Food Trade News

The economy’s continuing struggles during the past 12 months led to another year of challenges for many of the Mid-Atlantic’s wholesale grocers. Chains and independents alike felt the squeeze of shoppers tightening their purse strings, and the diversity of competition for grocery dollars continued to affect all business.

One company that continued to perform solidly despite those challenges was Wakefern. The food industry’s largest grocery co-operative rang up estimated wholesale sales of $9.8 billion for 2010. It supplied 235 ShopRite stores and another 47 PriceRite discount units as well as the 33 store Gristede’s chain based in Manhattan. This year marked the co-ops second year of operation in Maryland. Last year, Klein’s became a ShopRite operator and this year Collin’s ShopRite opened its first Maryland location in Glen Burnie.

C&S Wholesale Grocers ranked second among all full-service distributors in the region. The Keene, NH based wholesaler has made its mark on the industry as a third-party distributor to larger chains. Volume for the year was $8.2 billion, with 1,310 stores serviced. C&S was affected by volume declines at Super Fresh and Pathmark, but did enhance its business by gaining parts of Target’s growing PFresh business.  Key accounts serviced include: Safeway, A&P, Giant/Carlisle and Giant/Landover, in various capacities. Things look brighter next year as C&S will have added Giant/Landover’s dry grocery business based in Landover, MD as well as supplying the 57 Foodtown stores in New York, New Jersey and Pennsylvania and Geresbeck’s three Baltimore stores. However, those developments took effect after our measuring period closed October 31, 2010.

The wholesale division of Supervalu had a tough year as it saw its long time supply agreement with Ukrop’s dissolve as that family owned chain was purchased by Ahold.

The Mechanicsville, VA based division of the large Eden Prairie, MN based firm ranked third among all wholesale grocers in the Mid-Atlantic. The company also struggled with same store sales decreases at its sister retail firms divisions in the marketplace, Acme, Shoppers and Farm Fresh.T he company continues to supply such strong independents as Redner’s, B. Green, Magruder’s, Graul’s and Karns and is seeing progress through the growth of ethnic markets in the region. For the year, Supervalu serviced 836 stores and amassed wholesale volume of $4.75 billion.

Ranking next was the McLane Company, the largest convenience store distributor in the country. Primarily operating in this region from a 653,000 square foot depot in Falmouth, VA (one of 19 grocery warehouses the company operates nationally), McLane’s wholesale volume in the region is estimated to be $2.1 billion. Its major accounts are 7-Eleven and Wawa.

With 41 high-volume club stores in the Mid-Atlantic, Costco now ranks fifth among all wholesale companies in the region. Wholesale volume for Costco, as well as Sam’s Club and BJ’s. have been extrapolated to include sales of grocery, HBC, general merchandise and tobacco. Utilizing that formula, Costco’s 41 club stores in the market rang up sales of $1.65 billion .

Associated Wholesalers Inc. (AWI) is the largest wholesale cooperative operating in the Mid-Atlantic. The company’s primary distribution center is based in Robesonia, PA and it also operates a secondary facility in York, PA. AWI serviced 963 retail stores and rang up sales of $1.2 billion. The company continued to do a solid job serving mainly independent retailers in the Central Pennsylvania area, including multi-store operators such as McKay’s, Kennie’s. Darrenkamp’s, Stauffer’s of Kissel Hill and Lauer’s.

White Rose, a division of AWI based in Carteret, NJ services independent groups in the metro New York market  and also is the primary supplier of the Delaware valley area’s Thriftway and Shop ‘n Bag stores. Volume for the year is estimated at $1.2 billion with 1,550 locations serviced. White Rose had a fairly stable year, but will take a hit in near year’s study as it lost its Foodtown business after this year’s measuring period ended.

The two division of AWI made changes at the top in the past year as Bernie Ellis was named president of AWI and Joe Fantozzi was named to the same post at White Rose. Long time AWI executive Christopher Michael retains the chairman and CEO titles.

BJ’s Wholesale Club and Sam’s Club (a division of Wal-Mart) ranked eighth and ninth respectively among all distributors in the region. BJ’s 58 club units rang up estimated extrapolated sales of $1.13 billion. Sam’s operated 47 club stores in the and amassed estimated sales of $712.6  million.

United Natural Foods Inc. (UNFI), grew its business in natural and organic as well as the specialty side of the business. The Providence, RI based company serviced approximately 306 stores in the Mid-Atlantic with approximately $510 million in volume.

Burris Retail Logistics, which carved out its reputation distributing frozen foods, has expanded into other departments over the past decade. The Milford, DE based company, which operates Mid-Atlantic depots in Harrington, DE; New Castle, DE; Elkton, MD; Federalsburg, MD; and Springfield, MA garnered $500 million in wholesale volume over the past 12 months. The company had a solid year but was suffered the loss of its leader when CEO Bob Burris passed away in September.

Cooper-Booth, based in Mountville, PA where it maintains a 100,000 square foot depot had a volume of $372 million at its approximately 1,471 accounts serviced in the Mid-Atlantic.

Next up is Eby-Brown ($339 million), operating warehouses in Baltimore, Philadelphia and Brooklyn, NY.

Bozzuto’s continued to build its infrastructure in the Mid-Atlantic, doing business in the region from a distribution center in Allentown, PA. Its approximately 100 retail accounts in the market helped it garner $330 million in Mid-Atlantic volume.

Other wholesalers in the area included: Merchant’s Terminal ($130 million), Quality Foods ($98 million) and Economy Wholesale ($6.7 million).

Hank Mullany, who abruptly resigned as Wal-Mart’s North Region president on November 3, has surfaced and will join CVS Caremark as president of the Woonsocket, RI firm’s CVS pharmacy unit, effective December 6.  Mullany, 52, has nearly 30 years of executive retail leadership with a strong background in operations, finance and strategic planning. His four year stay at Wal-Mart included responsibility for 1,300 stores across 19 states.  Earlier in his career, Mullany served in various senior management positions, including as president of Genuardi’s Family Markets, Plymouth Meeting, PA. Mullany, a certified public accountant, earned both his bachelor’s degree and MBA from Temple University.

 “Hank brings a wealth of experience to his new role and understands the many demands and challenges of the retail business.  His expertise, along with his demonstrated ability to execute strategies and produce outstanding results, make him the right candidate to drive continued growth in our retail business and further our industry leadership for many years to come,” said Larry J. Merlo, president and COO, CVS Caremark.

 “Hank is the right candidate to fill this role,” CVS Caremark Chairman and CEO Tom Ryan added.  “His broad base of retail experience will further our mission to provide customers with expert care and innovative solutions. Hank’s proven track record as a leader will continue to set us apart in today’s competitive marketplace.”

 Mullany succeeds Merlo who continued to hold responsibility for CVS/pharmacy retail operations while the search for a successor was ongoing.  As announced as part of a corporate succession plan last May, Ryan plans to retire from his position as CEO prior to the next annual meeting at which time Merlo will succeed Ryan as CEO.

 Hank Mullany has left Wal-Mart. His sudden departure on November 4 as executive VP and president of the 1,307 store region-north for the world’s largest retail chain came as a surprise to many of his fellow associates and vendors in the region.

He will be replaced by Mike Moore, who has been with the Bentonville, AR retailer since 1988, most recently as senior VP-merchandising overseeing hardlines (fabrics, crafts, sporting goods). Before that, he had a corollary position to Mullany’s as senior VP and president of Wal-Mart’s western division operations. When the retailer consolidated its store operations network from five to three regions earlier this year, Moore returned to Bentonville. He will be relocating to the Delaware Valley shortly and will be based at the company’s offices in Horsham, PA where he will oversee 1,307 discount Wal-Mart stores, SuperCenters and Neighborhood Markets.

It was a little more than a month ago that Mullany addressed the Philadelphia-Central PA Association of Manufacturers’ Reps in King of Prussia and provided details of Wal-Mart’s expanded local approach to merchandising and procurement. He also told the vendor on hand that the company’s new small format store program will begin to be rolled out in 2011. He appeared bullish and confident that 2011 would be a strong year for Wal-Mart with 81 new projects set to open in his region.

Since he joined Wal-Mart in 2006, Mullany has helped the big merchant grow its business significantly in the Northeast, especially with the opening of new SuperCenters and conversion of former “divisions one” Wal-Marts to combo units.

He also helped Wal-Mart soften its once harsh public perception by being more accessible and promoting programs that were environmentally friendly.

Mullany began his grocery industry career with Fleming Cos. in the early 1980s and joined Genuardi’s as controller in 1988. He later served as executive VP-finance for the Plymouth Meeting; PA based regional chain and in 1996 was named EVP and chief operating officer.

When Safeway acquired Genuardi’s in 2001, he became president of the company. He left a year later and soon joined the Kimmel Center, Philadelphia’s music and arts exhibition hall, as EVP/COO. He left in 2006 to join Wal-Mart as senior vice president supervising the company’s Northeast store operations.

In related news, Wal-Mart has plans for the large north region (1,307 stores – 911 SuperCenters, 385 discount units and 11 Neighborhood Markets that cover 19 states), which is targeted for heavy growth in 2011 with 81 new projects on the docket. Most of those will be expansions into SuperCenters but there will be 18 net new stores and 18 other relocations, many of them SuperCenters.

Also on the agenda is a new view towards other formats, including new stores that could fall in the 10,000-20,000 square foot range. Wal-Mart is expected to reveal more about its “small format” initiative at an analysts’ conference on October 13.

Supervalu last month reported second quarter fiscal 2011 net sales of $8.7 billion and a net loss of $1.470 billion or $6.94 per diluted share, including non-cash goodwill and intangible asset impairment charges ($1.516 billion after-tax, or $7.16 per diluted share) and certain other costs ($13 million after-tax, or $0.06 per diluted share) primarily related to the impact of the labor dispute at Shaw’s and employee-related costs. This impairment charge was triggered by a required reconciliation of Supervalu’s stock price to book value per share. When adjusted for the non-cash goodwill and intangible asset impairment charges and certain other costs, second quarter fiscal 2011 net earnings were $59 million or $0.28 per diluted share. In the second quarter of fiscal 2010, the company reported net sales of $9.5 billion and net earnings of $74 million, or $0.35 per diluted share.

Craig Herkert, Supervalu’s chief executive officer and president, said, “Our sales performance continues to reflect a difficult operating environment. As the company moves into the next phase of its business transformation, we remain focused on our customers and taking actions that will better meet their needs. I remain confident that we have the correct strategy in place to achieve long term success.”

Second quarter retail food net sales were $6.7 billion compared to $7.4 billion last year, a decrease of 9.7 percent, primarily reflecting the impact of identical store sales of negative 6.4 percent and previously announced market exits. Excluding Shaw’s, which was impacted by a labor dispute settled early in the quarter, identical store sales were negative 5.9 percent. The identical store sales performance resulted from a continued challenging economic environment and heightened competitive activity. Retail square footage decreased 3.1 percent from the second quarter of fiscal 2010. Excluding the impact of market exits and store closures, total retail square footage increased 0.9 percent compared to the second quarter of fiscal 2010.

Second quarter supply chain services net sales were $2.0 billion compared to $2.1 billion last year, a decrease of 4.2 percent, primarily reflecting Target’s transition to self-distribution and the loss of Ukrop’s as a customer due to acquisition by a competitor.

Retail food net sales in the second quarter of fiscal 2011 represented 77.3 percent of net sales compared to 78.3 percent last year. Supply chain services net sales in the second quarter of fiscal 2011 represented 22.7 percent of net sales compared to 21.7 percent last year.

Gross profit margin in the second quarter was $1.9 billion, or 22.3 percent of net sales, compared to $2.1 billion or 22.1 percent last year. The increase in gross margin as a percent of net sales primarily reflects more effective promotional spending partially offset by targeted investments in price.

Selling and administrative expenses in the second quarter were $1.7 billion, or 20.0 percent of net sales, compared to $1.8 billion, or 19.5 percent last year. The increase in selling and administrative expenses as a percent of net sales primarily reflects reduced sales leverage and variance in surplus property expense that more than offset the savings achieved from ongoing cost reduction initiatives.

Goodwill and asset impairment charges of $1.6 billion pre-tax were recorded in the second quarter and reflected in the retail food segment operating earnings. The non-cash impairment charges are subject to finalization of fair values, which the company expects to complete in the third quarter.

Second quarter retail food operating loss was $1.441 billion. When adjusted for the $1.600 billion impairment expense and $17 million in pre-tax charges primarily related to the impact of the labor dispute at Shaw’s as well as employee-related costs, retail food operating earnings were $176 million, or 2.6 percent of net sales. Last year’s retail food operating earnings were $188 million, or 2.5 percent of net sales. The increase in retail food operating earnings as a percent of net sales reflects improved gross margins partially offset by the impact of reduced sales leverage on expenses. Supply chain services operating earnings were $69 million, or 3.5 percent of sales, compared to $63 million, or 3.0 percent of sales last year. The increase in supply chain services operating earnings as a percent of net sales reflects strong expense management and improved productivity.

Net interest expense for the second quarter was $129 million compared to $131 million last year. The company remains in compliance with all debt covenants.

Supervalu’s income tax benefit was $56 million, or 3.7 percent of pre-tax loss in the second quarter compared to income tax expense of $40 million, or 35.1 percent of pre-tax income in last year’s second quarter. The tax rate for the second quarter of fiscal 2011 reflected the impact of the impairment charges, the majority of which is not deductible for tax purposes. Excluding the impact of the impairment charges, the tax rate for the second quarter of fiscal 2011 was 37.5 percent.

Capital spending for the second quarter was $139 million compared to $158 million in the prior year. In the second quarter the company completed 24 major remodels, 2 minor remodels and 1 new traditional supermarket, as well as 18 new Save-A-Lot locations. Year-to-date capital spending was $312 million compared to $396 million in the prior year.

Diluted weighted-average shares outstanding for the second quarter were 212 million shares compared to 213 million shares last year. For the second quarter of fiscal 2011, diluted loss per share is computed using the basic weighted-average number of shares outstanding and excludes all outstanding stock options and restricted stock as their effect is anti-dilutive when applied to losses. As of September 11, 2010, Supervalu had 212 million shares outstanding.

Year-to-date net cash flows from operating activities were $754 million compared to $840 million in the prior year, primarily reflecting reduced earnings partially offset by favorable changes in working capital. Year-to-date net cash flows used in investing activities were $211 million compared to $369 million last year, reflecting reduced capital expenditures and higher proceeds from asset disposals in the current year. Year-to-date net cash used for financing activities were $551 million compared to $442 million last year, primarily reflecting higher levels of debt reduction in the current year.

Commenting on guidance, Herkert stated, “It will take longer than originally anticipated to realize the benefit of the marketing, merchandising and operational initiatives that we continue to build upon. Accordingly, we are adjusting our guidance to better reflect this outlook.” Identical store sales, excluding fuel, are now projected to be approximately negative 5.5 percent for the year compared to previous guidance of negative 5 percent and debt reduction is expected to total approximately $650 million. Management now expects a net loss in fiscal 2011 in the range of $(5.94) to $(5.74) per diluted share on a GAAP basis and adjusted earnings of $1.40 to $1.60 per diluted share when excluding non-cash impairment changes and certain other costs.

Supervalu’s fiscal 2011 guidance includes the following assumptions:

Net sales for the 52-week fiscal year are estimated to be approximately $38 billion;

Identical store sales growth, excluding fuel, is projected to be approximately negative 5.5 percent;

Sales in the traditional food distribution business are expected to decline approximately 3.5 percent, primarily reflecting the transition of the Target Corporation volume to self distribution and the loss of Ukrop’s as a customer due to acquisition by a competitor;

Consumer spending will continue to be pressured;

Goodwill and intangible asset impairment charges are estimated to be $1.6 billion pre-tax, or $1.5 billion after-tax, subject to finalization of fair values which the company will complete in the third quarter;

Fiscal 2011 will include approximately $0.18 per diluted share in charges primarily related to the completion of retail market exits in Connecticut and Cincinnati and the impact of a labor dispute at Shaw’s, which was resolved in July;

The effective tax rate is estimated to be approximately 37.4 percent, excluding impairment charges;

Weighted-average diluted shares are estimated to be approximately 213 million for purposes of non-GAAP earnings per share;

Capital spending is projected to be approximately $700 million, including 60 to 75 major store remodels, 30 to 40 minor remodels, 2 replacement stores, and approximately 100 hard-discount stores, including licensed locations; and

Debt reduction is estimated to be approximately $650 million.

 The Great Atlantic & Pacific Tea Company on October 21 provided an update on its comprehensive turnaround plan to strengthen its operating and financial foundation and enhance its customers’ experience, and announced fiscal 2010 second quarter results.

Sales for the second quarter were $1.9 billion versus $2.1 billion in last fiscal year’s second quarter. Comparable store sales decreased 6.6 percent.

For the second quarter, reported loss from continuing operations was $143 million versus last year’s second quarter reported loss from continuing operations of $62 million.

EBITDA was negative $45 million for the second quarter versus $42 million for the last fiscal year’s second quarter.

Excluding certain non-cash and non-operating items (detailed on Schedule 3), adjusted EBITDA was $8 million versus $65 million for last fiscal year’s second quarter.

Availability under the company’s credit facility was $181 million at the end of the second quarter.

By division, the results were broken out this way:

In A&P’s “Fresh” division, which includes A&P, Waldbaum’s and Super Fresh, the retailer continued to experience a decline in sales due to decreasing customer count, attributable to increased competition, particularly in alternative channels. For the quarter, sales in the company’s fresh division declined from $1.04 million to $976,952 and earnings slid from $32,768 to $10,255.

The Pathmark division, which also includes Save-A-Center stores, also continued to experience declining sales, primarily due to decreased customer counts. Sales were down from $898,655 in 2009 to $816,304 in the same period in 2010. Earnings went from negative $15,313 in 2009 to negative $27,771 in this year’s quarter.

The Food Emporium division, which the company identifies as its “gourmet” sector, the trends also were down. The stores, located in Manhattan, saw sales decline from $56,010 to $55,122 and earnings fall from $3,311 to $2,371.

The remaining stores, including Food Basics, Best Cellers and A&P liquors, experienced a slight increase, attributed to the fact that the retailer’s beer, wine and spirits business continued to perform well. As a group, the “other” stores in the company saw sales rise from $67,683 in 2009 to $69,901 in 2010, although earnings dropped from $734 to $254.

Sam Martin, president and CEO, said, “Our second quarter financial results are disappointing. But, we have developed a comprehensive turnaround plan and have quickly begun to implement it. The first step in that plan is the formation of a new management team. With our talented and deeply experienced new team now in place, we have begun to execute against the other steps in the plan on an accelerated basis.”

The Tea Company said its turnaround plan consists of five key building blocks, which include: Installing a strong management team; strengthening liquidity; reducing structural and operating costs; improving the A&P value proposition for customers; and enhancing the customer experience in stores.

Since the end of the last quarter, A&P made a series of executive appointments that complete the leadership team under president and CEO Sam Martin and enable the company to accelerate the implementation phases of its turnaround plan.

The new management team includes: Martin, who has more than three decades of management experience in the food retail industry with direct operational responsibility. He joined A&P from OfficeMax, where he was COO. He also held senior management roles at Wild Oats Markets, Inc., ShopKo Stores, Inc., and Fred Meyer;

Jake Brace, chief administrative officer, who is overseeing the finance and accounting, real estate, and information systems departments. He brings 25 years of strategic and financial expertise and successful turnaround and operational experience. He served as EVP and CFO as well as chief restructuring officer of United Airlines.

Tom O’Boyle, EVP of merchandising and marketing, is leading A&P’s merchandising, marketing, supply and logistics departments. With more than 25 years of retail experience in merchandising and marketing at Jewel Food Stores, Albertsons and Sears, one of his top priorities is to develop a synergy among these three critical functions.

Paul Hertz, EVP of operations, is leading field operations and brings more than 20 years of senior retail sales management and operations experience to A&P. He has held senior posts at OfficeMax, Wild Oats Markets, Inc., and ShopKo Stores, Inc.

Carter Knox, SVP of human resources and communications, brings extensive expertise to the leadership of the company’s human resources, labor relations and corporate communications. He has held senior HR and communications management positions in retail for more than 30 years at OfficeMax and Fred Meyer.

Chris McGarry, SVP and general counsel, as been with A&P’s legal services for five years and currently oversees legal services and risk management. He previously held general counsel and other related executive positions with The Grand Union Company, Tibbett & Britten Group and Exel.

The company  said it is negotiating an agreement with its existing banks and several new lenders to add a new-money term loan to its existing asset-backed facility. The new term loan is expected to be backed by, primarily, leasehold assets and other collateral not currently contained in the borrowing base. The complex structure of the new loan has pushed the closing off several weeks. A&P believes, however, that it will be able to close and fund the transaction. In addition, in an effort to bolster liquidity and shed non-core assets, the company contracted to sell seven stores in Connecticut for an estimated $22.8 million. That transaction was scheduled to close November 1, just after Food World presstime.

A&P also said it continues to pursue additional financing initiatives including sale-leaseback transactions and sales of additional non-core and/or non-performing assets, as well as reviewing our store portfolio for additional opportunities.

The retailer said it has identified significant opportunities for reducing its structural and operating costs by working with its key operating partners, rationalizing its store footprint A&P has recently closed 25 underperforming stores and said it is in active talks with several key operating partners to seek ways to lower its structural operating costs. In addition, the company is in discussions with its labor union partners to identify opportunities to reduce its store costs.

The company said it is also pursuing collaborative improvements to existing contracts with all of its business partners, such as C&S Wholesale Grocers. In the company’s 10Q statement, it said, “We are partnering with C&S to rationalize our supply chain to ensure that the structure of the distribution network is more closely aligned with the needs of our business. We anticipate that this will result in significant cost savings by 2011 and will provide a foundation for our continued discussions with C&S, but there can be no assurance that these efforts will be successful or will result in any savings or improvements.”

The 10Q filing also addressed A&P’s stance going forward regarding labor unions. “We believe that we have good relationships with our labor union partners and continue to engage them in discussions about working collaboratively to address contract issues impacting our company through our turnaround plan.” The retailer currently has two open labor union contracts and four labor union contracts covering approximately 1,780 employees scheduled to expire in fiscal 2010 and are therefore subject to negotiation. “We cannot assure our stakeholders that our labor negotiations will conclude successfully or that work stoppage or labor disturbances will not occur,” the filing concluded.

Finally, A&P has completed the first phase of a talent assessment and taken steps to flatten its organization to lower general and administrative costs, improving the efficiency within its corporate headquarters. The company said it has reduced headcount, saving roughly $10 million annually. In addition, A&P has other G&A initiatives under way, targeting an overall G&A reduction of approximately $40 million per year.

A&P said it continues to work on many fronts to drive loyalty and engage new customers with the goal of enhancing the value it offers in its stores. The company is focused on refining its product mix, pricing and promotion initiatives, and it continues to improve the way it cares for and serves customers both in stores and through its company-wide customer service operations. A&P is also offering customers additional variety and value by enhancing and expanding its private label brands, including America’s Choice, Food Basics and The Food Emporium Trading Company.

Resulting from the talent assessment mentioned above, A&P said it is now moving forward with a series of training initiatives designed to improve the overall customer experience across all stores.

The retailer plans to identify target customer segments and clusters through data analysis of its loyalty card shoppers to ensure it offers the most relevant assortment and value. At the same time, it is augmenting the in-store customer experience with traditional and new tools to provide individualized offers and a more customer-relevant shopping experience.

 “Since I joined A&P in late July, we have moved quickly to implement our comprehensive turnaround plan,” Martin added. “Although we clearly have a lot of work ahead of us, we have already made solid initial progress. I want to thank all of our talented associates for their dedication and commitment to improving A&P’s performance and enhancing the value we provide to our customers.”

Christian Haub, executive chairman, said, “The board and I are encouraged by the initial actions taken by Sam and his new executive team to strengthen A&P’s operating foundation. The board and the company’s major shareholders, Tengelmann and Yucaipa, have full confidence that this team will continue to make significant, incremental progress in executing our turnaround plan for the benefit of all our stakeholders.”

 Safeway Inc. last month reported net income of $122.8 million ($0.33 per diluted share) for the third quarter of 2010 compared to $128.8 million ($0.31 per diluted share) for the third quarter of 2009. Results for the third quarter of 2010 include $12 million ($0.02 per diluted share) of employee severance charges, offset by a lower tax rate compared to the third quarter of 2009.

 “Our third quarter results were in line with our expectations,” said Steve Burd, chairman, president and CEO. “The trend in price per item improved during the quarter. We expect this trend to continue as we anniversary the price investments we made in the second half of 2009. We continue to tailor our offerings to the changing needs of our customers, with innovative consumer brand launches of Refreshe beverages and In-Kind personal care products, while offering lower everyday prices and attractive club card specials.”

Total sales were $9.4 billion in the third quarter of 2010, down slightly compared to $9.5 billion in the third quarter of 2009. A 2.0 percent decline in identical-store sales, excluding fuel, and reduced sales from store closures were partly offset by a higher Canadian exchange rate and higher fuel sales. The decline in identical-store sales was due to a decline in price per item.

Gross profit declined 13 basis points to 28.14 percent of sales in the third quarter of 2010 compared to 28.27 percent of sales in the third quarter of 2009. Excluding the 13 basis point impact from fuel sales, gross profit margin was flat. Investments in price carried forward from the second half of fiscal 2009 and $12 million of employee severance charges were offset by reduced advertising and improvement in shrink.

Operating and administrative expense was $2.4 billion in the third quarter of 2010, essentially flat compared to the third quarter of 2009. Operating and administrative expense as a percentage of sales increased 23 basis points to 25.56 percent in the third quarter of 2010 from 25.33 percent in the third quarter of 2009. Excluding the 14 basis point impact of higher fuel sales in the third quarter of 2010, operating and administrative expense margin increased 37 basis points. This increase was largely the result of deflation coupled with expected increases in wages and benefits, partly offset by lower losses from the combination of property disposals and impairment.

Interest expense declined to $69.4 million in the third quarter of 2010 from $78.3 million in the third quarter of 2009 due to lower average interest rates and lower average borrowings.

Income tax expense was 31.0 percent of pre-tax income in the third quarter of 2010 compared to 36.0 percent in the third quarter of 2009, resulting in a $0.02 improvement in diluted earnings per share. The income tax rate in 2010 was lower due to benefits from several individually immaterial items.

For the year, earnings per diluted share and non-fuel ID sales are expected to be toward the lower end of guidance of $1.50 to $1.70 and -1.0 percent to -1.5 percent, respectively. The company expects cash capital expenditures of approximately $900 million and free cash flow in the middle of the range of $0.9 to $1.1 billion.

During the third quarter of 2010, Safeway purchased 8.8 million shares of its common stock at an average price of $20.81 per share and a total cost of $182.5 million (including commissions). The remaining board authorization for stock repurchases at quarter-end was approximately $0.8 billion.

Safeway invested $170.7 million in capital expenditures in the third quarter of 2010. The company completed two new stores, completed nine Lifestyle remodels and closed 12 stores. For the year, Safeway plans to open approximately 15 new Lifestyle stores and complete approximately 60 Lifestyle remodels.

Danny Wegman, CEO of Wegmans, has been named the “Pete Manos Retail Executive of the Year,” the publishers of Food World and Food Trade News announced this month. Wegman’s selection was the result of tabulating votes from Best-Met Publishing’s web site, www.best-met.com, e-mail correspondence and phone calls from our readers.

The award was first presented to Pete Manos in 1999 and was subsequently named after him. Manos, the former chairman and CEO of Giant Food Inc., received the award upon his retirement from the Landover, MD chain where he spent 39 years. The award is now given to a food industry executive annually, in recognition of distinguished industry service, leadership and community involvement.

Wegman’s selection was based on his contributions to the industry and his leadership at his family’s company. The Rochester, NY based chain operates 76 stores in New York, Pennsylvania, New Jersey, Maryland and Virginia. The company, founded in 1916, first entered the Food World and Food Trade News market in 1999 when it opened a store West Windsor, NJ. Since then, Wegmans has increased its focus on the Mid-Atlantic, and currently operates 26 stores here. Additionally, the company has plans for seven Mid-Atlantic stores on the books. The most recent addition to its Mid-Atlantic portfolio debuted October 23 in Lanham, MD, which is located in Prince George’s County.

“I have watched the Wegmans company grow from a New York retailer to one that is expanding throughout the Northeast,” commented Pete Manos. “It is a pleasure to watch this family owned company grow and prosper. Danny Wegman follows his father Robert’s legacy as a quality operator. I am sure his daughters, when the time comes, will carry on the tradition.”

Wegmans has been named one of the ‘100 Best Companies to Work For’ by Fortune magazine for 13 consecutive years.  In 2010, Wegmans ranked third on the list.

The company has a strong commitment to support education, as evidenced by its scholarship programs, now in its 27th year, which awards college tuition assistance to Wegmans employees. Most recently, scholarships will go to 1,506 Wegmans employees totaling $5.5 million for the upcoming 2010/2011 academic year.

Since the program began in 1984, more than 24,000 Wegmans employees have been awarded scholarships totaling $77 million. This year’s group marks the largest number of scholarship recipients to date.

Another focus of the company’s community service programs is hunger. Recently, Wegmans customers at stores in New Jersey, Virginia, Maryland, and Eastern Pennsylvania responded to the current tough economic times by setting a new record in their giving during the fall 2009 checkout scanning campaign. Hunger relief contributions at these 19 Wegmans stores reached $618,733, a 15 percent increase above the total of $539,648, raised one year ago. The Checkout Hunger and Care About Hunger programs allow customers to donate $1, $2 $3, $5 or any amount at checkout with 100 percent of the proceeds going to each store’s local food bank.

The award was presented to Wegman by Manos at last month’s grand opening of the Wegmans store. The official presentation will take place November 4 at the Maryland Retail Association’s annual Maryland Food Industry Hall of Fame breakfast.

In addition to his role as CEO, Wegman serves as director of the University of Rochester. He is director of the United Way and Rochester Business-Education Alliance. In addition to becoming a University trustee, Wegman is the member of visiting committee of the university’s Margaret Warner Graduate School of Education and Human Development.

Wegman graduated with honors from Harvard.

It was a year ago that Ahold USA announced a major corporate restructuring, consolidating many duties that were split between Stop & Shop/Giant-Landover and Giant/Carlisle. One major function that was shifted primarily to Carlisle was the company’s merchandising and procurement. Additionally, a new division was created – Stop & Shop/Metro New York. More recently, Ahold announced some key senior management changes that include Dick Boer, who will become chief executive in March 2011, replacing John Rishton, who will become CEO of Rolls Royce. Moreover, Sander van der Laan will become COO of Ahold’s European business and Carl Schlicker will add U.S. chief operating officer duties to his current role as CEO-USA Retail, when current COO Larry Benjamin retires from the company in January 2011. We recently sat down with Schlicker and Jeff Martin, Ahold USA Retail’s EVP-sales and merchandising, to discuss a wide array of subjects, including the transition into a new corporate structure, as well as both executives’ views on how their roles have changed and how that will affect Ahold going forward. 

Food World: What has been the biggest surprise (both pleasant and unpleasant) during this reorganization process?

Carl Schlicker: As I have said internally, on November 9th of last year when this was announced, if I could have signed up to be where we are now organizationally, from a people perspective, I would have signed up in a heart beat. You always worry about how the organization is pulling together. My concern was how we were going to make this reorganization transparent to the stores and how we were going to continue our high level of performance. As I reflect back on it a year later, I am most proud about how our folks have delivered on this. If you look at our financial performance over the last year, it has been very solid and very good in comparison to our peers. That is not necessarily true of others who have gone through this process in the past. The litmus test for me is: has this been transparent to the customers and has this been transparent to the stores? I think in both cases this has been true. As much as I hoped that would be the answer, quite candidly, it has probably been the biggest surprise.

What hasn’t been pleasant is the fact that people are impacted by an organization undergoing change. For all of the good and all of the people who have benefited from the fact that we are laying the foundation for the future of the company, the reality is that there are people who have been negatively impacted. You feel it all of the time and can see the effect that it has on the organization. On the business side, candidly, in a very competitive environment and during a competitive period of time, there have been things that we would have liked to do. But for a variety of different reasons, including the fact that our IT structure and systems were not quite where we would like them to be, we weren’t able to do that. We are looking to get back on course as we go into 2011.

Jeff Martin: Reorganizing two companies into four divisions with a common support organization was an incredibly complicated process. While we knew we would get there, it was handled – and is still being handled – in an extremely professional way. By combining the experience of two groups, we are laying the foundation for an even better end result. If you look at the reorganization of other large enterprises, most take a very long time. We have done what we said we would do a year ago and feel like we are largely completed with the process.

On the downside, the systems integration was not accomplished at the speed we would have liked. This is not due to lack of effort or attention but to the sheer complexity of IT platforms and integration. All along we said that some areas of the business were poised to move faster than other areas. Our IT teams have been great and working as hard as anyone behind-the-scenes to migrate complex systems to a single, standard IT platform by early next year.

Food World:  With the transition almost complete and other major Ahold news recently announced, how have your day-to-day roles changed to this point? How has the job been different for you, if at all?

Carl Schlicker: My job has evolved throughout the year. In the beginning I was very much – and rightfully so – involved in the planning of the structure, the process of how this was going to work and what our vision was going to be. As you bring others into the process, my role starts to lessen and the role of others intensifies. As the year has gone on, my role has evolved from being more involved in the process to one that oversees the results and hard work of others. I would describe my role as going from being strategic to tactical and back to strategic again.

 Jeff Martin: My job is less tactical on a day-to-day basis. I am not as involved in the decision-making process. That’s what the divisions do. My job is more to oversee the process. I am spending more time making sure we can serve our divisions effectively and at a high level. The battle is won or lost everyday at the store. We need to support them better than we ever have.

 Food World: With you to become COO of the entire Ahold USA platform early next year after the departure of Larry Benjamin, what new or expanded duties will grab more of your time and attention?

 Carl Schlicker: In all honesty, I don’t know. I think we have to place ourselves where we are at right now. John Rishton is here until March. Larry is here until January and we are at a point in time in the year when everybody needs to be focused on how we deliver the year, how we take care of the holidays, how we take care of our customers and how we take care of our associates.

I also believe that Sander, Dick and I all know each other very well and view the business in the same way, which is: if you do the right thing for your people, if you always keep the customer in mind, and if you believe that the end result always happens at the store, you are going to be successful. Being able to report directly to Dick will be an advantage in terms of time and also influence. As we go forward, we will be leaner, quicker and share a common vision as we look into the future.

 Food World: How would you assess the emotional temperature of Ahold USA as you view it today?

Carl Schlicker: I think the emotional temperature manifests itself in many ways. One year later, we are past the tipping point. As I look at how the organization is coming together and, most specifically, at how the divisions are operating, they have clearly made the transition. As we look at the merchandising organization, for the first time ever, we have negotiated deals for the fourth quarter 2010 and first quarter 2011 working together to leverage the influence and volume of Ahold USA. In all of the years – going back to the Chantilly years – this is the first time we have been able to do this as we interact with our supplier partners.

I also see that people have gone from holding on to where they were to looking at where are we going, how are we getting there and how their roles differ in comparison to the past. Once again, the single biggest indicator of that is in the divisions. The divisions and division presidents are doing a great job. Their teams are coming together and they are making the day-to-day decisions. As I have said before, success or failure rests on how well the divisions run their businesses and become more local. I am personally energized because I think that process is well on its way.

Food World: Explain how the individual banners have benefited and will continue to benefit from the new Ahold USA structure.

Carl Schlicker: I learned when I got to Stop & Shop and Giant/Landover as CEO that, no matter how hard I might try, I could never touch as many things personally as I could at Giant/Carlisle. The problem with that from my perspective is that you need to have a local face and interaction with the communities that we do business in. What started to press on my mind was how could we do that, how could we become much more local? The divisions are the drivers of this whole process. They need to be the ones that make the everyday decisions, quickly react to the competitive environment and be the owners of their future. Their voice needs to be much louder than it could have ever been in the environment that existed before. All of us are here to support the divisions and the divisions are here to support the stores. I passionately believe that the two customers we have are our stores and our shoppers. The divisions, as they have put their teams together, have become the decision-makers and influencers. It is indicative of why our performance has been good in a very tumultuous time. That shift occurred early and is giving us a competitive advantage in comparison to the environment that we dealt with in the past.

Food World: Is it a concern of yours that Ahold USA is going to override some of the good intentions of what you have planned for the divisions?

Carl Schlicker: I don’t believe that is going to happen.  From day one the mindset within the organization was that the Ahold USA support functions are here in a supporting role. You can have the best folks in the world involved in plan-o-gramming in one location and then provide options for plan-o-gramming to the divisions. The divisions have their folks decide which plan-o-gram works best in their stores and that, to me, is how a support organization is supposed to work. If day-to-day decisions are made closest to the customer, I believe we will differentiate ourselves from other models that exist. With that said, it is what I watch for the most.  There is a lot of diligence around ensuring divisional independence because I do believe that is the secret to the success of Ahold USA going forward.

 Food World: As one of the key architects in this, when do you think the real “go” date will be. And overall, it is not just merchandising, but that is the biggest changeable piece. I know that the IT piece has been pushed back again. So when do you think, objectively, you can tell the vendors and the associates that you will be ready to go?

Carl Schlicker: I personally believe that we are 80 percent there. If I were to talk about the divisions, I would make that 90 or 95 percent.  My belief – and the belief of the rest of the organization – is that we will be fully implemented and transparent by the end of the first quarter 2011. There is going to be additional progress along the way and that progress will be beneficial to the supplier community and to the folks within the organization. We are headed towards a course that, by the end of the first quarter, will be simpler. We will be an easier company to do business with from the vendor perspective. I am very thankful for the support that the supplier community has shown. We are going to get to where they would like us to be and appreciate that they have been patient with us along the way. We have earned that patience as we have also delivered pretty solid numbers during a very difficult time. By the end of the first quarter we will be rockin’ and rollin’. We are going to be able to do some things in 2011 that we haven’t been able to do in 2010. All of us in the organization look forward to being able to do that.

 Food World: At what point will category managers be able to tell suppliers and brokers if an item is going to appear in the ad?

Jeff Martin: Here in the fourth quarter, we have already begun to run similar item ad formats as far as cover items go. For the first quarter of 2011, we’ve managed to build a coordinated promotional schedule. Most if not all of our major suppliers are signed up for Real Deals or Bonus Buys, along with our fuel marketing overlay programs. We continue to iron the wrinkles out but that’s what we consider them – wrinkles as opposed to fundamental problems. As Carl said, we haven’t had all of the tools available to us during 2010 due to the reorganization, but that is about to change. In fact, it is changing. We will need our vendors to be active partners in changing along with us, developing new opportunities and bringing solutions to us.

The great part is that our vendors continue to grow with us. What I have been most impressed by is that some of our key partners have reacted with us, both organizationally and operationally. These partners have really helped our new team members get up to speed in the markets that some of our folks are learning to serve. I think both have benefited from these interactions.

Even during our transition to a new structure, we have continued to grow market share and sales. Now that we are largely completed with the process, we are excited about firing on all cylinders and being better, stronger and faster than ever in 2011.

Food World: Some vendors are concerned about the new merchandising function process as they have seen it evolve to its current point. Can you address that?

 Jeff Martin: Some suppliers have asked if we are working off of a Stop & Shop or Giant/Carlisle model. There is now a new Ahold USA model that takes the best of all the prior programs of Stop & Shop, Giant/Landover and Giant/Carlisle. While we still have programs that we need to bring together, the internal planning process is working. For example, there will continue to be duplicative processing until our IT systems are aligned early next year. But we have conducted our fourth quarter planning together and, in some cases, we have been able to negotiate the first quarter as one Ahold USA merchandising team.

Our buyers and suppliers are on a new learning curve from a planning perspective, which means that we are all navigating a new way of doing business. Until we get the IT systems migrated to a single platform, there may be additional processing work that needs to be done, but every supplier I talk to tells me how much they know we will get this right.

 Food World:  Now wear your CEO Retail hat and your future hat in terms of strategy. Ahold has openly stated that it is ready to seek more acquisitions in the U.S. How do you view the climate for deals in this economic environment?

Carl Schlicker: As you know from what has already been reported in the media, there are a lot of potential opportunities out there. We are continually evaluating our business strategy including potential acquisitions.   It is important that we make deals that make sense for us in light of that strategy.  One of the key reasons behind reorganizing, if you recall, was to prepare ourselves to grow in the future and you know that our strong financial position enables us to do so.

 Food World:  Again, I think the fact that you have stood up and said that we are in an enviable cash position has spotlighted you a little bit more. Private equity, honestly, has been a little bit out of the loop in recent times, not that they aren’t financially equipped, but the number of players overall has been reduced. And, here’s Ahold saying “We’re players. We can’t tell you when, but we’re players.”

 Carl Schlicker: We would hope that companies looking to do transactions would seek us out. We want to entertain potential offers because we want to grow. Fortunately we are in a position to grow not only monetarily but also organizationally. We have very strong teams. While there have been many distractions as part of the Transition, these folks are now ready to go. When the right opportunity comes along, we will take advantage of it and do it in a very successful way.

 Food World:  With the business as challenging as it’s ever been, how do you see the Northeast retail landscape shaking out in the next 18 months?

 Carl Schlicker:  I see it being much different than it is today. I think that all channels will grow. I wouldn’t necessarily subscribe to the theory that there will be fewer players, even within the supermarket channel because there may be opportunities for several new players to enter the market.

 Food World:  Thank You.

Robert Donnan “Bob” Burris died at his home in Milford, DE on September 20, 2010 at age 65 after battling cancer. Burris, born in 1944 in Santa Ana, CA, was the son of Lillian Marshall Burris and the late John E. Burris. He was the president and CEO of Burris Logistics in Milford for 25 years and began working for the family owned business when he was 12 years old.

In addition to his position at Burris, he was a long time member of the board of directors of the Bayhealth Medical Centers. He also served on the boards of Connectiv Power, the Federal Reserve in Philadelphia, WBOC television station, the state of Delaware’s Young Life program and the Delmarva Christian High School. Burris was also a member of the Bombay Hunting Club where he enjoyed duck and goose hunting. He was a member of the Lewes New Covenant Presbyterian Church in  Lewes, DE.

Burris is survived by his wife of 42 years, Susan Roland Burris; his mother Lillian Burris; a son and daughter-in-law Donnan R. and Amy Burris; two daughters and sons-in-law, Robin and Darren Shelburne and Megan S. and Dr. Kahlib Fischer; two brothers and sisters-in-law John and Cathy Burris and Howard and Debbie Burris; a sister and brother-in-law Lillian and Bob Hoopman; and eight grandchildren.

A memorial service was held September 24 at the Eagle’s Nest Fellowship Church in Milton, DE. The family requests that memorial contributions be made to Delmarva Christian High School, 21150 Airport Rd., Georgetown, DE 19947; or to Young Life Delaware, 323 Beech Lane, Middletown, DE 19709.