In addition to Jeff Metzger’s monthly column, “Taking Stock,” he will periodically offer his unfettered take on breaking news stories in the industry. In this opinion piece, he offers his thoughts on the good fortune of McGrath, who is leaving Save A Lot to become deputy chairman of rival Lidl, and the continuing ineptness at the St. Ann, MO-based discounter.Kenneth McGrath, the first U.S. chief executive of Lidl and since 2017, CEO of discount rival Save A Lot, has resigned from the St. Louis area retailer to rejoin his old company as deputy chairman, effective October 1.
This move defies logic on many levels, especially when you consider that McGrath quit Lidl in 2015 and did a less than stellar job at the helm of Save A Lot (SAL) for the past four years. However, an unusual set of circumstances clearly led to the native Irishman returning to Europe and his former company (McGrath will be based at Lidl’s corporate headquarters in Neckarsulm, Germany).
Late last month, 73-year-old Klaus Gehrig, longtime chief executive of Lidl’s parent – Schwarz Group – resigned suddenly after a reported disagreement with his boss, owner and chairman Dieter Schwarz, 81. With Gehrig’s departure, the parent company named Gerd Chrzanowski, top man at Lidl, to eventually assume the chief executive duties at Schwarz. That left a hole at the top of Lidl’s organizational chart that McGrath will now fill. In his new position, McGrath will oversee more than 11,000 stores in 32 countries, most of which are located in Europe. Lidl’s annual sales are estimated at $125 billion.
At Save A Lot, McGrath had been slowly (and I do mean slowly) trying to transform the organization that was heavily reliant on corporate stores (about 350 as of about 18 months ago, many of which were failing) into one where its current licensees (or new owners) would acquire most of those corporate units. Under the “new” SAL, the company would become a wholesale and marketing entity with only a handful of corporate units still in the SAL fold.
In recent months, SAL has sold about 200 corporate stores, primarily to existing licensees who either already owned SAL stores in other areas or have expanded their store bases in their existing markets.
However, multiple sources have told us that the transformation plan was unwinding too slowly and licensee transactions have reportedly been well below SAL’s original asking price.
When McGrath joined the company in 2017, he was picked by then-owner Onex, a Canadian private equity firm which had acquired SAL from Supervalu (now UNFI) in 2016 for $1.4 billion. In 1994, Supervalu acquired the discounter from Wetterau which had purchased the original company, Moran Foods, in 1987.
It quickly became clear that Onex was totally clueless about the retail food business, particularly the extreme value segment where margins are even tighter and Walmart and Aldi pace the field.
In late March 2020, Onex finally put up the white flag and a new group of investors assumed control, paring approximately $500 million in debt and providing a $350 million cash infusion.
Shortly thereafter, the transformation plan was announced. However, several SAL licensees told me that corporate executives had actually unveiled the new model several months earlier. The plan included utilizing real estate firm Hilco and financial advisors The Cypress Group and PJ Solomon to work with landlords, licensees and directly with Save A Lot corporate.
In the meantime, a slew of SAL executives have departed including Kevin Proctor, who was COO and also served as McGrath’s second-in-command at Lidl U.S. (do you think he’ll be returning to Lidl, too?)
But there was something else that caught my eye as reprinted below:
Hi All,
I want to let you know about an important change in the management team. Kenneth has decided to resign from his role as CEO, following a personal decision that he has carefully considered to move closer to home.
On behalf of the Board, I thank him for his service and dedication to the Company and we wish him well in his future endeavors. Kenneth will stay on until a date to be mutually agreed upon before the end of this year, to ensure a smooth transition. The good news is we will all see him around for a little longer.
I want to assure you that we do not anticipate any disruptions to the business. The Company is well positioned to execute on the opportunities ahead to build on our legacy as the hometown grocer, providing unmatched quality and value to local families. We have excellent depth across our management team and we are already working to identify the next CEO, which we look forward to updating you on in due course.
Best Regards,
Justin Shaw, Chairman of the Board (Save A Lot)
Huh? “A personal decision that he carefully considered to move closer to home”…“The good news is that we will all see him around a little longer.” Talk about being disingenuous (or ignorant) – Kenneth McGrath is going to work for one of your main competitors. Think of the potential intellectual property he possesses. Wake up, dude!
And while most of the hedge fund guys I know are neither good merchants nor good operators, they are usually excellent planners and infrastructure developers. Clearly, this doesn’t seem to be the case with Mr. Shaw. No interim CEO? No mention of what role the current senior management team will have? Even Shaw’s LinkedIn page lists his position at SAL as being “part-time.” Is this any way to run a company desperate for talented leadership? Do you think SAL’s associates or licensees are frustrated and confused? What kind of a clown college is being run here?
And while the leadership at Lidl seems a bit unsteady, too, there’s one big difference between the two discount merchants: Lidl is wildly successful (except in the U.S.) and can well withstand the disruption of having four presidents of its U.S. operations in a six-year period while it figures out whether to remain a viable entity in this country; on the other hand, Save A Lot, which was close to bankruptcy 18 months ago, struggles to complete a transformation plan that might not even be successful if it is executed well.
Kenneth McGrath, I’m anointing you as the most fortunate retail executive of the century.