Some of the same factors that helped create record sales from mid-2020 to mid-2021 were still in place over the past 12 months. Due to the creation and availability of vaccines, consumers began to return to in-store shopping but overall top line sales remained robust as in-home eating continued to be the norm. And even with more brick-and-mortar revenue business returning, e-commerce sales were still strong (particularly curbside pickup) as retailers remained pleasantly surprised that the tailwinds of the previous year continued.
Even with the continuation of strong sales, many retailers sensed that there were a few differences from several months earlier that concerned retail operators. The supply chain breakdown, which derailed quickly when COVID impacted many businesses in late Q1 and Q2 in 2020, was actually getting worse. Unlike the beginning of the pandemic when certain products/categories simply disappeared from the shelves or other items were only available in limited varieties, now more products across the spectrum of the entire store were not available. If service levels were in the low 80 percent range during the early period of the pandemic, they had now dipped to the mid-60s to low 70s percent range.
And price increases were coming at an unprecedented rate as all segments of the supply chain dealt with labor shortages which triggered a host of other problems. And COVID would still remain a factor as the Delta and Omicron variants contributed to a spike in positive cases and a return to caution for many Americans.
Still, food retail sales were very good, aided by the fact that some schools hadn’t returned fully to in-person learning and restaurants, while performing better than 2020 and early 2021, were still struggling.
Which brings us to today, when retailers live in a world where unit sales are down (from a year ago) but the rampant inflation rate (11.9 percent overall during May and even higher when measuring food products alone) has kept their top line numbers strong. And even though some parts of the supply chain have improved in areas such as commodity and raw materials availability, the system remains highly dysfunctional and unpredictable.
Even many of those who predicted six months ago that inflation would abate and distribution patterns would return to more normal levels by the end of 2022 no longer see that as a reality. And what’s worse is that over the past two months retailers are seeing the first signs that inflation might not be their friend for very much longer as consumers have begun trading down and a potentially worse economic environment or even a recession is possible.
We’ll be charting that course in the 2023 market study; this year’s differential when comparing retailers against each other was largely determined by who maintained better in-stock conditions. That was an overall industry challenge, but one which some retailers executed better than others.
So, as I’ve done since 1979, here’s my take on the market leaders in the core Baltimore-Washington market.
Giant Food – Over the past five years, the perennial market leader has improved in many areas from store operations discipline to corporate culture enhancement. However, COVID took a bit of that mojo away as Giant (and other retailers) struggled with labor challenges and poorer than industry average in-stock conditions. Part of the latter problem (beyond industry-wide supply chain dysfunction) was parent firm Ahold Delhaize USA’s (ADUSA) 2019 decision to control its own distribution, a complex process involving hundreds of moving parts. The transition from former supplier C&S as well as ADUSA’s internal issues created worse than industry average service levels in its stores (which was also true at sister brands The Giant Company and Stop & Shop) and was the primary reasons Giant’s sales were relatively flat this year. In my opinion, these are painful but temporary problems. Former president Gordon Reid (now president of Stop & Shop) and current head honcho Ira Kress have helped Giant reposition itself as a market leader that is no longer passive. From adding new stores to expanding its omnichannel presence, Giant is still firmly in control of its Baltimore-Washington leadership position.
Safeway – Unlike Giant, Safeway took advantage of much stronger in-stock conditions. While Giant (and ADUSA) will likely get its distribution act together over the next 18 months, Safeway is already there, having consolidated its distribution from Upper Marlboro, MD to Denver, PA in 2020. Having more product available created more sales and Safeway’s comps over the past 12 months were very good. It also opened two new stores (both former Shoppers units) and remodeled several other supermarkets. It clearly needs to upgrade more stores and Albertsons Mid-Atlantic president Jim Perkins acknowledged those improvements are in the works. Safeway continues to be a solid “number two” in the B-W market – a traditional supermarket chain that’s not flashy but utilizes its superior locations to its advantage.
Walmart – Once again, no new stores for the Behemoth. However, comp store sales were good despite slightly worse than industry average in-stock store conditions (you’d think that with that much supplier clout, Walmart would be able to keep their shelves better stocked). The continuing reason why no new stores opened over the 12 months is that the planet’s largest retailer devoted the majority of its cap-ex into its digital and technology platforms. And part of its e-commerce initiative did include some physical improvements at store level such as additional curbside pickup sites and more micro-fulfillment areas inside the physical stores. There’s no reason not to be believe that as inflation drives prices even higher that Walmart will become even stronger. Or to paraphrase CEO Doug McMillon: when price becomes even more a factor, we tend to fare better than the competition. Walmart is a tough enough competitor but think – if it could keep its stores cleaner and better stocked, and had a better trained labor force, how scary it could be especially in inflationary times.
Harris Teeter – Another solid, if not spectacular year for the upscale division of Kroger. Comp stores sales were good and in-stock conditions, by my evaluation, were at about the industry average (70-75 percent). A rare year when no new stores opened but there are four new units – in Washington, DC (Howard University); Alexandria, VA; Falls Church, VA; Kent Island, MD; and a replacement unit in Arlington, VA – set to be built. One important change did occur over the past year that’s worth watching. HT president Rod Antolock retired after a 40-year career in the grocery biz and was replaced by industry veteran Tammy DeBoer, who cut her teeth at Food Lion. Clearly, Rod and Tammy have two different operating styles – it will be interesting to see her have an opportunity to lead a large retail organization.
Wegmans – A year ago, Wegmans was not fully able to take advantage of the sales boom that positively affected virtually all retailers in all trade channels. A large part of that reason was the Rochester, NY-based uber-retailer’s decision to close most of its service and salad bars and reduce some of its fresh food offerings. Although they may be in slightly reimagined forms, most of those service areas have reopened and Wegmans, already the highest volume per-store supermarket in the B-W market, produced strong comp store sales over the past year. The expansion pipeline has also reopened with a new store in Alexandria opening last month, its first DC store debuting on July 13 and future stores slated for Rockville, MD and Reston, VA in the next few years.
And now for something a bit different – a view of a potentially emerging retailer and one whose days are likely numbered.
Amazon Fresh – At this point, emerging might be too strong a word, but the newest retail food division of Amazon has opened six stores (three after our market study measuring period ended) and has at least nine other stores slated to open in the B-W market. Early impressions are not good, unless you buy into the theory that the stores will primarily serve as retail hubs to supplement the parent company’s e-commerce business. Or that its “Just Walk Out” technology is a game changer. From a blocking and tackling perspective at store level, execution has been subpar. Amazon Fresh’s merchandising approach is quirky at best; store ops are not crisp, and for a company the size of Amazon you’d think in-store service levels would be better. It’s still early in the game and Amazon has deeper pockets than almost everyone else, so there’s still time to improve, but what’s clear thus far is that the company has a long way to go to become a top-flight merchant.
Shoppers – Last year, we gave the retail unit of UNFI “almost RIP” status. Twelve months later, the situation is slightly worse. Three more stores have been closed or been sold, leaving Shoppers with 20 supermarkets remaining in the B-W market. In the past year, UNFI CEO Steve “Senor Spinmeister” retired, creating an opportunity for former Coca-Cola executive Sandy Douglas to take the helm. While UNFI will now likely keep its bigger and more profitable Cub division in the Midwest, it’s time for Douglas to sell or close the remaining Shoppers units. The stores now resemble nearly empty barns. Stores that once did $800,000-$1 million per week are now performing at one-third those levels. And the perception, despite the efforts of what remains of a very proud and loyal work force, is that the company has already given up. Why continue the ineptness any longer?
‘Round The Trade
Some Walmart news: the Behemoth announced that it will open four new “first generation” fulfillment centers over the next two years that prioritize the utilization of robotics and machine learning. The new DCs, which are expected to add 4,000 new jobs, will be located in Joliet, IL; McCordsville, IN; Lancaster, TX; and Greencastle, PA (Franklin County). Walmart is taking a page out of Amazon’s book by expanding the role of its physical stores to make them mobile fulfillment centers. According to a story on CNBC, Walmart’s 4,700 U. S. stores could be used to enhance its e-commerce business by serving as bases for drone deliveries as well as departure locations for its fledgling direct refrigerator drop off business. The story adds that other future services could include packing and shipping goods to households and for Walmart’s growing third-party business. According to Tom Ward, the retailer’s chief e-commerce officer, “If a store acts as a fulfillment center, we can send those items the shortest distance in the fastest time.” And Walmart also has big plans for its drone capabilities, announcing earlier this month that it is expanding its drone delivery capacity to 4 million households (1 million packages annually) in six states including Virginia. In case you were curious, each drone can carry up to 10 pounds of merchandise.
Amazon will finally be launching the long-awaited “Prime Air” drone service, testing the initiative in a small town – Lockeford, CA, near Sacramento – later this year. “Godzilla” first received FAA approval to fly drones in 2020. Yes, there’s more Amazon news, too: the Seattle-based juggernaut late last month announced a 20-to-1 stock split, its first share split since 1999. As with most companies that go the “split” route, Amazon is seeking to provide shareholders (and potential holders) with a more affordable share price. To wit, utilizing pre-split numbers, as of June 14, Amazon’s stock price was $2,060 per share (approx. $102 per share at the new price). That’s a big number but noticeably less than the company’s 52-week high of $3,773 per share ($188.65 at the new price). If you’re concerned that this financial move emanated from a slight sense of desperation, think again. For its full fiscal 2021, Amazon’s total sales were $470 billion, up 22 percent year-over-year. And it earned $33.4 billion in profit, a jump of 56 percent, in FY ’20. Don’t cry for me Jeff Bezos! According to research firm Edge by Ascential, “Godzilla” will overtake the “Bentonville Behemoth” to become the largest retailer in the U.S. by 2024. One more important piece of Amazon news concerns Dave Clark, who last month announced his resignation as CEO of the company’s worldwide consumer business, saying he will join global supply chain software firm Flexport, effective September 1. Clark was highly regarded at Amazon and is generally credited with developing Amazon’s warehouse network from only a few locations to a massive network of facilities serving the company internationally and in the U.S.
E-commerce analytics firm Brick Meets Click/Mercatus reported that online grocery sales once again decreased in May (based on year-over-year revenue), following a trend that began earlier in 2022. The drop in online sales shouldn’t be that shocking considering how robust digital volume was during the first of the pandemic. But the level of decline – 12.3 percent last month and 6.9 percent in April – surprised some observers. The one bright area in the e-commerce matrix is the sales gains made in pickup which gained 9 percentage points when compared to May 2021. Sylvain Perrier, CEO of Toronto-based Mercatus, offered these insightful comments: “ Customers appreciate the convenience of ordering online, but they are also becoming more cost-conscious. So, to defend the base business, grocers can promote pickup to address both issues. Assuming the pickup aligns with customer expectations, showcasing the savings associated with pickup’s lower fees, no fuel charges, or zero tips can better protect your online customers and sales by highlighting a more affordable alternative to home delivery.”
And customers are certainly becoming more cost-conscious as witnessed by the beginning of “trading down” shopping patterns and also in a recent Washington Post survey that reported that most Americans expect inflation to worsen and have begun adjusting their spending habits to adapt to rising costs. The survey notes that 9 in 10 Americans have begun hunting for cheaper prices and nearly 75 of those polled are reducing their spending on entertainment and out-of-home dining.
One of the more noticeable trends of the last three years is the disclosure (and touting) of publicly-traded companies’ ESG (Environmental, Social and Governance) performances. This in general has been a very good thing as companies are openly reporting on their improved efforts in protecting the environment and improving their social responsibilities. But the skeptic that I am has also wondered how much “window dressing” some of these firms are adding to their ESG reporting. Now, the Securities and Exchange Commission (SEC) wants publicly-held companies to disclose more detailed information about the “do-gooder” stuff they’re claiming. Recently, Walmart was fined for incorrectly claiming some clothing they were selling was environmentally sound, when in fact it wasn’t. Soon, we’ll hopefully see how much “greenwash” is actually “eyewash.”
Mark “Everything I Touch Turns To Gold” Lore is at it again, The serial entrepreneur who founded online diaper service Quidsi (and sold it to Amazon for $500 million in 2010) and jet.com (which he sold to Walmart for $3.3 billion in 2016) has just raised another $350 million for his latest project, the Wonder Group, a food delivery startup that is building a network of food trucks that can in essence create a portable ghost kitchen for onsite eating or through home delivery. Currently, Wonder services about 132,000 households in Northern New Jersey. Lore ultimately wants to expand the concept nationally and, with a market cap now at about $3.5 billion, he’s well on his way. Do not bet against this guy…good news for our friend Brian Tuberman, CEO of front end retail solutions firm STCR, which services retailers in the Northeast and Mid-Atlantic markets from its Endwell, NY headquarters. STCR recently received a significant capital infusion from Tampa-based PE firm Mangrove Equity Partners which will allow the company to accelerate its growth plan.
Interesting New York Times interview with “interim” Starbucks CEO “Humble Howie” Schultz, who returned to the java giant in April. He blamed the recent efforts to unionize Starbucks stores on being a “proxy” of what is happening nationally. “We’re right in the middle of it. If a company as progressive as Starbucks, that has done so much and is at the 100th percentile in our entire industry for benefits for our people, can be threatened by a third party that means any company in America can.” Ya know, Howie, it’s OK to have pride in a company that you pioneered and helped grow globally, but this is 2022. I believe it’s time to start listening to your people so you can better understand the seminal changes we’re all going through culturally. You might not like it (and neither do I in many aspects), but America in 2022 in no way resembles Brooklyn in 1973. Battling with your associates while also offering us constant reminders of your bombastic ego is no way to be the chief steward of a publicly-held company. Just sayin’…
And sadly, its time to put up the RIP flag to a great American institution (no, not Howard Schultz) – Howard Johnson’s restaurants. The last remaining orange and blue eatery located in picturesque Lake George, NY actually closed in February, but it wasn’t announced until last month. In the 1960s there were about 1,000 HoJos nationally, and for a time it was America’s largest restaurant chain. But tastes changed and other fast food and quick serve restaurants emerged to diminish Howard Johnson’s presence. The ignominy of the ending was quite sad, too. The 7,500 square foot dining establishment is now for lease. Asking price: $10 (total, not per square foot). Sayonara to the 28 flavors of ice cream; adios to those tough as rubber fried clams!
Local Notes
Giant Food has added two fully electric step vans to its fleet of home delivery trucks which now total nearly 130 vehicles designed to serve its “Giant Delivers” business which is based at its fulfillment center in Hanover, MD. The Landover, MD-based Ahold Delhaize USA retail brand plans to open a second home delivery warehouse later this year in Manassas, VA. “Cleaner transportation is part of Giant’s larger sustainability efforts and commitment to supporting the local environment,” Giant’s VP-distribution operations Joe Urban said. “We are excited to bring these vehicles into our Giant Delivers fleet and kick off the transition to all-electric delivery.
*(music plays softly)* “The party’s over – it’s time to turn off (or turn on) the lights.” Bad news for Family Dollar (FD) and the thousands of rats that occupied the company’s West Memphis, AR distribution center as the discount merchant announced it would close that troubled warehouse by the end of this month. The 850,000 square foot depot, which opened in 1994, has been plagued with rodentia problems for years and was finally temporarily shut down after a Food and Drug Administration (FDA) investigation conducted from September 2021 to late March of this year found more than 2,300 long-tailed critters in the facility. Also temporarily shuttered were more than 400 FD locations in the south that were supplied from the Rathouse. According to a statement from Randy Guiler, VP-investor relations for parent firm Dollar Tree, the decision to close the Rodent Dorm was not related to the FDA inspection (cue the laugh track). Dollar Tree and Family Dollar should be able to adequately supply those 400 stores through one or two of their existing 25 DCs. But what about the rats? Where will they live?
We have a handful of obituaries to report this month including that of long-time Baltimore independent grocer Carl Greeley, owner of three Geresbeck’s Markets. Greeley, 92, who began his career working in his father-in-law’s corner grocery store in Baltimore, later joined Food Fair and in 1971, bought his first grocery store, a former Eddie’s Market in Riviera Beach, MD. By the end of that decade, he opened several limited assortment stores called Box N Save and in 1985 he acquired Geresbeck’s Market from Charles and Liz Clark. In 2019, Geresbeck’s acquired the former Lauer’s store in Pasadena, MD. Carl Greeley personified the successful independent grocer – a hard working creative merchant who was good to his people and knew many of his customers on a first name basis. May he rest in peace.
Robert Vlasic is also dead. Vlasic joined his father’s Detroit dairy distribution company after World War II and quickly saw an opportunity to expand the business into pickle processing. He grew the company by signing contracts with cucumber farmers in Michigan and adjoining states. By the late ‘40s, Vlasic Pickles had become a strong regional brand. In the mid-1950s, the company continued to expand and began servicing supermarkets nationally. In 1978, Vlasic sold his company to Campbell Soup and from 1989 to 1993 served as Campbell’s chairman of the board. The company is now owned by ConAgra. Vlasic was 96 when he died.
my favorite baseball writer of all time, Roger Angell, passed away last month. Angell, who worked for The New Yorker for 60 years, was more than an ordinary sportswriter. He watched Babe Ruth play in the 1930s and also saw the phenom of the current era, Shohei Ohtani, display his hitting and pitching prowess in 2022. Angell’s novel “The Summer Game,” (1972) remains the best baseball book I have ever read. His uncanny ability to emotionally penetrate the nuances of the game coupled with his passion and enthusiasm were unlike any other sportswriter. One of his last pieces, “This Old Man: All In Pieces,” was written when he was 93 and won the American Society of Magazine Editors’ Best Essay award. A man with skill and grace, the talented Mr. Angell was 101 when he passed.
Ray Liotta, who in my opinion was a highly underrated actor, also died last month. Liotta’s best known roles were as baseball player Shoeless Joe Jackson, the ghostly figure who appears on the baseball field built by Ray Kinsella (Kevin Costner) in the memorable film “Field Of Dreams” (1989), and as Henry Hill in the Martin Scorsese classic “Goodfellas” (1990). His understated portrayal of the young mobster was a perfect offset to his high voltage co-stars Robert DeNiro and Joe Pesce. Liotta, who appeared in 126 film and TV roles in a career that spanned 41 years, was 67 when he suddenly passed away.
Another underrated talent has also left us. Ronnie Hawkins, the sometimes outlandish rockabilly singer who helped discover the group of musicians that later became The Band, died last month in Canada at the age of 87. A native of Arkansas who started playing music inspired by early Sun Records’ artists Elvis Presley, Johnny Cash, Jerry Lee Lewis and Carl Perkins, Hawkins and his revolving group of musicians would play barrooms, carnivals and juke joints in the South before Conway Twitty (yes, that Conway Twitty), another Arkansas native, told him that rock and roll bands could make a lot of money in Canada. Hawkins and his then 18-year old drummer, Levon Helm, drove to Toronto and sought out other local musicians to form a new group. Hawkins’ recruiting skills were pretty good – he found Robbie Robertson, Garth Hudson, Richard Manuel and Rick Danko – and Hawkins and the group soon became one of Canada’s top nightclub attractions. In the early 1960s those four accompanying Canadian musicians and Helm left to form their own group, and they backed Bob Dylan for several years. Later they broke off on their own as The Band. While in Canada, Hawkins had a few hits of his own including “Forty Days” and “Mary Lou” as well as two covers of Bo Diddley songs – “Who Do You Love ?” and “Hey, Bo Diddley.” “The Hawk” could be seen and heard in another classic Martin Scorsese film “The Last Waltz” (1978). He was the first guest musician who performed in the movie playing a version of “Who Do You Love?” that is unforgettable.
