Food Trade News

For the third time in less than five years, Albertsons, the second-largest pure-play supermarket chain in the country, is preparing to launch a public offering. That’s according to The Wall Street Journal and also confirmed by people inside the Boise, ID-based organization.

The story notes that the company, which is primarily controlled by private equity firm Cerberus Capital Management, is seeking to tap into a currently strong stock market to exit its control of Albertsons which began in 2006 after the retailer acquired about 600 stores in a breakup of the larger old Albertsons organization. According to a source in the Journal report, “Cerberus is resurrecting IPO discussions in hopes of capitalizing on the grocer’s improved performance, strong markets and positive economic indicators.”

According to its reporting, the Journal also reported that Albertsons expects to decide in the “coming weeks” whether to proceed with an IPO that could value the 2,260-store retailer at approximately $19 billion. Kroger, the nation’s largest pure-play grocer, amassed $121 billion in sales last year. Its current market value is about $23 billion. Both chains lag far behind Walmart (which is classified as a mass merchant) in annual food and drug revenue.

Part of the reason for the chain’s optimism is its recent financial performance.

The company posted a 2.7 percent increase in identical store sales when it reported third-quarter earnings on January 7. That marked the eighth consecutive quarter that the retailer achieved comp store increases (it was also the highest ID sales jump in three years). Moreover, e-commerce revenue (from online grocery delivery and pickup sales) rose 40 percent.

And perhaps more importantly for the long-term is that Albertsons has significantly decreased its debt over the past 12 months. As of November, Albertsons’ debt was $8.34 billion compared to $10.52 billion a year earlier. The company’s annual sales (as of February 2019) were about $61 billion.

“Our identical sales momentum continued in the third quarter, as our core business continues to deliver strong growth. We are focused on providing our customers with an easy shopping experience, exciting merchandise and friendly customer service in our omnichannel shopping environment and creating deep and lasting customer relationships. Our productivity and cost reduction initiatives are also beginning to take shape, which we intend to use to fund strategic growth investments, offset cost inflation and support earnings growth,” said CEO Vivek Sankaran in a statement following the sales and earnings announcement. Sankaran, the former PepsiCo executive, was named Albertsons’ chief executive in April 2019 following the retirement of Jim Donald, who is now co-chairman.

Insiders have told us that the potential IPO is being led by Cerberus which has been looking for an exit strategy since shortly after Albertsons acquired Safeway in 2015 for $9.4 billion. The New York-based investment firm first became involved with the large merchant in 2006 when it acquired about 600 Albertsons stores when the original Albertsons chain was broken up into three pieces (the other two pieces were sold to Supervalu for $17.4 billion and CVS which acquired 700 freestanding drug chains for $2.9 billion).

In 2013, after Supervalu failed miserably at retail, Albertsons acquired those 877 supermarkets. Two years later, the company made its boldest move, purchasing Safeway (a larger organization).

Within months of the Safeway deal, Cerberus and other investors attempted their first IPO. The beefed-up merchant sought to raise as much as $1.6 billion by selling approximately 65 million shares at an estimated opening price of $23-$26 per share. That effort failed with Albertsons citing lukewarm market conditions affecting the retail food sector.

In 2018, Cerberus sought a different path into the public markets. It agreed to merge with beleaguered drug chain Rite Aid in a deal valued at $24 billion. A few days before a shareholder vote was scheduled, both retailers canceled the agreement, implying that there was not enough Rite Aid shareholder support to authorize the merger.

Two financial sources predicted that Albertsons would begin a “road show” sometime next month to sell its new IPO proposal to the financial community with the possibility that a more specific launch date could be announced by March.

Currently, Albertsons employs about 270,000 associates and operates in 34 states. It has a strong presence in the Northeast where its Shaw’s (New England), Acme (Delaware Valley and Metro New York) and Safeway (Baltimore-Washington) banners have dominant market shares.

Redner’s Markets, Inc. has announced the recent promotions of 16 members within the company’s leadership team. Along with the promotions, they have also announced three retirements, vice president of grocery operations Frank Fiore after 25 years, director of construction Mark Hallacher after 30 years and director of maintenance Barry Greenland after 18 years.

William C. Wallace has been named vice president of grocery operations and will be responsible for implementing inventory controls, establishing and meeting budgeted goals within each of the listed departments. He will also be responsible for monitoring the quality control of all grocery products distributed through Redner’s distribution center and secondary suppliers. Wallace joined the company in 1991 and has served in previous roles as store director, produce operations supervisor and district manager. He is a resident of Amity Township (Berks Co.) and a graduate CHI Institute.

Richard Rabenold, CPA, MBA, has been named vice president of finance and will lead a team directing the financial operations to ensure timely and accurate reporting, investigate any significant deviation from plans and recommend appropriate remedial action. He will provide tax planning for federal and state income taxes with the assistance of external auditors and be responsible for the FP&A, forecasting, re-forecasting and long-range financial business strategy. Rabenold joined the company in 1994 and has served in previous roles as store director and corporate controller. He is a resident of Andres township (Schuylkill Co.) and received undergrad and graduate degrees from DeSales University.

Alexis Foreman has been named director of employee relations and assistant VP of HR and will serve as a primary liaison to the HR team working to maintain positive and constructive employee relations for Redner’s more than 5,000 associates. She also has responsibility for the corporate health/wellness. Foreman joined the company in 1997 and has served in previous roles as assistant director of training/education, regional recruiting manager and health and wellness coordinator. She is a resident of Wernersville Borough (Berks Co.) and a graduate of the University of Delaware.

Charles Link IV has been named director of produce operations and will manage oversight of all produce merchandising, departmental management and work with the procurement team to set pricing for the chain’s produce department. He will be responsible for overall store merchandising plans and execution of the department through a team of regional supervisors. Link joined the company in 1999 and has served in previous roles as third shift in-charge, both assistant and store director roles and transitioned to a regional produce supervisor. He is a resident of New Providence Twp. (Lancaster Co.) and a graduate of Lancaster Catholic High School.

David Morta has been named director of transportation and will oversee all transportation fleet operations, scheduling and driver scheduling for Redner’s grocery and convenience store divisions. Morta will work with the director of warehouse operations to ensure that store scheduling is accurately planned to coordinate efficient delivery routing and driver management. Morta joined the company in 2002 and has served in previous roles as a warehouse product selector and perishable logistics manager and had served within the industry for many previous years with other regional grocery warehouse operations. He is a resident of Douglass Twp. (Berks Co.) and a graduate of North East Catholic High School.

John Gallagher has been named district manager for Delaware and Maryland and will have direct operational oversight in ensuring stores meet sales projections, their inventory controls and establishing and meeting of budgeted goals for the grocery department for 10 stores. Gallagher joined the company in 2007 and has served in previous roles as assistant director and store director with Redner’s while having many years of industry experience with other grocers. He is a resident of Joppatowne borough (Harford Co., MD) and a graduate of Perry Hall High School.

Katelyn Kehoe has been named director of deli operations and her duties will include setting retail pricing on all deli department products, as well as, oversight for deli sales, labor, inventory controls and execution at store level. Kehoe will manager a team of regional deli supervisors responsible for specific districts. Kehoe joined the company in 2006 and has served in previous roles as deli department manager and regional deli supervisor. She is a resident of Exeter Township (Berks Co.) and a graduate of Kutztown University.

Lawrence Kehoe has been named director of non-food/HBA operations and will have oversight of all purchasing and pricing structures for the chain’s non-food/health and beauty aid departments. He will be responsible for setting retail products, overall store merchandising plans and direct management of HBA regional supervisors. Kehoe joined the company in 2000 and has served in previous roles as store director, in produce, and as regional produce supervisor while working within the industry for many previous years in store operations. He is a resident of Alsace Township (Berks Co.) and attended University of Maryland.

Randal Kostelac has been named director of corporate training and education and will serve as a primary lead for the HR team working to recruit new associates and provide continuing education and support for existing team members. He also has responsibility for the management and staffing of all new store projects. Foreman joined the company in 1999 and has served in the previous role of a regional recruiting manager. He is a resident of Lower Heidelberg township (Berks Co.) and a graduate of Lebanon Valley College.

Rick Merkel has been named director of meat operations and will manage oversight of all merchandising, departmental management and work with the meat/seafood procurement team to set pricing within the meat/seafood department. He will be responsible for overall store merchandising plans and execution of the department through a team of regional supervisors. Merkel joined the company in 1976 and has served as meat cutter, meat manager and transitioned to a regional meat/deli supervisor and senior meat merchandiser. He is a resident of North Heidelberg Twp. (Berks Co.) and a graduate of Daniel Boone High School.

Rick Strunk has been named director of warehouse operations. In this role, he will oversee all of Redner’s warehouse and distribution operations. This includes oversight and scheduling of the product selectors, warehouse safety programs and implementations. Strunk will work with the director of transportation to ensure that store scheduling is accurately planned to coordinate efficient product picking, staging and fulfillment to meet the needs of the transportation team. Strunk joined the company in 1892 and has served in store produce management roles, as warehouse manager and as a supervisor. He is a resident of Shillington Borough (Berks Co.) and a graduate of Governor Mifflin High School.

Robert Vitabile has been named maintenance supervisor and will provide direction pertaining to all warehouse market, quick shoppe and corporate warehouse maintenance matters. Such management will include meeting budgeted goals and working to efficient strategies for all facilities. Vitabile will manager a team of regional maintenance technicians, as well as working with the director of store planning on large scale products. Vitabile joined Redner’s in 1993 and has served in a number of positions as grocery, assistant and store director. He is a resident of Douglass Township and a graduate of Owen J. Roberts High School.

Scott Rigdon has been named staff counsel-workers’ compensation. In this role he will manage all worker’s compensation litigation, claims including, but not limited, to settlements analysis, claim processing, coordination of worker rehab services, light duty programs. Rigdon will work with the director of risk management in working to reduce claim loss through accident investigation and workplace safety program implementation. Prior to joining Redner’s, Rigdon has served in a variety of positions ranging from assistant district attorney, criminal defense, personal defense and as special deputy prosecutor. Rigdon is a resident of Sinking Spring Borough (Berks Co.) and graduated from the University of Indiana and the University of Pittsburgh School of Law.

Stephanie Speirs, MBA, has been named staff accountant and will have oversight of maintaining financial records and reports, performing account reconciliations, assisting with budget processes, conducting internal audits, and maintaining accounts payable documentation. Speirs will work with the vice president of finance in the oversight and operational flow of the accounts receivable and payables department. Speirs joined Redner’s in 2002 and worked in a variety of positions from cashier to bookkeeper before moving to the corporate office to work within accounts receivable. She resides in Womelsdorf Borough (Berks Co.) and received undergrad and graduate degrees from Alvernia University.

Steve Moatz has been named director of store planning and will provide direction pertaining to all warehouse market, quick shoppe and corporate construction projects. He will have oversight of the bidding, contractor negotiations in order to assure the delivery of all projects within their scoped timeline. Moatz will manage the Redner construction team and work with the maintenance team on all large-scale products. Moatz joined the Redner team in 2008 as regional maintenance technician overseeing Redner’s southern district of stores. He is a resident of Maidencreek Twp. and a graduate of Penn State University.

Following up on a year that saw Giant/Martin’s achieve historic omni-channel growth, the Carlisle, PA unit of Ahold Delhaize USA (ADUSA) announced that it expects to invest $114 million in capital expenditures in Pennsylvania over the next 18 months, building on the recent success of its two new brands, Giant Heirloom Market and Giant Direct.

Joined by Pennsylvania Department of Agriculture Secretary Russell Redding and Pennsylvania Department of Community and Economic Development Secretary Dennis Davin at the 104th Pennsylvania Farm Show earlier this month, Giant/Martin’s unveiled plans to create a Giant Direct ecommerce fulfillment center, open two new stores, and remodel 35 existing stores in 2020 and 2021. With this investment, Giant/Martin’s will grow its commitment to the city of Philadelphia, its home market in Central Pennsylvania, and Monroe County in the Pocono Mountains region of Pennsylvania.

“We’re doubling down on growth and innovation for our customers, building on the incredible momentum of 2019, and continuing to invest in our great Commonwealth,” said Nick Bertram, president of Giant/Martin’s. “The accelerated growth of Giant Direct has set the stage for additional investment opportunities that extend our ecommerce geographic reach. At the same time, our Giant Heirloom Market format has enabled us to reach an entirely new demographic in Philadelphia.”

The company experienced unprecedented growth in 2019 as the high-volume merchant opened 17 new stores (organically and though acquisition) and launched two new brands. A year ago, the retailer debuted its new Giant Heirloom Market format in the Graduate Hospital neighborhood of Philadelphia, followed by two additional Philadelphia locations in the University City and Northern Liberties neighborhoods. In February 2018, Giant/Martin’s opened a first-of-its kind Giant Direct e-commerce hub in Lancaster, PA, and began to rollout the Giant Direct brand to its stores. In the past 10 months, the retailer’s number of Giant Direct grocery pick-up locations climbed from zero to 125. Giant also introduced “PA Preferred” shelf tags, a first of its kind program by a Keystone State retailer, designed to help customers easily identify the more than 1,200 Pennsylvania products available in its stores year-round.

“It is so important when Pennsylvania businesses, especially retailers and producers, support each other and form partnerships for mutual growth,” said Pennsylvania Governor Tom Wolf. “I thank Giant for helping the state’s farmers and food suppliers grow their businesses by showcasing ‘PA Preferred’ products at its stores. This expansion will not only create jobs but will also provide access to local ‘PA Preferred’ products to new areas throughout the state.”

Keeping its focus on growth in Philadelphia, Giant/Martin’s will construct its largest omni-channel fulfillment center in support of its e-commerce brand, Giant Direct. This will be the first Giant Direct facility to open in Philadelphia and it is expected to bring more than 200 new jobs to the Eastwick community.

Located at 3501 Island Avenue, the 124,000 square foot facility will be completely renovated and will provide more capacity, better distribution and room to grow home delivery and in-store pick-up serving the increasing number of customers who want to order online. Giant/Martin’s will partner with Peapod Digital Labs, an ADUSA company, to drive the development of this innovative facility.

Giant also announced it will open a new 52,000 square foot store in the Harrisburg market. Located at 6301 Grayson Road in Swatara Township, the former Weis store which closed in September 2019, will see construction begin on the existing structure in early 2020. The new store will bring approximately 150 new jobs to the community. That unit should open later this year. Giant currently operates eight stores in Dauphin County, employing approximately 1,550 associates.

Additionally, a new, ground-up 66,000 square foot Giant will be built in Pocono Summit, PA, at the southwest corner of Interstate 380 and state Route 940. The new store will expand the Giant brand along the Interstate 380 corridor and within Monroe County. Currently, a 2021 opening is being planned and the company anticipates hiring 200 team members for the Pocono Summit location.

“The $114 million that Giant is pledging to invest over the next two years is going to have a big impact on our economy. Giant has been a Pennsylvania company since it was founded in Carlisle almost 100 years ago, and it’s great news to see them growing at an incredibly rapid rate, creating jobs, and helping provide food access in our communities,” said Secretary Davin. “Thank you to Giant/Martin’s for continuing to invest in Pennsylvania.”

This capital investment follows the retailer’s previously announced fourth Giant Heirloom Market, coming to Philadelphia’s Queen Village neighborhood and the planned urban flagship Giant in the new Riverwalk development along the banks of the Schuylkill River in Philadelphia, both anticipated to open in 2020.

Giant said it plans to remodel 35 stores in various locations across its operating footprint that, in some cases, may include a new Beer & Wine Eatery. The stores selected for remodel will include features to simplify shopping for busy families such as optimized product assortment, streamlined order pickup, improved merchandise displays, and modernized décor. Notable future remodels in the Commonwealth include the communities of Camp Hill and St. Davids.

“Investing in our store base remains a priority for us as we work to enhance the in-store experience for the millions of customers we serve each week,” explained Bertram. “From our development projects in Philadelphia to our new stores in Pocono Summit and Harrisburg or our remodels across the state, our goal is to provide the very best, most personalized shopping through innovation, technology and a refreshed design.”

As the Commonwealth of Pennsylvania’s second-largest private employer, Giant/Martin’s currently employs more than 27,000 people statewide. In 2019, Giant’s training and development programs contributed to the promotion of over 1,300 team members and the creation of more than 2,700 new jobs companywide.

In support of these new jobs as well as those expected in association with its new plans, Giant/Martin’s said it remains committed to investing in its workforce of more than 33,000 team members who work in its approximately 190 stores in PA, MD, VA and WV. The retailer noted it has taken steps to attract and retain talent by investing in culture, leadership, and service training across its corporate office, perishable distribution center and stores.

Giant/Martin’s stated that it is also committed to investing in its associates by offering inclusive benefits and policies that enhance health and well-being, support flexibility and promote work-life balance. To that end, the company also announced the launch of new parental leave benefits that will provide qualifying full- and part-time associates with four weeks of fully paid leave during the first 12 months following the birth, adoption or legal placement of a child. This is in addition to the six weeks paid short-term disability for birthing mothers. The addition of paid parental leave complements the competitive benefits offerings available to Giant/Martin’s associates, including paid time off, education reimbursement, healthcare and disability coverage. The new parental leave benefits took effect on December 29, 2019.

Borden Dairy, one of the nation’s biggest and oldest dairy producers, has filed for Chapter 11 bankruptcy. The announcement comes not long after Dean Foods, the largest dairy company in the United States, declared bankruptcy in November 2019, making it the second major milk producer to do so in the past two months.

The Dallas-based company, which has a workforce of around 3,300 employees (22 percent who are covered by a collective bargaining agreement) cited that it cannot afford debt load and pension obligations. Borden intends to use the court process to pursue a financial restructuring designed to reduce its current debt load and maximize value in order to position itself for long-term success.

In a statement released by the dairy producer, CEO Tony Sarsam stated, “Despite our numerous achievements during the past 18 months, the Company continues to be impacted by the rising cost of raw milk and market challenges facing the dairy industry,” Sarsam explained. “These challenges have contributed to making our current level of debt unsustainable. For the last few months, we have engaged in discussions with our lenders to evaluate a range of potential strategic plans for the Company. Ultimately, we determined that the best way to protect the company, for the benefit of all stakeholders, is to reorganize through this court-supervised process.”

Sarsam continued, “This reorganization will strengthen our position for future prosperity. Over the past 163 years, we have earned the distinction of being one of the most well-recognized and reputable national brands. We remain committed to ‘The Borden Difference,’ which is our promise to be the most service-oriented dairy company that puts people first. We will continue serving our customers, employees and other stakeholders and operating business as usual throughout this process.”

The dairy, founded in 1857 by Gail Borden, Jr., operated 13 milk processing plants and almost 100 branches across the country that produces nearly 500 million gallons of milk for customers in the grocery, mass market, club, foodservice, hospitality, school, and convenience store channels. It was the first company to develop a patent for the process of condensing milk, as well as the first to use glass milk bottles.

The Lidl banner was officially unfurled on Long Island December 11 when the German discount retailer opened its first two stores there – in West Babylon and Center Moriches, both in Suffolk County. A third Suffolk County unit opened on December 18 in Huntington Station, NY.

Those units were part of a 27-store package of locations that were originally owned by Best Markets, which the privately-held extreme value merchant acquired in January 2019. Lidl also opened a non-Best Market affiliated unit on December 18 in Bergenfield, NJ.

The Center Moriches unit is a brand-new store that once was a Waldbaums. The West Babylon (originally a Pathmark) and Huntington Station stores were Best Market conversions. The company expects to open another former Best Market owned facility in Planview, NY early next year.

By mid-2020, other Best Market Long Island stores in East Meadow, Lake Grove, Oakdale and Patchogue are expected to be converted and by 2022 all 27 stores (24 in Nassau and Suffolk counties) are expected to reopen as Lidl units.

Customer counts were solid at all three locations which featured a substantial increase in the number of overall items than the typical Lidl. The SKU expansion can be seen in its perishable departments, including a first for the company – a deli department, which is clearly an adaptation to local tastes. The modified deli department offers freshly sliced meat and cheese and a related self-service grab-and-go area.

The new stores also have a new design package, making for a softer internal décor. Clearly, Lidl is making the necessary adjustments from its early days when the company did a poor job of understanding the needs and comfort levels of consumers when it entered the U.S. in June 2017.

Currently, Lidl operates nearly 90 stores in the Southeast and Mid-Atlantic with approximately 25 more stores slated to open in 2020, including the six Baltimore-Washington units it recently acquired from Shoppers Food (UNFI). Globally, the retailer, a unit of the Schwarz Gruppe, owns approximately 11,000 discount units, primarily in Europe.

As Wegmans continues to expand southward, the Rochester, NY-based has faced supply chain pressures to accommodate that growth. On December 11 the high-volume merchant announced it will invest $175 million to build a full-service, regional distribution operation in Ashland, VA (Hanover County). The warehouse will be located along Sliding Hill and Ashcake Roads.

Wegmans currently operates distribution centers in Rochester, NY and Pottsville, PA. The planned one million square foot facility is expected to open by early 2022 and be fully functional by the end of that year. Groundbreaking is expected next spring.

“This site has the right combination of everything we were looking for in terms of proximity to our stores and workforce and is located in a Commonwealth that we have partnered with for many years,” said Wegmans president and CEO Colleen Wegman. “Once it’s up and running, this facility will allow us to deliver products to our southern-most stores with increased speed and freshness and will help support our growth well into the future.”

The new depot will service the company’s 12 current Virginia stores and its new unit in Raleigh, NC. However, by the time the new warehouse is completed, Wegmans is expected to open additional stores in Alexandria, VA; Arcola, VA; Reston, VA; Tysons Corner, VA; and five more in the Raleigh-Durham corridor.

David DeMascole, director of network planning, will oversee the new distribution center project. DeMascole also supervised the construction of Wegmans’ distribution center in Pottsville, PA, which began operations in 2004 and was completed in several phases over the next few years.

“It’s a significant win when a business decides to create 700 full-time, well-paid jobs, and we are proud that a company of Wegmans’ stature has chosen to establish its major new operation in Hanover County,” said Virginia Governor Ralph Northam. “Virginia is a world-class transportation and logistics hub, and the location of this campus will greatly enhance Wegmans’ fast-growing East Coast distribution network. I was grateful for the opportunity to meet with Wegmans officials to discuss ways we can strengthen our partnership, and I look forward to the company’s continued success in the Commonwealth.”

The Virginia Economic Development Partnership (VEDP) worked with Hanover County and the Greater Richmond Partnership to secure the project for Virginia. Northam approved a $2.35 million grant from the Commonwealth’s Opportunity Fund to assist Hanover County with the project. Wegmans is also eligible to receive a Major Business Facilities Job Tax Credit for new, full-time jobs created.

On December 10, Ahold Delhaize USA (ADUSA) announced plans to transform and expand U.S. supply chain operations over the next three years by investing $480 million, including leases. The investment supports a strategy to transition the supply chain network into a fully-integrated, self-distribution model.

The move includes the acquisition of three warehouse assets from C&S Wholesale Grocers and new leases on another two facilities. In addition, ADUSA will partner with various companies to build two fully-automated frozen facilities. The initiative will provide the infrastructure needed to support aggressive omnichannel growth plans.

The announcement will likely mean a significant reduction of services (after 2023) between the retailer and C&S Wholesale Grocers, which has served as the primary supply partner to three of the company’s largest bands – Giant Food, Landover, MD; Giant/Martin’s, Carlisle, PA; and Stop & Shop, Quincy, MA.

In a statement, the Keene, NH-based distributor, the largest wholesale grocery supply company in the U.S., announced its support of Ahold Delhaize USA as it transitions to a self-distribution supply chain network over the next three years, continuing a 30-year relationship with Ahold Delhaize USA companies. C&S will continue to serve as the third-party labor provider at three locations Ahold Delhaize USA is acquiring, including two locations in York, PA., and one in Chester, NY.

“C&S is uniquely positioned for the long-term, we have a strong leadership team with some of the best industry veterans; an expanding footprint in key geographic areas; innovative technology solutions that enhance the consumer experience; and the most cost-efficient products and services in the market. We are confident about our future,” said Rick Cohen, chairman, C&S Wholesale Grocers.

Over the next three years,  ADUSA said its companies will:

• Increase distribution presence with seven new and acquired warehouses, including two fully-automated frozen facilities in the Northeast and Mid-Atlantic;
• Pursue optimal facility locations near the local brands of Ahold Delhaize USA and their customers, enabling local product expansion, increased product freshness and speed of delivery;
• Innovate in warehouse design, including transforming facilities to enhance automation and leverage technology advancements, such as an integrated transportation management system and end-to-end forecasting and replenishment technology, designed to support the omnichannel experience and multi-channel growth;
• Continue to build upon relationships with vendors and suppliers, and through the integration, further deepen partnerships to enhance service, quality, innovation and efficiencies; and
• Expand Ahold Delhaize USA companies’ presence in local markets and reaffirm local community connections through the expected creation of hundreds of jobs in local communities, including positions in support offices.

“Today’s announcement is another example of how Ahold Delhaize USA is transforming our infrastructure to support the next generation of grocery retail,” said Kevin Holt, CEO, Ahold Delhaize USA. “Through this initiative, we will modernize our supply chain distribution, transportation and procurement through a fully-integrated, self-distribution model, that will be managed by our companies directly and locally. This will result in efficiencies and most importantly product availability and freshness for customers of our local brands – now and in the future – whenever, wherever however they choose to shop.”

Currently, ADUSA’s distribution networks include 15 traditional and ecommerce distribution centers, which service the local brands of Ahold Delhaize USA, which include Food Lion, Giant Food, Giant/Martin’s, Hannaford, Peapod and Stop & Shop. The network will grow to 22 facilities by 2023.

“Moving to a self-managed supply chain will enable Retail Business Services (RBS) to reduce costs for the local brands it serves, improve speed to shelf, deepen relationships with vendors and better position our companies’ distribution centers in the communities they serve,” said Chris Lewis, executive VP-supply chain for RBS. “These changes will enable us to take advantage of financial and strategic value within procurement, logistics and warehousing to provide the freshest product through the most advanced, efficient delivery network in the grocery industry. We will continue to partner with key providers for distribution center management services, including third party labor services, such as our longstanding partner C&S.”

With respect to the two fully-automated frozen facilities, one will serve the Mid-Atlantic market and the other will serve the Northeast. In addition, the company will also pursue two new leases. One lease will be on a newly renovated warehouse in Manchester, CT, and another will include the lease of a C&S facility in Bethlehem, PA.

“Part of our strategy is leveraging the best of automation and technology,” added Lewis. “Each facility will also maintain a significant workforce. We recognize the future of work is changing and we’re taking active steps to help our workforce adapt by enabling them to work more efficiently.”

From the financial perspective, the international merchant said it expects to see more than $100 million in annual savings following the transition period.

Excluding the transition expenses, the Zaandam, Netherlands-based retailer said the impact on Ahold Delhaize USA underlying operating income will be neutral in 2020 and 2021 and favorable in 2022 by $60 million.

The ongoing annual benefit on underlying operating income will be more than $100 million. During the first three years, there will be transition expenses of $160 million, impacting underlying operating income ($50 million in 2020; $50 million in 2021; $60 million in 2022).

The Dutch merchant pointed out  that its previous group level annual free cash flow target of  $2 billion (€1.8 billion) through 2021 expressly excluded M&A and other such transactions. Therefore, free cash flow will be impacted by an incremental $410 million (€369 million) in capital expenditures from 2020-2022. The total investment also includes an additional $70 million (€63 million) in lease commitments.

Ahold Delhaize said the investment will not materially impact 2019 results and there is no change to the outlook that was provided on November 6, 2019. The retailer added that it plans to spend approximately 3 percent of sales on capital expenditures on top of the amount to be spent on this transaction over the next few years.

Collectively, the companies of Ahold Delhaize USA comprise the largest grocery retail group on the East Coast and the fourth largest group in the nation, with nearly 2,000 retail stores and more than 6 million annualized online grocery orders.

Additionally, the companies of Ahold Delhaize USA operate one of the most extensive supply chain operations on the East Coast, including more than 1,000 trucks that travel more than 120 million miles annually and deliver 1.1 billion cases to local brands’ stores.