Giant Food, Stop & Shop Agree To End Shared Merchandising Services

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.

In March of this year, after Giant Food held its first vendor meeting as part of the now decentralized Ahold Delhaize USA (ADUSA), I needled then-president Gordon Reid about when his brand would become a totally autonomous merchandising organization. Those merchandising services, particularly with many center store categories, was still being “shared” with sister brand Stop & Shop, based in Quincy, MA.

The always blunt Scotsman, who ironically took the helm of ADUSA’s larger Stoppie unit last month, said that day was close at hand as Giant was close to achieving the benchmarks that the parent firm laid out when the decentralized plan was first announced in 2017.

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That day has now arrived and in 12 months the merchandising transition from Stop & Shop to Giant Food will have been completed.

A joint letter from Tonya Herring, Giant’s senior VP-merchandising, and Mark Messier, Stop & Shop’s executive VP-merchandising, said the discontinuance of the shared agreement will now allow Giant to “set up its own category, promo entry and cost & deal teams.”

One area that should benefit Giant almost immediately is a better focus in the company’s “Great Brand Made Easy” brand strategy which differs from Stop & Shop’s marketing approach.

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Herring and Messier also noted that “these strategic shifts give Giant Food greater customization in food selections and strategically positions Giant Food to respond to its diverse market demand with greater agility and flexibility, while delivering on its three-pronged brand promise: ease, assortment and experience…both of our brands are excited for this change and feel that this decision is in the best interest of both organizations and will enable more competitive, strategic and responsive promotional planning and ad development, increased regional relevance and independent commercial planning, among other benefits, resulting in increased value for both of our brands and our supplier partners.”

Clearly this shift will make Giant more efficient, but the announcement also signals something more tacit. When ADUSA implemented its decentralized brand strategy19 months ago, all of the big retailer’s other operating divisions – Giant/Martin’s, Food Lion, Hannaford, Peapod and Stop & Shop – were given full independence.

For too long Giant Food, the 83-year old merchant, founded in Washington, DC by the Cohen and Lehrman family, was perceived by many in the Ahold organization as kind of a red-headed stepchild, where division presidents would ride the merry-go-round for a few years before giving way to another short-term leader.

That apathy and neglect led to a significant decline in the company’s sales and earnings (although it never relinquished its leadership position in the B-W market) over a nearly 20-year period since Ahold acquired it in 1998. Even after European mega-retailers Ahold and Delhaize announced that they would merge in 2016, speculation was rampant that Giant Food, plagued by eroding revenue and expensive union contracts, would be divested.

Things began to change, though, when Gordon Reid arrived in 2013. Appointed by then-Ahold USA COO James McCann (who worked with Reid at Tesco), Reid had worked for half a dozen retailers all over the world. He was experienced and tenacious and he was kind. Reid was also a great listener who quickly discovered that many Giant associates possessed the talent and will needed for success but were frustrated and indifferent because of the way they had been ignored for years.

Reid proved to be a tireless crusader for Giant, instilling a sense of self confidence and “can-do” in his team that the company hadn’t seen since Izzy Cohen and Pete Manos ruled the roost. The men in Amsterdam also took notice. The numbers were improving, and the intangibles were strong, too.

There’s still a lot of work to do, and new interim president Ira Kress, who’s been with the Landover organization for 35 years, certainly understands how tough, fragile and competitive this business is.

Every little bit helps and giving Giant full control of its merchandising programs is another positive step for a company that is in a good place right now.

‘Round the Trade

Amazon has reported strong overall sales and earnings for Q2 (ended June 30), but once again failed to move the needle substantially at its physical stores. Total revenue surged 20 percent to $63.4 billion and operating income increased 3.3 percent to a whopping $3.1 billion. Amazon’s “Prime” subscription service was a big driver – memberships (at $119 per year) increased 37 percent and brought in $4.67 billion for the quarter. And what a cash lever that is; Amazon can pocket about $20 billion annually from subscription revenue without any designated expense outlay. However, sales at its physical stores – 500 Whole Foods, 13 “Go” c-stores, and a few other assorted bricks and mortar units – increased only 0.4 percent to $4.31 billion. And while it’s true that the company has deftly utilized its WFM locations as distribution hubs while also giving its “Prime” members additional promotional opportunities, not much has changed in the 25 months since “Godzilla” took the reins in Austin. And while there seems to be little doubt that Amazon will unveil a new type of physical food retailing venture in the next six to nine months, the same whispers can be heard: “Can the company be the same type of game changer that it’s been against other retail segments?” It’s still early, but the answer thus far is – not yet…Price Rite, the discount unit of powerful Wakefern Corp., has completed another round of store upgrades which began in late 2018. Beginning this month, 17 stores in Pennsylvania, New York, Massachusetts and Connecticut will be updated and feature new store designs, and expanded fresh and private label offerings. About 40 percent of Price Rite’s 64 units will have been improved when this round of rollouts is completed. The company, under the skilled hand of president Jim Dorey, said it will complete the rest of its store upgrades (including units in Maryland, Virginia, Rhode Island, New Jersey, New Hampshire and New York) during 2020. More Wakefern news: the Keasbey, NJ cooperative wholesaler will open a 24,300 square foot micro fulfillment center in Clifton, NJ specifically to serve online customers at one of the wholesaler’s larger members – Inserra Supermarkets. Utilizing robotics, the customized fulfillment warehouse will handle both delivery and pickup orders for about a dozen of Inserra’s 23 stores in New Jersey and New York. If all goes well, expect more of these mini-warehouses to open in the future to serve other ShopRite operators.

More hybrid digital/bricks and mortar stuff: as it attempts to further integrate its physical stores with its digital operations, Walmart has made a series of executive changes designed to create a more efficient shopping experience. Greg Smith who headed the Behemoth’s bricks and mortar supply chain, will now lead both platforms and report to Greg Foran, CEO of Walmart’s U.S. stores and Marc Lore, CEO of e-commerce. Assisting with that integration will be Nate Faust, who came aboard after the Bentonville, AR-based retailer acquired jet.com in 2016 as head of e-commerce fulfilment. Faust will be given a new role once those units are fully merged. Additionally, Ashley Buchanan will become the new chief merchandising officer for U.S. e-commerce, reporting to Lore. All told, about 20 Walmart executives are impacted but not all departments will be integrated according to company CEO Doug McMillon, because “we are choosing to maintain some structural separation to enable focus and speed, including our U.S. merchandising organization.”…Walmart’s chief bricks and mortar rival, Target, is having its most success with its new small format stores, a concept that was begun about five years ago. According to a piece in Inc. magazine, the Minneapolis mass merchant has found that a combination of pinpointing demographics in urban locations (its store in Herald Square in Manhattan is the best of the new lot), product offerings and SKU rationalization, had opened up a new profitable silo for Target. The story notes that the retailer could open as many as 30 new smaller format stores annually over the next few years.

Large food brokerage firm Acosta, which has struggled mightily with balance sheet issues over the past year, named its third CEO in less than nine months. The national brokerage firm, which late last year riffed many key management members while trying to restructure and streamline its business, has selected Darian Pickett, a 28-year veteran of the Jacksonville, FL-based company, to fill the post. Pickett was most recently the firm’s chief client officer. He succeeds Alejandro Rodriguez Bas, who was named CEO by parent private equity firm, The Carlyle Group, last July. Bas proved to be a bad fit from the outset, unable to connect with the Acosta culture, its customers and some of its clients. At the time of his appointment, Bas filled an open position created by Steve Mattheson’s departure six months earlier (he only lasted 18 months). While Pickett will certainly provide more stability and a better connection with the Acosta team, the company’s $3 billion debt load remains large and critical. With its restructuring last year, industry sources estimated that Acosta could save $30 million annually in expenses. Of course, that comes at a cost when considering the value of the talent that was pushed out and the subsequent loss of such key accounts as McCormick and Clorox. We wish Pickett the best of luck – he will certainly need that and more…

Crossmark, one of Acosta’s prime competitors, has restructured its financing and as such, has reduced its debt by 75 percent. In a letter to Crossmark’s associates, CEO Steve Schuckenbrock stated, “…through this transaction, Crossmark has the strongest balance sheet among national sales and marketing agencies, the financial flexibility to further invest in our leading capabilities and offerings and new ownership that is aligned with our objectives.” The Plano, TX-based brokerage, which had been owned by PE firm, Warbrug Pincus since 2012, is reportedly now controlled by its lenders including affiliates of large investment management firms Invesco and Eaton Vance. In addition to debt reduction, the new creditors reportedly exchanged $90 million of existing second-lien loans for warrants that would entitle holders to a 7.5 percent equity stake in the future. Additionally, Crossmark reportedly received a new $75 million credit facility to provide working capital and letters of credit to finance operations…on the federal legislative level, The U.S. House of Representatives has voted to increase the federal minimum wage to $15 an hour within six years. The vote was 231-199 to raise the minimum wage from its current $7.25 an hour which went into effect 12 years ago. The new bill, if passed by the U.S Senate and President Trump (which will be a much tougher hurdle to leap), would raise employees’ wages to $8.35 an hour in three months. It would rise each following year by approximately $1.30 until hitting $15 in 2025. Of course, most minimum wage controversies are being played out at the state level, where markets like Washington, DC, Maryland, Pennsylvania and New Jersey are trending towards a $15 minimal level, an amount already in place in New York City. And it looks like food stamps (SNAP benefits) are going to take another hit as the USDA (in a proposal supported by Trump) seeks to close a loophole in the current system where certain individuals, who are part of a separate national program called Temporary Assistance for Needy Families (TANF), but aren’t necessarily financially qualified to receive food stamps, are automatically eligible to gain SNAP benefits. If the measure is passed, the USDA said it would save taxpayers $2.5 billion annually and cut 3.1 million people from its current membership rolls.

Local Notes

UNFI just finished its annual national trade show (formerly the Supervalu Expo) in St. Paul, MN and, although we weren’t there this year (I can’t imagine why we weren’t invited), there was plenty of buzz from the company’s independent retailers. Not so much about the show, but about the appearance of mystery men Steve Spinner, CEO of UNFI, and Sean Griffin, chief executive of SVU and COO of UNFI, at the confab. The two top UNFI leaders had been viewed as “MIA” by many of the company’s independent customers who had not met with either man since UNFI acquired Supervalu last October. The reviews were generally encouraging among the independents we spoke with who said that both Spinner and Griffin were apologetic about not communicating more effectively with them during the past nine months and vowed to more aggressively address issues dealing with item selection, billing and private label. “I’ve got to give both of them credit for seeking out face-to-face meetings with us,” said one of UNFI’s larger Mid-Atlantic customers. “They clearly understood that we haven’t been happy with the transition and have also been very frustrated about the poor communications. It’s encouraging that they seemed to comprehend our issues and said would be more hands-on in trying to improve. However, this is really about execution and I’m still questioning whether UNFI has the ability to meet our needs as full-service supermarket operators.” Among the Providence, RI-distributor’s biggest challenges, and one unrelated to its core independent business, is the disposition of the more than 40 Shoppers stores which remain open in the B-W market. Sales are beginning to really nosedive, and, again, there was no movement in the past 30 days. However, UNFI’s fiscal ended on July 27, so there’s some expectation that the company will dump its Shoppers “problem” (expected loss/write down) in Q1 or Q2 of fiscal 2020.

I feel very badly about the announcement that specialty foods distributor DPI will close its Mid-Atlantic headquarters sometime in Q4 of this year. Apparently, the situation came down to capital investment, and as PE companies are inclined to do, parent firm Arbor Investments chose not to further finance DPI’s Mid-Atlantic unit, which was beginning to rebuild and had attracted an impressive group of retail customers including Giant Food, Giant/Martin’s, Weis Markets and Kroger’s stores east of the Mississippi. The hard part of this story is the loss of jobs. About 250 associates, many who’ve been with the company for lotsa of years, will be displaced. And some of them called us to vent a bit about their severance packages which we’re told is only four weeks of salary, without regard to length of service, for sales and office associates. We’re also told that DPI’s unionized warehouse associates and truck drivers will receive a maximum of 12 weeks of compensation based on length of service.

Publix has gotten the green light from Guilford County (NC) officials to begin construction on its planned $400 million distribution center near Greensboro, NC. The facility, which is expected to be completed by the end of 2022, will be the Lakeland, FL-based retailer’s 10th DC and its northernmost warehouse. The company’s stores in North Carolina and Virginia are currently served by a distribution center in Dacula, GA, which is about 325 miles from Greensboro and approximately 500 miles from Richmond.

A tip of the hat to Giant/Martin’s, Weis and Redner’s for once again hosting their annual charity golf outings. All three retailers do a great job of saluting their vendors while also raising millions of dollars for mainly local charities.

From the obit desk, we have some deaths to report. I was saddened to hear of the passing of Jack DiFiore, 89, former president of A&P’s Super Fresh division, and one of the good guys in our business. A native of Camden, NJ, “Gentleman Jack” joined the Tea Company in 1949. He rose through the ranks, becoming president of the chain’s Super Fresh unit in 1984. He later became COO of A&P’s Waldbaum’s banner in the 1990’s before retiring. I have only good things to say about Jack – he was kind and fair and always willing to discuss the challenges that his company was facing…one of Broadway’s leading lights for the past 50 years, Hal Prince, has left us. Prince, 91, directed some of the theatre’s greatest musicals, including “Cabaret,” “The Phantom Of The Opera” and “Sweeny Todd.” Earlier in his career, Prince produced such groundbreaking shows as “West Side Story,” “Damn Yankees” and “Fiddler On The Roof.” Born and raised in new York City, Prince said he fell in love with the theater at the age of eight, when he attended a production of “Julius Caesar” starring Orson Wells. All told, Hal Prince won an astonishing 21 Tony Awards…I am very sad to report the passing of NFL Hall of Fame linebacker Nick Buoniconti. The Notre Dame alumnus played in the league for 15 years and was named to the Pro Bowl eight times. He also won two Super Bowls, one of which as a member of the undefeated Miami Dolphins in 1973. However, Buoniconti’s off the field contributions were more important. After his son Marc was paralyzed after making a tackle in 1985 playing for The Citadel, Buoniconti created the Miami Project, which sought a cure for paralysis. He worked tirelessly to raise money and bring greater awareness to the challenges facing those who have been paralyzed. “Today, with a heavy heart and profound sorrow, my family and the entire Miami Project To Cure Paralysis and Buoniconti Fund community mourn the loss of a man who was truly larger than life, my father, NFL Hall of Famer Nick Buoniconti,” Marc said. “My dad has been my hero and represents what I have always aspired to be: a leader, a mentor and a champion.” In later life Buoniconti, 78, struggled with memory loss issues which he thought were CTE related as a result of his football career. He vowed to donate his brain to CTE research when he diefind.

Finally, it’s with mixed feelings that I report the sale of one Washington’s greatest eating and drinking establishments – the Clyde’s Restaurant Group (CRG). The new owner is Graham Holdings, Inc. (yes, the same family that owned the Washington Post until 2013). Clyde’s has been around since 1963 when local entrepreneur Stuart Davidson opened a small pub in Georgetown and hired Georgetown student John Laytham as a dishwasher. Laytham rose through the ranks, ultimately becoming Davidson’s partner. Together they expanded their local empire to 13 locations (including the Old Ebbitt Grill near the White House, which is the highest grossing eatery in DC). Davidson passed away in 2001, Laytham died earlier this year and the company was discreetly put up for sale. Arlington, VA-based Graham Holdings, whose annual sales last year were $2.7 billion, also owns businesses in healthcare, education and media. In the early years of Food World, my retired partner Dick Bestany and I practically lived at the Clyde’s location in Columbia, MD. We conducted business, made many friends and perhaps were over-served on a few occasions. Those memories will last forever and continue today (especially when I dine there). One of those friends we met in the early 1980s was Tom Meyer, who came to Columbia as a chef and quickly moved through the ranks at Clyde’s. Today, he’s president of the CRG and we’re happy to note will be remaining in that role in the new organization. That’s good news for everyone involved.