As one retail executive said when I told him what his company’s share of the Baltimore-Washington was, “It’s a good thing that your 12-month measuring period ended in March, because the next 12 months are going to look much different.”
He’s right, in the three months since our annual measuring period concluded (March 31), sales have consistently weakened, and most retailers fear the worst is yet to come.
“As difficult as the last three years have been on humanity, a period of great sacrifice for our associates and the struggles we’ve all endured with supply chain disruption, we have been very fortunate that sales have remained strong not only during the first two years of COVID, but in the ensuing nearly 18 months where inflation has provided a cushion and cover up to the challenges that retailers were facing. As a group, we’ve kind of accepted that supply chain issues, labor challenges and trading down were part of the new reality, but as long as sales were good, we could offset those problems. Overall sales now have dipped and will continue to decline because many Americans have hit the inflection point of affordability and the threat of a recession is closer to reality than it was six months ago,” said an owner of a strong regional group based in the Mid-Atlantic.
In early June, I attended Saint Joseph’s University’s annual Food Industry Summit in Philadelphia, where a variety of speakers talked primarily about the growing presence of digital marketing and the state of the current economy and how it may affect consumer behavior.
One speaker, Jason Potter, senior VP and head of category leadership for service agency/broker Advantage Solutions, spoke articulately about the state of the industry. During his 45-minute presentation, one slide stood out – CEO Confidence Measure: 87 Percent Anticipate Recession In The Next 12-18 Months.
After talking to more than 40 retailers, suppliers and food brokers over the past six weeks, I agree with Potter – except I think he’s betting on the “over.” If the current trendline continues (not only from direct feedback to me but from studying recent sales and earnings results), the worse stuff could touch ground by the end of the summer with Q4 shaping up as a potential disaster zone.
And strangely enough, the one protectant that both suppliers and retailers might still be able to rely upon is continued inflation. Over the past three months the food inflation rate finally dipped to under 10 percent, a number that is still too high. Even with supply chains almost normalized from 28 months ago, many manufacturers have stubbornly refused to significantly lower wholesale prices and some of the larger CPG firms have continued to raise prices and brazenly defended their actions. To be balanced, any industry that is highly labor intensive has faced significant internal cost increases that aren’t going to diminish. The happy medium seems to be somewhere between the current (May 2023) food inflation rate of 5.8 percent and the government’s (ridiculous) projection of under 3 percent.
And while it seems counterintuitive to believe that continued high prices (and other economic factors) will actually prevent significant inflation, it’s been proven over the last 18 months that there seems to be enough financial security with the middle, upper middle and upper class, that the bottom won’t ever fall out.
I think there’s some truth to the logic although it’s not the kind of secure mindset that I’d feel comfortable with especially for publicly traded companies that have to tell their shareholders that their comp sales, earnings and market value have slipped, while also preaching patience and hope. Even if it’s true, Wall Street ain’t buyin’ that.
But, as we publish our 44th annual Market Study, we can still talk about good news. Here’s my annual take on the market leaders in Food World’s largest trading area, the Baltimore-Washington market.
Giant Food – Another solid year for the perennial market leader as it managed to slightly improve its already dominant market share in the $35.4 billion market. Like virtually every other retailer in the region, Giant’s primary revenue growth catalyst was inflation. And although it has not built a “from the ground up” store in several years, the Landover, MD-based “brand” of Ahold Delhaize USA has benefitted from acquiring closed stores from other retailers in the market – a former ShopRite in Silver Spring, MD unit that replaced an older, smaller unit in Calverton, MD and two former Shoppers stores in Crofton, MD and on Fort Avenue in Baltimore. Giant will open another former Shoppers unit later this year on Perring Parkway in Baltimore. Giant’s short-term challenges are similar to other food retailers – labor and shrink – its sales and share of market leadership position are very secure.
Safeway – The division of Albertsons enjoyed very good comp sales in the second largest market in its Mid-Atlantic division. However, there is some concern that the big chain’s focus on completing its merger with Kroger has proven to be a distraction. At the least, cap-ex once again has been limited with no new stores opened during the past 12 months. With its excellent locations, Safeway’s number two spot in B-W is secure, but if the Kroger merger is approved (a big “if”), how many stores would have to be divested – 20-30? Last month, Albertsons announced a change in leadership at the Mid-Atlantic division – popular and talented president Jim Perkins was moved to corporate headquarters in Boise, ID to lead a potential new company (SpinCo) that would encompass stores not sold after divestiture and veteran executive Tom Lofland, who headed Safeway-Eastern for more than two years, was named to replace Perkins. Depending on the approval of the Kroger-Albertsons deal, there could be some major changes affecting Safeway’s status in the B-W market.
Walmart – Not surprisingly, those retailers that benefit most during difficult economic times are discount operators. More than a year ago, Walmart CEO Doug McMillan predicted that as inflation continued to spiral, his company would stand to gain the most business. And that’s exactly what happened. Comp store revenue was very good as the “Bentonville Behemoth” once again did not open any new stores (in fact, it closed one of its three DC units) as it continues to prioritize its digital platforms. And that effort is paying off as Walmart has arguably become the leading omnichannel merchant in the market. Of course, Walmart’s brick-and-mortar business could be even stronger if it provided better customer service/training and maintained better in-stock conditions. But that’s never been the case at the world’s largest merchant. It’s very content to chip away at competitors’ business while maintaining solid customer loyalty of its own.
Harris Teeter – While HT’s same-store sales were decent (thank you, inflation) the division of Kroger has slipped a bit in terms of customer service. Obviously, hiring people (and retaining them) is an issue that’s impacted all retailers, but maybe because more is expected from this high-gloss merchant, the small cracks are more evident. Much like Safeway, Harris Teeter could have a different look in the near future if the Kroger-Albertsons deal is approved by the Federal Trade Commission (although I would expect more Safeway locations to be divested than HT stores). After opening multiple units per year for a 20-year period starting in the late 1990s, the company’s B-W expansion effort has slowed and of the three stores listed on its new store agenda – Florida Avenue in DC; Kent Island, MD; and a replacement store in the Ballston area of Falls Church, VA – only the latter seems likely. HT is still a very well-run company, but perhaps not as well-run as it once was.
Wegmans – After struggling through the early part of COVID when many service departments had to be closed or modified, the Rochester, NY uber-retailer has hit its stride once again. Comp store sales were very strong and the high-volume regional chain’s share was bolstered by the opening of three new stores – Wisconsin Avenue NW (which is humming); in the Carlisle section of Alexandria, VA (struggling a bit by Wegmans’ standards); and in Reston, VA (which is doing OK). After a five-year run which saw much of the company’s store opening pipeline focused on the B-W market, there’s only one store left on the local checklist (in Rockville, MD which will probably open next year). One of Wegmans’ hidden strengths is that despite the labor issues that impact all food retailers, the family-owned retailer has done an excellent job of executing and maintaining a high level of customer service at store level.
Shoppers – From near-death status, Shoppers has reawakened to some degree this year, opening four stores and remodeling several others. Granted, some of those stores once traded under the Shoppers banner (before they were sold and reacquired), but you’ve got to give the retail unit of UNFI credit. General manager Jeff Bleichner has done an excellent job without a lot of corporate cap-ex support and the once powerful discounter has another new store slated to open in Waldorf, MD next month (another former Shoppers store that was sold to McKay’s). I’m still not totally certain that UNFI will continue to support their smallest retail division in the long-term but give the company props for reversing the negative momentum of the past decade.
Amazon Fresh – I don’t care how many people tell me to never count out Amazon, this turkey will never fly. A trainwreck from the beginning, CEO Andy Jassy’s “pause” announcement seems like a precursor for a death sentence.
‘Round The Trade
Just when you might be thinking that the FTC may be backing off its tenacious anti-business stance, comes word earlier this month that the agency is seeking both a temporary restraining order and injunction after suing to block Microsoft’s proposed $69 billion takeover effort of game developer Activision. The FTC voted to block the proposed acquisition several months ago, but now has taken the formal step of litigation because it believes that the two companies may consummate the deal at any time. Last month, the heavy hand of chairwoman Lina Khan arose again as the liberal-leaning agency voted to block a proposed $27.8 billion acquisition by pharma giant Amgen to purchase another pharmaceutical firm Horizon Therapeutics. This, too, is likely to end up being challenged in court by both firms. Of course, those rulings only heighten the negative perception that a Kroger-Albertsons merger will get approved. If Khan and her acolytes reject the deal, I’m not certain that both retailers can afford another 18-24 months of litigation to seek the result they want. And even if Khan and her sycophants approve the deal, how many stores might have to be shed to make it palpable for both parties?…North Bethesda, MD-based Federal Realty Investment Trust (FRT) is suing Amazon, blaming “Godzilla” for defaulting on a lease for a long-delayed Amazon Fresh (AF) store opening in Willow Grove, PA in a shopping center owned by FRT. Amazon quickly countersued, charging that the landlord has not completed the necessary work to make the store ready to open. With more than 30 planned but unopened AF units the in the Mid-Atlantic alone, you can expect to see more litigation of this type. I also found it amusing that high-powered research firm Alliance Bernstein suggested that Amazon could accelerate its brick-and-mortar expansion by acquiring many of the divested stores in the Albertsons Kroger deal. First, Willie Wonka could conclude that. Second, before Amazon even thinks about expanding its physical store presence, maybe they should learn how to improve their current brick-and-mortar base…in a rarity, Wegmans will be closing a store due to underperformance. The Rochester, NY-based family-owned regional chain said it would close its Natick, MA location later this summer. The store opened in 2018 inside the Natick Mall. At 134,000 square feet, the former JC Penney location was one of the high-volume merchant’s largest stores. The announcement shouldn’t be that surprising since the success rate of supermarkets succeeding in traditional shopping malls has typically been so low that very few food retailers even attempt such an effort. But this is Wegmans, with its ability to crank out sales of $1.5+ million a week in a large footprint almost a given. The demographics in the Natick-Framingham area are great and Wegmans’ five other stores in Massachusetts are all performing at high levels. But some age-old
truths do not evolve with the times…former Ahold Delhaize USA CEO Kevin Holt has been named a director of Canada’s largest retailer, Loblaw. Also joining the Toronto-based chain’s board is Shelley Broader whose career also has a Delhaize America connection – she was CEO of Sweetbay Supermarkets (later sold to Bi-Lo whose Carolina stores are now owned by ADUSA) and began her career at Hannaford (now also part of ADUSA). One more Ahold Delhaize-related note – according to CEO Frans Mueller in an interview with Reuters, the large Dutch merchant is about 50 percent of the way to meeting its target to grow sales from outside its grocery stores to 1 billion euros ($1.08 billion) by 2025. Muller said the new revenue stream to keep food prices lower as inflation continues to impact consumers in the U.S. and Europe. “What we generate on retail media revenue, we will reinvest in our business to make sure that consumers can afford themselves healthy and sustainable products,” Muller noted. “We have to work very hard together, with retail and manufacturing, to keep costs down.” Ahold Delhaize entered the retail media game a bit late, giving already dominant revenue leaders Amazon and Walmart a big head start, Ahold Delhaize’s target of reaching 1 billion euros in the next 18 months is a modest one when you consider Amazon garnered a whopping $11.6 billion from its retail ad business (Amazon Advertising) in its recently completed fourth quarter alone…eye-opener of the month: New York City’s app-based food delivery workers are slated to make a minimum of $17.96 per hour plus tips effective July 12. That number will increase to $19.96 an hour by 2025. So, if you want your groceries or restaurant food delivered by Instacart, DoorDash, Grubhub or Uber Eats, expect to pay more. Perhaps considerably more. Ah, the hidden costs of online marketing!…the “too politically correct” police might be visiting Kraft Heinz soon. One of the greatest names in the history of branding – the Wienermobile – has been replaced by a fleet of “Frankmobiles “after more than 80 years. Kraft Heinz said the name change was made to celebrate the company’s new recipe for its 100% Beef Frank line.
Local Notes
The Virginia Supreme Court has rejected a request made by Wegmans to reconsider an earlier decision that found that local residents had the right to challenge local authorizations of the regional chain’s plans to construct a 1 million square foot distribution center in Hanover County, VA which was approved by the county’s board of supervisors in 2020. Last month’s ruling offered no explanation of its decision, and what impact it will have on the new warehouse is unclear since the DC is almost finished and could begin operations later this summer. However, the Supreme Court’s decision means the case will be sent back to a lower court for further review. So there could be further delays…Klein’s ShopRite has added its Howard Park (Liberty Heights Avenue in Baltimore City) and Riverside, MD locations to its list of stores that will now utilize Wakefern’s “Fresh to Table” offerings. The “store within a store” concept allows Klein’s produce and fresh food departments to offer customers a one-stop-shop experience with chef-curated items including crab cakes, crab dip, Old Bay chicken salad and other Klein’s signature items. The move follows recent “Fresh to Table” rollouts at other Klein’s stores in Forest Hill, Aberdeen, Bel Air and Jacksonville…things keep getting worse for Chesapeake, VA-based Dollar General stores, which over the past six months has replaced most of its senior management team and overhauled its board of directors. In its recently completed Q1, the discounter’s net earnings dropped to $299 million compared to $536 million in the corresponding period last year. That sent the company’s stock spinning down to its current level of $138 per share (it was $172 per share 11 months ago). And while Dollar Tree’s OSHA violations aren’t as rampant as competitor Dollar General, OSHA continues to find stores that violate its health and safety codes (more than 300 violations in the past six years). It was recently fined $98,219 for a repeat violation at its Pewaukee, WI store…Giant Food’s Sean Conlon has been named a winner (one of four) in FMI’s 2023 Store Manager Awards. Conlon was named by the trade association as the industry’s best manager for retailers who operate between 500 and 199 stores. Each winner receives $1,000 and a crystal award. Sean currently manages the Giant on Jeff Davis Highway in Fredericksburg, VA…I just learned that the Starbucks location closest to my home in Ellicott City, MD is possibly headed for unionization. Employees at the Route 40 store have filed a petition with the National Labor Relations Board to organize. One word of advice to Starbucks: I wouldn’t bring former CEO “Humble Howie” Schultz in from the bullpen to put out this fire…now that the Ocado-driven Kroger fulfillment center in Frederick, MD is open, sister retailer Harris Teeter has expanded home delivery into the Baltimore metro area and plans to add other Maryland zip codes in the coming months. Currently, about 30,000 items from the 350,000 square foot Frederick facility are available through HT’s website or app…from the obituary desk this month we have several deaths to report. Tom Smith, former Food Lion CEO, has passed away at the age of 81. Smith started working for the Salisbury, NC retailer as a bagger (when it was known as Food Town) in the early 1960s while attending Catawba College. After graduating, he joined Del Monte for six years as a sales rep before returning to the retailer in 1970 as a buyer. Smith worked closely with founder Ralph Ketner and when Ketner retired as CEO in 1981, Smith became president and COO. In 1986, he was promoted to CEO of the fast-growing retailer, which by that time had grown to nearly 500 stores with sales approaching $5 billion annually. Smith remained chief executive until 1999 until he stepped down, noting, “After nearly 30 years of hard work, it is time to retire and give the company a management team to lead it into the next millennium. I can think of no better time to make these changes than the present, as Food Lion is in excellent shape, financially and operationally.” When he retired at the age of 57, Food Lion operated nearly 1,000 stores and employed more than 100,000 associates. I met Tom Smith many times in the 1980s and 1990s – he was truly a country gentlemen who acted with humility and grace and possessed a strong work ethic with a lot of street smarts…Pasquale Caputo, better known as comedian Pat Cooper, passed away earlier this month at the age of 93. Cooper’s career began in the early 1960s with multiple appearances on the “Jackie Gleason Show” and the “Ed Sullivan Show” as a PG-rated comedian. Cooper was pretty funny, but when he worked at private clubs (especially the Friars Club in New York) his bluer material was hilarious. In fact, he appeared in one episode of “Seinfeld” playing himself at the Friars Club. Cooper, who was born in Brooklyn, unfurled his New York “attitude” during his many appearances on the Howard Stern Show, where his cranky persona resonated with Stern’s off-the-wall listeners. His 2010 autobiography “How Dare You Say How Dare Me!” is certainly worth reading…also departing the planet was Jim Brown, 87, who in my book remains the greatest running back in the history of the NFL. Brown was not only a great football player, he was also one of the best college lacrosse players of all time. Playing for the Cleveland Browns from 1957 to 1965, Brown’s punishing straight-ahead running style made him the most difficult player in the league to tackle. And once he broke free, his sprinter’s speed made him nearly impossible to catch in the open field. “All you can do is grab, hold, hang on and wait for help,” said Sam Huff, who faced Brown in more than 30 games as a Hall of Fame linebacker for the New York Giants and Washington Redskins. All told, in his nine-year career Brown rushed for 12,312 yards (an NFL record that stood until it was broken by Walter Payton in 1984). In 1963, Brown rushed for 1,863 yards (a single-season record until it was broken by O.J. Simpson a decade later) and was elected to the Pro Football Hall of Fame in 1971, his first year of eligibility (he was also elected to the College Football Hall of Fame in 1995 and the National Lacrosse Hall of Fame in 1984). Brown retired from the NFL after the 1965 season in order to concentrate on a film career. He appeared in nearly 60 movies and TV shows, the best of which, in my opinion, was “The Dirty Dozen” (1967), in which he played Robert T. Jefferson, one of 12 convicts assembled by the Army to conduct a dangerous mission to kill ranking German officers prior to D-Day. Brown’s life was not without controversy, but as a football player, he was unparalleled…it is with sadness that we also report the death of Tina Turner, one of the greatest R&B singers and live performers of all time. Turner died last month in her home in Switzerland at the age of 83. Born in rural Tennessee, Turner was discovered as a teenager by bandleader and future husband Ike Turner. The band, known as the Ike Turner Revue (later the Ike and Tina Turner Revue), electrified audiences with their tight arrangements, great dancing and Tina’s powerful vocals. The “Revue” enjoyed several Top Ten hits (“River Deep, Mountain High” and “Proud Mary”) but it wasn’t until Tina left her abusive husband and launched her solo career with hits like “Private Dancer” and “What’s Love Got To Do With It?” that she became a true superstar. Turner and her ex-husband were elected to the Rock & Roll Hall of Fame in 1991, and in 2021 she was inducted again as a solo artist. During her sensational 50-year career, Turner won eight Grammy Awards, a Kennedy Center honor in 2005 and a Grammy Lifetime Achievement award in 2018. What a voice, what a performer
Hail, Hail To One Of The Greatest!
The Industry Will Miss Dick Bestany
Last month, after a lengthy illness, we lost Richard J. Bestany. His formal obituary will read that he was a former company president who spent nearly 40 years in and around the food industry and was a loving family man. All true.
But Dick Bestany was far more than that. He was my friend for 50 years and my business partner for 30. But he was even more than that. Dick was a born leader, a truly independent thinker and one of the nicest people I’ve ever met in my 72 years on the planet. He was a mentor to many and seemingly a friend to all. He possessed that rare skill that, after spending time with Dick, people always felt better about themselves.
And beyond his skills as a successful businessman, Dick was the life of the party – every party! He literally lived the old adage of “I never went out to have a bad time.” He was a master at seamlessly blending business and entertainment. He really enjoyed people and they really liked him as a person and respected him as a businessman who had a unique perspective on the entire grocery business in the Mid-Atlantic. And as much fun as Dick and his cadre of industry buddies had, he never forgot that advertising revenue drove our business. So, when it came time to “ask for the order,” Dick always had his priorities in place.
In the 30 years we spent as business partners (not including the five years we spent together at The Griffin Report in Boston), the disagreements we had were few and far between. That’s because Dick always gave me the freedom and respect that enabled us to stay in our lanes and I ultimately learned so much from how he dealt with people and the significant pressures of the business. I never minded playing the “bad cop” (I figured it came with the territory), but Dick really enjoyed being the “good cop.”
From our early days of holding court at Clyde’s in Columbia, MD where we met so many executives and “characters” in the business, to the later years where we spent untold numbers of nights at Boccaccio in Baltimore’s Little Italy, Dick was the president of the social club; if the food industry ever formed a formal fraternity he would have been John Belushi.
Dick’s unique set of skills and the credibility of Food World and Food Trade News allowed us to meet and befriend many industry leaders including Jerry Chadwick (both senior and junior), Izzy Cohen, Jim Donald, Bernie Ellis, David Finkelstein, Bill Grize, Dave Herriman, Pete Manos, Bernie Mazer, Pat McCarthy, Mike Wilson, Dick McCready, John Paterakis, Frank Rich, Larry Roney, Don Smith, Joanne Stathes, Pete Riley, Mark Tarzwell, Bob Tobin and Bill White, to name some notables. But we just didn’t rub elbows with these industry heavyweights – we became their peers where mutual trust was almost a given.
Or as Dick used to say, “Sometimes I feel like a priest hearing confession.” He was right, but the key to those relationships was the faith that those secrets would never be revealed. And they never were.
Where did the time go? I can vividly remember my first day at The Griffin Report in 1973. When I was a green 22-year-old in my first real job, Dick (who was VP-advertising at the time) made my entry comfortable. “Work hard, have fun and follow me,” were his inspiring and calming words.
Fifty years later, those words still ring true. It’s been a great ride – I’m only sorry Dick won’t be with me to finish the journey.
May you rest in peace, my brother!
