For Many Weary Retailers, The Long Battle Continues; Who Will Survive?
The new rules of the road are now firmly in place: if food retailers (in all channels) are going to survive and perhaps even prosper, they’d better dig in for a few more years of major market disruption. If anyone thinks a major shakeout is right around the corner after the rough and tumble battles of the last five years, you need to think again.
While it’s going to take talent, intellect and capital just to maintain the status quo for all retailers, it’s also going to take grit, tenacity and a forward-looking plan on how they are going to manage their companies in the near term. All of those elements make for a tricky formula, and frankly, I’m not certain all the competitors in this overstored marketplace are going to survive in their current forms over the next three years.
Based on some of those foundational tenets that I mentioned, what lies ahead for companies such as Tops Markets, Price Chopper, D’Agostino’s, Gristedes, King Kullen or Fairway Market? And it’s not just regional chains and independents that may be vulnerable. What about Lidl? Its debut in the Mid-Atlantic has been disastrous. 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.
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. Here’s a quick lesson: if you want to play in the upscale perishables/prepared foods division, you’d better be a very good operator. No offense to the denizens of some smaller Southern markets where TFM has enjoyed some success, but operating in Destin, FL or Macon, GA ain’t like competing in Glen Mills, PA or Montvale, NJ.
Those retailers may be most obvious to list because of top line/bottom line challenges or future perpetuation questions – and I’m certainly not saying all those merchants are headed for extinction. However, I do believe that many will find life in a different form or with a new partner.
On a broader scale, the truth is that virtually every retailer selling groceries today is being challenged at their highest levels because of ongoing difficult market conditions.
It’s not just the firepower of Amazon.com or Walmart that creates retailer agita – although those two mega-merchants certainly give retailers reason to worry – it’s the food landscape as a whole, where there are too many total stores operating in six distinct channels – supermarket, club, mass, drug, c-store and dollar – that all sell groceries. Add to that the “hidden” dollars generated by ecommerce and foodservice and it’s not hard to see why some retailers want to or will have to find a different matrix or simply put up the white flag.
As for how the years of turmoil have impacted the market leaders, here’s my annual update and analysis.
ShopRite – ID sales were slightly positive and the market leader in Metro New York and Philadelphia operated two more stores than last year and slightly extended its market share dominance in both large markets. According to our data, net new or new replacement ShopRites are planned for: Bronx, NY; Riverhead, NY; Port Jefferson Station, NY; Lake Ronkonkoma, NY; Mount Kisco, NY; Shrewsbury, NJ; Sussex, NJ; Sparta, NJ; Old Bridge, NJ; South Brunswick; Wyckoff, NJ and Stroup Township, PA. That’s a pretty full pipeline and pretty much ensures that the 50-retailer owner/members of Wakefern will maintain and likely build greater market share in the region over the next five years. As I’ve said previously, ShopRite has earned all of its spoils by consistently delivering the most compelling consumer experience in the entire market.
Stop & Shop (New York Metro Div.) – A year of stability for the region’s second largest retailer. And that’s a good thing. No leadership changes, no store closings and more consistency in its messaging. One internal change worth watching: the progress and ultimate effectiveness of parent firm Ahold Delhaize USA’s decentralized merchandising system (which for Stop & Stop is based at its Quincy, MA headquarters). It’s clear by now after watching the parent company’s model that Stoppie, like other ADUSA retail units, is less interested in bolstering store operations and more keenly focused on process and gaining internal efficiencies. From a bottom line perspective, the model is effective, but could it do better if a higher value was placed on increasing store labor and upgrading associate training?
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.
Giant/Martin’s – Still the best performing “brand” in the Ahold Delhaize USA portfolio. The non-union operator continues to dominate the Central Pennsylvania market, while also faring well with its 67 stores in and around Philadelphia. Nick Bertram moved from senior VP-merchandising in the old Ahold USA structure to become Giant’s president on January 1 and sales have remained solid. As said previously about sister firm Stop & Shop, Giant could be doing better if it put more capital into day-today store ops. Given the mindset of the parent company, that’s unlikely to happen. Also, unlikely is any significant decrease in the company’s market share in its core operating areas.
Acme Markets – There’s still a long row to hoe, but there have been some subtle, positive changes for the division of Albertsons which operates more supermarkets in the Delaware Valley than any other traditional grocer. With a full year under his belt, division president Jim Perkins (in his second tour of duty with Acme), has improved morale and opened up the company’s wallet to lower prices and become aggressive on promotions. An active store remodeling program has also helped. Despite great locations in and around Philly (including the Jersey Shore), Acme will still need to reinvest heavily into its physical plants to avoid losing share to the myriad of competitors its faces. Other questions: can Acme make headway in Northern New Jersey where it continues to struggle after acquiring the largest batch of A&P stores a few years ago? How will the pending merger of Albertsons and Rite Aid ultimately affect how the two merchants, especially with Acme and Rite Aid operating so many stores in the Keystone State?
Weis Markets – A solid year for the Sunbury, PA-based operator which continued to post strong comp stores sales -16 consecutive quarters of positive same-store revenue. The leadership tandem of chairman and CEO Jonathan Weis and COO Kurt Schertle is very effective and Weis has done a good job of improving store operations, upgrading management personnel and combining “infill” acquisitions with a few new stores (the company opened two units in Maryland since the first of the year and will cut the ribbon at its Randolph, NJ store next month). Weis is also continuing to increase its cap-ex budgets and doing a better job with its digital/ecommerce initiatives. With no debt and the majority of the company’s common stock controlled by the Weis family, this is one regional chain that I believe will be around for a while.
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 Metro New York and Delaware Valley 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 opened two “killer stores” over the past 12 months – Hanover Township, NJ and Montvale, NJ – whose impacts were felt by all retailers that operated within a 10-mile radius of those mega-stores. Wegmans has four other new stores planned for Pennsylvania, New Jersey and New York – Lancaster, PA (opens this September); Middletown, NJ; Brooklyn, NY; and Harrison, NY – over the next few years. That alone will create more major market disruption and make several other existing retailers even more battle weary and scarred.
Krasdale – Krasdale’s model is truly unique. The White Plains, NY-based distributor has served independent retailers in the Metro New York area since 1908 and through its Alpha 1 division, continues to help its independents remain a dominant force in a primarily urban landscape dominated by Hispanic and Asian operators. Krasdale’s customers remain very loyal and the privately-held company succeeds the old-fashioned way: by providing strong service and offering customized programs through its multiple banners including C-Town, Bravo, AIM, Fine Fare, Market Fresh, Shop Smart and Stop 1, that are dedicated to driving sales.
Key Food – A good year for the Staten Island-based retail co-op. While sales have flattened a bit after a tremendous four-year run, Key Food continues to add new independent customers to its base. Its partnership with syndicated data giant IRI has allowed the company to offer targeted data for the five boroughs of New York City where Key is a dominant player. Led by CEO Dean Janeway and COO George Knobloch, Key Food’s direct, aggressive approach has clearly paid dividends. With an all-around strong leadership team and a variety of programs and banners to offer independent retailers in the Metro New York market, the company’s $2 billion sales goal by 2021 is certainly achievable.