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.

Beyond Collateral Damage, Brown’s ShopRite Of Haverford Becomes First Tax Victim

Jeff Brown was right. Brown, one of Wakefern’s ShopRite member/owners, predicted the negative impacts of the Philadelphia beverage tax (one of the highest in the nation at 1.5 cents per ounce on sweetened beverages) even before it became law two years ago this month. With seven (six ShopRites and a Fresh Grocer) of his 13 stores located within Philadelphia’s city limits, Brown’s business has been arguably impacted more than any other supermarket operator in the Delaware Valley, and nowthe dramatic loss of sales will result in a store closing.

On March 14, Brown will shutter his 41,000 square foot store on 67th Street and Haverford Avenue in West Philadelphia, marking (to our knowledge) the first supermarket that will close because of the impact of the beverage tax. The fourth-generation independent retailer said that all current associates (about 110) will be given an opportunity to transfer to other stores. He will also offer current customers free ride-sharing via Lyft to his next closest store on 52nd Street and Parkside Avenue, about two miles away.

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According to Brown, revenue at the Haverford store has plummeted 23 percent over the past two years and last year the store lost more than $1 million. An overall store analysis indicates Brown’s city stores are down approximately 15 percent primarily due to the beverage tax.

Border stores like Haverford Avenue, which is about a mile from the Montgomery County line, are even more affected as consumers can travel short distances to buy beverages in Montgomery, Bucks or Delaware counties where there is no supplemental beverage tax – they only pay the state sales tax of 6 percent.

What seems so cruelly ironic about this situation is that Brown is one of the most socially active and selfless retailers in the country. He and his wife Sandy founded Uplift Solutions 10 years ago, a non-profit organization designed to help entrepreneurs in underserved communities (food deserts) gain access to funding and training so they can open stores that can offer residents fresh and healthy foods. In fact, most of Brown’s stores in Philadelphia are located in neighborhoods that would qualify as food deserts.

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Brown fears that other supermarkets in the city will also be forced to close due to the effects of the beverage tax (most vulnerable, based on number of city stores, are five other ShopRite member/owners and Acme Markets). That will leave more areas to eventually become underserved and will affect the quality of the lives of those residents.

“Mayor (Jim) Kenney talks about the tax helping education in the city and that’s a good thing, but it shouldn’t also hurt low income residents and result in the loss of good businesses and jobs in the city,” proclaimed Brown. “We are also helping people by providing careers in the supermarket industry and access to affordable fresh food, produce and groceries. The loss of the Haverford store means the area could become a food desert.  All of those things must be factored into the equation about how we help people live longer, healthier lives.”

In the two years since its inception, Kenney’s original projection that the tax would raise $90 million annually has fallen short. Kenney has also reduced the number of community schools and pre-K programs it will fund.

Asked about his current relationship with the mayor, Brown, who lives in the city, said it’s virtually non-existent.

“Clearly, he’s not interested in having a dialogue about the financial realities that all retailers face with the beverage tax,” Brown noted. “Furthermore, he’s made this a political issue with his attacks on me. But this isn’t just about me. It’s about all food retailers who do business in Philadelphia. And ultimately it’s about the citizens who live here who will find fewer shopping options because of the burden that’s placed upon businesses by this unfair tax.”

Then again, it’s an election year and Kenney’s attempt for a second term as mayor will likely be challenged as never before.

Rite Aid In Jeopardy Of Being Delisted From NYSE

Rite Aid Corporation announced January 3 that the New York Stock Exchange (NYSE) has notified the company that it is no longer in compliance with NYSE continued listing standard rules because the per share trading price of its common stock has fallen below the NYSE’s share price rule. The NYSE requires the average closing price of a listed company’s common stock to be at least $1.00 per share over a consecutive 30 trading-day period.

Shares of the drugstore chain have fallen 64 percent over the past year. Rite Aid’s stock has hovered under $1 per share over the past month, breaking the NYSE’s rule. At presstime on January 17, the Camp Hill, PA-based drug chain’s shares were trading at 88 cents.

Rite Aid has been left to pick up the pieces after two merger plans failed in recent years. In 2015, it agreed to sell nearly 4,600 grocery stores to Walgreens for $17.2 billion. After nearly two years of review by the Federal Trade Commission, which cited antitrust concerns, the large federal agency would only allow a portion of the deal to proceed. That decision resulted in a restructuring of that deal in which Walgreens acquired 1,932 Rite Aid stores (and three distribution centers) for $4.4 billion.

That left Rite Aid weakened and in early 2018 it announced it had struck a deal to merge with supermarket chain Albertsons. However, Rite Aid shareholders voiced their unhappiness with the terms of that deal and it was pulled off the table on August 8, a day prior to a shareholder vote, when it became clear that the merger would not be approved by Rite Aid’s holders.

After the deal collapsed, Rite Aid overhauled its board of directors with three new members replacing existing directors. It also separated the CEO and chairman positions, naming director Bruce Bodaken as chairman and leaving John Standley in place as CEO. Standley, who joined Rite Aid in 1999 as executive VP and CFO, left the company for three years to become CEO of Pathmark, before rejoining the drug chain in 2008 as president and COO. In 2010, he was elevated to chief executive and two years later added the title of chairman.

In accordance with the NYSE’s rules, Rite Aid has six months from the receipt of the notice to regain compliance with the NYSE’s price condition or until the company’s next annual meeting of stockholders if stockholder approval is required, as would be the case to effectuate a reverse stock split, to cure the share price non-compliance. During this time period, Rite Aid’s common stock will continue to be listed and trade on the NYSE as usual. Rite Aid is currently in compliance with all other NYSE continued listing standard rules.

Rite Aid said it intends to pursue measures to cure the share price non-compliance, including through a reverse stock split of the company’s common stock, subject to stockholder approval no later than at Rite Aid’s next annual meeting, if such action is necessary to cure the share price non-compliance.

Under NYSE rules, Rite Aid can regain compliance at any time during the six-month cure period if on the last trading day of any calendar month during the cure period Rite Aid has a closing share price of at least $1.00 and an average closing share price of at least $1.00 over the 30 trading-day period ending on the last trading day of that month or on the last day of the cure period.

Rite Aid had fiscal 2018 annual revenues of $21.5 billion.

Sprouts To Debut In Marlton, NJ As One Of Nine New Stores To Open In Q2

Sprouts Farmers Market earlier this month announced nine new stores scheduled to open in the second quarter of 2019, including two in the Northeast. The locations include the healthy grocer’s entry into four new markets: New Jersey, Maryland, Virginia and Louisiana. Four stores will feature an enhanced layout that caters to the latest shopper trends through optimized customer engagement. The healthy grocer plans to open approximately 30 stores in 2019.

The new stores in the Northeast will be in Herndon, VA (494 Elden Street) and Marlton, NJ (237 Route 73 South). In addition to the new states it is entering, two additional Sprouts will open in Florida (Jacksonville and Oviedo), one in Arizona (Mesa) and three in California (Los Angeles, San Jose and San Luis Obispo), all states where the retailer currently operates.

Currently, the Phoenix, AZ based healthy grocer operates 300 stores in 19 states. During 2018, Sprouts entered three new states — Pennsylvania (where its Philadelphia store is reportedly the highest volume unit in the chain), Washington and South Carolina

The Jacksonville, Los Angeles, Oviedo and San Luis Obispo stores will feature Sprouts’ newest operational and design enhancements that highlight department destinations and promote customer engagement throughout the store. The design, which maintains center-store focus on produce, debuted last year in five locations.

‘Round The Trade

Albertsons is making progress in its effort to grow sales and reduce its giant debt load. The Boise, ID-merchant, the nation’s second largest pure-play supermarket chain, saw overall sales increase 1.8 percent in its recently ended third quarter. Earnings also bounced back from the previous period’s $32.4 million loss; this quarter’s profit was $45.6 million, ID sales grew 1.9 percent and Albertsons’ e-commerce business grew 73 percent year-over-year. Late last year Albertsons refinanced its primary term loan and paid off some debt. Additionally, it raised $600 million through the sale and subsequent leaseback of five distribution centers.

“We continue to gain traction in our efforts to deliver a seamless shopping experience for our customers in both the four-wall and no-wall environment. The third quarter marked our strongest identical-sales increase since the first quarter of fiscal 2016. Identical sales grew for the fourth consecutive quarter, and adjusted EBITDA grew over 50 percent compared to the same quarter last year, as the business has rebounded from fiscal 2017. We achieved a record-high sales penetration rate on our Own Brands products as we continue to delight our customers with our portfolio of award-winning brands,” said industry veteran Jim Donald, who was named Albertsons CEO in August. Donald has a daunting task ahead of him as he tries to either take the company public or find another partner to merge with after a proposed union with Rite Aid collapsed last summer. And despite the positive financial results and the paring of about $1 billion in debt, Albertsons’ debt load still stands at $10.6 billion….Target is shaking things up a bit and has promoted Stephanie Lundquist to president of its food and beverage unit, a new post. Lundquist has been with the Minneapolis mass merchant since 2005 and most recently served as chief HR officer. In her new role, she’ll oversee all food and beverage merchandising including strategy development and implementation. She’ll be a busy bee, because even with slight improvements made over the last 12 months, because Target really needs help when it comes to its approach toward and presentation of grocery…interesting presentation by Kroger chief executive Rodney McMullen at this month’s National Retail Federation (NRF) show in NYC. McMullen was bullish about his company’s effort to utilize both backroom and consumer-driven digital initiatives. He added that as consumer demographics and habits shift, Kroger is more willing to experiment with different approaches and partnerships such as the recent initiatives announced with Walgreens (grocery pickup depots at 13 Walgreens drug stores) and Microsoft (to market a commercial ‘Retail as a Service” connected store experience). McMullen also painted an accurate picture of the mindset of today’s consumer, noting that “they feel incredibly good about the economy but very nervous about where things are headed.” I wonder if he was referring to just the economy or was inferring some concern about the political direction of the country?…some news from adjacent markets: it looks like we’ll know something about the status of Shoppers’ 46 remaining Baltimore-Washington stores very soon. Multiple sources are telling us that retailers should be notified on or about January 25 if they’ve successfully bid for one or more stores. Once the notifications have been made, Shoppers would have to provide store associates with a 60-day WARN notice of closure. My guess is that slightly more than half of the remaining stores will be grabbed during this first auction round. And to further perpetuate the handicapping game, I’m wagering that Giant Food, Safeway and Harris Teeter all walk away with multiple stores. And don’t be surprised if retailers from other trade channels – perhaps Target, Aldi and Lidl – also make successful bids. About five Shoppers stores have already closed over the past sixth months with Giant Food acquiring three of those units…much like the ham-handed leverage plays attempted by private equity firms Blackwells Capital (Supervalu) and Third Point LLC (Campbell’s Soup), another PE firm is trying exercise more control (and ultimately more money?) over another food company – Dollar Tree stores, the nation’s second largest dollar store operator based in Chesapeake, VA. It seems that Manhattan-based Starboard Value is pressuring Dollar Tree to sell its Family Dollar business (which it bought for $8.5 billion in 2015) and is also seeking to replace seven of the discounter’s 12 current directors. Starboard Value has acquired 1.7 percent of Dollar Tree’s shares which are valued at approximately $370 million. Not surprisingly, Dollar Tree is rejecting Starboard Value’s offer, noting that its current board (which includes four new directors who were added since 2016 including its newest board member – former Harris Teeter CEO Tad Dickson who joined on January 1, 2019) is equipped with the right skills and perspectives to make its Family Dollar unit a success. It already stated that it will remodel 1,000 Family Dollar stores and convert another 200 units to its core Dollar Tree banner. “We believe that Dollar Tree is deeply undervalued and significant opportunities exist to create value,” said Starboard CEO Jeffrey Smith in a letter to Dollar Tree’s board. Blah, blah, blah…and speaking about questionable PE companies, the Washington Post had an interesting and sad story about Sun Capital Partners, the venture capital firm whose holdings included regional grocery chain Marsh Supermarkets. After Marsh, which had the double whammy of being poorly run by larcenous former CEO Don Marsh in the years leading up to Sun’s acquisition 2006, and by Sun’s leadership itself, went bankrupt in 2017, the PE firm was allowed to recoup much of their investment while more than $80 million of pension fund debt and other severance agreements were flushed away. “It was a long, slow decline,” said Amy Gerken, formerly an assistant office manager at one of the stores. “(Sun Capital) didn’t really know how grocery stores work. We’d joke about them being on a yacht without even knowing what a UPC code is. But they didn’t treat employees right, and since the bankruptcy, everyone is out for their blood.” The Post story points out that, all told, Sun Capital, based in Boca Raton, FL, has sought bankruptcy for five of its companies over the past decade leaving nearly $300 million owed to employee pension funds. And it’s not that Sun Capital’s ineptness was a great secret to those in the grocery industry; their ineptitude was known by many in the food biz. Along with another Florida-based PE firm Comvest Partners (whose reverse Midas touch was demonstrated by Haggen’s attempt to acquire divested Albertsons/Safeway stores), these two private equity firm represent worst in class…and could this possibly be the end of Sears? Well, not quite. “Slow” Eddie Lampert, the man who almost single-handedly ruined Sears over the past 13 years, is likely to gain control over the bankrupt organization again. It seems that Lampert’s $5.3 billion bid to keep 425 Sears and Kmart stores open and retain (at least for now) 50,000 employees will be accepted since he was reportedly the only bidder who wasn’t planning to liquidate the company’s real estate, brands and inventory. New York Bankruptcy Court Judge Robert Drain (he of A&P bankruptcy fame) still has to approve the deal which could find Sears’ debt significantly reduced, but in virtually the same predicament as before – tired stores that offer boring merchandising and little innovation. Do you think “Slow” Eddie has the creativity and spark to change Sears’ image, especially with limited capital to improve Sears’ physical plants? Can’t this guy just go away?

Local Notes

A few thoughts about the Stop & Shop/King Kullen deal. In one sense, this is win/win situation – Stoppie gets to expand its market leadership position on Long Island and the Cullen family gets to bow out gracefully after a tremendous 89-year run with the claim of being America’s first supermarket. That said, this deal is also a microcosm of the attrition impacting the regional supermarket chains and independent grocers in the U.S. Last month, Lidl swooped in and acquired Best Markets, another Long Island-based regional with reported significant debt. Over the past year, we’ve seen the ongoing divestiture of UNFI/Supervalu’s corporate regional banners (Farm Fresh, Shop ‘n Save, Shoppers, Hornbacher’s) and the sale (one store to Giant/Martin’s) and closing (three stores) of Darrenkamp’s in Central Pennsylvania. Other independents and regionals have issued prospectuses exploring sales options. For those smaller retail organizations the ability to keep pace from a technology and overall capital perspective is more daunting than ever. Family-owned firms face perpetuation issues, too, plus there’s the intangible element of dealing with the emotional demands of a business that’s now become overstored, diversified and filled with deep-pocketed competitors. Despite the pride and fulfillment that comes from operating a legacy business, the Cullens, who faced many of those issues for more than a decade, made the right move in selling. As for Stop & Shop, it is now poised to expand its already dominant share in Nassau and Suffolk counties, especially with another $150 million being invested to improve its 51 current Long Island stores. With nearly 50 percent of King Kullen’s locations within the same general trading areas as Stoppie’s units, it will be interesting to see how many of those 37 KK units remain open after the dust settles. Stop & Shop is also going to be utilizing technology in the form of robotics at many of its stores. The Quincy, MA-based Ahold Delhaize USA (ADUSA) “brand” will be unveiling a fleet of driverless vehicles in the Boston area that will allow customers (using a smartphone app) to command a modified food truck to park outside their homes where they then can personally select a limited group of items (mainly perishables) that they procure in a checkout-free manner. “This is one way in which we’re leveraging new technology to make shopping easier for our customers—by essentially bringing the store to them. “We also recognize that many of our customers want the opportunity to make their own choices when it comes to fresh produce, and we’re proud to be the first retailer to engage with (developer) Robomart to address our customers’ needs with their cutting-edge solution,” said Stoppie’s president Mark McGowan. Stop & Shop and sister division Giant/Martin’s will also be rolling out approximately 500 robots in its stores to help with issues such as food spills and to spot of out-of-stock items. The googly-eyed machines, named Marty, should be operating at many Stop & Shop units and all 172 Giant/Martin’s stores by the middle of this year. Late last year, Ahold Delhaize said it would also build robot-manner automated warehouses adjacent to some of its stores about which company CEO Frans Muller said: “With the robotized solution, we can optimize those picking costs and be closer to micro-fulfillment to our catchment areas, We can also reduce the cost of the last mile.”…Weis Markets has launched a new price reduction program, effective January 17. The Sunbury, PA-based regional merchant said it has lowered prices on more than 7,000 products in every department in all of its 203 stores. “We understand saving money has never been more important for our customers,” said Richard Gunn, Weis Markets’ senior VP-merchandising and marketing. “That’s why we are making a multi-million-dollar investment to provide the lowest price in the market on more than 7,000 everyday products.” Additionally, in a move related to the Federal government shutdown, Weis it has accelerated store shipments of high-demand purchases by SNAP (food assistance) customers. “As a result of the shutdown, customers who use SNAP to purchase their groceries will receive their February benefits this week (beginning on January 17) – essentially two to three weeks ahead of schedule,” said Kurt Schertle, Weis Markets’ COO. “To meet this early demand, we have moved up our delivery schedules to ensure that we are in stock for our customers. We are doubly prepared for this increase in demand due to predictions of snow in many of our markets. As a company that supplies its own stores and operates its own dairy, our procurement and distribution teams are able to respond quickly and adjust to meet this early demand.”…sadly, there are several obits to report over the past month… I was shocked to hear about the sudden passing of Nate Ostroff, 70, a highly visible member of the Delaware Valley grocery community for more than 40 years. As owner of his own brokerage firm, Network Food Brokers, Nate’s wisdom, generosity and warmth touched many. I also admired Nate’s candor and his accessibility – he went out of his way to help many people and seemed always available to support the industry he loved including in the early days when I first met him though his involvement with the old Tri-State Dairy-Deli Association. An all-around good guy and a real mensch, I’ll miss you, Nate…also leaving us was Nancy Wilson, the great jazz singer. Wilson’s voice was flexible and soothing. She was able to belt out bluesy songs as well as jazz ballads and pop tunes. Wilson, 81, began her career in 1959 and retired in 2011. All told, she recorded more than 60 albums including my favorite, “Nancy Wilson/Cannonball Adderley” (1961)….“Super Dave Osborne” has also passed. “Super Dave,” the incredibly stupid stuntman whose exploits would often leave him injured, was really Bob Einstein, a talented writer and actor who literally was born into comedy – his father was radio comedian and writer Harry Einstein and his brother is Albert Einstein, who for some mysterious reason changed his last name to Brooks. Bob Einstein, who got his first break writing for the Smothers Brothers in late 1960s, most recently played the annoying but funny recurring character Marty Funkhouser in Larry David’s hilarious “Curb Your Enthusiasm” series. Einstein was 76…legendary Broadway star Carol Channing, whose signature platinum hair and raspy voice made her immediately recognizable – she was the original Dolly Gallagher Levi (“Hello Dolly!”) – died earlier this month at the age of 97. Channing began her Broadway career in the early 1940s. While she appeared in nearly 30 films and TV shows, Channing’s career was highlighted by her 60-year affiliation with Broadway. She was also the original Lorelei Lee in the musical “Gentlemen Prefer Blondes” (Marilyn Monroe got the movie role). In 1981, she was inducted into the American Theater Hall of Fame. She also received lifetime achievement awards from the Tonys and the Drama Critics Circle….also passing on was former New York Yankees pitcher and pitching coach Mel Stottlemyre. Stottlemyre pitched 11 seasons for the Bronx Bombers and was a standout on some of the worst Yankees teams from the mid-1960s to early 1970s (career record 164-139 with a 2.97 ERA). After retiring as a player, Stottlemyre remained in the game as a pitching coach. He helped the 1986 New York Mets (Dwight Gooden, Ron Darling, etc.) win the World Series. Ten years later, he guided a talented pitching staff (Roger Clemens, Andy Pettitte, Mariano Rivera, etc.) to four World Series victories – 1996, 1998, 1999 and 2000. A quiet, tough guy who was admired by his peers, Stottlemyre was 77 when he died… Marion Wormer is dead. Well, actually, Verna Bloom, the actress who played the wife of Faber College Dean Vernon Wormer (actor John Vernon) in the iconic movie “Animal House” (1980), has left us. In one of the most hilarious scenes in the film, suave fraternity memb
er Otter (Tim Matheson) runs into Mrs. Wormer in the local supermarket produce aisle and begins talking about cucumbers. Here’s some of the ensuing dialogue. Otter: “My name is Eric Stratton. They call me Otter.” Marion Wormer: “My name is Marion. They call me Mrs. Wormer.” Otter: “We have a Dean Wormer at Faber.” Marion Wormer: “What a coincidence – I have a husband named Dean Wormer at Faber.” In a subsequent scene, she attends a frat house toga party and ends up in bed with Otter. Actually, Verna Bloom was serious stage and screen star, whose superb acting could be seen in an excellent and highly underrated film – “Medium Cool” (1968) – a semi-documentary about the rioting during the 1968 Democratic National Convention in Chicago. Bloom was 80 when she passed.