Taking Stock

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Local Notes

I was fortunate enough to be invited to Carl Schlicker’s retirement dinner in Philadelphia last month and it was really a special evening. Not only was it great to see so many old friends, Carl’s speech to the 150 attendees was truly touching. The highlight for me was when Carl spoke about his nearly 40 year journey in the food business and noted that his days as a store manager represented “the best job I ever had.” Intelligent, humble, hard working, self-deprecating, street-wise and charitable – that’s a special combination. And speaking of charitable, hats off to Ahold USA and its “Our Family Foundation” for donating nearly $67 million to charitable endeavors through its retail banners last year. About $31 million of that amount came in the form of hunger-related donations. Ahold USA also announced a new three-year initiative to distribute $9 million in “Fighting Child Hunger” grants from its foundation. In financial news from the big Dutch retailer, it was a very good fourth quarter for the men and women from Amsterdam and Carlisle. For the period ended December 29, 2012, Ahold’s overall sales rose 5.1 percent to $10.1 billion and underlying operating income jumped 4.1 percent to $461.5 million. At AUSA, net sales were up 4.3 percent to $6.1 billion and ID revenue increased 2.4 percent. Operating income was up $16 million to $255 million and the retailer’s 765 U.S.supermarkets provided a 4.2 percent operating margin. “During the year, customers were focused on price and promotions, without compromising on quality. In response, we were able to simplify our business and save costs so that we could invest more into offering great value to our customers. We were able to increase the target for our 2012-2014 cost reduction program from $455 million to $780 million by further driving our efforts to simplify our business where we see opportunities, such as optimizing our commercial processes and driving own-brand profit. As part of our strategy we are broadening our offering to customers. Our U.S.businesses are improving their own-brand product lines to give customers more choices at different price points to fit their budgets. We are building our online business on both continents to give customers more shopping alternatives, and we continued to achieve double-digit online sales growth in food. Our acquisition of online retailer bol.com enabled us to provide Dutch and Belgian customers with a far wider selection of non-food products. Customers appreciate the convenience of the pickup points we opened during the year, including the first Peapod pickup points in the United States, and our first pickup points in the Netherlands,” said Ahold CEO Dick Boer. Also, something that bears watching at Ahold USA: one of the first important moves made by new COO James McCann is the abandonment of the company’s slow-moving, expensive and labor and capital intensive Oracle Retail Solutions project, which was begun several years ago and designed to create a modern and efficient technology tool set. Over the past two years, I’ve heard plenty of criticism from Ahold associates and vendors about the bureaucracy that the Oracle project had become, pulling key people away from their primary duties at the company and costing Ahold tens of millions of dollars. Glad to see McCann step forward and clear the decks for what hopefully will result in more simplified, efficient solutions. And at AUSA’s Stop & Shop-New England division (its largest unit), five UFCW Locals (328, 371, 919, 1445 and 1459) representing 40,000 clerks and meatcutters have agreed with the retailer on new three year contracts, retroactive to February 24. At another UFCW Local (400, which covers Giant/Landover store associates in Maryland, Virginia and Washington, DC), a new election will be held in the next few months after United Food and Commercial Workers International president Joe Hansen found merit in claims that former president Tom McNutt (who resigned late last year) may have violated union bylaws by working on his campaign during working hours (not vacation time) in the previous Local 400 election held last October. The allegations were made by candidate Ralph Ramirez who finished third in that election. However, after further review, this seems more like a technicality since Ramirez received fewer than 500 votes from the largest UFCW Local in the country with about 35,000 members. Actually, new Local 400 president Mark Federici has done a fine job since taking the helm late last year, providing a calmer, more balanced approach than his predecessor…at Weis Markets, which had two strong new stores openings earlier this month in Towson, MD and Woodlawn, MD, Rick Seipp has been promoted to VP-pharmacy operations, replacing Joseph Douglas. Seipp came to Weis from Rite Aid in 2010. The Sunbury, PA regional chain, which was feted at the annual Multiple Sclerosis dinner/fundraiser at the Marriott Waterfront Hotel in Baltimore on March 2 raising $460,000, also elevated one of the hardest working men in the business, Mike Mignola, to senior VP-store operations, a well-deserved promotion…I often write about the unpredictable and sometimes illogical thinking of financial analysts and Whole Foods’ recently completed first quarter (ended January 20) is an example of how Wall Street process jockeys formulate their opinions when the Austin, TX retailer posted numbers slightly below expectations. Here are the hard numbers and I’ll let you judge how “disappointing” (the word that several analysts uttered) the fast-growing retailer’s performance actually was: net income (profit) increased 24 percent (to $146 million); overall sales gain was 14 percent (to $3.9 billion); and identical store sales increased 7.9 percent. Additionally, Whole Foods opened 10 stores in the first quarter and has opened one store so far in its second quarter and will debut another five new units in the current period. It has also signed 11 new leases including units that will open in: Toronto, Canada; Berkeley, CA; Los Angeles, CA; West Palm Beach, FL; Lafayette, LA; New Orleans, LA; Westford, MA; St. Louis, MO; Cherry Hill, NJ(the former Genuardi’s unit at Ellisburg Circle); Colleyville, TX; and Newport News, VA.These stores currently are scheduled to open in fiscal 2014 and beyond. The company also terminated one lease for a 57,500 square foot store in development believed to be the Riverdale, MD project in Prince George’s County. I think co-CEO Walter Robb framed the quarter correctly when he said: “We opened a record number of stores and delivered another quarter of strong sales and earnings growth. We are well-positioned to internally fund our expansion plans and have the pipeline and infrastructure in place for square footage growth to accelerate through 2014 and hopefully beyond.”…Safeway also enjoyed a solid fourth quarter with profits up 13 percent to $244 million, overall revenue gained 1.3 percent and ID sales (excluding gas) increased 0.8 percent. In his conference call to analysts following the financial release, Safeway CEO Steve Burd, who will retire from the chain he has led for 20 years in May, touted the early success of its new “Just For U” digital platform and said that the program’s success could enable the big Pleasanton, CA chain to eliminate print newspaper ads perhaps as soon as the end of this year. A few weeks later at its annual investors’ conference, the large corporate chain said it is exploring whether to put its Canadian property assets into a real estate investment trust (REIT) as a method to generate more cash…in the past month A&P, which continues to struggle with top line sales, announced a slightly different real estate strategy noting that it was selling or selling and leasing back some real estate in a few non-core store locations. The pending deals are expected to generate in excess of $130 million. Specific locations were not identified, nor were the proposed buyers revealed. “This opportunity to unlock substantial real estate value from some of our owned and leased properties will provide additional liquidity as we continue to execute on our strategic initiatives and invest in our stores for growth,” Sam Martin, A&P’s president and chief executive noted. It would be nice to see A&P invest those proceeds into improving its pricing, merchandising and physical plants…despite predictions of gloom and doom regarding first quarter sales, Wal-Mart had a solid quarter with total sales jumping 3.9 percent to $127.5 billion and earnings increasing 7.9 percent to a whopping $5.6 billion for the period ended January 31. Comparable store sales at its U.S.units grew by 1 percent. The Bentonville Behemoth also acknowledged it has spent $157 million thus far on its internal investigation concerning the role Wal-Mart executives played in the 2004 Mexican bribery scandal. And, there’s an interesting Wal-Mart story that appeared in Bloomberg News concerning rising out-of-stocks at the planet’s largest retailer. Bloomberg reportedly got hold of some minutes from an internal memo from U.S. CEO Bill Simon, who said that the problem is “self-inflicted” and getting worse. Simon added that out-of-stocks posed the biggest risk to Wal-Mart’s growth. However, Wal-Mart spokesman David Tovar said the company was “very pleased with our out-of-stock position.” Huh? Have they let Tovar out of Bentonville in the past three years to visit stores occasionally? Perhaps if Mr. Tovar spent less time at his “spinning” class and actually recognized that Simon’s statements were painfully spot-on, he’d have more credibility with the media in general. And at an investors conference a few weeks later, Simon noted that the Behemoth’s smaller format stores are making headway against competitors such as dollar stores, pharmacies and supermarkets and will play an important role in Wal-Mart’s future. He added that this will be the busiest year ever for small format units (under 60,000 square feet) with approximately 115 new stores (under the Neighborhood Market or Wal-Mart Express banners) to open representing about 40 percent of the retailer’s total new store count in the U. S. (the big merchant will also open about 125 SuperCenters in 2013). By 2016, Simon expects Wal-Mart to operate about 500 Neighborhood Markets.…in follow-up news to the proposed sale of H.J. Heinz to Warren Buffet’s Berkshire Hathaway group and Brazilian businessman Jorge Paulo Lemann (3G Capital) for $28 billion, the deal’s FTC approval might be slowed by an SEC inquiry that froze the assets of an unnamed Swiss trading account which the agency made $1.7 million from options purchased the day before the Heinz deal was announced…another excellent “Food Industry Summit” at St. Joseph’s University earlier this month This year’s topic, “Leveraging Consumer Insights at the Moment of Truth,” was not only a sellout at the Haub School of Business, it attracted 10 excellent speakers from the grocery and technology industries. The highlights for me were the presentations of Erik Keptner, executive VP-marketing at Ahold USA who teamed with Jeff Gregori, VP-consumer and shopper insights at Nielsen; and Cheryl Williams, VP-digital commerce and innovation at Wakefern, who partnered with McCormick chief information officer and VP-digital commerce Jerry Wolfe. There’s always choice meat to be devoured at the annual Food Summit confab…several deaths to report this month, all from outside the food industry. Departing terra firm recently was Pennsylvania native C. Everett Koop, 96, perhaps the most influential surgeon general in U.S. history. Koop, who served eight years as the “nation’s doctor” during the Reagan administration, was a game changer in terms of his stance against the evils of tobacco and his role in candidly informing the public about the emerging AIDS epidemic. Long before he became surgeon general, Koop was widely recognized as a pioneer in the field of pediatric surgery. Two musicians from opposite ends of the spectrum also passed away last month. Van Cliburn, the classical pianist who stunned the world by winning the first International Tchaikovsky Competition in Moscow in 1958 when he was only 23 and the Cold War was at its peak, has left us. Cliburn’s performance at the Moscow musicfest was so impressive, even Russian Premier Nikita Khrushchev, the most evil of men in the eyes of the U.S. government at the time said, “If Cliburn’s the best, then give him first prize.” Cliburn died in Forth Worth, TX at the age of 78. And bluesman “Magic Slim” (born Morris Holt and not be confused with other blues legends “Magic Sam” or “Slim Harpo”) has also died. Born in 1937 in Torrance, MS,  Magic Slim followed other blues greats Muddy Waters and Howlin’ Wolf up from the Delta to Chicago to hone his craft. During his career, the guitarist and singer released more than 30 albums and won the 2003 “Blues Music Award.” “If you were going to take somebody who’d never seen the blues to one of Magic’s shows, it would be like putting them in a time machine and putting them in 1962,” said Marty Salzman, his manager. “No frills, no rock ‘n roll. It was just straight-ahead, real-deal blues.” Great description; I would have liked to visit that place in time. Also dying unexpectedly was Alvin Lee, founder of the pioneering rock band Ten Years After (one of my early influences) and a very fine guitar player to boot. Lee was only 68 when he passed away during a routing surgical procedure. Ten Years After was formed in 1967 in England, but made its first big mark on the music scene at a memorable performance at Woodstock in 1969 (great Lee solo on “I’m Going Home”). All told, Lee released more than 20 albums in a variety of musical genres and recorded with many of the rock’s greatest musicians including Steve Winwood and George Harrison…and my best laugh of the month came at the aforementioned Bozzuto’s trade show held at Foxwoods in Connecticut when the company honored independent retailer Richard Schmidt (Elmer, NJ IGA) with its first (and probably only) “Unique Customer Service” award. Richard earned that achievement by “handling” an unruly customer at his store in January. Apparently, the customer confronted and threatened several of the store’s associates and when Richard noticed the situation from his manager’s office, he sprang to action, quickly taking down the offender in a style worthy of Rambo. In presenting the award to Richard and showing a video of the incident to a crowd of 1100 people, Bozzuto’s executive VP Steve Heggelke may have come up with an Oscar wining title for video: “Paper, Plastic or Concrete?”

Jeff Metzger can be reached at jmetzger@best-met.com