More than 900 suppliers, brokers and distributors made their way to the Hilton Garden Inn on Staten Island to attend Key Food’s annual vendor summit. Led by CEO Dean Janeway and chief operating officer George Knobloch the audience heard a detailed two hour-and-thirty minute presentation filled with facts, candor and sometimes biting humor as the Staten Island-based co-op addressed the year in review, future corporate initiatives, a Metro New York market recap and its new market expansion into Florida.
Knobloch opened the meeting by providing a recap of Key Food’s performance over the past 12 months. The 82-year old company currently services 141 store owners who operate 274 units in the Tri-State area. During the past year, Key Food added 17 new stores to its base and its net operating profit increased 8.64 percent (3.92 percent of sales). Knobloch noted that for the 52-week period ended January 17, 2019, total retail sales jumped 11.5 percent. To date (the company’s fiscal year ends in April), same store sales have increased 1.9 percent.
During the past year, Key Food engaged Instacart to provide grocery delivery. There are currently 115 stores utilizing that service which contributed $8.5 million in additional revenue. The veteran industry executive emphasized the importance of top-line revenue growth as the major component to offset increasing salaries (New York City’s minimum wage increased to $15 an hour late last year) and the rising cost of goods.
Janeway provided updates on industry changes focusing primarily on those that will impact the Metro New York market. He expressed concern about the long-term stability of UNFI, following last year’s acquisition of Supervalu, noting the huge debt inherited by UNFI and its plummeting stock price (currently trading at $14.15 per share, a big decline from its 52-week high of $49.40 per share). He also questioned whether the company’s three-year synergy savings of $175 million was realistic.
He also discussed the recent acquisitions of Lidl (Best Market) and Stop & Shop (King Kullen), noting both those deals could potentially help Key Food’s operators. Janeway was impressed with Best Market’s performance and wondered whether the conversion to Lidl’s limited assortment model would be effective in a marketing area like Long Island (he also noted that he visited a recently opened Lidl store in Union, NJ and was a bit baffled that adjacent to the refrigerated cases, the discounter was merchandising musical instruments – “when I’m buying a ham, I’m not usually in the market for a guitar, too.”).
He saw the King Kullen sale as a case of a tired family-owned regional chain, affected by an underfunded pension plan, looking to exit the market. He hoped that with Stop & Shop’s 88 Long Island stores, some in overlapping locations, it might look to divest some of its sites.
Earlier, Knobloch had addressed the potential growth opportunities for Key Food, stating that in the five-borough area there are 875 independent stores, 200 of which are part of the co-op. He declared the remaining 675 stores as targets for his company.
Dovetailing on that, Janeway felt that independent retailers affiliated with Associated Grocers (AUA Private Equity Partners), Allegiance and Krasdale would continue to be targeted as potential Key Food members. He also mentioned regional retail groups such as Fairway Market and Western Beef as being challenged.
In a not so veiled appeal, Janeway noted that this is the time for wholesaler Bozzuto’s to make its best offer to supply Key Food, adding that the timing of the co-op’s contract with C&S (expires 7/2021) and the upcoming loss of part of King Kullen business could yield a productive partnership.
Janeway concluded his presentation by highlighting Key Food’s nine major initiatives: member succession planning, future supply, headquarters relocation, natural/organic/specialty, store brands, SAP/ERP (enterprise resource planning)/CRM (customer relationship management) integration, company website, accelerating growth and geographic expansion.
Chief financial officer Sharon Konzelman addressed the critical issue of membership succession planning, a major challenge when dealing with 141 store owners/members, all with unique profiles. Her goal is to find solutions for Key Food members who seek an exit strategy while also keeping those stores as viable members of the co-op. She explained that members don’t always have clear exit strategies and are seeking to monetize their investment. Konzelman works with each member individually to address their specific needs. Solutions include identifying possible buyers, securing loans to help potential new buyers or buying stores directly to operate as corporate stores (Key Food currently has two corporately-owned supermarkets).
The former While Rose executive also discussed her company’s future supply challenges. With its currently primary supply pact with C&S due to expire in 30 months, Konzelman stated Key Food is focused on improving its supply chain control. The company is currently exploring partnering with distributors which specialize in specific segments of the business (prepared foods, meat, produce, etc.), but Konzelman said that having better control of its grocery, frozen and dairy business is vital. She offered four potential possibilities: engage a local distributor on acquisition interest; negotiate with C&S on a new contract; engage another full-service distributor (Bozzuto’s, Supervalu, Wakefern were mentioned); and partner with an existing distributor on a local grocery, frozen and dairy solution.
Key Food’s growth spurt over the past decade has created a space capacity issue at its current Staten Island office. Beginning last year, the company has been exploring relocation options that would allow for more parking, meeting rooms and a test kitchen. Konzelman acknowledged her company has applied for a business relocation grant with the state of New Jersey, which would be an ideal place for Key Food to operate from because a majority of its current workforce resides in the Garden State and the opportunities for retention and recruiting are greater in New Jersey. Even if Key Food ultimately remains on Staten Island, it hopes to move into new offices no later than December of this year.
Dan Kupferberg, the company’s natural, organic, specialty (NOS) and international buyer, took the stage to illustrate the importance of NOS and its impact on sales. The youthful buyer, who spent more than two years with Wakefern, noted that natural/organics/specialty items, when on promotion, delivered a 71.4 percent sales lift, with total category sales increasing 4.8 percent. Kupferberg also announced that Key Food just signed a contract with Davidson Specialty Foods (a unit of C&S) to serve as its primary supplier for NOS beginning in April.
In 2018, Key Food fully launched a new private brand initiative, retiring the Key Food label and replacing it with the Urban Meadow brand. Jackie Rogoz, private brand buyer, said that since the rollout began the company’s private label share has increased 1.2 percent. Currently, 62 percent of item conversions have been completed, with a total of 750 items planned to transition. Key Food hopes to have 90 percent of the conversion completed by July. As an ancillary part of the private brand relaunch, another 170 items will bear the Urban Meadow Organic (UMO) label. There are 66 SKUs of organic now available to the company’s retail members.
Returning to the podium was George Knobloch who detailed Key Food’s upgraded software effort. Utilizing enterprise software provider SAP and a local consultant, Knobloch believes the upgrade to a single system platform (“I think this is the first time we’ve had a professional IT structure since 1937”) has already given the organization greater precision and efficiency in its ability to gather and process data. And with its participation in GDSN (Global Data Synchronization Network) and GS1 (Global Standards), Key Food believes it can provide its vendors with more accurate data. ey Food is also working with SAP to develop its new website which will offer an improved digital circular, more accurately measure consumer impressions, create a more personalized experience and enhance its digital couponing and overall loyalty marketing program. The newly redesigned website effort should be completed by the end of 2019.
Knobloch addressed issues which he believes will be critical to accelerating Key Food’s growth. The Jersey Shore native believes that despite Key Food’s recent growth spurt, it still has limited leverage with suppliers which will change if the company continues to grow revenue. To achieve that, Knobloch said that investing in infrastructure and attracting and retaining top talent will ultimately improve top line sales. He noted that opportunities exist with the 675 non-Key Food independents that operate in Brooklyn, Queens, Manhattan, Staten Island and the Bronx. Marketplace changes such as the recent Lidl/Best Market and Stop & Shop/King Kullen deals also provide growth possibilities just as the bankruptcies of A&P and White Rose have enabled Key Food to add stores and new members.
He said that an acquisition or merger with a current competitor might be a consideration. And he saw geographic growth as an important pathway. Beginning almost a year ago, Key Food began an exploration to expand its base into Florida, especially with the strong link to many Hispanic retailers in New York. Knobloch, Janeway and John Durante, Key’s VP-business development, put together a plan to attract independent retailers into Key Food’s differentiated rebate-driven operating model.
The company hired Luzmary Jimenez, a former Supervalu executive based in Florida, as VP of its Sunshine State operations and a signed a supply agreement with C&S which operates three distribution centers in Florida.
Believing it could also offer lower cost of goods fees than existing wholesalers Krasdale and Supervalu (formerly AG of Florida), Key Food deployed old fashioned shoe leather to personally meet with independent retailers in the region covering Orlando and southward. To date, 30 stores have been signed with the first store having opened last week in Sunrise, FL. Knobloch estimated that servicing as many as 80 stores with a combined revenue of $800 million is achievable.
Lisa Gniewkowski, the company’s dairy buyer, provided an overview of how to “win at Key Food.” She emphasized the importance of the “four Ps” – promotion, product, place and price – and urged the reps and brokers to consider joining Key Food’s Elite Vendor program. Currently there are 41 sales organizations that are “elite” members, all of which have increased distribution and sales because of the priority the co-op places on its most important vendors.
Knobloch again took the stage to provide his much anticipated best and worst performing (by sales) vendors by department. Among the best in their departments were Nestle Waters (grocery); Natural Foods (dairy); B&G (frozen); Flowers/Wonder (DSD); Sabrett (meat/seafood); Goodness Garden (produce); and Tyson deli (deli/bakery).
Knobloch also saluted Scott Cameron, who for the past three years has served as a consultant while also acting as VP-merchandising and analytics. Cameron will be leaving Key Food in April and relocating to Redondo Beach, CA.
As has been the case with the six previous Key Food summits, vendors received an overload of information disseminated in detail rarely heard at other vendor meetings and primarily delivered in the unique style of Messrs. Janeway and Knobloch. And they served you breakfast and lunch, too.