At UNFI, the stink show continues. Actually, you can make an argument that except for a brief period during COVID when virtually every retailer and wholesaler rode the strong sales tailwinds of those unfortunate times to strong revenue and earnings, the stink show (to varying degrees) has never left since 2006.
Of course, I’m referring to Supervalu, the core of the Providence, RI-based wholesaler/retailer which it acquired in 2018. From the day former SVU CEO Jeff Noddle agreed to buy the bulk of Albertsons (about 1,100 stores) nearly 18 years ago, to the ineptness of his successor Craig Herkert, who led the company from 2009-2012, the then-Minneapolis-based company had been riding on three wheels. From 2013-2018, chief executives Sam Duncan and Mark Gross brought more stability to the once-great organization, but neither was ever able to provide the level of achievement that leader Mike Wright had accomplished in the 1980s and 1990s.
When the once-successful natural, organic, specialty and ethnic distributor chose to overpay ($32.50 per share) to buy SVU, the challenges that had confronted that company for more than a decade were transferred into the lap of UNFI and its highly overrated chief executive Steve Spinner.
Clearly, by acquiring Supervalu, UNFI was stepping into the big leagues of wholesaling. The high-margin successes of selling organic granola to Whole Foods would quickly be replaced by having to offer a potpourri of independent retailers a full-service menu. Spinner and his own team of “specialists” clearly weren’t prepared. The $1.6 billion in debt that came along with the deal only made matters more difficult.
By 2021, Spinner had exited UNFI to be replaced by Sandy Douglas, the former Coca-Cola and Staples executive. Douglas, who enjoys an excellent industry reputation (unlike Spinner who was thought of by many as a clown), revamped the company’s board of directors and brought in new senior leadership while bringing more overall structure to the company.
Two years later, little of the overhaul has worked. Earlier this month, UNFI posted a $39 million loss for its 2024 1st quarter ended November 4. That comes after two miserable operating quarters in which the big distributor saw a nearly 90 percent earnings decrease in Q3 of 2023 and lost a stunning $68 million in Q4. Moreover, UNFI recently lowered its already depressing projected outlook for the entirety of FY 2024 from a loss of $36 million-$110 million to $46 million-$120 million.
Not surprisingly, Douglas is playing Pollyanna when describing UNFI’s most recent operating period: “Our performance this quarter exceeded our expectations as we drove improved operational execution, which helped deliver savings from our near-term value creation initiatives earlier in the year than previously expected. These savings partially offset the anticipated decline in procurement gains resulting from lower levels of inflation,” Douglas stated, later adding, “As we work to restore profitability in the near-term, we also continue to make progress on our multi-year transformation agenda designed to enhance shareholder value by structurally improving our capabilities, efficiency and profitability while meaningfully enhancing the customer and supplier experience. Given our leadership position and the tremendous long-term value creation opportunity we see for our customers, suppliers and our shareholders, we refuse to
be incremental in our approach. We remain focused on sustaining operating and transformation momentum as we service our customers throughout the busy holiday season and will continue to drive operational improvement as quickly as possible.”
Memo to Douglas: internal efficiencies (assuming they are properly executed) will be helpful, but they are not the solution to UNFI’s bigger problems. The most tangible touchpoints that Douglas and his team need to address are staring him in the face – enhancing relations with your independent customers (especially in the Mid-Atlantic and Northeast); upgrading your private-label program so that your customers believe it’s on par with their competitors; and improve the overall culture within UNFI.
Those are big but necessary “asks” if the company wants to remain relevant, because if your customers aren’t telling you that, then Wall Street certainly is. On December 13, 2022, UNFI was trading at $39.87 per share. A year later UNFI’s stock price has tumbled to $15.22 per share.
‘Round the Trade
Just before presstime, a group of six U.S. senators and Congressional representatives sent a letter to the FTC expressing their opposition to the proposed Kroger-Albertsons merger. The lawmakers explained that despite the companies’ recent proposal to divest 413 stores to C&S Wholesale Grocers, this merger would still harm consumers, workers and the grocery industry as a whole. They urged the FTC to oppose the merger, regardless of the proposed divestitures. This letter came just before the FTC’s December 15 deadline to act on the merger and was signed by Senators Cory Booker (D-NJ), Elizabeth Warren (D-MA), Mazie Hirono (D-HI) and Bernie Sanders (I-VT), and Reps. Summer Lee (D-PA) and Alexandria Ocasio-Cortez (D-NY), all Democrats. They claim that a Kroger-Albertsons merger would net the five largest food retail companies control of 55 percent of all grocery sales (untrue) and would result in a duopoly with Walmart and the merged combined Kroger-Albertsons corporation controlling more than 70 percent of the grocery market in more than 160 cities across the country (a misleading conclusion). As a result, the newly merged entity could use its dominant position to further control and ultimately raise consumer prices, while also reducing job competition, decreasing wages and decreasing the bargaining power of organized labor (an unproven theory).
The six liberal lawmakers also argued that “a massive grocery merger also increases the risk that firms will violate the Robinson-Patman Act, a longstanding but under-enforced law that prohibits sellers from engaging in price discrimination among different buyers,” adding that “this merger will harm consumers, workers, farmers, and other food suppliers across the country, and the proposed divestiture will not resolve the concerns. We ask that the FTC should use its authority under the Clayton Act, the Sherman Act, and the Federal Trade Commission Act to prevent the companies from merging.” While they won’t say it publicly, from the purview of Kroger and Albertsons, FTC chairwoman Lina Kahn’s already left-leaning bias presents an intangible challenge, and the addition of the liberal viewpoints of six members of Congress, won’t do anything to diminish the anti-merger heat.
Adding fuel to that fire is the recent opposition to the C&S deal from the International Brotherhood of Teamsters which said earlier this month that it opposes the sale of any assets of Kroger and/or Albertsons to C&S Wholesale Grocers which was revealed in September as part of the store divestiture plan of both retailers. “Kroger and Albertsons management has told everyone and anyone that no union members will lose their jobs, contracts or hours if this merger goes through. Those promises mean nothing if they sell parts of either company to C&S. We’re not going to let any company put Teamster jobs at risk. Make no mistake – this deal is as anti-union as it gets,” said Teamsters general president Sean O’Brien, who strongly recommended the FTC veto C&S’s acquisition attempt.
I’m not sure O’Brien’s statement is accurate though. After re-reading the original filing, it seems that Kroger and Albertsons ensured the FTC that the future status of any stores that are divested would ultimately remain or re-open as organized shops. There may be a loophole that I missed (and it’s clear that there’s significant distrust of both chains by most labor unions), but it is my belief that if the deal is completed, C&S or its future retail partners will have to continue to operate those acquired supermarkets as unionized.
As for the merger itself, now 14 months in the stew pot, Kroger did take a big step forward last month in its effort to reach the finish line from a procedural perspective. According to CEO Rodney McMullen, the big retailer has completed its “second request” requirement demanded by the FTC to gather more information about the prospective deal. “As of November 15, 2023, Kroger certified substantial compliance with the second request issued by the FTC. We continue to work and cooperate with the FTC and its review of the transaction. This step keeps us on track to close our proposed merger with Albertsons in early 2024. We are confident that we have fulfilled all the commitments we set out in the original merger agreement, including the comprehensive divestiture plan announced with C&S Wholesalers Grocers (to sell 413 stores),” McMullen told financial analysts at the company’s recently completed 3rd quarter conference call. While Kroger and Albertsons have been working hard behind the scenes to potentially integrate both companies, the ultimate decision still remains with FTC chairwoman Lina Khan (or the courts).
While McMullen might feel optimistic about crossing the finish line successfully, I’m not sure I’d make that same bet.
In a rarity, the CEOs of “Godzilla” and the “Bentonville Behemoth” (Walmart) appeared on CNBC on the same day (December 6), albeit on two different shows. Speaking on Jim Cramer’s “Mad Money” show, Amazon chief executive Andy Jassy stated: “Customers care about deeply and love getting delivery quickly…I feel pretty good about what we offer customers with how large our selection is and the prices (we offer) and how fast the deliveries continue to be.” When analyzing Amazon’s restructured distribution network, the 55-year-old leader asserted, “When we took our U.S. fulfillment network from a flat national network to eight regional hubs, we redid all the placement algorithms to get items close to where we’re shipping to customers. We were not only able to take the transportation distances down, which lowers your transportation costs and speeds up delivery to customers but we also took our costs served out so those were it was a great customer experience, benefit for customers getting a faster and then also a total cost to serve down.
Walmart’s McMillon, who made his comments on the network’s “Squawk on the Street” show, noted the retailer’s continuing increases in traffic counts and in transaction growth on curbside pickup orders. On the subject of gaining revenue from higher-income consumers, McMillon explained, “Everybody’s price sensitive. We went through this period of inflation which has now changed. We’re starting to see some deflation which we’re happy to see. But as that price sensitivity went up, everybody was looking for value and we did really well and continue to with higher income cohorts.”
Both interviews are still available on YouTube and are worth viewing in their entirety.
A few numbers for the Holiday Season: last month the U.S. Department of Labor said 199,000 new jobs were added, allaying some fears that a recession is still possible. Additionally, the unemployment rate dropped from 3.9 percent in October to 3.7 percent last month, a strong and encouraging figure, but still not enough to fully wash away the vibe from many consumers that things are still not right. In a survey conducted by grocery online research firm Brick Meets Click/Mercatus, composite-level sales for 23 U.S. grocer banners declined 13.5 percent during the 12-week period which ended on September 20 (compared to the same period in 2022). The study deduced that the sales decreases were driven by a higher number of customers shifting back to in-store purchases or moving to a competitor’s online service.
Another key finding was that total order volume was down 16.8 percent, which the two firms believe was the result of an overall customer base reduction. The survey did note that active customers completed more orders and spent more per order than in 2022. None of this should be surprising given the sharp dip in digitally-driven sales since the peak of COVID.
Starbucks, now under the aegis of Laxman Narasimhan, said it wants to return to the bargaining table after more than a six-month stalemate with Workers United, the union representing nearly 10,000 of its store associates. “We collectively agree, the current impasse should not be acceptable to either of us. It has not helped Starbucks, Workers United or, most importantly, our partners. In this spirit, we are asking for your support and agreement to restart bargaining,” wrote Sara Kelly, Starbucks’ VP-chief partner officer in a letter to Lynne Fox, president of Workers United. The startup labor organization is reportedly still studying the offer. That’s an encouraging sign that likely would not have occurred under Narasimhan’s predecessor Howard Schultz who we took to the woodshed for his boorish actions with some of the company’s associates who have or are attempting to unionize.
Local Notes
After several appeals, New York’s Supreme Court has upheld New York City’s minimum wage for delivery workers that was originally slated to go into effect in July. Under the new law, delivery firms including DoorDash, GrubHub and UberEats, must pay delivery workers in the city at least $17.96 per hour plus tips, with another increase to at least $19.96 an hour by 2025. Days before the originally scheduled July 12 start date, those three large delivery organizations filed lawsuits against the city seeking a temporary restraining order from the state Supreme Court in Manhattan to stop the plan. On September 28, Appellate Judge Nicholas Moyne ruled against the delivery firms; however, Uber immediately appealed to the Appellate Division of the Supreme Court, the next highest court, which again blocked the minimum wage from taking effect. Earlier this month, Supreme Court Judge Llinét M. Rosado denied that request, upholding the lower court’s decision. Before the new minimum wage, delivery workers were making about $11.12 with tips, and as little as $4.03 an hour without tips.
Busiest new store of the month is the Trader Joe’s in Forest Hills, NY, which debuted last month. From the moment the ribbon was cut, the 17,000 square foot unit has been bustling and that incredibly high volume continues as I write this on December 15. The Forest Hills location is TJ’s third store in Queens (following Rego Park in 2007 and Long Island City in 2021) and the privately held “treasure hunt” merchant’s 16th in New York City.
About two dozen Amazon workers at the company’s fulfillment center in W. Deptford, NJ, walked off their jobs on Cyber Monday (November 27), citing the need for better wages and improved working conditions. The job action is part of a multi-state effort to organize the country’s largest online retailer. While there have been attempted unionization efforts at several Amazon DCs, only one facility in Staten Island (in April 2022) has been successful thus far. Since then, Amazon has lost several legal appeals to overturn the outcome of that election. Currently, Amazon continues to appeal its case to a higher jurisdiction while refusing negotiate a contract with the newly formed Amazon Labor Union.
Earlier this month, in a deal involving two regional food broker firms, Montvale, NJ-based CA Ferolie and Syracuse, NY-based food brokerage Bratt-Foster, Inc. dba Advantage Sales and Marketing (not related to national broker firm Advantage Solutions) announced that they have joined forces. Bratt-Foster is a successor to companies that date back to 1910, exceeding even CA Ferolie’s 75 years in the industry. John Foster, president and owner of Bratt-Foster, which covers the Buffalo/Syracuse and Albany markets, will retire in March. He began his career as a retail representative with the original company – Florian, Shaffer, Farrar – and became an owner in 1978. He was elevated to president and treasurer in 1990.
Also joining CA Ferolie is Dave Lesko, who has been a vice president at Advantage and worked with Foster for more than 33 years. Tony Lubrano, EVP-confectionery/HBC-GM for CA Ferolie, will lead the integration of Bratt-Foster clients and services into CA Ferolie’s Upstate New York office, led by Joe Cavallaro. Antony Ferolie, CEO of CA Ferolie, called the deal “a perfect fit of heritage, culture and success.”
Tom Toomey, a staple in the New England food brokerage business for six decades, passed away earlier this month at the age of 90. During my days in New England in the 1970s, the former P&G sales rep, who served in the United States Marines after graduating from Notre Dame, was a major factor in the grocery business in New England. He served as president of the brokerage firm Toomey-Fitzgerald-DeLong (later Toomey-DeLong), helping build that agency into one of the top selling organizations in the six-state region. The company was later sold to Food Enterprises. I remember Tom as one of the most tenacious salesmen in the business, which was much more rough-and-tumble than it is today. He had tremendous street smarts and an ability to forge strong relationships with both his clients and customers. Tom Toomey leaves his wife of 67 years, Cathy, five children, 14 grandchildren and four great-grandchildren. A life well-lived, Tom Toomey will be remembered…