Research Report: Lidl Traffic Slipping; Discounter Makes Key Management Change Affecting U.S.
If you’ve scouted more than a handful of the nearly 40 Lidls that have opened in Virginia, North Carolina, South Carolina, Georgia and Middletown, DE you would notice that many of the discounter’s stores have seen some significant volume dips a few weeks after opening.
That observation was substantiated by location-based data firm inMarket.
Perhaps not so coincidentally was a change that the German retailer made at its corporate headquarters late last month when it named Michael Aranda, former CEO of Lidl Spain to oversee U.S. operations from the company’s Neckarsulm base. Aranda, who has been with Lidl for 17 years, replaces Daniel Marasch. Current Lidl U.S chief executive Brendan Proctor will report to Aranda.
According to the German business magazine Lebensmittel Zeitung, sales in the U.S have been “frighteningly weak,” also noting that “Lidl wants to combat its U.S. problems by instituting a more disciplined approach to operations here.” Proctor, who once headed Lidl’s Irish operation, has been the president of Lidl-U.S. since March 2016.
In a related piece that appeared in the Wall Street Journal, the neophytic merchant said it may be considering tweaks to format and merchandising mix.
We have visited more than a dozen stores multiple times, and have observed a wide swing in sales (approximately $175-$300K weekly). Departments such as wine and bakery have continued to be consistently strong, and Lidl’s pricing structure remains aggressive. However, certain perishable areas – meat, seafood and some produce – appear sub-par and we viewed its general merchandise offering to be disappointing considering the amount of space has Lidl devoted to it.
Certainly the company has plenty of time (and plenty of dineros at its disposal) to correct its early flaws. It’s going full-tilt with its expansion plans and will soon be opening stores in new markets such as Ohio and Texas. It will also build a fourth distribution center in Cartersville, GA in 2018. Between now and next June, expect about 60 more Lidls to debut, with a lot of that activity occurring in New Jersey, Pennsylvania, Delaware and Maryland once its Cecil County, MD warehouse opens early next year.
However, I am concerned about whether the large European company can correct what I believe were fundamental mistakes made before it opened its first store, along with its ability to adjust to current market realities.
Acquiring all of its initial real estate seems like a poor decision. Not only was that an exceedingly costly choice, I would estimate that about 25 percent of its sites seem to be in secondary or tertiary locations. As one of my industry real estate friends offered: “It seemed that having a presence in a specific city or town was more important that the specific site itself.”
As far as market adjustments go, Lidl opted to go with a significant European presence at its U.S. headquarters in Arlington, VA. Not that a group of Irish, German and Dutch executives wouldn’t be capable of making the right decisions, but as another of my industry cohorts, who spent his entire 35-year career at retail, noted: “Who’s going to call an audible when they need to change the play quickly?” he said. “It would be the same issue if I were heading up a company in Europe. There’s something to be said for local knowledge, experience and instinct. Even on a one-on-one store comparison, they’re behind Aldi which has a proven track record about how to build sales in the extreme value segment and obviously has lots more traction than Lidl has.”
Hey, it’s early – we’ll revisit this subject in a few months, but one thing is already clear: throwing money at the problem won’t prove to be a successful fix.
Ahold Delhaize CEO Boer Says Stores Need To Be ‘More Exciting;’ He Should Look In His Own Mirror
I’ve devoted a lot of space in this column over the past four years to analyzing the largest supermarket chain in the Northeast – Ahold USA. I’ve praised them when I feel it’s been merited (Project Thunder, strong earnings results) and criticized them about issues relating to culture and the company’s seeming indifference to improving the customer engagement experience as it relates to labor staffing and associate training at its more than 700 stores.
So, I was surprised to read a Bloomberg interview with Ahold Delhaize (AD) chief executive Dick Boer in which he calls for his total fleet of more than 2,000 stores (including Food Lion and Hannaford) to become more exciting places to shop.
“The shopping environment needs to be easier, less complex and more entertaining,” Boer affirmed.
He added that Ahold Delhaize may add restaurants and other gathering spots to its stores. That’s a wonderful vision in theory, but Boer needs a moment of deep introspection if he believes that any of the Ahold Delhaize banners (at least in the U.S., which commands 60 percent of total AD business) are currently anywhere close to being “exciting” shopping experiences.
In fact, I’d argue the opposite. With the company’s current synergy integration ongoing, morale has never been worse in the 35 years I’ve been tracking the organization. And despite glowing self-praise on how the Ahold Delhaize merger would increase productivity, efficiency and buying power, I have yet to hear any Ahold Delhaize executive utter a word about how the company is going to improve the customer shopping experience. If company leaders believe that by decentralizing its brands (divisions) it will make for an improved (dare I say it), more exciting shopping trip, I want a sip from that glass of Kool-Aid.
Perhaps an epiphany is coming. Dick Boer is an exceptionally bright man who has helped make the company even more profitable since he became CEO in 2011. Maybe we’ll all be surprised that when January 1 rolls around and the integration plan is complete, Ahold Delhaize will then devote capital to improving its stores while also displaying more sensitivity towards its associates.
As it stands now, the Ahold USA stores look more vanilla than ever. In fact, if you blindfolded me and led me into a Stop & Shop store in Providence, RI, or a Giant/Martin’s store in York, PA, or a Giant/Landover store in Columbia, MD, it would take me a few minutes to determine which banner I was visiting.
And if Boer is envisioning adding restaurants to its nearly 1,100 Food Lion stores (the largest banner in the AD portfolio in terms of store count), I’d suggest hooking up with Hardee’s.
As the largest supermarket merchant in the Northeast with the best physical locations, Ahold USA should be hitting it out of the park. And from an earnings measure, profits have been strong; but top line numbers should be far better.
And once 2019 arrives and those one-time synergy savings are digested, then Ahold Delhaize will actually have to sell more stuff. Adding restaurants and other gathering spots is a great springboard towards making the shopping experience more enticing, but what Boer and his leadership team really need to focus on is how to make today’s Ahold Delhaize customer more satisfied.
‘Round The Trade
Perhaps there’s a ray of hope for the Philadelphia beverage tax to bite the dust before too long. Just two months after a similar tax went into effect in Cook County (Chicago), the board of commissioners there voted to repeal that city’s soda tax by a 15-1 margin. The repeal becomes effective on December 1. Of course, there’s no direct correlation to Philadelphia’s poorly conceived and executed decision to pass a 1.5 cents per ounce beverage tax (higher than Cook County’s). However, the Chicago rollback will certainly give momentum not only to retailers and beverage vendors but also to thousands of Philadelphia consumers who feel unjustly burdened by having to sometimes pay more in tax than the retail price of a specific item. Other citizens are equally enraged about how the city’s estimates that the tax would raise $90 million annually for pre-kindergarten and community school programs will fall far short of that goal in its first year. According to Mike Dunn, spokesman for Philadelphia Mayor Jim Kenney, he does not see the Chicago repeal as a potential threat to the 10-month old statute. “The Cook County tax is very different, both in terms of tax structure and the political landscape.” I wouldn’t be so confident…coming off of its acquisition of meal-kit solutions firm Plated last month, Albertsons, whose Acme division has been hit hard by the Philly beverage tax (16 stores), has made another financial move in order to strengthen its cash position. It was revealed in an SEC filing on September 25, the Boise, ID-based chain has entered into an agreement to sell and lease back 71 of its stores to a Delaware-based limited-liability corporation in a transaction intended to raise up to $720 million. C.F. Albert LLC will purchase the properties and lease each one back for an initial term of 20 years, with Albertsons reserving eight options for five-year lease renewals, according to a filing by Albertsons with the U.S. Securities and Exchange Commission. The company expects the sale-leaseback of the properties, subject to customary closing conditions, will close by December 2. The filing also notes that 15 individual Albertsons entities were listed as sellers including stores from most of its banners – Acme, Jewel, Randall’s, Safeway and Vons. However, the filing does not include a list of the specific properties involved in the sale leaseback agreement…bad timing news of the month? HelloFresh, the German meal kit solutions company that is believed to be second in annual sales to Blue Apron, announced it is hoping to raise as much as $332 million to launch an IPO. With Albertsons now in control of Plated, Blue Apron’s stock selling at half of its $10 opening price and Amazon revving up to enter the meal solutions biz, it begs the question: what are these guys thinking?…Wal-Mart held its annual “investor’s day” earlier this month at corporate headquarters in Bentonville, AR. Perhaps the key announcement during the meeting with financial analysts was that the “Behemoth” said it will be opening fewer than 15 new SuperCenters next year. While Wal-Mart has been reducing the number of combo units it has built over the past few years (only 40 this year), the predicted bricks and mortar expansion (which also includes fewer than 10 new Neighborhood Markets) is a stunner. The planet’s largest merchant said it won’t be reducing its cap-ex budget (about $11 billion), but will instead redeploy those funds into continuing to grow its e-commerce. Doug McMillon, Wal-Mart’s CEO, noted “…we are making a deliberate choice that we are going to win e-commerce. If you think about the SuperCenters, they are largely built out. There will still be a few opportunities to do a few here and there.”…another sad chapter in the Sears saga – it is planning to close the last of its 130 stores in Canada. Like its American cousin, Sears Canada has been failing for many years (Sears Holdings CEO Edward S. Lampert’s ESL Investments holds a majority stake in Sears Canada). The company could face liquidation if no rescue deal be found by later this month. As for this month’s foreboding Sears Holdings’ news, “Slow Eddie” has reportedly personally loaned the troubled retailer $100 million to enable it to survive through the holiday season. That brings ESL’s tab to near $500 million in loans over the past few years to help Sears survive a little longer (or die a little slower). Tick, tick, tick!
Local Notes
Turkey Hill Minit Markets, the Conestoga, PA (Lancaster County) convenience store chain owned by Kroger, could be on the selling block soon. Cincinnati-based Kroger acknowledged that it is considering selling its entire c-store unit which includes other banners such as Quick Stop, Tom Thumb, Kwik Stop and the tantalizing Loaf ‘N Jug. As it continues to evaluate its overall portfolio, which has been adversely impacted by falling share prices, the merchant believes that it could receive greater value for its 784 c-store from an outside buyer or investor. “Our convenience stores are strong, successful and growing with the potential to grow even more,” said Mike Schlotman, Kroger’s executive VP and CFO. “We want to look at all options to ensure this part of the business is meeting its full potential. Considering the current premium multiples for convenience stores, we feel it is our obligation as a management team to undertake this review.” Turkey Hill Minit Markets alone operates about 250 c-stores whose estimated annual sales are approximately $350 million. “Our convenience store management and associates are an important part of our success,” Schlotman continued. “They put our customer first every day. We value what they do and thank them for what they will continue to do as we conduct this evaluation.” More Kroger news: perhaps to counter a decision made by Whole Foods to centralize many of its merchandising functions, Kroger has unveiled a new portal to its website – kroger.com/wearelocal – to emphasize the importance of carrying local and regional brands. The company’s announcement, in part, noted the retailer’s longstanding, 365-day-a-year commitment to support local farmers, ranchers, food producers, wineries, breweries and product makers…as reported by us a few months ago, Sprouts has confirmed it will be opening its first Mid-Atlantic store in Ellicott City, MD. The Ellicott City unit (the site of a former Mars Super Market) will be one of nine new stores that will open in Q1 of 2018 by the Phoenix, AZ-based fresh, natural and organic merchant. All told, the fast growing retailer plans on 30 new stores nationally next year. Maryland will be 16th state where the company will operate stores. Although it’s not yet been confirmed by the company, it appears that Sprouts is moving forward with two other previously reported new projects – in Philadelphia (Broad Street & Washington Avenue) and Moorestown, NJ (Moorestown Mall on the site of the former Macy’s)…MOM’s Organic Markets opened its first Center City store last month (and 18th overall) when it cut the ribbon on its very healthy location on 34 South 11th Street. This is MOM’s third Del-Val store (Bryn Mawr, PA and Cherry Hill, NJ)…another huge opening for Wegmans, which debuted its 108,000 square foot Montvale, NJ unit on September 24. Next up for the Rochester, NY-based uber retailer is its new Medford, MA store on November 5 followed by new mega-units in Natick, MA, Chantilly, VA and Lancaster, PA next year…multiple sources have told us that Ahold Delhaize’s bfresh small-sized perishables format concept is still alive. After three years of near inertia with only three stores to show for its efforts, we’re told that significantly more units are planned (two other Philly stores were previously announced) and that even more units could also appear in the Carolinas…Weis Markets completed its 210,000 square foot expansion of its primary distribution center in Milton, PA. “With this expansion, we’re enhancing the distribution center’s productivity and viability, and we’re improving our company’s competitiveness,” said chairman and CEO Jonathan Weis. “We plan to continue expanding this distribution center as our company grows, providing new job opportunities for people in the Central Susquehanna Valley.” The expansion of the distribution center, which supplies 204 Weis Markets locations in its seven-state market area, provides all stores with an increased variety of products on its shelves. In 2018, Weis will begin the expansion of the distribution center’s produce storage area. The upgrade and modernization of the facility comes at a time of record growth for the company, as it expanded its footprint by roughly 25 percent in 2016 with the acquisition of 44 new stores. As a result of this growth, Weis has added 150 full-time jobs at the distribution center, bringing the total number of full-time associates at the location to 900. The expansion also helps Weis to realize its mission of reducing its environmental impact. The new expansion includes sustainability measures such as use of an ammonia refrigeration system, which allows Weis to reduce the usage of refrigerants moving forward. The project also further streamlines the company’s supply chain, allowing the company to reduce diesel fuel usage by more than 23,000 gallons a year…Nine-store independent Gerrity’s Supermarkets has begun its first “click & collect” and home delivery service. In partnership with e-commerce technology provider Rosie, the Scranton, PA-based merchant has begun deliveries to customers in 25 ZIP codes in Lackawanna and Luzerne counties, which the company said will make online shopping simpler and more enjoyable. Earlier this year, C&S Wholesale Grocers announced that it is working with seven of its retail banner partners – including Gerrity’s – to create customized e-commerce and omnichannel programs for their stores…Washington, DC is one of eight new markets where Target has added to its “Restock” program, which allows customers to order online from a list of about 15,000 items which will be delivered the next day for a $4.99 fee. The weight limit for deliveries is 45 pounds and includes mostly household and HBC products. “Restock” is now available in 11 markets nationally…are private equity firms Leonard Green & Partners and CVC Capital Partners in the process of putting BJ’s Wholesale Club on the sales block? That’s been rumored for nearly a year, but the funky New York Post gave new life to the story, claiming the Westborough, MA club merchant will be available soon. The Post story noted that the financial partners, which acquired BJ’s in 2011 for $2.8 billion, are hoping for an offer in the $4.5 billion range… there was an interesting story last month in the Wall Street Journal about BJ’s chief rival, Costco, which noted that the biggest club operator in the country achieved about 25 percent of its overall annual revenue ($118.7 billion) from its Kirkland Signature private label. And that number keeps growing as the Issaquah, WA discounter looks to grow its private label sales. According to the story, whose premise I agree with, the pressure manufacturers face from private brands is set to increase. Costco also announced it is stepping up its e-commerce game by announcing two new home delivery initiatives – one a “same day” program; the other a two-day delivery option. While critics continue to criticize Costco’s slow entry into the digital world, the club store king’s financials speak for themselves: Q4 earnings were up 18 percent and total sales increased from $36.6 billion to $42.3 billion. These guys profoundly understand the difference between too much process and selling more stuff…from the obituary desk, we report the passing of Monty Hall, creator and host of the classic TV game show “Let’s Make A Deal” (Hall hosted “Deal” from 1963 to1976; versions with other hosts continue to this day). Hall, who grew up in Canada, wanted to be a doctor but got bitten by the show biz bug and in 1955 moved to New York to seek fame and fortune. He hosted more than 5,000 episodes of the show that found contestants, who often dressed in zany costumes, vying for a chance to win valuable prizes or get “zonked.” As creator of the show, Hall, 96, became extremely wealthy and in his later years was a major philanthropist…one of my favorite character actors of all times, Harry Dean Stanton, has died at the age of 91. I consider Stanton (alo
ng with M. Emmet Walsh) to be the one of the most memorable and prolific actors who by his sheer charisma and ability rose to a level well above “that guy” status. His fleeting moment as a leading man came in 1984 in the movie “Paris, Texas,” which won the coveted Palme d’Or at the Cannes Film Festival. I first noticed Stanton as a fellow inmate of Paul Newman in “Cool Hand Luke” (1967) in which he sang three songs (Stanton had an excellent voice and his 2014 album “Partly Fiction” is certainly worth a listen). Other memorable roles included parts in “Repo Man” (1984); “Straight Time” (1978 – a great unsung movie starring Dustin Hoffman which also featured the aforementioned Mr. Walsh) and HBO’s “Big Love” series in which he played Roman Grant, a self-proclaimed prophet with 14 wives (the show was about polygamists)…Hugh Hefner, 91, is dead, too. As an aging baby boomer, I can honestly state that few men of my generation had their adolescent years more influenced by anyone than by the founder of Playboy Magazine. The son of conservative Protestants from Nebraska, “Hef” started Playboy in 1953 with $600 of his own money. By the time the company went public in 1971, its monthly circulation was 7 million. Playboy also owned nightclubs and produced several television shows. 1971 was also the year that Hefner acquired the Playboy Mansion in Los Angeles (now owned by hedge fund executive Daren Metropoulos who allowed Hefner to live there until his death). “I’ve never thought of Playboy, quite frankly, as a sex magazine. I always thought of it as a lifestyle magazine, in which sex was one important ingredient,” Hefner told CNN several years ago. And he was right, kind of. Although we all looked at the centerfold (never, ever look under a teenager’s bed), many of us enjoyed the monthly Playboy interviews as well as interesting literary contributions from such great authors as Ray Bradbury, John Updike and Vladimir Nabokov. Hugh Hefner was truly larger than life, and comedian Patton Oswalt perhaps described Hefner’s ultimate destiny best when he noted, “As per his wishes, Hugh Hefner’s body will be left in a fort in the woods for other kids to find and pass around.”…I was very distraught to learn of the passing of Tom Petty, the legendary singer and songwriter who died suddenly earlier this month at the age of 66. To me, in the post-Beatles era, Tom Petty best symbolized what great rock and roll is all about. He was an everyman music junkie who wrote beautiful songs, had a great band (which remained virtually unchanged for 40 years), was respectful of other musicians and very dedicated to his fans. Along with his group, “The Heartbreakers,” Petty released 13 studio albums. He also released two albums with his original band Mudcrutch, three as a part of the supergroup The Traveling Wilburys as well as three solo albums. While many readers might be familiar with Petty’s blockbuster albums such as “You’re Going To Get It” (1978) and “Damn The Torpedoes” (1979), I recommend his solo “Wildflowers” (1994) album as one of Petty’s best and most introspective compilations. Tom Petty was a profoundly talented and popular musician who continued to be prolific into his 60s, with “Hypnotic Eye” (2014), reaching Billboard number one status. In fact, Petty had just completed a more than 50-concert tour as part of the band’s 40th anniversary a week before he died of cardiac arrest. One of the great rockers of all-time – in every sense of the word – Tom Petty will be greatly missed.
