The first question regarding former Kroger CFO Gary Millerchip joining Costco in a similar job is: wasn’t there a non-compete agreement in place?
Judging by the reality of the situation, Millerchip likely did not sign a deal where defecting to a competitor was a contractual roadblock.
Within a day of Kroger’s announcement that its talented chief financial officer would be leaving the company, news emerged that the 15-year Kroger veteran was headed to Costco to assume the same role. He will replace Richard Galanti who will retire next month after nearly 40 years with the Issaquah, WA-based club merchant.
Getting Millerchip is a real coup for Costco. Not only because the company is replacing one of the best CFOs in the business in Galanti, but Millerchip is a rock star in his own right. I’ve been listening to Kroger’s financial analyst calls for more than two decades and the 49-year-old Brit is as knowledgeable, credible and glib (in a good way) as anybody who has represented the big Cincinnati merchant to the financial community. And that includes CEO Rodney McMullen and his predecessor, the great David Dillon. Millerchip also about 15 years younger than Galanti.
On a personal level, this is a great move by Millerchip. He’s moving from a very successful company that’s been distracted and impacted by the tall mountain that’s been created by its attempted merger agreement with Albertsons. A lot of that pressure was squarely on Millerchip’s shoulders (as well as McMullen’s).
At Costco, he’s joining the industry’s best merchandiser where numbers over the past five years (pre-COVID, during the pandemic, inflation and flatness) remain tremendous. Even in January 2024, when retailers are complaining about “mushy” sales, the country’s largest club operator posted a comp sales gain of 3 percent and an ecommerce revenue spike of 21 percent. And if you were in Millerchip’s position, who would you rather work for: a company in the midst of a potential protracted legal battle based in Cincinnati or a retailer that’s smoking hot with arguably and the best business model (and execution) in the retail business and is located in the Seattle area?
When talking about anything Kroger, it’s hard to ignore the unyielding weight of the merger and the impact it has on both Kroger and Albertsons. From the outset, I thought the odds were against the deal being sanctioned by the FTC and its leftist commissioner Lina Khan. But as we near the 18-month mark since the initial announcement, things actually seem considerably worse than they have ever been.
The recent delay in releasing a decision about the merger (likely until May or June) only dampened hopes that the two retailers were making enough progress in convincing the FTC to approve the deal. Litigation filed by the attorneys general of Washington and Colorado hasn’t helped matters, and several other state attorneys general are still considering filing similar legal actions against both retailers.
And then, as we were nearing our press deadline, Kroger issued a press release reiterating its pledge to lower prices if the deal is authorized. The release cited previous examples (Harris Teeter, Roundy’s) of Kroger reducing prices after deals were consummated. The industry’s largest pure-play supermarket chain also repeated its commitment to invest $1.3 billion to improve the customer experience at Albertsons stores in a similar manner to what occurred at Harris Teeter and Roundy’s.
It’s clear Kroger is trying its hardest to convince government officials and those in the court of public opinion that this deal is a winner.
In truth, Kroger’s likely path to winning might come in the court of real judgment when it sues the FTC if it blocks the merger.
‘Round The Trade
Walmart, which has made big strides against Amazon (and other retail competitors) with its digital gains over the past five years, is making a return to its fundamental roots. For those past five years, while the “Behemoth” has poured billions of dollars into upgrading its online ordering platforms and infrastructure, it has virtually ignored the building of new stores.
Late last year, the world’s largest retailer said it would remodel 650 existing stores and then earlier this month said it would build 150 new stores over the next five years, including converting some discount stores (division 1 units) into SuperCenters. And yes, there’s also more Walmart news to report: late last month, Walmart announced a 3-for-1 stock split, its first since 1999. The Bentonville, AR-based mega-merchant said all current shareholders will receive two additional shares for each share held. Those new shares will be issued on February 26. That will bring the number of outstanding shares to 8.1 billion.
In a statement, CEO Doug McMillon said, “Sam Walton believed it was important to keep our share price in a range where purchasing whole shares, rather than fractions, was accessible to all of our associates. Given our growth and our plans for the future, we felt it was a good time to split the stock and encourage our associates to participate in the years to come.” The move comes less than a week after the “Behemoth” said it would offer its more than 4,700 U.S. store managers annual stock grants beginning in April. The grants, which could be as high as $20,000 worth of Walmart’s stock (trading at approximately $166 per share pre-split, an increase of about 43 percent over the last five years), come on the heels of an annual wage increase for the company’s top store executives from $117,000 annually to $128,000 beginning February 1.
In (political) “timing is everything” news, I found it interesting to hear President Biden accusing the grocery industry (particularly retailers) of “reaping excess profits and ripping off shoppers.” Not that’s he’s totally wrong about this, but his sound bite comments minimize a story that’s much more complex and layered (supply chain problems, increased labor infrastructure costs, etc.). Hey, I get it – it’s campaign season and it always seems so convenient to make the grocery industry some politician’s whipping boy – even if that politician is POTUS.
Local Notes
According to the New York Post, Wegmans chairman Danny Wegman has signed a lease for a prime piece of real estate near Lincoln Center in Manhattan. According to the tabloid, Wegman signed a long-term deal earlier this month for the former Bed Bath & Beyond space at 1932 Broadway between W. 64th and 65th Streets. And while Danny personally signed the lease, it was guaranteed by the corporate entity. The lower-level space encompasses 58,874 square feet in Glenwood Management’s luxury apartment building, The Grand Tier. The story notes that although the ground-floor entrance is only 2,245 square feet, there’s a 24,000 square foot cellar with an 18.5 foot high ceiling, a subcellar of 23,452 square feet with a 22.5 foot high ceiling and an 8,777-square-foot mezzanine. Is it really only a personal investment or could this be a seedling for another new Wegmans in the Big Apple (it opened on Astor Place in November and in Brooklyn’s Red Hook neighborhood in 2019)? Unsure, we reached out to the always reliable Deana Percassi, Wegmans VP-community engagement and communications. Here’s her response: “Prior to opening our Astor Place store, we were working with Glenwood to lease the space at 1932 Broadway. When that didn’t pan out, we had the opportunity to sign the lease for Astor Place. Shortly after we committed to Astor Place, the 1932 Broadway space became available, however the timing wasn’t right, as we were focused on getting our Astor location designed, permitted, and open to the public. Following the Astor Place opening, Danny Wegman learned the 1932 Broadway space was still available. He restarted negotiations and recently signed a long-term lease for the space. At this time, we are continuing to learn from our Astor Place store and will use those learnings moving forward.”
Utz Brands has sold its Good Health and R.W. Garcia snack brands to Our Home, which owns Popchips, for $182.5 million. The deal also includes two manufacturing plants in Lititz, PA and Lincolnton, NE as well as the assumption of the lease of Utz’s manufacturing operations in Las Vegas. Utz will gain about $150 million in after-tax net proceeds, which it will use to pay down its long-term debt. The Hanover, PA-based snack foods company, which went public in 2020, estimated that the Good Health and R. W. Garcia brands contributed approximately $65 million in net sales in fiscal 2023.
Good news for our friend Craig Rosenblum, former Inmar senior executive, who’s been named to the board of eGrowcery, the Bloomfield Hills, MI-based SaaS-based e-commerce solution firm designed to service retailers. “Craig brings a wealth of retail experience and a unique set of skills that will be helpful to our board as we continue to accelerate growth. I’ve known him for many years and have always appreciated his values, his intelligence and ability to help,” said Todd Mitchell, executive chairman of eGrowcery. I agree, Rosenblum’s intelligence, street smarts and willingness to be a team player should serve him well in his new role.
We have a few obituaries to report this month, including two from the grocery industry. Steve Leger, 67, has passed. A talented salesman for Schmidt Baking, Steve was indeed a special person. Always smiling and willing to offer a helpful message to many people in the industry, Steve Leger was admired by his peers and competitors because of his humility. The elder who officiated Steve’s memorial service, said it best: “He was serious, goofy, loving, caring and kind. He was generous, humble and dependable. Steve put the needs of others first.”
Also leaving us earlier this month was Bob Moore, 94, founder of Bob’s Red Mill, who took a small stone mill in 1972 to an international enterprise selling more than 200 organic and natural products in more than 70 countries. By happenchance, I ran into Bob at the old Fairway Market in Chelsea (now owned by Village Super Markets) during a Summer Fancy Food show. He was in line ahead of me, buying a few items (they were healthy). I thanked him for the all the good work that’s he’d done for nearly 50 years, and he couldn’t have been nicer. With his effervescent smile and signature cap, we exchanged a few industry war stories. The next day, at the Javitz Center, Bob was back peddling his wares with the same energy and exuberance that I had witnessed the previous day.
Former NFL player and skilled character actor Carl Weathers, 76, has also died. After a short career as an Oakland Raider, Weathers decided to see where his theater art degree from San Diego State would take him. It would only take a few years before he landed his signature role as Sylvester Stallone’s opponent, Apollo Creed, in the iconic movie “Rocky.” Weathers and Creed would appear in the next three sequels after the 1976 classic before being killed in the ring by Soviet super-villain Ivan Drago (Dolph Lundgren) in “Rocky IV” in 1985. It would have been easy to typecast Weathers for future tough guy roles, but the New Orleans native proved that his acting range was suited for greater versatility. Among the most notable of his 80 film and TV credits were: “Predator” (1987) with Arnold Schwarzenegger; “Happy Gilmore” (1996) with Adam Sandler; and the long-running Disney produced and “Star Wars” inspired series, “The Mandalorian” (2019).