From a sheer sales perspective, it’s still relatively positive news for most retailers in the Mid-Atlantic and Northeast. Not the hoarding-skewed record numbers that merchants experienced six weeks ago, but still very healthy comps, both in-store and especially online.But the clouds are getting thicker and grayer as they ponder their future in this evolving “new normal” operating environment.
With all 50 states now easing their stay-at-home restrictions (to greatly varying degrees), shopping patterns will continue to trend back toward pre-pandemic times (although we’re still months away from coming close to the “old days”), and retailers are concerned about what lies ahead especially if unemployment remains in the unthinkable 15-20 percent range.
“I think we’re just at the beginning of what will be a long and winding road,” said the owner of a Pennsylvania-based independent, one of about 25 retailers we’ve polled in recent weeks. “We’ve already made changes in how we operate, and we will need to continue to adapt. The ‘new normal’ will be significantly different than what we’ve done for the past decade. I’m most concerned about the economy – even when things open up further, is it realistic to expect unemployment to drop below 10 percent in the next six months? I’m just not that confident based on what I’m reading and seeing. And if unemployment remains at unacceptable levels, food retailers will find themselves in a far different place than today.”
Retailers are expecting some expense relief when their temporary bonus pay programs to their much deserving associates end. Those polled said that their increased expenses are now running 11-15 percent weekly and all of our panelists said that their sales increases are currently sufficient to cover those elevated costs.
Walmart (not polled) recently released its Q1 financials and said increased costs related to COVID-19 were $900 million, adding that 75 percent of that cost was related to bonus pay (Walmart did not issue hourly increases, instead opting for three lump sum bonuses).
When Kroger ended its hourly bonus compensation on May 16, it became the first retailer to make the difficult decision on what it termed “hero pay. Other are likely to follow by the end of this month.
The retailer consensus indicated that it will be a “cluster” for both sides in trying to settle up for 2020.
Weis To Build 5 New Stores; Q1 Comps, Earnings Way Up
Weis Markets reported that its Q1 revenue increased 12.4 percent to $985.8 million during the 13-week period ended March 28, 2020, compared to the same period in 2019, while first quarter comparable store sales increased 12.8 percent.
The Sunbury, PA-based regional chain added that first quarter net income increased 86.6 percent to $26.7 million compared to $14.3 million in 2019, while earnings per share totaled $0.99 compared to $0.53 per share for the same period in 2019.
Weis’ results were impacted by the onset of the novel coronavirus pandemic (COVID-19) and the subsequent business and school closures and stay-at-home orders in its markets beginning in the second week of March. This resulted in a significant surge in customer count and sales. Its January and February sales were impacted by a mild winter compared to 2019.
“Our team quickly adapted to this changed market environment and resulting supplier disruptions by accelerating and increasing replenishment shipments to our stores and implementing a comprehensive COVID-19 prevention program in our stores, distribution, manufacturing and support facilities to provide a safe shopping and working environment,” said chairman and CEO Jonathan Weis. “We carry a profound sense of sadness for those who are suffering or have lost their lives during this pandemic, and a tremendous appreciation for the essential Weis Markets associates who come to work each day, providing the products and services that are allowing our customers to stay at home and help stop the spread of the novel coronavirus.”
Adjusting for the impact of this pandemic, Weis estimates its comparable store sales increased 1.5 percent compared to the same period in 2019. Four days earlier during its annual shareholders meeting held on April 30 at Weis’ headquarters in Sunbury (where social distancing was practiced), Weis summarized his company’s results over the past year.
“We made significant forward progress in 2019 by driving sales with targeted merchandising and marketing programs, significant price investments and improved in-store execution. We also expanded online ordering with in-store pickup and home delivery to 184 stores, which resulted in more than 250,000 orders and a 115.4 percent increase in online sales,” the 52-year old chief executive stated. “It is important to note our sales and comparable-store sales continued to benefit from multi-million-dollar investments in our ‘Low, Low Price’ program which offers price reductions on 7,000 private-brand items and we also made significant gains with targeted loyalty marketing programs, varied promotions and advertising in key markets.”
He also told shareholders about Weis’ continued investment plans. In 2019, the regional merchant completed 10 remodels; opened its first New Jersey liquor store near its Randolph location; opened a new store in Bedminster, PA; and completed work on three fuel centers.
“Fuel centers are an increasingly important part of our go-to-market strategy. We currently operate 42 fuel centers where nearly half of all Weis gas rewards are redeemed,” Weis explained.
“In 2020, we will build four additional fuel centers and are planning for more in the years ahead.
We also completed more than a hundred smaller projects including resets, self-scan installations and upgrades and the continuing expansion of our ‘Weis 2 Go’ online ordering program with curbside pickup and delivery. We also continue to invest in our distribution center, which supplies nearly 200 stores enabling us to improve our supply chain. One notable project was the construction of a new ripening facility that allows us to produce bananas at various levels of ripeness. This ensures a better product for our customers and contributes strongly to our profitability.”
Weis said that his company plans to invest $86 million in its growth program. The 197-store retailer intends to build five new stores in: Dingman’s Ferry, PA; Bethlehem, PA (replacement); Macungie, PA (replacement); and Gap, PA (rebuild from a fire that occurred in November 2019); along with another new store in Martinsburg, WV.
Its cap-ex budget also calls for four remodels, continuing distribution upgrades and hundreds of smaller improvement projects. Weis added that he expects work on the company’s Keystone State projects to resume this month.
Before answering questions from shareholders, Weis took a moment to update the company’s stockholders on the “achievements of our team during the COVID-19 pandemic.”
“Since early March, we have seen a tremendous surge in demand which has challenged us in many ways. We have seen supply chain disruption, overwhelming demand for certain products and services, constantly changing state edicts, and a need for store support center employees to work remotely for six weeks or more.
“At store level, our teams have risen to the challenge and helped us comply with the evolving government safety requirements. Each day, we are investing additional resources to clean and sanitize our stores on an hourly basis before they open and after they close.
“As part of this process, many of our store support associates have redeployed to work in stores and our distribution center. Our goals are simple – to protect our valued associates while assuring that we can continue to provide our valued customers with value and choice during particularly stressful times…I’m incredibly proud of our many dedicated team members throughout our organization.”
He should be – Weis, like most retailers during this crisis, has performed admirably during the past three months with a big shout out to the front-line associates at its stores and distribution centers. And I’d give Weis even a higher grade for maintaining above industry average service levels. Keeping products in-stock has been a supreme challenge for all retailers – but from what I’ve witnessed in March and April, most merchants that are self-supplied seemed to have an advantage over many (not all) operators who relied on a third-party distribution system.
Ahold Delhaize USA Chooses Americold; Plans Robust Investment Program For 2020
Ahold Delhaize USA (ADUSA) has chosen a new frozen food partner that will work with the big merchant to supply frozen foods to the company when it completes its transition into a fully integrated self-distribution retailer by 2023. Americold, the Atlanta-based temperature-controlled warehousing and logistics firm, has been selected to work with Northeast’s largest retailer. The decision to shift to a self-distribution model was first announced by ADUSA in December 2019. As part of that announcement, the company said it would invest in a partnership to build two fully automated frozen warehouses which will expand cold storage space by 500,000 square feet (24 million cubic feet). The new frozen depots will be located in Plainville, CT (about 20 miles from Hartford) which will serve Ahold Delhaize USA’s Northeast brands (divisions), and in Mountville, PA (about 15 miles from Lancaster) which will serve Ahold Delhaize USA’s Mid-Atlantic brands.
“We’re extremely proud of this new partnership with Americold and the opportunity to fully expand our cold-storage capacity as part of our current storage needs and future growth plans,” said Chris Lewis, executive VP-supply chain for Retail Business Services, the services company for Ahold Delhaize USA. “Americold is a leading expert in this space, and we’re confident in their abilities to build state-of-the-art facilities that will meet our needs and serve our omnichannel growth strategy.”
The retailer said the new locations will provide optimal facility locations near the local brands of Ahold Delhaize USA and their customers, enabling local product expansion, increased product freshness and speed of delivery. The two warehouses will also create about 200 new jobs each and infuse additional economic benefits to local economies as a result of this growth.
“We are thrilled to partner with Ahold Delhaize USA to design, build and operate these strategically-located retail distribution fulfillment centers over an initial term of the next 20 years. With state-of-the-art automation, these two facilities will deliver a combined 59,000 pallet positions to support the local brands of Ahold Delhaize USA in the Northeast and Mid-Atlantic regions,” said Fred Boehler, president and chief executive officer of Americold, a publicly-traded company (parent firm: Americold Realty Trust) that was founded in 1903. It operates 178 facilities and 2019 sales were $1.4 billion.
In addition, the retailer noted that the new facilities enable Ahold Delhaize USA to innovate in new frozen storage warehouse design, including transforming facilities to enhance automation and leverage technology advancements, such as an integrated transportation management system and end-to-end forecasting and replenishment technology, designed to support the omnichannel experience and multi-channel growth.
This announcement “continues to reinforce how Ahold Delhaize USA is transforming our infrastructure to support the next generation of grocery retail,” added Lewis. “Through this expansion, we will continue to modernize our supply chain distribution, transportation and procurement through a fully integrated, self-distribution model that will be managed by our companies directly and locally. This will result in efficiencies and, most importantly, product availability and freshness for customers of our local brands – now and in the future – whenever, wherever and however they choose to shop.”
Currently, Ahold Delhaize USA companies’ distribution networks include 16 traditional and e-commerce distribution centers that service the local brands of Ahold Delhaize USA, including Food Lion, Giant Food, The Giant Company, Hannaford and Stop & Shop. The network will grow to 23 facilities by 2023. This enhanced distribution network will provide coverage for ADUSA’s local brands from Maine to Georgia.
All told, the companies comprise the largest grocery retail group on the East Coast and the fourth largest group in the nation, with nearly 2,000 retail stores and more than 6 million annualized online grocery orders. Additionally, the companies of Ahold Delhaize USA operate some of the most extensive supply chain operations on the East Coast, including more than 1,000 trucks that travel more than 120 million miles annually and deliver 1.1 billion cases to local brands’ stores.
‘Round The Trade
Multiple reports indicate that Amazon is interested in purchasing some of bankrupt J.C. Penney’s stores and real estate for possible additional fulfillment centers or for brick and mortar use. Penney’s filed for Chapter 11 protection earlier this month, noting that it would close about 30 percent of its existing stores (242 locations). And according to the New York Post, Amazon is “kicking the tires” on three more possible Fairway Market locations in Douglaston, Queens, Westbury, Long Island and Harlem in Manhattan. “Godzilla” last month acquired the real estate for former Fairway units in Paramus, NJ (now closed) and Woodland Park, NJ and word on the street is that those stores will likely open in early 2021. Village ShopRite, the big winner in the Fairway sell-off with six stores and its perishable distinction center in the Bronx, officially took possession of those units on May 6 with little disruption or immediate change. However, according to the Westside Rag (great name), a community newspaper covering Manhattan’s Upper West Side, there were a few transition-related issues which still needed to be completed. Village’s big long-term job will be to change the perception of the once iconic merchant from its current declining state to one where innovation and merchandising (particularly in perishables) were the hallmarks of the nearly 90-year old merchant. One more thing: if Amazon is indeed interested in Fairway’s Harlem store, it’d better be prepared to open up its very deep checkbook. Why? Because Village owns the large parking lot adjacent to the store on 12th Avenue & W. 125th Street. And without control of that parking lot, a new owner would find it impossible to operate a successful store.
Aldi, which has done as well as any retailer in the country in gaining increased sales and maintaining solid service levels, aims to strongly protect its discount pricing image according to chief executive Jason Hart, who said in a letter to his customers: “It seems as though, in the blink of an eye, everything has changed. While just about every aspect of our lives might look a little different now, including grocery shopping, I want to assure you that one thing will never change at Aldi: our commitment to offering you the lowest prices, every day. We know you love Aldi for our great prices and those prices aren’t going anywhere, no matter what. Access to affordable groceries is more important now than ever before. Our promise to you is that Aldi will continue to offer the lowest possible price every time you shop for groceries. For nine years running, Aldi has been recognized as the value leader among U.S. grocery stores by an independent Market Force Information survey of U.S. consumers. Regardless of how the market shifts, you can trust we will do everything in our power to continue to offer you unbeatable value. We are proud to be leading the industry with some of the best, most innovative suppliers. These relationships, along with our simple and efficient approach to grocery retailing enable us to pass measurable savings along to you, day after day. And while we continuously look for ways to save you money, we remain committed to the health and well-being of our employees and customers. You can rest assured knowing the incredible Aldi team is working tirelessly to make sure you have access to the essentials you need, plus the Aldi favorites you love. Bottom line, you can count on us. Thank you for your continued support. You are the reason we do everything we do.”
Walmart, like virtually every other retailer in the food arena, posted strong Q1 sales especially with its e-commerce business. For the first quarter ended April 30, Walmart’s overall sales jumped 8.6 percent to $134.62 billion from $123.93 billion a year earlier. Operating profit grew by 9.7 percent to $5.22 billion. In the U.S., revenue increased 10.5 percent to $88.74 billion from and same store sales were up 10 percent (ex-gas). Operating profit increased 3.9 percent to $4.3 billion. The “Behemoth’s” biggest growth sector was its U.S. e-commerce business which jumped 74 percent for the period from February 1 to April 30.
“Before this crisis, we were already seeing robust adoption of online pickup and delivery. As this crisis created a need for social distancing and required people to stay at home, customers embraced pickup and delivery even more,” CEO Doug McMillon stated. “Pickup and delivery are attracting greater numbers of new customers. The number of new customers trying pickup and delivery has increased four times since mid-March. We expanded slot capacity as demand swelled, and we’ve increased the number of general merchandise items available.”
McMillon also announced that Walmart plans to exit its Jet.com e-commerce platform which it acquired for $3.3 billion 2016, adding that much of Jet’s business operation has been absorbed by Walmart’s U.S. e-commerce business. As of April 30, Walmart now operates 11,484 stores worldwide of which 5,352 are in the U.S. – 4,753 Walmart and (Neighborhood Market) and 599 Sam’s Club stores.
It was a similar sales story at rival Target where total revenue increased 11.3 percent to $19.4 billion and comp store sales jumped 10.8 percent abetted by a 12.5 percent jump in basket size for the period ended May 2. However, the biggest portal of increased volume was its ecommerce business where comp online volume soared 141 percent in the 13-week period. In comparison, store comp sales edged up 0.9 percent. “To put this volume into perspective, on an average day in April, our operations were fulfilling many more items and orders than last year’s Cyber Monday, a day for which we had planned months ahead at the time,” CEO Brian Cornell explained. “In contrast, this unprecedented surge in volume was completely unexpected at the beginning of the quarter, and it ramped up from normal trends in a matter of weeks.” However, on the earnings side, profit fell 58.7 percent to $468 million. In the first quarter, Target’s operating income came in at $468 million, down 58.7 percent from $1.14 billion a year ago. Target said the earnings decline could be attributed to costs related to merchandising decisions that are associated with adapting to the pandemic including selling more lower margin food items and a slowdown of apparel and accessories sales. Also adversely affecting earnings were the investments made in wages and benefits to its 323,000 associates. Target recently extended $2 per hour bonus pay until July 4, the longest announced extension of any retailer in the U.S.
And if you’re wondering why all the attention to online sales growth, here’s some eye-opening data from analytics firm Coresight Research: online grocery will grow 40 percent this year, amassing about $38 billion in food and beverage revenue. The Manhattan-based research company said this year’s increase will give e-commerce 3.5 percent of the total grocery pie, up from last year’s number of 2.6 percent.
Local Notes
Even in these challenging times when the overwhelming majority of people are trying to do the right thing, bad behavior still exists. Six Ahold Delhaize USA stores (five Stop & Shop units and a single Giant Food store) were potentially impacted by illegal skimming devices attached to PIN pads at those stores. The pattern was consistent: one “shimmer” – a thin device that is placed between the PIN pad’s chip and chip reader – was found at a single self-checkout lane in each of the six stores (Stop & Shops in Berkeley Heights, NJ; Bloomfield, NJ; Clifton, NJ; Darien, CT; and Framingham, MA and a Giant store in Washington, DC). All of the shimmers have been removed and both units of ADUSA said they are working with law enforcement and have enlisted the services of third-party forensic investigators to determine if any data had been captured. Both retailers said there’s no evidence that transactional or customer data has been misused, and they have reviewed video surveillance to help determine how long the devices had been in place. “We take our obligation to safeguard our customers’ personal information very seriously, and we are very sorry this may have impacted them. We have taken immediate steps to increase monitoring across all registers at all stores, we’ve deployed device detection tools, and we will continue to be as vigilant as possible in order to protect our customers’ data. Based on our investigation, at this time, we have no evidence that any of the information has been misused as a result of this issue. Out of an abundance of caution, we are notifying you as we have identified that some of our customers may be affected. Please know we take our obligation to safeguard personal information very seriously and are alerting you about this issue so you can take steps to help protect yourself,” said Dean Wilkinson, Stop & Shop’s senior VP-operations.
One company that struggled mightily prior to the pandemic, but has turned it around in the past three months is UNFI. The Providence, RI-based wholesaler/retailer posted Q3 gains in net income (54 percent), net revenue (12 percent) and adjusted EBITDA (32 percent). Moreover, its stock price has almost quadrupled since March 13, spiking at $22.59 per share on March 13 before settling back down to $17.10 per share on May 22. “When you think about sales growth, remember that COVID didn’t happen until halfway through our quarter, so that 12 percent growth is somewhat muted by the fact that we only had it for half the quarter,” Spinner said at the BMO Capital Markets 15th annual Farm-to-Market Conference which was held via video conference this year. UNFI also said it is delaying plans sell its remaining corporate stores (79 Cub Stores in the Minneapolis area and 26 Shoppers units in the Baltimore-Washington market). UNFI will likely retain those retail banners for the next 12-18 months, noting that continuing the sales process during the coronavirus crisis could potentially create food deserts. More UNFI news: at presstime, we learned that UNFI’s 2018 lawsuit against hedge fund Goldman Sachs for fraud and breach of contract has been tossed. New York state Supreme Court Judge Andrea Masley ruled that UNFI failed to meet the standards in its initial filing for the case to continue. UNFI claimed that Goldman Sachs misappropriated $40.5 million in fees and also withheld $11.4 million in advisory fees following UNFI’s acquisition of Supervalu in October 2018. Judge Masley also said that UNFI also did not show damages incurred from its fraud claim.
Bloomberg is reporting that snack food manufacturer Utz Quality Foods is in negotiations to be acquired by private equity firm Collier Creek Holdings, a New York-based special purpose acquisition company (SPAC). The report said a potential deal would be valued at more than $1 billion (including debt). The following Utz internal statement was shared with us: “We are always evaluating how to best position our company for its next century of growth and as you know, we continue to invest heavily in our people as well as new brands, new plants, and new equipment to ensure that we have meaning and relevance in the snack markets we serve. Our commitment to growing our business and rewarding our customers remains unchanged and it’s important for us to stay focused and keep up the exceptional work that is crucial to Utz’s continued success. However, these rumors and speculation do not change our business objectives and it is critical that we do not get distracted by them.”
From our obit desk, we have more deaths that we’d like to report. A rock & roll pioneer has left us. Little Richard, a powerhouse piano player with a screaming wail who burst upon the scene in 1955, is dead at the age of 87. Along with Chuck Berry and Fats Domino, Richard Penniman brought what was once called “race music” into the mainstream, with such hits as “Good Golly, Miss Molly,” “Long Tall Sally,” “Tutti Fruitti” and “Lucille.” Little Richard was a dynamic performer who influenced virtually every great band, including The Beatles, The Rolling Stones and Bruce Springsteen and the E Street Band. Little Richard was inducted into the inaugural class of the Rock & Roll Hall of Fame in 1987. “It is with a heavy heart that I ask for prayers for the family of my lifelong friend and fellow rocker Little Richard. He will live on always in my heart with his amazing talent and friendship. He was one of a kind and I will miss him dearly,” said Jerry Lee Lewis, whose piano style was often compared to Little Richard’s.
Comedian Jerry Stiller, 92, has also died. Stiller, father of actor and director Ben Stiller, began his career as part of a comedy duo with his wife Anne Meara (who died in 2015). They had a successful career as comedians appearing on many variety shows and in nightclubs. Nearly 20 years after the act broke up, Stiller found a new generation of fans as Frank Costanza, the hot-headed father of George (Jason Alexander) in the iconic TV series “Seinfeld.” Less than a year after that sitcom ended, Stiller reappeared in “The King of Queens” in essentially the same role, this time as the short-tempered father of the lead character played by Leah Remini.
Fred Willard, whose understated style of comedy was at the other end of the spectrum from Jerry Stiller, has also left us at the age of 86. In a career that spanned 51 years and included a whopping 313 film and TV credits, Willard was a master of the nuanced. In my opinion, his best works were his roles in the Rob Reiner (“This Is Spinal Tap”) and Christopher Guest “mockumentary” movies. In Guest’s “Best In Show” (2000), while playing dog show announcer Buck Laughlin, he wondered, “Why breeders didn’t want miniature schnauzers to be larger?” and commented when the terriers made their entrance, “To think that in some countries these dogs are eaten.”
Eddie Haskell is dead. I’m referring to Ken Osmond, 76, the actor who played the manipulative teenager in the unforgettable sitcom “Leave It To Beaver” (1957-1963). Eddie had only one “go-to schtick,” patronizing the parents of Theodore “Beaver” Cleaver (Jerry Mathers) and his older brother Wally (Tony Dow), June and Ward Cleaver (Barbara Billingsley and Hugh Beaumont), while mocking them behind their backs. “Oh, good afternoon Mrs. Cleaver. I was just telling Wallace how pleasant it would be for Theodore to accompany us to the movies,” was a typical Haskell greeting. After the series ended, Osmond found acting work hard to come by, so he joined the Los Angeles Police Department. In 1980, while on duty, he was shot three times during a chase but escaped serious injury. He retired from the force in 1988. The character of Eddie Haskell lives on in popular culture as a real medical issue – “the Eddie Haskell effect.” As explained in Psychology Today in 2011, the syndrome is related to why workplace bullies may not be discovered because they suck up to the authorities while bullying subordinates and peer behind their backs. Who knew?