Survival A Concern For Several Battle Weary, Scarred Retailers
After a decade of non-stop ferocious competition, the end is near for one of the market’s once venerable regional supermarket chains. And while the days of Shoppers Food & Pharmacy appear to be numbered, there are a few more retailers that are vulnerable if you measure performance (not their corporate worth) as their report cards.
For the record, Shoppers has only announced that it will shift its merchandising and administrative duties to Cub Foods’ (parent firm’s Supervalu largest corporately-owned banner) offices in Stillwater, MN next month. However, can the end be far off, especially since SVU CEO Mark Gross has said numerous times that the company’s major focus will be on wholesale operations? And Shoppers’ unbuckling seems to be following the same protocol as its sister retailer Farm Fresh did last year when it consolidated merchandising operations into Shoppers’ Bowie, MD office, then ultimately issued a sales prospectus before announcing its withdrawal from the Tidewater market (38 stores) in March.
But it’s not only Shoppers that seems to be teetering sales-wise. Lidl’s debut in the Mid-Atlantic has been disastrous. Its poor sales may be the most visceral result of its problems, but the German discounter clearly needs some American lessons on merchandising, product selection and management stability. Lidl’s deep pockets may allow them to continue in the U.S., but the fixes it needs are many and complex.
How about The Fresh Market (TFM)? Now owned by a division of Apollo Global Management (another brilliant private equity play), the company is no better off than it was a few years ago when it was publicly-traded and run by a different management group. TFM is not a bad operation – it’s just not a good one. And if you want to study in the upscale perishables/prepared foods division, you’d better be a very good student. No offense to the denizens of some smaller Southern markets where TFM has enjoyed some success, but operating in Denison, FL or Macon, GA ain’t like competing in Rockville, MD or Montvale, NJ. Even Publix (which has plenty of time and money to improve its game), is learning that somewhat painfully during its first year in Richmond.
And it’s not just those retailers whose survival might be in question. Both Albertsons and Rite Aid, which are scheduled to join forces later this year, have found that operating many tired, older stores makes climbing the sales hill that much steeper. The merger might actually be beneficial in terms of scale and synergies, but the new company is going to need an extraordinary amount of cap-ex just to improve its store base and make Safeway, Acme, Jewel and other Albertsons banners more desirable places to shop and also help Rite Aid’s stores be more on a competitive plane with its rivals CVS and Walgreens.
Years of war ultimately result in death and casualties for the ill-prepared and unfortunate.
As for the warriors in our core Baltimore-Washington area, here’s my annual update and analysis.
Giant Food – There’s still a way to go before I’d classify the market leader as being an elite retailer again, but there has been noticeable improvement in many areas. Merchandising is crisper, Giant’s pricing is very competitive with the market and the new Ahold Delhaize USA decentralized “brand” approach seems have improved morale at the headquarters level in Landover. The book is still out as to whether the system can achieve local creativity and flexibility, but it’s got potential. Giant president Gordon Reid deserves a lot of credit. Without a ton of cap-ex at his disposal, he often serves as a one-man missionary pumping up his team, giving his heart to Giant and supporting many charitable causes. Of course, as I’ve been saying for the past five years, Giant could further help itself if it prioritized improving associate training and increasing labor at its stores.
Safeway – The glass is getting fuller again. Through most of 2017, the division of Albertsons seemed almost directionless. That’s what a rotating door of leadership will cause, and a former Seattle division president and career Safeway West Coaster only added to that perception when he arrived in Lanham in 2016. Safeway is now starting to regain some momentum, primarily because of the installation of Jim Perkins as president late last year One of the best “people” guys in the biz and a man of integrity and candor, Perkins has reinvigorated the troops and sales are improving. But Perkins may also be one of the busiest guys in the industry – he also serves as president of Acme Market and remains an executive VP with the parent company. Safeway’s got many excellent locations (particularly around Washington, DC) and a lot of talented and dedicated people, they just need some significant capital investment to make their stores more inviting places to shop. That in itself is a tall order, given the overstoring and competitiveness of the Baltimore-Washington market.
Walmart – Very good year for the Bentonville Behemoth. Walmart’s improvement in service levels, store cleanliness and slightly better customer service were noticeable. Also noticeable was its ability to integrate its growing ecommerce operation into its stores to increase sales. Low prices will always be the company’s cornerstone, but CEO Doug McMillon has achieved something remarkable in his five-year run: he helped change Walmart’s image and culture and was smart enough to convince the board (comprised of several Walton family members) to allow the company to invest heavily in technology and digital initiatives. The results are paying off on the bottom line and with its consumer perception. Clearly a long-term player in any area in which they currently compete.
Harris Teeter – Solid year for the Kroger unit. Given the competitiveness of Baltimore-Washington, same store sales increases hovered at about 2 percent and the upscale merchant only opened one new store last year (in Severna Park, MD), but much like Weis did in 2016, will undoubtedly be looking for in-fill opportunities from stores that may close (Shoppers?). Harris Teeter is on the books for five new B-W stores (Dunkirk, MD; Queenstown, MD; Towson, MD; Queenstown, MD and Washington, DC – Michigan & North Capitol). In adjacent markets, HT acquired 10 former Farm Fresh units and just this month announced it would be taking over eight Kroger stores in the Raleigh-Durham area. Harris Teeter has a good formula for growth and continued success: skilled leadership, a modern store fleet, strong perimeter departments and proven success in affluent marketing areas.
Wegmans – The gold standard. Even in its heyday, Walmart couldn’t collapse a market the way Wegmans can. As rugged and diverse as brick and mortar food retailing is today, Wegmans seems almost undaunted by current market conditions. Every store in the B-W market is doing well over $1 million in sales a week and the numbers keep improving. Even with the heavy competition, that’s not surprising given Wegmans’ stellar execution at store level and its “theater of food” merchandising. The Rochester, NY based company recently opened its newest unit in Chantilly, VA and plans five other B-W new stores – Rockville, MD; Alexandria, VA; Arcola, VA; Tysons Corner, VA; and on Wisconsin Avenue in Washington, DC – over the next few years. That alone will create even more major market disruption and make several other existing retailers even more battle weary and scarred.
Supervalu Seeks To Create Holding Company To Segregate Wholesale, Retail Businesses
As it meanders down a path that many predict will ultimately see the end of most or all of its corporate retail operations, Supervalu proposed a new corporate structure in which its core wholesale grocery business will operate separately from its struggling company-owned retail stores.
In a preliminary proxy statement/prospectus issued on June 7, the Eden Prairie, MN-based firm said the reorganization would change Supervalu’s current corporate structure into a holding company which would “organize and further segregate Supervalu’s wholesale and retail operations in an operationally efficient and strategic manner, including to separate the wholesale and retail operations” held by its current public company entity.
Additionally, Supervalu said the proposed changes would: facilitate the company’s previously announced strategic transformation plan to sell certain retail assets to third parties; better segregate the liabilities of the organization into their respective business segments; increase Supervalu’s strategic, business and financial flexibility; and enable the company to achieve its strategic transformation plan in a tax efficient manner that may facilitate the ability to utilize a material portion of Supervalu’s capital loss carryforward, which could generate approximately $300 million of cash tax benefits for the organization over the next approximately 15 years.
“We have been executing a strategic transformation of our business over the last two years to become the wholesale supplier of choice for grocery retailers across the United States, while also executing initiatives to deliver long-term stockholder value,” said Mark Gross, SVU’s president and CEO. “The proposed holding company structure is another significant and important undertaking by our team that would support and advance our transformation by further separating our wholesale and retail operations in a tax efficient manner.”
More than 75 percent of Supervalu’s revenue is derived from its wholesale business.
Supervalu also advised shareholders not to support any new board members nominated by New York investment firm Blackwells Capital, which has an ongoing proxy battle with the wholesaler/retailer to accelerate its restructuring efforts in an effort to bolster Supervalu’s share price, which was $19.89 at the close of business on June 13. About a year ago, Supervalu initiated a “1-for-7” reverse stock split in an effort to increase trading activity and value. Blackwells, which holds a 7.3 percent equity stake in Supervalu, is seeking to add six of its own candidates to join SVU’s board. Shareholders will vote on the new restructuring at the company’s annual shareholder’s meeting which still does not have a scheduled date.
If this plan is successful, it is yet another indicator that most or all of Supervalu corporate retail will be toast within a year. The probable exception is Cub Foods, the company’s largest retail banner and one that has not experienced the same level of deterioration that has befallen Shoppers, Shop ‘n Save and the now defunct Farm Fresh banners.
As I’ve said several times recently, Gross is in a pressurized situation which he largely inherited. The pressure from Blackwells certainly exacerbates things, but he’s taken the right approach by attempting to dump much of corporate retail. Unfortunately, many of SVU’s corporately-owned stores aren’t in great physical shape and the current market isn’t exactly a seller’s delight.
Even if the separation of wholesale and retail buys Gross more time and breathing room, he probably won’t get much money or many supply contracts with these store sell-offs. As painful as the process has been (and it will become even more painful), Gross is plotting the right course for Supervalu and he and the board shouldn’t allow any tinhorns from Wall Street to disrupt their reshaping plan.
Ahold Delhaize USA Creates Peapod Digital Labs; Will Build Second Meat Processing Facility In RI
Ahold Delhaize USA (ADUSA) announced the creation of a new entity, Peapod Digital Labs, which it said will drive digital and ecommerce innovation, technology and experience to meet the changing needs of customers of its local brands, regardless of when, where and how consumers choose to shop. Ahold Delhaize veteran executive JJ Fleeman has been named as president of Peapod Digital Labs and its chief ecommerce officer.
“We are excited about this new company, which will serve as the engine that powers our U.S. ecommerce and digital strategies,” said Kevin Holt, CEO of ADUSA. “As one of the largest grocery retailers and a market leader in home delivery on the East Coast, the great local brands of Ahold Delhaize USA have a strong heritage of innovation. The creation of Peapod Digital Labs and appointment of JJ to lead the new company and serve as chief ecommerce officer will enable us to sharpen our focus on leveraging the size and scale of the U.S. brands to provide customers with a personalized and effortless shopping experience.”
The big retailer said that Peapod Digital Labs will accelerate growth in digital and personalization capabilities for the local brands of ADUSA and will serve as the innovation lab for the U.S. portfolio of companies. It will also oversee the local brand Peapod, already the nation’s largest online grocery retailer, which relocated its headquarters from Skokie, IL to Chicago earlier this month.
“Ahold Delhaize USA is creating Peapod Digital Labs, which will drive market-leading digital and ecommerce capabilities to power the company’s six local brands as they create best-in-class customer experiences,” said Fleeman. “We have a tremendous opportunity to build upon Peapod’s longstanding history of innovating to meet consumers’ needs to create an unparalleled omni-channel grocery experience. Whether it’s searching for inspiration on meals, shopping online or driving digital and personalization in-store, Peapod Digital Labs will enhance the digital experience to the benefit of U.S. consumers.”
Fleeman most recently served as executive VP-commercial services & strategy for Ahold Delhaize USA’s newly established support services company, Retail Business Services (RBS). Prior to that, Fleeman was chief strategy and development officer for Delhaize America, and played a key role as the global integration and program leader for Delhaize Group during the merger that created Ahold Delhaize. He also led the creation of a digital center of excellence at Delhaize America. Throughout his career, Fleeman has also held a diverse array of senior level roles in strategy, marketing, operations and merchandising.
ADUSA said it will build out Peapod Digital Labs in the coming months and expects to have the new organization fully operational by year-end.
ADUSA also announced it will be building its second meat processing plant. Under the aegis of RBS, the big retailer will construct a new 200,000 square foot facility in Rhode Island which is expected to employ 700 associates and cost $100 million to build. The plant will be operated by Infinity Meat Solutions (another ADUSA subsidiary) and will package and process fresh meat. Chris Kukay, the company’s director of distribution and transportation services, said that no specific location had yet been chosen, but several sources said a likely location is in the Quonset Point Business Park in North Kingstown. The new facility would presumably service ADUSA’s Stop & Shop and Hannaford stores in New England and metro New York. It is expected to open in late 2019.The retailer’s first meat processing plant, a 162,000 square foot facility, opened in October 2013 in Camp Hill, PA.
‘Round The Trade
Dan Croce, who most recently served as senior VP for Acme Markets, has joined Sprouts Farmers Market as senior VP-east for the fast-growing Phoenix, AZ-based perishables-oriented retailer. Croce, who was with Acme for 13 years (he was with A&P prior to that), served as the banner’s president from 2015-2017. At Sprouts, he will be responsible for a wide territory covering approximately 100 stores that range from Texas to the Mid-Atlantic. Sprouts opened its first store in the region in March in Ellicott City, MD and has announced plans to open a second Maryland store in Towson, MD in July and another in Philadelphia this fall. Real estate sources have told us that Sprouts is eyeing as many as 15 sites in the Mid-Atlantic. This is an excellent career move for Croce, who will reunite with his former boss, Dan Sanders, who currently serves as Sprout’s chief operating officer. Sanders previously served as Acme president from 2010-2012. We wish Mr. Croce the best of success in his new gig…Kroger will exit the Raleigh-Durham area by August. A total of 14 stores are affected, impacting approximately 1,500 associates. However, eight of those stores will essentially change banners as Kroger subsidiary Harris Teeter will occupy them. Jerry Clontz, president of Kroger’s Mid-Atlantic division based in Roanoke, VA (and a former Harris Teeter executive), noted that Kroger has not been able to grow its business the way it would like and, after a thorough evaluation, decided to close or sell its R-D stores. The obvious reason for Kroger’s underperformance in the most affluent part of the state is overstoring created by new competition, especially from Publix, which entered the area in 2015. Coming soon will be four new Wegmans stores which will disrupt the market in an even more volatile manner. The big Cincinnati-based merchant has operated in the Triangle area of the Tar Heel State since 1989…not only did Wegmans’ new store in Chantilly, VA have a whopper of an opening on June 3, Rockville, MD-based MOM’s Organic Market cut the ribbon on its 19th store in Gaithersburg, MD two days earlier. The new 16,000 square foot organics market features MOM’s first in-store bakery (it is also adding a bakery at its College Park, MD unit). MOM’s growth and achievements are a true American success story and I’m happy for founder and CEO Scott Nash – a real good guy who’s been a believer in the organics movement for years and has worked his butt off to thrive…in 2011, private-equity investor firms Leonard Green & Partners and CVC Capital (the combined entity is known as Beacon Holdings) acquired BJ’s Wholesale Club. Now the Westborough, MA-based club store operator will attempt to come full circle and look to go public again as Beacon hopes to profit from its investment and repay debt from its original $2.8 billion purchase. It said it will also retain more than a 50 percent stake in BJ’s. The investment firm believes it has made positive changes at the country’ third largest warehouse club operation, improving technology and adding former Mondelez and Hershey veteran exec Chris Baldwin to its roster as CEO. The former CPG executive was also named chairman of BJ’s on this month, succeeding Laura Sen (who retired), whom he succeeded as chief executive in 2016. “These changes have delivered results rapidly, evidenced by positive and accelerating comparable-club sales over the last two quarters, and net income growth of over 109 percent and adjusted EBITDA growth of 31 percent in aggregate over the last two fiscal years,” BJ’s stated. “We believe that these changes will continue to impact sales, profit margins and free cash flow performance favorably in the future.” For the fiscal year ended February 3, BJ’s posted total revenue of $12.8 billion, net income of $50 million and adjusted EBITDA of $534 million. Comparable-club sales for the fiscal year improved by 0.8 percent last (excluding gasoline, comps declined by 0.9 percent), but that represented an increase from 2016’s 2.3 percent non-gas comp decline. BJ’s said it will also look to grow its store base with plans to open 15-20 stores annually in the next few years. “We also expect to benefit from recent club (Sam’s Club) and department store (Sears, Macy’s) closures in several of our markets and adjacent markets,” BJ’s noted. When the company becomes listed, its stock will trade under the symbol BJ on the New York Stock Exchange. BJ’s will have to continue to move the needle forward if it wants to keep pace with rival Costco. The Issaquah, WA club store king posted another phenomenal sales and earnings report for its third quarter ended May 13. The core numbers: overall revenue up 12.1 percent to $31.62 million; U.S. comps increased 7.7 percent (excluding fuel and foreign exchange); membership fees rose 14.4 percent to $737 million; store traffic grew 5.1 percent; ecommerce sales jumped 36.8 percent; and earnings increased from $700 million to $750 million. During the 13-week period Costco opened two new club stores and plans 25 new units in overall fiscal ‘18. Impressive!…Amazon.com’s Whole Foods has added Baltimore, Richmond, Philadelphia and Boston to its list of cities where it will offer free two-hour delivery of natural and organic products through Amazon’s “Prime Now” service. That announcement comes on the heels of WFM expanding the geography where it will offer a 10 percent savings to all Prime members. That program was initially launched in Florida in April and is now available in 12 more states mainly in the West and Southwest. The service is expected to be offered at all Whole Foods by the end of the year…Walmart is adding some flash of its own, launching “Jetblack” a new personal shopping service that lets customers place orders via text message and receive same-day or next-day delivery, Currently, Jetblack is only available in parts of New York City and membership costs $50 a month. However, this new high-end service, developed by the Behemoth’s in-house incubator, Store No. 8, does not deliver groceries or alcohol.…”Slow” Eddie Lampert, CEO of Sears Holdings and leader of the company’s “crash and burn” extinction tour, is closing another 63 stores (48 Sears and 15 Kmarts), mostly in the West and Midwest. Stores in the Mid-Atlantic slated for closure by September include Sears units Lawrenceville, NJ; Ocean, NJ; Burlington, NJ; South Hills, PA; Pittsburgh, PA and a lone Kmart in Latrobe, PA…while I’m not doubting the veracity of Oliver Wyman’s recent survey in which it claims that Lidl is growing sales and gaining popularity with millennials, I’m wondering if the Manhattan-based consulting firm took into consideration the bigger issue with Lidl – how many people aren’t shopping at the discounter because of disappointing expectations which have led to early lackluster sales. Who commissioned this report anyway?…several obits to report over the past month. For the last 10 years, when I began writing about industry members and celebrities passing on, I have noticed an increasing number of deaths by suicide. Two very talented personalities – fashion designer Kate Spade and celebrity chef Anthony Bourdain – both took their lives earlier this month. Spade, who rose from an entry-level position at Mademoiselle magazine to senior editor to fashion designer, took her life at the age of 55 in her home in Manhattan. Bourdain, 61, a colorful personality who was a recovering drug and alcohol addict, had seemingly cleaned up his life and was starring in his Emmy-winning culinary and travel show “Parts Unknown.” He was found dead in his hotel room in France while filming an episode of his show. Very sad endings for two extremely talented artists… also passing away was San Francisco 49ers wide receiver Dwight Clark, 61, who was on the receiving end of “The Catch” in the 1981 NFC championship game against the Dallas Cowboys, which remains one of the greatest individual plays in the history of the National Football League. Clark, who disclosed that he had Lou Gehrig’
s disease in early 2017, fought his illness with courage and dignity. The impression that Clark left with his family, friends and teammates was aptly summarized by former 49ers owner Ed DeBartolo Jr.: “I will always remember Dwight the way he was – larger than life, handsome, charismatic, and the only one who could pull off wearing a fur coat at our Super Bowl parade. He was responsible for one of the most iconic plays in NFL history that began our run of Super Bowl championships, but to me, he will always be an extension of my family. I love him and will miss him terribly.”…after the death of great author Tom Wolfe last month, another great American novelist has passed on. Philip Roth, who to some observers served as his generation’s John Salinger (or Saul Bellow), has passed away at age 85. Roth, the prolific, profane and often hilarious author of more than 100 works of fiction, is best known for his 1969 provocative novel “Portnoy’s Complaint,” detailing the exploits of Alexander Portnoy, a guilt-ridden young Jewish man who (in a running monologue) tells his psychiatrist his fears and fantasies. Other great works by Roth include “The Ghost Rider” (1979); “American Pastoral” (1997); and “The Plot Against America” (2004). A complicated man whose talent shined above his often anti-social leanings, Philip Roth was a true American original and a sensational writer…Gerard Marenghi is dead. You may never have heard of Marenghi, but you certainly have seen him. Marenghi, who changed his name to Jerry Maren when he entered show business, was the last living Munchkin from the 1939 movie “The Wizard of Oz.” He passed away earlier this month at the age of 98. In the classic film, Maren was part of a trio of Munchkins who sang “The Lollipop Guild” and welcomed Dorothy (Judy Garland) to Munchkinland. Presumably, Maren can now be found “somewhere over the rainbow.”