C&S Bid Helped Drive Up Price Of UNFI Acquisition of Supervalu
As one of 6,000 people who attended last month’s Supervalu national expo in St. Paul, MN, I felt a bit privileged when the company announced it would be holding a half-day media session with trade journalists on July 25 to update and discuss the company’s recent trends and future plans.
Most of the company’s senior leaders including CEO Mark Gross were scheduled to speak in what proved to be an informal and interactive series of presentations that lasted more than three hours.
Except Mark Gross never showed. Neither did Jeff Swanson, SVU’s VP-communications, who organized the event. Apparently, both were “tied up” preparing for Supervalu’s second quarter earnings report which was slated for release the next day. I thought little of it and enjoyed the openness and accessibility shown by Supervalu’s leadership team (Mike Stigers, Anne Dement, Joe Falvey, Beka Swan, Tom Kraus and Jody Barrick).
That afternoon I walked the show floor and chatted with Supervalu customers and vendors, many of whom expressed cautious optimism about the company’s transformational plan which most likely included the sales of its corporate retail stores and greater focus on helping the independent retailers, who as a group are being extremely challenged by the competitive landscape that affect virtually every market in the U.S.
That evening at the entertainment gala, attended by several thousand people, Gross once again never appeared. Executive VP-wholesale Mike Stigers filled in as emcee which struck me as curious. I mentioned to the group of retailers sitting at my table that Gross also didn’t post at the media session earlier in the day. I sensed something was up – my first thought being that Gross was working on a settlement with Blackwells Capital, the hedge fund that was trying to blow up Supervalu’s board and take control of the company. My guess was that a “peace offering” might be included in the upcoming earnings announcement.
The next morning there was a collective jaw dropping (including mine) when it was announced the Supervalu would sell and that the buyer would be UNFI. All of sudden, the impact of the show, the battle with Blackwells and Supervalu’s aggressive future plans seemed meaningless.
So, here’s my take. At $32.50 per share, Gross and the SVU board were obligated to accept the UNFI offer. After seeing its shares hover in the $20 per share range for most of the past year (and that after a 1-for-7 reverse stock split last August), Supervalu would never see anything close to $30 per share in its front view mirror. In fact, several months ago I asked two financial analyst friends that if Supervalu were to sell what might it fetch. Both answered in the $24-$26 range.
And it only got to that elevated level after both C&S Wholesale Grocers (where Gross used to work) and UNFI engaged in a reportedly aggressive bidding war. In an internal email, C&S confirmed to its key associates that it indeed was engaged in the process, but dropped out when the price reached a level where it could not foresee the value it needed (this was somewhat surprising since not only are C&S chairman Rick Cohen and Mark Gross industry cohorts, acquiring Supervalu – a publicly-traded company – would have seemed like the ideal succession strategy for privately-owned C&S, which Cohen controls).
At $32.50, UNFI won the lottery, but at a hefty price. The $2.9 billion deal creates a lot of debt for the Providence, RI firm (including the assumption of SVU’s liabilities) and it’s anybody’s guess if UNFI CEO Steve Spinner can create a new dynamic – effectively blending a large full-service traditional wholesaler into a specialty, organic, natural and ethnic warehousing, logistics and customer service organization.
While UNFI has clearly created a unique platform (and now has a great opportunity) which will give it complete access to all retail departments, I’m concerned about the significant debt and its ability to provide the same level of customer service that Supervalu customers expect.
UNFI has proven it can be a national player in the natural/organic/specialty business with a large catalogue and a solid pricing structure. However, if you ask retail customers who did business with Millbrook Distributors (a company UNFI acquired in 2008) or Haddon House (another specialty distributor it purchased in 2016), the most common criticism of UNFI has been the decline of customer service in supplying their accounts.
In fact, just in the Mid-Atlantic region, more than a handful of Haddon House customers – including Weis Markets and Kings/Balducci’s – have shifted to other distributors at least in part because of what they perceived as eroding customer service.
And in the two weeks since the deal was announced, several Supervalu customers (who are currently using UNFI for their natural/organic/specialty food needs or are simply worried about potential change) have expressed concern about whether any specialty foods distributor can manage a business that’s much larger, more diverse and complicated.
I’ve also received about a dozen inquiries from Supervalu associates both on the regional level and also from those based in corporate headquarters in Eden Prairie, MN. They’re worried about job security and wonder if UNFI will alter or scrap SVU’s current wholesale transformational strategy which they believe is beginning to pay dividends.
It’s certainly too early to predict what course UNFI will take (the deal isn’t likely to close until late in 2018), but if history is any type of lesson, you can expect UNFI to deploy an aggressive cost-cutting strategy to lower debt and become more efficient at least by its definition.
Regional offices or distribution centers closing? Personnel realignments? Job cuts? It’s all possible.
‘Round The Trade
Kudos to Tom Lofland, who earlier this month was named new president of Safeway’s Eastern division. I’m very happy for Tom – he’s one of the hardest workers in a business of hard workers and is also a skilled merchant whose roots go back nearly 30 years ago to an Albertsons store in Seminole, FL. Tom will report to Jim Perkins – a man cut from the same cloth – who will go back to supervising day-to-day activities at Acme Markets full time while still having oversight of Safeway-Eastern. The Eastern division will be part of a test in which parent company Albertsons will utilize same-day online grocery delivery from Shipt, a Target-owned company. Albertsons has deployed rival Instacart for same-day grocery deliveries in most of its marketing areas, but Shipt will be now be available in Phoenix and Tucson, AZ; Boulder, Colorado Springs, Denver and Fort Collins, CO; Las Vegas and Reno, NV; Eugene and Portland, OR; Seattle and Spokane, WA…Sprouts cut the ribbon on its second Maryland store at the site of a former hhgregg electronics store in Towson, MD. We’re told that Sprouts is eyeing about a dozen more Mid-Atlantic locations including its first store in Center City Philadelphia which will open next month. The Phoenix, AZ-based natural/organics/specialty quasi-discount merchant also named Dave McGlinchey its chief merchandising officer. McGlinchey, a native New Englander who worked at both Stop & Shop and Shaw’s/Star Market, joined Sprouts in 2017 as senior VP-merchandising services…while Amazon experienced some unusual (for them) negative publicity for its 45-minute website” blackout” during its 36-hour “Prime Day” sale, the hiccup didn’t seem to affect “Godzilla” at all. Not only did Amazon eclipse all previous “Prime Day sales marks, it also gained a record number of new “Prime” subscribers from the event. A couple of weeks later the good news kept coming as Amazon posted its best ever profit figure – $2.53 billion in its second quarter ended June 30. That’s up from $197 million a year ago, and sales were equally as impressive – $52.9 billion for the 13-week period. And Amazon’s closing stock price on August 16 (the day we went to press) was a startling $1,898 per share. One more Amazon-related note: beginning on August 8 with Whole Foods’ stores in Virginia Beach and Sacramento, the company began offering grocery pickup to its “Prime” members. Those members can place their orders through Amazon’s “Prime Now” app and can receive free pickup in an hour on orders of $35 or more. Amazon plans to roll out its new pickup program nationally by the end of this year…in Walmart news, just before presstime the planet’s largest merchant reported its biggest same store sales increase in a decade when it posted comps of 4.5 percent at its U.S. stores. The company earned $2.9 billion on overall sales of $128.6 billion. Traffic and average sales transaction also jumped by more than 2 percent. In legal affairs, Zest Labs, a San Jose, CA-based ag tech company, is suing the Behemoth for $2 billion, claiming Walmart stole proprietary technology that it invented to prolong the shelf life of produce. Earlier this year, the retailer unveiled its own “Eder” technology program which Zest said “looks, sounds and functions” like its own design. Zest and Walmart had worked together for several years and the complaint said that Walmart used years of unfettered access to plaintiffs’ trade secrets, proprietary information and know-how to steal its technology and misappropriate it for Walmart’s own benefit…for the past few months, we’ve been detailing Walmart’s effort to sell merchandise in New York City (jet.com, jetblack.com) despite having no stores in the five boroughs. Walmart’s largest bricks and mortar rival, Target, which currently has 15 stores in the Big Apple (with nine more planned), earlier this month brought its ecommerce platform, Shipt, to NYC. Customers can order products from Target’s stores or from Morton Williams’ 15 New York City units and receive same-day delivery.…a tip of the hat to PepsiCo CEO Indra Nooyi, who will step down from her leadership post at the large beverage producer on October 3 after 12 years at the helm. As one of the first women to lead a global food company, Nooyi, who was born in India, has seen Pepsi’s stock rise about 80 percent since she was named CEO in 2006. She will be replaced by Ramon Laguarta, a 22-year PepsiCo vet, who was named president in 2017…even though it’s a small slice, I applaud Kroger for taking a position against Visa by no longer accepting its credit cards at its 21-store Food Cos. banner based in Northern California. This is all about the increasing (and some think usurious) swipe fees and Kroger appears to the first grocery chain taking a stand, albeit a small one. Also at Kroger, Valerie Jabbar, currently president of the company’s Ralph’s division in southern California, will be relocating back to corporate headquarters in Cincinnati to become group VP-merchandising, effective September 1. Just before presstime, we learned that the nation’s largest pure-play supermarket operator will venture outside the U.S. for the first time after inking a deal with China-based global ecommerce merchant Alibaba to sell the supermarket’s chain Simple Truth natural and organic private label brand in China. Simple Truth’s U.S. annual sales surpassed the $2 billion mark this year. And while it continues to redeploy existing assets to invest in technology and related digital initiatives, the big chain also announced that it is considering selling its Turkey Hill brand (ice cream and iced tea), which is based in Conestoga, PA (Lancaster County).
Local Notes
Major change at Associated Supermarkets Group (ASG), the large Port Washington, NY-based retail support operation that is controlled by former Goya executive Andy Unanue, managing partner of AUA Private Equity Partners. Bob Striano is out as president and industry veteran Joe Garcia has taken that spot at the company which services more than 200 independent retailers, most of which operate within the five boroughs of New York City. This is the best personnel move that Unanue has made since he acquired the firm in 2012. Garcia, who joined ASG from White Rose in 2013 (after its bankruptcy), knows the industry extremely well and has a much better understanding of the needs of the urban independent than Striano (who was practically invisible to the trade) and his predecessor Bob Sigel…ASG’s primary supplier, C&S Wholesale Grocers, has done some restructuring under CEO Mike Duffy, who joined the large privately-held wholesaler earlier this year. Joining the leadership team will be veteran CPG executive Joe Cavaliere who comes aboard as executive VP and chief commercial officer (CCO). Cavaliere comes to the Keene, NH-based distributor from Newell/Rubbermaid. Previous stints included management positions at Unilever and Kraft…Ahold Delhaize (C&S’ largest customer) released its Q2 financials (ended July 1) and much like many of its peers, U.S. comp store sales were flat (negative 0.1 percent excluding fuel; positive by 1 percent when adjusting for the Easter holiday timing). The company said that the adjustment of its U.S. banners to its newly unveiled (January 1) decentralized model was also a factor, particularly at its largest “brand” – Stop & Shop. Frans Mueller, Ahold Delhaize’s new CEO (he assumed the helm on July 1) singled out Hannaford and Food Lion for their results. We can also tell you that, not surprisingly, Giant/Martin’s was the best performing unit of the three original Ahold USA brands. And while Stop & Shop’s ongoing mediocre performance has been no secret to those in the trade, it appears that Ahold Delhaize will finally address the issue with the introduction of a new format focusing on “fresh” later this year. Mueller said that the Stoppie rollout will feature fresh meals, ready-made meals, ready-to-cook, ready-to-eat meal kits, different types of packaging sizes and healthier food. About 20 stores will be unveiled by the end of 2018. We should learn more about this and also about the chain’s Peapod Digital Labs and the related integration of its e-commerce platforms at the company’s “Investor Day” to be held in New England November 13…one of the sidebars in the UNFI/Supervalu deal was the official announcement of the badly kept secret that all 111 remaining Supervalu corporate stores would be sold in a “thoughtful and economic manner” (apparently a free hug will be given to those retail associates as they’re shown the door). For the past six months, Supervalu has openly shopped stores that carry the Shop ‘n Save banner in the St. Louis area as well as 21 former Food Lion stores in Western Maryland, Central Pennsylvania and West Virginia. Thirteen of those stores will be closing by September 8 including stores in: Hagerstown, MD (four units); Waynesboro, PA; Chambersburg, PA (two stores); Winchester, VA (five supermarkets); and Kearneysville, WV. Stores that will remain open (and presumably are of interest to potential buyers) are located in: Smithsburg, MD; Greencastle, PA; Berryville, VA; Front Royal, VA; Purcellville, VA; Martinsburg, WV (two stores); and Hedgesville, WV…Weis posted its Q2 sales and earnings and, for the first time in 16 quarters, it did not post positive comp store sales. Overall revenue was $871.1 million versus $876.6 million a year ago and adjusted comps declined 0.3 percent. The company said the timing of this year’s Easter holiday which fell in Q1 (vs. Q2 last year) was the primary cause of the slight reduction in comp store revenue. However, Weis’ profit increased in this year’s second quarter by 3.4 percent to $19.1 million…two big ShopRite openings of note: its Lake Ronkonkoma, NY store debuted this month and early results indicate that the 45,000 square foot former Waldbaum’s unit (owned by the Gallagher family) is off to a fast start. Also off to a solid debut is the first Bronx ShopRite which opened about six weeks ago on Bruckner Boulevard. The 38,000 square foot former Key Food location is the 30th store operated by Village Super Markets, Wakefern’s second largest member…one thought about Dan Loeb’s effort to force a sale of Campbell’s Soup: other than George Strawbridge Jr., one of the scions of the Dorrance family who has joined forces with Loeb, other surviving members of the founding family control nearly 40 percent of Campbell’s stock, which yields more than $40 million annually in dividend income alone to the Dorrance clan. That would be a tough “freebie” to sacrifice even if Campbell’s share price has been stagnant for more than 20 years…and from the death desk, we have a few obits to report. I was very sad to learn of the passing of Fred Hess, 70, one of the owners of the Hess Bros. Fruit Company, based in Lancaster, PA. I can tell you that Fred was the most knowledgeable “apple guy” I have met in my 45 years of covering the food industry. But more than that, Fred Hess was a gentleman and a tremendous advocate for his industry. He took a business begun by his father and uncle, and with his late brother Gerald turned it into a regional powerhouse. Also, our condolences to the Alper family on the passing of Fred Alper, 79, who ran one of the largest food brokerages in the country (New England based Morris Alper & Sons). When I began my reporting career in New England in 1973, Fred Alper proved to be great teacher. Extremely intelligent (A.B. from Brown, MBA from Harvard) with an intense, steely personality, Fred had a soft spot for those who wanted to work hard and learn. I was fortunate enough to have been helped by him. He took his family-owned business (begun by his grandfather in 1932) to new heights and represented some of the country’s largest CPG suppliers. He voluntarily stepped down as CEO at age 55 (Morris Alper was later sold to Acosta) and spent his “retirement” as a professor at Babson College, while also serving on more than 20 boards (including Kettle Cuisine and King Arthur Flour), and becoming a generous philanthropist…from the sports world, one of the greatest hockey player that I have ever watched play, Stan Mikita, who spent his entire 22-year career with the Chicago Blackhawks, has passed away at the age of 78. While he grew up in Canada, Mikita was born in Czechoslovakia and was the first Czech-born player to play in the National Hockey League. Although slight of frame, Mikita had a feisty temperament. It was his smooth skating and uncanny scoring ability that made him a special player, (he led the league in scoring four times). He played on some great Blackhawks teams that included Bobby Hull and Glenn Hall. He was also awarded the Hart Trophy as the league’s MVP and was inducted in to the Hockey Hall of Fame in 1983. “Pound for pound, Stan Mikita was one of the greatest players of all time,” said fellow Hall of Famer Hull, who played with Mikita for more than a decade…Charlotte Rae has also passed on. The veteran character actress, who was best known for her co-starring roles in the long running TV series “The Facts of Life” and “Diff’rent Strokes,” was 92. I never watched those two popular series, however, I did see her small screen series debut as Sylvia Schnauser, wife of police officer Leo Schnauser (played by the incredible Al Lewis who is best known for playing Grandpa in “The Munsters”) in the TV series “Car 54, Where Are You?” which debuted in 1961…RIP (maybe) to the Necco factory. Yes, it is true, the country’s oldest continuously operating candy company shut down its Revere, MA manufacturing plant last month after being sold by private equity firm Round Hill Investments (owned by private investor Dean Metrop
oulos who purchased Necco at a bankruptcy auction earlier this year) to a new company which has not yet been identified. The plant employed about 230 associates and it is unclear if the plant will reopen under the new ownership. I feel badly for the workers who were given virtually no notice of the plant closure. But I have to admit that a product that tastes like chalk perhaps shouldn’t qualify as candy. I could also say the same thing about another product the company produced, Sweethearts – the heart shaped Valentine’s Day candy that tasted worse than chalk…moments before we went to press, we learned of the death of Aretha Franklin, 76, arguably the greatest (and most influential) female R&B singer ever. Born in Memphis and raised in Detroit, she began singing in the choir of her father’s church as a child. She had two children by the age of 15 and despite having a unique voice that was both thunderous and sweet, struggled to achieve success as a singer. It wasn’t until she left Columbia Records for Atlantic Records in 1967 that her career exploded as a soul singer with albums such as “I Never Loved A Man The Way I Love You” (1967); and “Lady Soul” (1968). She was the first female artist inducted into the Rock and Roll Hall of Fame in 1987 and even had a very funny scene in the original “Blues Brothers” movie in 1980. While she sang some of the greatest soul songs of all time (“Respect,” “Chain of Fools,” “Natural Woman”) perhaps the most notable example of her vocal range and power could be heard at the Grammy Awards in 1998, when with less than 30 minutes notice and without rehearsal, she stepped in to substitute for the ailing opera tenor Luciano Pavarotti to sing “Nessun Dorma,” the first time she ever attempted to sing an operatic song. Check it out at www.dailymotion.com/video/x2z58ma.