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.”
That statement was made in June 2023, and that executive from one of the leading retailers in the B-W market, could not have been more prescient.
Inflation was already slowing, and consumer spending was also tightening even before the federal government cut supplemental SNAP benefits, returning them to pre-COVID levels, in March 2023.
Over the next 15 months, confidence in the economy, especially when it comes to spending on groceries, hasn’t noticeably improved. A trend that began during COVID – the decline of unit sales – has continued, but not even increased private label sales have been able to offset the belt-tightening that’s occurred.
A shift in economics often means there’s a shift in the retail landscape. In many of the Mid-Atlantic markets we cover, seismic changes occur infrequently because of the dominant market shares the leading retailers have in their respective markets and the cost and availability of real estate in urban areas makes it difficult for upstart and aggressive retailers to add stores and grow their shares of market.
However, when viewed over a five-year span, markets are shifting with drug chains and some conventional retailers being most vulnerable. The gains in that period by relative newcomers such as Aldi, Lidl and Trader Joe’s (who are growing their store bases), won’t destabilize any market, but their impact is painful for many traditional retailers whose market shares are declining. Old guard retailers like Walmart and Costco, who can more readily affect trading areas, have seemed unfazed by the current economic conditions, even if they don’t open new stores.
All of these disrupters have one thing in common: a point of difference that resonates with consumers. It might be price (Walmart, Aldi, Lidl) or the continued fascination of a treasure hunt experience (Costco, Trader Joe’s, Wegmans), but behind the consumer allure lies a steadfast operating philosophy backed by strong execution.
If I were guessing what this analysis might look like next year, I’d predict the malaise will still be present, the gridlock will remain at paralyzing levels and there may be a few retailers surrendering after they assess their cumulative battlefield casualties.
In the meantime, for the 45th year, here’s my annual take on the market leaders in Food World’s largest trading area, the Baltimore-Washington market.
Giant Food: Not a great year for the perennial market leader. One of several conventional supermarket leaders in the region to be affected by competition from discounters and the overall economic slowdown. Other challenges included labor staffing/turnover and the continued impact of retail shrink from shoplifting and organized crime. More recently, Giant also felt the effects of declining service levels in its frozen department due to technical problems at the company’s new temperature-controlled depot in Mountville, PA (which is being operated by Americold). It all added up to a generally flat performance. However, the company’s leadership, under the steady and popular Ira Kress, and its stellar store locations, reinforce the reality that its leadership position in the $36 billion trading area is not threatened.
Safeway: Much like Giant (but with higher retails), Safeway was impacted by tightened consumer spending and the related market shift towards discount merchants. Additionally, other than a major remodel of its great Georgetown store in DC, the company once again opened no net new stores and faces significant cap-ex challenges as it attempts to modernize its store based which is aging, but with many excellent locations. Some of its 114 stores in the market might have to be sold if the company’s (Albertsons) merger attempt with Kroger is approved (a saga that has now dragged out for 21 months). Even if it’s not, the outcome of that proposed deal will be the most influential factor in the company’s history. It’s already a distraction that is clearly affecting some of Safeway’s (Albertsons) corporate strategic decisions (or lack of them). If the Kroger deal ultimately fails, Albertsons would be hard-pressed to recreate the energy that it once had.
Walmart: Fearless and undaunted. Walmart’s continuing gains in the market (and nationally) have more to do than just offering lower prices. Its ability to constructively apply technology, both in distribution and in its growing digital business, has only added to Walmart’s efficiency and potential for growth. Walmart was one of many retailers in the B-W market which did not open a new store over the past 12 months (in fact, it closed a store on H St. NW in the District). During the past year, no major remodels were completed, either. However, it didn’t seem to matter as the “Behemoth” rang up some of the best comp stores in the entire Mid-Atlantic and nationally. Moreover, with 650 remodels slated for this year and 150 new stores planned for the next four years (some of which will undoubtedly be in B-W), Walmart could leap over Safeway as the region’s second largest player.
Harris Teeter: Another less than stellar year for the upscale Kroger brand. After seemingly opening new stores every year since its B-W market debut in 1999 (it now has 49 stores in the market), the last two years have seen a marked slowdown (the only new supermarket to open over the past 12 months is a replacement store for its first DC-area unit in the Ballston section of Arlington, VA). Never an aggressive price merchant, HT’s calling card was always its fresh and specialty departments, its strong operational execution and excellent customer service. Those assets still grade out well, just not as well as in previous years. Like Safeway, the Teeter’s store base may be trimmed if Kroger’s merger with Albertsons is approved by the FTC.
Wegmans: A very solid year for the Rochester, NY-based uber-merchant despite an economy that might make one think that the family-owned retailer might be vulnerable. It, too, did not open any new stores over the past 12 months (although a new unit will debut next year in Rockville, MD). However, comps were solid, and Wegmans seemed to overcome some of the labor staffing, retention and morale issues that other retailers are facing. A hidden part of Wegmans success is its site planning and demographics research. While all economic strata have been impacted by uncertain economic conditions, the company’s great store locations (in addition to size, selection overall product mix and execution) have protected it against major slumps. When you’re averaging more than $90 million per store in sales annually, you are doing a lot of things right.
Shoppers: A year ago, we expressed our optimism about the survival and potential revival back to the halcyon days of the Bowie, MD-based retailer, which began in Washington, DC under the leadership of the Herman family in 1939. After all, four new stores were about to open, and it appeared that parent company UNFI might greenlight other new projects. False alarm. Three of those stores (all in St. Mary’s county) have already closed and several sources are telling us that UNFI is actively shopping Shoppers again. That’s really a shame and very upsetting to the many Shoppers associates who have loyally supported the company while UNFI (and previous owner Supervalu) have treated the brand like an orphan from a foreign country. VP and GM Jeff Bleichner has done an excellent job of threading the needle for the past five years, but with extremely limited capital spending and indifference from ownership, Shoppers’ lame duck status makes it extremely vulnerable.
Amazon Fresh: I know they are not one of the market leaders (although with sister company Whole Foods, they rank 11th in the B-W area), but I can’t resist putting my two cents in. After failing spectacularly with its initial foray with “from the ground up” food retailing, AF is returning with a new version of its small grocery store model (one is coming soon to the former Shoppers store in the Potomac Yards in Arlington, VA). And based on a few of the revamped stores in Southern California and in the Chicago market, the largest digitally-driven company in the U.S. still doesn’t get it. Yes, there are more SKUs, the product assortment is slightly improved and Krispy Kreme donuts are now available, but it’s still the same less than mediocre retailing experience that existed when the first AF store opened in in Franconia (Alexandria), VA two years ago. We expect a few of the original leases that the retailer signed (White Oak, MD; Glen Burnie, MD; Annapolis, MD) to open under the new design, but many of those agreements have been canceled and others are the subject of landlord litigation. While Amazon CEO Andy Jassy continues to express optimism about the future of Amazon Fresh, I think he’s delusional about the retailer’s long-term prospects, at least with a loser format like this.
‘Round The Trade
It’s been quite a recent run for Walmart. Last month, the Bentonville, AR merchant posted strong Q1 sales and earnings, especially in this difficult operating environment. Overall revenue increased 6 percent, reaching a staggering $161.5 billion for the 13-week period ended April 28. Comp store revenue (excluding fuel) jumped 3.8 percent and total profit grew 9.6 percent to $600 million. Additionally, e-commerce sales were up 21 percent and membership in Walmart’s “Plus” program rose 18 percent. During the post-release call with financial analysts, CFO John David Rainey said that Walmart’s e-commerce business could be profitable within the next two years and noted that sister firm Sam’s Club is already making money from its digital platform. Walmart is also trimming parts of its business that it deems no longer profitable including the recent announcement that it would close all 51 Walmart Health clinics as well as its telehealth operations.
Earlier, the “Behemoth” said it is cutting several hundred jobs and asking some associates to move from smaller office locations to more centralized hubs. That’s according to The Wall Street Journal which noted that while the world’s largest retailer will still allow its associates to work remotely some of the time, it is now demanding that employees work primarily from their offices.
On the growth side, the planet’s largest retailer has expanded its InHome delivery service to four additional cities including Philadelphia and Boston and will now cover 50 markets nationally. InHome began five years ago as a premium service where groceries and other essentials are delivered to a customer’s doorstep or unpacked directly into their refrigerators in kitchens and garages.
And just before presstime, we learned that Walmart will be taking the major plunge and will place digital shelf labels in all of its 2,300 U.S stores, a huge investment that will take about two years to fully implement. The decision to convert its shelves to all DSLs came after a successful test at a single Texas store. In a post, Daniela Boscan, the chain’s food and consumable team lead stated: “This represents a significant shift in how I, and other store associates, manage pricing, inventory, order fulfillment and customer interactions, ensuring our customers enjoy an even better shopping experience. Walmart stores have over 120,000 products on the shelves, each with an individual price tag. Every week our stores support thousands of pricing updates on new items, Rollbacks and markdowns. Digital shelf labels, developed by the Vusion Group, allow us to update prices at the shelf using a mobile app, reducing the need to walk around the store to change paper tags by hand and giving us more time to support customers in the stores.” Obviously, this is a major undertaking that other retailers will be adding to their operational functions, especially if the costs continue to come down.
And who’s got numbers comparable to (if not slightly better than) Walmart? Well, that would be Costco, of course. In his first full quarter as CEO, Ron Vachris is off to a fast start. In Q3, the Issaquah, WA-based club king saw its net sales increase 9.1 percent over a year ago to $57.4 billion and at its nearly 600 U.S. stores, comp store revenue grew by 6.2 percent.
On the earnings front, Costco’s net profit for the 13-week period was $1.68 billion, a gain of more than $300 million from last year. Costco’s “hidden gold mine,” membership fees, raked in $1.12 billion in its third quarter, a 7.6 percent increase versus the corresponding period last year.
Shortly after Costco posted its most recent earnings, new CFO Gary Millerchip (who had held that same title at Kroger since 2017) until he joined Costco this past January, told The Wall Street Journal that he’s got high hopes to significantly increase Costco’s e-commerce sales. “We believe there’s a lot more opportunity to grow digital. I have experience in those areas and would hope that I can bring some of that help us continue to evolve, but very much in the Costco way.” This looks like a no brainer for Millerchip and his new company. Digital growth has been increasing since the pandemic and in Costco’s recently completed third quarter, e-commerce revenue grew 20.8 percent.
The bottom line continues to look a lot different at wholesaler UNFI. First some good news: the Providence. RI-based distributor, which also owns the Cub and Shoppers retail banners, has extended its supply contract with its largest customer, Whole Foods Market, for an additional eight years (through May 2032). While the WFM deal comes at a comparatively low margin, it was an important renewal both as an infrastructure foundation for Wall Street and industry perception. UNFI also cut the ribbon on a beautiful new 1.3 million square foot distribution center in Manchester, PA (York County) this month. The modern depot will supply most of UNFI’s independent customers in the Mid-Atlantic market.
Now, for the not-so-good news. Approximately 75 truck drivers at the company’s nearby Harrisburg depot (the old SuperRite warehouse) have agreed to unionize (Local 776), continuing an 18-month cycle in which drivers at other UNFI facilities in Connecticut, Arizona, California, Georgia, Iowa and Washington have agreed to organize. And then there’s the current state of UNFI earnings and sales. The encouraging news is that the losses are getting smaller – negative $21 million in its recently completed Q3. Its sales decline is also shrinking – down only 0.1 percent. But the balance sheet isn’t the only issue that UNFI needs to improve. As I’ve stated in previous columns, UNFI must upgrade its overall efficiency and execution – once the early kinks from the new DC are worked out, that’s likely to happen in terms of warehousing and logistics. But other issues that are vital to its many independent customers in the Mid-Atlantic – a more competitive private label program and better one-on-one interaction – would go a long way to improving its image among its customers. Again, that’s not just an observation, those are criticisms and frustrations I’m hearing directly from the independent owners.
And it’s not only UNFI that’s got union issues, but the labor group (the Amazon Labor Union) that unionized an Amazon fulfillment center on Staten Island two years ago, is likely to become affiliated with the International Brotherhood of Teamsters, which should give organized labor a lot more clout in its efforts to unionize other Amazon depots nationally. By the way, “Godzilla” still has not recognized the ALU and continues to fight the decision in court.
And speaking of Amazon, John “Whacky” Mackey, founder and former CEO of Whole Foods who sold his business to Amazon for $13.7 billion in cash in 2017, told Fortune magazine that he really likes former Amazon chief executive Jeff Bezos and the company “because they didn’t try to change Whole Foods.” Maybe Mackey was referring to the period right after the deal was consummated and Mackey had just gotten his big check. To be fair, Bezos left his post as head honcho nearly three years ago, but even before then, the folksy culture that permeated WFM was disappearing and today Whole Foods has become almost fully “Amazonized.” It’s still a very good merchant, just not as nearly at the top of its game as when Mackey was running it. It also should be noted that the enlightened one is currently peddling his new book – “The Whole Story.”
Kraft Heinz is looking to sell its Oscar Mayer meat division and has enlisted Bank of America and investment banking firm Centerview Partners to assist with the transaction. A potential buyer (likely from the PE sector) could pay as much as an estimated $5 billion for the company’s iconic processed meat brand. But more importantly, from my perspective, I believe it’s imperative that whoever acquires Oscar Mayer needs to ensure that the company’s Wienermobile never goes away.
Recently I’ve written about how many start-up companies in the in all realms of the food universe are folding. Recently, we’ve seen the likes of Foxtrot, Gorillas, Boxed, Chef’d and Buyk go bankrupt or fail in the U.S. You can add Takeoff Technologies to that list. The tech firm, which builds automated micro-fulfillment centers and includes Wakefern, Albertsons and Hy-Vee as clients, filed for Chapter 11 bankruptcy protection earlier this month and plans to sell its assets (estimated at $50 million). The Waltham, MA-based firm said it has been underperforming since the pandemic ended. It is seeking to gain court approval to keep operating until a buyer can be found. This is not only a continuing story of “too many cooks and not enough kitchens” but also the belt-tightening of private equity enterprises which currently are much less inclined to throw money at a concept rather than a business that demonstrates it can produce black ink.
Local Notes
Ahold Delhaize held its annual investor strategy meeting last month in Zaandam, The Netherlands and, after highlighting its “Growing Together” strategy, the buzz from the four-hour meeting was the future closing of some Stop & Shop store in New England and Metro New York. During his speech, ADUSA CEO JJ Fleeman would not specify how many Stoppie units would close in the upcoming months (we’re hearing about 30), but noted that the Quincy, MA-based brand would focus on investing its capital in more densely populated areas where Stop & Shop has a leading market position. He also said that the big brand (second largest in the ADUSA portfolio with 397 stores) did not have a value proposition and a pricing structure that was strong enough.
Fleeman went on to particularly praise the efforts of Food Lion and The Giant Company, which have both continued to show growth and the potential for greater future success. Ahold Delhaize chief executive Frans Muller said the retailer will continue to focus on technology as it looks to strengthen all aspects of its omnichannel abilities. The international merchant also noted that it plans to grow its private label presence in an attempt to reach 45 percent of total sales by 2028.
More locally, I want to give a shout out to Tonya Herring who has returned to her old job of SVP-chief merchant for Giant Food. Tonya’s spent the past couple of years working at sister ADUSA brand Peapod Digital Labs, which was recently folded into the larger ADUSA umbrella. Tonya’s well respected by the vendors and much admired by the Giant associates. Also, to Rick Manzi, the company’s VP-fresh who had ably expanded his duties to oversee all merchandising on an interim basis. Rick will continue to oversee fresh now that Tonya has returned.
During the past month, the Landover, MD-based brand celebrated two store openings – a net new supermarket on Perring Parkway in Parkville, MD (a former Shoppers) and the grand re-opening of its bulwark Wilkens Avenue unit in Baltimore (which was also expanded by 10,000 square feet). As rampant retail shrink through theft continues to increase, Giant has banned all large bags (over 14”x14”x6” but not reusable shopping bags) in order to deter shoplifting. Harris Teeter, one of Giant’s main competitors in the DC area has also altered its shrink deterrent policy and is now also banning large bags as well as checking receipts at its eight stores in the District. As I’ve noted previously, the solution to this growing issue is complicated. Clearly, physically confronting shoplifters is a bad idea, and the use of in-store security and the addition of facial recognition AI technology used by some retailers has been helpful, but the best long-term solution can only come from improved legislation, especially in lowering the dollar threshold to trigger a felony.
Chesapeake, VA-based Dollar Tree announced that it is conducting a strategic review of its stumbling Family Dollar business which it acquired in 2015 for $9 billion. Earlier this year, Family Dollar closed 970 stores and it continues to underperform as a whole. These strategic reviews usually lead to a sale; however, with more than 16,000 Family Dollar stores, good luck finding a buyer in this environment.
A tip of the hat to Andrea and Scott Karns of Karns Foods. For Andrea, her elevation to CEO of the family-owned 10-store independent based in Mechanicsburg, PA, is much deserved after serving in all aspects of the business since she was a teenager. Also, to her father Scott, who moves up to chairman, and deserves much credit for growing the business to such a successful level after he took over from his dad and founder, David. Scott also gets high marks for having the wisdom to appoint his daughter to succeed him. The Karns are truly a great family who have built one of the best independent retail food businesses in the Mid-Atlantic.
We have several obituaries to pass along this month including Dabney Coleman, the great comedic character actor who has left us at the age of 92. Coleman had many great supporting roles in such movies as “9 to 5” (1980) and “Tootsie” (1982). However, he cut his teeth on TV beginning in the early 1960s. I first noticed him playing unrepentant con man Merle Jeeter in the satirical TV series “Mary Hartman, Mary Hartman” (1976) and later as the star of his own series, the short-lived but very funny “Buffalo Bill” (1983). Rolling Stone once described his character, Bill Bittinger, as a “rapscallion for our times, a playfully wicked combination of G. Gordon Liddy and Groucho Marx.” That description could fit many of the snarly roles that Coleman played during a career that spanned 58 years and included 180 film and TV roles. What better compliment can you offer than “he made me laugh”?
We just lost two of the best basketball players of all-time. Just before presstime, we learned of the passing of Jerry West, 86, the 14-time NBA All-Star who was also a two-time All American at West Virginia University in the late 1950’s. His professional accolades include being a 10-time All-NBA selection with the Los Angeles Lakers, scoring leader in 1970, MVP of the NBA Finals in 1969 (in which the Lakers lost) and Hall of Fame member. His number “44” has been retired by the Lakers. West finished his career with 25,192 points and 6,238 assists and averaged 27.8 points per game in his great career. After he retired as a player, West became a very successful general manager of the Lakers and later the San Diego (now Los Angeles) Clippers. Among his executive moves was drafting Kobe Bryand and trading for Shaquille O’Neal. All you really need to know about Jerry West’s image is that his nickname was “Mr. Clutch,” and it is his silhouette that served as the model for the NBA logo.
Also passing on was Bill Walton. Although he wasn’t the pro player that West was, Walton’s college career was arguably more dominant than Mr. Clutch’s. Walton’s UCLA teams of the early 1970s won two national championships (under the tutelage of the great John Wooden) and at one point won an amazing 88 consecutive games. He was a three-time college “player of the year.” As a pro, he was the first overall draft pick by the Portland Trailblazers in 1974 and three years later won his first NBA championship. But injuries, particularly foot ailments, hampered his career. A great rebounder and highly skilled passer, in the twilight of his career, Walton again found glory as a key reserve on the 1986 Boston Celtics team that would win the league championship. For his efforts, he received the NBA’s “Sixth Man of the Year” award. After retiring, Walton turned to broadcasting where he primarily worked college games. His over-the-top description of players and playing styles was not everybody’s cup of tea, but I personally admired his bluntness and stream of consciousness style. Additionally, he knew more about the Grateful Dead than any other sports personality ever – and that’s a good thing. Bill Walton was 71 when he passed.
