of those new stores that is moving a lot of boxes is the chain’s Bryant Park location in Manhattan. Business during the first four weeks of operation has been very brisk. And I was finally able to visit my first 365 store while recently in Los Angeles and I wasn’t too impressed. The good news was that pricing was much more aggressive than traditional WFM units and the perishables departments were solid, not spectacular. But the overall store layout, lighting and merchandising I thought were subpar. I may be wrong, but I found it hard to imagine that this format would translate well nationally…. Kellogg’s has made a major move in its distribution model. The Battle Creek, MI-based manufacturer said it will dismantle the DSD infrastructure for its snack business and switch to a warehouse model, the path where 75 percent of its business is already sold. Approximately 1,100 associates will be affected and 39 distribution centers will close by the end of the company’s fourth quarter this year. While I could almost never envision a scenario where companies like Coke, Pepsi, Frito-Lay and Bimbo move to a warehouse model, don’t be shocked if you see smaller or medium-sized firms, or even large CPG manufacturers with specialized DSD products, opt for the less costly (and less service-oriented) factory to warehouse model in the near future…Brazilian PE firm 3G – owner of Kraft Heinz – whose appetite for growth is almost as aggressive as its broad cost-cutting measures, is dropping its efforts to acquire Unilever. The Dutch manufacturing giant already had already rejected 3G’s $143 billion bid and offered this explanation: “Kraft Heinz had the utmost respect for the culture, strategy and leadership of Unilever.” Sounds like a “face saving” exercise from the private equity firm to avoid potential litigious and costly battle, one that 3G would likely lose…in some news from Virginia, Publix is slowly moving forward in its store-by-store takeover of 10 Martin’s (Ahold USA) units in the Richmond market. In the past month, the Lakeland, FL-based merchant has filed for permits for four more units where Publix will begin extensive upgrades ($3 to $6 million per unit). Thus far, Publix has taken permit action on seven of the 10 supermarkets that it agreed to acquire last year. It’s possible that the first of those stores could open in late summer, although the retailer has not yet provided any concrete opening day information…Nestle USA is moving its corporate headquarters from its longtime base in Glendale, CA to a 35-story 580,000 square foot building in the Rosslyn section of Arlington, VA. Nestle is expected to occupy 40 percent of the edifice (206,000 square feet) and is expected to begin its corporate move this summer and continue through the end of 2018. Nestle USA’s sales in 2015 were $9.7 billion…Wegmans and other retailers (and some trade journalists) have long understood that when it comes to politics, we all should emulate Switzerland. After the Prince William (county), VA chapter of the National Organization for Women pressured the Rochester, NY-based uber-retailer to stop selling five varieties of Trump Winery products (formerly Kluge Estate winery based in Charlottesville), Wegmans stuck to its age-old policy of letting its customers decide. “Our role as a retailer is to offer choice to our customers,” said Jo Natale, VP-media relations (and one of the best in business).” Individual shoppers who feel strongly about an issue can demonstrate their convictions by refusing to buy a product. When enough people do the same and sales of a product drop precipitously, we stop selling that product in favor of one that’s in greater demand.” Apparently that boycott effort has backfired. According to the Richmond Times-Dispatch, all varieties of Trump brand wines at nine of Wegmans’ 10 Virginia unit
s are out-of-stock and the remaining inventory at its newest Old Dominion unit in Charlottesville is very depleted. As noted, politics and sales are usually not good bedfellows.
Local Notes
Private equity firms Leonard Green and Partners and CVC Capital Partners, who own club operators BJ’s, are reportedly looking for a way to unload the investment which they acquired in 2011 for $2.8 billion. Given that six years is within the framework of a PE “dump” this potential move shouldn’t be surprising. Certainly the inroads that Amazon and now Wal-Mart have made against all club operators offer another potential reason for BJ’s to find a new home, too. The Wall Street Journal reports that the Natick, MA-based merchant is looking at either a sale or a possible IPO. BJ’s, which operates 213 units primarily on the East Coast (and Ohio), was a publicly-traded enterprise before its purchase by Green and CVC …it looks like May 18 will be ribbon-cutting day for Lidl’s debut in the U.S. with 10 stores reportedly set to open on that day in Virginia, North Carolina and South Carolina. Sources have told us that Lidl will cluster 10 store openings every few weeks thereafter and hopes to have approximately 100 stores open by the end of 2017. Corporately, the German discounter’s parent firm (Schwarz Group) has named a new chief executive, Jesper Hojer. The Danish-born Hojer, who has worked for Lidl for more than a decade, replaces Sven Seidel who became Lidl’s CEO in March 2014. And Lidl’s chief discount rival in Europe (and soon-to-be in the U.S.), Aldi said it will spend $1.6 billion to remodel its 1,300 U.S. stores. Aldi’s new redesigned model, which now exists in about 300 units, features wider aisles, raised ceilings, sleeker refrigerated doors and windows and more natural lighting. The new store design adds about 20 percent more floor space (to about 20,000 square feet) and an expanded perishables presence…it looks like Stop & Shop is attempting to enter the apartment building business. In a filing with the Boston Planning and Development Agency, the biggest division of Ahold USA is seeking permission to redevelop its existing store at 60 Everett Street in the Allston section of the city. As part of a broader plan, called Allston Yards, Stoppie would also build 1,010 residential units (apartments) and offer office space and ground floor retail and restaurant space. “Stop & Shop has been proud to call Boston our home for over a century and we believe that Allston Yards project represents a terrific opportunity for us to better serve the neighborhood and community,” said the talented Mark McGowan, president of Stoppie. About four miles away in now semi-gentrified Somerville, MA, another Ahold USA banner, bfresh, cut the ribbon on a new location. The 11,000 square foot perishables and prepared foods-oriented store is only AUSA’s third unit under the bfresh banner, which I find disappointing since the initial concept store first opened in Center City Philadelphia in late 2014 (Everything Fresh) and the first bfresh debuted nearly two and a half years ago in Allston…the first new ShopRite corporate store (SRS) under the helm of Brett Wing (who was named president of ShopRite Supermarkets last month) will open in North Greenbush, NY (Rennselaer County) later this year. The 55,000 square foot store will be SRS’ fourth Albany area location. The corporate store arm of Wakefern Corp. currently operates 34 supermarkets overall. More Wakefern news: at last month’s FMI Midwinter Executive Conference, chairman and CEO Joe Colalillo was presented with the Robert B. Wegman award, which was given to the supermarket executive for “exercising entrepreneurial leadership in the design of retail strategies and imaginative merchandising.” This honor is much deserved because Joe’s vision and leadership skills are unparalleled in an industry with so much talent. Plus, he’s one of the really good guys in the entire grocery biz…Tawa Supermarket, Inc., opened its first East Coast unit late last month. The 60,000 square foot former Pathmark unit in Edison, NJ now flies the company’s retail banner – 99 Ranch. In October 2015, the Buena Park, CA-based retailer, which operates 42 other 99 Ranch units on the West Coast and Texas, acquired three stores at the A&P bankruptcy auction. Another unit in Jersey City is expected to open in the next few weeks and the store it purchased in Hackensack, NJ is slated to open later this spring…Kroger has bought a controlling interest in the legendary Murray’s Cheese flagship location on Bleecker Street in Manhattan’s West Village. Kroger and Murray’s have enjoyed a partnership since 2008 and today there are 350 cheese shops inside Kroger stores. It’s seems like a great deal for both parties, providing financial security for Murray’s owner Rob Kaufelt (whose dad Stanley Kaufelt, founder of Mayfair Super Markets, was an iconic figure in the supermarket industry) and permanent control of an influential brand for Kroger…brave man award of the month goes to Robert Beck III of Conewago Township, PA, who after seeing a deer crash through the window at a Giant/Carlisle store in Manchester Township, PA, wrestled the ruminant doe to the ground and prevented it from barreling into the supermarket’s glass-enclosed bakery case. “When I seen it, it was game on,” said Beck (apparently in his best Pennsyl-tucky English). Beck grabbed the deer by the neck, and with the help of two other patrons, was able to lead it outside the store…according to the New York Post, in an effort to trim operational costs after its emergence from bankruptcy last July, Fairway Market is considering selling the prepared foods commissary and bakery distribution center in the Hunts Point section of the Bronx which opened in 2010. The “like no other market” merchant, which debuted its first new store in nearly three years in Brooklyn last month, is now controlled by PE firm GSO Capital Partners, an arm of the Blackstone Group…last year seemed to be a record year for celebrity deaths and based on the first month of 2017, the current trend seems to be accelerating. I’m very sad to report the passing of Mary Tyler Moore, the groundbreaking comedienne and actress, who died last month at the age of 80. Besides iconic roles as Laura Petrie in “The Dick Van Dyke Show” (1961-66) and as Mary Richards on “The Mary Tyler Moore Show” (1970-77), Tyler Moore was also received a Best Actress Academy Award nomination for her role in 1980’s “Ordinary People.” She was also a spokesperson for juvenile diabetes, a cause close to my heart, having been diagnosed with Type 1 version of the disease when she was 33. Mannix is dead too. Actor Mike Connors, who played hard-boiled private eye Joe Mannix on the self titled TV series (1967-74), passed away at the age of 91. Connors, born Krekor Ohanian, began his film career in 1952’s “Sudden Fear.” Actor John Hurt, nominated for two Oscars, is also no longer with us. The gravelly-voiced British Actor, who received Academy Award recognition for his roles in “Midnight Express” (1978) and “The Elephant Man” (1980) had a wide-ranging acting career which included more than 200 film and TV roles. He usually played characters with issues, and according to website IMDB, Hurt’s characters died 47 times on screen…also leaving us were two unsung musical prodigies. Jazz singer Al Jarreau passed away earlier this month at the age of 76. Blessed with a tremendous vocal range, the Milwaukee native didn’t release his first album until he was 35. Over the next 40 years he would release 19 more albums and was rewarded with seven Grammys in the jazz, pop and R&B categories – the only vocalist to be honored in all three genres. Entering guitar heaven is Larry Coryell, whose fusion style made him a pioneer of jazz-rock. Coryell’s career took many twists (by his own design). On the jazz side he collaborated with such greats as Miles Davis, Ron Carter and Chet Baker. And in the late sixties, he delved into psychedelic rock with his band The Free Spirits, in which he composed, sang and played the guitar and sitar. A great technician who also possessed creative jamming skills, Coryell, 73, released more than 6
0 solo albums in a career that spanned more than 50 years. He died in his sleep after performing the last of two shows on February 18 at the Iridium Jazz Club in New York City… we also learned of the passing of the world’s greatest authority on everything (or nothing). Professor Irwin Corey whose mock-intellectual dialogue and fractured logic entertained audiences for more than 70 years, passed away at the age of 102. With his disheveled appearance, featuring tennis shoes and rumpled tuxedo, “The Professor” analyzed a recent election year outcome by noting: “I’m sorry, the returns are fragmentary, but the indication is that there will be a turnout that won’t come up to expectations of those who, through their analyses have proved the percentages will only relate to the outcome.” We’ll miss the professor – he was truly one of a kind.
