While most retailers are still experiencing fairly robust sales, the panic buying/hoarding period in mid-March has significantly waned and, of the 25 retailers we have informally polled over the past few weeks, many have told us they are now contemplating how to deal with the next period of consumer behavior.
“We’ve always prided ourselves on our ability to plan and project at a high level, but consumer behavior over the past eight weeks has made that very difficult,” said a chain executive whose parent company has stores operating in most of the Northeast. “One of our biggest challenges is how to offset our increasing expenses once sales flatten out even more in the coming months.”
Specifically, some of those new costs are now baked into the new operating environment – the investments into cleaning stores more thoroughly, protecting workers with masks and gloves and hiring more associates to provide other newly needed in-store services – will likely be around for more than the short term. Other expenses such as installing sneeze guards and creating signage for social distancing or directional arrows are deemed one-time costs.
Then there’s the biggest new expense component – bonuses, increased wages (either hourly increases or percentage increases) and other extra compensation that’s been rightfully given to those front-line store and warehouse employees. Yes, they’ve always been billed as temporary, but some retailers admitted they’re not sure when to end their reward programs.
“Well, you don’t want to be the first retailer to end the program,” said one Maryland-based merchant. “That moment is coming, but we’re all cautious of pulling back too soon, because our associates have truly been heroes over the past two months. Still, maintaining that level of compensation over the long-term is unsustainable, especially when sales continue to flatten even further.”
Some retailers have told us that they are following the guidelines of individual states and are using the lifting of “shelter in place/stay at home” regulations as their marker on when to end bonus programs. Others told me that they plan to offer their associates a one-time bonus when they believe conditions becoming more normalized.
Those polled said that their increased expenses are now running 11-15 percent weekly and all of our panelists said that their current sales increases are able to cover those elevated costs.
“We’ve got a window that’s going to be around for at least several more months or as long as we’re not competing with restaurants and schools for a piece of the pie,” said the president of a Pennsylvania-based chain retailer. “But that window is going to close at some point and all of us need to make plans as best we can on how we cover some of these long-term expenses that remain. Can we reduce our expense load enough to offset what our sales will be in three months, six months, a year from now? That’s a real challenge.”
We asked our retailer group what they’ve learned over the past two months that might be incorporated into their businesses on a future basis.The one almost universal answer was the growth and impression that e-commerce has made. “Amazon and Walmart didn’t need more help with their online platforms, but they’ve exponentially increased their business during this crisis. But so have we and I’m guessing other conventional supermarket operators who in recent years have added click & collect or delivery (via Instacart or Shipt) to their menu of options,” said a medium-sized supermarket senior VP (between 25 and 40 stores). “The evidence clearly indicates that our online business has increased significantly both net new customers and hybrid shoppers. Going forward I firmly believe those customers will continue to increase their digital spend with us.” Other new learnings that retailers mentioned as possible future implementations include the shortening of operating hours, the greater acceptance of pre-sliced meat and cheeses from the deli and the reduction of salad bars (and other service bars).
And one executive VP of a chain who does business in all the Mid-Atlantic states summarized his view of future changes: “It’s clear to me that we have to be aggressive in implementing these new learnings. However, we’re still really in the first phase and while I think we can tangibly recognize the growth of e-commerce during the pandemic and might have figured out systems and methods to operate more efficiently in the long-term, we really don’t know yet how far to go. Are you going to reduce the number of workers in your deli department or shorten your operating hours if the competitor across the street is not doing the same? What about the economy? If unemployment remains in the 15-20 percent level through the rest of 2020, how will that affect our business? Will our customers pay $18-$20 per pound for a steak if prices reach those levels and supply remains short? We know that there will be permanent changes to several parts of our business. What they are and how deeply they affect our customers is almost impossible to pinpoint at this time.”
A VP of merchandising for a New Jersey-based regional chain predicted that vendors and retailers will be interacting differently once the crisis subsides. “We’ve all talked about SKU rationalization for years. Over the last two months all disciplines were tossed out the window as we all scrambled to get product on our shelves. What was reinforced was that the 80/20 rule applies. We simply don’t need to carry every line extension or new flavor that’s offered to us. However, retailers will need to make the decision of whether they’ll approve questionable new items if vendors continue to throw promotional dollars their way. I believe in many cases they won’t. They’ll evaluate the cost of putting those items on the shelf against the trade dollars offered and find in many cases they are better off utilizing a supplier’s trade dollars to promote items that can stand on their own. There will always be new items, but not at the rate we’ve seen them in the last few years.” Asked about trade deals and financial allowances that were made late last year to cover 2020 promotions (which clearly haven’t been consistently executed over the past two months), he said, “It will be a ‘cluster’ for both sides in trying to settle up for 2020.”
While the COVID-19 crisis has sadly impacted all of our lives, there are two perishable segments – produce and meat – that I’d like to highlight as ongoing tragedies. So, let me start by singling out the Federal government for providing the most historic lack of leadership by any administration…ever. And I’m not talking politics and I’m not specifically referring to the ongoing need for increased and available coronavirus testing which is at the crux of many of our problems.
Specific to the meat industry, what’s happened at many of the meatpacking plants in our country is a disaster. Granted, front-line employees who toil in beef, poultry or pork processing plants have a horrible job – unbearably difficult and dangerous work with relatively low wages. That unfortunately is the nature of their job. And I certainly don’t want to paint monoliths like JBS, Smithfield, Tyson and Cargill as villains (they’re hardly Boy Scouts, either), but the catalyst (beyond the virus itself) that led to over 5,000 infected meat plant workers and more than 20 deaths starts right at the top with President Trump. If Trump and his minions had been better prepared to offer adequate Personal Protection Equipment (PPE) in early March, a lot of the pain and heartbreak that families have endured would have been reduced. Though they may have been pressured to do so, the facts indicate that when meatpacking facilities are closed and then thoroughly cleaned, and workers are provided with the correct PPE and other safeguards (plexiglass barriers, further spacing), the number of positive cases and deaths has dropped. And with Trump’s mandate that all meatpacking plants had to remain open, he only exacerbated the problem.
“There are no enforceable worker safety directives from the federal government whatsoever,” said Wendell Young IV, president of UFCW Local 1776, whose 35,000 members work in both food stores and at manufacturing and processing plants. “And officially there’s no regulations that make any sense. It starts with President Trump but filters down to the CDC, the USDA, OSHA and the Department of Labor. If they really want to help us – our individual members and their employers on the processing side – devise a plan where your role is defined and helpful. At this point, nothing the federal government has done is binding, it’s all voluntary recommendations, there is no leadership from the top.”
He’s right.
As for produce, farmers and distributors have done a great job, maybe too good. And that’s where my frustration lies. It’s heartbreaking to see a vegetable harvest (and milk for that matter) be destroyed or dumped because there’s not an outlet for those products. Clearly, the steep decline of foodservice (restaurants and schools) has created many of these issues, but again, here’s where lack of leadership and vision at the federal level have made the situation far worse than it should be.
Why are food banks in dire need of product while “Farmer John” in Florida is dumping some of his cucumber crop in an open field? This one I’ll blame mostly on Secretary of Agriculture Sonny (he ain’t nothing like Frank) Perdue. It wasn’t until April 17 that “Junior Samples,” er, Perdue was going to allow the federal government to purchase up to $3 billion of agricultural products to those in need. The imbalance between harvest and demand should have been recognized six weeks before that and a coordinated effort to supply food banks and other charitable agencies with produce (and milk – which is also under the USDA’s purview) so we don’t see cars lined up for two miles at a food bank waiting to see if food is available. That shouldn’t happen anywhere, especially not in America.
You can argue all day long about partisanship and policy and never win the argument. Leadership at the top – that’s a clearer lens, especially when 1,000 people are dying every day in this country.
‘Round The Trade
Albertsons, off the heels of a 47 percent ID store sales jump in March, has filed an amended S-1 registration form with the SEC. The Boise, ID-based chain originally filed its notice that it intends to go public in March. The amended registration provides a little more guidance for potential investors and highlights the retailer’s very successful Q4 and entire fiscal year. The new filing does not provide a specific date for its intended launch, only noting that it hopes it will happen “as soon as practicable.” Yes, it’s a tough time to go the IPO route with the market as volatile and uncertain as it’s ever been over the past 10 weeks. And it will take time to do the roadshow (probably a virtual one) and sell the “book,” but I’m betting this effort, five years in the making, will happen, and probably in the next few months.
Speaking of Albertsons, my buddy Jim Donald, who was kind enough to pen a guest article this month, recently joined the board of Nordstrom’s. Jim is currently co-chairman of Albertsons and has toiled for many other food related firms – Publix, Walmart, Safeway, Pathmark and Haggen. It’s like he just can’t let himself really retire…
Amazon, which has come under much scrutiny in recent weeks over safety issues at its fulfillment centers, posted a strong Q1 sales for the 13 weeks ended March 31. Revenue jumped 25 percent to $75.5 billion, but “Godzilla’s” profit dropped 9.1 percent to $4 billion. At its physical stores (primarily Whole Foods), the Seattle-based juggernaut had its best quarter ever, with sales up 8 percent to $4.64 billion. Describing the earnings decrease, CEO Jeff Bezos noted: “If you’re a shareowner in Amazon, you may want to take a seat, because we’re not thinking small. Under normal circumstances, in this coming Q2, we’d expect to make some $4 billion or more in operating profit. But these aren’t normal circumstances. Instead, we expect to spend the entirety of that $4 billion, and perhaps a bit more, on COVID-related expenses getting products to customers and keeping employees safe. This includes investments in personal protective equipment, enhanced cleaning of our facilities, less efficient process paths that better allow for effective social distancing, higher wages for hourly teams, and hundreds of millions to develop our own COVID-19 testing capabilities. There is a lot of uncertainty in the world right now, and the best investment we can make is in the safety and well-being of our hundreds of thousands of employees. I’m confident that our long-term oriented shareowners will understand and embrace our approach, and that in fact they would expect no less.” Bezos has been feeling some heat lately after multiple workers at its 175 fulfillment centers have complained about working conditions. Bezos has not helped himself by failing to disclose how many workers are infected and how many deaths have occurred. The company also took one to the chin following the departure of high-profile senior engineer at its Amazon Web Services (AWS) unit, Tim Bray, who quit the company after it fired two whistleblowers who were canned after raising concerns over warehouse conditions (Amazon said they were terminated for different reasons). Among Bray’s comments after his exit was this ditty: “Amazon treats the humans in the warehouses as fungible units of pick-and-pack potential.” Ouch! And Bezos is now part of a congressional inquiry to respond to allegations that Amazon used sale data from its third-party sellers to develop its own private label products. At presstime, Bezos had not yet responded to the House’s Judiciary Committee’s request
At rival Walmart, the “Behemoth” said that it was well ahead of schedule (end of May) in its quest to hire 150,000 new associates (it is adding 5,000 people per day) and plans to hire another 50,000 workers. Additionally, the boys and girls in Bentonville are rolling out a new online “Express Delivery” service, a program where consumers can receive home deliveries in less than two hours. Within the next six weeks the plan will involve about 2,000 stores utilizing its network of 74,000 personal shoppers. The charge to use the new service is $10 in addition to the existing delivery cost…where’s the beef? That’s the theme of an old Wendy’s commercial that will probably never be revived after it was revealed that approximately 20 percent of its nearly 6,000 U.S. stores are out of hamburger due to the current meat processing shortage. The bigger question down the road is not whether ground beef will be available (it will), but how much it will cost.
Local Notes
Kudos to Benjy Green and Rick Rodgers on their new posts at B. Green & Co. Benjy, who I’ve known since the first month I arrived in the B-W market in May 1979 is moving “upstairs” at the company his grandfather founded in 1915. He will become chairman of the company’s board and by his own admission, will be taking it a bit easier. For Rick Rodgers, who joined the Baltimore-based independent retailer, cash-and-carry operator and wholesale redistributor in 2008 from Shoppers Food, it’s great to see him become CEO of an organization he’s helped grow over the past 12 years. And a tip of the hat also to Matt Battaglia, who was recently promoted in the management realignment, and to Dave Mariano, who joins B. Green from Grocery Outlet and (before that) Shoppers.
A shout out, too, to Brian Bosworth and Ashley Odom on their recent promotions at Weis Markets. Both merchandising vets are real pros. Weis’ senior VP-merchandising and marketing Richard Gunn is quietly and effectively building a first-rate procurement and merchandising team.
“The first quarter of 2020 was unlike any we have ever seen before. The COVID-19 crisis has affected all of us, and I truly hope that all of our stakeholders – and in particular the people who are out on the front line – are managing through the crisis as well as they can. I’m honored to represent the leadership and brands of Ahold Delhaize, who are doing their utmost best to provide the essential service of helping to feed our local communities.” Those were the words of Ahold Delhaize CEO Frans Muller at the retailer’s conference call with financial analysts following the full release of Ahold Delhaize’s Q1 earnings on May 7. And indeed it was quite a quarter for the Netherlands based retail chain, which accrues more than 60 percent of its sales in the U.S. At its five operating “brands” with physical stores and its Peapod digital unit, Ahold Delhaize USA’s (ADUSA) comp stores sales grew 13.8 percent in the first three months of 2020 (ex-gas), including a whopping 34 percent for the first three months of this year. Online revenue in the U.S. was also booming, increasing 42 percent in Q1. “In the U.S., we will be able to generate this higher level of online sales by investing in incremental associates and supplemental infrastructure, such as through more storage units, picking devices and stepping up the pace on the number of click-and-collect locations we plan to open this year. We are upping our target to over 1,000 locations in 2020 versus our initial target of roughly 1,000,” Muller proclaimed. Other highlights from the Muller’s session with the financial community included the announcement of the acquisition of three distribution centers from C&S Wholesale as part of a three-year, $480 million investment to transition its U.S. supply chain to a self-distribution model. Moreover, he noted, the finalization of its January 2019 agreement to purchase 34 King Kullen stores should occur in the second half of this year.
Also demonstrating a strong financial showing was Sprouts Farmers Market. The Phoenix, AZ-based natural and organics retailer enjoyed a strong first quarter with comp sales up 10.6 percent and earnings increasing 49.6 percent.
Lidl will take over the site of the former Green Valley unit in Timonium, MD. The 31,000 square foot store, originally a Mars Super Market, was shuttered by parent firm B. Green & Co. earlier this year, a victim of the incredible overstoring that is a fact of life on the York Street corridor. Lidl expects to open its discount store in mid-2021.
UNFI has added Jack Clare to its team as chief information officer (CIO). Clare joins the Providence-based wholesaler/retailer from Dunkin’ Brands where he served in a similar capacity. Also joining the distributor is Jim Gehr as its new chief supply chain officer. In this role, Gehr will lead an organization of over 12,000 associates working across four regions and 59 distribution centers. He will immediately focus on UNFI’s warehouse logistics while further advancing UNFI’s automation investments, distribution center expansions and network optimization. Gehr will report to Eric Dorne, UNFI’s COO. Gehr spent the last 29 years at DHL. And Stacey Kravitz has been promoted to president of the company’s Canadian operations. She will assume that role on August 2 when Peter Brennan, UNFI Canada’s current president, prepares for retirement at the end of the company’s fiscal year. Kravitz will oversee broadline natural, organic and specialty distribution in Canada, and lead a sales, merchandising and supply chain organization of over 450 associates. She will report to UNFI president and CMO Chris Testa.
As the NFL prepares to hopefully begin its season this September without interruption, we have three football related deaths to report from our obit desk. Two local legends, Mike “Mad Dog” Curtis and Bobby Mitchell have both passed away. Curtis, who came out of non-football powerhouse Duke University, was a ferocious hitting linebacker in the days when clotheslining and tackling at the knees were tolerated. Curtis played for the Baltimore Colts for 11 of his 14 years in the league. He was an All-Pro four times and was name AFC defensive player of the year in 1970. Sadly, his death was related to CTE, the neurodegenerative disease caused by repeated head injuries. He was 77 years old.
Bobby Mitchell, the first African American player to sign with the Washington Redskins, also died last month, at the age of 84. Mitchell began his career as a halfback with the Cleveland Browns in 1958 but most of the running on that team was handled by Jim Brown, still the greatest professional running back in history, in my opinion. Four years later, Mitchell was traded to the Redskins, who moved him to the wide out position. He went on to lead the league in pass receptions and receiving yards that year. Mitchell retired in 1969 after an 11 year career in which he was named an All Pro four times. In 1983, he was inducted into the Pro Football Hall of Fame. I remember Mitchell as a smooth route runner with deceptively fast speed. He was also a class guy off the field, appearing at many charitable golf outings and events where he was always generous with his time.
Also leaving us was in my opinion the greatest NFL coach of all time, Don Shula. Shula was 90 when he passed this month having been associated with the NFL for almost 70 years. Among his achievements were taking two teams – the Baltimore Colts and the Miami Dolphins – to six Super Bowls. He won two of those championships, including the Dolphins’ undefeated 17-0 season in 1972, which remains the only time an NFL team has gone an entire season without a loss. He began his playing career in 1951 with the Cleveland Browns and joined the Detroit Lions in 1960 as a defensive coordinator before taking the helm of the Colts in 1963. Shula became the Dolphins’ head coach in 1970, turning a rag-tag squad that had won just 15 games in its first four seasons into what would become a football dynasty within two years. He retired in 1995 with what remains the all-time record for wins (328) during his tenure as a head coach. His head coaching record only includes 156 losses. After his retirement he remained affiliated with the NFL for many years. Shula was enshrined into the Pro Football Hall of Fame in 1977.
And arguably the greatest baseball player to ever come out of Baltimore (if you’re not in the school of those who think it’s Cal Ripken Jr.) has also passed on. Al Kaline, who made the jump directly from Southern High School in Charm City to the Detroit Tigers in 1952, was perhaps one of the greatest unsung players in baseball history. A snapshot of his stats: played for 22 years – all with the Tigers; had a career batting average of .297 with 3,007 hits and 1,583 RBI; considered one of the greatest right-fielders of the past 60 years, winning 10 Gold Gloves; was American League MVP in 1955; was a 15-time all-star; inducted into the Hall of Fame in 1980. “Joe Di Maggio, Willie Mays and Al Kaline – these are three greatest players I’ve seen as far as doing everything – baserunning, outfield, throw, hit,” said Billy Martin, who played against him and later managed him and watched him when he managed other teams. After Kaline retired in 1974, he became a Tigers broadcaster for 15 years and remained affiliated with the club until his death. “Mr. Tiger” was 85.
