Even as retailers remain pleasantly surprised by the continuing sales gains achieved during the first six months of 2021 (when compared to 2019 revenue), there are increasing concerns that a combination of escalating inflation, significant labor shortages and supply chain blockages are going to create a challenging Q3 and Q4 for many merchants. Let’s examine those three issues individually.
The shortage of labor is impacting virtually all businesses that have a manufacturing, distribution, retail and foodservice component. Simply put, the labor pool is the worst it’s been since the 1980s. Retailers tell us that even if they can find available people to hire, many of them aren’t particularly good or loyal. Retail has always been a high turnover business, but not at the levels we’ve witnessed over the past two months. Several merchants told me they hope that once the federal unemployment insurance subsidy (American Rescue Plan) expires on September 30, more potential job seekers will re-enter the labor pool. But nobody knows that for certain. However, a more measurable statistic is the number of people who have permanently left lower paying store-level or restaurant jobs during the pandemic in order to seek careers that provide more stability and potentially offer more lucrative wages and benefits. That latter group won’t be returning to the labor pool as supermarket clerks or waitresses.
What the grocery industry has witnessed over the past six weeks in terms of price increases has raised more than a few eyebrows. But retailers (and government agencies) tell us the worst is ahead of us, most likely peaking towards the end of Q3. Even though most retailers require their vendors to provide a “should cost” validation statement when seeking price increases, wholesale costs are rising at such as rapid rate one chain retail executive said that analyzing a specific reason for a price hike “has become a moot point, because we’re all operating from inside the same crowded tent.”
And even though labor may be the common thread that starts this challenging cycle, many manufacturers tell us that packaging (availability and costs) is a significant factor itself and that inflation is also a consequential factor in commodity costs, too. “It’s not just meat that’s seen soaring prices over the past two months. Commodity costs for corn, wheat and soybeans are also escalating. And it’s even worse with packaging – corrugated and plastics in particular – and suppliers tell us that by early Q4 consumers will see prices that they haven’t experienced before.
One senior VP-sales for a large CPG supplier said, “When all these price increases are woven into the system and ultimately passed along, it’s going to have a profound effect on a lot of Americans. You can start at the farm, move to the manufacturing plants and ultimately to the stores’ shelves – everything is going to cost more. A lot more. Even basic supply chain issues from finding enough labor to work in plants and warehouses to the shrinking number of truck drivers will play a role in driving up prices.”
With schools prepared for in-person learning in the fall and restaurants beginning to accelerate their return to normalcy (if they can find enough labor), those two pieces alone are of concern to retailers, who have worked hard to protect the sales gains they’ve made over the past 15-months.
The complications that labor shortages, skyrocketing costs and availability of packaging materials will bring offer another steep hurdle.
As I’ve done for the previous 43 years, here’s my take on the highest sales producers in the 70-county marketing area that Food Trade News covers.
ShopRite – The good news: ShopRite and its ancillary retail banners maintained their solid numero uno status in the entire region including the two largest markets in the 70-county area – Metro New York and the Delaware Valley. The mixed news was that we’re seeing small chinks in the company’s armor. Out-of-stock performance during the height of the pandemic was in the bottom half of the retailers we checked. And the company’s second wave of new Manhattan stores (Fairway Markets) in the past two years (Gourmet Garage was acquired in 2019) has proven disappointing thus far. Additionally, parent company Wakefern’s discount Price Rite division is struggling in certain areas (it is reportedly looking to potentially sell its four remaining stores in the Old Line State). Clearly, ShopRite needs to modernize some parts of its game; then again, it’s tough to be too critical of an organization that features many million dollar a week stores and whose membership is comprised of some of the best independent retailers in the country.
Stop & Shop (New York Metro Div.) – One of the best years for the largest Ahold Delhaize USA brand in the past 20. Like almost every retailer, Stoppie was helped by the sales momentum of COVID-19. But there were other changes made that also paid dividends – some visible and some behind the scenes. The completion of a major remodeling program for its 51 Long Island stores helped further extend the retailer’s solid lead in Nassau and Suffolk counties. But it’s the work of ADUSA veteran Gordon Reid that’s making a difference, too. The Scotsman took the helm in Quincy, MA in July 2019 (coming over from sister brand Giant Food) and has worked feverishly to make key personnel changes and improve what many in the industry thought was an inbred, semi-immovable culture. That’s clearly changing; it’s a big ship to move and progress on that scale comes in small increments but Stop & Shop is improving.
The Giant Company (TGC) – Another stellar year for the Carlisle-based ADUSA brand which really benefited from its advanced e-commerce metrics and the addition of three more stores this year including its first supermarket in Center City Philadelphia (Riverwalk). The city of Philadelphia expansion also includes three more large supermarkets in Center City as well as two additional Heirloom Market specialty stores, and another Philly unit on Cottman Avenue in “the Northeast.” TGC is also building a large new e-commerce fulfillment center on Island Avenue in Philadelphia that is expected to open in Q4. TGC has assumed share of market leadership in the 8-county “Greater Philly Market” and is looking to build on that lead with its expansion effort.
Walmart – You’d think a company with the scale and clout of Walmart would have done a better job of avoiding the gaping “shelf holes” we witnessed during the first two months of the pandemic, but whether it was a supply chain issue or a labor problem, Walmart clearly missed some opportunities. Overall, it was still a very good year for the Behemoth, especially aided by a ramped-up presence and execution of its digital-driven platform which included curbside pickup and “ship to store.” Last September, the world’s biggest retailer added its own order and delivery portal – Walmart+. All told, these huge investments, many made before the pandemic began, have and will continue to pay huge dividends for the company. Once again, for the third consecutive year, the Arkansas merchant did not open a new single brick and mortar store, as it continues to spend heavily on e-commerce (however, it expanded two existing discount stores in Roxbury, NJ and Farmingdale, NY). Those investments were a game changer over the past 12 months and are designed to put even more distance between Walmart and the remaining retailers in all food channels.
Acme Markets – Making the most out of a minimal cap-ex budget, Acme was the best performer during the height of the pandemic of any retailer we surveyed in terms of maintaining strong in-stock levels. Not only did Acme perform well in its own backyard, but it was also among the best units in parent company Albertsons’ 12-division national structure. The company’s store upgrade focus continues to be on remodels although it did open the old Fresh Grocer near U of Penn last year. There was other big news to report as well: in September Acme and Safeway’s Eastern division merged creating the 275 store $6 billion division Albertsons Mid-Atlantic division that is based in Malvern, PA and led by the talented, hard-working old school grinder Jim Perkins. In January, Acme acquired 27 bankrupt Kings and Balducci’s stores which the Albertsons Mid-Atlantic division will fully integrate into its operations later this summer. Without a lot to work with, Acme had a very strong year.
Weis Markets – Another merchant that executed at a very high level during the first three months of the chaos and panic-buying of COVID-19. It certainly helped that Weis maintains its own warehouse (in Milton, PA) allowing the Sunbury, PA based retailer to have better control of supplying their stores. Without being flashy, the regional chain continues to modernize its once aging store fleet while also improving its technology and e-commerce platform. Already this year, the closely held public chain opened four new stores and allocated a record $135 million in cap-ex investment. CEO Jonathan Weis and COO Kurt Schertle clearly have a game plan and it’s working. One move that the trade sees as very positive is the elevation of industry veteran Bob Gleeson to chief merchant.
Wegmans – The Rochester, NY-based uber retailer had a productive last 12 months, but it could have been a lot better if the retailer hadn’t been forced to close or impose restrictions on several of its service departments including its soup and specialty salad bars and restaurants/pubs because of COVID-19. This necessity clearly impacted sales and some of those features won’t be returning, at least in their former incarnations. Wegmans’ signature play was always its stores – large food palaces that drew more customers (and higher sales) than any other food merchant in the market. While the family-owned retailer has offered a decent e-commerce platform for the past several years, its focus had been on attracting customers to its physical stores to take part in the experience. Nobody foresaw a pandemic. While Wegmans has six new stores on its books, only its soon-to-be first Delaware store in Greenville lies in the FTN marketing area.
Krasdale/Alpha 1 – There’s the battle for Metro New York and then there’s the battle for dominance with the five boroughs of New York City. And in that fierce competitive zone, one wholesaler and three marketing/advertising groups are vying to increase their presence in the $21 billion urban territory. Currently Krasdale, the sole wholesaler in the bunch, maintained its top spot in NYC on the strength of its diversified retail portfolio which includes C-Town, Bravo, AIM, Market Fresh, Shop Smart and Stop1 which operate more than 300 stores in the Bronx, Brooklyn, Manhattan, Queens and Staten Island. Other independents such as North Shore Farms and DiCicco’s helped add firepower to Krasdale’s portfolio. During the past year, longtime Krasdale exec Steve Silver retired and was replaced by industry veteran Gus Lebiak. The White Plains, NY distributor continues to be led by CEO Charles Krasne whose family founded Krasdale in 1908.
Key Food – Another year of sales gains that extended beyond the tailwinds of the pandemic. The Matawan, NJ co-op, founded in 1937, also added 16 new stores to its roster and increased its annual volume by approximately $400 million to $3.36 billion. Supporting such banners. Key Food, Key Fresh, Food Dynasty, Food Emporium and SuperFresh, chief executive Dean Janeway and COO George Knobloch certainly have their own style which continues to be successful, especially over the past seven years.
Associated Stores Group – After almost “losing the ranch” three years ago, Associated Supermarket Group (ASG) has really turned things around under different management, specifically Joe Garcia and Zulema Wiscovitch. While Garcia and Wiscovitch have been at ASG since 2013 and 2014 respectively, they didn’t have full control of the throttle until 2018. Before that, the once proud organization was led by Bob (Clueless) Sigel and Bob (Mr. Invisible) Striano. Even Andy Unanue, principal in the PE company that owned ASG, seemed disconnected. However that changed when Garcia was named president and Wiscovitch was promoted to executive VP three years ago. Earlier this year, the duo acquired ASG (with another private equity partner). By then, the business tide had already shifted and, helped by core independent groups like Met, Associated, Pioneer and Compare and strong independents like Uncle Giuseppe’s and Giunta Farms, ASG enjoyed its finest year in decades with sales increasing $380 million from the previous year.
Allegiance Retail Services – A steady, but not spectacular year for the Iselin, NJ-based marketing and advertising organization whose members control the Foodtown, Pathmark, Gristedes and D’Agostino’s banners. One of Allegiance’s strengths is the experience and success of its core retailers – Katz, Estevan, Shakoor – as well as the leadership of ex-Pathmark executive John Derderian who was named chief executive in 2016. Derderian also has a strong and proven leadership team to assist him and Allegiance has demonstrated that it has been successful by applying data to its marketing approach and seeking customer expansion with an eye on intelligent growth.
‘Round The Trade
Early results indicate that Amazon had a solid ‘Prime Day” but its sales extravaganza did not deliver the same dynamic gains as it did last year. This year’s event was held on June 21 and June 22 and tracking revealed by research firm Digital Commerce 360 indicates that total merchandise sales were $11.2 billion, up from $10.4 billion last year but way below the 45 percent revenue gain in 2020 vs. 2019. “Prime Days” was first rolled out in 2015.
At rival Target, which also held its own sales promotional event – “Deal Days” – at the same time as Amazon’s event, the focus was heavily food oriented. One particular promotion featured a $10 gift card for customers who spend $50 or more on food and beverages while also utilizing one of the mass merchant’s same-day services such as delivery via Shipt or curbside pickup. Walmart’s online “happening” was a four-day affair (June 20-24). And like Target, the Behemoth’s “Deals for Days” event also featured more food offerings and promotions than in the past.
From Ahold Delhaize USA (ADUSA) we learned that the big retailer will have its goal of more than 85 percent of its distribution network being self-managed completed by the end of 2022. Specifically, warehouses in Bethlehem and York, PA and Chester, NY (all originally operated by C&S) as well as two newly constructed frozen food depots (in partnership with Americold) in Mountville, PA and Plainville, CT will be integrated into ADUSA’s network. As reported earlier this year, ADUSA has converted procurement services for two facilities in its Freetown, MA distribution complex into its self-managed network and by the end of 2021, will open two new DCs in Mauldin, SC and Manchester, CT, as well as converting procurement services at facilities in Jessup, MD and Carlisle, PA. “This is one of the largest supply chain transformations ever undertaken in our industry,” ADUSA supply chain president Chris Lewis said. “Because of the commitment of our teams and a strong ecosystem of partners, we are on track to create not only one of the biggest supply chains on the East Coast, but the most efficient and effective. We look forward to continuing to work with our partners in other Ahold Delhaize USA companies, the supplier community, our technology and operations providers, and more to continue to the transformation and optimize the network for the future.” ADUSA originally announced its shift to a self-managed distribution and logistics network in late 2019 at a projected cost of $480 million. At that time, Food Lion and Hannaford (formerly Delhaize America) had already been self-distributing its groceries while Stop & Shop, The Giant Company (then Giant/Martin’s) and Giant Food (from the old Ahold USA configuration) only self-supplied their stores with perishables; C&S distributed most of the chain’s dry groceries and some perishables goods from a multitude of depots in the Mid-Atlantic and Northeast.
Another e-commerce entrepreneur, Chieh Huang, is about to cash in as his company – Boxed – is going public. Huang, who founded the membership-free online bulk item wholesaler in 2013, is merging his enterprise with PE firm Seven Oaks Acquisition Corp. in a $900 million deal that will allow them to become publicly-traded via the SPAC (Special Purpose Acquisition Company) route. SPAC deals have become more popular in the last 18 months with food broker Advantage Solutions and snack food manufacturer Utz following that same path during the last year. Chieh will remain CEO and Gary Matthews, chief executive of Seven Oaks, will become chairman of the new company to be called Boxed, Inc.
Local Notes
According to the New York Post, there’s been a shakeup at the top at D’Agostino’s, which since 2016 has been controlled by entrepreneur John Catsimatidis, who also owns the Gristedes chain (the two retailers operate corporately as one unit with 27 stores in Manhattan and Brooklyn). Nick D’Agostino, who has led the 79-year-old independent for nearly 20 years, has been moved from president to vice chairman where he will focus on real estate and special projects. Red Apple Group (Gristedes’ parent company) executive Christopher McGrath has been appointed interim president and Joe Parisi, who spent more than 20 years at now-defunct Kings, has been named COO of the beleaguered urban retailer.
In not so surprising news, Wegmans made it official by announcing that it will not reopen any of the 12 pubs/restaurant it operated in Pennsylvania, New York and Virginia. Those eateries/drinkeries had not been operating for more than a year due to safety concerns during the pandemic. The uber-retailer noted that it will instead focus on “applying our culinary expertise to the increasing demand for fast casual meal solutions available in our stores, for pickup and through delivery.” In Pennsylvania, Wegmans featured pubs in three of its stores – Collegeville, King of Prussia and Malvern. The family-owned regional chain also announced a data breach which may have exposed customers’ names, home addresses, email addresses, phone numbers, loyalty cards and birth dates. However, actual password characters were not contained in its wegmans.com databases. The high-volume retailer said that a previously undisclosed configuration issue led to a situation where two of its internal cloud databases were inadvertently left open to outside access. No social security numbers were involved (Wegmans does not collect them) and no payment card or banking information was revealed. The Rochester, NY-based merchant said that the problem has been corrected and that it has taken steps to avoid a similar future occurrence.
Price Rite has closed its Camden, NJ store, operated by the Ravitz family. That 43,000 square foot former Pathmark opened in 2014 and is only one of three that are owned by Wakefern members. Inserra owns the other two non-corporate Price Rites, in Garfield, NJ and Paterson, NY.
Bowery Farming, the Manhattan-based indoor agricultural company that grows 13 types of leafy greens, has just raised $300 million in additional funding, setting its market value at $2.3 billion. The company was founded in 2014 by current CEO Irving Fain who said the additional capital will be used to open more farms and improve its technology. In the past 18 months, Bowery Farming said its e-commerce sales have quadrupled. It has also expanded its retail presence and now services about 850 supermarkets nationally including Albertsons, Walmart, Whole Foods and Giant Food. This new round of C-series funding was led by Fidelity Management and incudes investments from such well-known names as Justin Timberlake, Natalie Portman and chef Jose Andres.
German grocery delivery firm Gorillas recently made its U.S. debut choosing Brooklyn as its first target market (a tough place to begin any new venture). The company was founded 13 months ago in Berlin and its major point of differentiation from others in a very competitive field is its 10-minute delivery promise for $1.80 per delivery and no order minimum. Gorillas currently serves more than 25 cities in Europe. Former Acme produce guru Jay Schneider, who was with the Malvern, PA-based chain for 38 years, recently joined Gorillas to head up produce.