Taking Stock

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‘Round The Trade

And while we’re still traveling in the digital world, according to the Wall Street Journal and confirmed by my sources, Albertsons is expected to revamp many of its e-commerce systems which will impact its more than 2,300 supermarkets. The Boise, ID-based chain will essentially rebuild and replace systems that in some cases are 15 years old. It will build and create systems that will be able to operate on improved public and private cloud platforms including Microsoft’s Azure technology. Of all the large bricks and mortar merchants, Albertsons is probably most in need of modernization of its web-based offerings and internal systems. Also from Albertsons comes the good news that our old buddy, Dennis Clark, has been promoted to corporate senior VP-merchandising and that former Mrs. Green’s CEO Pat Brown (ex-HEB, ex-New Seasons Market), who joined Albertsons in May as VP-merchandising strategic initiatives, now becomes group VP-merchandising where he will focus on deli and prepared foods and business initiatives. Bloomberg is also reporting that Albertsons has once again put its IPO plan on hold. The big merchant originally announced its plans to go public two years ago, but has been unable to pull the trigger on a deal, partly because of market conditions. This time, according to the report, the aftershock of Amazon acquisition of Whole Foods created the roadblock (most food retail stocks were adversely impacted by the potential mega-deal). The story also noted that if Albertsons, which is owned by large PE firm Cerberus Capital Management, would have sought to relaunch its initial public offering it would have done so with a slightly different strategy – going straight to investors that showed interest in the initial original IPO plan and with a narrower price range from the original range of $21-$24 per share…one company that was able to reach the finish line in its attempt to go public was meal-kit solutions company Blue Apron. Although it’s still early, things haven’t gone exactly as planned for the Manhattan-based start-up. Just prior to its June 29 launch date, Blue Apron revealed that proceeds from investors would be more than $150 million under target. That meant that the when the stock opened at $11 per share it was well below the $15-17 per share that was originally projected. At presstime on July 20, Blue Apron shares were trading at $6.65. To make matters even more challenging, a week after Blue Apron’s launch, Amazon applied for a trademark noting that it was planning “prepared food kits composed of meat, poultry, fish, seafood, fruit and/or vegetables ready for cooking and assembly as a meal.” It also announced its new tagline: “We do the prep. You be the chef.”… bankruptcy, did I hear bankruptcy? Well not quite yet, but the smell of death in the air is getting even stronger for Sears Holdings, which just last week announced another round of store shutterings. This month’s number is 43 units, part of the 132 stores (40 Sears, seven Auto Centers, 85 Kmarts) that have been announced in several phases over the past six weeks. That brings the 2017 grand total to 312 closings for “Slow” Eddie Lampert’s failing retail empire…Sycamore Partners is set to acquire Staples for $6.9 billion in another example of a PE firm trying to revive a declining brand, utilizing its Staples real estate assets and solid cash flow as drivers. You might remember that Sycamore and its Dollar Express affiliate is suing Dollar Tree for allegedly helping the dollar store operator go out of business by utilizing confidential information to open new stores near where Dollar Tree stores were located. Dollar Express was formed in 2015 when Sycamore bought 330 former Family Dollar stores that were in “conflict” locations (as part of an FTC-mandated divestiture that allowed Dollar Tree to ultimately acquire Family Dollar). Sycamore/Dollar Express also accuses Dollar Tree of putting under-qualified and inattentive store managers in those divested locations…Danone, the French yogurt dynasty, has found a buyer for its Stonyfield unit – and it didn’t have to search very far. Lactalis, another French dairy company, has agreed to acquire the former family-owned business (founded by Gary Hirshberg in 1983) for $875 million. Danone put Stonyfield on the sales block when it acquired White Wave earlier this year for $10.4 billion. Lactalis, still a family-owned company, operates in 85 countries and already has significant U.S distribution with its President and Galbani brand cheeses…and in the biggest deal of the month, McCormick will acquire Reckitt & Benckiser’s food business for $4.2 billion (all cash), giving the Maryland spicemaker control of two key brands – French’s mustard and Frank’s Red Hot sauces (those brands will now become McCormick’s number two and three brands). Meanwhile, Reckitt Benckiser will continue to focus on its consumer health and wellness strategy which includes core brands, Nurofen, Clearasil and recently acquired Mead Johnson…Bruce Besanko, Supervalu’s chief financial officer for the past four years, has left the Eden Prairie, MN-based wholesaler/retailer and will assume the same post for Kohl’s. SVU’s chief strategy officer Rob Woseth will handle the CFO duties on an interim basis while the company searches for Besanko’s replacement…Wal-Mart recently unveiled its new “On-Time, In-Full” initiative designed to improve in-stock service levels while also reducing inventories at its more than 4,700 U.S stores. The new program which will begin next month, calls for suppliers to deliver only full truckloads of fast-moving items or be subject to a three percent fine. By early next year, Wal-Mart is shooting for a 95 percent on time delivery rate within a four day window. Suppliers can also be fined for early deliveries, which Wal-Mart claims causes overstocks. The new plan is aimed at adding $1 billion in revenue…I finally visited my first Lidl stores and my impressions were mixed. The stores are nicely designed with a comfortable ambience and an easy-to-shop layout. Strong points included nifty packaging, a very good bakery presence (fresh baked bread aromas waft through the store) and an excellent wine presentation. The weakest department was clearly fresh meat, which in the two stores I visited was hardly fresh and certainly overpriced (at least when compared to relative pricing in other departments). I think that Lidl might regret making such a huge capital investment in acquiring its real estate (some future sites are in secondary or tertiary locations). A cursory 50-item price check against two nearby Aldi units found that Lidl was comparable but not as cheap as Aldi, especially in certain perishable commodities. It’s going to take a little while longer for the competition to fully gauge how it needs to compete with its new German rival, and to be fair, Lidl will also need some time to make the necessary adjustments in the markets where it opens. One advantage that Lidl won’t have when it cuts the ribbon for stores north of Virginia (Maryland, New Jersey, Delaware and Pennsylvania) – is that wine cannot be sold in supermarkets. That said, the discounter opened its second batch of “first round” stores on July 13 in Culpeper, VA; Chesapeake, VA; Havelock, NC; and Wake Forest, NC. The third and final group of “first round” stores will debut on July 27, all in the Richmond area. Additionally, the company whose U. S. headquarters are based in Arlington, VA, said it will build its fourth distribution center (and regional headquarters) in Cartersville, GA. That facility, located 45 miles from Atlanta, will open in late 2018, cost approximately $100 million and employ about 250 associates. Lidl currently is operational at its Fredericksburg area depot (which is supplying the group of stores) and in Mebane, NC and has its Cecil County, MD warehouse under construction. On a related note, Kroger (and its Harris Teeter unit), which will compete with many Lidl future locations in Virginia, Georgia and the Carolinas, has filed suit against the discounter, claiming that its new “Preferred Selection” private label brand too closely mirrors Kroger’s long-established “Private Selection” own brand. Kroger claims in its suit that the close resemblance of the names will cause confusion for customers and allow Lidl to compete unfairly with Kroger because customers could assume that the two brands are associated with one another. Lidl wasted almost no time in responding to Kroger’s claim. “Kroger is using this lawsuit to try to: disrupt the on-going launch of a new, emerging competitor that offers consumers high-quality products at far lower prices; distract from the positive reviews garnered by Lidl’s launch by painting Lidl as a copycat — when in fact Lidl is a decidedly different and (better) grocery experience; and drive up Lidl’s costs by having to defend against Kroger’s spurious claims. Against that backdrop and in reaction to this increased competition, Kroger – two weeks later and without notice to Lidl – filed this suit and motion for a preliminary injunction on the Friday evening before the long July 4th weekend, and sought to have a hearing just days later to try to ram through extraordinary competitive relief to which it is not entitled,” the court papers state. “Although Kroger learned in November 2016 that Lidl intended to offer private-label products under the ‘Preferred Selection’ name and had more than six months to prepare its moving papers, Kroger has offered a striking absence of evidence in support of its claims,” Lidl stated in its response to suit in U.S. District Court in Richmond, VA…at Supervalu’s annual shareholders’ meeting, held July 19 in Minneapolis, stockholders authorized a 1-for-7 reverse stock split, a move designed to enhance the appeal of its shares to the financial community. Supervalu, like many other companies in the retail/wholesale sector, has experienced flat to declining stock prices over the past six months, which was further exacerbated by the prospective Amazon-Whole Foods deal.  The reverse stock split, effective at the close of business on August 1, will reduce the number of authorized shares to 57.1 million while the number of issued and outstanding shares will be reduced from 268.5 million to 38.4 million. At presstime, SVU’s stock was trading at $3.33 per share.