Overstoring Toll: Low Comps, More Struggles Despite Healthy Economy, Modest Inflation

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.

Perhaps we’re all living in a time warp. While the changes in the food industry over the past 10 years have been dynamic, the way all merchants have had to sustain themselves to survive seems so challenging and demanding, it’s easy to see why some once stalwart members of the herd are being thinned every year.

Retailers speak as though positive comps of less than 1 percent are not only acceptable, but progress-making even when a helping inflation headwind and a generally good economy are factored in.

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However, there are other considerations that need to be taken into account, too. There are still way too many stores offering consumers highly diversified choices. And if you throw in the growing impact of digital, that’s another knuckleball that retailers are attempting to try to both embrace and defend. Separately, with the unemployment rate near record lows, operators are struggling to find and maintain qualified store level associates. Even the 35-day government closure earlier this year adversely impacted retailers, wreaking havoc with SNAP benefits for a 60-day period after the shutdown ended. Also not helping is the harsh reality that the retail pharmacy business’ profitability has been bled dry by the clout of Pharmacy Benefit Managers (PBMs) which have drained the profitability from what used to be a key contributor to many retailers’ bottom line.

It’s no wonder that family owned retailers like Darrenkamp’s, King Kullen (pending) and most recently Ferguson & Hassler have sold their operations to larger chains that are better equipped to deal with leadership succession issues, technology implementation and overall cap-ex needs. There are other indies as well as regional chains that are also looking to get out as evidenced by discussions we’re aware of or prospectuses that have been issued (and I’m not only referring to one New Jersey-based regional chain).

It’s not just traditional supermarkets that are finding the battleground tough. Rite Aid, which tried to merge with Albertsons last August, saw its stock owners reject the deal even before the shareholders’ vote. The beleaguered Central PA-based drug chain continued to produce poor earnings which led to it being temporarily delisted from the New York Stock Exchange. Those events ultimately cost longtime chairman and CEO John Standley his job.

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And discounter Lidl, whose U.S. debut two years ago has produced disappointing sales and a slowdown of projected openings, fared only a little better on an ID-sales basis as it debuted four new stores in the region (not including the 27 stores that it acquired from Best Markets that have yet be converted). Of course, it was Lidl’s own choice to try to find locations (which it puzzlingly owns outright) near discount juggernauts Aldi, one of the best performers in this year’s survey, and Walmart, which also had a solid year. And as for converting the Best Market banners to the Lidl name and format, that move might result in ultimately producing lower sales than those achieved by the company’s former owners. Be careful what you wish for.

So, for the 41st consecutive year here’s my annual update and analysis of the market leaders:

ShopRite – Still the king of the hill despite some challenges with ID sales. Much like virtually every retailer in the region, new competition was a hindrance and many existing retailers also stepped up their games to better contend with ShopRite. On a per-store basis among supermarkets, only Wegmans produced a higher average. And despite the overcrowded landscape, Wakefern’s member/owners continued to execute at a high level. ShopRite’s gains this year came primarily from multiple store openings, particularly on Long Island. And with another half-dozen new stores in the pipeline, ShopRite seems poised to continue to gain market share in both Metro New York and the Delaware Valley.

Stop & Shop (New York Metro Div.) – The good news for most of the company’s 212 stores in the region is that they were not impacted by the 11-day strike which took (and continues to take) a huge toll on the largest Ahold Delhaize USA brand. That doesn’t mean that Stoppie didn’t feel the effects of an overstored market where other than strong locations, it continued to be part of the “mushy middle.” Unlike sister brands Giant/Martin’s and Giant Food (Landover) which improved their core businesses, Stop & Shop’s New York/New Jersey stores couldn’t move the needle as much. Still, there is some hope as it finally plowed legitimate cap-ex into 21 Hartford area stores and a similar but bigger ($150 million) investment has just begun on Long Island where it is the market leader. It should further gain sales and share on “The Island” once the FTC decides which of the 37 King Kullen stores there that it will be allowed to keep. Additionally, beginning next month, Stop & Shop will have a new president as Gordon Reid moves from running Landover to the big seat in Quincy. He’ll be the first non-New Englander to run the division since Carl Schlicker headed Stoppie from 2008-2009.

Walmart – Only one new store opened in the 70-county region, a 25-year low in store openings for the Bentonville, AR-based retailer. And that trend will continue as only a handful of expansions (to SuperCenters) are slated for the next three years. While most of Walmart’s cap-ex went into its growing digital initiatives, there was some earnest money spent on bricks and mortar improvements. Walmart’s baseline success has always come from its low-price perception which it doggedly protects and works hard to maintain. In the past year, the world’s largest retailer has continued to improve store conditions, added more labor (which have helped with out-of-stocks) and upgraded its perishables. Walmart has also benefited by combining its online programs (“Ship to Store” and delivery service in some areas) to add more convenience for its shoppers. It’s a winning combination for the Behemoth that should prove solid for a long time.

Giant/Martin’s – A very good year for the folks in Carlisle, PA. Same store sales were solid, and the Ahold Delhaize brand did an excellent job of replacing productive older stores with new, larger models, in Feasterville, PA; Warrington, PA; State College, PA. It also entered the “infill” derby, acquiring independent stores (Darrenkamp’s, Ferguson & Hassler and five former Shop ‘n Save units) and experimenting with a new smaller format – Heirloom Market – in Philadelphia. Given the intensity of the competition, Giant’s progress over the past year was among the best in the region and there’s no reason to believe there are any impediments in sight to slow its momentum.

Acme Markets – As 2019 began, there was some improvement in Acme’s game as it became more aggressive with its pricing and merchandising and stepped up its store remodeling program. But for much of 2018, the Malvern, PA-based division of Albertsons was also caught in the middle of the overstored, competitive market. During the year, Acme closed six stores, which also impacted sales. The big retailer is still battling to build market share at the Northern New Jersey stores it acquired from A&P in 2015. Leadership isn’t an issue – Jim Perkins is one of the best. A little more cap-ex from Albertsons would hurt, but that may not be coming soon as new CEO Vivek Sankaran and principal owner Cerberus Capital continue to explore ways for the company to go public.

Weis Markets – Steady as they come, Weis had another productive year posting decent comps and profits. However, its stock price has dropped about 35 percent over the past year. Emphasis this past year was placed on improving private label sales which has been achieved primarily through price reductions. Weis has also stepped up its digital initiatives and invested more heavily in an aggressive store remodeling program. With no debt and a strong leadership team, the Sunbury-PA retailer is solidly positioned for the future.

Wegmans – It seems the only thing that can stop Wegmans is Wegmans itself. I’m referring to the company’s infrastructure. As it continues to add stores it also needs to gradually replace some of its very talented, but aging leadership team. As for operational and merchandising excellence, Wegmans remain the gold standard. In 2019, three new mega-stores will have opened – Virginia Beach, Raleigh and Brooklyn. Other stores that are slated for the Metro NY and Delaware Valley markets include locations in Greenville, DE; Middletown, NJ; and Harrison, NY. And while Wegmans also has been somewhat slowed by the intense overstored landscape, it remains among the best in ID sales improvement.

Krasdale/Alpha 1 – In the five boroughs of New York City where independent retailers switch affiliations more than in any other marketing area in our survey, the success of Krasdale lies in the loyalty of its hundreds of customers who operate nearly 900 stores. Customized programs and a high level of customer service make those retailers that operate under the C-Town, Bravo, AIM, Fine Fare, Market Fresh, Shop Smart and Stop 1 banners feel as though they are part of a successful team, a formula that the While Plains, NY-distributor has deployed successfully since 1908. One leadership change of note for the family-owned wholesaler: veteran Krasdale executive Steve Silver was elevated to president of the company earlier this year. The iconic Charles Krasne continues as chairman and CEO.

Key Food – The strong 10-year run for the Staten Island, NY-based retail co-op continues. The talented and aggressive leadership team of Dean Janeway (CEO) and George Knobloch (COO) set the tone for another successful year, adding independent customers and building sales primarily in New York City. Key Food has helped increase sales by offering its independent retailers diverse operating models and rebate opportunities based on performance. And in the past year it has begun making inroads into the Florida markets where some of Key’s Metro New York retailers have a connection. Key Food – they do it their way and it’s working.

 

 

‘Round The Trade

Giant/Martin’s continued its “infill” strategy when it acquired successful one-store retailer Ferguson & Hassler, which has serviced the Quarryville, PA (Lancaster County) community since 1916. The store reopened June 28 as a Giant and joins other small batch purchases made by the Ahold Delhaize USA brand over the past eight months including Darrenkamp’s (one store) and Shop ‘n Save (five stores)…earlier this month, Amazon opened its second “Go” convenience store in Manhattan. Unlike its initial unit on Vesey Street, the new 1,300 square foot Park Avenue location offers a broader product mix including more groceries and a line of coffee options. However, the midtown unit is closed on weekends. And like its initial Lower Manhattan store, this unit will also accept cash…UFCW Local 1776KS (Keystone State) and ShopRite have agreed on a new five-year labor contract affecting 2,500 associates at six ShopRite units in the Philadelphia area. The new pact – which covers Wakefern members Ammons, Brown, Collins, Colligas, McMenamin and Zallie – includes, according to the union, wage increases and benefit protections as well as the addition of more shop stewards. This deal follows a four-year agreement that 1776 and Acme Markets signed a week earlier. More ShopRite news: Lori Hodgkinson, who runs the SR store in Croton-On-Hudson, NY, is one of four store managers to receive FMI’s Store Manager Award. The annual award is given to managers who “bring their passion and talents to create unique food experiences for the grocery customer.”…Jack Sinclair is the new CEO of Sprouts Farmers Markets. The former CEO of 99 Cents Only Stores (which will become a myth shortly after Chinese imposed tariffs take effect) cut his teeth at Walmart as its former executive VP in charge of U.S. grocery. He replaces interim co-CEOs Brad Lukow (who resigned) and Jim Nielsen (currently on a medical leave of absence) who were appointed late last year when former chief executive Amin Maredia left to pursue other interests. “I am humbled and extremely privileged to be appointed chief executive officer of Sprouts Farmers Market,” Sinclair stated. “Sprouts is a company with a higher purpose – to empower every person to eat healthier and live a better life – and the commitment of its 30,000 team members to drive lasting change in the communities they serve truly resonates with me. I look forward to working with Sprouts’ board of directors, leadership team and all Sprouts team members to continue furthering that purpose.” Under the leadership of talented former Acme and A&P executive Dan Croce, who heads up the company’s eastern operations, Sprouts had a big opening earlier this month at its second Delaware Valley unit in Marlton, NJ. And word has it that the fast-growing merchant will open next year in Upper Dublin Township, PA (Montgomery County). Its first area store on Broad & Washington Streets in Philly, which opened last September, is reportedly the chain’s highest volume unit…kudos to Eva Kohn on being named this year’s winner of the New Jersey Food Council’s Max Stone award, given annually to those who excel in trade relations. And Eva certainly personifies that image. I’ve known Eva since she was in her early twenties (not saying how long ago that was) when she began her career in the advertising department of B. Green & Co. in her native Baltimore. She joined Advo in 1998 and remained with the company through 2013 (it was acquired Valassis by 2006), rising to the post of senior VP-strategic accounts, before joining Elmwood Park, NJ-based CBA Industries, the successful newspaper insert/circular distributor, in 2014 as executive VP-chief revenue officer. Eva’s an incredibly hard worker who is beloved by the trade. And as skillful as she is, she’s even a nicer person who is most deserving of this prestigious award…and just before presstime, we learned that Wegmans is close to a deal to build a new store in a 36-acre, mixed-use development in affluent Newtown Square, PA (Lower Makefield Township). At this point, the development is still under planning commission review, but sources have told us that Wegmans is ready to move forward with the project on Stony Hill Road. We should know more by the end of the summer.