Taking Stock

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Survival A Concern For Several Battle Weary, Scarred Retailers 

After a decade of non-stop ferocious competition, the end is near for one of the market’s once venerable regional supermarket chains. And while the days of Shoppers Food & Pharmacy appear to be numbered, there are a few more retailers that are vulnerable if you measure performance (not their corporate worth) as their report cards.

For the record, Shoppers has only announced that it will shift its merchandising and administrative duties to Cub Foods’ (parent firm’s Supervalu largest corporately-owned banner) offices in Stillwater, MN next month. However, can the end be far off, especially since SVU CEO Mark Gross has said numerous times that the company’s major focus will be on wholesale operations? And Shoppers’ unbuckling seems to be following the same protocol as its sister retailer Farm Fresh did last year when it consolidated merchandising operations into Shoppers’ Bowie, MD office, then ultimately issued a sales prospectus before announcing its withdrawal from the Tidewater market (38 stores) in March.

But it’s not only Shoppers that seems to be teetering sales-wise. Lidl’s debut in the Mid-Atlantic has been disastrous. Its poor sales may be the most visceral result of its problems, but the German discounter clearly needs some American lessons on merchandising, product selection and management stability. Lidl’s deep pockets may allow them to continue in the U.S., but the fixes it needs are many and complex.

How about The Fresh Market (TFM)? Now owned by a division of Apollo Global Management (another brilliant private equity play), the company is no better off than it was a few years ago when it was publicly-traded and run by a different management group. TFM is not a bad operation – it’s just not a good one. And if you want to study in the upscale perishables/prepared foods division, you’d better be a very good student. No offense to the denizens of some smaller Southern markets where TFM has enjoyed some success, but operating in Denison, FL or Macon, GA ain’t like competing in Rockville, MD or Montvale, NJ. Even Publix (which has plenty of time and money to improve its game), is learning that somewhat painfully during its first year in Richmond.

And it’s not just those retailers whose survival might be in question. Both Albertsons and Rite Aid, which are scheduled to join forces later this year, have found that operating many tired, older stores makes climbing the sales hill that much steeper. The merger might actually be beneficial in terms of scale and synergies, but the new company is going to need an extraordinary amount of cap-ex just to improve its store base and make Safeway, Acme, Jewel and other Albertsons banners more desirable places to shop and also help Rite Aid’s stores be more on a competitive plane with its rivals CVS and Walgreens.

Years of war ultimately result in death and casualties for the ill-prepared and unfortunate.

As for the warriors in our core Baltimore-Washington area, here’s my annual update and analysis.

Giant Food – There’s still a way to go before I’d classify the market leader as being an elite retailer again, but there has been noticeable improvement in many areas. Merchandising is crisper, Giant’s pricing is very competitive with the market and the new Ahold Delhaize USA decentralized “brand” approach seems have improved morale at the headquarters level in Landover. The book is still out as to whether the system can achieve local creativity and flexibility, but it’s got potential. Giant president Gordon Reid deserves a lot of credit. Without a ton of cap-ex at his disposal, he often serves as a one-man missionary pumping up his team, giving his heart to Giant and supporting many charitable causes. Of course, as I’ve been saying for the past five years, Giant could further help itself if it prioritized improving associate training and increasing labor at its stores.

Safeway – The glass is getting fuller again. Through most of 2017, the division of Albertsons seemed almost directionless. That’s what a rotating door of leadership will cause, and a former Seattle division president and career Safeway West Coaster only added to that perception when he arrived in Lanham in 2016. Safeway is now starting to regain some momentum, primarily because of the installation of Jim Perkins as president late last year One of the best “people” guys in the biz and a man of integrity and candor, Perkins has reinvigorated the troops and sales are improving. But Perkins may also be one of the busiest guys in the industry – he also serves as president of Acme Market and remains an executive VP with the parent company. Safeway’s got many excellent locations (particularly around Washington, DC) and a lot of talented and dedicated people, they just need some significant capital investment to make their stores more inviting places to shop. That in itself is a tall order, given the overstoring and competitiveness of the Baltimore-Washington market.

Walmart – Very good year for the Bentonville Behemoth. Walmart’s improvement in service levels, store cleanliness and slightly better customer service were noticeable. Also noticeable was its ability to integrate its growing ecommerce operation into its stores to increase sales. Low prices will always be the company’s cornerstone, but CEO Doug McMillon has achieved something remarkable in his five-year run: he helped change Walmart’s image and culture and was smart enough to convince the board (comprised of several Walton family members) to allow the company to invest heavily in technology and digital initiatives. The results are paying off on the bottom line and with its consumer perception. Clearly a long-term player in any area in which they currently compete.

Harris Teeter – Solid year for the Kroger unit. Given the competitiveness of Baltimore-Washington, same store sales increases hovered at about 2 percent and the upscale merchant only opened one new store last year (in Severna Park, MD), but much like Weis did in 2016, will undoubtedly be looking for in-fill opportunities from stores that may close (Shoppers?). Harris Teeter is on the books for five new B-W stores (Dunkirk, MD; Queenstown, MD; Towson, MD; Queenstown, MD and Washington, DC – Michigan & North Capitol). In adjacent markets, HT acquired 10 former Farm Fresh units and just this month announced it would be taking over eight Kroger stores in the Raleigh-Durham area. Harris Teeter has a good formula for growth and continued success: skilled leadership, a modern store fleet, strong perimeter departments and proven success in affluent marketing areas.

Wegmans – The gold standard. Even in its heyday, Walmart couldn’t collapse a market the way Wegmans can. As rugged and diverse as brick and mortar food retailing is today, Wegmans seems almost undaunted by current market conditions. Every store in the B-W market is doing well over $1 million in sales a week and the numbers keep improving. Even with the heavy competition, that’s not surprising given Wegmans’ stellar execution at store level and its “theater of food” merchandising. The Rochester, NY based company recently opened its newest unit in Chantilly, VA and plans five other B-W new stores – Rockville, MD; Alexandria, VA; Arcola, VA; Tysons Corner, VA; and on Wisconsin Avenue in Washington, DC – over the next few years. That alone will create even more major market disruption and make several other existing retailers even more battle weary and scarred.