At Allegiance Meeting, John Derderian Tells Vendors He’s Bullish About Co-Op’s Growth

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.

All told, it was a record year for Allegiance Retail Services (ARS), the retailer owned co-op based in Iselin, NJ.

With 30 members operating mostly urban supermarkets which trade under such diverse banners as Foodtown, Gristedes, D’Agostino’s, Brooklyn Harvest, Big Deal and LaBella, sales have grown 13.6 percent over the past 12 months, totaling $1.3 billion for the group’s 113 stores. Moreover, during the past seven months ARS has debuted two new banners – a Pathmark store in Brooklyn, NY and a Green Way Market in Cross River, NY. ARS hopes to expand those two banners (acquired from A&P) as it opens new stores in the Metro New York and Delaware Valley markets.

Led by former Pathmark executive John Derderian, who for the past four years has served as the co-op’s president and COO, ARS held its annual vendor breakfast meeting at the Hilton Meadowland in Secaucus, NJ. A crowd of approximately 400 reps, distributors and brokers was on hand to hear the company’s future plans.

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Derderian first introduced Dan Katz, co-owner of PSK Supermarkets, and one of Allegiance’s largest members with 13 stores. Earlier this month, Katz was named CEO and chairman of the ARS board following the departure of former chairman and CEO David Maniaci. Katz thanked the audience, noting he hasn’t received this many congratulations since his Bar Mitzvah. He went on the briefly articulate his optimism for the co-op’s continued success.

With the marketplace shifting, Derderian identified more than 75 in-market potential new store opportunities for ARS retailers, noting that it was important to pair current members with the proper banners that Allegiance has in its portfolio. Among the elements that the co-op analyzes when developing new sites are “clean” trade areas with nominal market overlap and locales where demographics are shifting. Other factors in selecting places for future new store expansion include population growth, income levels, ethnicity and competitive positioning.

While both the New York and Philadelphia markets remain overstored, Derderian said he’s encouraged by two unrelated factors: declining store counts in other channels (he cited some headlines about dollar stores and drug chains) and the growing power of “Gen Z” shoppers. According to data he presented to support his argument about those emerging 16-24-year-old shoppers or influencers, Gen Z consumers, unlike their Millennial counterparts, find shopping in physical stores relaxing, making it easier to try new things when compared to online merchants.

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Moreover, according to an International Council of Shopping Centers (ICSC) study, 76 percent of Gen Z customers said that physical stores provide a more enjoyable experience compared to online shopping and 67 percent of teenagers and young adults expect to make most of their purchases from bricks & mortar retailers five years from now. And unlike segments such as electronics and apparel, where pure-play Internet retailers have taken huge swaths of market share from traditional physical stores, food and beverage only command a 2 percent market share. Derderian also predicted that physical stores will be a crucial part of a strong holiday season.

Another area of strength for the traditional supermarket channel lies in its flexibility. Although sometimes costly and cumbersome, supermarket operators have learned how to adapt to multiple and sometimes complex changes affecting their customers. Operating in a “dual eco-system environment,” as Derderian termed it, has allowed supermarket operators to adjust to such realities as offering both print and digital marketing; developing formats which might include both quality/service and hyper value; and marketing to the growing ethnic-oriented customers and those where lifestyle or life stage are important components on where they shop.

Donna Zambo, Allegiance’s VP-chief marketing officer, focused her message on customer loyalty. She detailed three key elements of a successful loyalty program: “know our customers, connect with our customers and keeping our promises to our customers.”

Customer knowledge includes observations of what customers purchase and what they don’t purchase. And what is the frequency and timing of those purchases. Another “knowledge” component is the ability for Allegiance to understand gaps and leverage its merchandising and marketing skills to fill those gaps. Zambo also thanked ARS’ data partners who “help us understand market share and data; mine demographic and lifestyle data; compile competitive analysis and expand our analytical expertise.”

The former Pathmark and Wakefern veteran also emphasized the importance of connecting with ARS’ customers, noting that effective marketing programs include both functional (right product, right price, etc.) and emotional touchpoints (relevant content that is customer driven and successfully triggering demand via inspiration). She also believes that another important connection point lies in the co-op’s community and philanthropic efforts (cause marketing).

The big crowd was then “treated” to a group of short videos highlighting “the guys” – three well-known Allegiance directors who are familiar to the trade and perform many indie functions at ARS. Featured were manager of operations Ken “The Birdman” Brickel; senior director of merchandising and operational effectiveness Dan “Moby Dink” Dinkowitz (another Pathmark alum); and director of merchandising and operational effectiveness Mike “Inventory” Vacarr. These are three of the hardest working people in the biz.

If “Moby Dink” works as a moniker for Dan Dinkowitz, then Mike Conese should be nicknamed “The Scientist.” As VP-center store, the former Fairway Market exec updated the vendors on its In-Store Execution (ISE) progress. Thus far in 2019, more than 150 assortments/planograms have been optimized and developed for a wide variety of store set sizes across all of center store, an effort that is ongoing.

Conese said that greater emphasis is planned in 2020 to achieve proper mix in order to maximize top selling item placement to ultimately deliver increase sales for its vendors. In a slide titled “Getting It Right with Data,” Conese showed that Allegiance utilizes several data points to ultimately place the best items on the shelf, minimize slow movers and offer the products that will produce the best sales and net contribution.

Conese closed his presentation by theorizing what a collision between omni-channel and bricks and mortar would mean to the store of tomorrow. Among his predictions: Layout – adjustments to store flow will have to be made; Omnichannel – categories like paper, pet and HABA will need linear adjustments downward; Linear Footage – though linear footage decreases in line will be apparent. However, e-commerce’s endless aisle solutions will remedy any voids and home delivery and click and collect will be even more prevalent. The customer will still have access to all they want and more (via “endless aisle” solution); Smart Merchandising – this new space created through smart merchandising will make room for more contemporary experiential areas of the store.

One of Allegiance’s most tenured associates, Dean Holmquist, VP-perishables, briefed the crowd on the continuing rise of all in-store perishable departments across the industry spectrum. While sales in all entire “fresh” departments have been consistently increasing for the past five years, the gains made over the past 12 months have been notable. Seafood is up 5 percent; deli sales have gained 4.9 percent; bakery revenue is up 4.2 percent; produce grew 2.6 percent; meat sales increased 2 percent; and dairy volume rose 1.7 percent.

Holmquist then revealed data from FMI that indicated that traditional supermarkets outperform online platforms in a variety of comparisons, headed by freshness of perishable items (69 percent vs. 39 percent). Other areas where grocery stores outpace online retail include ease of returning items; quick access to customer service; helpful customer service; and ability to save money by utilizing sales, discounts and coupons.

Holmquist also noted opportunities for improvement for traditional retailers. Those included providing in-store alternatives to combat the growing rate of eating in a restaurant; utilizing the supermarket as a base of operations to increase take out or delivery of food; and providing more meal kit options.

Remember Carnac? For those under 40, he was the psychic played by the late, great Johnny Carson on his “Tonight Show.” Since Carnac’s last appearance was in 1992, we’ll forgive if you can’t recall him. Minus the turban and cape, somehow John Derderian re-emerged to play the great visionary – this time making predictions about the grocery business. Included in his prognostications: “goodbye to plastic bottles and bags;” “good things come in small packages (store footprint continues to shrink);” “alternate formats continue to struggle and consolidate;” “case-ready meat makes a move;” “all supermarkets will exit the pharmacy business;” and a longer term prediction…“what is a cashier?”

The last item on the agenda was handing out Allegiance’s top vendor awards. Winners this year were: Porky Products (best booth at food show); Cargill (perishable vendor of the year); Mondelez/Nabisco (center store vendor of the year); and CBA Industries (service vendor of the year).

Amazon To Offer Free Grocery Delivery; Posts Strong Q3 Sales, But Net Dips 28%

When your quarterly profits consistently top $2 billion, you’ve got a lot of financial flexibility to continue to leverage a loss-leader strategy to build business. In its continuing quest to remain “King of Most Hills,” Amazon will now offer free and unlimited grocery deliveries to all “Prime” members through its Amazon Fresh unit. Furthermore, it promises to make those deliveries in 1-2 hours.

In order to qualify, members need to be currently using Amazon’s “Fresh” service which is available in more than 2,000 jurisdictions. Additionally, the $14.99 monthly Amazon Fresh fee will be rescinded.

While this will at least be a short-term money loser for “Godzilla,” it creates a clearly defined space between it and Walmart and Target. And while I’m still not impressed by the improvements (or lack of them) that Amazon has made at Whole Foods’ physical stores, the free delivery should enhance WFM’s presence as a fulfillment center and could also be a key driver as Amazon expands its bricks and mortar platform in the near future.

The Seattle-based monolith has said that it will begin rolling out a new format of retail stores by next year in Los Angeles, Chicago and Philadelphia.

As for its recent financial performance in Q3, Amazon’s earnings took a 28 percent dip due to what CFO Brian Olsavsky said was investment spending in its business (Amazon said the shift to one-day delivery alone will cost $1.5 billion). Olsavsky didn’t seemed that concerned though, noting that the company’s new initiatives have resulted in customers buying more often and buying more products. That point was substantiated when Amazon’s overall sales zoomed up 24 percent to $70 billion.

However, there was a bit of distressing news to report about Amazon CEO Jeff Bezos. A combination of Amazon’s mini-share price decline over the past three months (the company’s shares have been down about 10 percent) and his costly divorce settlement ($38 billion – ouch!) caused Bezos to lose his spot as the richest man on the planet to former richest dude Bill Gates (estimated net worth: $107.5 billion). The ultra-depressing news didn’t last long for Mr. B. as Amazon’s stock rallied late last month to bring his net worth up to $111.1 billion.

And here’s one more dose of reality: according to a report from Rockville, MD-based market research firm Packaged Facts, Amazon will overtake Walmart as the largest U.S. retailer by 2022. The report notes that over the next three years, “Godzilla’s” growth rate will accelerate so rapidly that it will overtake the “Bentonville Behemoth,” which would be quite an achievement since Amazon would have to make up a $278 billion sales differential over the next 36 months. Put me down as skeptical that Amazon can achieve that level of growth in such a short span.

Walmart, Target Also Making Significant Gains

Obviously, Walmart isn’t taking a backseat to Amazon or any other competitor for that matter. The “Behemoth” posted stellar numbers in its third quarter ended October 25. The mass merchant posted overall sales of $128 billion for the 13-week period, up 2.5 percent. U.S. same-store revenue increased 2.8 percent. Even more impressive was Walmart’s profit – $3.29 billion. If you’re counting, that’s about $36 million per day. The world’s largest retailer also announced it will be significantly upgrading produce departments at nearly all of its 4,700 U.S. stores by next summer. Modern signage will be added, and merchandising bins will be shorter in an attempt to create a more open market feel. Organics will be segregated to one area of the department and aisles will be widened. And, Walmart is testing a new “in-home” delivery system in three cities – Vero Beach, FL; Kansas City, MO; and Pittsburgh – in which Walmart associates will utilize smart entry technology and proprietary wearable cameras to access customers’ homes – allowing customers to control access into their residences and watch deliveries made remotely. Sorry for my old school paranoia, but I’m just getting comfortable with home delivery outside my door, I don’t think I’m quite ready for people I don’t know entering my crib, even if they’re wearing a camera. And if this program has such great potential, shouldn’t Walmart be testing it in New York, San Francisco and Chicago (to name a few densely populated cities) where leaving packages outside your door can create security concerns? More Behemoth news: after Walmart U.S. CEO Greg Foran left to become chief executive of Air New Zealand in his native country, the big retailer acted quickly to promote John Furner to Foran’s former job. Furner, a Walmart lifer who began as an hourly employee in 1993 (much like company CEO Doug McMillon) was most recently top dog at the company’s Sam’s Club unit where he led a major turnaround. (Subsequentially named to head Sam’s Club was Kathryn McLay who joined the company in 2015). Furner was a good choice by the sagacious McMillan, who knows the tireless work ethic and high-performance level of Foran will be tough to replace. And in case you missed it, McMillon did a bang-up job at his interview with CNBC reporters Tyler Mathieson and Becky Quick at that business media outlet’s “Evolve” conference held in Los Angeles on November 19 (a transcript is available). Highlights included his belief as a risk-taker, his almost god-like focus on Walmart’s customer; the importance of supply chain execution for both bricks and mortar, pickup points and delivery; and his admission that his company has made many mistakes as it expanded its e-commerce presence following the acquisition of jet.com in 2016. Sometimes in a large and traditionally successful organization (think Yankees or Patriots), the head coach doesn’t get the credit he deserves because of the implied perception of perennial achievement. That’s unfair – you only need to analyze the record of McMillon (and Joe Torre and Bill Belichick) and add in the intangibles (people skills, knowledge of the business, work ethic, etc.) to measure if someone is Hall of Fame worthy…rival Target also enjoyed a very healthy third quarter. Same-store sales were up 4.5 percent (2.8 percent from stores and 1.7 from digital operations) and comparable store traffic increased 3.1 percent. Operating income grew by an impressive 22.3 percent to $1.02 billion. In recapping its most recent 13-week period, CEO Brian Cornell (ex-Safeway, ex-Pepsi) stated: “The Target team did an excellent job serving our guests and executing our strategy throughout the third quarter. Our third quarter results are further proof of the durability of our strategy, as we’re seeing industry-leading strength across multiple metrics, from the top line to the bottom line. Looking ahead, we have ushered in the holiday season with an unwavering commitment to guest service that complements our highly differentiated, value-driven assortment, our exceptional in-store shopping experience as well as an unmatched suite of easy and convenient fulfillment options.” More Tar-Jay stuff: chief merchandising officer Mark Tritton has left to become president of struggling retailer Bed Bath & Beyond. Tritton, who joined the Minneapolis mass merchant in 2016, will be replaced on an interim basis by two current Target senior VPs – Christina Herrington and Jill Sando.

‘Round The Trade

Albertsons keeps producing improving numbers as it continues its path toward going public (which would likely mark the exit of principal owner Cerberus Capital). Second quarter ID sales for the period ended September 7 increased 2.4 percent and earnings grew to $294.8 million compared to a net loss of $32.4 million in last year’s corresponding period. Its comp store sales gains were the largest for the Boise, ID-based retailer and come in the first full quarter under new CEO Vivek Sankaran. Albertsons is also modifying its Plated meal solution business from one that is subscription-driven to a more in-house upscale brand managed by the company’s “own brand” team. New products will be added beginning next year and more stores will have Plated brand meal kit available in their stores. Albertsons acquired Plated in 2017 for approximately $200 million…also posting solid numbers in its third quarter was Sprouts Farmers Markets. The Phoenix-based perishables-oriented merchant saw comp sales grow by 1.5 percent, and overall sales increased 8 percent for the period ended September 29. Profits were down a bit, from $38 million to $26 million, and new Sprouts CEO Jack Sinclair (a former Walmart executive) said plans are now under way to build smaller, less expensive stores, refine the deli departments and review the company’s rapid geographic expansion. In the past year, Sprouts has opened new units in Bel Air, MD and Herndon, VA and will open other new units in Wilmington, DE and Upper Dublin, PA next year…big story in the making: Walgreens is reportedly exploring the possibility of taking its drug chain private, according to several published reports. The Deerfield, IL healthcare giant, with a market cap of $56 billion, has reportedly met with several private equity firms to see if a deal of this size can be consummated. If completed, it would be the largest LBO in business history. Investment bank Evercore Partners has been tasked with heading up the exploration…one company with a market cap way below Walgreens is UNFI. As its stock continues to inhabit no-man’s land ($8.12 per share as of November 22), and its market value sits in the inert zone at $432 million (for a company whose annual sales are $21.4 billion), it’s reassuring to know that CEO Steve Spinner was still able to haul in $5.1 million last year. Truly a case where performance is totally disconnected to compensation. At least Moody’s understands the true ineptness that’s going on at the Providence, RI-based distributor. The service downgraded the rating of the company’s senior secured term loan from B3 to B2. “UNFI’s operating performance has been below expectations since its acquisition of Supervalu (13 months ago) with metrics and profitability expected to be lower than our previous forecasts for the next 12-18 months,” Mickey Chadha, a Moody’s VP noted.

Local Notes

A tip of the hat to Acme Markets’ president Jim Perkins who was feted earlier this month as MAFTO’s honoree in an Atlantic City gala attended by more 700 trade members. Not only is Jim most deserving of this honor, he’s also one of the best operators in the grocer biz, and more importantly he’s one of the finest people I’ve met in my 46-year career writing about the food industry…Weis Markets posted solid sales and earnings in its third quarter ended September 28. Overall revenue grew by 0.8 percent while comps (excluding fuel) improved 1.7 percent. Profit was up a marginal 0.8 percent to $14.2 million, “Our merchandising and marketing programs along with improved in-store execution continue to drive our sales growth, which sustains our capital investments,” said company chairman and CEO Jonathan Weis…extreme value merchant Grocery Outlet, which has performed at a high level since it went public five months ago, has named Heather Mayo as its new executive VP and she will head the Emeryville, CA-based discounter’s east region, which currently includes 19 stores in Central PA. However, vice chairman MacGregor Read (it sounds like a brand of pipe tobacco) said one of the reasons for hiring Mayo was to help expand the company’s Mid-Atlantic pipeline beginning next year. She’s a seasoned retailer vet having worked for Sam’s Club, BJ’s and most recently as chief merchandising officer for e-commerce firm boxed.com…Karns Quality Food had a big opening at its newest store, the former Darrenkamp’s location in Etters, PA, late last month. The 39,000 square foot store, which began life as a Super Fresh (A&P) in 1987, is the family-owned merchant’s ninth overall store and first in York County. “The welcome Karns Foods has received from the community has been incredible,” said Scott Karns, the retailer’s CEO. “They have truly welcomed us with open arms, and we look forward to offering them our legendary meat department! We are proud to be a local company and growing here in York County!”…Ahold Delhaize USA’s brands have been busy during the last month. Here’s a recap of some of their activities: on November 15, Giant/Martin’s opened its third Heirloom Market, a 13,000 square foot two-level boutique location in the Northern Liberties neighborhood of Philadelphia. The company’s next store will open on December 6 on Springfield Road in Broomall, PA (Marple Township), which will be a replacement store for its current unit also on Springfield Road. The new store is 74,000 square feet in size. At Food Lion, the chain is expanding its “Food Lion To-Go” pickup service and has added 50 units in Delaware, Maryland, Virginia, West Virginia and the Carolinas. All told, Food Lion offers its curbside service at 200 stores. At Giant Food, the Landover, MD-based retailer will no longer use the Peapod name for grocery delivery for its stores in the Baltimore-Washington area. Instead, the new service will be called Giant Delivers and a new fleet of purple trucks will clearly market that message. The new name reflects the goal of all of the Ahold Delhaize USA brands to become more local. Giant/Martin’s rebranded its e-commerce image earlier this year by adopting the Giant Direct mantra. At its Retail Business Services (RBS) unit, the company’s new “Infinity Fresh Kitchen” has opened. The salad, sandwich-making and soon-to-be fresh cut fruit and veggie operation, based in North Kingstown, RI, will be run with strategic partner Taylor Farms. And corporately at Ahold Delhaize in Amsterdam, Natalie Knight will replace the outgoing Jeff Carr as the international merchant’s CFO next March. A native of Seattle, Knight has worked as chief financial offer for several large European firms including the big Danish dairy firm Arla Foods and German sports apparel and shoe manufacturer Adidas. Carr, who joined Ahold in 2011, will become CFO at CPG giant Reckitt Benckiser and return to his native England… FreshDirect, the large grocery delivery service based in The Bronx is up for sale, per reporting from the New York Post. According to the story, lead investor JP Morgan wants out, citing declining business resulting from a less than smooth transition from the Internet retailer’s former headquarters in Long Island City to its new Bronx complex last year. The company’s prime market is Manhattan, but it also provides same day delivery to six other states including Delaware and Maryland as well as DC. Look for Amazon or Walmart (which has limited penetration in New York City) to be interested…The Fresh Market has named Dan Portnoy as its new chief merchandising officer. Portnoy spent much of his 35-year retail career at Kings/Balducci’s. He replaces another Kings/Balducci’s alumnus, Rich Durante, who left the Greensboro, NC retailer earlier this year… and a final word about Wegmans’ outstanding achievements over the past two months. In September, the Rochester, NY uber-merchant debuted its 104,000 square foot store in Raleigh, NC (its 100th unit), the first of six units that will open in the Research Triangle area of North Carolina in the next few years. We’re told that store came within a whisker of topping the company’s all-time opening week sales record (set in 2011 at Wegmans’ store in Northborough, MA). Late last month, the company opened its doors at the long-awaited Brooklyn location, and while significantly smaller than its larger prototypes at 74,000 square feet, the store was mobbed on opening day and has continued to be crazy busy during its first six days of business. It’s been a long, costly and sometimes frustrating process for Wegmans to get its first store in the city of New York open, but when opening day came, they were ready. More Metro New York success should occur next spring when Wegmans opens its 121,000 square foot store in tony Harrison, NY. That store will not only attract the affluent Westchester County locals but will draw big from nearby Fairfield County in Connecticut, a state that still does not have a Wegmans…we have several notable deaths to report this month. In the food industry, I am saddened to report the passing of Dominick Romano, 85, chairman of the board of Ronetco Supermarkets, operator of eight ShopRites in Morris, Sussex and Warren counties in New Jersey. Mr. Romano was a wonderful person who gave so much back to the communities that made him successful; he was also a helluva merchant who for many years spearheaded the growth of one of Wakefern’s most successful members. Even though several of the iconic patriarchs, who were part of the building blocks of one of the country’s best food retailers, have died in the last decade, I can say I was honored to know some of them, including Tom Infusino, Joe Saker, George Zallie, Jim Sumas and now Domenick Romano….my sympathies to the Gallagher family who lost their mother, Winnie Gallagher, earlier this month. Winnie Gallagher was the mom of our own Kevin Gallagher, who heads up our New York and New England business. Along with Kevin, Winnie leaves three other children, all of whom were raised the right way in Massapequa, NY…from the world of show biz, we lost an underrated and somewhat unsung actor. Robert Forster, who began his career in the late 60s, died last month at the age of 78. Often cast as a brooding, enigmatic presence, Forster is probably best known for his role as a bail bondsman in Quentin Tarantino’s “Jackie Brown” (1997). Other popular movies he appeared in included “The Delta Force” (1986) and the Oscar winning “The Descendants” (2011). However, I remember Forster best in one of his earliest roles in “Medium Cool” (1969) in which he played a Chicago TV news cameraman who gets caught in the turmoil of the 1968 Democratic national convention…also hopefully moving on to a greener pasture is Robert Evans, one of Hollywood’s most prolific film producers who backed such iconic films as “Chinatown” (1974) and “The Godfather” (1972). A controversial figure who at one time also headed Paramount Pictures, Evans lived a life of excess before becoming clean in the early 90s. If you want to learn about his life and the golden era of movies, his 1994 memoir “The Kid Stays in the Picture,” is a must-read. Evans was 89…one of the best cornerbacks to ever play in the NFL, Willie Brown, has also left us at age 78. An undrafted free agent from Grambling who was once cut by the Houston Oilers in training camp, Brown ultimately became one of the best pass defenders in the history of the league. He was named to nine Pro Bowls and in 12 seasons, most of them with the Oakland Raiders, had 48 interceptions and seven more in 17 playoff games, including a “pick-six” in Super Bowl XI against the Minnesota Vikings. Brown was elected to the Pro Football Hall of Fame in 1984. Al Davis, John Madden, Ken Stabler and Willie Brown – and the rest of the Raiders’ “villains” – that was an era of great football…and in the “surprised they weren’t dead yet” category comes the death notice of Topo Gigio, the “lovable” mouse who frequently guested (about 50 appearances in the 60s and early 70s) on the old “Ed Sullivan Show.” Actually, it was Topo Gigio’s creator and puppeteer, Italian entertainer Maria Perego, who passed away earlier this month at the age of 95. To be honest, as famous “entertainment” mice go, Topo Gigio was OK, but way he’ll never have the stature of Jerry, Minnie and Mickey.