Taking Stock

Jeff has been reporting, analyzing and opining about the retail grocery business since 1973. He has served as publisher of Food Trade News and Food World since 1978 and as president since 2007. He can be reached at jeff@foodtradenews.com.

Walmart’s McMillon Believes SuperCenters Are Still Best Weapon Against Amazon

When you’ve been dominant as long as Walmart has, sometimes the brilliance of its leader is overlooked. To compare, in the 18 years he’s served as head coach of the Patriots how many times has Bill Belichick won coach of the year in the NFL? How about Greg Popovich whose 21-year record as coach of the NBA’s San Antonio Spurs makes him a first ballot Hall of Famer? What about Joe Torre, who helped take the Yankees to six World Series (winning four times) and compiled a better than .600 winning percentage during his 12-year tenure with the Bronx Bombers (answers coming later)?

That’s the case in my opinion with Doug McMillon, who in four years has turned around the biggest and once most bottom-heavy organization in U.S. retailing.


Every aspect of Walmart’s operation has improved – its stores are cleaner and better stocked; its investment in e-commerce has proven to be a big winner and most importantly, McMillon revamped a culture where the associates were apathetic because management saw many of them as movable pieces.

As I’ve said before, I believe McMillon’s greatest achievement was convincing the company’s board of directors (comprised of several Walton family members) to buy into shifting the company’s investment strategy away from bricks and mortar and into digital and e-commerce, especially seeking firms that drew a more affluent demographic.

That didn’t mean it would turn its back on the bellwether SuperCenters that made Walmart so feared for a 25-year period beginning in the late 1980s; it meant that the Behemoth needed to play catch up with Amazon if it wanted to maintain its dominance over the next decade and beyond. To begin its digital initiative, McMillon overpaid for jet.com ($3.3 billion) but with that purchase also acquired the talents of Mark Lore who has spearheaded walmart.com since the deal was consummated in 2016. Other niche acquisitions included Bare Necessities, Bonobos, Spark, Corner Shop, Parcel and Modcloth.


At the company’s annual investor’s day held at company headquarters in Bentonville, AR, McMillon said the digital acquisitions will continue, but reinforced the importance of its core SuperCenter presence and its low-price image.

With more than 3,500 U.S SuperCenters ranging in size from 105,000 to 210,000 square feet, the company’s combo stores are within a 10-mile proximity to all U.S. shoppers. In the past three years, Walmart has improved its once subpar perishables presence. Its vastly improved its private label offerings and the planet’s largest retailer has also introduced curbside pickup, which by the end of next year, will be available at more than 85 percent of its stores. It’s currently utilizing its own people and third-parties to deliver products to its loyal and growing customer base in areas such as New York City and the San Francisco market where it operates few or no stores.

And food is driving the equation – approximately 56 percent of Walmart’s $500 billion in annual revenue is derived from groceries.

“We’re adapting and transforming with speed to better serve our existing customers and reach new ones. We’re operating with discipline, balancing our short and long-term opportunities. While we’re excited about what we’ve done so far, we aren’t satisfied. As we execute today and build for tomorrow, our associates and unique omni-channel assets position us for success,”

McMillon told approximately 200 financial analysts who trekked to Northwest Arkansas to attend the half-day meeting.

Doug McMillon may be somewhat unsung, but he’s my choice for Retailer of the Year.

Oh, and here’s the answer to our trivia questions in the first paragraph. Belichick was named NFL Coach of the Year only three times; Popovich also won the NBA Coach of the Year three times and Torre won Manager of the Year (American League) only twice. Combined, these three coaching greats have won 3,132 games, led their teams to 14 world championships and compiled a career winning percentage of .615.

Requiem For A Lightweight: As Sears Falls, Eddie Lampert Deserves Much Of the Blame

“Down Goes Lampert!” “Down Goes Lampert!” And with the final knockout punch partially delivered by his own inept right hand, down goes Sears.

The end of another iconic American brand (and its feckless leader) hasn’t really been in doubt for several years – the date and form of death left some mystery to be included in the obituary. And let’s be clear: despite the challenges that chairman and CEO Eddie Lampert inherited when he acquired Sears (and Kmart) more than a dozen years ago, he has almost singlehandedly destroyed a company which for much of its 125-year history was the country’s largest retailer.

Ah yes, “Slow Eddie” once had high hopes for his prized acquisition. In a 2005 letter to the company’s shareholders he stated: “We intend to build on the historic strengths of (Sears and Kmart) while overcoming some of the more recent weaknesses (cue laugh track).”

Eighteen months later, there was some reason to believe the boy genius (he was a billionaire before the age of 30 spearheading his hedge fund ESL Investments) when Sears Holdings’ shares peaked at $195 per share.

But those who follow the inside baseball of retailing knew this was pure fool’s gold. Lampert was running his organization even more ineffectively than his failed predecessors. His continued reliance on using financial logic over the need to prioritize selling more stuff became evident as the company began to shed stores and produce consistently poor sales and earnings.

By 2008, Sears’ shares had plummeted to $28 and, save for a few spikes over the past decades, it’s been the biggest failure in American business in the past 50 years. However, “Slow Eddie” didn’t quite see it that way – he was perhaps the only retail or financial executive who believed that a turnaround was plausible (cue laugh track again).

In 2006, the company employed 355,000 people. Today there are 89,000 Sears Holdings associates. Twelve years ago, it operated more than 4,000 stores. That number is currently approximately 820 units. Companies and brands that it owned or curated – Lands’ End, Craftsmen, Kenmore – have been sold or spun off to create more cash, all while diluting the value of the enterprise. And here’s arguably the stat that secures Lampert’s place in the RKM (Reverse King Midas) Hall of Fame: in the past eight years, Sears Holdings has lost an incredible $11.2 billion.

Perhaps as a financial whiz, Lampert was absurdly overrated. As a merchant, he just plain sucks.

Prior to its bankruptcy filing, Sears Holdings’ shares had plunged to $0.45 per share. The stench of imminent death was profound.

After it’s all over, Lampert will continue to live his lavish lifestyle; Sears’ demise will likely only marginally impact his personal fortune.

But scars this deep will be indelible – the hundreds of thousands of jobs lost and the billions of ruined investments are not only profound by themselves; Sears’ prolonged and deep failures have created a domino effect that impact many people and businesses who have dealt or still deal with the company.

In his next life, let Lampert serve as a glorified day trader – just keep him the hell out of retailing.

‘Round The Trade

Costco, which has been running on all cylinders for the past two years, capped its fiscal 2018 year with a bang. The nation’s largest club store operator posted a very healthy 7.8 percent (ex-gas) comp store increase at its U.S. for the 16-week period ended September 2. Other healthy signs: traffic grew by 4.9 percent and membership fee income (one of Costco’s underlying assets) climbed 5.7 percent to $997 million. Earnings, too, were solid with profits rising to $1.04 billion compared with $919 million in last year’s fourth period. At the end of its fiscal year, the Issaquah, WA-based club merchant operated 762 stores including 527 in the U.S. The newest Costco, which opened last month in Owings Mills, MD, is off to a fast start and may have the northwest Baltimore club store market to itself before long. Sam’s Club in Owings Mills closed earlier this year and the BJ’s (also in the same town about 1.5 miles from the new Costco) may have a shortened shelf life. Even Wegmans’ big volume store on nearby Reisterstown Road has felt some of the sting of Costco’s opening success…Giant Eagle announced that it plans to acquire Ricker Oil Co., which operates 56 c-stores and fuel stations in Indiana. The deal, which is expected to close before the end of 2018, will enhance Giant Eagle’s c-store presence in the Hoosier State where it currently operates six GetGo units. Giant Eagle currently has 210 locations under the GetGo banner as well as 200 supermarkets of which about 140 are corporately-owned…it looks like investor Dan Loeb and his Third Point LLC hedge fund’s attempt to overhaul Campbell Soup’s board and potentially sell the company may come up short. Loeb is now saying that the Camden, NJ packer should consider splitting the company into two units – snacks and meals/beverages – instead of a sale. He also suggested that former Campbell’s exec and recently retired Hostess chief executive Bill Toler be named CEO. Campbell’s has rejected Loeb’s efforts from the outset and said in a statement that “Third Point’s campaign to seize control of the board can be summed up as follows, ‘vote for us and we’ll think of something.’” November 29 is showdown day – that’s when Campbell’s will hold its annual shareholder’s meeting. Loeb’s animated efforts to change the direction of a company that has significantly underperformed for a decade are not off base, but as is the case with many hedge fund takeover plays, it’s hard to believe that Loeb’s first priority isn’t a quick money grab. And sometimes that strategy works as it did for Blackwells Capital which reaped a gain of $75 million when Supervalu ultimately sold to UNFI. And speaking of those latter two distributors, I’m still not hearing good things about the company’s recently opened distribution center in Harrisburg, PA where several customers said that service levels remain in the 80-85 percent range. Just a thought: I wonder how many Supervalu/UNFI retailers have “change of control” opt out clauses in their contracts?…National Grocer’s Association CEO Peter Larkin will be retiring from that post at the end of next year. Since he took the helm at the nation’s largest independent retailer trade association more than eight years ago, NGA’s retail and wholesale membership has doubled. The group will be holding its annual convention at a new location, San Diego from February 24-27… in the wake of Sears’ Chapter 11 filing last month, the company’s board has hired investment bank Evercore to examine business and real estate deals made by former CEO Eddie Lampert. Lampert will also face scrutiny from Sears’ unsecured creditors’ committee, which includes vendors, landlords and a watchful eye from the Feds who will be looking after the interest of Sears’ remaining pensioners. Have fun, Eddie…Instacart, one of the hottest grocery-related companies, said it has raised an additional $600 million in new financing and claims its market value to be $7.6 billion…And speaking of grocery delivery firms, Kroger is expanding its private label “Ship” service to include Virginia, West Virginia and the Raleigh-Durham-Chapel hill are of North Carolina. Ship customers can shop for about 4,500 Kroger brands that are proprietary to the big Cincinnati retailer. Orders of more than $35 are delivered at no charge. And the big K has also released its food trend predictions for 2019. Hot trends include increased consumption of regional flavors and plant-based food; healthier and more convenient lifestyle foods (including vegetarian, keto and paleo); the offering of more “gut healthy” foods including products that are rich in probiotics; and the promotion of low-sugar and naturally sweetened products (including honey and agave). I reviewed the list closely, and sadly, did not see the word cheeseburger mentioned once.

Local Notes

Giant/Martin’s will officially cut the ribbon on the former Darrenkamp’s unit in Lancaster, PA on November 16. Until it agreed to sell to Giant in September, the Darrenkamp family operated four stores (three in Lancaster County, the other in York County). The other three stores have closed. Ahold Delhaize USA’s Retail Business Services arm (RBS) is seeking “cleaner” private label products from its vendors. That means offering products at its 2,100 supermarkets that don’t contain synthetic colors, high-fructose corn syrup as well as artificial flavors, preservatives and sweeteners by the year 2025. It’s the right thing to do and a move that other retailers are also implement or considering. So, if Ahold Delhaize USA wants to upgrade its private label program., here’s a suggestion to think about: you’ll get better execution from your private label suppliers if you offer them a bit more loyalty. Issuing RFP’s every 6-12 months to save a penny isn’t a long-term formula that’s effective. If you want more consistency and higher productivity from your vendors, take a page from Wegmans or H-E-B’s book. Corporately, Ahold Delhaize (AD) is planning to roll out small automated mini-warehouses to cut delivery times and accelerate order picking that AD hopes will expand its online presence and execution. The international retailer is working with e-commerce tech company Takeoff and will showcase the platform at its Investor’s Day to be held on November 13 in Manhattan. Selma Postma has been named president of the company’s Peapod online grocery delivery service. Postma, who most

recently headed e-commerce for sister AD brand Albert Heijn in the Netherlands, will begin her Chicago-based duties on January 1. She replaces Ahold veteran Walt Lentz, head of supply chain and operations, who also had been serving as Peapod’s leader on an interim basis for the past 14 months. And on the balance sheet, the big merchant enjoyed a very good third quarter. In the U.S., comp sales rose 3.0 percent (ex-fuel), up from 1.3 percent from a year ago. Online sales in the U.S., primarily buoyed by Peapod, increased 11.8 percent and operating income rose from $331 million to $373 million. Underlying operating margin also grew from 3.9 percent to 4.1 percent. The company said that operating margins gains were due to higher gross margins created by improving synergies and promotional efficiency. Lots of other retailers reporting quarterly sales and earnings – here are a few of note. Weis Markets posted a comp sales increase of 0.7 percent and its profits soar 219.3 percent to $14.2 million in its third quarter. Sprouts, which is still producing strong sales at its three Mid-Atlantic stores (Ellicott City, MD; Towson, MD; and Philadelphia) enjoyed a 1.5 percent gain in comps and a 19 percent profit increase in its third quarter. In Albertsons second quarter, the Boise, ID-based chain posted 1 percent comp store growth and said that comparable store revenue would fall in the 1-1.3 percent range for its full fiscal year, below previous expectations. The company said its earnings loss diminished from $355.2 million to $32.4 billion. Village Super Market, Inc., the ShopRite entity controlled by the Sumas family, which operates stores in New Jersey, Pennsylvania, New York and Maryland, posted flat comp store sales and slightly decreased earnings in its fourth quarter ended July 28. The Springfield, NJ-based firm said comps slid by 0.3 percent on total sales of $413.6 million.  At “Mother Wakefern,” it was another strong year for the cooperative wholesaler’s retail members. Retail sales rose 1.6 percent to $16.5 billion for the 52-week fiscal ended September 29. “Thank you for believing that our way of doing business – a cooperative of family-owned businesses – can compete and win against the competition that comes our way. The relationships we’ve created with our customers have built our brands and businesses,” said Wakefern CEO Joe Colalillo who also is one of the company’s best member/owners with five stores in New Jersey and Pennsylvania. He delivered his remarks to nearly 900 people at the Hilton in East Brunswick, NJ late last month…Amazon also enjoyed another strong quarter. Revenue in Q3 jumped 29 percent to $56.6 billion and profit skyrocketed from $256 million to $2.9 billion. The company added its Prime Now delivery service to include Annapolis. Prime Now is currently available in 63 cities. Additionally, curbside pickup, unveiled in August in Virginia Beach, has now expanded to 14 markets including Richmond. And according to the New York Times, Amazon headquarters 2 will actually be Amazon headquarters 2 and 3. The Times is reporting that “Godzilla” will be opening two additional HQ locations: Crystal City, VA and Long Island City, NY which would add a combined 50,000 new jobs. While Amazon refused to comment on the speculation, I’d go to the $20 window and bet that the Times gets this right. Obviously, this would be great economic news for those municipalities, but just imagining the increased traffic issues already associated with two of the busiest areas of the East Coast could make a person throw up in their mouth…in the “bad time to get a raise” category, Rite Aid CEO John Standley stands alone. For a company that failed to get merger agreements with Walgreens and Albertsons and said it could lose as much as $485 million this year, Standley received a compensation package of $9.32 million this year, an increase from $8.07 million last year. Obviously, shareholders are incensed and rightfully so, since the drug chain’s shares have plummeted more than 70 percent this year and were trading at $1.12 on November 7…Wegmans will be adding a fifth store to its expansion plans for the Raleigh-Durham-Chapel Hill area of the Tar Heel state. The Rochester, NY-based merchant will build a 100,000 square foot unit in Wake Forest, NC adding to previously announced new stores in Raleigh (which debuts next year), Chapel Hill and two in Cary. In 2019, the family-owned regional chain will also cut the ribbon on new stores in Virginia Beach and in Brooklyn, NY…Publix, which will be duking it out with Wegmans in the Research Triangle and is already going toe-to-toe with the uber-retailer in Richmond, will be further expanding its store count in the capital of the Old Dominion. The Lakeland, FL supermarket firm, which will open its 10th Richmond-area store on November 14 at Otterdale and Hull Street roads in Chesterfield County, has signed a lease to open the former Martin’s store on Midlothian Turnpike and Charter Colony Parkway and. That 74,000 square foot store was Martin’s largest and only new “from the ground up” unit that Martin’s built in Richmond after acquiring the Ukrop’s operation in 2010. I always found it curious that Publix didn’t opt for that site when it acquired 10 other Martin’s in 2016. Also on the slate for this year is a new Publix store that will open on Mechanicsville Turnpike in Hanover County. The highly-profitable chain has four other Richmond-area stores targeted for development: Huguenot Shopping Center; Carytown; Three Chopt Road and West Broad Street (Westpark)…from the monthly death desk comes these tragic passings: One of the great minds of the past 50 years has died. Paul Allen, co-founder of Microsoft and one of the most generous philanthropists of his generation, passed away last month. Allen and his partner, Bill Gates met each other when they were teenagers attending the same private school in Seattle. Allen and Gates, both dropped out of college to pursue their dream of creating a personal computer company in 1975. Within five years, they became fabulously wealthy and household names in American business and culture. By the early 1980s Allen stepped away from his daily duties at the Seattle firm to pursue other interests. Much like Gates, Allen’s generosity was prodigious. He donated more than $2 billion towards non-profit groups involved in science, technology, education and the environment. Paul Allen also owned the Seattle Seahawks and Portland Trail Blazers. He was only 65…James Karen, 94, has also left us. Karen, born Jacob Karnofsky in Wilkes-Barre, PA, was a classic “that guy” character actor having appeared in about 200 films and TV shows. However, you might remember the serious looking man in glasses as “Mr. Pathmark” from his 28-year career as spokesman for the now defunct grocery chain. “I go to New York every two weeks and run off twenty 30-second commercials at a time. This is the best job an actor can have,” Karen said in 1984. “It pays very well and it is steady.”…two men that I greatly admired entered the pearly gates late last month. Tony Joe White, who will be remembered for his gritty voice and swampy guitar playing, has passed away. He is best known for his 1969 classic hit “Polk Salad Annie.” White was still performing and recording albums up until his death at age 75. Singer Brook Benton had a hit with White’s “Rainy Night in Georgia” and Elvis Presley and Ray Charles also recorded White’s songs. White was a true Americana original…also passing away was baseball Hall of Famer Willie McCovey who was 80. Along with the great Willie Mays, “Stretch” McCovey teamed to create a formidable 1-2 punch with the San Francisco Giants for 13 years. McCovey, who played for 22 seasons, retired in 1980 with 521 home runs and 1,555 RBIs. Here are a couple of seasons that captured the best of McCovey: in his MVP 1969 season, he led the National League in home runs with 45 and RBIs with 126; in his rookie season in 1959, which didn’t begin until July 30, McCovey
went 4-for-4 in his first game and hit 354 with 13 home runs in only 52 games. Despite the short season, “Stretch” was named NL Rookie of the Year… and with the Thanksgiving holiday upcoming, let’s raise our forks to Dorcas Reilly. Yes, that Dorcas Reilly – the creator of the green bean casserole, who died last month at 92 in Haddonfield, NJ. Reilly worked for Campbell Soup for nearly 40 years and created the Turkey Day staple in 1955 when she was kitchen supervisor for the soup maker. Perhaps when you are sitting down to enjoy your annual Thanksgiving feast in a few weeks, you should serve yourself an extra helping of one of the greatest culinary recipes ever concocted. And it’s OK to be in temporary denial about the calories, sodium, and cholesterol!