Taking Stock

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Poor Locations, Tough Competition Force More Store Closings For The Fresh Market

“A man’s gotta know his limitations,” said Clint Eastwood in the movie “Magnum Force (1973),” the second film in which the iconic actor played San Francisco police inspector Harry Callahan.

Sometimes supermarket organizations need to know their limitations, too. And in the case of specialty merchant The Fresh Market (TFM), failure to acknowledge its shortcomings has led to yet another round of store closures.

This time it’s 15 stores in nine states, including two in Virginia and one in North Carolina (North Charlotte), not far from TFM’s headquarters in Greensboro. Over the last three years, the perishables-driven retailer has closed its fledgling operation in California, withdrawn from the Texas market as part of shuttering 13 stores and closed five stores in the Mid-Atlantic, Midwest and Southeast (two in New Jersey, one in Virginia, one in Illinois and one in Florida).

In that short cycle, The Fresh Market has also been acquired for $1.36 billion by large private equity firm Apollo Global Management (2016) and 18 months later, named a new CEO, veteran retailer Larry Appel, The Fresh Market’s fourth chief executive or interim CEO since 2015. Appel has subsequently brought in other new senior executives in an attempt turn the company around.

Appel said of the decision to close stores: “Over the last eight months, our company has been executing a turnaround plan and we’ve seen great progress. However, for a variety of reasons unique to each retail location, that progress is not evenly distributed and, as a result, we have decided to close these long-term, underperforming stores. We will work to relocate as many impacted employees as possible to other stores within our footprint. Looking ahead, I am confident this move will better position The Fresh Market and enable us to continue delivering our great tasting meals, signature products and an incredible shopping experience.”

Really? Why am I still getting the same vibe as eight years ago when original owner Ray Berry, who founded the company in 1982, took the company public.

It’s not that TFM isn’t a good merchant. It’s just not good enough.

For many years as a privately-owned retailer, The Fresh Market was successfully opening 20,000 square foot upscale stores in small cities primarily in the Southeast where populations were growing and many shoppers hadn’t experienced the type of perishables and prepared foods selection and merchandising that TFM offered.

As the company continued to expand and move into new geographies, particularly in the Northeast and its short-lived foray into California, not only was TFM the new kid on the block, there were also other existing retailers who offered similar type fare. And in many cases, executed in a superior fashion.

And then there were the locations. The Fresh Market paid premium prices for a lot of its real estate, especially in the Northeast and on the West Coast. Even more shocking were some of the specific markets that the company entered, where it was obvious to many that the demographics of the area most likely wouldn’t support the type of sales TFM needed to become successful.

The two soon-to-be-closed Virginia stores are an example of each problem.

The company’s store in Charlottesville, which opened in 2014, was a good demographic choice: plenty of millennials and Gen-Yers, living in a middle to upper-middle income college town. Sure, there was competition from existing operators Kroger, Harris Teeter and Giant Food, but TFM’s research indicated it could find a comfort zone among those larger chains. What they should have also known was that Whole Foods’ new replacement store, which opened in 2011, was generating much higher sales than its original store. Additionally, Wegmans announced in 2013 that it would be entering Charlottesville. Game over. “A man’s gotta know his limitations…”

In the case of the upcoming store closing in Winchester, VA, which opened only two years ago, it begs the question, “Why Winchester?” What inspired the company to target a market that’s got little affluence and lots of blue collar residents? To be fair to CEO Appel, the decision to enter Winchester was made by previous management. But then again, “A man’s gotta know his limitations…”

For 2018, The Fresh Market has acknowledged that no new stores will open and the status of 12 potential new units which were announced last year remains up in the air.

While Apollo Global might be providing some financial security for The Fresh Market (and also taking the retailer out of public financial scrutiny), the big PE firm hasn’t seemed to do much to improve the fortunes of its only supermarket property. Don’t expect much future help, either – it’s just not a PE thing.

TFM is stuck in that “mushy middle” of upscale merchants that aren’t quite good enough to compete in the big league of retailers that also operate in the Mid-Atlantic, Northeast and formerly Texas and California.

What’s effective in Macon, GA or Mobile, AL ain’t necessarily going to work in Glen Mills, PA or Montvale, NJ.

“A man’s gotta know his limitations.”