Taking Stock

Food Lion Revampment Won’t Offset Fierce Competition In Richmond

Give Food Lion its due. Of all the operating companies (brands) in the new Ahold Delhaize matrix in the U.S., no other banner has performed better over the past two years. Granted, its average volumes are considerably less than sister company Hannaford and also that of new step-siblings Giant (Carlisle and Landover) and Stop & Shop, but its “Easy Fresh and Affordable” renovation program has produced positive results in the North Carolina markets where the revampments have been completed – 10 percent sales growth in Wilmington; 3 percent in Greenville and 8 percent in Raleigh.

Now, the Salisbury, NC-based chain is taking its store improvement effort to Richmond where it operates 71 stores in the entire marketplace (approximately 45 of those units are in the metro Richmond area).

“Food Lion is proud to have been a part of the greater Richmond community since 1984, and we are excited to bring our newest format to this market,” said Meg Ham, Food Lion president. “We look forward to making significant investments in our stores, our customers, our associates and our communities to offer a new grocery shopping experience. We want to ensure our customers can easily find fresh, quality products to nourish their families at affordable prices every day, delivered with caring, friendly service every time they shop.”

However, Food Lion will find the going much more difficult in the capital of the Old Dominion than in its border state to the south.

Even with the eventual withdrawal of Martin’s (eight stores still open) later this year, Food Lion (and every other food retailer) has been adversely impacted by two humongous Wegmans openings during the past year. While the Rochester, NY-based uber-merchant hasn’t cratered the market, when you extract more than $100 million a year from a middle-sized market you’re gonna create a fairly high level of disruption.

Later this summer, Publix will debut the first of the 10 stores it acquired from Martin’s about a year ago. The Lakeland, FL juggernaut is reportedly spending more than $5 million per store in improvements and you can bet that the morale of the Publix associates will in no way resemble the moribund attitudes that have plagued Martin’s in Richmond for the past four years (and truthfully, based on the way they’ve been treated, who can blame them?).

However, the biggest threat to Food Lion – not only in Richmond, but in many areas of the southeast – is the upcoming debut of Lidl. While the German-based discounter won’t admit it, it seems pretty obvious that Food Lion was right in the crosshairs when Lidl began planning its U.S. entry in 2013. While Kroger may have been the most impacted retailer when Wegmans entered the market (based on compatible operating styles), the Lidl matchup won’t be a good one for Food Lion, which still counts on price, limited perishables and increasing its private label sales as key components of its success. Lidl’s go-to-market formula prioritizes those same components as well.

The fun begins on June 18 when Lidl cuts the ribbon on about 20 stores in Virginia, North Carolina and South Carolina. Lidl has approximately a dozen leases signed in the Richmond area with about three stores expected to open in the company’s first six weeks of operation. Thus far, we’re told, Lidl has reportedly inked about 125 deals in a geography ranging from New Jersey to Georgia. About 40 percent of its new stores could be in direct competition with Food Lion.

Gaining market share in Richmond has been a challenge for every retailer over the past three years. In 2016, with the Wegmans entry, the stakes were raised higher. Now with Publix and Lidl about to debut, the pressure to even maintain comp store sales becomes even more daunting.

Something’s gotta give.

Ahold Delhaize Comps Dip In U.S.; Earnings Rise, Synergy Savings On Track

In reporting its first quarter 2017 sales and earnings (ended April 2), the newly formed Ahold Delhaize organization continued its recent pattern at the nearly 2,000 U.S. supermarkets it operates of strong earnings and slightly negative comp store sales.

At its 776-store Ahold USA division, the company’s underlying operating margin remained at a healthy 4.2 percent, earning $270.4 million in underlying operating profit. Comp store revenue (ex-gas) dipped to negative 1.8 percent (compared to negative 1.4 percent in the period a year earlier). The company cited continuing deflation, adverse weather and the timing of Easter as contributing factors for the declining comp store performance at its 776 stores. Overall sales at AUSA in the quarter were $6.4 billion.

At Food Lion and Hannaford’s 1,214 stores, underlying operating margin was 3.9 percent and underlying operating income was $166.1 million for the quarter. Comps, which were positive 2 percent in Q1 2016, were flat this period. Overall sales at Delhaize America were $4.2 billion.

Synergy savings-wise, Ahold Delhaize said it is on track to deliver its projected $543 million amount by 2019. In the U.S., the big retailer said $38 million in synergy savings had been delivered during the first quarter.

“We are pleased to report a resilient first quarter performance with an increase in margin for the group despite the ongoing deflationary environment in the United States,” said CEO Dick Boer. “We continue to make significant progress on the implementation of our ‘Better Together’ strategy, investing in our customer proposition, while improving margins.”

In the post-earnings release conference call in Amsterdam, Boer said the company was focusing on improving its center store strategy following improvements of its perishables departments over the past two years as part of its “Operation Thunder” program. “We’re optimizing our product ranges and we look at our space allocation per store to max all their needs and provide a distinct offer for our customers. That’s really working on improving the center store offer for our customers,” Boer told the analysts.

The veteran Ahold executive also addressed the question of the future of bfresh, which since its debut two years ago still has only three stores in operation (although there are four more stores planned), noting that it will decide on a small store rollout strategy later this year. He added that the bfresh model and Hannaford’s new small format (which debuted in N. Berwick, ME in 2015) are right for the market and represent a “nice opportunity for us.”

In assessing the upcoming threat from Lidl’s U.S. debut next month, Boer said that its Food lion unit is ready for the battle. “We know exactly where they will come,” he said.

‘Round The Trade

The recent Jana Partners nearly 9 percent equity stake in Whole Foods has already had an effect on the big organics retailer. On May 10, a month after Jana demanded changes at the sputtering merchant, CEO John Mackey (he ultimately may be one of those changes) blew up the company’s board replacing five directors, naming a new chair person and bringing in a new CFO. The new chairwoman is Gabrielle Sulzberger, wife of New York Times chairman and publisher Arthur Sulzberger. Keith Manbeck is WFM’s new CFO. He comes from Kohl’s and replaces the retiring Glenda Flanagan. On the sales and earnings front, in its recently completed second quarter ended April 9, the recent negative trend continued. Comp store revenue declined 2.8 percent (its seventh consecutive quarter of negative comps) and profits dipped 30.3 percent to $99 million. Mackey announced several new initiatives designed at cutting costs and improving efficiency. Those include a $300 million in cost cutting by 2020 and a centralized merchandising initiative that will be completed by the end of this year. Whole Foods’ affinity loyalty rollout to all of its approximately 465 U.S. stores will also be accelerated. One piece of good news for WFM: its new store in Riverdale, MD, which opened last month, is doing very strong business. The Austin, TX- based upscale merchant isn’t the only food retailer whose status is under scrutiny. It’s no secret that BJ’s Wholesale Club might be put on the selling block by principal owner, PE firm Leonard Green. Or that Albertsons might still be eyeing Sprouts or even the aforementioned WFM for a potential deal. And don’t forget that many regional supermarket chains, including Price Chopper and Giant Eagle, might be listening to outside offers. Currently, there are only two clearly identifiable strategic supermarket buyers – Kroger and Albertsons. But don’t discount Amazon from entering the bricks and mortar arena (a BJ’s purchase would help them). And while private equity has shied away from most retail food acquisitions in recent years (with the exception of Apollo’s strange decision to buy The Fresh Market last year), the money guys (who are never afraid of debt) could re-enter the buying derby, too. The effects of overstoring coupled with the diversity of retail styles in virtually every market in the U.S., is clearly causing more and more merchants to think about putting up the “white flag” while their companies still have significant value…in other earnings news of importance, Amazon once again posted strong numbers in its first quarter which ended March 31. Net income rose 41 percent to $724 million. Worldwide sales increased 23 percent to $35.7 billion and its Amazon Fresh unit continues to grow, now operating in 21 U.S. cities and London and Tokyo. At Publix, earnings decreased 4.6 percent to $555.3 million in its first quarter and comp store sales dipped 2.1 percent, its first quarterly sales drop since 2009. Along with the shift of this year’s Easter holiday (second quarter this year, first quarter last year) the employee-owned upscale merchant cited the effects of store cannibalization as a factor in declining same store revenue….Personal surprise of the past four weeks: Justin Dye’s resignation as chief administrative officer at Albertsons. Not only is he a member of the vaunted “30 Pound Brain” club, Justin possesses a very unusual skill set that combines finance, M&A experience and a street sense of the grocery industry (his family was involved in the supermarket biz in his native Indiana). Plus he’s a great guy. Non-compete clauses aside, I expect Justin Dye to be the first pick on somebody’s draft board as CEO before very long…veteran perishables executive Paul Kneeland, formerly of Kings/Balducci’s and Roche Bros. and most recently with Ahold’s Fresh Formats (bfresh) unit, has joined upscale Los Angeles-based merchant Gelson’s Markets as its new senior director of produce and floral… newly named Save-A-Lot CEO Kenneth McGrath has convinced his former right hand man at Lidl, Kevin Proctor, to join the Earth City, MO discounter as chief investment officer. Proctor (no relation to current Lidl U.S. CEO Brendan Proctor), also worked recently with McGrath at Digicell, a digital phone and related services organization based on the island of Jamaica…potential bad idea of the month: Target will soon begin testing an online delivery service in its core Minneapolis market that will allow shoppers to order online and receive delivery to their homes the next day. The new service, called ReStock, will be rolled out this summer. While I know every retailer needs an upgraded online presence, the idea that Target can make this experiment work based on its stumblin’, bumblin’ and fumblin’ execution in grocery at its stores seems highly implausible…Bumble Bee Foods, North America’s largest shelf-stable seafood company, has pled guilty to conspiring to fix prices of canned and pouched tuna the U.S. Justice Department has confirmed. With the guilty plea comes a minimum $25 million fine which could increase up to $81.5 million if Bumble Bee sells the company. The company is currently owned by London-based private equity firm Lion Capital LLP…just before presstime, we heard some disappointing news for two struggling regional chains. Southeastern Grocers (Bi-Lo, Winn-Dixie), owned by Dallas-based PE firm Lone Star, will shutter 20 stores in the next 45 days. Six of those units are Bi-Lo stores in North and South Carolina. Lone Star has been trying to find a buyer for its big supermarket asset since 2014. Overall sales last year dipped 7 percent and comp revenue fell 3.6 percent as heightened competition from Publix and Wal-Mart impacted the retailer’s business. At Marsh, the situation is even worse. The Indianapolis-based chain, after years of declining sales and store closures, finally filed for Chapter 11 bankruptcy protection on May 9. The formerly family-owned retailer, which was acquired by PE firm Sun Capital in 2006, warned that it could close its remaining 44 locations if a buyer can’t be found in the next 60 days. Sounds like the fire sale has officially begun.

Local Notes

In light of the recent corporate changes at Albertsons Boise, ID headquarters (Wayne Denningham adds president title, former chief administrative officer Justin Dye departs) some other key corollary moves were made: former Jewel-Osco division president Mike Withers has been promoted to the role of executive VP retail operations East region. Withers began his career as courtesy clerk at Albertsons in Boise in 1976. Susan Morris, who had supervised the company’s East region, now will head Albertsons store operations in its west region as executive VP. Jim Perkins, who has seemingly done almost every job at Albertsons in his distinguished career including heading East and West Coast store ops, remains in his current role as executive VP special projects. Perkins is working with Dan Croce and his Acme team in Malvern, PA. Just before presstime, Albertsons released its fourth quarter and year-end (February 25) sales and earnings. Fourth quarter ID sales decreased 3.3 percent (3.7 percent at Safeway stores). That’s a sharp drop from the comparable period last year when comps were a positive 4.7 percent (positive 5.8 percent at Safeway). For its full fiscal year, Albertsons posted sales of $59.7 billion, a 1.6 percent gain, but continued to show red ink on the bottom line, posting a net loss of $131 million. Albertsons said it expects to spend approximately $1.4 billion in cap-ex during fiscal ‘18 ….at Weis’ annual shareholders meeting, held April28 at the company’s Sunbury, PA corporate offices, chairman and CEO Jonathan Weis said that the growing regional chain will focus its budget this year on new stores, remodels, supply chain improvements and continued IT upgrades. “In 2017, we plan to invest $90 million in our growth. Our budget includes 14 remodels, a new unit in Brunswick, MD., two fuel centers and the continued expansion of our distribution center in Milton, PA. We also have seven new stores in the active planning stages and expect most of them to open in 2018.” Weis also discussed the company’s recent acquisition and conversion of 44 stores and its 2016 results. “Last year was one of tremendous growth and opportunity for our company. In 2016, we acquired 44 stores and converted them in just three months’ time, growing our store base by more than 20 percent. As a result of our acquisition, we now operate 204 stores and expanded operations into two new states, adding Delaware and Virginia to our now seven state territory throughout the Mid-Atlantic region.” Weis said the company’s legacy stores continued to perform at a high level in 2016, which was a 53-week year compared to 52-weeks in 2015. Adjusting for the extra week, the family-controlled regional chain saw 2016 sales increase 6.9 percent to $3.1 billion while comparable store revenue increased 2.9 percent. Excluding a one-time gain, the company’s non-GAAP 2016 net income totaled $63.3 million, up 6.7 percent. Weis also noted the company’s comparable store sales had increased eleven consecutive quarters. “We are proud of our team – 23,000 associates strong – who made our success possible,” said Weis…Jeff Martin, executive VP-sales and marketing at Utz Quality Foods, has left the growing Hanover, PA snack food organization after four years. We spoke to Jeff about his departure and he said that the decision was strictly his own. “This was my choice,” said the popular industry executive, who joined Utz in 2013 after serving as executive VP merchandising and marketing at Ahold USA. “I have no other plans at this point – I just want to take some time off and review all of my options. I wish Dylan (Lissette, CEO) all the best. He has put together a really great team.” And that team has recently been reorganized. Joining Utz, which last year added Metropoulos & Co. as minority investor after completing the acquisition of Golden Flake Foods, is Tom Flocco, who will become president and chief operating officer. Flocco has been working with Utz as an advisor since October 2016 and formerly served as CEO of Fortune Brands (now Beam Suntory, an international spirits organization). Jay Thompson is also joining Utz as EVP and CFO. He most recently served as chief financial officer for Armstrong Flooring based in nearby Lancaster, PA. Veteran Utz executive Todd Staub, who was CFO, now becomes executive VP and chief administrative officer. Also joining the company will be Mark Schreiber, who comes aboard as executive VP and chief customer officer. Schreiber is well known in the grocery trade from his nearly 10-year stint at Pepperidge Farm, where he served as senior VP-sales and distribution. On the operations side, veteran Utz executive Tucker Lawrence assume the role of executive VP and chief production and planning officer. Of course, the primary architect behind these moves, Dylan Lissette, remains chief executive and vice chairman… one of Utz’s retail customers, Karns Quality Foods, the 8-store independent retailer based in Harrisburg, PA, has won Supervalu’s 2016 National Beef Stampede Contest. More than 120 grocers nationwide competed for the award which is aimed at increasing awareness of beef as an essential part of dinner. Karns’ winning campaign featured a program that included advertising; digital and social media promotions; a “win 100 pounds of beef” sweepstakes and recipes. The campaign resulted in an 11 percent increase in sales. A prestigious award deservedly earned by some of the nicest people in the business… Harris Teeter, a division of Kroger, opened its newest store this month in the Magothy Gateway Shopping Center in Severna Park, MD. The 49,000 square foot store is the company’s 15th unit in Maryland…several obits to report this month, including movie director Jonathan Demme, whose 43-year film career encompassed music documentaries (Talking Heads, Bruce Springsteen, The Pretenders and Neil Young), screwball comedies (“Married To The Mob;” “Something Wild;” and “Melvin and Howard”) and included two of the best movies of the past 30 years (“Philadelphia” and “Silence of the Lambs”). A creative film maker who had a keen sense of the importance of dialogue, Demme was 73 when he passed…another personal favorite who left us earlier this month was Michael Parks, who died at the age of 77. Parks was a rugged and tough character actor who had more than 145 film and TV roles during his 55-year career. He was probably best known for his role as casino owner and drug runner Jean Renault on the TV series “Twin Peaks,” but he enjoyed cult comeback over the past 15 years because of his association with iconic film director Quentin Tarantino. Tarantino cast him in “Kill Bill: Volumes One and Two” and later in the great “Django Unchained.” …and during the last month, the industry lost two of its most notable executives: Charles Mallowe and Manda Johns. Charlie Mallowe, 72, spent his entire career at Saint Joseph’s University in Philadelphia. He graduated from that great Jesuit school in 1966 and a few years later became a cornerstone in creating the university’s Academy of Food Marketing, which today is the largest academic institution and training ground for educating future grocery industry leaders in the country. He remained at that post for 41 years, retiring in 2009. A tip of the glass to you, my friend! Also leaving us much too young was Manda Johns, senior VP merchandising for Supervalu’s Eastern region. descriptions like bright, perky, hard-working and a great team player, only provide a basic overview of the talent and attitude that Manda brought to those she worked with. She began her career at Safeway in Denver, than became VP-bakery and deli for Giant/Landover, before joining Supervalu in 2004. In 2015 she was promoted to senior VP. She was only 46 when she passed. She will be greatly missed.