It’s not quite at the level of “alternative facts,” but UNFI CEO Steve (“Senor Spinmeister”) Spinner, as almost always, painted a bullish and rosy picture of his company’s future. And why shouldn’t he be bullish? Must you ask?
In its recently completed Q1, UNFI posted a net loss of $383.9 million, delivered earnings per-share of roughly half of what was projected, and demonstrated little evidence that it can effectively build enough new sales to significantly shave down the more than $2 billion debt it accrued when it purchased Supervalu in October 2018.
Oh, and on the day (December 11) that the earnings were released and Spinner and his UNFI sycophants expressed their “excitement” to the financial community in the follow-up analysts’ call, the company’s stock plunged from an already lousy $9.87 per share to a dismal $7.09 per share (nearly a 30 percent drop) in seven hours of trading.
In the Q&A portion of the conference call, “Senor Spinmeister” said he acknowledges that the market is skeptical (did you mean to say realistic?), but the company is really “excited” about where it is. “The management team feels great about what we’ve accomplished and where we’re going. Our synergies are on track. Our customers love what we’re trying to do. I think our suppliers love what we’re trying to do, and we’re just going to prove it.”
Really? I’m looking for those customer and vendor sign-up sheets. My research indicates that those lists would be very short ones, but I’d like Spinner to prove me wrong. “Trying” and “executing” are not mutually inclusive.
You know what else Spinner and his acolytes are “excited” about? The sale of 13 Shoppers stores. Why is he so excited? Apparently because of the “pretty heavy lift to go through an M&A process when the retail environment is difficult.”
Let’s do some basic math here. Over the past year (before this recent sales announcement), UNFI has divested about a dozen Shoppers stores (some were closed, some were ultimately sold). That left the company with a lot of 43 stores to sell. Fourteen months later, only 13 of the remaining supermarkets have found buyers (four others will close). That’s a pitiful batting average by any measure (except the Spinmeister’s). Spinner also said (I’m not making this up) “…we’re really pleased with the fact that we’ve sold these 13, many of which we will be retaining supply agreements for.”
Many? Try seven of those stores – five Compare and two McKay’s units; the six Lidl stores will be self-supplied. And since UNFI isn’t disclosing financial terms of those sales, we don’t know exactly what the company reaped from those “exciting” transactions (I’m betting the collective number is under $25 million).
It’s also a nice Christmas present for those clerks and meatcutters who will find a pink slip under their trees this year. And it may only be slightly better for associates at those 26 Shoppers stores that will remain operational for now. That’s because Spinner plans to keep those stores open indefinitely, he stated.
“As far as the Shoppers (stores), we’re going to take our time, and we’re going to do it thoughtfully and economically as we possibly can. We’re not going to make a decision to give stores away just for the sake of giving them away. We’ve got a Shoppers team in place that can run them extremely well. We obviously have good access to inventory. So we’re going to continue to be careful and thoughtful as to how we — how we market the rest of those stores. Ultimately, we want to be out of retail; if it takes us a little bit longer, so be it.”
Memo to Spinmeister: you haven’t even sold half of Shoppers’ stores in more than a year. Who’s going to pay you a premium now?
I give the Shoppers’ associates a lot of credit for persevering through the fog of non-communication, but given UNFI’s level of apathy, do you really believe that the stores can be run “extremely well?” What might they look like three months from now?
This just in: according to data we received, over the two last years, Shoppers’ collective sales are down about 13 percent, with such units as Crofton, MD (unsold); Dumfries, VA (unsold); and Lorton, VA (unsold) losing more than 20 percent of its annual revenue.
Oh, did I also mention Shoppers’ huge pension fund liability that’s on UNFI’s books for approximately $135 million?
And just before presstime we learned that members of Teamsters Local 414 (drivers, warehouse and maintenance workers) based at UNFI’s Fort Wayne, IN distribution center went on strike on December 12. About 160 workers at the former Supervalu depot have been working without a contract since September 14. The facility services UNFI customers based in IN, IL, KY, MI, OH and WV. Funny that Spinner never mentioned any of this during the earnings call. It probably slipped his mind while addressing the financial community and company shareholders. He must have just been too “excited” extolling the great work of the company’s leadership team.
In truth, the UNFI story just gets sadder and sadder. Spinner might have been an effective CEO when UNFI was a natural/organics/specialty/ethnic distributor, but as the chief executive of a full-service wholesaler with a highly problematic balance sheet and an insensitive approach to its customers, associates and suppliers – he’s way over his skis and has proven to be a lousy leader.
When you add in his annual compensation of $7.1 million (an increase of 39 percent over 2018; where’s my raise?), Spinner and his “excitement team” need to exit quickly.
Anybody got a hook?
Ahold Delhaize USA Changing The View With Ambitious New Self-Distribution Network Plan
Nobody should be surprised by Ahold Delhaize USA’s (ADUSA) announcement that it is seeking to become a fully integrated self-distribution retailer by 2023. The signs have been obvious since the Ahold/Delhaize merger in 2017 and the subsequent unveiling of a decentralized store brands model stitched together with an overarching corporate infrastructure unit (Retail Business Services/RBS) less than a year later.
And even though ADUSA is giving itself ample time (three years) and significant cap-ex ($480 million) to finalize its plan, converting from a platform that relied heavily on a third-party logistics (3PL) provider for its former Ahold USA brands (C&S), will be a challenging task.
So many different pieces to consider in a network that will eventually incorporate 22 distribution centers (the retailer currently operates 15 facilities), thousands of trucks and the need to hire many new people.
And while I’ve been skeptical in the past about how effective Ahold Delhaize (but mostly Ahold USA) has been in integrating change into its organization, the company is now in its strongest position ever to make the transition.
A few reasons why the timing is right: 1) ADUSA has done this before – kind of. The 2017 merger provided the new organization with not only greater scale and more diversified leadership, it also offered the new company with a track record of self-supply. Both Food Lion and Hannaford, which Delhaize acquired in 2000, have always used some form of a self-supply model. Once the merger was consummated it was relatively easy to compare the efficiencies of each archetype (3PL vs. self-distribution) and make an informed decision. However, it should be noted that in the perishables area, the Ahold USA brands are been supplied directly from company-owned facilities in Jessup, MD, Carlisle, PA and Freetown, MA; 2) Add in an operating arm that prioritizes internal efficiencies led by two very smart men – Roger Wheeler, president of RBS, and Chris Lewis, EVP-supply chain of RBS – and the decision seemed more and more obvious. 3) Another factor to consider is simply the rapid pace of change in the industry and the growing reliance and importance of supply chain. When you look at Ahold Delhaize USA’s main peers – Walmart, Kroger and Albertsons – all have invested heavily in recent years improving their internal distribution networks.
When the new network becomes operational in three years, ADUSA’s distribution centers will be closer to its stores and be able to utilize state-of-the art technology including forecasting tools.
When change of this magnitude occurs, there’s usually a downside. In this case, C&S will feel the burden of losing a large part of its wholesaling business by 2023. Rick Cohen, chairman, and legacy owner of a company that dates back to 1918, released a statement noting that the company is “uniquely positioned for the long-term,” adding he is “confident about our future.”
Still, Ahold Delhaize is C&S’ largest customer (we estimate ADUSA’s annual wholesale volume to be about $11.5 billion, which would be about 40 percent of C&S’ total annual revenue). And as deep as the financial loss might be, there’s always been a special relationship between Rick Cohen and Ahold management dating back to the halcyon days of Bob Tobin and the late Bill Grize. Cohen virtually created the 3PL grocery model, and his brilliance and tenacity are why he is so respected and admired by several iterations of Ahold leaders.
However, times have changed, and the playing field is more competitive than ever. It’s clear when you visit Walmart, Amazon, Target or Kroger that every aspect of their businesses is under intense scrutiny and examination.
And while there still may be a role for a third-party player in the new model, that space will be significantly smaller. In fact, ADUSA will be partnering with a yet unnamed third-party when it opens two frozen food distribution centers in conjunction with the new self-supply plan. That partner is expected to be revealed in Q1 of next year. ADUSA has also utilized outside organizations at its Central PA meat facility (Vantage Foods) and at its recently opened fresh kitchen (Taylor Farms) in North Kingstown, RI. Another meat facility is currently under construction (that will serve Stop & Shop and Hannaford stores), also in North Kingstown. Cargill will help operate that new plant.
As one Ahold Delhaize chain competitor said to me, “If you’re going to grow your business either organically or via acquisition, it is vital that you manage your entire supply chain. There’s still some room to utilize third-party suppliers, but those who can best execute the steps from farm to table will be best positioned to win. And you’ve got to exercise control over that.”
‘Round The Trade
The Trump administration has been threatening to cut SNAP (food assistance) benefits for nearly three years and according to a new rule finalized by the U.S. Department of Agriculture (USDA) earlier this month, almost 700,000 people will be purged from the SNAP rolls by April. The new rule makes it more difficult for states to waive a current requirement that able-bodied adults without dependents work at least 20 hours a week in order to retain their food assistance benefits. Obviously, there’s fraud and waste with the current system, but critics argue that if such deep cuts are implemented it will exacerbate the economic challenges for those people who are currently employed at low-wage jobs or those who are between jobs. And a further negative impact would come at the expense of food retailers who have already felt previous SNAP benefit reductions. According to the USDA, the new rule would cut about $110 million annually from food assistance costs, which would translate to a big hit against grocery merchants, especially in many urban areas…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. And just before we went to press, we learned that Walgreens and Kroger have formed a procurement association, Retail Procurement Alliance, in which the two large retailers will (with some products) source, buy and even create new items (through Kroger’s manufacturing network). Both firms are looking for other retailers to join the group which would create greater synergies to better compete with the many overlapping retail options that consumers now enjoy, especially online. There’s other Kroger news to report: on the financial front, the Cincinnati-based merchant saw its earnings drop from $317 million to $263 million from a year ago. Same store sales were a bit better, up 2.5 percent, but Kroger seems to have a focus issue – too many oil wells, but not many gushers. CEO Rodney McMullen admits that focus has been an issue and vowed to “get back to the basics” to improve the company. The nation’s largest pure-play grocery chain will slow its remodeling program and plans to layoff nearly 1,000 associates nationally. Another related move is the announcement that it will divest its investments in specialty and natural foods merchant Lucky’s Market which Kroger acquired a stake in two years ago when the Niwot, CO-based retailer had 17 stores. It now operates 39 stores in Colorado, Florida, Georgia, Indiana, Kentucky, Michigan, Missouri, Montana, Ohio and Wyoming. Kroger will take a $131 million impairment charge against that business…Dollar General, the largest dollar store operator in the country, plans to open 1,000 new stores next year (that’s not a typo). The Goodlettsville, TN discounter is building 8,000 square foot prototypes in many new markets and has accelerated its pace in the last few years as larger discounter Walmart has virtually stopped its brick and mortar expansion. Dollar General currently operates more than 16,000 stores. Rival Dollar Tree, which is making a nice comeback after suffering severe indigestion from its Family Dollar acquisition, posted solid second quarter numbers (ended November 2) including a 2.5 percent same store sales gain. The Chesapeake, VA-based dollar store operator also announced that Duncan Mac Naughton, president of its Family Dollar unit, is leaving the company. Duncan almost made it to three years with Family Dollar, which is about the average job shelf life based on his career resume… Nestle has agreed to sell its U.S. ice cream business – Edy’s, Haagen Dazs, Dreyer’s, Skinny Cow, Drumstick, etc. – to Froneri, an ice-cream focused venture that Nestle and Paris-based PE firm PAI Partners created in 2016. Froneri already oversees Nestle’s ice cream business in 20 countries in Europe and the Mideast. The deal is valued at $4 billion…as expected, food brokerage organization Acosta, Inc. filed for Chapter 11 bankruptcy protection on December 1 in a move that would significantly reduce the Jacksonville. FL sale agency’s $3 billion debt and provide them with $325 million in new capital. As a result of the deal, which first took shape about six weeks ago, PE owner Carlyle Group, will cede control of Acosta to a group of creditors including Elliott Management, Oaktree Capital Management, Davidson Kempner Capital Managements and Nexus Capital Management…it’s already shaping up to be a strong holiday season, despite fewer shopping days, and the Thanksgiving Day kickoff was impressive. While bricks and mortar sales were down 2.6 percent from 2018, those revenues were offset by an e-commerce sales jump (including Cyber Monday) of 19 percent which blew the doors off of previous Thanksgiving weekend sales totals.
Local Notes
As Wegmans continues to expand southward, the Rochester, NY-based retailer has faced supply chain pressures to accommodate that growth. On December 11, the high-volume merchant announced it will invest $175 million to build a full-service, regional distribution operation in Ashland, VA (Hanover County). The warehouse will be located along Sliding Hill and Ashcake Roads.
Wegmans currently operates distribution centers in Rochester, NY and Pottsville, PA. The planned one million square foot facility is expected to open by early 2022 and be fully functional by the end of that year. Groundbreaking is expected next spring. “This site has the right combination of everything we were looking for in terms of proximity to our stores and workforce and is located in a Commonwealth that we have partnered with for many years,” said Wegmans president and CEO Colleen Wegman. “Once it’s up and running, this facility will allow us to deliver products to our southern-most stores with increased speed and freshness and will help support our growth well into the future. “The new depot will service the company’s 12 current Virginia stores and its new unit in Raleigh, NC. However, by the time the new warehouse is completed, Wegmans is expected to open additional stores in Alexandria, VA; Arcola, VA; Reston, VA; Tysons Corner, VA; and five more in the Raleigh-Durham corridor. David DeMascole, director of network planning, will oversee the new distribution center project. DeMascole also supervised Wegmans last new distribution center in Pottsville, PA, which began operations in 2004 and was completed in several phases over the next few years. “It’s a significant win when a business decides to create 700 full-time, well-paid jobs, and we are proud that a company of Wegmans’ stature has chosen to establish its major new operation in Hanover County,” said Virginia Governor Ralph Northam. “Virginia is a world-class transportation and logistics hub, and the location of this campus will greatly enhance Wegmans’ fast-growing East Coast distribution network. I was grateful for the opportunity to meet with Wegmans officials to discuss ways we can strengthen our partnership, and I look forward to the company’s continued success in the Commonwealth.”
The Virginia Economic Development Partnership (VEDP) worked with Hanover County and the Greater Richmond Partnership to secure the project for Virginia. Northam approved a $2.35 million grant from the Commonwealth’s Opportunity Fund to assist Hanover County with the project. Wegmans is also eligible to receive a Major Business Facilities Job Tax Credit for new, full-time jobs created. More Wegmans news: the uber-merchant has pulled the plug on its planned 91,000 square foot Annapolis store. A statement released by the retailer stated: We previously announced plans for a store on Riva Road in Annapolis that we will no longer move forward. After working for more than a year with the Anne Arundel County planning department toward a mutually acceptable plan, we were unable to reach an agreement that made sense for this project in terms of visibility, traffic circulation and cost. Therefore, we have decided to withdraw our application for this site.” The county’s planning and zoning officer Steve Kaii-Ziegler acknowledged as much, noting that Wegmans and the county were not able to agree on a design plan. “The Office of Planning and Zoning is disappointed that Wegmans has apparently made the decision to withdraw their application. Despite their decision, we remain committed to assisting Wegmans should they reconsider their current decision.” While it’s rare for the company to walk away from an already announced future location, it isn’t the first time in recent years that Wegmans has pulled the plug when it runs into roadblocks. Future stores in Marple Township, PA and in Newport News, VA were withdrawn after hurdles with local developers couldn’t be overcome…still nothing significantly new to report about the labor negotiations with Giant Food and Safeway and their two B-W labor unions, UFCW Local 27 and UFCW Local 400. Even though the Pension Benefit Guarantee Corp. has not replied to a request by all parties to guarantee the solvency of their highly underwater pension plan (about $1.1 billion) for the duration of the new contract (expected to be three years), All sides are currently focused on key local issues – wages, health care and retirement. As far as finding even a partial solution to its multi-employer pension plan underfunding issue (which all parties acknowledge could become insolvent in a few years), we hear an offer to the unions’ clerks and meatcutters that would provide them with a 401(k) type retirement plan (as an alternative) was rejected. The original union contracts expired on October 26 and store associates have been working on a temporary extension (which will be rolled back) until a new contract can be hammered out…Giant will be closing its Chevy Chase, MD (Wisconsin Avenue) store next month. The company said that decision was made because of the store’s small size and the proximity to three other nearby locations. Another Giant store in Fort Washington, MD will also close next month. However, in this case, a new and larger Giant unit will be rebuilt on the site and open nine to 12 months later…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…not only has Lidl acquired six former Shoppers stores, it plans to anchor the old Northwood Plaza when that forlorn looking shopping center begins a major redevelopment plan early next year. The center is located in a food desert near Morgan State University in northeast Baltimore City. Lidl is expected open its store there in 2022…a tip of the hat to our friends at the K. Neal Truck and Bus Center, Hyattsville, MD (owned by Steve Neal and his son Korey), for being recently being named the U.S. Senate’s “Small Business of the Week.” The award was presented by the senior senator from Maryland – Ben Cardin. And yes, there is a food connection to this story. For many years, Steve Neal worked for Giant Food where he rose through the ranks to eventually become a VP. Ben Cardin’s roots go back to his family’s business – B. Green & Co. – which was founded in 1915…extreme value merchant Grocery Outlet, which has performed at a high level since it went public five months ago, has named Heather Mayo 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 (whose name 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…we have a few obituaries to report this month. 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 he’ll never have the stature of Jerry, Minnie or “king” Mickey…one of the wittiest cartoonists of the last 50 years, Gahan Wilson, passed away last month at the age of 89. Wilson’s dark and macabre sense of humor and distinctive pen and ink skills set him off from many of his contemporaries. His cartoons appeared in many publications over a period that began in the 1950s, most notably the New Yorker and Playboy. During his long career, Wilson also published nine short stories and 197 full-page gag cartoons…I’m also sad to report (and so are my kids) the death of Big Bird. At 8 feet, 2 inches tall, wearing a loud yellow costume, puppeteer Caroll Spinney, the man behind the costume, has passed away at the age of 85. At only 5 feet, 10 inches tall in real life, Spinney created the character when “Sesame Street” first went on the air in 1969. Spinney’s link to Big Bird’s persona was almost immediate. With his childlike, high-pitched voice, nimbleness afoot and always positive attitude, millions of children connected with the happy, oversized feathered creature. Not one to be typecast, Spinney also portrayed Oscar the Grouch, the perpetually unhappy misanthrope who lived in a trashcan and had a girlfriend named Grundgetta. Come to think of it, I once had a girlfriend named Grundgetta, too.