Every time I’ve visited Manhattan for the past 20 years (perhaps four times a year) I couldn’t help but notice that ubiquitous fleet of FreshDirect vans and trucks that were seemingly present on every block of New York city’s wealthiest area. “This is an ingenious idea, but can it develop a business model that will ultimately be profitable?” I thought many years ago when the entire dot-com/e-commerce business was in its infancy and many other businesses were trying to find a formula that would sway consumers to participate.
In those early years, my bet was that FreshDirect controlled more than 90 percent of the nascent grocery delivery market. But frankly, there weren’t that many consumers subscribing to a relatively new way of doing business and FreshDirect’s financial foundation primarily consisted of a group of private investors.
As FreshDirect continued to build sales, Wall Street friends of mine still wondered if the concept could ever be profitable. “They’ve captured a lot of business and Manhattan and Brooklyn, but this model has to expand beyond Metro New York to be successful,” said a financial analyst I spoke with about 10 years ago.
The expansion eventually came, first to other adjacent areas beyond the five boroughs, then to Philadelphia and, in 2017, to the Washington, DC area.
But, despite its sales and geographical growth, it seemingly couldn’t turn a profit. When J.P. Morgan infused $189 million into the company and became its largest investor in 2016, the consensus was that this might be FreshDirect’s last salvo to survive and prosper. Two years later, word on the street was that J.P. Morgan was looking to peddle its stake in the company.
But FreshDirect managed to hang in there – surviving the exit of one its founders and then CEO Jason Ackerman as well as the disastrous opening of its new 400,000 square foot automated distribution center in The Bronx in 2018 (the company also operates a smaller DC in Capitol Heights, MD).
Which brings us to today. David McInerney, a former chef who has been with the e-merchant from almost the beginning, has done an excellent job of guiding the company through some of those sticky wickets of the last few years.
FreshDirect is currently profitable, certainly helped by the additional sales all food retailers have experienced during the pandemic. The Bronx warehouse is now fully functional and McInerney has continued to emphasize the company’s key point of differentiation – fresh food – as competition from “Godzilla” (Amazon) and even walmart.com (which first entered the arena via its purchase of jet.com) have continued to eat away at FreshDirect’s dominant share of the huge New York City market (now believed to be less than 50 percent).
For Ahold Delhaize, the timing was right as well. CEO Frans Muller is perhaps the global retailer’s biggest e-commerce cheerleader. Nary a press conference or earnings report goes by without Muller’s bullish comments about further developing the omnichannel presence of Ahold Delhaize’s retail brands.
Along with Peapod, which the Dutch retailer has owned since 2001 and recently has been semi-rebranded to be more localized (Giant Delivers for Landover and Giant Direct for Carlisle), FreshDirect gives Muller and his team another segregated resource to further grow the company’s e-commerce platform. And for a reported price of $325-$350 million, Ahold Delhaize is certainly not overpaying to add another weapon to its arsenal that will now be better funded with improved all-around grocery expertise than the strict private equity ownership of FreshDirect previously provided. Plus, Ahold Delhaize, like many other grocery retailers, is flush with cash after posting recent consecutive quarters of stellar sales and impressive profits. Moreover, if you just looked at the overall New York Metro market, this deal certainly helps the parent company where its only brand – Stop & Shop – has a limited presence (25 stores) in the City of New York and is a distant second to ShopRite in the country’s largest metro market.
For the time being, FreshDirect will operate as a separate entity from any of Ahold Delhaize’s other brands. However, in time I expect that to change even as soon as early next year when the deal is slated to be completed and Ahold Delhaize’s expected five FreshDirect board members are named. I’m confident there will be an Ahold Delhaize USA/Retail Business Services presence on that board.
Certainly this transaction has some risk, but for FreshDirect’s current owners and for Ahold Delhaize, this is a very sound deal that has the potential to have tremendous upside for the Mid-Atlantic/Northeast market’s largest grocery retailer.
‘Round The Trade
Just before presstime, Walmart announced that members of its new Walmart+ subscription service (annual cost is $98) will now get free shipping on non-perishable items, eliminating the $35 minimum requirement that was attached to the new service that launched in September. One key exception will be items (such as perishable groceries) that are delivered directly from the retailer’s brick and mortar stores. It’s still very early in the game, but I think the Behemoth has gotten off to a slow start in its effort to compete with Amazon Prime (annual cost $119). After testing both services, I found no reason to switch my loyalty from Amazon which offers better ancillary deals (music and streaming services as well as discounts at Whole Foods) related to Prime membership. Also, there were two other Walmart news items just before we went to press: from the “Behemoth” comes word that it will be laying off more than 1,200 associates, both at its Bentonville, AR headquarters and at a regional office in Hoboken, NJ which formerly served as HQ for its jet.com division which has since been folded into walmart.com. The riffing becomes effective on January 31 of the new year. But the planet’s largest retailer also announced that it will give its 1.5 million U.S. employees special bonuses totaling $700 million. “As we come to a close on this historic year, I’m filled with gratitude for how our associates have led through one of the most trying periods for our company and country. Our associates have stepped up to serve our customers, communities and each other when it was truly needed most,” said Walmart U.S. CEO John Furner.
Of course, we have Amazon news to report. In late October, “Godzilla” opened a new 300,000 square foot product sorting center in Aberdeen, MD. The company has hired 1,000 new associates for the new fulfillment depot and it becomes the sixth distribution center for the country’s largest e-commerce merchant in Maryland. Also, we’ve learned that Amazon has applied for alcohol licenses at the two new retail ventures it’s slated to debut in Washington, DC next year. Both of those units – 1701 14th Street NW and 801 H Street NE – are expected to open as Amazon Go stores. Alcohol Beverage Regulation Administration hearings for both stores are scheduled for next month.
Local Notes
Giant Food opened its new Springfield, VA replacement store last month and, in keeping with other recent new units from the Landover, MD based Ahold Delhaize USA brand, the focus is on perishables, especially prepared foods. The new 50,000 square foot supermarket, housed in a former Kmart store, replaces a smaller Giant in the same shopping center which also contains a Trader Joe’s. I give credit to the Balt-Wash market leader for upgrading its presence in some demographically favorable communities over the past couple of years including new supermarkets in Fairfax, VA, Olney, MD and Owings Mills, MD.
A tip of the hat also to Safeway, which unveiled its remodeled Greenbelt, MD store last month. The upgraded unit features new fixtures and an expansion of perishables items (1,500 new items have been added throughout the store). The Greenbelt store, which originally opened in 1982, was at one time an excellent “producer” (to quote Tony Soprano), but in recent years its age had begun to show. This improvement will make a difference.
Kudos to Nick Bertrand, president of The Giant Company on being named chairman of the Pennsylvania Chamber of Business and Industry for 2021. “It’s an honor to be serving as chair of the PA Chamber board of directors alongside Gene (Barr, who is president and CEO of the Harrisburg-based business organization) and the entire leadership team during such a pivotal time in the Commonwealth’s history. Pennsylvania businesses have been forever impacted by the COVID-19 pandemic. And while we’re still navigating our recovery, I’m inspired by the unwavering resolve shown by businesses, community partners, local chambers, and elected officials. I know that by uniting as one with the shared purpose of propelling our economy forward, we will bring Pennsylvania back and chart its bold course for the future,” the youthful head honcho stated. Among others also named to the PA Chamber board was Scott Briggs, VP-human resources at Knouse Foods.
United Food and Commercial Workers (UFCW) Local 400 and Kroger have agreed to a new labor contract affecting approximately 4,200 clerks and meatcutters at the chain’s 39 stores in West Virginia. According to Kroger, the new deal, which will expire in May 2024, includes nearly $100 million in health care investment and more than $20 million in increased wages. In other labor news, 34 UFCW Locals have approved a deal (originally announced in July) that would allow Kroger, Albertsons and Stop & Shop (Ahold Delhaize USA) to withdraw from the existing UFCW International Union-Industry Pension Fund and shift to a newly created Variable Annuity Pension Plan (VAPP). The move to a new fund that’s annuity based will help store level associates protect and preserve valuable retirement and health care benefits that had become extremely vulnerable from many existing pension plans that are largely underfunded and in danger of future insolvency. And in a story that likely has greater future ramifications, Wakefern, the UFCW and the Retail, Wholesale and Department Store Union have agreed on retroactive hazard pay for almost 50,000 ShopRite associates in New Jersey, New York and Connecticut. The agreement calls for the Keasbey, NJ-based grocery co-op to compensate clerks and meatcutters at ShopRite stores in those areas to an additional $1/hour (via lump sum payment) for all hours worked between July 26 and August 22. “Grocery workers have been on the front lines since this pandemic began and continue to put themselves in harm’s way to help families put food on the table this Thanksgiving. This new UFCW agreement is a powerful victory for ShopRite grocery workers across New Jersey, New York and Connecticut. UFCW local unions worked with ShopRite to provide temporary hazard pay at the start of the pandemic and, when that pay raise expired, these courageous grocery workers came together again to reach a new agreement with ShopRite on hazard pay as this crisis continues,” said UFCW International president Marc Perrone, who has been pushing other retailers to re-compensate associates whose companies ended hazard pay in May, June and July, and also reinstate bonus compensation going forward as the number of COVID-19 infections has increased dramatically…CVS Health, which hopes to become one of the larger retailers in any class of trade to distribute COVID-19 vaccines (when approved), has named Neela Montgomery as its new EVP and president of CVS Pharmacy/Retail. Montgomery, who most recently was CEO of furniture and home goods merchant Crate & Barrel, also spent nearly 12 years with European retailer Tesco. She’ll report to Karen Lynch, who recently was named the Woonsocket, RI’s diversified drug/health care firm’s incoming chief executive, effective February 1 when current CEO Larry Merlo retires. Incidentally, hats off to Merlo, who did an excellent job of leading the big drug chain/healthcare provider for the past decade.
Local manufacturer, McCormick, is expanding its portfolio. The Hunt Valley, MD-based spicemaker and specialty foods packer, has agreed to acquire Cholula Hot Sauce (a personal favorite) for $800 million in cash from PE firm L Catterton. When the deal is completed later this month, McCormick will own two of the top brands in the category (it purchased Franks RedHot in 2017), one which according to Nielsen, grew by nearly 25 percent over the past 12 months.
We have one notable death to which I would like to pay tribute. From the world of sports, Rafer Johnson has left us. The former gold medal decathlon winner in the 1960 Olympics held in Rome (and first black captain of the squad) was 86 when he died. To win his gold medal in what is considered the most difficult of all Olympic events, Johnson faced a memorable showdown with C.K. Yang from Taiwan (then known as Formosa). Actually, Yang and Johnson were teammates at UCLA and close friends. Johnson outpaced Yang for the first nine events, but knew that the final event, the 1,500-meter run, was Yang’s specialty. Johnson didn’t need to win the event, but he needed to finish within 10 seconds of Yang. “I planned to stick with him like a buddy in combat,” Johnson told the LA Times in 1990. “I had one other advantage that C.K. didn’t know at the time – this was going to be my last decathlon and I was prepared to run as fast as I had to in this last race of my life.” Indeed, Johnson finished second to Yang by 1.2 seconds which was good enough to secure the gold medal. After the 1960 Games, which also featured gold medal performances from sports icons like Muhammad Ali (then Cassius Clay), Wilma Rudolph and Oscar Robertson, Johnson became a goodwill ambassador for the State Department, acted in a few movies and TV shows and became a sportscaster in Los Angeles. Also noteworthy are the athletic achievements of his daughter, Jennifer, who was a member of the U.S. beach volleyball team at the 2000 Olympics held in Sydney, and his brother, Jim, the great cornerback for the San Francisco 49ers who was inducted into the NFL Hall of Fame in 1994.
