It took a while longer than anticipated, but now it seems obvious that Shoppers Food & Pharmacy’s end days are coming soon. We thought extinction would come sometime in mid-2020, but the sales tailwinds of COVID-19 convinced parent firm UNFI and its now-retired CEO, Steve “The Spinmeister” Spinner, to milk an extra 18 months of existence for the once great regional chain. Why? Because the altruistic chief executive would have you believe that would have been “immoral” to close stores during the pamdemic and potentially create a food desert.
During the past month, the sale/closure process ramped up again when was announced that the Bowie, MD-based retailer quietly sold two stores – Smith Avenue in Baltimore and in the Fair City Mall in Fairfax, VA – to Safeway and then subsequently announced it would be liquidating its inventory and will be closing its Crofton, MD unit as well.
When the damage from this ongoing recent train wreck is tallied, Shoppers will be down to 20 stores, 17 in Maryland and only three remaining in Virginia.
The demise of the once leading discount retailer in the Baltimore-Washington area has been slow and painful. Long gone are the days when co-founder Kenneth Herman (who along with his brother Irving opened their first store in 1939 under the Jumbo banner) reimagined a conventional DC-area regional chain into a powerhouse warehouse supermarket group that grew steadily in the 1980s, 1990s and early 2000s. And even after the Herman family first sold control of the company in 1988 to his business partner Herbie Haft (“Herr Hair”) of the Dart Group (who would sell it again nine years later to Richfood – Shoppers’ primary wholesaler), the company continued to expand and prosper.
To its credit, the Mechanicsville, VA distributor was savvy enough to bring in veteran merchant Bill White, a dynamic and gifted retailer who helped continue Shoppers’ growth surge by focusing on the true strength of its discount roots and also by utilizing some of the best talent in the market, both young (Bob Gleeson, Kurt Schertle and Rick Rodgers) and experienced (Roy Marks, Jack Binder, Isaac Gendelman, Lucky Hicks).
In 1999, Richfood was acquired by national wholesaler Supervalu, which was content to let White and his successful crew continue to operate from a mostly decentralized platform, which resulted in the continuation of consistently strong identical store sales, new store growth and healthy profits.
In 2006, everything changed when Supervalu decided it wanted to expand its retail presence. In a stunning move, Supervalu paid a whopping $17.4 billion (including debt) to acquire about 1,100 supermarkets from a beleaguered Albertsons organization, which like Shoppers was founded in 1939.
Almost immediately, the holes in Supervalu’s game became exposed. As strong as Supervalu was in supplying independent retailers and operating about 300 corporately-owned supermarkets (comprised of medium-sized regional supermarket chains including Farm Fresh, Cub Foods, Shop ‘n Save and Scott’s), prior to the mega-deal, they proved to be equally awful at running retail stores across a wide footprint. At the time of purchase it was no secret that the Albertsons stores needed billions in necessary upgrades, and former SVU CEO Jeff Noddle didn’t have the funds to pay for those restorations; he also proved to have terrible retail instincts.
While the bigger banners that SVU now controlled like Acme, Shaw’s, Jewel and Albertsons continued to produce negative sales and declining shares in many markets, hidden gems that had been part of Supervalu’s stable for many years like Shoppers and Cub Foods suffered major collateral damage. Store expansion was virtually halted and cap-ex for overall retail was inadequate. Bill White, sensing the oncoming tsunami, announced his retirement two weeks after the Albertsons deal in 2006.
When Noddle was finally relieved of his duties in 2009, there was hope that Supervalu would bring in an experienced executive who was more familiar with corporate retail than Noddle was. They found such an individual in Craig Herkert, who once served as an executive VP of Albertsons (in the 1990s) and then became CEO of Walmart Americas (Canada, Central America and South America) from 2001 to 2009 before accepting the top job at Supervalu. On paper, it seemed like a solid fit. However, it didn’t take long to figure out that Herkert was actually the poster child for all things that tasted great and were less filling.
In fact, Herkert wasn’t any kind of turnaround specialist or even effective at improving virtually any aspect of Supervalu’s business – he was a Teflon-coated, process-oriented executive whose people skills were highly limited. After Supervalu posted net losses of $1.5 billion, $1.04 billion and $1.47 billion respectively in fiscal years 2011, 2012 and 2013 (the “Reverse Midas Touch” exacta), he was dismissed by the board in July 2012 (about halfway through fiscal 2013). Those numbers alone would have been enough to make stockholders angry; the related stock slide from $118 per share when Herkert first joined the company to the $38.50 per share price when he left also made them ill.
While Supervalu tried nobly for a course correction bringing in Sam Duncan and Mark Gross as chief executives from 2013 to 2018, it just wasn’t enough – the neglect and years of poor performance never got the company out of the rathole even after selling back 877 stores of those former Albertsons stores back to a reformulated company – New Albertsons – in 2013 for $100 million in cash and $3 billion in debt.
In 2018, UNFI paid $2.9 billion (including debt) to acquire Supervalu in a bidding war with rival wholesaler C&S. I’ll give Spinner credit for one statement made at the announcement of the sale: he made it clear that UNFI intended to sell off its retail assets which by then consisted of 52 Shoppers and approximately 200 Cub Stores (both corporately-owned and franchised).
More than three years later, both banners still exist in part due to some of the demands that UNFI placed on potential buyers including insisting that the acquiring company pay for part of the unfunded pension liabilities that remained with its contacts with UFCW Locals 400 and 27.
Over the past three years, UNFI did manage to unload or close about 35 Shoppers units. Now only 20 units remain as UNFI continues to manage their “red-headed stepchild” (is this unwoke?) as a lame duck entity.
Five years ago, even after more than a decade of malfeasance, Shoppers still operated 55 stores in the B-W market and rang up annual sales estimated at $1.6 billion. Even during the tailwinds of COVID in which all retailers experienced significantly elevated sales (and most increased earnings, too), Shoppers annual volume is now estimated to be slightly less than $600 million.
I expect things to move quickly now. UNFI has a new chief executive – Sandy Douglas of Coca-Cola fame; several landlords from still operational Shoppers stores have more control over their leases; and the market has become more competitive than ever.
As always, the biggest victims are the associates who’ve been strung along for more than three years. When the final door closes, I hope many of them will be able to find new jobs (if they even want to) working in the supermarket industry. With the current labor shortages, I’m confident they’ll find a home at another food retailer.
In the meantime, the unforgettable melody of “Taps” is getting louder every day.
‘Round The Trade
After nine months of Federal Trade Commission review, the merger between Tops Markets and Price Chopper has been approved. The two upstate New York grocery chains will be overseen by a new parent company, Northeast Grocery Inc. Scott Grimmett, who served as Price Chopper’s CEO prior to the merger, will become chief executive of the new organization and each banner will maintain its own local management team and continue with their established brand identities. Blaine Bringhurst will serve as president of Price Chopper (Market 32) and John Person will handle those duties for Tops. Northeast Grocery will operate from Price Chopper’s current headquarter facility in Schenectady, NY while Tops will continue to be based in the Buffalo suburb of Williamsville, NY. Former Tops CEO Frank Curci will now serve on the board of Northeast Grocery. As part of the agreement, the new organization has agreed to divest 12 stores, all Tops units in New York (11 units) and Vermont (one store). Shortly after the merger announcement became official, C&S Wholesale Grocers, primary supplier to Tops (Price Chopper supplies its stores directly), said it has entered into a purchase agreement to acquire those 12 stores. The Keene, NH-based wholesaler, which in recent months has been acquiring stores for its retail portfolio and named former Stop & Shop president Mark McGowan to supervise that business sector, plans to convert the mostly rural supermarkets to its Grand union banner, a name that C&S owns since it acquired that now defunct New Jersey-based chain in 2001. C&S plans to re-open all 12 units early next year.
This time it’s over for real. After announcing an IP offer in January of this year, and then postponing it about 10 days later, Southeastern Grocers (SEG) announced earlier this month that it was abandoning its effort to take the company public. Several sources told us that lack of interest in the suggested offer price ($14-$16 per share) was the primary reason for the withdrawal. This shouldn’t come as a surprise to anyone and SEG isn’t the only supermarket chain that sought cash-out paydays for their investors (Lone Star Funds in the case of SEG) while sales and earnings increased significantly during COVID-19. Recently, The Fresh Market (TFM), controlled by PE firm Apollo Global Management, has also been exploring the IPO route. If you remove the short-term gains primarily fueled by the pandemic, neither SEG nor TFM has the required long-term record of financial success or stability to warrant going public from the financial community…we have a few financial results to report.
At Sprouts Farmers Market, the backsliding continued as the Phoenix, AZ perishables-driven merchant posted another period of negative comp store sales (minus 5.4 percent) and transactions continued to decline. But there was some optimism in the Q3 report as profit grew slightly to $64 million (vs. $60 million). Plain-speakin’ CEO Jack Sinclair predicted that Sprouts’ two-year stack will be positive by the end of its fiscal year. During Sprouts’ follow-up analysts call, the ex-Walmart executive admitted that the retailer’s initial messaging about pricing and selection fell short, but said the company is now focused on highlighting “our sharp produce pricing, innovative products and a farmer market experience to drive additional transactions in the quarters and years ahead.” While Sprouts opened two new distribution centers – in Orlando, FL and Aurora, CO – earlier this year, it still has no DC in the Mid-Atlantic where it currently operates 10 stores. The company previously noted that it is exploring sites in the Mid-Atlantic area for a new depot, but it has not yet disclosed a specific site. In the meantime, that supply chain shortfall makes it more difficult (and expensive) for the company to operate as efficiently as it could in one of the most demographically favorable areas of the country.
Counter to the recent trend experience by Sprouts, Ahold Delhaize posted another strong sales and earnings period (Q3). At its U.S. properties (supermarkets and online), overall sales grew 6.8 percent compared to Q3 in 2020, and comp store revenue (ex-fuel) increased 2.9 percent. On a two-year comparable sales stack basis, growth was 15.3 percent, similar to the 15.8 percent growth for the full year 2020. Brand performance continued to be led by Food Lion which achieved its 36th consecutive quarter of positive comparable-sales growth. Ahold Delhaize CEO Frans Mueller also noted that the 71 recently added Food Lion stores which opened earlier this year have now been fully integrated and are exceeding sales expectations. Online sales in the segment were up 52.9 percent, driven by the continued expansion of click-and-collect facilities and the FreshDirect acquisition. Excluding the FreshDirect acquisition, U.S. online sales grew 26.2 percent in constant currency, building on top of the significant 114.7 percent growth in the same quarter last year. Underlying operating margin in the U.S. was 4.8 percent, down 0.2 percentage points at constant exchange rates from the prior year period, which had benefited from unusually low shrink levels and favorable sales mix owing to a surge in demand related to COVID-19. “Our Q3 results once again showed the resilience of our business model, with our brands building further on 2020’s COVID-19-related sales gains, as various societies across our markets reopened in the quarter. During these ever-changing times, we remain proud of the significant efforts of associates in all our brands and businesses, who continue to tirelessly serve our communities. In Europe and the United States, our businesses faced additional disruptions in Q3 related to the Belgian floods, tornadoes in the Czech Republic, fires in Greece and Hurricane Ida in the U.S. We would like to send a special thank you to the affected associates for their continued dedication to their communities during these difficult times, and for truly living our core values,” said Mueller. “We continue to focus on making additional investments to meet associate, customer and community needs and remain on track to deliver on our pledge to contribute €20 million in charitable donations, spread evenly between the U.S. and Europe, during 2021. We also continued to support COVID-19-related health and safety measures, which remain a top priority; we invested €66 million ($75.8 million) in these measures in Q3. The pandemic has shown us the importance of maintaining food and product supplies to local communities – a vital role that we remain focused on fulfilling, together with our brands and suppliers. Q3 Group net sales of €18.5 billion ($21.2 billion) remained elevated; this was exemplified by the U.S. segment, where comparable sales excluding gasoline grew 2 percent on top of last year’s double-digit growth. Many consumer habits formed during the COVID-19 pandemic favoring food-at-home consumption and a focus on healthier eating are proving resilient, and we continue to make significant investments to address these trends. We continue to solidify our position as an industry-leading local omnichannel retailer by executing our strategy to improve supply chain, advance omnichannel offerings, and enhance omnichannel productivity. To improve the efficiency of our supply chain, the U.S. business has now achieved self-distribution for 65 percent of center store volume and remains on schedule to transition to a fully self-distributed network in 2023.” He added: “To advance omnichannel offerings, Giant Food will soon launch Ship2me, an online marketplace solution, initially offering approximately an additional 40,000 general merchandise and food items. During the quarter, we also added 102 new click-and-collect locations in the U.S. and our brands in Greece and the Czech Republic expanded their online grocery delivery services. Improving omnichannel productivity remains a high priority and we are proud of our new e-commerce fulfillment facility in the Philadelphia market at The Giant Company, which opened this week (November 8). The facility is part of our efforts to drive growth and efficiencies in our online operations.”
Oh, almost forgot about Amazon’s recently released third quarter earnings. From the perspective of “Godzilla,” sales and earnings were ho-hum. Revenue was up 15 percent to $110.8 billion while earnings dropped precipitously from $6.3 billion last year to only $3.6 this quarter (don’t worry folks, this is just a temporary blip in Amazon’s long-term financial outlook). And not surprisingly, new CEO Andy Jassy reflected on the profit drop by explaining: “We’ve always said that when confronted with the choice between optimizing for short-term profits versus what’s best for our customers over the long term, we will choose the latter – and you can see that during every phase of the pandemic.” Yes, that was Andy Jassy speaking, Jeff Bezos hand-picked choice to succeed him – and not Mark Zuckerberg, CEO of that other dynamo, Facebook, er, Meta. One other positive note for Amazon was that sales at its physical stores (Whole Foods, Amazon Fresh, Amazon Go, Amazon Books and Amazon 4-Star general stores) increased 13 percent to $4.27 billion in the quarter. That marks the second consecutive period the company’s brick and mortar location have experienced a double-digit sales gain.
And if you need hard data to substantiate the spiraling inflation that we’re all witnessing, go no further than the Bureau of Labor Statistics (BLS) October report. Prices rose 6.2 percent compared to a year ago, the largest monthly increase since November 1990. And while rising prices for gas and used cars were key contributors, significant increases in food prices was near the top of the list. Grocery prices rose 5.4 percent from a year earlier with even more significant inflation occurring over the last two months. In fact, while all six categories that the BLS measures all had higher pricing than a year ago, nothing came close to the meat category where pork alone was up 14.1 percent (a 30-year record). And while beef prices rose, too (3.1 percent), they have increased 20 percent since last October. Unfortunately, expect the pain to continue. Ouch!
Local Notes
A tip of the hat to Giant Food president Ira Kress who earlier this month was honored with our own “Pete Manos Retail Executive of the Year” award for outstanding performance, leadership and community involvement. A few days later Kress and Giant Food were feted by the Children’s Cancer Foundation (CCF) for their contributions in the fight against pediatric cancers. Giant has been one of the cornerstone supporters of the CCF since its founding in 1983 and it alone has been responsible for raising millions of dollars over the past 38 years. On a related note about the CCF gala which was held at Martin’s Crosswinds in Greenbelt, MD and attracted more than 500 people: it was great to see so many industry friends in person for the first time in nearly two years. We all missed the camaraderie (bad jokes and all) and esprit de corps that make the food industry such a great business. A couple of more Giant Food notes: the Landover, MD-based division of Ahold Delhaize USA (ADUSA) will open new two new stores this month – a 42,834 square foot unit in Fort Washington, MD which is a full replacement supermarket of a previous Giant store in that Prince George’s County suburb (November 12); and a 60,000 square foot relocation of its Sudley Road unit in Manassas, VA (November 19). The new 60,000 square foot Giant used to be the home of a Shoppers Food unit before that store closed in early 2020.
And Giant is collaborating with Flashfood, a digital marketplace providing customers access to heavily discounted food nearing its “best sell buy date.” By using the Flashfood app, customers can browse on fresh foods and center store item. Purchases are made directly through the app and customers can then pickup their order from a specially designated “Flashfood Zone” located inside the store. Three Giant stores are part of the pilot program – Catonsville, MD; Ellicott City, MD; and Falls Church, VA. And while we’re on the subject of ADUSA, its most productive banner (according to CEO Frans Mueller), Food Lion has just completed a $127 million upgrade to 87 stores in Virginia, North Carolina, South Carolina, Tennessee, Kentucky and Georgia. And last month, Food Lion cut the ribbon on a new store in Quinton, VA (New Kent County), the third unit that the Salisbury, NC-based “brand” operates in Quinton which is located about 20 miles east of Richmond.
Wegmans has begun the hiring process for its next two stores – an 81,300 square foot location in Alexandria, VA (Carlyle Crossing) and an 84,000 square footer on Wisconsin Avenue in Washington, DC, its first District unit. Those stores are expected to open next spring and summer respectively. Later next year, the uber-retailer plans to cut the ribbon at it first Delaware unit, another 84,000 square foot store in Greenville.
Kudos to my buddy Rod Antolock, president of Harris Teeter, who will be retiring in February 2022 after a distinguished food industry career that spanned more than 40 years. A genuine talent, particularly in store operations, Rod combined his industry knowledge, instincts and very strong people skills to be a difference maker. And did I mention, he also liked to have fun! Good luck in your future endeavors.
After a somewhat disappointing second quarter, Weis rebounded strongly in Q3 with strong numbers. Overall sales were up 6.1 percent to $1.06 billion while comp store revenue jumped 4.6 percent (19.4 on a two-year stacked basis). Earnings were also solid with the company’s profit hitting $28.5 million, slightly down from the COVID tailwinds-fueled $31.3 million in Q3 2020. “We continue to generate strong results in the third quarter. Our hard-working and dedicated associates are the key to our success. They continue to help us navigate through the challenges of a pandemic-impacted marketplace, which included a tight labor market, supply chain disruptions and product cost inflation, resulting in some consumer resistance.” The Sunbury, PA-based regional chain also announced that it has increased its cap-ex spend for this year – from $135 million (announced at Weis’ annual shareholders meeting in April) to $150 million. Much of that increased allocation will be made for store improvements and upgraded supply chain initiatives.
Wakefern Food Corp., the largest wholesale food cooperative in the country, is celebrating its 75th anniversary this year. At last month’s annual shareholder’s meeting, the company three top executives – Joe Colalillo, chairman and CEO; Joe Sheridan, COO and Chris Lane, EVP – reflected on the company’s proud legacy and provided an outlook of what lies ahead for the Keasbey, NJ parent of ShopRite. After the meeting, we talked to Lane on a variety of topics related to the co-op. The 18-year Wakefern veteran feels confident that his company is taking the proper steps to ensure future growth. “Over the last several years we’ve become a much more strategic company. Our ability to improve our long-term planning has helped us become more agile and nimble and allowed us to make better long-term investments, particularly in technology,” Lane noted. He added that the improved flexibility was of particular importance to a company like Wakefern which is governed by 50 independent families operating multiple banners that together amass nearly $18 billion in annual sales. One key priority has been Wakefern’s focus on e-commerce. Lane noted that the Keasbey, NJ-based distributor has been involved in some level of e-commerce for about 20 years, but added that the game is changing rapidly both from a consumer expectation standpoint and as a competitive challenge. “We’re certainly making progress with our e-commerce initiatives. We surpassed $1 billion in digital sales last year and continue to invest heavily in micro-fulfillment centers, robotics and pick-up pods,” Lane asserted. “But we’re not Walmart and we’re not Amazon; our approach will be more pragmatic. For a company of our size, making the right investment is vital.” And while Wakefern’s e-commerce priorities may differ from the larger global retailers, Lane sees several advantages where Wakefern can use its unique structure to capture more revenue from its e-commerce platform. “Because our stores produce high-volume sales (more than $1 million weekly on average) and we’re located in many densely populated areas, it’s not always possible to build a micro-fulfillment center. But I consider that a good problem – starting off with a significant volume base coupled with strong customer loyalty in stores run by community-minded members. However, we do need to continue to move forward with our e-commerce growth plan – it’s an important part of our future.” A related area that Lane believes will help Wakefern become more efficient, both in e-commerce and at its more than 360 physical stores, is the integration of a new supply chain system. For many years, the wholesaler had deployed its own internally developed program. Last year, the company made a major decision and converted to an SAP data-driven system. The three-year conversion plan will be completed next year and will allow Wakefern to optimize its inventory and improve its forecasting. As with most merchants, the changes that retailers made during the onset of COVID-19 were substantial and continue today to some degree. Lane shared his views of how Wakefern managed this unprecedented event. “Our first concern was protecting our people while not losing sight that our basic job is to serve our communities. Those two pieces are integrally linked,” Lane explained. “As I said earlier, one of the real strengths of Wakefern is the unique bond between our members and our staff. Those connections are an invaluable component of our success.” As for the current challenges with labor, wages and overall supply chain, Lane feels that those difficulties will abate, although it might take until the middle of next year to return to normalcy. “Certainly, there are labor shortages affecting the entire industry. And we’re all going through supply chain problems,” Lane said. “However, as a company that operates with local ownership, I feel our nimbleness is an advantage. The retail business is still largely about people and being a ‘people organization’ I believe is our greatest strength.”
We have a few obituaries to report this month, including the passing of Tom Matte. The former Baltimore Colts running back (and sometime quarterback), who had some great seasons with the team from 1961 to 1972, was the franchise’s overall number one draft pick in 1961 from Ohio State. In college, he played quarterback, but with the great Johnny Unitas leading the team, Matte was shifted to halfback, where his versatility proved invaluable. Matte’s “15 minutes of fame” came late in the 1965 season, after Unitas and backup quarterback Gary Cuozzo were injured. Coach Don Shula, with literally no options, named the former college QB to be the starter in an important game against the LA Rams and Matte led the team to a 20-17 upset, rushing for 99 yards. Then, in the last game of the season, to decide the Western Conference championship, Matte again led the Colts to victory against the favored Green Bay Packers. The following week the Colts had to play the Packers again, this time in the NFL championship semifinals. Despite playing valiantly at quarterback again, Matte’s team lost to “The Pack” 13-10 in overtime. And one more note of trivia: in today’s NFL, you’ll see many quarterbacks wearing a wristband “cheat sheet” to help them with their play calls. Actually, it was Matte who wore the first wristband to help familiarize himself with the Colts’ offense when he became their emergency quarterback. Today that wristband can be found in the Pro Football Hall of Fame in Canton, OH. During his career, Matte, 82, gained 8,882 all-purpose yards, scored 57 touchdowns, made the Pro Bowl twice and earned a Super Bowl ring with the 1970 Colts.
Also leaving us was the great comic Mort Sahl, who made his mark from the mid-1950s through the late 60s with a unique style of political and social satire. With his dry, staccato delivery, Sahl’s humor often focused on high profile politicians of the day including Dwight Eisenhower, JFK, Charles de Gaulle and Joseph McCarthy. “I don’t tell jokes. I give little lectures,” Sahl would tell his audiences. He would often conclude his shows by asking “Are there any groups that I haven’t offended?” And even though he was not very well known in recent years, his fans included such great comics as Lenny Bruce, Richard Pryor, Dave Chapelle, Woody Allen and George Carlin. During his later years, Sahl, 92, found time to pick on another president, George W. Bush. Referring to the 43rd president’s strong religious beliefs, Sahl quipped “He’s a born again, you know. Which would raise the inevitable question: If you were given the unusual opportunity to be born again, why would you come back as George Bush?”
“The Boy With Green Hair” is also dead at 85. Dean Stockwell was a durable and versatile character actor whose career spanned eight decades and included more than 200 film and TV credits. Stockwell, whose first role was in the 1945 film “The Valley of Decision,” would appear in 19 films before he turned 16 – the most famous of which were “Gentleman’s Agreement” (1947) and the aforementioned “The Boy With Green Hair” (1948). After a hiatus from 1951-1956, he transitioned from juvenile to adult roles. Stockwell became a “that guy” in many offbeat films in the 80s and 90s including “Paris, Texas” (1984); “Blue Velvet” (1986); and “Married To the Mob” (1988). He also had one memorable recurring television role as the hologram of Admiral Al Calavicci in the popular TV series “Quantum Leap” (1989-93). Stockwell was indeed an underrated acting talent.