I must have skipped a few chapters of the book, “How To Cash Out On Mediocrity.” That’s my only logical takeaway after hearing last month that The Fresh Market (TFM) was seeking to become a publicly-traded firm. Again.
As is typical with many S-1 registration filings, details about the company’s IPO attempt are vague. No price range was given nor was there any info on how many shares would be available. Even the $100 million offering quest seemed to serve more as a placeholder than a firm figure.
In its filing CEO Jason Potter noted, “With this offering, we will return to the public markets, which we believe will allow us significant flexibility in funding our strategy, including allowing us to refinance a significant portion of our debt. Our core product offering of high-quality fresh food, hard-to-find ingredients and specialty foods, local items, and curated meal offerings is resonating with our guests, both old and new. We believe The Fresh Market is positioned to capture the secular trend of consumer preference for higher-quality, fresh food. Our stores have consistently been regarded as exceptionally clean, and we have established safety and sanitation committees to ensure every store meets new enhanced protocols under the COVID-19 environment. As others in the industry have become more conventional, we have continued to differentiate our offering to create excitement about our brand’s reputation.”
Potter, who joined the Greensboro, NC-based upscale merchant 17 months ago from Canadian grocery chain Sobeys, has produced good numbers during his tenure. But then again, virtually every food retailer has greatly benefited from the sales tailwinds of the pandemic.
We saw this same move earlier this year when Southeastern Grocers (SEG) attempted its own IPO only to cancel it three months later when the investment community showed the Florida chain a lukewarm reaction.
Yes, TFM is in better shape than SEG, but not markedly so. Even when Albertsons, a $65 billion-a-year juggernaut with nearly 2,300 stores nationally, went public in June 2020, its value was assessed at about 75 percent of what the company had hoped for.
Of course, this IPO attempt marks the second time that the perishables-driven merchant has looked to enter the public markets space. From 2010-2016, TFM was a listed company, but flat sales, mediocre earnings and some very poor expansion decisions forced the company to change course. In 2016, private equity heavyweight Apollo Global Management acquired the retailer for $1.36 billion. Now it’s time to cash out, even though TFM faces many of the same challenges it did when Apollo bought the chain five years ago. And in my opinion, some of those challenges are centered on store locations and the ability to separate themselves from similar type of competitors (Whole Foods, Wegmans, McCaffrey’s and even some of ShopRite’s “world class” stores).
As one of my industry friends said:” They play well in Macon (GA), but not so much in Montvale (NJ).”
Perhaps the clout of one of Wall Street’s most powerful firms might be able to pull this off. And in almost any scenario, becoming publicly-traded would help TFM better manage its debt and provide more cap-ex flexibility. But this seems to be less about the retailer and more about its majority owner. And after a five-year investment, it seems like Apollo urgently wants to get “out of Dodge.”
‘Round The Trade
PepsiCo is selling a majority stake in its juice brands (Tropicana, Naked) to French PE firm PAI Partners for $3.3 billion, the same price PepsiCo paid for Trop in 1998 when it acquired the iconic juice brand from Seagram’s. However, this time it will retain a 39 percent non-controlling stake in the new joint venture and PepsiCo will retain North American distribution rights to its juice brands for the small format and foodservice channels.
Crossmark announced that its largest shareholder, private equity firm Centre Lane Partners, is acquiring a 100 percent stake in the Irving, TX-based national sales agency and plans to fold it into another one of its holdings – WIS International – an inventory management and data collection service firm based in San Diego. In a related move, Jim Rose, most recently Crossmark’s president of marketing services, was named president and chief executive of WIS. In a letter to customers, Crossmark CEO Chris Moye called the move “great news” and emphasized that “there will be no disruption in how we serve you, and we are committed to ensuring you will continue to experience excellence in Crossmark’s execution.” We’ll see. As clearly the third wheel in the national full-service brokerage industry, Crossmark has been under pressure to restructure, especially after Acosta reorganized following a pre-packaged Chapter 11 exit in January 2020, and Advantage Solutions became a publicly-traded firm (going the SPAC route) in October 2020.
And of course we have Amazon news to report. On the financial front, “Godzilla’s” Q2 revenue from its physical stores (primarily Whole Foods) increased 11 percent to $4.2 billion for the period ended June 30. That compares to a 16 percent dip in Amazon’s first quarter of 2021. Overall sales for Q2 were $113.1 billion, a 27 percent rise, and its online sales grew an impressive 16 percent to $53.2 billion. The Seattle-based merchant posted a whopping $7.8 billion profit for its most recent 13-week period. The company’s current market valuation now stands at $1.7 trillion (that’s with a “t”). The company’s physical stores include its Amazon Fresh (AF) unit and on July 22 the company opened its second DC area store, this one right in the District of Columbia. The smallish 7,300 square foot unit more closely resembles a c-store than its first area entry, a 30,000 square footer in Franconia, VA which opened in late May. The new Logan Circle store does feature Amazon’s patented “Just Walk Out” technology, which after scanning the QR code on the Amazon app, allows customers to grab what they want and simply leave the store. And on August 5, the first AF store opened in the Delaware Valley (in Warrington, PA). Opening day lines were very long and business was still brisk going onto the weekend. At the company’s Whole Foods’ division, customers (including Prime members) later this month will be charged a $9.95 delivery fee in six metropolitan areas (for two-hour delivery). Beginning on August 30, Whole Foods’ customers in Boston, Chicago, Detroit, Manchester, NH, Portland, ME and Providence, RI will be affected. The company said that the so-called “service fee” will help cover operating costs “so we can continue to offer the same competitive everyday prices in-store and online at Whole Foods Market.” And there may be a “do-over” in the election held earlier this year in which the Retail, Wholesale and Department Store Union (RWDSU) sought to organize Amazon workers at the company’s large DC in Bessemer, AL. Amazon prevailed by a 2-to-1 margin when the votes were tallied last April, but now a hearing officer from the National Labor Relations Board (NLRB) has found that Amazon’s actions improperly discouraged the union’s organizing attempt. After the 60-page report is reviewed by a regional director from the NLRB, the federal agency will decide if a new election is warranted. However, even if the decision is made to hold another election, it’s still going to be very hard for the union to prevail.
Local Notes
Weis Markets had a solid second quarter considering the adjustment all retailers are now making when compared to last year’s corresponding period when COVID-driven sales continued to produce record revenue. Net sales totaled $1.0 billion for the 13-week period ended June 26, 2021, compared to $1.1 billion for the same period in 2020, down 4.7 percent. Second quarter comparable store sales decreased 5.8 percent on an individual year over year basis and increased 18.3 percent on a two-year stacked basis. Earnings-wise, Weis posted second quarter net income of $33.5 million compared to $41.5 million in 2020, down 19.3 percent. “Our 2020 second quarter results reflected a time when consumption of food prepared away from home was strictly limited, which resulted in record sales volume throughout the entire quarter for our essential food retailing business,” said Jonathan Weis, chairman, president and CEO of the Sunbury, PA-based regional chain. “During this period, our team rose to the challenge and helped us become a more efficient and nimble company. Today, we remain extremely proud of our associates who continue to serve our customers and effectively operate in an unprecedented business environment. Our 2021 second quarter results in absolute terms of sales volume and operating income were the second highest in our company’s history, exceeded only by our 2020 second quarter results,” said Weis. “This positive momentum enables us to make prudent reinvestments for long term profitable growth which benefits our associates, customers, communities and shareholders.” As part of its $135 million capital expenditure program announced in April, Weis opened replacement stores during the second quarter in three Pennsylvania locations: Gap, Macungie and Bethlehem…a tip of the hat to both Weis and Ahold Delhaize USA for the great job both chains did at their annual charity golf outings held last month. Despite the challenges of putting together events of this magnitude during a still ongoing pandemic, the execution by both companies was superb. And most importantly, a lot of money was raised for non-profit organizations including those focused on children and feeding the hungry.
From the obituary desk, I’m sad to report the passing of Allan Gallant, part of the B. Green family, who spent much of his career trying to resolve the food desert problem, attempting to bring supermarkets to underserved and economically challenged urban areas including his native Baltimore. He originally joined B. Green when it was a wholesaler after graduating from the University of Pennsylvania in the late 1950s. Gallant, who also served as CEO of Bagels Inc. (Sam’s Bagels), helped develop food markets in other depressed and sparsely-served areas including the Watts section of Los Angeles, the Southside of Chicago and the Mississippi Delta. He was a close confidante of Charlie Burns, founder and owner of Super Pride Markets, the first Black-owned independent supermarket group in Baltimore City. Even though I hadn’t seen Allan for quite a while, I will always remember his booming voice and gregarious personality. He was 87.
Dusty Hill has passed away at 72. The legendary bassist from the Texas blues-rock trio ZZ Top was known for his ability to keep his rhythms “in the pocket” to blend perfectly with Frank Beard’s fast-paced drumming and the great guitar work of Billy Gibbons. And although Hill didn’t speak much on stage and gave very few media interviews, he and Gibbons were easily recognizable for the long blond beards they started growing in the mid-1970s.
Ron Popeil has also died. Arguably TV’s greatest pitchman and the inventor of kitschy products such as Veg-O-Matic, Pocket Fisherman, and the Showtime Rotisserie and BBQ, Popeil, 86, followed in the footsteps of his father, Samuel, who invented the original slicing and dicing gadget, the Chop-o-Matic, which Popeil renamed Veg-O-Matic. Modestly naming his company Ronco, Popeil was a good-looking guy with a great TV presence. Beyond his best-known products, Popeil introduced some other inventions that didn’t quite strike gold, including Popeil’s Pasta & Sausage Maker, Inside the Eggshell Egg Scrambler, Hav-A-Maid Mop, Popeil’s Speed Tufting Kit and the unforgettable (or forgettable) Whip-O-Matic. The infomercial huckster was also parodied on “Saturday Night Live” by Dan Ackroyd with his hilarious Bass-O-Matic sketch. Even “Weird Al” Yankovich penned a memorable song called “Mr. Popeil” that contained the lyrics “I need a Veg-O-Matic! I need a pocket fisherman! I need a handy appliance that’ll scramble an egg while it’s still inside its shell! Help me, Mr. Popeil!”
And the great comic Jackie Mason has also left us at the age of 93. With his thick Yiddish accent and his uncanny ability to poke fun at himself and his traditional Jewish culture, Mason (whose real name was Yacov Maza) was originally ordained as a rabbi as were four other generations of Mazas and he actually served as a rabbi for nearly a decade until he pursued his dream of becoming a comedian. Here’s my one and only personal Jackie Mason story: About 15 years ago, Bill White, former president of Shoppers Food Warehouse, and I attended an off-Broadway Jackie Mason show. It was in a small Midtown theater and we were lucky enough to sit in the first row. At least I was lucky enough because, unfortunately for Bill, who Mason quickly spotted as a non-Member of the Tribe, most of the entire 90-minute performance was dedicated to picking on White. The humor was good-natured and White went right along with being the object of the comedian’s hilarious punchlines. And even though Mason had a professional reputation of being a hard ass, when we ran into him as he was exiting the theater, he couldn’t have been any nicer, apologizing to White and making it very clear that the act was just his typical on-stage schtick…and as I close this column, I want you to remember these four things: Delta variant, supply chain dysfunction, spiraling inflation and labor shortages. Unpleasant as they all are, all four will continue to affect how we all will manage our businesses until at least the end of the year.
