Exiting Corporate Retail? Revamped Shoppers’ Unit In Alexandria, VA Should Make Supervalu Reconsider
I can’t blame current Supervalu chief executive Mark Gross for strongly considering dumping many or all of the company’s more than 225 corporately-owned supermarkets.
On paper, Gross’ challenges are obvious: improve sales and earnings, help jump-start SVU’s sagging stock price ($22.61 per share as of August 10 after the recent 1-for-7 reverse stock split), improve the morale of the associates (which had declined precipitously under the horrid regimes of past CEOs Jeff Noddle and Craig Herkert) and focus on the wholesaler/retailer’s priorities.
In his 18-month tenure, Gross has failed to significantly improve the Eden Prairie, MN firm’s sales and earnings, but has made important changes designed to make Supervalu a stronger organization for the long-term. The sale of its Save-A-Lot discount unit earlier this year to Canadian private equity firm Onex was a major first step toward unloading parts of the SVU catalogue that don’t fit well with Gross’ future vision.
With a background in wholesale (he was CFO, general counsel and co-president of C&S from 1997-2006), the 54-year old New England native has focused on improving Supervalu’s distribution business and has been aggressive in that regard, snagging new customers such as The Fresh Market, Marsh (unfortunately now defunct) and America’s Food Basket, and also made a key strategic addition with the company’s recent acquisition of Unified Grocers.
Also remaining in the portfolio is corporate retail, Supervalu’s very own red-headed stepchild. Neglected for the past decade by Messrs. Noddle and Herkert, Gross inherited a woeful situation. Banners such as Farm Fresh, Cub, Shop ‘n Save (St. Louis) and Shoppers once thrived as regional chains with their own distinct personalities which commanded strong local customer loyalty. With almost no capital investment since 2006, all the corporate stores have lost significant share and continue to post huge ID sales losses each quarter (negative 4.9 percent in SVU’s recently completed first quarter). It’s no wonder that Gross has strongly hinted that most of the company’s corporate units are available for purchase (including a reported sales prospectus for Farm Fresh).
But I would suggest that Mr. Gross at least partially rethink that possible outcome. To wit: the newly remodeled Shoppers Food & Pharmacy unit that was unveiled last month in the Potomac Yard in Alexandria, VA under a new moniker Shoppers Market. Shoppers was actually the first food retailer to open in that massive development 20 years ago, but like many other Supervalu retail units, saw new competition arise (in this case, Harris Teeter and Giant Food) and offered little in terms of market defense.
The original 75,000 SF footprint has been downsized slightly, but the store has been totally reinvented. New features include chef crafted meals; a Caribou coffee shop; an expanded selection of craft, local and seasonal beers; a cake decorator station; and a full-service seafood case and full-service butcher shop case. Shoppers has also added a local grocery delivery service.
The multi-million revampment turned out beautifully. And while Alexandria is a great market to test the waters for a 2017-versioned supermarket featuring solid retail pricing and upscale perishables-driven offerings, the Bowie, MD-based operator could convert at least another half-dozen stores with similar demographics that would not only bolster Shoppers’ business (as well as the morale of the associates), it could once again provide a viable pathway for new Supervalu growth.
Yes, I know food retailing today is ultra-competitive, margins remain compressed and with some SVU corporate banners, there’s little hope for a turnaround. Mark Gross should not put Shoppers in that category.
With a little nurturing (and some real cap-ex funding), Shoppers could once again feel the mojo it enjoyed not too long ago.
‘Round The Trade
Amazon, which is getting a little more push back from a variety of analysts who believe that the FTC should not approve its $13.7 billion cash acquisition of Whole Foods, posted disappointing profits for its second quarter. Even with the strong dislike our current president has for CEO Jeff Bezos – and his independently owned Washington Post – I don’t believe that any government agency will deny the deal from being consummated. For the period ended June 30, the Seattle-based titan saw earnings decline 77 percent in its second period (from $857 million to $197 million). However, sales continued to grow at a robust pace (25 percent). Whole Foods also posted disappointing Q3 earnings which dipped from $120 million to $106 million. However, WFM’s sales continued in the opposite direction from its potential new parent, as ID revenue dipped 1.9 percent marking the eighth consecutive quarter of profit decline. At Amazon, key drivers like subscriptions from its Amazon Prime membership grew by 51 percent to $2.2 billion. Additionally, Amazon’s annual “Prime Day” event held on July 11 reportedly increased more than 60 percent and analysts said that “Prime Day” (which is actually a 30-hour event) was the biggest sales event ever (topping any “Black Friday or “Cyber Monday” campaign). According to CNBC, Wal-Mart and its Internet delivery unit, jet.com., were aggressive in trying to match Amazon on “Prime Day,” but couldn’t come close to impacting the mighty sales clout of the “big A.” However, Wal-Mart is also making personnel changes to its grocery management team, perhaps in anticipation of the Amazon-WFM deal. Shawn Baldwin, who was senior VP-produce and global food sourcing, will now lead a new Hispanic initiative. Martin Mundo, a Wal-Mart veteran from its international unit, will fill Baldwin’s former spot. Additionally, Tyler Lehr will now supervise all of the Behemoth’s deli operations and Scott McCall will head the company’s GM unit. More Wal-Mart news: the world’s largest retailer recently unveiled its new “On-Time, In-Full” initiative designed to improve in-stock service levels while also reducing inventories at its more than 4,700 U.S stores. The new program, which will begin next month, calls for suppliers to deliver only full truckloads of fast-moving items or be subject to a three percent fine. By early next year, Wal-Mart is shooting for a 95 percent on time delivery rate within a four-day window. Suppliers can also be fined for early deliveries, which Wal-Mart claims cause overstocks. The new plan is aimed at adding $1 billion in revenue…former Microsoft COO Kevin Turner has joined AB Acquisitions LLC, parent company of Albertsons, as the vice chairman of its board of managers and senior advisor to CEO Bob Miller. Turner began his career at Wal-Mart in 1985 as a cashier and rose to president of the company’s Sam’s Club unit in 2002…a little more color about Supervalu’s recently completed first quarter. With the company’s renewed focus on wholesale operations, sales grew 12.4 percent in that segment, primarily due to new customer sales. As noted earlier, SVU’s corporate retail unit felt the most pain with a $4 million operating loss and plunging ID revenue. And you might be wondering why SVU initiated the unusual action of 1-for-7 reverse stock split. According to company, the move was designed to enhance the appeal of its shares to the financial community. Supervalu, like many other companies in the retail/wholesale sector, has experienced flat to declining stock prices over the past six months, which has been further exacerbated by the prospective Amazon-Whole Foods deal. The reverse stock split, which became effective on August 1, will reduce the number of authorized shares to 57.1 million while the number of issued and outstanding shares will be reduced from 268.5 million to 38.4 million. In his analysis, of his company’s Q1 performance, chief executive Gross noted: “The results generated this quarter by our wholesale business were outstanding and demonstrate our ability to deliver on our strategy and commitment toward growing this segment. Additionally, we’re thrilled that we closed on the acquisition of Unified Grocers shortly after the end of our first quarter, and we’re now working together as one team to drive the business and integration efforts forward. We’ll begin reporting results in our second fiscal quarter that include the Unified business.”…in news from a bit further north, Fairway Markets, which has struggled to regain its old form since emerging from a pre-packaged bankruptcy a year ago, recently received a downgraded credit rating from Moody’s. The drop from a Caa1 to a Caa2 puts the Manhattan-based “like no other market” merchant at a higher credit risk and will probably result in a higher cost of capital to the company and its primary investor, Blackstone Group’s GSO Capital Partners. It’s tough to visualize Fairway ever regaining its old mojo, given cap-ex limitations and new competition which continues to invade the retailer’s market space…Hanover, NJ, a central New Jersey berg located approximately 30 miles from the Big Apple, experienced its first Wegmans opening on July 23 and what an opening it was. According to my sources, more than 2,400 customers visited the store the first day and opening day volume exceeded $600,000. With the buzz surrounding the opening coupled with Wegmans’ typical superior level of execution, we’re told first week sales surpassed the $3 million mark… and kudos to our buddy, Anthony Hucker, former president of Giant Food, who was officially named CEO and president of Southeastern Foods (Winn-Dixie/Bi-Lo). Hucker, who joined the Jacksonville, FL merchant in March 2016 as chief operating officer, was named interim CEO on July 1 following the resignation of Ian McLeod, who left to become head honcho at Dairy Farm in Singapore. We wish Senor Hucker good tidings in his new gig.
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Local Notes
A federal judge in Richmond has denied Kroger’s injunction request for new market entry Lidl to stop selling items in its “Preferred Selection” brand. Kroger originally filed suit early last month, claiming that the German-owned discounter’s private label name too closely resembled its own “Private Selection” label. Kroger asserted that the close resemblance of the names would cause confusion for customers and allow Lidl to compete unfairly with Kroger, because customers could assume that the two brands are associated with one another. However, on July 25, U.S. District Judge John A. Gibney Jr. ruled Tuesday that the logos look “somewhat alike” but said “private” and “preferred” have different meanings. In a response to the lawsuit, Lidl accused Kroger of trying to thwart its U.S. debut. “Kroger is using this lawsuit to try to: disrupt the on-going launch of a new, emerging competitor that offers consumers high-quality products at far lower prices; distract from the positive reviews garnered by Lidl’s launch by painting Lidl as a copycat – when in fact Lidl is a decidedly different and (better) grocery experience; and drive up Lidl’s costs by having to defend against Kroger’s spurious claims,” the company’s court papers revealed. Judge Gibney set a January 11 date for a bench trial on the matter… a tip of the hat to the folks at Weis for another excellent sales and earnings performance in its recently completed second quarter. Despite significant deflation (which thankfully has begun to subside) and highly competitive market conditions, the boys and girls in Sunbury, PA keep on keepin’ on – 13 straight quarters of positive comp sales. That’s impressive. The company also made a smart move by hiring Donna Banks-Ficcio, who comes aboard as VP-center store. She replaces Kevin Broe, who left the company a few months ago. Actually Banks-Ficcio and Broe worked together for several years at A&P. She’s a hard worker and a good choice for the evolving Weis organization…as for Weis’ chief rival, Ahold USA, it deserves credit, too, for an excellent second quarter earnings-wise. Even though I’m very concerned about the current state of the company’s U.S. culture and remain skeptical about whether it is serious about improving the customer shopping experience at its more than 700 U.S. stores, you’ve got to acknowledge the international retailer knows how to efficiently utilize process and systems to grow its bottom line…in one of the biggest deals in its 128-year history, Baltimore-based McCormick will acquire Reckitt Benckiser’s food business for $4.2 billion (all cash), giving the Maryland spicemaker control of two key brands – French’s mustard and Frank’s Red Hot sauces (those brands will now become McCormick’s number two and three brands). Meanwhile, Reckitt Benckiser will continue to focus on its consumer health and wellness strategy which includes core brands Nurofen, Clearasil and recently acquired Mead Johnson…while Whole Foods still plans on opening its “365” alternate format store in Fairfax, VA next year (as well as other “365s” in Brooklyn and Weehawken, NJ), the Austin-TX merchant reportedly has scaled back plans to open “365” units in several Midwest markets including Evergreen Park, IL, Toledo, OH and Bloomington, IN. Numerous reports indicate that most of the four “365” units currently open are performing below projections…way too many deaths to report this month, including the sudden and tragic passing of “Buster” Madison, one of the nicest guys in the business. I have known Buster for more than 30 years, dating back to his days at Richfood, Supervalu, Farmers Foods and, most recently, in his job as operating partner of the new Super Value Cost Plus Foods operation. A skilled merchant whose gentle and assuring style were his calling cards, Buster made many people happy in the 63 years he was on Earth…also leaving us this month was Jeff Brotman who, along with Jim Sinegal, founded Costco in 1983. Brotman, who still served as the chairman of the club store giant’s board, was only 74 when he suddenly passed. Sinegal reflected on his friend’s passing by noting, “For over 35 years, he became not just a business partner, but a confidante and great friend. I’m not exaggerating for a second when I say I loved the guy.”…from the world of show business, I’m sad to report the passing of Sam Shepard, the Pulitzer Prize winning playwright and actor who wrote such great plays as “Buried Child,” “Curse of the Starving Class” and “True West.” Shepard, 73, was also an accomplished actor and was nominated for an Academy Award for his role as Chuck Yeager in “The Right Stuff” (1983)…Glen Campbell, 81, has also left us after a long battle with Alzheimer’s disease. While Campbell is best known for a string of late 60s and early 70s pop hits, including “By The Time I Get To Phoenix,” “Wichita Lineman,” “Rhinestone Cowboy” and “Southern Nights,” I’ll best remember the Arkansas born entertainer as one of the best guitar players of the past 50 years. In fact, he cut his teeth as a session player for The Wrecking Crew, a cracker jack ensemble of Los Angeles musicians who were featured on hundreds of hit recordings for artists including the Beach Boys, Frank Sinatra, The Monkees and Elvis Presley…veteran character actor Martin Landau has also recently entered the gates of cinema heaven. Landau, whose career got off to a fast start when he played Leonard, the creepy henchman who worked for secretive bad guy Phillip Vandamm (James Mason) in the 1959 Alfred Hitchcock iconic film “North By Northwest,” had a distinguished career that lasted more than 60 years and featured nearly 100 movie and TV roles. He became best known for playing secret agent Rollin Hand in the classic TV series “Mission: Impossible” (1966-1973, although Landau appeared in episodes during the first three seasons only). Perhaps his crowning acting achievement was receiving a supporting actor Oscar for his performance as a broken-down Bela Lugosi in Tim Burton’s “Ed Wood (1994).” He was 89 when he passed and was still active until three years ago…June Foray is also dead. You may not know her by name, but you would know her by voice. She voiced characters in more than 1,000 cartoons, including episodes of “Tom and Jerry,” “Mr. Magoo,” “Yogi Bear” and “The Flintstones.” But Ms. Foray’s signature roles came in the great “Rocky & Bullwinkle” cartoon series. Foray was the voice of Rocket J. Squirrel (“Hey Bullwinkle, we’re in real trouble now!”) and sultry Russian villainess Natasha Fatale (“Boris, dollink.”). She was 99 when she left us…two sports notables who I particularly admired have also passed away. Ara Parseghian, 94, the great Notre Dame football coach, is now finding peace way above the uprights. In his 11 seasons as head coach of the Fighting Irish, his teams won 95 games and only lost 17, placing him with other legendary Golden Dome coaches Knute Rockne and Frank Leahy. His 1966 and 1973 teams were voted national champions. I personally admired Parseghian for his grace and the leadership he provided to the young men who played for him. Leaving us too soon was major league baseball’s Don Baylor, the former American League MVP who began his career with the 1970 Baltimore Orioles. Baylor remains one of my favorite Orioles because of his aggressive and intimidating style. He was the epitome of the “play hard but play clean” player of past generations. In addition to his MVP award, he was part of the 1987 World Series champion Minnesota Twins team and managed the Chicago Cubs and Colorado Rockies. In 1985, Baylor won the Roberto Clemente Award as the player who “best exemplifies the game of baseball, sportsmanship, community involvement and the individual’s contribution to his team.” He had a reputation for being as tough as nails (he was hit by a pitch 267 times during 19 seasons as a player, which was a record at the time), but was one of the most beloved players of hi
s era. Don Baylor was only 68 when he died.
