Taking Stock

Jim Donald Prepared For Challenges As New Albertsons Chief Executive

Six months ago, I jokingly asked Jim Donald if he was crazy for accepting the job as Albertsons’ president and chief operating officer. The job was an important one and Donald, who’s held many high-profile jobs in his nearly 50-year industry career, wasn’t one to back down from a challenge. But he hadn’t had a full-time job since 2015, when he retired as CEO of Extended Stay America, having taken that once bankrupt lodging chain into profitability and publicly-traded status.

He certainly didn’t need the money or any more prestige and seemed very content to stay active on his terms – serving on boards and giving speeches that emphasized his “everyman” philosophy of business and life.

Then his lifelong friend Bob Miller called. Miller, who helped guide Donald’s career at Albertsons for many years (he joined the company as a night receiver in his native Florida in 1976 after beginning as a part-timer at Publix in 1968), asked Jim to return to the Boise, ID-based supermarket chain, as the company readied to consummate its merger with Rite Aid.

I had dinner with Jim in New Orleans in June and he said that the primary reason he jumped back in the saddle was to help Miller guide Albertsons through the merger process.

You know part of the rest of the story. Unhappy Rite Aid shareholders killed the deal forcing both sides to call off the merger and leaving Albertsons as still a standalone company with nearly $60 billion in annual sales, almost 280,000 associates, more than 2,300 supermarkets and an owner, Cerberus Capital Management, eager to divest its equity in a company that it’s controlled since 2006.

Miller, 74, has arguably had the most notable supermarket career of any industry executive over the past 50 years. He loves the grocery business and the people who currently work with him or who have previously worked for him greatly admire his character, loyalty and talent. If the Rite Aid merger had succeeded, Miller would have become chairman and another member of his “family tree,” Rite Aid CEO John Standley would have been led the combined $83 billion entity.

Now, Miller has become chairman of Albertsons and Donald will helm the company and serve as its day-to-day chief.

I talked to Donald a couple of times in mid-September and told him my thoughts about doing this piece. Just as it was 25 years ago when he became president of Safeway’s eastern division, the pushback was immediate. “Go away, you’ve written enough already. Find somebody else to write about,” he bellowed.

I reminded him that I’ve heard his act before and that I could be as stubborn and caustic as he was. After a few more minutes of sparring, he said “what do you wanna know?”

I asked him about his perceptions about Albertsons since he returned in March and his future aspirations and goals.

“It’s not about me,” he instructed. “It’s about the team we have here and the talent that’s been assembled. That’s what excites me.”

The 64-year old, whose notable other stops have been at Walmart (where he helped develop the SuperCenter format under the tutelage of Sam Walton) and as Starbucks CEO, touted his team as the “most merchant-oriented” in the industry. He planned to emphasize the legacy of Albertsons 21 banners (many are over 100 years old) and capitalize on the chain’s share of market leadership in over 66 percent of its marketing areas.

Other areas where Donald believes he can lead Albertsons forward are in further development of its own brands (“we want to be the industry’s undisputed leader”), leveraging the assets of its 24 distribution centers and 19 manufacturing plants and utilizing the benefits of its decentralized structure which allows those closest to Albertsons’ consumers to make the proper marketing and merchandising decisions.

Over the past two years, the big merchant has spent considerable time and capital building its e-commerce business. Donald noted that he believes Albertsons is now at a point where the company can effectively blend its brick and mortar physical stores with its diverse e-commerce offerings to create the right environment for its consumers.

He stressed that it is extremely important for Albertsons to “create an environment for our customers to shop when, where and how they want to and to continue to provide an opportunity and development for our associates at every level.”

I asked Jim to reflect on some of his business philosophies that have guided him along an exceptional career path.

Again, he credited many of his achievements to the people who work with him. “I really enjoy seeing the successes that people can attain with the right leadership. I take satisfaction from people embracing risk-taking when given the opportunity,” he proclaimed. “I’m a firm believer that the more that you give the better the returns will be, both with people and in business overall. When leaders go last, results always go up.”

His basketball skills might have waned a bit and his 18-hour days are not as frequent, but I’m still betting on Jim Donald.

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.

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 became even more difficult to navigate when Wegmans debuted there on September 23.

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

Because of our deadline, we could only measure opening day sales of the newest Wegmans unit (its 98th store) in Lancaster, PA. Not surprisingly, the joint was rocking at the 120,000 square foot uber-store. While its first unit in Lancaster County might cannibalize some sales at its Downingtown, PA and Mechanicsburg, PA unit, the opening will be more disruptive to the entire Lancaster marketplace which currently includes supermarket chains Giant/Martin’s, Weis and Whole Foods (which opened in March); mass merchants Walmart and Target and a host of independents including Musser’s, Stauffer’s of Kissel Hill, Yoder’s, Oregon Dairy and Shady Maple Market…also celebrating a  big opening few days earlier was the first Sprouts Farmers Market in Philadelphia (1000 S. Broad Street). Led by hometown boy Dan Croce and former Acme president Dan Sanders, the Phoenix-based perishables-focused merchant experienced big crowds during its entire opening weekend…Amazon Go opened its first unit outside of Seattle earlier this month. The 2,000 square foot upscale and cashier less c-store offers salads, snacks, sandwiches, and meal kits. In addition to three existing units, “Go” stores are also planned for San Francisco and New York…Lidl, the most disappointing retailer of the past few years, finally restarted its store opening engine in the Washington, DC area with a ribbon cutting in Bowie, MD (its first Maryland unit) and a scheduled September 26 opening in Dumfries, VA. There are still approximately 50 sites that Lidl controls (including multiple sites in Delaware, New Jersey and Pennsylvania) and it’s anybody’s guess how many (or few) of those stores will ever open…there’s nothing like pressure from a well-capitalized hedge fund to spur a company to change 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 percent 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 for it only six years ago. Previously, Loeb stated that a sale of the entire company to another food manufacturer was the only justifiable outcome. And he was clearly unhappy with what he believes is a compromise move by Campbell’s. Loeb has called for a complete turnover of the company’s current board of 12 directors. “Unfortunately, this board’s persistent failure to discharge its current fiduciary duties leaves us no choice but to seek to replace the entire board with our Shareholder slate,” the hedge fund entrepreneur wrote in a letter. Notable nominees on Third Point’s slate include recently retired Hostess CEO (and former Campbell’s exec) Bill Toler; former Blue Buffalo pet food CEO Kurt Schmidt; and George Strawbridge Jr., a major shareholder and part of the Dorrance founding family…Giant/Martin’s store in Cleona, PA (Lebanon County) has become the first Ahold Delhaize USA unit to reach zero-waste status. As defined by the EPA, zero-waste means that at least 90 percent of a store’s total waste is being diverted from a landfill or incineration…according to market research firm Price-Trak, grocery prices have increased over the last six months as compared to the deflationary trend of the past two years. According to the Rensselaer, NY-based company, key categories where increases were most pronounced included eggs (15.4 percent), frozen fruit (14 percent), shelf-stable desserts (14 percent) and pet products (8.7 percent). Price-Trak monitored 150 grocery categories in all…the Hershey Co. has agreed to acquire Pirate Brands (Pirate’s Booty, Smart Puffs, Original Tings) from B&G Foods for $420 million. Hershey will fold those brands into its Amplify snacks division (Smart Pop is its biggest brand) which it acquired earlier this year for $1.6 billion. Parsippany, NJ-based B&G, whose current portfolio contains more than 50 brands (including Green Giant, Ortega, SnackWell’s and Spice Island), will use the proceeds to pay down debt and utilize for other potential acquisitions…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…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…Supervalu announced that it has agreed to sell 19 of its 36 Shop ‘n Save stores in the St. Louis area to Schnuck’s, the family-owned regional chain that has been a dominant player in the St. Louis market for nearly 80 years. Fourteen of the stores are in Missouri and five are located in Southern Illinois. The deal is expected to be consummated late next month. With new owners UNFI unwilling to be burdened by SVU’s declining corporate store performance, all four remaining retail banners are on the sales block. Earlier this month, the company closed eight Shop ‘n Save stores in Western MD, Central PA and WV and has also been actively marketing its Shoppers Food & Pharmacy stores (about 50 units) in the B-W market. Six months ago, Supervalu sold 23 Farm Fresh units and closed 15 others in the Tidewater region of Virginia. Likely last to be sold/closed will be its eight-unit Hornbacher’s division in North Dakota and its largest and most desirable banner – Cub…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. And yet “Slow Eddie” still doesn’t seem to get it. He’s laying much of the blame for his company’s historic failures on the significant expense of funding Sear’s pension plans. There’s no question that retirees’ pension funds are costly (he knew this when he acquired the flagging company in 2004), but to blame the massive failures of Sears and Kmart on pension-related issues is like Richard Nixon blaming Watergate on bad “plumbers.”…the increasingly popular Natural Products show (Expo East,) which held its annual convention earlier this month, 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…according to many reports, the nationwide shortage of truck drivers has reached 180,000 and as many in our business who are directly associated with logistics and distribution know, this is a critical and worsening situation. The country’s largest retailer, Walmart, has unveiled a plan to attract new drivers by offering referral bonuses of up to $1,500 and will also accelerate the training process for new drivers. Additionally, the “Behemoth” will launch a national television ad that will highlight its 7,500 truckers, who comprise one of the nation’s largest fleets…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…there are several notable obituaries to report this month. I was saddened to hear of the sudden passing of Bill Donovan, whose grocery career spanned nearly 40 years. Beginning at Acme after graduating from the University of Delaware in 1978, he rose steadily through the ranks and, along with his compadre Bernie Ellis, headed the big Malvern, PA-based chain’s merchandising department in the 1990s. The “Bernie & Bill” show then moved to Giant/Landover and ultimately to AWI/C&S. Bill stayed there until he retired in 2015. I can’t remember anyone whom I had more industry “debates” with than Bill. Some were philosophical, others more heated, but that’s what I admired so much about him – he passionately believed his viewpoint was correct and didn’t easily back down. Bill Donovan also had a king-sized brain. He knew a lot about a lot of things, especially the grocery business where he was a deep thinker and a creative merchant. Many people knew Bill as the ultimate tough guy. However, if you really knew him, that wasn’t the case. If he trusted you, you’d realize that he could be very compassionate and caring. Bill, you’ll be missed  – rest in peace…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…and, it was sad to hear 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.