Taking Stock

Amazon.com Continues To Dazzle With Spectacular Sales, Earnings In 4th Quarter 

Sixty billion, five-hundred million dollars in revenue. In one quarter!

Sure Amazon.com might get virtually every benefit of any doubt when it comes to its sales-to-earnings ratios, but the Seattle-based juggernaut also turned in a phenomenal profit performance for the three-month period ended 12/31/17. Earnings jumped 69 percent to $2.1 billion compared to last year’s fourth quarter.

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Much of the growth came from two sources: the exploding sales of its Alexa cloud-based voice service/intelligent assistant and a huge increase in the number of new enrollees to its upgraded Prime subscription service.

“Our 2017 projections for Alexa were very optimistic and we far exceeded them. We don’t see positive surprises of this magnitude very often – expect us to double down,” said Jeff Bezos, founder and CEO of the company. “We’ve reached an important point where other companies and developers are accelerating adoption of Alexa. There are now over 30,000 skills from outside developers, customers can control more than 4,000 smarthome device from 1,200 unique brands with Alexa and we’re seeing a strong response to our new far-field voice kit for manufacturers. Much more to come and a huge thank you to our customers and partners.”

As for the rapid growth of Prime subscriptions, Amazon said 2017 was its best year ever. Revenue from all of the company’s fee-based services which includes annual and monthly Prime fees, plus other revenue from books, music, videos, games, and non-Amazon Web Services subscriptions—rose to $3.2 billion, up 47 percent from a year earlier. According to research firm Consumer Intelligence Partners, Prime is key to Amazon’s success because, well, Prime members spend more. As of September 30, 2017, the average Amazon Prime member spent $1,300 a year on Amazon compared to $1,000 for all other U.S. Amazon customers.

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Brian Olsavsky, Amazon.com’s CFO, told analysts following the earnings release that the company is pleased with the performance of newly acquired Whole Foods Market thus far, despite a small operating loss in the quarter, Olsavsky added that Amazon’s physical store sales (of which WFM is the dominant contributor) were $4.5 billion. “That was slightly better than what was built into our guidance. At the time of the acquisition, we had stepped up the fair market value of certain assets on the balance sheet. That is going to increase the amortization. So far, our focus has been on continuing to lower prices even beyond the initial ones that we discussed at the close of the deal in late August,” he said, referencing price cuts on items including salmon and cage-free eggs. “We’ve launched Whole Foods products on our Amazon website and the technical work continues to make Prime the Whole Foods customer rewards program, and we expect to have more on that later in the year. We’ve also added lockers, and (with) much more to come. So, we’re very happy with the initial results out of the team in Whole Foods down in Austin.”

And just before presstime, we learned that Amazon will roll out two-hour delivery to Whole Foods stores this year for Prime members only. In fact, the first phase began on February 8 in Austin, Cincinnati, Dallas and Virginia Beach. Amazon will offer its new delivery service at all 460 Whole Foods stores by the end of 2018. It noted that there’ll be no extra charge for orders above $35, but customers who choose one-hour deliveries will be charged $8.

The efficiencies that were envisioned in the Amazon-WFM deal are quickly become visceral. However, while it’s clear that Whole Foods provides a tremendous laboratory for future growth in the bricks and mortar silo, there are certainly growing pains that have become obvious. The retailer’s move to a more centralized merchandising structure (a project that began prior to Amazon’s acquisition last June) will almost certainly rob some its local nuance and decision-making. And its recently installed order-to-shelf (OTS) inventory management system, aimed at making store productivity more efficient, has led to a huge negative social media outcry from Whole Foods associates who claim the OTS system is too complex and stressful and has led to dozens of resignations.

This may seem like a minor distraction in the vast Amazon universe especially since its physical store presence is so small. But we expect further bricks and mortar acquisitions in the next 18 months – Rite Aid, BJ’s, Target? – and those cultural issues will become more important.

As more process is installed to gain better organizational control, the culture almost always suffers. There’s a narrow intangible balance between systems and employee morale which was clear a positive differentiator with the “old” Whole Foods.

Amazon.com has never been in a business as labor intensive as running physical retail stores. Let’s hope they don’t mistake backroom efficiency for humanity.

Susan Morris Named Albertsons COO As Wayne Denningham Announces Retirement

Susan Morris has been named executive VP and chief operating officer of Albertsons Cos. Her promotion comes after the company announced that current president and COO Wayne Denningham plans to retire near the end of the company’s fiscal year which will occur on February 24. In addition, Morris will continue to oversee four operating divisions – Seattle, Portland, Northern California and Southern California – for the Boise, ID-based retailer. She will also supervise the food and drug merchant’s supply chain, manufacturing and operations functions. She will be based at the company’s corporate headquarters in Boise.

Morris began her career in Albertsons’ Denver division while still in high school and worked her way up in the ranks, demonstrating an ability to lead, execute and build strong teams in her more than 30 years in the retail grocery business, according to Albertsons.

Her career has spanned roles from store director to corporate grocery sales director, VP of bakery and operations and, upon the sale of Albertsons Inc.’s assets to Supervalu, VP of customer satisfaction for the Eden Prairie, MN-based wholesaler and retailer. In 2013, Morris was named Intermountain division president after a three-year stint in the company’s Southwest division, and subsequently was asked to lead the Denver division in 2015. She was named executive VP of East operations in April 2016 and was moved to head West region operations last March.

“Susan is a talented leader within our company, and she fully embraces our entrepreneurial spirit and commitment to running really good stores,” Albertsons chairman and chief executive officer Bob Miller said in a statement. “Susan raised her hand to come to Albertsons Cos. in 2010 when she was a senior VP of sales and marketing for a competitor, and she took the only job we had open – a grocery sales manager in our Southwest division. She has proven herself to be a valuable part of our leadership team in readily accepting new challenges, developing others and bringing teams together, and I know that her broad experience will be of significant value to Albertsons Cos. as we move forward.”

Jim Perkins, executive VP of operations and special projects, will continue as president of the Acme and Safeway-Eastern divisions. Mike Withers, executive VP of East region operations, which includes Jewel-Osco, Shaw’s, Southern, Southwest and United, will now have responsibility for two of Morris’ former divisions – Denver and Intermountain (based in Boise).

Wayne Denningham has served as COO of Albertsons Cos. since April 2015. He began his career with Albertsons Inc. in 1977 as a courtesy clerk and worked his way up in the organization, eventually serving as president of the Dallas-Fort Worth division, and joined Albertsons LLC in 2006. He led the Rocky Mountain and Florida divisions before being named president of the Southern division in 2010.

In March 2013, Denningham was appointed as president of the Southern California division. He assumed the role of COO for the South region at the Safeway acquisition close in January 2015.

Overall, Albertsons Cos. has more than 2,300 supermarkets and approximately 1,700 in-store pharmacies in 35 states and the District of Columbia under 20 retail banners, including Acme, Safeway, Shaw’s, Albertsons, Vons, Jewel-Osco, Tom Thumb, Randalls, United Supermarkets, Pavilions, Haggen and Carrs.

‘Round The Trade

Supervalu is once again facing pressure from activist shareholder Blackwells Capital LLC to separate its wholesale and retail divisions. The Manhattan-based investment management firm, which owns 4.35 percent of SVU stock, pushed the Eden Prairie, MN wholesaler/retailer in October to sell one-third of its grocery stores, parts of its real estate and bring in new leadership. Blackwells also wants to choose three directors of its own to force these changes in an attempt to gain shareholder support. It criticized most of the existing nine directors as having no direct retail operational experience, adding that the last three board chairmen have had no wholesale or retail food industry experience. The wholesale business, which provides about three-fourths of Supervalu’s revenue and nearly all of its operating profit, should be shopped to potential buyers, such as SpartanNash Co., UNFI or C&S, Blackwells said. Supervalu quickly countered Blackwells’ request noting that a “rapid transformation” is under way. The company also noted that its has added new wholesale customers including The Fresh Market and America’s Food Basket and has acquired wholesale grocers Unified and Associated Grocers in the past 12 months. SVU has also added new leadership in its wholesale and retail divisions. As a shareholder, Blackwells has a right to be disappointed. But clearly, they have no feel for the realities that face a company that’s still climbing out of a black hole created by inept former CEOs Jeff Noddle and “Craig “Clueless” Herkert. Furthermore, the company’s last three chairman were Wayne Sales, Bob Miller and currently Gerald Storch. While it’s true that Sales and Storch do not have food industry backgrounds, to assail current Albertsons chairman and CEO Bob Miller as inexperienced is an insult to him and a clear indication of how big a money grab this forced march is. I’ve said it before: Supervalu chief executive Mark Gross is doing a very good job; give him a bit more time to clean up the problems of SVU’s corporate retail stores. Many if not all of those banners are going to disappear through sale or closures, but the climate is not currently favorable to potentially dispatch about 220 stores, many of which are simply undesirable…its appear that Boxed.com, the online retailer that resembles a digital version of Costco, will be the next e-commerce firm that will be sold. The four-year old Manhattan-based startup has reportedly spurned an acquisition offer from Kroger and, according to multiple reports, is talking with Amazon.com about a deal. Boxed.com’s attractiveness lies in the unique space it has created. It offers businesses and consumers club store type products with free two-day delivery on purchases of more than $49. There is also no membership fee. A one percent cash reward is also offered on the total price of every purchase…Weis Markets has upgraded its “Preferred Shopper” program, making it easier to qualify for discounts and adding a 10 percent discount on Weis private label items every Tuesday for seniors 60 years and older. “Our upgraded rewards program now offers more of our customers reward discounts on some of our best-selling products and is particularly helpful to those in areas with limited gas reward options,” said Ron Bonacci, VP-marketing and advertising for the Sunbury, PA regional chain. “Our rewards program has always been a tremendous success but many of our customers wanted the additional option of saving on the products they regularly purchase. Ultimately, we wanted to give them more flexibility in their reward choices’…a few thoughts about last month’s FMI Midwinter confab in Miami. As always, the event featured the highest level of participation of retail leaders and CPG executives. And while many told me the “strategic executive exchanges” between retailers and vendors were very productive, we also heard some feedback from those same parties about the many presentations and forums that were offered to a broader audience. “Too much data” was the prevailing view of more than a dozen executives I spoke with. “I think big data is important. I think relevant data is vital. But it seemed that the speakers and panels featured so much information it was difficult to absorb,” said the president of a regional chain based in the Northeast. “I understand that we need the data and insight in order to compete more effectively in a changing landscape. I know that we need to better understand Millennials and Gen-Yers who comprise our fastest growing groups of shoppers. But it was just an overload. As important as grasping and utilizing the data, we’re still a business of operators and merchants. Too much future casting, not enough input from retail leaders in the presentations” One retailer noted that of all the forums he attended the two best were the keynote speech by Tim Steiner, founder of British online merchant Ocado, and the closing “State of the Industry” presentation which featured FMI CEO Leslie Sarasin, Ahold Delhaize USA CEO Kevin Holt, Kings/Balducci’s CEO Judy Spires and Coborn’s chief executive Chris Coborn. “It was the one meeting that I felt connected to the food industry as a group,” said another retail executive from a large Southeast chain. “Too bad, it was the last event scheduled on Monday, when many people had already left.” Personally, I think I understand where FMI and Sarasin are going. A few years ago, after the dissolution of its disappointing Expo, the large trade association had lost a huge revenue source and was struggling for relevancy. Sarasin has kept her eye on the ball and done a good job of rebuilding the industry’s largest trade group. However, while I know they provide significant revenue to the association, maybe it’s time that IRI, Nielsen, Accenture and several other well-endowed market research/analytics organizations take a lesser role at the Midwinter event and perhaps FMI should consider bringing back some of the roundtables and panels that feature the real retail drivers and leaders in our industry…not shockingly comes more word about Lidl’s struggles in the U.S. In an interview with the German business publication Manager, Klaus Gehrig, CEO of Lidl’s parent company, Schwarz Gruppe, criticized the discounter’s progress in the U.S. thus far, noting that several things have gone wrong including poor site selection, locations that are too large and too expensive to operate and lack of insight into Americans’ product preferences. While Herr Gehrig has pinpointed Lidl’s problems, the bigger task will be correcting them, and I’ve seen little evidence of improvement. Opening smaller stores is part of the answer, but Lidl’s problems in the U.S are deeper and more complex. On February 15, the discount merchant will open its 49th store in Fredericksburg, VA (its second unit in that city) and is almost certain to fall well short of the 100 units that were scheduled to open by this June…Whole Foods opened its seventh and newest “365” store in Brooklyn, NY late last month and reports of the demise of the smaller, more discount-oriented organics/natural format seem premature since WFM announced that it will open at least 16 more “365” units in the near future. Two of those units are in the Northeast – Fairfax, VA and Weehawken, NJ – and scheduled to open later this year…Jim Sinegal, the iconic executive who provided the foundation for the dynamic growth of Costco, is leaving the club store merchant’s board after 35 years. Sinegal told shareholders at Costco’s recent annual meeting in Bellevue, WA, “It’s time. I’ve served for a very long period of time and I think the company is in very good hands.” Sinegal’s protege, Craig Jelinek, has served as chief executive since Sinegal left that post in 2012. And at that annual meeting, Jelinek told its holders that Costco business is very healthy with traffic growing 5.9 percent in its recently completed first quarter, its biggest jump in at least a decade. And even when membership fees were raised in the last year,
Costco’s renewal rate remained at an impressive 87 percent. I wonder how puzzled Walmart executives continue to be as they witness the ongoing deceleration of the Sam’s Club business. And speaking of the Behemoth, it has named current executive VP and COO of its U.S. stores Judith McKenna to president and CEO of Walmart International, the company’s second-largest operating segment. She will be succeeding David Cheesewright, who has been in that role since 2014 and is retiring…Albertsons, which also 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 beginning mid-2018. Earlier this year, the Boise, ID-based supermarket chain acquired meal-kit provider Plated, which this month unveiled its first national TV campaign. Instacart, which has been on quite an impressive run over the past six months, announced that it acquired Canadian digital solutions provider Unata for a reported $65 million. Unata’s strength is developing and tracking digital circulars and coupons. There certainly seems to be a place for that in Instacart’s fast growing delivery services model…good news for our buddy Bill Shaner, former CEO of Save-A-Lot and for a short time the top dog at Haggen. The charismatic executive has formed an investor group, PetGuard Holdings LLC, which recently acquired PetGuard, a Jacksonville, FL-based manufacturer of premium, natural pet food products and supplies. Shaner, who will serve as managing partner and chief executive of PetGuard Holdings, acquired the company from Sharon and Steve Sherman who founded it in 1979. Good luck to a good man…sadly, there are a few deaths to report this month. From our industry, we lost George Mezardash, 81, who operated Baltimore-area independent supermarkets and convenience stores (George’s SuperThrift and Little George’s, primarily in Carroll and Frederick counties). George was a very good operator who was exceptionally community-oriented, excelling in customer service. And he was a nice guy, to boot. Another nice guy from our biz, Dave Schisler, has also passed away. I first met Dave when he worked for B. Green & Co. where he remained for 15 years, ultimately becoming head buyer for the Baltimore-based wholesaler. In 1980, he opened his own brokerage company, Chesapeake Sales, based on the Eastern Shore. Dave was a shrewd businessman who was gifted with street smarts and he’ll be missed by the many people he touched. Roy Marks has left us, too, at the age of 87. For anyone who met Roy and got to know him, his presence and charisma were undeniable. Roy was hysterically funny, highly intelligent with a photographic memory (although he never bragged about it) and a person who took the time to mentor those younger than himself who wanted to learn and succeed (me included). I first met Roy when I arrived in town in 1978; he was working for Food-A-Rama and to see him interact with the F-A-R’s three owners – Ben Schuster, Paul Diamond and Dave Diamond – was kind of like watching a Mel Brooks movie. There was some substance, some melodrama and a lot of laughs. A few years later, Roy joined Shoppers Food Warehouse, where he led the merchandising team and helped shape the retailer’s discount strategy. My condolences to his wife Alice, his son, Steven and daughter Stephanie. Roy leaves an unforgettable legacy…speaking of Mel Brooks, Oscar-nominated and Emmy-winning composer John Morris has died. Morris and Brooks hooked up for almost all of the comedian/director’s films, including co-writing the title song for “Blazing Saddles” and composing the haunting violin score in “Young Frankenstein.” Both of those great movies were released in 1974. Morris, 91, also penned the original arrangement for “Springtime for Hitler,” from “The Producers” (1967), Brooks’ debut film…and finally, Oscar Gamble has passed on. The journeyman power hitting outfielder who played for seven major league teams over a 17-year career, died late last month. Gamble was a solid left-handed hitting outfielder who hit 200 homeruns in his career but was best-known for having the largest, most outrageous Afro hairstyle in the history of the game. When he was first traded to the New York Yankees in 1976 (his first of two stints with the Bronx Bombers), Gamble had to abide by team rules requiring no facial hair or excessive hairstyles. As Yankees owner George Steinbrenner recalled, the news came as a disappointment to Gamble who had an endorsement deal with Afro Sheen. “Pete Sheehy (the Yankees’ veteran clubhouse man) told him he would get no uniform until he got a haircut,” the late Yankees owners said in 1991. “I said, ‘Oscar, I’ve got a barber.’ They brought this guy in and they butchered him. Absolutely butchered him. I was sick to my stomach. I told Oscar, ‘It looks good,’ but I thought to myself, it was absolutely the worst. There were blotches in his scalp.” Gamble was 68 when he died in Birmingham, AL.