Wegmans’ New Distribution Center Will Provide Growth Opportunities In VA, NC

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.

Nearly 21 years ago, when Wegmans began its southbound trek with the
opening of its Princeton, NJ store, few would have believed that the new store
pipeline would stretch as far as North Carolina. Chairman Danny Wegman’s vision of taking very nice perishables-oriented supermarkets which thrived primarily in Western and Central New York on to a bigger stage where household incomes and population density were captivating, has become one of the great retail stories of the past generation (and I mean in any segment of retailing).

Fast forward a bit. In those two decades, Wegmans has covered a lot of new territory in many affluent markets. It has expanded into New England, further into Metro New York, the Delaware Valley, Baltimore-Washington and Richmond and Tidewater. Most recently it opened its first North Carolina store in the highly demographically favorable Raleigh-Durham-Chapel Hill, NC market. Along the way it added a second large distribution center in Pottsville, PA and successfully developed a downsized format model (75,000-80,000 sq. ft) to accommodate smaller real estate opportunities (and rising costs). On the more intangible side, Wegmans has developed a culture where theassociates feel empowered and are fairly compensated. It’s not by accident that the Rochester, NY-based retailer is perennially named as one of the best places to work in America.

Certainly, there are challenges. The company now operates 101 mega-units over eight states (a store in Greenville, DE and another in Washington, DC, both new markets, will be added in the next few years) and maintaining the pace of opening three or four new stores a year of that magnitude is difficult. Grooming leadership talent is also an ongoing concern. Danny Wegman is almost 73 now and while his daughters Colleen (now CEO) and Nicole (senior VP) have worked in the business for all of their adult lives, the company’s success over the next decade will be largely judged on how they perform. Not just them, but also the next generation of management under their aegis. Those future executives will also be scrutinized as they ascend to new roles in the company when many key associates who were trained by Danny or even his dad, the legendary Robert Wegman, will retire. Yes, these are important factors to consider. However, I believe they are secondary to the tremendous opportunities that lie ahead for the company. And those opportunities will be more clearly viewed once the company’s new 1 million square foot distribution center in Ashland, VA becomes operational in 2022. Much like when the Pottsville facility was built more than a decade ago that allowed Wegmans to supply stores in the Philadelphia, Central PA, Baltimore-Washington and Richmond-Norfolk markets (a seminal move that has bolstered the company’s success immeasurably), the new $175 million Richmond area warehouse has the potential to do the same for the 103-year old uber-merchant over the next 10-15 years. At this point, the new DC is scheduled to service only stores in Virginia and North Carolina. That’s only 13 stores to date. However, when the warehouse opens, the company will have likely cut the ribbon on an additional nine stores in those states (not including a possible sixth Raleigh-area store in Cary, NC). It’s also a safe bet to assume that the retailer’s eight current Maryland stores (not counting a planned store in Rockville) and its Washington, DC unit (Wisconsin Ave. NW) would be supplied from the new Ashland depot. But the real opportunities can be found further south. Sure, Wegmans can fill in its current footprint and add a limited number of new stores in those densely populated areas that provided a tremendous growth platform for the regional chain over the past 20 years. And it can also add another store in Richmond and a couple more in Tidewater. With five more stores coming to the Research Triangle area of North Carolina, Wegmans will make life tough for competitors Publix (as seen in Richmond) and Harris Teeter (as seen Virginia Beach, Charlottesville). There’s little doubt in my mind that Wegmans’ next big new market will be Charlotte where the demographics are comparable to Raleigh in a metropolitan area that’s slightly larger. Markets like Greensboro and Winston-Salem (between Raleigh and Charlotte) could also yield a couple of stores. And knowing that the distance between its Rochester depot and its six New England stores is approximately 400 miles, the new Ashland DC could service potential new stores as far west as Asheville, NC and as far south as Spartanburg, SC and Greenville, SC. One hundred-forty stores and annual sales of nearly $13 billion by 2030? It’s doable – never underestimate their ability to execute and achieve!

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‘Round The Trade

On the heels of Ahold Delhaize USA’s (ADUSA) announcement last month that it will spend nearly $500 million over the next three years to create a self-distributed supply chain network, comes word that it has agreed to lease a 975,000 square foot dry grocery distribution center in Manchester, CT that will service approximately 200 Stop & Shop stores in Southern New England and the Metro New York market. It will employ up to 700 associates. The big retailer reportedly will move into the new facility, which once served as a DC for JC Penney, in April. The property is owned by Winstanley Enterprises, LLC, Connecticut’s largest commercial landlord, which also made another deal with ADUSA. Winstanley and real estate investment and management firm Surrey Equities have agreed to acquire 23 company properties, primarily in New England. In addition to eight stores in Massachusetts, three in Rhode Island and three in Connecticut, the deal also includes a Giant (Martin’s) store in Pottsville, PA and a Giant (Landover) unit in Annandale, VA. Winstanley and Surrey Equities acquiredthe properties from previous owner/landlord Philip Morris Capital Corp.

In other ADUSA news, Stop & Shop has closed its original bfresh small-format unit in Allston, MA, leaving only one remaining bfresh in Somerville, MA. The 10,000 square foot perishables-driven store opened in 2015 with much fanfare about parent company Ahold USA’s commitment to developing an urban small-format offset, much like the retailer’s smaller units in The Netherlands.

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The idea was a sound one, but neither Stop & Shop nor Ahold (now Ahold Delhaize)ever really embraced the idea. “We treated the format like a red-headed stepchild and ultimately it was left on the vine to wither and die,” said one retired company executive. Despite bfresh’s demise, the small format idea did provide seeds for future opportunity which has manifested itself into what is now Giant Heirloom Markets, the fledgling and so far successful model being developed by Giant/Martin’s in Philadelphia.

Save-A-Lot, the beleaguered St. Louis-area discount chain owned by Canadian PE firm Onex, has found new life with a $138 million capital infusion. The renegotiated financial package was announced after a new agreement was reached with the retailer’s lenders in order to reportedly accelerate its business transformational plan. In a statement made by CEO Kenneth McGrath, the former Lidl executive stated: “We have an amazing group of retail partners and team members who provide Save-A-Lot shoppers with high-quality products at low prices every day. This new investment is an endorsement of their hard work and dedication to our customers.” That’s an incredible statement when you consider that McGrath and his number one bootlicker COO Kevin Proctor (who worked with McGrath at Lidl) have so alienated many of the Save-A-Lot’s licensees, that they have openly criticized him as an executive who cares much more about the interests of the  company’s corporately-owned stores than he does about the independent owners who comprise about 70 percent of Save-A-Lot’s store base. The financial performance of the retailer over the past two years alone under the stewardship of McGrath and Proctor should be reason enough to dispatch these two clowns to the unemployment line. To wit, we’ve got more details about the recently filed lawsuit filed in federal court in Eastern Missouri (Save-A-lot’s backyard) by eight former military veterans who became licensees with the mission to provide shopping opportunities in 10 food desert markets. The group, Honor Capital LLC, which operated stores (from 2015-2019) is suing the parent firm and three other related parties including Matt Ross, S-A-L’s board chairman, viewed as the key link between Onex and the retailer. The suit charges, among other things, that the retailer developed a clandestine plan to change the company from a licensee-based structure to one where corporate stores would dominate with the goal to ultimately sell those stores to rivals Aldi or Lidl. The eight veterans, most of whom are 2006 graduates of the U.S. Naval Academy, operated stores in a wide-ranging geography including Oklahoma, Kansas, North Carolina, South Carolina and Virginia. We talked to a source linked to the Honor Capital partners, who made it clear that once Eric Claus departed as Save-A-Lot’s CEO (and was replaced by McGrath shortly after Onex completed its purchase of the company in 2016 from Supervalu) things went downhill fast. Primary issues included poor sales forecasting, supply chain breakdowns and wholesale pricing that was so high that “at times it was cheaper for the plaintiffs to purchase inventory from their local competition across the street at retail than to purchase the inventory from Save-A-Lot at bona fide wholesale prices.” The suit entails seven counts including allegations that the discounter violated the RICO statute (double ouch!). The group is calling for a jury trial.

Fairway (“Like No Other”) Market seems on the verge of filing its second bankruptcy in less than four years. That’s according to the New York Post, which claims the company’s primary owners, Brigade Capital Management and Goldman Sachs, will seek to file for protection after an effort to sell the 14-store chain failed. The company’s debt is approximately $170 million on (declining) sales of about $800 million annually. The problem that the upscale Metro New York retailer faces is that it has never been able to improve sales at its suburban stores on Long Island and in New Jersey (it shuttered its Nanuet, NY store in September). Despite the failures of the past seven years (Fairway ill-advisedly went public in 2013 only to file for Chapter 11 protection three years later), there would be plenty of interest in the chain’s five Manhattan stores and one Brooklyn unit if it made them available.

Lee Delaney will become CEO of BJ’s Wholesale Club, effective February 2, according to the Westborough, MA discounter. He will replace Chris Baldwin, who will become BJ’s executive chairman and will continue to lead the retailer’s board of directors. Delaney joined BJ’s in 2016, after having served as a partner at the large PE firm, Bain & Co. This past September he was elevated to president and it was clear that he was on track to replace the much-admired Baldwin as chief executive.

As expected, national food broker firm Acosta has completed its financial reorganization and exited Chapter 11 bankruptcy in less than 30 days. The newly realigned organization has eliminated its nearly $3 billion in long-tern debt and its new owners – Elliott Management, Davidson Kempner, Oaktree Capital Management and Nexus Capital Management – have also funded the Jacksonville, FL-based sales agency with $325 million in new equity capital. The new deal means the end of the line for private equity firm The Carlyle Group, which acquired Acosta in 2014 and whose lackadaisical ownership was a key reason for Acosta recent difficulties.

Wondering about Amazon’s holiday sales? As most of us know, “Godzilla” rarely releases hard sales numbers, but it did acknowledge that the number of ‘Prime” members who used grocery delivery for the first time increased by more than 80 percent (that’s not a typo) and in one week alone, more than five million new customers joined its “Prime” service or utilized the company’s free trial offer. Additionally, on an overall basis, “Prime” members more than doubled the number of grocery items ordered this holiday season compared to 2018. “The holiday season has been better than ever thanks to our customers and employees around the world.,” said Amazon founder and CEO Jeff Bezos in somewhat of an understatement.

Local Notes

I’m sad to report that Wade’s Super Market in Christiansburg, VA closed its doors earlier this month. I first met company president Greg Wade and his late dad Lowell shortly after we acquired Food World in 1978. Lowell was a member and director of the old Mechanicsville, VA wholesaler (which was sold to Supervalu in 1999, which in turn sold to UNFI in 2018) and one of the company’s most prominent members in the southwest part of the Old Dominion. I’ve communicated with Greg Wade several times over the past few years and he was very open in acknowledging how challenging it was as a small independent grocer facing new competition and changing consumer habits. At one time, Wade’s operated seven supermarkets and 13 convenience stores in the region in and around Roanoke. In recent years, the company closed stores in Radford and Dublin and even more recently downsized its original Christiansburg store to become more of a ‘superette” offering local products along with deli and bakery. Posted on the retailer’s Facebook page were these words from Greg Wade: “Competitors have come and gone, but today (January 4) we are the one leaving. I am proudly wearing my Wade’s shirt today, and I will always be proud of this organization. 69 years and three generations for a family business to be successful is saying something. I am proud to say I was part of it.” A classy thing to say from a classy guy.

While there hasn’t been much new info coming from UNFI about other Shoppers Food units which might be sold or closed (beyond the 17 that were announced recently), the Washington Business Journal reportsthat the 65,000 square foot Shoppers store in the Manchester Lakes area of Fairfax County will be closed soon and be divided into three separate retail operations – Homesense (home furnishings), Sierra (clothing) and afuture unnamed grocery store (Amazon’s new grocery format?). Stay tuned…

Not departing the Old Dominion but closing its only metropolitan Washington area store on January 11 is Earth Fare. The 55-store organic chain based in Fletcher, NC, opened its Fairfax City unit two years ago in hopes of utilizing the region’s strong demographics and health-oriented customers. However, it wasn’t to be. Personally, I found the Fairfax store to be a less than comfortable shopping experience that kind of resembled a poor man’s Whole Foods, which operates two stores between the Earth Fare location. The Western North Carolina-based merchant, which operates in 10 states, is also closing three stores in the Indianapolis market, too. Its other two Virginia units – in Williamsburg and Roanoke – remain open.

Speaking of Whole Foods, the unit of Amazon will open a new 40,000 square foot store at the old Walter Reed hospital complex off of Georgia Ave NW in the District. That is the same site that Wegmans was interested in a few years ago before settling on another DC location – the Fannie Mae headquarters complex on Wisconsin Ave. NW. The 3.1 million square foot mixed use redevelopment is slated to open in 2022.

Last month, c-store innovator Wawa acknowledged that it had suffered a data breach. The Wawa, PA-based retailer, which has big plans for MD, VA and DC said it discovered malware on its payment processing servers that was collecting card numbers, customer names and other information at its nearly 850 stores since last March. Wawa said that is notifying its customers and providing free credit card monitoring and identity prevention services to anybody who has been impacted.

It appears that a potential beverage tax that recently commanded the interest of Delaware Governor John Carney won’t be happening anytime soon in the First State. According to several sources, at this month’s Delaware Food Industry Council’s annual dinner, the state’s House Majority Leader Valerie Longhurst (D-Bear), told the group that the governor would not be seeking to createlegislation that would call for a state soda tax. In July, Carney announced that a tax on sugary beverages was on the table. The Department of Health and Social Services was tasked with examining the potential implications of this tax in the state. Businesses, advocacy groups, and residents have been worried about the impact the tax would have on the state, pointing to the damage that’s been created in Philadelphia where a beverage tax become law in 2017 (Washington DC, is also on the verge of passing a sugar tax). As was the case in Philly, food merchants were worried that business would go across state lines, taking revenues out of the Delaware economy and displacing it into neighboring Maryland, Pennsylvania, and New Jersey. If this measure was to become law, Delawarewould become the only state where a statewide soda tax would be imposed.

More Delaware news: Sprouts will open its first store in The First State on March 11 on Concord Pike in Wilmington. Based on Sprouts’ other recent Mid-Atlantic openings (Philadelphia, Bel Air, MD; Herndon, VA) the 30,000 square foot perishables-oriented unit will have an effect on the local Route 202 corridor, where ShopRite, Acme and Whole Foods have a presence. A bigger threat to those retailers will occur in 2022 when Wegmans is slated to open its 115,000 square foot uber-store in affluent Greenville.

Utz Quality Foods is continuing its recent acquisition spree. After buying Conagra’s DSD snack business late last year, the Hanover, PA-based snack packer has purchased Kitchen Cooked Inc., a Farmington, IL-based manufacturer and distributor of potato chips, tortilla chips, popcorn and pretzels including brands Kettle Kurls and Kettle Pops. The company was founded in the 1930s and covers the Central Illinois and Eastern Iowa markets. “We are very excited about the opportunity to add this important snack food brand and set of capabilities to our portfolio. Kitchen Cooked bring a strong consumer following and unique craft heritage in its core markets. Their distribution and manufacturing capabilities (with manufacturing facilities in Farmington and Bushnell, IL), along with their customer relationships, enhance our ability to grow our Utz brand further west, said Utz CEO Dylan Lissette, whose company will surpass the $1 billion sales market this year.

From the obit desk we have several deaths to report. Way underratedactor Danny Aiello  has died at the age of 86. The former construction worker, who didn’t begin his acting career until the age of 40, is probably best known for his role as Sal, the pizzeria employee in Spike Lee’s “Do The Right Thing” (1989). However, burly New Yorker was almost uniformly excellent in the more than 110 film, stage and TV roles he appeared in over a 45-year career. A couple of my favorite Aiello roles were as Cher’s clueless fiancé, Johnny Cammareri, in “Moonstruck” (1987) and as bookie and restaurant owner Louis Cropa in a little-seen movie “Dinner Rush” (2000). Aiello was also a pretty fair Sinatra-type crooner and wrote a very funny autobiography, “I Only Know Who I Am When I Am Somebody Else.” Of course, Aiello’s classic line came in one of his first movies, “The Godfather II” (1974). Playing mobster Tony Rosato, he’s assigned to kill fellow mobster Frankie “Five Angels” Pentangeli. As he’s strangling the loquacious Pentangeli (who survives the attack), Rosato says “Michael Corleone says hello.”

Another entertainer has also left us. Buck Henry, the comedian, director and screenwriter who became well known due to his many appearances on Saturday Night Live, died earlier this month at age 89. Long before he became famous from SNL, Henry was one of Hollywood’s top screenwriters. His script works included “The Graduate” (1967), “Catch-22” (1970) and “What’s Up, Doc?” (1972). Henry, along with the great Mel Brooks, also created one of the funniest TV series of the 1960s – “Get Smart” (1965-1970). While Brooks was generally credited with inventing the shoe phone, Henry’s acclaim was for developing “the cone of silence,” one of the greatest pieces of schtick in television history

From the world of sports, David Stern, the former NBA commissioner who essentially reinvented the business side of professional basketball, died on New Year’s day at the age of 77. When Stern took over the NBA in 1984, attendance was lagging and the league had virtually no marketing plan or relevant branding in place. During his 30 year tenure, Stern expanded the league’s presence on a global scale and added seven new teams while six others relocated to larger or more enthusiastic markets. He also helped create the WNBA and the NBA Development League.

The only man to ever pitch a perfect game in the World Series, Don Larsen, died last
month. Throughout most of his 14-year career in the major leagues, Larsen was considered more-or-less a journeyman who played for seven teams. But it only took less than three hours on a fall afternoon in October 1956 (in game five) for New York Yankees pitcher Larsen to achieve singular greatness. Twenty-seven Brooklyn Dodgers went up and 27 Brooklyn Dodgers went down. While Larsen, 90, never achieved any significant baseball acclaim after that game, according to Yankee icon Mickey Mantle, he was a Hall of Famer. In another category, “He was easily the greatest drinker I’ve ever known,” Mantle noted after he retired. And, coming from The Mick, that’s quite an achievement.

Sleepy LaBeef is dead. The rockabilly singer and (guitar) slinger was one of the greatest live performers I’ve ever seen in my more than 50 years of following music. Standing 6’6” and weighing nearly 300 pounds, LaBeef possessed a rhythmic baritone voice that he backed with sizzling guitar licks. Hailing from Arkansas, he began his career around the time of Elvis Presley’s recordings in the mid-50s. He could play thousands of songs – rock & roll, blues, gospel, waltzes, pop and country . When I first saw Sleepy, who was 84 when he passed, in Boston in the early 1970s, his sets would last about three hours and he would ask the audience for requests, something musicians rarely do. Listen to some of his stuff on YouTube – you’ll be impressed.

Also moving on to a higher spiritual plane was Ram Dass, 88, a man who made his mark in the 1960s as a spiritual teacher and author. Before all his Zen materialized, Ram Dass started life as Richard Alpert, growing up in Newton, MA and attending Tufts University. He earned a PhD from Stanford and was a rising professor of psychology and research at Harvard. Then came his meeting with Timothy Leary, who preached that psychedelic drugs were a path to inner enlightenment. Soon after, Alpert changed his name to Ram Dass and became a true believer. It must have taken a lot of sacrifice to achieve that level of enlightenment as proven when Ram Dass and five others locked themselves inside the estate of the heirs of industrialist Andrew Mellon and took LSD every four hours for three consecutive weeks. To paraphrase what the Grateful Dead said a few years later, “What a long, strange trip it (must have) been.”