Amazon can keep playing “stall ball” to fight unionization efforts at its distribution centers while also challenging voting tallies. However, it really won’t matter because at those warehouses where the vote was lost, those election results will likely be upheld. On a broader scope, while organizing efforts are continuing at several Amazon depots, the chance of gaining union approval at a majority of the more than 1,000 depots that “Godzilla” operate remains relatively small.
This piece is not about the theoretical dismantling of the fastest growing merchant on the planet. Because who would bet on Amazon not having a major impact on our lives for this and future generations?
The warehouse issues (including the closing of several DCs and the cancellations of other planned depots) is at best a scattered problem that needs to be watched. However, when analyzing the brick and mortar scorecard for its Amazon Fresh (AF) stores, the results continue to be underwhelming.
Let’s start with a company admission: it has suspended all expansion efforts at its 19 AF units in the U.K. The reason: underperformance.
After visiting most of AF’s 12 stores in the Mid-Atlantic, I’d say underperformance is a pretty good description of their current state, too. Even if you buy into the theory that their disappointing front end (invisible) “rings” are offset by the amount of digital business it is doing at each location, it’s still not enough to make the stores (or concept) viable in the long-term.
As AF should have learned from its big brother, Whole Foods Market (WFM), you can’t just magically put the “Amazon effect” on the stores and make them better. Of course, WFM is still a very successful grocery chain, but in my opinion, not as good as before “Godzilla” acquired the natural and organics merchant in 2017.
However, with AF, Amazon had no head start. The concept was self-created for a purpose I’m still trying to comprehend. Did the world need another grocery store, especially one that offers so little differentiation (other than the company’s “Just Walk Out” checkout technology) from the multiple brick and mortar choices consumers already had?
Even though AF is a small blip on Amazon’s large radar screen, losing isn’t fun. Certainly, there’s time to flip the script but that’s much harder in retail food where the competition is fierce, overcrowded and loaded with players that have a lot more experience than Amazon has. While “Godzilla” has the resources to continue to throw the kitchen sink into its fledgling grocery operation, I just don’t think it will continue to happen.
The stores, which range in size from about 25,000 square feet to nearly 50,000 square feet, make for an uncomfortable shop. The merchandising is just plain awful – no flow, limited selection and a private label program that’s mediocre at best. Other than the produce department, which is OK, other fresh departments remind me of a kiosk at a state fair. That’s not what consumers want from their bakery, meat and deli departments. I’ve also found store operations to be weak – the associates in the stores seem to have little training and overall store management is far from crisp.
And you can certainly blame some of AF’s out-of-stock problems on the overall supply chain challenges all food retailers face. Except at Amazon Fresh those in-store service levels are much worse than at virtually all of its competitors. We’re not talking about a three-store independent that’s of little priority to the CPG community. We’re talking about Godzilla! Obviously, this is a much greater issue than Amazon’s inability to obtain certain products from its vendors. This is an execution problem at store level and likely at its distribution centers, too.
At this point, unlike in the U.K., Amazon isn’t slowing the pace of AF openings or of seeking new leases. By our count, in the states of Connecticut, Maryland, New Jersey, New York, Pennsylvania, Virginia and in Washington, DC, AF has at least 34 more stores slated to open.
If it is objective like Lidl (which drastically reduced the number of new stores it planned to open after it evaluated its poor start), not all of those stores will celebrate a ribbon cutting. Don’t be surprised to see the parent company – which has not been afraid to slow its roll or pull the plug completely in the past with other failing projects – also objectively reassess its progress with AF in the U.S.
After all, you don’t often get a second chance to make a first impression – especially in food retailing.
‘Round The Trade
It might have been buried in agate type in an SEC 8-K filing, but Albertsons disclosed on September 9 that it has extended the “lock-up” agreement it has with its largest stakeholders until October 18. That means that its biggest investors – Cerberus Capital Management, Klaff Realty, Luther-Adler Partners and Jubilee Limited Partners – have agreed to not sell or transfer their shares. October 18 is when Albertsons is slated to release its Q2 financial results. The initial “lock-up” agreement was signed on June 22. Another investor, HPS Investment Partners, also agreed to similar terms. Collectively, the five large investors own more than 360 million Albertsons (ACI) shares. News of the extension created a stock price jump of 2.9 percent on September 10. At the end of the day on September 22, ACI’s shares traded at $26.35. Conspicuously absent from the “lock-up” extension was Kimco Realty, another original investor in the retailer dating back to 2006. Certainly, this extension will temporarily allay any fears that other shareholders may have that Albertsons’ largest holders would try to exit from their large investments during a time when the company is continuing to evaluate its strategic alternatives, but it really doesn’t resolve any long-term control issues for the Boise, ID-based supermarket chain. Those majority shareholders still want to pull their money from an investment that’s now 16 years old. As for the strategic review, forget the mystery behind a potential Ahold Delhaize deal (it ain’t happening). When the review ends, the most likely outcome might be a favorable real estate portfolio review and the buying of more time for Cerberus et al to finally reap their payout.
August’s CPI numbers provided a small bit of relief for American consumers – 8.3 percent vs. 9.1 percent last month on a year-over-year comparison – but food prices remained generally unchanged. That’s bad news, especially since gas prices have dropped, putting the seemingly endless increase in grocery prices squarely in the public spotlight. Notable for their continued skyrocketing inflation levels were these categories: cereal and bakery products (+16.4 percent); dairy (+16.2 percent); non-alcoholic beverages (+13.4 percent); meat/poultry/seafood/eggs (+10.6 percent); and fruits and vegetables (+9.4 percent). On the digital front, according to research firm Bricks Meet Click/Mercatus, total U.S. online grocery sales in August dipped 1 percent to $8.5 billion compared to the corresponding period last year. Other findings from the survey released this month showed that more than 68 million households purchased at least one grocery order via delivery, pickup or ship-to-home. And as has been the trend recently, the shift to BOPIS (buy online pickup in store) continues to be the dominant e-commerce delivery method of choice. Over a 3-year measuring period surveying monthly active users (MAU), BOPIS now controls 54 percent of all online activities (up from 32 percent). The grocery delivery portal also increased while ship-to-home activity continued to decline. As an overview, retailers tell us that they are very concerned that the sales (and often bottom line) benefits of inflation will be offset and ultimately reversed by continued trading down followed by significant reductions in weekly grocery spending. And that collision will likely happen more rapidly than some may think.
Walmart said it expects to hire about 40,000 holiday staffers this season, mostly for seasonal store and customer service jobs, while 1,500 of those new hires will fill permanent truck driving jobs. Permanent store employees will be offered extra hours first, seasonal hires will be added as needed and about half of the new hires are expected to transition to permanent full- or part-time jobs in 2023.
Now that Starbucks has named a new CEO – former Reckitt Benckiser CEO Laxman Narasimhan – the final days of Howard (“Humble Howie”) Schultz are close at hand (Narasimhan comes aboard on October 1 but won’t take over as chief executive until April 2023). In an interview with The Wall Street Journal, the immodest Starbucks leader disclosed his bucket list of what he would like to accomplish during his last six months on the job. Among those items was improving Starbucks’ sales in China (its biggest international market). He also noted that he would deem his year-long role as interim CEO a success if customer service improves and employee turnover decreases. Certainly, Schultz deserves a lot of credit for helping build Starbucks into the global powerhouse that it is – but his return earlier this year to run the show was more damaging than constructive, especially in how he handled associates’ attempts to unionize a minority of the company’s stores. He should have never been allowed to step back on the saddle, but at least it’s reassuring that his current tenure is nearing its end. Good riddance, Howie!
Local Notes
I found it interesting that Wegmans has scrapped its self-checkout app (SCAN) because it couldn’t control the customer shrink and other challenges related to the contactless scan-and-go app that the Rochester, NY-based uber-retailer rolled out during the pandemic in 2020. In an email from CEO Colleen Wegman, the regional chain said it tried to make adjustments to keep the app active but “the losses we are experiencing from this program prevent us from continuing to make it available in its current state. We have learned a lot and we will continue to introduce new digital solutions to streamline your shopping experience for the future.” The memo also noted that as a “sign of our gratitude for being a frequent SCAN customer, we’ve applied a $20 coupon to your online account.” Every aspect of digital technology is expensive. And retailers are going to be making some hard choices on when they decide whether they should continue with some of these programs at a loss or just pull the plug on others that are just too financially draining to foresee any chance of profitability or manageable red ink. Those choices could come more quickly than planned if the economic winds have a greater impact on sales and profits as some predict.
Some recent store openings of note include the beautiful new 45,000 square foot Food Bazaar (Bogopa) supermarket in East Harlem, the first Manhattan venture for the privately-held regional chain which operates 30 other large specialty and ethnic markets in metro New York. Earlier this month, Hannaford opened its 52nd New York state store in Brunswick (Rensselaer County). The 49,000 square foot unit is the Scarborough, ME-based brand of Ahold Delhaize USA’s 185th location. In New England, Big Y cut the ribbon on a 54,465 square foot store in Norwood, MA earlier this month. The family-owned regional chain which is based in Springfield, MA and was founded by brothers Paul and Gerald D’Amour in 1936, now operates 72 stores in Massachusetts and Connecticut. There was another huge opening for Market Basket last month at its Concord, NH unit, its third store in the Granite State’s capital. The 81,000 square footer is the very privately-held retailer’s 31st New Hampshire store. Another new unit is scheduled for 2023 in the resort town of North Conway. Market Basket, controlled by Arthur T. Demoulas, is also slated to build a new store in Shrewsbury, MA less than five miles from Wegmans’ unit in Northboro (those two have battled before). Market Basket now operates 87 stores in Massachusetts, New Hampshire, Rhode Island and Maine.
Irfan Badibanga has been named president of US Foods’ Chef Store unit, the foodservice distributor’s wholesale food/kitchen supply store, which was acquired by the broadliner from Smart Foodservice in 2020 (it has since been rebranded). It operates 87 locations nationally, with most of their warehouses located in California, Oregon and Washington. Badibanga most recently served as senior VP-operations for Giant Food. That Landover, MD unit of ADUSA recently named former Giant executive Diane Hicks to fill the top ops spot. Hicks most recently served as a VP for Stop & Shop’s New York division.
A tip of the hat to the folks at Niagara University’s Food Marketing Center of Excellence for hosting a great industry summit earlier this month in Buffalo. More than 250 students, alumni, vendors and brokers attended the half-day educational forum whose theme was “Built to Thrive: Creating Pathways for Growth and Innovation.” I was privileged to moderate a panel at the event which featured Mike Seidel from Performance Foodservice, John Persons from Tops, Mike DeCory from Wegmans and Kurt Schertle from Weis who all offered a lot of wisdom and intelligence on a variety of topics ranging from lessons learned from COVID to their insights on the current economy. I’d like to personally thank Bill Chiodo from Affinity Group and Phil Catanese from Niagara for organizing a terrific day of learning.
Unfortunately, we have a few deaths to report this month including the great Maury Wills who passed away at 89. Wills revolutionized baseball in the 1960s with his base-stealing ability as the shortstop for the Los Angeles Dodgers. In 1960, when Wills stole 50 bases, he began a six-year streak of leading the National League in base-stealing. In 1962, the Washington, DC native swiped 104 bases, breaking the record of 96 set by Ty Cobb in 1915 (that record was later broken by Lou Brock and then Rickey Henderson). For his base-stealing prowess and his ability to disrupt games, Wills was named the NL’s 1962 MVP. He was later traded to the Pittsburgh Pirates, then to the Montreal Expos before being traded back to the Dodgers and finishing his career in 1972. All told, Wills stole 586 bases, was a five-time All-Star and the winner of two Gold Gloves…
One of my favorite character actors of all time, Henry Silva, has died at the age of 95. Silva appeared in more than 130 movies and TV shows, beginning in 1950. Silva usually played a hitman, thug, or other type of “heavy,” a subject he addressed in an interview with the Chicago Tribune by noting: “I see a lot of actors who play heavies, but they always play the same heavies. I have a seven-minute reel of clips from my movies and none of those guys are the same. I don’t always go to the same place because that would be boring.” He was right. Silva’s characters were very nuanced and viscerally creepy. Among his best movies were “A Hatful Of Rain” (1957), the original “Ocean’s Eleven” (1960) and “The Manchurian Candidate” (1962).
“Two Buck Chuck” is dead. Fred Franzia, 79, who created Trader Joe’s notable Charles Shaw’s wine collection, is now cultivating grapes in another universe. A second generation vintner, Franzia’s Bronco Wine Company was dedicated to developing affordable wines for the masses. The San Francisco native hated that people often referred to his products as being cheap, once telling a reporter, “Who says we are lower priced? We are the best price. The others, I think, are overpriced.” Later, when asked how he could sell his wines at a lower price than a bottle of water, Franzia growled, “They’re overcharging for water – don’t you get it?” While “Two Buck Chuck” (which TJs has been selling at all of its stores where wine sales are allowed since 2002) brought Franzia fame, Bronco Wine is actually a huge company, ranking as the 13th largest wine marketer in the U.S. with such brands as ForestVille, Napa Ridge and Forest Glen. Although I never met Fred Franzia, his creativity and feistiness would make him my kind of guy.
On another note, was his craving for meat so great that he had to eat some flesh? I’m talking about Doug Ramsey, COO of Beyond Meat. Ramsey, who joined the Los Angeles plant-based protein company 10 months ago after a three-decade career at Tyson Foods, allegedly bit a man’s nose during an altercation in a parking garage following the Arkansas-Missouri State football game in Fayetteville, AR on September 17. According to the police report, Ramsey punched through the back windshield of a Subaru that had hit the tire of his Bronco. The driver of the Subaru told police that Ramsey “pulled him in close and started punching his body” and then also bit the driver, “ripping the flesh on the tip of the nose.” Beyond Meat has since suspended Ramsey. If they ever film a remake of “Silence of the Lambs” I’d consider casting Doug Ramsey.