Taking Stock

End Of An Era As Darrenkamp’s To Wind Down Operations After 86 Years

The legacy that was started by Harry Darrenkamp, who “huckstered” produce from a horse-drawn carriage in Lancaster in the early 1900s, will be coming to an end later this year.

Harry’s initial foray into the food business more than 100 years ago ultimately led his son George to open a permanent “general store” in the front room of their home on Union Street in Lancaster in 1932. George and his wife Catherine raised seven boys and one girl and two of their sons, Dick and Jerry, joined the business and remained at the helm of the family business for more than 50 years. Ultimately, Jerry’s three sons Larry, Joe and Dave carried on the tradition and helped the family-owned independent retailer expand with additional stores on Willow Street in Lancaster (1985); Mount Joy (1997); Elizabethtown, (2007) and its first store outside of Lancaster County in Etters, PA (York County) in 2014. The original Union Street store closed in 1999.

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The Darrenkamps operated well-run, clean stores that emphasized their meat business. They were also pillars in their community who could be counted on to contribute to local charities and be part of fundraising events. They were, in fact, prototypical of the persona of the independent merchant.

Over the past few years as the industry has undergone seismic change, the Darrenkamps were affected by the number of new competitors they faced and the diverse platforms which some of those retailers offered. Additionally, many of the same issues that other independents grapple with – family succession (a fifth generation of Darrenkamps is also involved in the business), technology and overall capital needs – also impacted the family’s decision to exit the market.

Business became even more challenging earlier this year when Whole Foods opened its first Lancaster store. The entire Lancaster County market will become even more difficult to navigate when Wegmans debuts there on September 23.

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Darrenkamp’s withdrawal created an opportunity for Central Pennsylvania market leader Giant/Martin’s to expand its operation in Lancaster County, the fastest growing county in the Keystone State and one where Giant has had mixed success over the past 40 years.

Giant has agreed to acquire the Willow Street store (Darrenkamp’s best unit) and with the family’s stores closing in Mount Joy and Elizabethtown, it will give Giant’s existing supermarkets in those towns an opportunity to add more business. After closing two Giant stores in Lancaster last year, the unit of Ahold Delhaize USA recently announced a $22 million revitalization plan for the market, where it currently operates eight units. That includes launching a new e-commerce hub at its former N. Reservoir Street store, remodeling four stores and opening a new fuel station in Lititz. The Darrenkamp’s deal will only strengthen that effort.

I chatted with Dave Darrenkamp the day after he and his brothers told the associates the sobering news. He called the closing of the operations and selling of the Willow Street store to Giant as being extremely difficult, adding that the family spent many months of consternation over the decision.

“This was a very difficult decision because we will miss serving our neighbors and because of our long history serving the Lancaster community for so many years,” he said. “Knowing how this affects our customers and employees made the decision even tougher.”

Dave Darrenkamp was blunt in his assessment of the business, noting that the competitive challenges facing his family were already significant with no easement in sight.

“We had a great run and enjoyed the business tremendously, but now its time for me and my brothers to move to the next chapter,” he stated. “We’re also happy that we engaged with Giant to sell our Willow Street store to them. They’re a class organization and I’m confident that they’ll try very hard to place our associates in their stores. I think Giant has recognized that we have wonderful people who will be an asset to them.”

According to Darrenkamp, the stores will begin a phase-out process on an individual basis over the next 6-8 weeks. Giant will assume control of the Willow Street location after the other supermarkets have closed. After shutting the store for a few weeks to remodel, Giant hopes to reopen the 50,000 square foot unit before Christmas.

Over the past six months, I’m aware of about 10 independents and regional supermarket chains that are exploring sales options to varying degrees. Many of the issues listed above have triggered their interest in getting out. As the landscape continues to evolve, even more smaller and medium-sized retailers will be looking for an exit strategy.

It’s sad to see a wonderful legacy created by the Darrenkamp family come to end. However, they should be proud of their contributions to the industry and to the thousands of customers they served so well.

Supervalu Board Broke Deadlock Between UNFI, C&S To Sell Company

Last month, we wrote how the back-and-forth bidding between eventual winner UNFI and C&S helped drive the price of the Supervalu sale to what many analysts believed was a super-premium offer ($32.50 per share).

Now, after filing a recap with SEC describing the events leading up to the sale, we learned exactly how ferocious and competitive the bidding actually was.

With pressure to improve earnings and increase its stock price and an additional distraction of how to fend off New York investment firm Blackwells Capital, which sought six seats on its board, Supervalu began a more intensive “exploration” process early in 2018. Actually, informal discussions between UNFI and two other wholesalers Company “A” (thought to be C&S) and Company “B” began two years ago, shortly after Gross became CEO of the troubled Eden Prairie, MN-based wholesaler/retailer.

When the actual negotiating process began in January 2018, wholesaler “B” had already dropped out and C&S (with the aid of a financial partner) made an initial offer of $23 per share (Supervalu was trading at approximately $20 a share and had a 1-for-7 reverse stock split in August 2017).

In March, Gross contacted UNFI chief executive Steve Spinner and asked him to consider making an offer for Supervalu. Spinner expressed interest but any UNFI bid would not include SVU’s corporately-owned retail stores, and other pieces linked to its retail operations including systems and software and pension liabilities.

In April, Company “A” (C&S) increased its offer to $27 per share. UNFI, prompted by Gross who expressed urgency to consider a counter-offer, which was made at only $21 per share (excluding retail and affiliated operations).

By June, with Blackwells increasing pressure to revamp the boards, Company “A” (C&S) reaffirmed its $27 bid and including a letter from an investment bank that it could arrange the needed debt financing (C&S is a private company; UNFI is publicly-traded). Supervalu which had concerns from the outset that Company “A” (C&S) whether could afford such a deal, rejected that offer three weeks later.

UNFI, obviously sensing the competitive threat from C&S, upped its bid to $27 an offer, contingent on Supervalu’s disposal of its more than 110 corporately-owned supermarkets. UNFI also sought a four-week period of exclusivity where no discussions would be held with a third party (C&S). Supervalu rejected the premise of selling corporately owned stores.

Company “A” (C&S) increased its offer to $27.25 per share, but Supervalu and its advisers still were not comfortable with the financing package and were also concerned about potential antitrust issues.

On July 17, Company “A” (C&S) informed Supervalu that it wanted to negotiate a final agreement and wanted to a announce a deal within 10 days. Six days later, Spinner and UNFI raised their bid to $29.50 per share.

The next day Supervalu asked both parties to submit their best and final proposals by the next morning and said that it would decide the next day (July 25) who would acquire the company with an announcement to be made on July 26. Those last two days coincided with Supervalu’s large National Expo in neighboring St. Paul which most of the company’s retail customers and executives would be attending.

Company “A” (C&S) upped its offer to $32.50 per share of July 25. Supervalu had to wait 12 more hours to receive UNFI’s best and final offer, which was also $32.50, with the caveat that the bid would expire soon if it were not accepted.

As Supervalu’s board met during the evening of July 25 to decide the fate of the organization, an adviser for Company “A” (C&S) called and was asked if it intended to improve its offer. The adviser indicated that $32.50 would indeed be its best and final offer.

Now, it was up to Supervalu’s nine-person board to decide the winner. According to the filing, the board considered the timing and closing certainty for each party. They concluded that a deal with Company “A” (C&S) could take longer than one with UNFI and that the offer from UNFI would be yield a higher present value.

Several hours later, the Supervalu board (with input from its outside legal and financial teams) unanimously selected UNFI’s $1.26 billion ($2.9 billion including debt) offer as the winning bid.

Now the heavy lifting begins as Supervalu has accelerated its efforts to sell or close its retail stores and UNFI attempts to utilize the advantages of combining the resources of a large organics/natural/specialty food distributor with an even larger full-service grocery wholesaler all under the umbrella of a heavy debt load.

‘Round The Trade

There’s nothing like pressure from a well-capitalized hedge fund to spur a company from changing direction (ask Supervalu). This time it’s long beleaguered Campbell Soup which for more than a decade has fumbled, stumbled and tumbled its way to poor results and questionable acquisitions. First, longtime CEO Denise Morrison was shown the door and more recently activist investor Dan Loeb and his Third Point organization took a 5.65 equity stake in the Camden, NJ CPG company. And almost instantly, after Loeb threaten to force a sale of the company, Campbell’s announced it would look to sell international operations (Arnott’s, Kelsen) as well as its once prized refrigerated foods business (Bolthouse Farms) which combined account for more than $2 billion in annual sales. The decision to sell Bolthouse is especially eye-opening considering that Campbell’s paid $1.55 billion only six years ago. Previously, Loeb stated that a sale of the entire company to another food manufacturer was the only justifiable outcome. No word on what he feels about this partial remedy…it’s been no secret that Ahold Delhaize USA’s largest division – Stop & Shop – has also been the company’s brand that has struggled most in recent years. New and diverse competition has cut into Stoppie’s still dominant share and parent firm Ahold Delhaize has frankly been cheap with its capital expenditure allocation to a division that operates more than 400 stores and stretches from Massachusetts to New Jersey. Now comes news that the parent firm will finally begin throwing some earnest money Stop & Shop’s way that will initially result in introducing a new format focusing on “fresh” later this year. Frans Mueller, who became CEO of Ahold Delhaize in July, 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…PepsiCo is acquiring Israeli sparkling water company SodaStream in a deal valued at $.2 billion. Six weeks before her previously announced retirement as CEO, Indra Nooyi said the purchase “fit Pepsi’s goal of making more nutritious products while limiting our environmental footprint.”…Tops Markets, the troubled Williamsville, NY retailer, has filed its reorganization plan with U.S. Bankruptcy Court. The new plan will reduce Tops’ debt and provide a “sustainable capital structure and provide the financial flexibility” to create a stronger competitor. As part of the reorg, Tops will close 10 stores in Central and Western New York. The company filed for Chapter 11 protection in February 2018…in Walmart news, 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 during the its second quarter. 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…somewhat surprisingly, Target also enjoyed a strong second quarter with comps jumping an impressive 6.5 percent (its most in 13 years) and profits increasing 3.6 percent to $1.13 billion…Kroger, the nation’s largest pure-play supermarket chain, announced that it 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 in local Kroger news, there’s a potential battle brewing in Mechanicsville, VA (Hanover County) where one of Kroger’s highest volume stores in the Richmond area – Atlee Road – has been aided by a new expanded roadway which opens the area up to a more direct and continuous traffic flow. Weekly business at the $1 million plus store has already increased with the opening of the Atlee Road extension and with Publix scheduled to open a new 49,000 square foot unit on Brandy Creek Road and Route 301 in Mechanicsville in a couple of months, this could be a competitive clash coming. Thus far, in the 14 months since Publix debuted in the Richmond area it’s been no contest as the established operator, Kroger, has easily outpointed Publix (with nine Richmond area stores now open) at every location where the two retailers compete… Procter & Gamble, long known for product innovation, is apparently trying to corner the market on Internet acronyms. The giant Cincinnati-based CPG firm is attempting to trademark popular phrasings such as “LOL,” “NBD” and of course, the often used “WTF,” which seems anathema to the P&G’s long-standing image as a conservative company…more Sears and Kmarts are set to close. Yes, 46 more units (33 Sears, 13 Kmarts) are ready to become extinct in the next two months. Only a handful are in the Mid-Atlantic/Northeast – Newark, DE; Milford, CT, Riverhead, NY (Kmarts) and Holyoke, MA; Taunton, MA; Salem, NH; Manchester, NH; Mays Landing, NJ; Glens Falls, NY; New Hyde Park, NY, and Fairfax, VA (Sears). The numbers under Sears Holdings CEO “Slow” Eddie Lampert don’t lie. When Sears and Kmart merged in 2005, there were about 3,500 stores between the two banners. Today, that number is approximately 900. Moreover, the Hoffman Estates, IL retailer has lost an incredible $11.2 billion since 2010. That truly is reverse Midas touch material…the increasingly popular Natural Products Expo East, which holds its annual show later this month (September 12-15) will be leaving its longtime Baltimore base after next year’s show. The reason: it has outgrown the space at the aging Baltimore Convention Center. The 2020 show will shift to Philadelphia where the convention center is twice as large as Baltimore’s…Jason Ackerman, co-founder and CEO of online grocer FreshDirect, is leaving the company. David McInerney, who along with Ackerman founded the New York based internet merchant in 1998, will assume the role of chief executive and join FreshDirect’s board. The move comes at a curious time after the company just moved into a new headquarters facility in the South Bronx and recently announced the launch of FoodKick, an on-demand business for New York City residents that offers a curated selection of food, alcohol and essentials. FreshDirect, largely funded by venture capital money, has also recently extended its footprint as far south as Washington, DC…a couple of months ago I reported on the dissatisfaction of several licensees over the new Save-A-Lot management team (led by former Lidl U.S. president Kenneth McGrath) who took the helm at the Earth City, MO discount merchant about 18 months ago. Now several more licensees, which control 60 percent of S-A-L’s stores, have chimed in to express their frustration with the new policies and direction of the company. Quick message to McGrath: you’d better become a better listener and take a harder look at who pays your meal ticket. Quickly! Let the licensees have more flexibility on how they operate their stores and greater input about the how to improve the overall company…sadly, there are several notable obituaries to report. From the industry, 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 political sphere, the passing of Senator John McCain, 81, was also sad, but so many lessons in grace, honesty and courage could be learned from a man who was imprisoned in a North Vietnamese prison of was camp for more than five years (and refusing preferential treatment to leave early because his father was an Admiral). As he approached death with great dignity and bravery, McCain revealed in his memoir published in May, “It’s been quite a ride. I’ve known great passions, seen amazing wonders, fought in a war and helped make peace. I’ve lived very well and I’ve been deprived of all comforts, I’ve been lonely as a person can be and I’ve enjoyed the company of heroes. I’ve suffered the deepest despair and experienced the highest exultation, I made a small place for myself in the story of America and history of my times.” Wow! McCain also twice ran unsuccessfully for president and leaves a legacy that is unique and powerful…Neil Simon, 91, the Pulitzer Prize winning playwright and screenwriter whose unforgettable comedies included “The Odd Couple,” “The Sunshine Boys,” and “Brighton Beach Memoirs,” passed away last month in New York City. Beginning his career in the early 1950s as a staff writer for Sid Caesar’s great TV show “Your Show of Shows” with other notable cohorts such as Mel Brooks, Larry Gelbart and Carl Reiner, Simon soon migrated to writing comedic screenplays. His first hit was “Come Blow Your Horn” (1961) which was also made into a film starring Frank Sinatra. At one point in the late 1960s, he had four shows running on Broadway at the same time. All told, Simon received 16 Tony nominations (winning three times) and earned four Oscar nominations and a Pulitzer Prize. In 1983, the former Alvin Theater was renamed the Neil Simon Theater, making him the only living person to have a Broadway theater named after him…earlier last month, 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 http://www.dailymotion.com/video/x2z58ma…and just before presstime, we learned of the death of actor Burt Reynolds, who in the 1970s was Hollywood’s most popular movie actor and whose films were huge box office successes. Some of those films, such as “Smokey and the Bandit” and “Cannonball Run” (and subsequent sequels of both), were mocked for their corniness and impacted Reynolds’ reputation as a quality actor. However, Reynolds, 82, was indeed a fine actor. His roles in “Deliverance” (1972), “The Longest Yard” (1974), “Semi-Tough” (1977),“The End” (1978) and “Boogie Nights” (1997) proved his acting mettle. And, earlier this year I saw “The Last Movie Star,” a semi-autobiographical movie about Reynolds’ life, in which he starred. Reynolds was also slated to appear in Quentin Tarantino’s next film, “Once Upon A Time In Hollywood” which opens next summer. Clearly, his acting skills were very much underrated. All told, the man who once posed nude in a 1972 issue of Cosmopolitan, and also played halfback for Florida State, was one of the most interesting characters of the last 40 years and will be remembered by many of his fans for his engaging personality and quick wit.