Supervalu Quietly Regaining Momentum By Focusing On Creative Wholesale Growth
The dark days of past regimes (rudderless Jeff Noddle, clueless Craig Herkert and greedy Wayne Sales) are now clearly in Supervalu’s rear view mirror and the true talent of Mark Gross, who became the wholesaler/retailer’s CEO nearly two years ago, is beginning to reveal itself.
Earlier this month at Barclays’ “Eat, Sleep & Play” financial conference in Manhattan, Gross illustrated to the financial community just how far the Eden Prairie, MN firm has come in the past 22 months.
Sales are increasing, earnings are improving, Supervalu is in an acquisition mode and Gross has made several key executive changes that have improved culture and operating efficiency.
At the Barclays’ conference, the New England native focused on key components of SVU strategy which (not surprisingly) focuses on expanding its core wholesale grocery business.
Beginning with creating a “selling culture” mindset, Gross has prioritized serving new customers (America’s Food Basket and The Fresh Market have been added this year), retaining existing customers and selling them more product.
The latter piece involves capturing additional business in produce, meat, private brands, administrative services and specialty and ethnic items.
The acquisition of Commerce, CA-based Unified Grocers earlier this year has already produced benefits beyond the $3.8 billion in annual revenue it adds to Supervalu’s top line. Because many of Unified’s members operate ethnic stores, the deal gave center store top heavy SVU an opportunity to inject the California wholesaler’s ethnic/specialty mindset into existing Supervalu areas, particularly with Unified’s Market Centre, a dedicated ethic specialty, natural/organic depot expanding to the Midwest (with the acquisition of the former Central Grocers’ one million square foot distribution center which is only seven years old). We’ve also heard that Supervalu is close to adding another Market Centre in the Mid-Atlantic in Carlisle, PA.
Having dedicated distribution centers for those formerly niche, but now mainstream, departments will allow SVU to not only attract new independent retailers, but might also attract other non-Supervalu customers to shift a portion of their business into Supervalu’s domain.
We will probably see both the Joliet, IL and Carlisle facilities open in 2018. By this time next year, Supervalu will also shift its core Mid-Atlantic business from its existing facility in Denver, PA (which is owned and soon to be operated by outgoing transition services agreements – TSA – partner Albertsons) to another depot in Harrisburg, PA which is currently being refurbished.
Also adding to its wholesale portfolio was the recent addition of Associated Grocers of Florida, which will add about $650 million in annual revenue and more ethnic marketing expertise and a geographical reach that extends to the Caribbean as well as Central and South Americas.
Yes, there are still major challenges that Gross and Supervalu face. Stock price is still lagging at about $20 per share despite a 1-8 reverse stock split earlier this year designed to spur activity. The company’s nearly 220 corporately-owned stores (Shoppers, Farm Fresh, Cub, Shop ‘n Save, Hornbacher’s) remain a constant thorn – at least Supervalu was able to dump the seemingly even more troubled Save-A-Lot discount unit a year ago. And the lost adjusted EBITA from the wind down of its TSA primarily with Albertsons will total $120 million over the next three fiscal years.
Even with those roadblocks, the body of work under Gross’ leadership has been impressive when you consider how many intangible hurdles the 54-year chief executive had to resolve before he could even tackle sales and future growth initiatives.
Many goals such as adding talent, improving morale and creating a mindset of aggressive expansion throughout the organization have been achieved and just in the past 12 months more than $5 billion in wholesale sales will have been added.
There are more opportunities – and still major challenges – that lie ahead. I’m betting on Gross to continue to move the needle forward in 2018.
With Holt At Helm, ‘Wave C’ Completed, Ahold Delhaize USA Ready For Launch
Combining the leadership of Ahold USA and Delhaize America into one job with (not surprisingly) Kevin Holt named to lead all U.S. operations for Ahold Delhaize (AD), the new domestic team is virtually complete and ready to roll into action on January 1.
Just prior to the Holt promotion was the completion of the big merchant’s “Wave C” job assignments affecting associates in IT, legal, people systems and services, finance, supply chain and communications.
The new structure places priorities on its brands (banners) and on its Retail Business Services (RBS) unit, which was created earlier this year to oversee administrative functions. Those who made the cut in “Wave C” will be part of RBS. At the brand level, “Wave C” focused on human resources, finance, fresh formats and quality assurance.
According to Ahold Delhaize USA, the completion on “Wave C” marks a significant milestone in the transition of its U.S. companies. The big retailer emphasized that the final “wave” of its restructuring “was all about supporting the brands with the right expertise and the right structure.”
In an internal memo, AD stated that in 2017, “we have been focused on staffing and selecting for more than 5,000 total positions through the various staffing waves, an accomplishment that was made possible by contributions of associates in every function.”
Here’s the “Wave C” key personnel lineup (VPs and higher): at Giant Food in Landover, Robin Anderson has been named VP- human resources and labor relations and Anthony Matala is VP-finance.
At Giant/Martin’s, Julie Morales will serve as VP-finance; Manuel Haro is the division’s new VP-strategy and planning; and Jim Saccary is VP-human resources.
At Stop & Shop, the largest AD U.S. brand based in Quincy, MA, Maria Silvestri, SVP, will head up human resources. Reporting to her will be Tara Fallon, VP- talent, diversity/inclusion and organization development, and Bob Spinella, VP-labor relations. Derk-Jan Terhorst, is Stop & Shop’s SVP-finance and Sonja Boelhouwer will serve as that brand’s VP-strategy.
At its Food Lion unit, based in Salisbury, NC, Linda Johnson has been named SVP-human resources. Reporting to her will be Millette Granville, VP- talent, diversity/inclusion and organization development. Jason Wilson will serve as SVP-finance.
At Hannaford, based in Scarborough, ME, Margo Peffer has been appointed VP-human resources and Tom Kelly will serve as VP-finance.
The biggest grouping of professional services executives will work at the retailer’s RBS unit, which will be based in Quincy, but have management operating from other brand locations, too. Roger Wheeler was appointed to president of RBS earlier this year and his key executive team includes: Kathy Russello, EVP-people systems & services; Paul Scorza, EVP and CIO; JJ Freeman, EVP-commercial services & strategy; Chris Lewis, EVP-supply chain; Tim Mahoney SVP-real estate & store development; Nancy Nicoll, VP-not for resale (NFR); and Christy Phillips-Brown, VP-communications.
Reporting to Russello will be: Bob Eicholtz, VP-human resources systems and services; Cathy Edwards, VP-learning talent services; Adrienne Heil, VP-human resources for RBS supply chain services; Janet McGorty, VP-total rewards; and David White, VP-human resources for RBS.
Reporting to Scorza in IT will be: Edward Carreira, VP-COO; Odile Ducatez, VP-architecture, strategy & data; Howard Miller, VP-solutions development (engagement); Subodh Mishra, VP- solutions development (transactional); Katherine Phillips, VP-infrastructure; Joseph Sheldon, VP-service delivery & store technology; and Brian Theise, VP-solutions development (mobile, web & innovation).
Reporting to Lewis in supply chain will be: Lee Nicholson, VP-supply chain strategy; John Patriquin, SVP-supply chain operations; Timothy Rohrbaugh, VP-logistics; and Andre Shaw, SVP-demand. Reporting to Patriquin will be Louis DeLorenzo, SVP-supply chain operations
Reporting to Shaw will be Brian Aubertine, VP-demand planning group.
In real estate, reporting to Mahoney will be: John Hernon, VP-asset management & leasing; Michael MacKnight, VP-store development; Susan Sollenberger, VP-maintenance; and Gary Stutz, VP-real estate.
In finance, Greg Amoroso, CFO, will operate within Ahold Delhaize USA. Reporting to him will be: Kimberly Lechner, SVP-accounting & business services; Mike Miller, VP-RBS financial planning & analysis; David Hilse, VP-portfolio strategy; Arjan de Ruiter, VP-financial planning & analysis. Reporting to Lechner will be Kristina Rota, VP-corporate accounting and reporting.
Linn Evans will serve as chief legal officer of Ahold Delhaize USA and Kim Lyda, SVP-legal services will report to Evans. Reporting to Lyda will be: Libby Christman, VP-risk management & safety; Gail Goolkasian, VP-employment labor and benefit laws; Larry Kohl, VP-quality assurance; Dawn Perry, VP-business and regulatory law; Dyana Tull, VP-litigation; Caroline Woodward, VP-real estate law; and Teross Young, VP-government affairs.
The Ahold Delhaize integration is one of the largest reorganizations in the food industry over the past decade. With all U.S. businesses now consolidated, the international retailer is hoping that an efficient infrastructure coupled with a decentralized branding approach will not only lead to greater internal productivity, but also to increased sales at store level.
I have no doubt this new streamlined lineup will bring more internal synergy, but I still have my doubts that, without more staffing and improved training at store level, significant same store sales gains can be achieved.
Now that it’s almost game time for the new team, we’ll be keeping score.
‘Round The Trade
More troubling Lidl news. After reporting last month that many of the German discounter’s future Mid-Atlantic store projects have either been canceled or delayed, now comes word from nj.com that a Lidl unit planned for Mantua Township in South Jersey has been delayed, even though the company received approvals from the town to begin construction. According to Mantua’s economic development coordinator, “budgetary constraints” have put the project on hold. While there are still about a dozen of the 47 stores that Lidl has opened since its June debut that are performing well, most of the stores fall into a predictable pattern: very strong openings to be followed by large drop-offs no more than a month later. For every store winner such as Manassas, VA where our estimates are in the $275-300K weekly range, there are three other stores like Culpeper, VA where volume is estimated at $130K per week. Clearly, Lidl is not a place where you can complete your full weekly shopping list and, based on our review of store conditions after several visits to many units, the decline in perishables is particularly noticeable. And as has been stated here previously, the disproportionate amount of space given to general merchandise and apparel is frankly puzzling. Peddling biker shorts for $20 (during the summer months) begs two very basic questions: 1) how big is the total biker shorts market? and 2) how good is the quality of the biker shorts being peddled? (The latter inquiry was made by my own booty.) As I’ve also said before, beyond what I believe is a gigantic initial merchandising misread by the Europeans running the show at U.S. corporate headquarters in Arlington, VA, what’s equally as worrisome is their inability to change course. Certainly, that can happen when you don’t have enough seasoned American retail decision makers at the point of attack to call an audible. And while Lidl’s pricing and packaging remains an undeniable strength as do its bakery and wine/beer departments (which it can’t offer with its upcoming new stores in Maryland, Delaware, Pennsylvania and New Jersey), the “whole” seems to fall far short of the sum of its parts. Don’t expect Lidl to disappear, even though it’s clearly in “rethink” mode. And just before presstime, we learned that Lidl is considering a smaller footprint – 10-15,000 square feet (vs. the current 36,000 square foot model) – and will look to lease other potential new sites. However, with the original decision to acquire all of its own real estate for the first round of about 100 stores (which seem very doubtful to open by next June as the company had hoped) and overall infrastructure costs totaling at least hundreds of millions of dollars (including building four distribution centers, a state-of-the art headquarters, corporate and store staffing), Lidl likely won’t resemble Tesco’s short-lived and clueless Fresh & Easy West Coast entry in 2007. Parent company Schwarz Gruppe has much more money at its disposal than Tesco did and is also privately-owned. Sadly, Lidl’s disappointing opening salvo did not come without great preparation and optimism, but once the opening whistle blows, it’s a totally different game (or as the great philosopher Mike Tyson once said, “Everybody has a plan until they get punched in the mouth”). There’s still time for Lidl to recover but it needs to demonstrate to its customers, especially as the new kid on the block in an already vastly overstored marketplace, that its offerings are relevant. The clock is ticking…interesting times for our buddy Anthony Hucker, former Giant/Landover president, who is now CEO of Southeastern Grocers (Winn-Dixie, Bi-Lo), based in Jacksonville, FL. Hucker has been working very hard to build sales and improve the culture, but the reality is that he inherited a daunting task in trying to change the course of a historically troubled company that has to compete with two industry heavyweights – Publix and Walmart (for whom he used to work). Now comes word from Moody’s that Southeastern Grocers (SEG) faces two significant debt repayments, the first of which is due in September 2018 ($475 million in unsecured notes). Another repayment for $425 million in senior secured notes is due in February 2019, creating mounting pressure on the already struggling chain which is owned by Dallas, TX based private equity firm Lone Star Funds. Its $900 million credit facility, of which about nearly $300 million has been tapped, matures in November 2018 if any of the senior secured notes are outstanding at that time. Financially speaking, the company will have to restructure its debt or consider filing for Chapter 11 bankruptcy. Realistically speaking, both the Winn-Dixie and Bi-Lo brands (more than 700 supermarkets) have been under siege for more than a decade and Lone Star, which has been attached to the deal since 2005, has been trying to unload this albatross for years. However, while the company’s top-line revenue has struggled since even before this millennium, the fat cats in Dallas haven’t personally suffered too much. According to its 2013 SEC filing, when the retailer unsuccessfully attempted to launch an IPO, SEG’s prospectus showed that of the $475 million debt issued in that same year, $458 million of that loan was used as a distribution to Lone Star. According to that filing, the retailer also distributed $76 million in 2011 and $305 million in 2012 to Lone Star… and now, a few points about Godzilla, er, rather, amazon.com. According to Forrester research, the Seattle-based juggernaut captured an incredible 54.9 percent of “Black Friday” online sales. Three days later, multiple sources reported that “Cyber Monday” overall revenue reached record levels with CNBC stating that online sales on November 27 increased by 17 percent. And while we haven’t yet seen too many obvious in-store changes at Whole Foods (WFM) made by Amazon (price reductions on a small, but noticeable number of items and selling other Amazon brands – Echo, Fire, Kindle, etc.), that might change soon. Late last month, WFM released its “most anticipated food trends for 2018.” Some of those include: the creative uses of tacos; the further growth of super powders; new technology to aid puffed and popped snack sales; Middle East cuisine becoming become mainstream; the further elevation of sparkling beverages; and even greater transparency in product labeling to name a few. I kind of wish I was 28 again so I could instinctively go back to the future – then I think I’d hate that idea. And one more story that doesn’t directly involve Amazon, but was clearly influence by Godzilla’s wide wingspan – CVS’ potential acquisition of Aetna. The $69 billion proposed deal will radically change both the drug and insurance industries and not only speaks to the political realities involving healthcare, but also to a realistic threat that Amazon could bring by entering the U.S. pharmacy business as has been rumored. For CVS, the ability to utilize its nearly 2,000 U.S. stores as distribution hubs for in-stores healthcare, lower co-pays and cheaper pharmaceuticals, makes a lot of sense. And Aetna, which had its $37 billion acquisition bid to acquire another large health provider, Humana, blocked by the FTC (this deal will also undergo major scrutiny) believes it can provide people with a better way of accessing medical care. Trade observers feel that since this proposed deal does not involve only insurance firms and would create a more vertically integrated structure, it might have a better chance of being approved. This will be one of the most important stories of 2018 that will affect almost every American.
Local Notes
Two beautiful new replacement stores opened recently that deserve recognition – the Safeway unit on Route 50 in Kent Island, MD and the long-awaited Giant Food unit on Ritchie Highway in Glen Burnie, MD. Both original stores had been successful for years and their newer versions have been doing a lot of business during the early phase of the holiday season. And speaking of Safeway, its parent company Albertsons, which has been racing to play catch up in the fast-paced and evolving world of e-commerce, announced that it has signed a deal with Instacart which will provide same-day deliveries to more than 1,800 Albertsons’ stores (including Safeway units) beginning mid-2018. Earlier this year, the Boise, ID-based supermarket chain acquired meal-kit provider Plated. And one more update about the Ahold Delhaize integration effort as it relates specifically to Giant Food, according to an announcement from Tonya Herring, Giant’s new senior VP-merchandising: “First and foremost, Giant will make the assortment and buying decisions for all products that it carries independent of The Stop & Shop Supermarket Company or any other brand of Ahold USA or Delhaize America. Giant will, however, be supported by the Stop & Shop merchandising team, which will issue purchase orders for products on behalf of Giant (excluding beer, wine, ethnic and specialty products, which will be purchased by Giant directly) and provide promotional, display and other related support to Giant. We anticipate that 80 percent of the items, offerings and programs will be consistent between Stop & Shop and Giant. For Giant business, including presentations, proposals and related activities, we are asking that suppliers include both Stop & Shop and Giant merchandising teams together for that work. Giant leadership is working to make this process as convenient as possible for its vendor partners, including by having Giant category teams join via video or personally attend meetings in Quincy whenever possible so your company will only have to make one presentation to the brands. This excludes local programs, as applicable, where it will be important for you to meet separately with the Stop & Shop and Giant category teams.”…Montgomery County, MD became the first jurisdiction in the state and second (after Washington, DC) in the region to authorize a $15 an hour minimum wage bill. The law becomes effective in 2021 for businesses with at least 51 employees, and allows smaller businesses at the low end of that threshold a little more time to implement the hike. Fifteen dollars an hour is a noble goal – we all know how many Americans are living below or near the poverty line – but this huge jump will have an adverse effect on the grocery business which continues to operate on thin margins partially due to the inherent need to rely heavily on labor. You can almost be certain that many existing businesses which are mandated to pay the higher toll will be looking at staff reductions and possible relocations. And, you can also bet that Montgomery County (or any other locale that imposes that hourly standard) will be hard-pressed to attract new businesses from setting up shop…Costco has confirmed that it will anchor the redevelopment of the former Owings Mills, MD mall which has been moribund for nearly 20 years. The new open-air development, renamed Mill Station, will feature a 148,000 square foot Costco as well as 30 additional retailers and restaurants. The new Costco will be situated less than a mile away from a long existing BJ’s and about three miles from an existing Sam’s Club. The new 575,000 square foot retail development will certainly add to the dynamic growth in this demographically favorable area of Baltimore County which also features a relatively new Wegmans that opened in 2016…and in one of the not-so-uncommon hypocrisies involving inner city retailing, Target announced that it will be closing its store in the Mondawmin Mall in Baltimore this February, after less than 10 years of operation. That a store doesn’t meet its financial projections and folds is not that alarming, especially in economically challenged West Baltimore. The hypocrisy occurs when the city of Baltimore, which originally provided significant financial resources and concessions to attract Target when the mall was redeveloped in 2008, continually acts in a stingy, insensitive and tax burdensome manner to the existing retailers that have been operating stores in the city far longer than Target has. It’s no wonder that there is more than a handful of current food operators, who if offered a chance to build more stores in Baltimore, would quickly run away from that opportunity…a tip of the hat to two men – Wendell Hahn and Ray Taglialatela – with among the best work ethics this industry has ever seen. Both executives with Four Seasons Produce, the large produce distributor based in Ephrata, PA, will retire at the end of the year. I’ve known both men for many years and beyond their unparalleled knowledge of the produce industry they are also two of the nicest people in the biz. Wendell and Ray-Tag are incredibly hard working, selfless and loyal to their employer and both display that very rare trait of making you feel better about yourself after you’ve engaged with them. I wish both gentlemen only the best in their future endeavors. I’ll miss their wisdom and kindness…a few obits to report this month including Charlie Rishel, 81, who for many years served as a VP for the old Key Food Brokerage firm (now part of Crossmark). I believe I met Charlie when I arrived in the market in 1978 and was immediately impressed by his warmth, knowledge of retail operations and his wry sense of humor. A good man with great street smarts, Charlie Rishel is survived by his two children, eight grandchildren and two great-grandchildren…from the land of entertainment, I’m sad to report the passing of country singer and songwriter Mel Tillis, 85, who overcame a stutter and recorded more than 60 albums (including three dozen top 10 singles). Tillis, who was inducted in to the country Music Hall of Fame in 2007, also wrote some classic country and pop songs – Detroit City; Mental Revenge; I Ain’t Never; Ruby (Don’t Take Your Love To Town) – that he made famous as did other popular artists including Linda Ronstadt, Kenny Rogers and Waylon Jennings. More than 50 years ago, Tillis told the Nashville Tennessean: “It so happened that I found out what I was good for. I’m lucky; a lot of people go through life and never find out.”…Golll-ly, Gomer Pyle is dead, too. Jim Nabors, who parlayed a supporting role as a goofy deputy sheriff on the “Andy Griffith Show” in the early 1960s into a hit series of his own that ran from 1964-1969, passed away late last month at the age of 87. Despite his clumsy antics and over the top southern drawl, Nabors was nothing like the famous character that he portrayed. He displayed an impressive operatic baritone singing voice that belied his TV persona and also appeared in 25 other TV shows and films. Shazam!
