Over the course of the past two years, many of us have wondered when the true retailer attrition would begin as a result of market overstoring. We’ve also pondered on how much longer outside monetary sources (primarily private equity money) would continue to invest in some of these “new age” projects that honestly tasted great but performed in a less filling manner.
Three specialty retailers – Fairway Market, Earth Fare and Lucky’s Markets – have felt the gut punch of bankruptcy and future potential future liquidation over the past month and all can claim a combination of curtailment of future investments, market overstoring and lack of profitability as the reasons for their deaths. Each retailer’s story is a bit different, however.
At Fairway, the ultimate reason for its filing was that current PE investors Goldman Sachs and Brigade Capital didn’t want to put more money into a once great, but now declining sponsorship.
The real blame belongs to Sterling Investment Partners, the previous venture capital group that acquired controlling interest in Fairway in 2007 and took it public in 2013, only to file for bankruptcy the first time in 2016 after posting not one profitable quarter. At this point, Wakefern member Village Super Markets has the stalking horse advantage for the company’s five Manhattan stores and its relatively new perishable distribution center in the Bronx. A full auction is scheduled for late March to determine the outcome of Fairway’s 14 stores in Metro New York.
The bankruptcy of Lucky’s Market has less to do with the myopia and insensitivity of private equity ownership than it has to with patience. Lucky’s began as a single store by local foodie couple Bo and Trish Sharon in Boulder, CO and the chain continued to grow at a measured pace for its first 13 years of existence. As it sought to expand to new markets, Kroger came aboard as lead investor with what was then an unspecified equity stake. Expansion continued into new areas (particularly Florida). The concept was solid – a perishables-driven hipster kind of store that was like a more variety-oriented Sprouts in the same 30,000 square foot range. I found the Lucky’s experience a comfortable place to shop. However, not surprisingly, Lucky’s wasn’t profitable, and continued investment toward further growth made its debt swell. When Kroger ran into other issues, including being criticized by the financial community for investing too much capital into e-commerce rather than upgrading its successful 2,750 store network, the big chain reset its priorities, with one of the results being withdrawing from its Lucky’s venture. The loss to Kroger: more than $300 million. At this point the company has buyers for 24 of its remaining 32 units with the possibility that the Sharon family could hold on to seven stores. However, as a growing entity in the “new age” retailing field, Lucky’s is kaput.
Earth Fare is also a headline in the obit column. The organics retailer, based near Asheville, NC, pulled the plug late last month after its financing also ran out. Its 33 remaining stores (it once operated as many as 50 units) amassed an annual volume of about $465 million. As many companies do as they seek to grow, Earth Fare took on a financial partner, Monitor Clipper Partners in 2006. Six years later, larger PE firm Oak Hill Partners acquired a majority stake in the specialty retailer which was founded in 1975 by entrepreneur Roger Derrough. It was only a few months ago that current CEO Frank Sporpiniti said that Earth Fare had as many as 100 new stores in its development pipeline. But when the bank payments are due and the trend lines indicate that profit is not close at hand, private equity has little patience or sympathy. That’s how quickly things can erode.
And while the suddenness of three bankruptcy filing with a two-week span is certainly startling, there more fallout to come before 2020 ends. Market conditions almost demand it.
Kroger Set To Build Frederick, MD Robotic Fulfillment Center To Serve Mid-Atlantic
Kroger and its e-commerce partner Ocado announced late last month that Frederick, MD, will be the latest location for a robotic customer fulfillment center (CFC). The 350,000 square foot facility in Western Maryland will be the sixth e-commerce depot that the two retailers will build since they signed a partnership agreement in 2018. The new robotic warehouse is expected to open 2022 and supply online orders to customers in the Mid-Atlantic region.
Other fulfillment centers are slated to be built in Monroe, OH; Groveland, FL and Forest Park, GA (which are slated to open next year); Dallas, TX; and Pleasant Prairie, WI (which was announced in November).
All told, the UK-based Ocado and Kroger said they could open as many as 20 fulfillment centers together which would provide Kroger with significantly expanded online grocery potential, especially in markets where it has no bricks and mortar presence.
Kroger has no stores in Maryland or Northern Virginia, but operates more than 100 stores in other parts of the Old Dominion. Its sister firm Harris Teeter operates about 50 stores in the Baltimore-Washington market with an additional 24 stores in the Richmond, Tidewater and Charlottesville areas. Currently, the nation’s largest pure-play supermarket chain has no corporate presence in Pennsylvania, New jersey or New York.
The new Frederick facility, located at 7106 Geoffrey Way, is expected to cost approximately $55 million and create 400 new jobs with up to 100 more added later as the service area of the fulfillment center expands. Key markets targeted are Baltimore, Washington, Richmond and Philadelphia.
“Kroger is incredibly excited to construct one of our industry-leading customer fulfillment centers in Maryland in relationship with Ocado to bring fresh food to our customers faster than ever before,” said Robert Clark, Kroger’s senior VP-supply chain, manufacturing and sourcing. “Through our strategic partnership, we are engineering a model for the region, leveraging advanced robotics technology and creative solutions to redefine the customer experience.”
“We are excited to bring Kroger and Ocado’s latest automated warehouse to Frederick. This site will be key to delivering amazing grocery experiences to households across Maryland, Pennsylvania and the District of Columbia. It will also create fantastic job opportunities for engineers looking to work alongside state-of-the-art robotics and automation,” said Luke Jensen, CEO of Ocado Solutions. “The warehouse will be a key component of the seamless fulfilment ecosystem that Kroger is developing for customers across the United States. Ocado’s proven technology will allow Kroger to achieve the lowest cost-to-serve in the market, combined with the best freshness, accuracy and service.”
Maryland Governor Larry Hogan added: “We are thrilled that these two respected companies have chosen Maryland as the location for a new high-tech, innovative Mid-Atlantic hub. This is a big win for Frederick County and yet another shining example that Maryland truly is open for business.”
‘Round The Trade
UNFI, the beleaguered wholesaler (and even more troubled retailer), has announced that COO Sean Griffin is retiring in July and will be succeeded by current chief information officer Eric Dorne, effective March 8. Additionally, John Howard has been elevated to CFO (he has been interim chief financial officer since last August) and current UNFI president Chris Testa will take on additional responsibilities in professional services, supplier services, customer care and the firm’s Canadian division. Additional changes include Paul Green’s promotion from chief supply officer to president of its fresh division. Mike Stigers, currently CEO of Cub Foods (which is on the selling block) and executive VP-fresh, will concentrate on transitioning his fresh team to Green. Stigers, one of the few legacy Supervalu vets still in a senior management position at UNFI, will continue to focus on the disposition of Cub. And there’s also some news on UNFI’s chairman and CEO Steve Spinner, who has led (?) the company in the direction of a rathole since UNFI acquired Supervalu 16 months ago. Despite a 70 percent dip in UNFI’s share price, mediocre sales and poor earnings, “Senor Spinmeister,” who received a 39 percent raise in December to $7.1 million annually, was awarded a contract extension until July 31, 2021. That’s like a baseball player who hit .310 in Triple A (the old UNFI) and gets promoted to the major leagues (the new UNFI including Supervalu) and in his first full season hits .212 and strikes out 175 times. For that level of performance, should that player be rewarded with a significant raise and a contract extension? Puzzling, truly puzzling, but when the chairman of the board and chief executive roles are supervised by one person and the board clearly isn’t independent enough to challenge the performance of the current chief executive, you get little pushback from within the company despite negative reviews from UNFI’s independent retail customers, its associates and suppliers and the financial community. One last UNFI item: in an unfortunate example of “RMD Syndrome” (reverse Midas touch), the three aforementioned specialty foods retailers that filed bankruptcy petition during the last week in January – Fairway Market, Lucky’s Markets and Earth Fare – all listed UNFI and its affiliates as their leading unsecured creditor. Fairway owes UNFI and its Albert’s Organics subsidiary about $2.5 billion; UNFI is owed approximately $13.2 million by Lucky’s; and $9.6 million by Earth Fare.
Amazon continues to put up huge sales and profits as witnessed by its latest Q4 results. Total sales were $87.44 billion, up 21 percent from the corresponding period the previous year, and operating income increased 2.5 percent to $3.88 billion. For the full fiscal 2019 performance, Amazon’s revenue was $280.5 billion, a jump of 20 percent. Full year earnings rose 17.2 percent to $14.54 billion. However, “Godzilla” still isn’t getting much juice from physical bricks and mortar stores. Sales at its 487 Whole Foods units, 25 Amazon Go c-stores, 21 Amazon Books stores and nine Amazon 4-Star outlets (electronics, toys, home goods) were down slightly from $4.44 billion to $4.36 billion. As I’ve said repeatedly, Amazon hasn’t altered the view inside its four-walls enough to make a difference from when WFM was an independent entity. Certainly, using grocery to stimulate “Prime” membership (which has increased to a whopping 150 million members) and offering free grocery and perishables delivery, are assets to boost overall revenue, but not from inside the stores themselves. And while we await the debut of “Godzilla’s” newest grocery format, which is slated to debut in the next 30 days in Woodland Hills, CA, we wonder if this will be a relevant platform to significantly expand its grocery bricks and mortar base. I’ve got to believe the Seattle-based juggernaut still needs to make a sizeable grocery-related acquisition if it wants to have a meaningful physical store presence. One more thought concerning Amazon’s Q4 sales. Included in its sales numbers (but not broken out) was the merchant’s holiday revenue.
At Walmart, still the “behemoth” of all things retail, Dacona Smith, formerly of its Sam’s Club unit, has been promoted to COO of Walmart U.S. and Lance de la Rosa becomes the new chief operating officer at Sam’s. Additionally, Scott McCall was elevated to chief merchandising officer for the company’s U.S. stores. He formerly was a senior VP of the Bentonville, AR-based merchant and replaces veteran Walmart exec Steve Bratspies, who left the company after 14 years. And finally, Kelvin Buncum is the Behemoth’s new executive VP of its Neighborhood Market division.
A tip of the hat to FMI president and CEO Leslie Sarasin and her team for hosting an excellent FMI Midwinter Conference in Phoenix last month. Sarasin’s keynote speech outlined the industry’s aggressive attempt to reinvent itself. She noted that retailers are becoming more fearless about entering different platforms and developing new relationships while still retaining customer trust. “We must learn new means of relating, carefully reading and testing the limits of technology so that it remains within the range of being helpful and doesn’t cross over into being considered invasive. This calls for us to relearn the lessons on being an honest and transparent broker while learning anew how to do that with our digital customers as well as our physical customers,” she told a well-attended session of retailers and suppliers. However, there was one downer during the four-day meet. While I attended many sessions and seminars (but certainly not all) during the conference, one speaker I found to be especially annoying and self-serving was Carletta Ooton, VP of safety, sustainability, security and compliance for Amazon (what a busy woman). Ms. Ooton’s speech about the use of technology and innovation to drive results in the era of consumerism, turned out be a 40-minute commercial for “Godzilla.” Not only did Ms. Ooton overstay her welcome by 10 minutes, she devoted much of her time to discussing toy packaging at the big e-commerce retailer. Her talk was both boring and off-topic and done in a tone that reeked of smugness. “Hey, we’re Amazon and our stuff don’t stink. Ever.” Just the vibe that a group comprised of mostly bricks and mortar supermarket operators want to listen to. One last FMI opinion: I like its new logo – which is a stylized design with three semicircles representative of the trade association’s three pillars: advocacy, collaboration and education. The design also highlights a new tagline: The Food Industry Association, which not so subtly reinforces the strength and prowess of the food industry’s largest trade group.
Local Notes
Lotsa news in Metro New York over the last 30 days beyond the Fairway bankruptcy announcement. Aldi, which has seen discount rival Lidl get its Long Island conversion plan from Best Market underway with four stores, is answering back. The powerful German value machine said it will open two new boxes on “The Island” in the next few months. Those units will be located in Babylon and Valley Stream and the latter would be Aldi’s first unit in Nassau County. Aldi, which opened its first LI store in 2011 (Bay Shore). Aldi also operates stores in Lake Grove, Lindenhurst, Patchogue, Riverhead and Selden. The grocery battle for the 100 mile long and 20 mile wide swath of generally affluent, densely populated island (Nassau and Suffolk counties) is about to heat up with more Lidl conversions in the works and market leader Stop & Shop’s acquisition of King Kullen expected to be completed in the next few weeks (according to recent comments made by Ahold Delhaize CEO Frans Muller)…Walmart is pulling the plug on its concierge shopping service Jetblack on February 21. The curated, customized service grew out of a Walmart incubator in 2018, never made money and didn’t seem to fit into any slot – a personalized delivery service for $50 that would deliver any type of product (not just Walmart items) – the Behemoth was familiar with. About 300 associates will be affected by the shutdown
It’s a big month for David Maniaci and his family. Beginning on February 14 and continuing each week until March 6, Maniaci’s four Northern New Jersey stores (Nicholas Markets) began to transition its stores from Foodtown to the Fresh Grocer banner. Maniaci, a long-time Allegiance member and past chairman of its board, announced in October that he would shift the company’s membership/supply to Wakefern and adopt The Fresh Grocer model represents a format that Wakefern typically utilizes for stores with smaller footprints (as compared to ShopRite) that emphasize perishables. Currently, there are eight Fresh Grocers in the Philadelphia area operated by Pat Burns (six units) and Jeff Brown (two stores)…Target, which has been as aggressive as any retailer in the five boroughs over the past three years, has reportedly signed a lease and will open a 33,000 square foot store at Union Square (14th Street). That unit originated as a Food Emporium (RIP, A&P) that was acquired at auction and continues to operate under that banner under the ownership an independent retailer. Tar-jay isn’t expected to open the store until the holiday season of 2023…and if there’s a regulation that can possibly be passed, the Big Apple is a likely launching pad. The New York City Council last month made sure that cash will always be a mode of payment in all retail stores. By a 43-3 margin, the councilmen and councilwomen of the nation’s largest city ensured that cash must be an option for all purchases. Mayor Bill (“Big Lefty”) de Blasio said he will support the measure…in more metro NY news, Amazon will open 10 more 4-Star top-selling merchandise outlets later this year nationally, two of which will be in East Rutherford and Wayne, NJ. “Godzilla” debuted its first area 4-Star store last year in the Soho section of Manhattan.
Ahold Delhaize recently reported sales and earnings. In the U.S., the Netherland-based chain posted positive comps of 2.3 percent (excluding fuel). Especially strong were the performances of Food Lion and Hannaford. Only Stop & Shop posted negative comps; the biggest ADUSA brand is still feeling the adverse impact of last year’s 11-day strike. However, ADUSA CEO Frans Muller noted that volumes are improving and singled out the chain’s store upgrades and remodelings in Hartford and on Long Island, which are paying sales dividends. Another 65 stores are slated for improvements this year under the retailer’s “Re-imagine Stop & Shop” program. A day before the earnings release, the big merchant announced that it would close the Midwest division of its Peapod online grocery sales business, which comprises $97 million in revenue of the $1.1 billion in total online sales in the U.S. Ahold Delhaize USA said the decision will enable it to focus on expanding the leadership position of its brands on the East Coast (where all its brick and mortar stores are located) and execute its strategy of enabling each local brand to be the leading omnichannel grocery retailer in each of their markets utilizing the market-leading capabilities of Peapod Digital Labs. Effective February 18, 2020, service for Midwest customers placing online grocery delivery orders in Illinois, Wisconsin and Indiana will be discontinued. As a result of this decision, the following facilities will close: a distribution center and food preparation facility in Lake Zurich, IL; distribution facilities in Chicago, IL, Milwaukee, WI, and Indianapolis, IN; and a pick-up point in Palatine, IL. “This was a difficult decision given Peapod’s rich history in the Midwest,” said Kevin Holt, CEO of ADUSA. “We know changes such as these are never easy for consumers and communities. We appreciate the loyalty of associates and customers in the Midwest sales business over the past three decades. We have been and will continue to leverage the learnings from our 30-year legacy of online grocery to enable each of the brands to grow its omnichannel business on the East Coast.” The announcement is expected to affect approximately 500 associates in the greater Chicago, Indianapolis and Milwaukee markets. Associates affected by this announcement will be eligible to apply for other roles within Ahold Delhaize USA companies. Eligible associates will be offered severance and transition support services. “As we’ve previously shared, to continue our strong track record of sales growth and market share gains, we are accelerating our growth and expanding the leadership positions of our businesses in our East Coast markets,” added Holt. “This move will enable us to fully focus on markets where we have strong store density, leading market share, and a longstanding heritage of customer loyalty.” Related to the closure, parent firm Ahold Delhaize expects no significant impact to reported operating profits or free cash flow. In addition, this announcement does not impact ADUSA’s commitment to its previously stated 30 percent e-commerce growth in 2020. “Chicago will remain the headquarters for our Peapod Digital Labs team, and we will continue to draw from the valuable pool of digital and e-commerce talent in the market,” said JJ Fleeman, president, Peapod Digital Labs and chief e-commerce officer. “Through Peapod Digital Labs, we will continue to build upon Peapod’s technology legacy. Peapod began here, and we will remain here, in the heart of Chicago. We look forward to honoring and leveraging Peapod’s longstanding legacy of expertise in online grocery and fully focusing our team’s energy and talent on supporting the growth of each of the East Coast brands.” The first online grocer in the U.S., Peapod was founded by brothers Andrew and Thomas Parkinson in the Chicago area in 1989. The company was acquired by Ahold USA in 2000.
Sprouts’ next store is slated for a March 11 ribbon cutting in Wilmington, DE, its initial First State unit and fifth overall store in the Mid-Atlantic. And, on April 15, Sprouts will open in Pasadena, MD on April 15. Other Sprouts units to open later this year will be stores in Dresher, PA and in the Canton area of Baltimore City.
Redner’s has confirmed the location of its previously announced next store, in Lewes, DE. That 49,000 square foot “fresh market” will be located in a new mixed-use development – The Vineyards at Nassau Valley – and is slated to open in the spring of 2021. It will mark the third store the Redner family will have opened in beachy Sussex county and its sixth overall in Delaware. “We have been working on this location for quite some time and are very excited about the plans for building within this unique shopping center,” said president and CEO Ryan S. Redner. “The addition of our Redner’s Fresh Market to a shopping center such as Vineyards will be sure to create a truly unique shopping experience. Our focus for this store will be to provide a rewarding experience to our guests by offering a variety of prepared foods within our service departments while still providing the values we have been known for in our 50 years of business. I’m confident that we can provide the best, one-stop shopping experience for our guests in this new location.”
From the obit desk we have several deaths to report…David Glass, former CEO of Walmart, passed away last month at the age of 84. Glass first joined Walmart in 1976 as CFO and succeeded Sam Walton when he retired in 1988. He ran the behemoth for 12 years, leading the world’s largest retailer through one of its most prolific growth periods, increasing sales from $16 billion annually in 1988 to $165 billion when he stepped down in 2000. After his retirement, he acquired the Kansas City Royals baseball team for $96 million and sold it in 2019 for $1 billion. I met David Glass several times during his tenure at Walmart and found him to be a gentleman with a fierce drive and lots of humility…also passing on at age 81 was Mike Wright, former CEO of Supervalu, who led the Minnesota based wholesaler from 1981 till 2000 and helped the company become the leading wholesaler in the U.S. What you might know about Wright is that he was also a terrific college football player for the University of Minnesota who was later drafted by the Green Bay Packers. He chose to play in the Canadian Football League, which offered him more money (an $11,000 salary), and was coached by another famous Minnesotan Bud Grant, the Hall of Fame coach who guided the Minnesota Vikings for many years. Wright left Supervalu in 2002, serving the last two years as the company’s chairman of the board…the food industry lost another icon last month when Frieda Rapoport Caplan, founder of Frieda’s Specialty Produce, died at the age of 96. A larger than life personality, Caplan pretty much invented the marketing of specialty produce, including such items as passionfruit, alfalfa sprouts, baby carrots, star fruit, blood oranges and Chinese gooseberries (better known as kiwi fruit). She founded her company in 1962 in Los Angeles and was still working hard until just before her death. Today Frieda’s is a $50 million-plus business that operates from an 81,000 square foot warehouse in Los Alamitos, CA and his run by her two daughters, Karen Caplan and Jackie Caplan-Wiggins…one of the oldest and greatest actors in Hollywood history, Kirk Douglas, died earlier this month month at the age of 103. Douglas was born Issur Danielovitch in 1916 in Amsterdam, NY to immigrant Russian Jewish parents and attended the Academy of Dramatic Arts in New York City on a scholarship. He changed his name to Kirk Douglas and made his movie debut with a small part in “The Strange Love of Martha Ivers” in 1946. His breakout role came three years later when he starred as an ambitious boxer in the classic film “Champion.” That role cemented Douglas’ image as an intense, often cocky personality. In 1956, he showcased as Vincent Van Gogh in the biography flick “Lust For Life” and a year later starred in Stanley Kubrick’s great anti-war film “Paths of Glory,” one of my favorite movies of all-time. In 1960, he starred in “Spartacus,” his most popular film and the most flamboyant role of his career. Simply stated, Kirk Douglas was an A-list actor in the golden era of Hollywood whose more than 80 film roles consistently displayed the pride and the talent of a truly great performer…and finally, it is with great sadness that I announce the death of Mr. Peanut who passed away last month after his “nutmobile” swerved off the road and exploded. He was 104. But there’s good news to report. Mr. Peanut, whose birth name was Bartholomew Richard Fitzgerald-Smythe, has apparently been resurrected as Baby Nut, according to visual evidence seen during this year’s Super Bowl broadcast. All we know about Baby Nut is that he’s “a little legume who carries with him the spirit and wisdom of Mr. Peanut.” Stay tuned, more info to come.