Taking Stock

With Farm Fresh Exit, Supervalu Looks To Unload Other Corporate Retail Properties

Maybe (or maybe not) Cub Food Stores (35 stores) or Hornbacher’s (eight stores) will be protected in the end, but now it seems pretty obvious that the dismantling of the rest Supervalu’s corporate retail division is fully in gear. With the sale/closing of 35 of the 38 Farm Fresh units in Tidewater completed, one of the industry’s worst kept secrets is now completely out of the bag.

Last month, Supervalu said that its 36-store Shop ‘n Save unit in St. Louis is on the sales block and that the 22 former Food Lion stores in western, MD, Central PA and West Virginia (reportedly originally destined for Bill Shaner and Tom Jamieson), which also trade under the Shop ‘n Save banner, are also actively being peddled.

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The news also put Shoppers in a tenuous future position. Other than Micky Nye, former Farm Fresh president who most recently served as VP-retail operations SVU east and left the company earlier this month, there’s been little news emanating from Shoppers’ Bowie, MD headquarters. The company did announce that it would close its underperforming Olney, MD store (we expect several more store closings to be announced shortly).

However, now that the Eden Prairie, MN-based wholesaler/retailer has begun its corporate store sell off, how can Shoppers not be far behind? Despite the tireless effort of president Bob Gleeson, ID sales continue to slide and the 51-store regional chain hasn’t been given adequate cap-ex money to open stores or remodel many other units that need to be upgraded since 2006. That alone places a tremendous burden on management to succeed and adversely affects the associates who see the handwriting on the wall.

However, when that inflection point occurs, Shoppers will likely run into the same issues that impacted Farm Fresh in terms of salability. On paper, Shoppers produces significantly more volume per store than Farm Fresh and its stores are located in a more affluent market area. Ten years ago, Shoppers would have fetched a pretty penny, but new competitors have emerged and most of Shoppers’ stores have lagged behind the market in terms of providing a modern shopping experience, which includes offering more prepared foods and utilizing state-of-the-art technology. The facts that there are very few strategic buyers in play and that Shoppers is a unionized operation don’t work in Supervalu’s favor, either.

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Supervalu is making changes in its corporate operation, too. Last month, it announced that it would sell (and then lease back) eight of its distribution centers – Green Bay, WI; Commerce, CA; Stockton, CA; Champaign, IL; Joliet, IL; Oglesby, IL; Pompano Beach, FL; and Harrisburg, PA (which will open later this summer). The buyer is reportedly CF Grocery Distribution PropCo, an affiliate of giant financial services firm Fortress Investment Group. The deal will net SVU $483 million which will allow for greater financial freedom for future investments.

In the Mid-Atlantic, that not only includes the transfer of its wholesale business from the former Denver PA distribution center (owned and soon-to-be-operated by Albertsons/Acme) into a newly refurbished DC in Harrisburg, but the opening of its dedicated natural, organic, specialty, healthy and ethnic Market Centre facility in Carlisle, PA later this year.

Supervalu has also cut some staff at its Mechanicsville, VA depot in the last few months and has shifted to a more centralized merchandising plan. Several readers have recently inquired whether, with Farm Fresh gone (and little return on gaining distribution from the new buyers) and Shoppers potentially on the ropes, there is a long-term future for that Central Virginia facility? It also appears that the company won’t be replacing Kevin Kemp, the former Eastern Region president, who left the company earlier this year. Senior VPs Joe Della Noce and Mark Gossett, who handled Kemp’s duties on an interim basis, will continue to lead the Eastern Region and report to Mike Stigers, president of SVU wholesale.

I’ve said this before and will repeat it again – I believe in the vision of CEO Mark Gross. Much of his planning over the past two years has now shifted into real time performance and execution. It’s going to be a bumpy ride and the next 18 months will likely determine Supervalu’s future.

Ahold Delhaize, Weis Post Strong Comps, Solid Earnings

Two of the region’s largest supermarket chains, Ahold Delhaize USA and Weis Markets, enjoyed profitable first quarters while also increasing identical store sales.

Earlier this month, Weis Markets reported its first quarter sales increased 2.8 percent to $876.1 million compared to the same period in 2017 while comparable store sales, adjusted for the holiday shift, increased 1.5 percent.

During the 13-week period ending March 31, 2018, the company’s net income increased 36.8 percent to $16.2 million compared to $11.8 million for the same period in 2017 while first quarter earnings per share increased 36.4 percent to $0.60 compared to $0.44 in 2017. The Sunbury, PA based retailer’s first quarter operating income increased 12.8 percent to $22.8 million.

First quarter sales benefited from the holiday shift since the Easter sales week occurred in the last week of the first quarter while the slow post-Easter sales week occurred in the second quarter. In 2017, both the Easter and post-Easter weeks fell in the second quarter.

“Our operating income was positively impacted by store improvements in overall efficiency levels, particularly with inventory management, which resulted in an improved store gross profit rate and our 16th consecutive quarter of comparable store sales increases,” said Jonathan Weis, Weis Markets’ chairman and CEO. “Our operating income also benefited from store labor efficiencies, in which multiple winter weather events were a contributing factor, and improvements to some of our key marketing and advertising programs. We look to build on our momentum in the coming months.”

At the regional chain’s annual shareholder’s meeting on April 26, 2018, Weis also announced a $101 million growth plan for the construction of two new stores, 20 remodels, four pharmacies and one fuel center. The first new store opened in Nottingham, MD on April 12. The company has also expanded and upgraded its “Weis 2 Go” online ordering service with curbside pick-up. It recently introduced this service in 25 additional stores and currently offers it in 79 locations.

Also earlier this month, Ahold Delhaize reported another strong quarter with solid sales growth and higher margins, resulting in marked growth of operating income and strong growth of net income at constant exchange rates.

Dick Boer, CEO of Ahold Delhaize who will retire in July, said: “We are pleased with our performance during the first quarter, proving that the execution of our ‘Better Together’ strategy continues to bear fruit, delivering sales growth and synergies throughout the business. Benefiting from our scale and building on our leading positions on the U.S. East Coast and in Europe, our great local brands demonstrated their capabilities and agility to meet rapidly changing consumer needs and preferences. First-quarter sales rose 2.5 percent at constant exchange rates to € 14.9 billion ($17.6 billion), supported by a solid performance in our brick-and-mortar stores and ongoing strong growth of online businesses. Our underlying operating margin expanded to 4.0 percent from 3.8 percent in the same period last year, primarily driven by synergies. Net consumer online sales grew 23 percent across the group, maintaining our momentum to realize nearly euro 5 billion ($5.89 billion) in online consumer sales by 2020. The U.S. brands (banners), which are reported as one segment as of January, reported improved comparable sales growth excluding gasoline of 2.8 percent, supported by the favorable impact of holidays and some weather impact. Its U.S. underlying operating margin rose 30 basis points to 4.3 percent, driven by synergies and with our “save for our customers” program offsetting cost inflation. In a competitive market with new entrants, Food Lion reported its 23rd consecutive quarter of comparable volume growth, as its “Easy, Fresh and Affordable” program is now deployed in more than 500 of its stores. Furthermore, online sales grew 9 percent across all U.S. brands.”

In the first quarter of 2018, net sales in the United States increased by 2.1 percent, at constant exchange rates, to $10.4 billion. Overall sales growth, excluding gasoline, was 1.9 percent. Price inflation was 2.3 percent, cycling a deflationary first quarter last year.

Online sales in the U.S. increased by 9.4 percent at constant exchange rates to $213.4 million, driven by Peapod, the further expansion of the online service “Hannaford To Go” and by same day, third-party delivery. Giant/Martin’s sales continued to benefit from the growth of its in-store beer and wine eatery sites, resulting in an increase of transactions, driving comparable sales growth of 3.6 percent this quarter.

Food Lion announced in the quarter that it has agreed to purchase three Farm Fresh stores in the greater Norfolk market in Virginia. It will also invest $168 million to remodel 105 stores in the Hampton roads area including some in eastern North Carolina. In addition, it plans to acquire four Bi-Lo stores, further strengthening its position in South Carolina.

Hannaford has rolled out its digital My Hannaford Rewards program chainwide this quarter, offering participating customers a reward on more than 5,000 own brand products, as well as personalized coupons for national and regional brand products.

Peapod lowered thousands of prices on products that matter most to customers and has expanded its meal kit line to include new recipes and introduced a discounted midweek subscription for PodPass customers.

‘Round The Trade

With the Rite Aid-Albertsons deal close at hand (expected mid-July), executives from both the big drug chain and the virtually national supermarket retailer addressed analysts at a four-hour meeting on May 5. Among those participating were Rite Aid CEO John Standley (who will become CEO of the newly combined organization); Albertsons president and COO Jim Donald (who rejoined the company on March 5); Rite Aid president and COO Kermit Crawford; Albertsons EVP and chief operating officer Susan Morris; Albertsons EVP and chief marketing and merchandising officer Shane Sampson; Albertsons EVP and CFO Bob Dimond; Rite Aid senior EVP of Rite Aid stores Bryan Everett; Rite EVP of pharmacies Jocelyn Konrad; and Rite Aid senior EVP, CFO and chief administrative officer Darren Karst. The meeting was extremely detailed (more than 100 slides) with seven distinct “chapters” – Combination Rationale; Albertsons Overview; Rite Aid Overview; Synergies; Omni-Channel Approach; Financials; and Bringing It All Together. Among the key talking points emphasized by the speakers were the size and strengthened scale of the newly combined company ($83 billion in annual sales with 4,868 stores); the maintenance of the decentralized operational and merchandising of the Albertsons organization (14 operating division supervised by 13 presidents – Jim Perkins is president of both Acme and Safeway-Eastern); the unique opportunity to build narrow networks and drive significant loyalty among both pharmacy and grocery customers; the continued enhancement of its omni-channel approach and its ecommerce capabilities; and expected revenue opportunities and $375 million in projected cost synergies which will create a “compelling financial profile.” On the grocery side, speakers Donald and Sampson emphasized the growth and success of its “own brands” portfolio where annual sales exceed $12 billion, of which $930 million is driven through its 20 manufacturing facilities (including its new milk plant in Hatfield, PA which opened last year). Four of Albertsons private labels – O Organics, Lucerne, Signature Select and Signature Café – broke the $1 billion sales barrier last year. In promoting the benefits of the merger in which Albertsons would control 70 percent of the current equity and the company would become public if shareholders approve the deal (Rite Aid is already publicly-traded), the speakers highlighted other key selling points including: leveraging its diverse store portfolio which appeals to multiple demographics; its continued investment in store portfolio; its supply chain strength; and its ongoing effort to become a differentiated leader in food, health and wellness; leveraging the strength of both organizations’ banners to build strong omni channel offerings; and developing proprietary technology as a competitive strength and powerful enabler. It was great to see Jim Donald back in the saddle again with the company where he cut his teeth in the industry. His folksy, self-deprecating personality played well in a room filled with financial wonks who most likely won’t be returning to Earth in their next lives as stand-up comedians. And he probably uttered the best line of the day when he explained that the company’s “4 F’s and 1 C”, store operations initiative (fully-stocked stores, quality fresh departments, friendly and engaged associates, fast service provided by well-trained associates and clean, safety-conscious stores), resembled his grades in his first half of his freshman year in high school. The Albertsons-Rite Aid deal has a chance to be very successful, but there are hurdles facing both merchants. While Standley certainly has improved Rite Aid’s standing over the past five years (and turned it into a profitable organization again), there’s still a large gap in image, technology and innovation when measured against its two prime competitors – CVS and Walgreens. For Albertsons, it is imperative that it convert much of its backroom planning to actual execution at store level. To be fair, when Albertsons CEO Bob Miller and his team took over the “new” Albertsons in 2013, it was woefully behind the curve in many areas, ranging from technology to merchandising. The team has worked hard to catch up and prepare for the brave new world of shoppers and their related behaviors; now is the time to demonstrate whether it has the ability to offer consumers an improved shopping experience…and one of Albertsons main rivals, Walmart, enjoyed an excellent first quarter, with comps up 2.3 percent in its first quarter and e-commerce sales jumping 33 percent. While there’s no doubt that the Behemoth’s huge capital outlay for technology will impact profits, the planet’s largest merchant still earned a “meager” $2.13 billion in its most recent 13-week period. Walmart also announced that it has sold most of its stake in its UK operation, Asda, to British grocer J Sainsbury. The Bentonville, AR retailer will retain 42 percent of the company and will also receive $4.1 billion cash from Sainsbury. If regulators approve the deal, Sainsbury will become the largest grocer in the UK with about 2,800 stores. And in a moment I’m sure he’d want to leave on the cutting room floor, Sainsbury CEO Mike Couple was caught on camera singing “We’re In the Money,” just prior to his interview with British broadcaster ITV about the Asda deal…and another Albertsons competitor, Amazon.com., just announced that it has begun offering its “Prime” members a 10 percent discount on sale items and rotating weekly specials at the company’s Whole Foods stores. At this time, only the 28 WFM in Florida are eligible, but the program will be rolled out nationally later this summer. “Prime” members can scan an app or input their phone numbers at checkout to receive their discounts.

Local Notes

Kroger finalized a big deal just prior to presstime. The country’s largest pure-play supermarket chain ($123 billion in annual sales) purchased a 5 percent stake in British online grocer Ocado Group. The Cincinnati-based grocer paid $247 million for its investment in the progressive ecommerce retailer and with that comes exclusivity to use Ocado’s technology in the U.S. Initially, Ocado will work the Kroger to set up systems to manage warehouse operations, automation, logistics and delivery routes for Kroger’s growing (but not nearly as fast as Amazon’s or Walmart’s) online grocery business. The two firms will identify three sites later this year for development of new automated distribution centers. Both merchants said that as many as 20 warehouses will be identified over the next three years. Ocado is a much-admired company and has struck deals with other supermarket chains in France, Canada and Sweden and has talked to U.S. retailers before culminating the Kroger agreement. More Kroger news: in his annual letter to the company’s shareholder’s, CEO Rodney McMullen offered an optimistic view of his company, which has sometimes been criticized by Wall Street for acting too slowly to jump into ecommerce initiatives (personally, I have disagreed with that view). McMullen touched on the size scale and “human connection” of his organization as advantages and differentiators. He touted the company’s proactive approach to change, noting that Kroger is indeed making the necessary investments to create the future of retail (the letter was issued before the Ocado deal was announced). Much like Ahold Delhaize CEO Dick Boer did last month at his company’s annual meeting when he noted that “stores still matter,” McMullen also noted the importance of physical stores and the presence they bring to local communities. He added that the chain’s “Restock Kroger” plan “creates an exciting ecosystem for those who want to develop, test and scale the innovative solutions that will fundamentally redefine the food and grocery customer experience.” Rodney McMullen embodies the Kroger persona – not a lot of flash and dash; just steady, solid execution that keeps moving the needle consistently forward…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 consumers 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…I was very happy to hear that Tricia Warehime, wife of the late and great Mike Warehime (former chairman of Snyder-Lance), has reconnected to the business. Tricia, through her family-owned company, MAW Acquisitions LP, has purchased G&S Foods/Tastysnack Quality Foods, an Abbottstown, PA private label manufacturer and co-packer of salty snacks. “We were only interested in selling the business if we could find the absolute best fit for our employees, our customers and our community. Tricia Warehime offered that opportunity through her family owner/operator experience with Snyder’s of Hanover, her shared knowledge and passion for the snack food industry, and her commitment to continued investment in our community,” said Steve Garvick, who along with Dale Spahr will continue to supervise day-to-day operations of the company they founded in 1996. “Our family had just exited a snack food business in the community and wanted to put our knowledge back to work again locally. We’ve known Steve and Dale personally and professionally for years and are looking forward to sharing our experience and networks to build, enhance and further expand this solid, well-managed company while ensuring quality, customer service and efficiency remain the hallmarks,” said Warehime. And Warehime has assembled an all-star team of snack food executives to sit on the company’s board of managers. They include: Tom Dempsey, most recently CEO of the Snack Food Association and formerly president of Utz Quality Foods; Ed Good, formerly divisional president of Snyder’s-Lance and former CFO, Snyder’s of Hanover; Peter Michaud, formerly divisional president of Snyder’s-Lance; and Dan Morgan, president and chief sales officer of BFY and formerly chief sales officer of Snyder’s-Lance. We wish Tricia great success with this exciting new endeavor…as I was pondering the implications of the recent leadership change at Lidl U.S., replacing Brendan Proctor with Johannes Fieber, I connected the dots back to the original U.S. management team of Kenneth McGrath and Kevin Proctor (who were gone before Lidl opened its first store). McGrath and Proctor are now leading Save-A-Lot, where according to several licensees, they are attempting to turn the company around in the wrong direction. Am I thinking too narrowly when I wonder if the process/systems-driven European models of many companies that are doing business across the pond just won’t work in the U.S.? Perhaps both Lidl and Save-A-Lot could use more of Rodney McMullen’s “human connection,” along with some native street smarts to instinctively change the play when necessary…several deaths to report this month, including two industry icons that have been part of my life for the entire 40 years of Best-Met Publishing’s existence. But first, I am sad to report that “Mini-Me” has left us. Verne Troyer, who played the charismatic actor in the two Austin Power comedy films, is dead at the age of 49. Standing only 2 feet, 8 inches tall, Troyer appeared in 58 movies and TV shows in a career that spanned 22 years, but will always be remembered as the diminutive clone of Mike Myers (Austin Powers) in the hilarious flicks “The Spy Who Shagged Me” and “Goldmember.” Once he became famous, he said he would go out in public with a hat and sunglasses to avoid the notoriety, but, he noted, “This disguise just doesn’t seem to work.”…one of the great novelists of the past 50 years has also died. Tom Wolfe, whose colorful writing style and uncanny ability to capture current events and pop culture, has left us at the age of 88. Among his seminal works were “The Right Stuff;” Bonfire of the Vanities;” and “The Electric Kool-Aid Acid Test.” If you have never read a Tom Wolfe novel or essay, do yourself a favor and pick up one of his works. He truly was a master craftsman of wordsmithing, one whose brilliance is easily recognized…and, from our industry, passing on earlier this month was Larry Rothwell, 92, co-owner and founder of the Pennington (NJ) Quality Market, one of the best independent supermarkets in the region. When we first purchased Food Trade News in 1978, Larry, who was then working for the Fleming Cos., was one of the first people I met. He took me under his wing, providing guidance and wisdom about our new business. Larry’s soft-spoken style, his wit and humility were what made him beloved to so many in our industry. He truly was one of the few people in life who could make you feel better about yourself after spending a few minutes with him. God bless…Herb Beckenheimer, a man who perfected the art and science of urban retailing, also passed away earlier this month at the age of 95 (his full obituary can be found on page 6). What a great life Herbie led, starting his own supermarket while in his 20s and continuing a retail career until he was 93. But Herb was more than a successful retailer – he was a true mensch – funny, candid, honest and humble. When Herbie liked you, he always had your back. I’m going to miss him.