40 Years Later – What A Short, Sweet Ride It’s Been
Favorite bands/singers, 1978: Rolling Stones, Grateful Dead, The Beatles, Bob Dylan, The Band, Bruce Springsteen, Gram Parsons. Favorite bands/singers, 2018: Rolling Stones, Grateful Dead, The Beatles, The Band, Bruce Springsteen, Gram Parsons and a few newer artists such as Dawes and the Avett Brothers. Favorite foods, 1978 – salmon, turkey, Texas barbecue and Chinese food. Favorite foods, 2018 – salmon, turkey and Texas barbecue (although not very often anymore, and Chinese food has been eliminated). I’ve also learned to love most seafood (although not sushi) and to also eat more chicken and veggies.
So, I’ve evolved – kind of. The grocery industry has also evolved – kind of, too.
For the past 40 years, twice a month I’ve written this column which has tried to deliver a combination of news, opinion and humor in a different type of format which hopefully captures the key events of our marketplace which began with Baltimore-Washington and Philadelphia and has now expanded throughout the Northeast and parts of the Southeast.
Yes, there has been tremendous change during the course of those 960 editions, and the rate of evolution continues to advance more quickly than ever. But, fundamentally, has the industry really changed that much?
In the 1980s we devoted a lot of space to the rapid growth and penetration of club stores; in the 90s, the combination of Walmart’s clout and Wall Street’s emerging presence in the grocery business (Wal[l] Street sandwich) created tremendous pressure on the overall business; in the 2000s, more penetration from alternate channel retailers (dollar stores, drug chains, mass merchants) using groceries as a spearhead created significant overstoring in most markets by merchants that operated with many differentiated styles. Over the past decade, the use and application of technology has exploded and now it’s imperative that all retailers deploy a digital/ecommerce component if they want to survive.
But at the root of survival is attention to fundamentals. And, then, to what level you can execute and ultimately sustain. I read with great interest the comments made by retiring Ahold Delhaize CEO Dick Boer at the company’s annual meeting earlier this month when he told shareholders that “some people say that they do not see a future for physical stores. I totally disagree with this. Because stores still matter – and that will be the case in the future, too.”
I’ve disagreed with many of Boer’s philosophies over the past few years – most of them regarding his company’s “process first, people second” go to market approach. But, in this case, he nailed it. While ecommerce sales may spike to 20 percent of the total food pie by 2025 (I believe this is optimistic, but possible), stores are always going to be the centerpiece for purchasing food. Traditional bricks & mortar retailers may have joined the party a bit late, but those that can afford to and are interested in survival and future prosperity, are combining their physical stores with their emerging digital acumen to offer “click & collect,” and meal solutions options in their stores.
Of course, it would be naive to think that retail diversification, advanced technology and generational shifts/changing shopping patterns are not important factors. Certainly, they are; but at the end of the day, consumers still want convenience, price and service – something that hasn’t changed since Michael J. Cullen founded King Kullen in 1930.
In our marketing area, which retailers consistently score the best, not only by best executing the core fundamentals of the business (clean stores, in-stock conditions, trained and friendly associates), but also in offering the customer a clear point of difference (price, variety, convenience/ease of ordering)?
In my opinion, those larger merchants that have the highest batting averages because they’ve more skillfully checked off the most boxes (and in no particular order) are: Wegmans, Kroger (Harris Teeter), ShopRite, Whole Foods, Costco, Trader Joe’s, Aldi, Wawa, Walmart and Amazon. Others like the Ahold Delhaize USA, Albertsons, Weis, BJ’s, and Target have the potential to reach that upper echelon but fall short in certain key areas.
Entries on my leaderboard (except for Walmart whose price image is overwhelmingly dominant) all share a common component: consumers are satisfied with, and in some cases, enjoy the transactional experience in those stores. And by successfully executing the fundamentals, all of those operators continue to reap the benefits of continued year-on-year sales growth and better loyalty than most of their peers. As diverse as the retailers on my list may be – and there’s a huge difference between visiting the service seafood department at Wegmans and ordering a case of diapers from Amazon – the takeaway experience is very similar: consumers feel like their choices have been rewarded with a positive experience.
As uncertain as these times are for many traditional retailers, they should be reminded that things really do change. Wall Street (private equity) has virtually exited the business. The last major PE industry deal was in 2016 when The Fresh Market was sold to Apollo Global and that deal hasn’t reaped much yet. Lone Star Funds, the king of bankruptcy, saw its supermarket entity – Southeastern Grocers – go the Chapter 11 route last month. And after 12 years, it seems like Cerberus Capital will finally become unencumbered from Albertsons later this year when the Boise, ID chain merges with Rite Aid and goes public.
Even Walmart went through challenging times over a five-year period (2011-2016) when other retailers learned how to better compete against the discounter’s price model and the Bentonville Behemoth continually shot itself in the foot by executing poorly at store level and becoming entangled in too many legal issues.
And the industry will continue to evolve. How many meal solutions companies can survive? How many grocery delivery firms will be able to compete effectively in the long-term with Amazon and an aggressive growth plan from Walmart/jet.com? Soon there will be two drug chains nationally, not three. Will Sam’s Club be around in five years?
Clearly there’s a place for the traditional grocer that operates 50,000 square foot stores and can execute those aforementioned fundamentals at a high level. The more important questions might center on whether other factors will create a derailment. Does the traditional grocer, especially those that operate regional chains or independents, have the capital to invest for future needs? Along with capital, how quickly can that merchant adapt to the swiftly changing technological landscape? And finally (and this applies more to independent retailers and other small chains), do they still have the energy and mettle to want to play in an increasingly competitive and expensive arena? And in the case of family-owned companies, is there a next generation interested in and/or capable of assuming leadership?
While it’s easy to get caught in the hype of cynicism or negativity given the intense competitive landscape and fear of ecommerce hijacking grocery shopping, there will always be a place – and a significant one – for the traditional supermarket to exist and thrive.
As Dick Boer said, “Stores still matter.” And people do, too.
It’s what’s kept and what continues to keep this industry so great and has made my 40-year journey so enjoyable!
Sad, Predictable Ending to Farm Fresh Saga
Dave Furman, a true gentleman, almost certainly knew what would become the fate of the company he founded with a single store on Military Highway in Norfolk in 1957, when he died four years ago at the age of 95.
Along with Gene Walters, who passed away in 2009, and Ron Dennis, retired and still very much alive, Furman formed Farm Fresh’s legacy. He (and Walters) helped grow the regional chain to more than 50 stores, expand its presence into North Carolina and engineer an acquisition in 1986 with its chief rival Giant Open Air Markets. Later, Dennis, a graduate of Bob Miller’s Albertsons University, created a different dynamic by adding new departments and offering innovative merchandising ideas. But the core competencies of Farm Fresh never changed – outstanding customer service, detailed employee training that yielded passionate and dedicated associates, and a commitment to charitable and community causes in the Hampton Roads market.
For more than 50 years, those standards remained in place. While Farm Fresh wasn’t the largest operator in Tidewater, nor was it the cheapest place to buy groceries, the company possessed such a strong will it consistently proved that its “whole” was greater than the sum of its parts.
Sadly, and I sincerely mean sadly, what’s been announced over the past month should never have happened. Ron Dennis, a man of candor and strong conviction, knew it shortly after Supervalu (which owned Farm Fresh since 2000) acquired more than 900 other grocery stores from Albertsons in 2006. The associates could sense the obvious signs of decline, too (no money for new stores or major store improvements; more control by corporate). Two years after SVU became a corporate chain retailer, Farm Fresh’s former successful regional chain mindset was no longer viable in its opinion.
Blame Jeff Noddle for this folly. He thought he could become both a dynamic wholesaler and retailer with his 2006 grand plan. Instead he became neither. As good a wholesaler as Noddle was throughout his Supervalu career, which began in 1976, his retail leadership skills could fit into a thimble – and a very small one at that. He wasn’t helped by the direction he was given by his chief merchant – Duncan Mac Naughton – a smart, well-traveled industry exec (and I do mean well-traveled) whose special skill as a blowhard is second to none that I’ve witnessed since I began reporting about the business in 1973.
By the time Noddle was forced out in 2009 and replaced by one of most inept boobs of this generation – Craig Herkert – there was only a little hope that the entirety of Supervalu retail, including Farm Fresh, could be fixed. However, that hope was quickly dashed once we got to witness Herkert’s unique reverse Midas touch; it became clear that the only thing the former Albertsons and Walmart executive could turn around was the swivel chair in his office. A special salute (not saying which kind) should also be given to Wayne “Underperforming” Sales, a former tire peddler who joined Supervalu’s board in 2006, became non-executive chairman in 2010 and even served as chief executive for a brief stint after Herkert was finally banished to the permanent “time out” chair in 2013. With this triumvirate at the helm, I’d probably bet on the ’62 Mets.
Ron Dennis retired in 2010, a series of managers was brought in over the last eight years, including the talented Micky Nye, who all tried to alter the retailer’s course. However, with no money in the coffers and no love from Eden Prairie, the inevitable was announced on March 14 – 21 of the last remaining 38 Farm Fresh stores would be sold, with the remaining units to be closed by May 14 (with a chance some may be sold at a later date). About 3,100 associates are affected.
The stores had been on the selling block for more than a year, so it was surprising and disappointing to see only a little more than 50 percent of the store base sold. And at slightly more than $2 million per unit, Supervalu couldn’t be happy with what it thought they may have fetched originally. Furthermore, with both Kroger/Harris Teeter and Food Lion as the buyers, there’ll be no supply contract opportunities associated with the transaction, another disappointment for SVU.
This is going to be a difficult grind for the Minneapolis area distributor. There aren’t many industry observers I’ve chatted with who don’t believe that all approximately 180 remaining SVU corporate retail stores will eventually be sold or closed and I, too, feel it’s just a matter of time. With the current competitive retail environment and not many active strategic buyers to draw from, it wouldn’t be shocking to see the same 50-60 percent store sales “batting average” reoccur at Shoppers, Shop ‘n Save, Hornbacher’s and even Cub, if or when one or all of those banners would be up for sale.
Still, as I said before, I believe current Supervalu Mark Gross is doing the right thing, as painful as it is now. He needs to reshape the company as a pure-play wholesaler; anything else would be a distraction in the way of SVU’s goal of survival and potential future prosperity. That’s why he was hired in 2016. And to rephrase Billy Joel, he (Gross) “didn’t start the fire.”
I feel so badly for the associates – many of whom I’ve known for a long time. They didn’t deserve this ending or the process they’ve had to endure for the past decade. Some will find new employment with the acquiring retailers, but I fear many others won’t.
And once again, another once-great company is reduced to ashes by horrible leadership. How many times will this scenario repeat itself?
‘Round The Trade
Since it acquired Safeway in early 2015, Albertsons has struggled to produce positive identical store sales while also showing some significant operating losses over that period. That trend seems to be reversing itself as the Boise, ID-based merchant turned in its best financial performance in more than three years. For the quarter ended February 24, the big chain retailer whose annual revenue reached $59.68 billion posted an ID sales gain of 0.6 percent. Net income was $388.8 million, a significant improvement over the $34.6 million it earned in the fourth period in fiscal 2016’s fourth period. And while the company acknowledged that its results were aided by a $373 million income tax benefit and strong fuel sales, chief executive Bob Miller pointed to some positive trend lines. “We are very encouraged by the trends in our business as we returned to positive identical-store sales and saw operating income and adjusted EBITDA improvements during the fourth quarter. We expect to continue the positive momentum into fiscal 2018 with identical-store sales growth, as we continue to build and expand our digital offerings to enhance loyalty in store and online, including the recent announcement of a new digital marketplace, which is being launched to expand selection for our customers later this year,” noted the veteran grocery executive. This will be a very important year for the company, which last month named Jim Donald (in a return engagement) as its new president and COO. The retailer is projecting ID sales growth of 1.5-2 percent, operating income gains of $280 to $320 million and adjusted EBITDA of $2.7 billion. About $1.2 billion in cap-ex is slated to be allocated. And then there’s the big deal to consider – its Rite Aid merger. Miller stated in an SEC 8-K filing, “We are also looking forward to our merger with Rite Aid, which will create a leader in food, health and wellness, with excellent presence on the West Coast and a strong position in the Northeast. We will be uniquely positioned to serve our customers’ needs. We expect to realize significant synergies, both increasing revenues and reducing our costs, that in turn should improve shareholder returns and enable us to reduce debt and enhance financial flexibility.” In reporting their fiscal 2018 results on Thursday, Rite Aid executives underscored the opportunities offered by the proposed merger with Albertsons, which would become a public company under the $24 billion deal, announced in February. On March 28, the company was given Hart-Scott-Rodino clearance and now hopes for an early closing in the second half of this year. One more note on Miller’s reference to his company’s new digital marketplace: this new ecommerce initiative will allow vendors to sell directly to Albertsons’ consumers which gives the retailer greater exposure to more specialized items and will provide potential useful (and confidential) data about specific products and trends in the many markets where the chain operates. Albertsons would reap a commission for those items sold and suppliers would then ship products directly to those consumers who utilized that portal on the retailer’s website…according to several published sources, Supervalu, which has been under pressure by a minority (4.3 percent equity) activist investor Blackwells Capital since late last year, is reportedly working with an investment advisor to explore a potential sale. Smells like CEO Gross and the SVU board are doing the right thing by following normal protocol, but I expect nothing to come of it, even if it ultimately leads to a proxy fight. Seriously, where is Supervalu going? Who’s going to buy them? And given the mess that the former C&S executive inherited, what would one do differently?…and about a year after Albertsons announced it was going to take over the partially mechanized distribution center that ABS and SVU co-occupied (but was owned by Albertsons) in Denver, PA, which forced Supervalu to find a new DC in the Mid-Atlantic area (in Harrisburg, PA), details about that new depot have finally been released. The facility will be 750,000 square feet in size and SVU will invest approximately $69 million in the project. The wholesaler also expects to add at least 350 jobs over the next three years. The warehouse is expected to open in the next few months…encouraging news for our friend Anthony Hucker, CEO of Southeastern Grocers (SEG). While filing Chapter 11 is never anyone’s first option, in this case it was the only shot at survival for the beleaguered chain had. The prepackaged plan certainly creates some pain (94 stores will be closed providing more opportunity for market leaders Publix and Walmart to gain share) but will allow SEG to remove $500 million of debt from its balance sheet debt (thanks to parent Lone Star Funds) while also significantly reducing its selling, general and administrative costs. Furthermore, the agreement calls for no impairment to all creditors, meaning that all vendors will be paid in full. And if you were wondering six weeks ago whether the financial community would subsidize yet another Chapter 11 filing from the Lone Star clown show, SEG received a full bank commitment to back the plan. Good luck, Mr. Hucker!…Instacart, the hottest grocery-related company other than one named amazon.com, is really on a money-raising roll. The San Francisco-based grocery delivery service recently raised another $150 million in new investment funding, bringing their total to $350 million since the first of the year. Instacart’s recent success has lifted its market valuation at above $4 billion…if you can’t beat ‘em – I guess that’s the way troubled meal kit provider Blue Apron feels. After falling below its initial IPO financial projection last summer and then seeing its stock price tumble to a current level of about $2 per share, the Manhattan-based start-up will attempt to sell its somewhat pricey meal kits through the supermarket channel. Might have been a great idea two years ago, but with Albertsons acquiring Plated last year, Walmart about to launch its own meal kit program chain-wide later this year and other smaller retailers seeing meal kits as a new sales driver which they can assemble and control themselves, where’s the fit for Blue Apron? And I’m not even talking about competition from within the digitally-driven meal kit space which includes Hello Fresh, Sun Basket, Home Bistro and Home Chef. Do I visualize a “for sale” tag on display in the near future?
Sprouts had a huge opening at its first Mid-Atlantic unit, a 30,000 square foot unit at the site of a former Mars Super Market in Ellicott City, MD. Having visited many Sprouts stores out West in recent years, I’ve been long impressed by the company’s business model and even more impressed by its ability to execute its perishables-driven merchandising plan at store level. After being open for more than a month, the new unit is still clocking in at better than $400K per week and I’ve noticed a lot of full baskets at the checkout. Sprouts is reportedly looking for about 15 new Mid-Atlantic sites as part of a very aggressive corporate expansion strategy. Next to open will be its Towson, MD unit – at the site of a former HH Gregg space – which will debut on July 11. Also scheduled to open later this year is its first Philadelphia store in the new Lincoln Square development on Broad Street and Washington Avenue in Philadelphia. However, one prospective new store deal that fell through was the Moorestown (NJ) Mall in part of the old Macy’s location. At the Ellicott City opening, it great to see Dan Sanders, former Acme president (2010-2012), at the new Sprouts unit, who now serves as chief operations officer for the Phoenix-based merchant. I’ve always admired Sanders’ integrity, humility and access, even when Acme (under the misguided leadership of Supervalu) was enduring the worst period in its history. He’s in a much better place now and is a key component in the recent success of Sprouts…Walmart, which is building the fewest bricks & mortar stores in its history this year (under 10 units), is still tending to its knitting. The Behemoth announced it will spend $28 million to upgrade eight Maryland stores over the next nine months, including units in Abingdon, Catonsville, Frederick, Hanover, Landover Hills, Randallstown, Severn and Waldorf. Ten more locations will shortly roll out curbside grocery pickup, giving the chain 21 stores in the Old Line state that feature that service…Weis Markets is also expanding its “Weis 2 Go” online ordering and curbside pick-up service. The Sunbury, PA-based regional chain will add 25 additional stores to its already 56 units that offer that convenient service later this month. Also, a tip of the hat to the entire Weis team on the opening of their newest store, a 67,500 beauty that debuted on April 12 in Nottingham, MD. The former Kmart location (BTW, all of the Kmart “taint” has been purged from the environs) has blossomed into one of Weis’ prettiest stores and, given the level of the competition in the surrounding Perry Hall market, will surely give its rivals fits…the banners of the former Ahold USA divisions (Giant Food, Giant/Martin’s, Stop & Shop) will now utilize the “Guiding Stars” nutrition rating system to help consumer evaluate the nutritional value of products on the shelves. The two former Delhaize America banners – Hannaford and Food Lion – have been deploying “Guiding Stars” for more than a decade. Ahold USA and Delhaize America officially became one U.S. operating company – Ahold Delhaize USA – on January 1…after a nearly 60-year run, Chevy Chase Supermarket has closed its doors. The single store operation, originally owned by Bernard Freeman and his son-in-law Walter Kirsch, was run by Walter’s sons Kevin and Jason. For many years, the Kirschs served the toney Montgomery County berg with unique products and a high-level of customer service. Unfortunately, the family lost its lease at the Connecticut Avenue site (a new mixed-use development is slated to be built there) and are searching for a new location. In the meantime, they’re opening the “Corner Market & Pharmacy” in Rockville, MD later this month. And, later this year, Jason Kirsch will debut a 7,000 square foot specialty store – the Poolesville Market – in beautiful rural (if there is still such a thing in Montgomery County) Poolesville, MD…better news for our longtime buddies at B. Green & Co., who will open their third Green Valley Marketplace late this year or early in 2019. The new 31,256 square foot store will be on the site of the former Mars Super Market (which closed in 2016) at York and Padonia Roads in Timonium, MD. B. Green operates two other Green Valley units in Elkridge, MD and Arnold, MD and also runs two Food Depot urban supermarkets and two wholesale cash-and-carry locations in Baltimore City…Burris Logistics continues to grow, adding a 250,000 square foot refrigerated warehouse in McDonough, GA to its base. The new depot, located 30 miles from Atlanta, features 28,000 pallet positions and, according to Michael Pitcher, director of sales for the Delaware firm’s public refrigeration warehouse division, “The big benefit of the McDonough location (along the I-95 corridor) is that it enables our partners to for 80 percent of the population of the United states with a two-day transit.”…sadly, too many obituaries to report this month. Our sympathies to the family of John Gahan, former head grocery buyer for Mars Super Markets, who died earlier this month in Baltimore at the age of 71. John worked for the D’Anna family for more than 30 years, was beloved by his associates and highly respected by the reps and brokers who called on him…one of the most colorful and among my favorite baseball players has also passed away at the age of 73. Harold “Rusty” Staub, one of the last “bonus babies” to sign a major league contract with the old Houston Colts in 1963 was also one of the game’s best offensive players in the era he played (1963-1985). With a shock of red hair and a bon vivant swagger that was linked to his New Orleans roots, Staub was also one of the game’s most productive hitters. He later parlayed his popularity in New York (he had two stints with the Mets totaling nine years) into a successful restaurant career…from the world of entertainment, R. Lee Ermey has passed away. The former Marine Corps drill instructor who turned his in your face military personality into many popular and memorable war movie roles, died earlier this month at the age of 74. Ermey enlisted in the Marine Corps in 1961 at the age of 17. He was discharged in 1972 and in 1979 served as a technical advisor in Francis Ford Coppola’s Vietnam war epic “Apocalypse Now.” Eight years later, he got his big break in another great director’s version of the Vietnam War – Stanley Kubrick’s “Full Metal Jacket.” From that point on, the die was cast – Ermey would serve as the prototypical “hard ass” military instructor in more than 20 TV and film roles…if you’re a baby boomer who grew up in the New York metro area, then you will remember Chuck McCann who appeared on many Sunday morning children’s shows, most notably “Let’s Have Fun” on WPIX in the early and mid-1960s. McCann passed away earlier this month at the age of 83. Besides his work as a children’s entertainer, he did many voiceovers for cartoon shows and appeared in another 10 movies. What you probably didn’t know about the man who is credited with doing one of the best Laurel and Hardy impersonations ever, was that one of his best personal friends was Hugh Hefner and that the Chuckster spent a lot of his free time hanging out with Hef at the Playboy Mansion…one of the best directors of the past generation has also left us. Czech filmmaker Milos Forman, whose American movies included “One Flew Over The Cuckoo’s Nest” (1975) and “Amadeus” (1984), was not only admired only by me, but by many others for of his uncanny ability to make the outsider in many of his movies evolve into a hero. Forman, the orphan of Nazi Holocaust victims, first gained fame in his native Czechoslovakia for directing quirky comedic films such as “Loves of A Blonde” and “The Fireman’s Ball” (a very funny flick). He left his homeland after Communist troops invaded the country in 1968. But his American cinematic debut a year later, “Taking Off,” flopped. After waiting five years, actor and producer Michael Douglas gave him a second chance and Forman hit the jac
kpot with “Cuckoo’s Nest.” Other well-known Forman efforts include “Hair” (1979), “Ragtime” (1981), “The People vs. Larry Flynt” (1996) and the much underrated “Man on the Moon” (1999), his depiction of comedian Andy Kaufman’s life.” Milos Forman was 86.