Taking Stock

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Acme Bullish On Future; Vendors Encouraged By Spirit, But Cautious About Chain’s Fate

The setting was Acme headquarters in Malvern, PA. The date was March 25. And at that site on that date many of Acme’s key vendors met with company representatives led by VP-merchandising and marketing Dennis Clark. The message was clear: “This is a different Acme. We want you and you need Acme. Let’s partner together.”

It’s a great message and one which the more than a dozen suppliers and brokers who we talked to after the meetings said that Acme delivered in an emotional and convincing tone.

But aside from the re-embracing of many in the room, who for years earned a large part of their salaries or commissions on the cases moved through the once powerful merchant, can Acme once again be a game changer in an overstored, diverse retail market where the one-time market leader has lost so much credibility (and market share), both with the trade and its consumers over the past six years?

Clark and new Acme president Jim Perkins believe that not all of the toothpaste has been squeezed from the tube and that the company’s strong store locations and revitalized approach to its business will result in future victories.

Acme outlined its priorities: drive sales, improve store conditions, offer the best customer service and move quickly.

Clark noted that the “new” Acme will be aided by its on-site marketing team, local vendor programs coupled with some national vendor programs, locally controlled ads, and parent company Albertsons LLC’s partnership with Ivie, a Texas based full-service retail marketing services company specializing in media, project management and creative design. Other areas of the business that will have corporate oversight from Boise, ID include private label, pharmacy, national marketing and digital marketing/social media (just before presstime, Albertsons announced an expanded relationship with MyWebGrocer that will include new online grocery tools for all of the 877 units acquired by Albertsons LLC).

During the presentation, Clark reviewed Acme’s upcoming spring events which are also tied into national programs – private label sales and “Monopoly.” He also discussed some other key dates for the chain – an “anniversary sale” in the summer and a “stock-up sale” in the fall.
Improvement is needed in so many areas for Acme, and Clark touched on several of the priorities they have identified. He noted that Acme is focused on execution and that communications from sales managers and district managers will be analyzed and the chain should be aided by the addition of department specialists within the store operations framework.

Clark explained that with the return of local decision making, his team is seeking innovative and new ideas and is willing to engage in special partnering opportunities that will drive sales and improve service levels.
The veteran Acme merchandising executive acknowledged that talk is cheap and implored the reps and brokers who attended the meetings to “help us get better; give us honest feedback.”

Most of the suppliers and vendors we talked to after the meeting focused their comments on Acme’s need to improve communications, including fundamental functions such as answering phones and emails as well as scheduling appointments and making decisions in a timely manner. Clark said those concerns would  be addressed immediately.

So a new Acme era is officially under way. There’s no doubt that the vendors are rooting for Acme to succeed.
But rooting and forecasting aren’t necessarily connected. Everyone in the room on March 25 knows the tall mountain Acme must climb to even return to sea level. The vendors also recognize that after six years of unkept promises and little return on their investments at Acme (and Supervalu) that proceeding carefully is the most prudent course.

It’s a big step in the right direction that Clark conceded that his company is no longer going to ask for ridiculous margins when making deals with suppliers and will address Acme’s “insult” pricing of the past.

But after years of being misled and “SuperConfused,” the mindset of those I spoke with was one of caution.

Can this new local marketing initiative make a real difference? How do you increase market share in such an overcrowded field? Are these efforts being conducted essentially as housekeeping chores to ultimately sell Acme?
Those are the type of questions that lingered with the vendors after the meetings concluded. They’re all legitimate inquiries.

Within six months we should have a clearer understanding of whether Acme is truly making enough forward progress.

In The Other Corner: Is Turnaround Possible At The New, Leaner Supervalu?

With the aforementioned Acme vendor meetings taking place under the newly expanded Albertson LLC (AB Acquisitions) umbrella, Supervalu also became a new company of sorts on March 21. The organization is significantly lighter, no longer having to carry the burden of hundreds of unproductive supermarkets, and now possesses a much more enlightened management team to hopefully lead them back to the pre-2006 glory days.

Supervalu’s debt load also has been significantly lessened and overall morale has improved with associates just knowing that the company is in the hands of experienced grocery professionals with proven track records.
That said, the outlook on Supervalu’s remaining businesses (independent wholesale, its five regional chains and Save-A-Lot) doesn’t give this reporter great hope that the company can move the needle forward significantly in the near term.

It is vital that Supervalu first create an infrastructure that will allow it to better compete in the future, and the Eden Prairie, MN retailer/wholesaler has begun to do that with a debt restructuring and the whacking of 1,100 jobs (mainly at headquarters). It has revamped almost all of its senior management team with Janel Haugarth (president of independent wholesale) the most significant holdover and will scrap SuperFusion, one of the most poorly executed centralized merchandising programs in the history of the grocery business. In turn, the new organization plans to bring more focus to “Local” – pricing, merchandising, marketing/advertising and item mix.

It all sounds promising. However, this isn’t 1995 when the playing fields in all of Supervalu’s markets were not as crowded or diversely populated with so many alternate channel competitors. Let’s take a micro view of Supervalu’s business in the Mid-Atlantic.

Its two regional chains – Shoppers and Farm Fresh – have been slipping for the past four years, plagued by higher price perceptions, virtually no real estate cap-ex and declining morale in the stores. Those two regional retailers were once led by two of the best leaders in the business – Bill White at Shoppers and Ron Dennis at Farm Fresh. Both have retired and were replaced by managers with different styles who didn’t command the respect or perform nearly at the levels of White or Dennis. Of course, whether it was Dick Bergman or Tim Lowe at Shoppers or Gaelo de la Fuente at Farm Fresh, continuing the excellent report cards of their predecessors would have been virtually impossible given the constraints and the ineptness of Supervalu’s flawed corporate management team and its centralized policies.

Now it’s Bob Bly’s (Shoppers) and Bill Parker’s (Farm Fresh) turn to change things. It’s not going to be easy, even with the increased flexibility that the new SVU is offering. From a market competition perspective in Balt.-Wash., can Shoppers gain share in a very crowded field? Carving some sales from market leaders Giant/Landover and Safeway will be challenging enough, but with more Harris Teeters, Wegmans and Wal-Mart SuperCenters entering the fray (not to mention new Weis and PriceRite which have recently opened stores that go head-to-head with Shoppers’ locations), can Bly and his team change the view? A lot of toothpaste has been squeezed from the Shoppers tube over the past five years, and regaining its former strong price image will be very tough.

At Farm Fresh, Bill Parker certainly knows the drill. As an ex-Albertsons store executive and key confidante of Ron Dennis, he certainly understands the new culture and the challenges that lie ahead. And in one sense, he’s got an advantage over Bly, not just in local market experience, but in dealing with unique playing field that exists in the Tidewater region. That area of southeastern Virginia has always been fiercely competitive and, truthfully, hasn’t changed as much as other markets where Supervalu operates. In fact, with the weakening of market leader Food Lion (another retailer with major problems), there is a bit more breathing room for Parker and his team.

Conversely, Kroger is set to make a big expansion play in Tidewater, the entry of Whole Foods and the addition of more Harris Teeter stores (both prime competitors to high/low Farm Fresh), will also make market share gains challenging. Still, Parker’s biggest task will be to re-establish the type of discipline and execution (and ultimately respect) that the Virginia Beach based regional chain earned under Dennis. Once again, other than more local control, will SVU give Parker the tools (enough cap-ex money for store remodels and new units and enough local control of pricing and merchandising) to make a difference?

Although it’s still early, it was distressing to hear of some recent local layoffs at both Shoppers and Farm Fresh. Some of those jobs we’re told are repositionings and the fact that department merchandisers are being added back to the fold (the removal of which was one of many horrible decisions made under the Craig Herkert regime) is a good sign. However, working even leaner than the previous organization, which was already operating on a pretty thin level, will be another hurdle that Bly and Parker will have to overcome.

As for Supervalu’s independent business in the region, I’m amazed that eastern region president Kevin Kemp and his talented team have been able to maintain virtually all of Supervalu’s customers despite the corporate tumult that has existed for the past five years. Supervalu is the dominant wholesaler in the region and new CEO Sam Duncan has made preserving and building the company’s largest division a priority. However, over the past four months since the Supervalu/Cerberus deal was first announced, we’ve spoken to more than a dozen Supervalu independent customers and – while all of them are praiseworthy of the efforts of Kemp and his team – several were outspoken in noting that significant changes by the new management team will have to be made (private label, pricing, item mix) to keep them satisfied for the long term. That’s not to say that current Supervalu customers are close to leaving the company, but it’s clear that other wholesalers – including Bozzuto’s, C&S, AWI/White Rose and MDI – have all visited SVU supplied retailers and independents are poised to strike if given the nod.

While Save-A-Lot remains a solid contributor, the discount retailer’s sales and earnings have declined over the past two years, and in my opinion, the chain now offers the third best offering of that type (behind PriceRite and Aldi) in the Mid-Atlantic. That shouldn’t be surprising given that the company is now on its third president in less than two years. The scuttling of former top dog Bill Shaner in 2011 sent a huge negative ripple throughout the organization, and the lack of real estate expansion and cap-ex for corporate remodels coupled with Supervalu’s need to continually increase its inside margin all have contributed to the unit’s decline. In my mind, Save-A-Lot remains the top candidate to be sold down the road.

So, before we get too excited about the promise that may lie ahead for the new Supervalu, let’s not forget that the company is controlled by a private equity firm. The PE philosophy is a consistent one: maximize profit, operate as lean as possible, and ultimately flip the investment.

Cerberus has historically shown greater patience than most private equity firms, but the end game isn’t going to change. In the meantime, the new management team will have plenty of day-to-day heavy lifting to repair the many problems it inherited from the worst run publicly-traded grocery company of the past generation.

‘Round The Trade

It’s been quite a run for the Ravitz family, owners of five South Jersey ShopRites. In late February, Steve Ravitz gave a very heartwarming speech at the MAFTO dinner in Cherry Hill, noting the importance of the “people factor” in the business and the contributions of his family (his father Stanley, his brother Ron and his three kids, Shawn, Jason and Brett). A few weeks later at the NJFC’s “Night of Distinction” held at the Sheraton Meadowlands in East Rutherford, Steve’s middle son Jason was honored (excellent speech by the way) and, at about the same time, came word that the Ravitz family was given the go ahead to build a new 75,000 square foot store in Camden – the first new supermarket to open in that economically challenged city in 30 years. The store, which is slated to open in 2015, is part of a 150,000 square foot retail shopping center located at Admiral Wilson Boulevard and 17th Street. And, there are a few other new ShopRite stores to disclose. A second SR looks like it’s coming to Hazlet, NJ at the site of the former Foodtown (Food Circus) store that closed in 2012. The Kenny Family is set to open its sixth Delaware location, this one at the site of a former Super Fresh and Pathmark in Glasgow. ShopRite (David Zallie-ShopRite of Medford, NJ) will be the new owner/operator of the former Pathmark in Lawnside, NJ, which has just begun a major reconstruction effort and should be open laster this year. Joe Colalillo, chairman of parent firm Wakefern, who operates three of the highest volume (and best run) Shop Rites in Hunterdon County, noted that construction has begun at his newest unit and first Pennsylvania store in Bethlehem. And the SRS ShopRite in the rustic Catskills community of Ellenville, NY reopened on April 7 after a fire caused extensive damage three months ago. On the earnings front, Springfield, NJ-based Village Super Markets, which is celebrating its 75th anniversary this year, posted flat profits ($9.10 million this year vs. $9.14 million in 2012) in its second quarter ended January 26. Overall sales at the 29 store ShopRite operator increased 5.4 percent to $382.2 million and same store revenue jumped a healthy 3.4 percent which the company said was because of “strong sales at several stores that reopened quickly after Hurricane Sandy” and improving sales at its two Maryland units…there have been several reports that A&P is starting to show improvement, but a recent eight-store tour of Super Fresh, A&P and Pathmark units in Pennsylvania, Delaware and New Jersey area certainly didn’t indicate that, as sales were mediocre at best, store conditions weren’t stellar and associate morale continued to be indifferent. And with the recent sale of two Manhattan Food Emporium locations to investment firm Madison Capital, it appears that any previous potential deals with Kings/Balducci’s or Whole Foods, have gone by the wayside, at least for now. A&P may be telling its vendors and union executives about its improvement – and in the end Ron Burkle has plenty of real estate cushion (and significantly improved labor and distribution deals) that didn’t exist pre-Chapter 11 – however, I can’t find much visceral evidence that things are much different than they were when the beleaguered retailer exited bankruptcy 13 months ago…store of the month: the new Kings Food Market in Gillette, NJ. CEO Judy Spires and her team put every ounce of “fresh” in about 30,000 square feet of space in an ideal demographic in Morris County. “Our entire team has worked hard over the last year to ensure that inspiration strikes our customers in every aisle, in every department – just as our tagline suggests,” said Spires. “Our Gillette location brings this brand promise to life in such a multi-sensory way for our shoppers; it truly is an opportunity for our customers to see, hear, smell, touch and taste a full culinary experience.”…interesting read of the month: a recent New York Times story about Wal-Mart’s poor perception as a “fresh” retailer. Citing internal information gleaned from a meeting of top Wal-Mart managers held last month, the Behemoth’s consumer confidence level about its fresh produce was 48 percent compared to a 71 percent rating at Safeway. The Times piece added that Wal-Mart’s labor in its stores has also been reduced contributing to the problem (ah, that labor scheduling reduction – it always seems to ultimately bite retailers in the butt). Related to that was this gem from the manager’s meeting: “1 hour out of refrigeration = 1 day less of product life.” The truth of the matter is that, at end of the day, Wal-Mart’s price image at its SuperCenters remains its strongest magnet. The company can talk all it wants to about residual gains made by it “green” initiatives, its new format development or its “better citizen” image, but in the end what it does better than any other merchant is offer the lowest prices in a one-stop-shop box that ranges from 80,000-215,000 square feet. And in that regard, the Behemoth’s ability to produce massive sales usually masks its many other shortcomings…Fairway Market officially announced that it has raised $163.8 million for its upcoming initial public offering (IPO) which should occur on April 16. According to its SEC filing, Fairway’s investors (the company operates 12 stores with sales of $482.5 million for the first 39 weeks of its current fiscal year) are offering 13.7 million shares in the $10-12 per share range. Fairway’s controlling equity partner, Sterling Investment Partners, would remain the retailer’s majority owner with a 33 percent stake. Fairway was founded in 1933 by the Glickberg family and grandson Howie Glickberg remains vice chairman of development. Last year, when the retailer announced its intention to go public, it projected an ultimate goal of 90 stores stretching from New England to Washington, DC. That remains a very lofty goal in my opinion, given Fairway’s “New York centric” way of going to market. The company posted a net loss of $56.2 million for the 39 weeks period ended December 30, 2012. The new company will trade on NASDAQ under the symbol FWM….also now officially going the IPO route is Blackhawk Network Holdings, Safeway’s gift card division, in which the big retailer holds a 96 percent stake. Blackhawk filed its offering with the SEC last month. The IPO is expected to raise up to $220 million and shares will be sold by existing shareholders. It will also be listed on NASDAQ under the symbol HAWK. Safeway still plans to keep a large stake in Blackhawk after the IPO. In 2012, Blackhawk posted net earnings of $50.3 million on sales of $949 million …published reports indicate that Wegmans is very interested in opening a store in the city of Boston. The uber-retailer reportedly has its eyes on a location in the Landmark Center, a huge office and retail complex that is being redeveloped near Fenway Park…and from mega-store to natural and organic convenience-sized store is news that Whole Foods has cut the ribbon on the smallest store in its 340 unit fleet. That 8,000 square footer debuted earlier this month in the affluent city of Brookline and was one of six former Johnnie’s Foodmaster units the Austin, TX retailer acquired from the Chelsea, MA independent last year. The Whole Foods now under construction in the Gowanus section of Brooklyn (which will open later this year; another Brooklyn unit in Williamsburg will open in 2014) will be adding a 20,000 square foot rooftop greenhouse courtesy of Gotham Greens, a local produce distributor that has supplied other Whole Foods units since 2011…it was good to hear new Delhaize America CEO Roland “Chainsaw Jr.” Smith address the analysts following the retailer’s fourth quarter and 2012 fiscal year end earnings conference call last month (another relatively poor performance), but I’m still clueless on what his vision or plan is to turn around the troubled retailer. Overall sales, comp revenue and earnings are still declining (not Smith’s doing), but all I’ve witnessed thus far are about 45 store closings and restructured management team that doesn’t include significant new blood and asks the executives who survived the whackings to absorb more responsibility. I’ve been visiting Food Lion stores and Bottom Dollar units more regularly since Smith took the helm from the retired Ron Hodge last October, but I haven’t seen any game changing moves that I believe will significantly improve the company’s current “stuck in the middle” image or volume potential. Maybe we’ll learn more at Delhaize’s “Capital Markets Day” on May 8, the same day the retailer will release its first quarter earnings…a belated tip of the hat to my buddy, Tom Potter, who recently retired after a sparkling 45 year career in the grocery business. Tom has spent the last 12 years as a VP for Acosta, but cut his teeth in his 30 years with Campbell Sales. A tireless worker and a true student of the business, it was Tom’s candor and no BS approach that made him a unique individual among all peddlers. Best of luck my friend, in all things that you seek to do down the road…a few obits of note to report this month. Former British Prime Minister Margaret Thatcher passed away earlier this month at the age of 87. Thatcher’s 11 year tenure as the leader of Great Britain was marked by her confrontational approach with labor unions and her conservative values that reshaped the British economy. What you may not have know about the “Iron Lady” was that her father was a grocer and in her pre-political career as a research chemist, she reportedly invented the formula for soft-serve ice cream…also relocating to another place – this one “Disney World North” – was Annette Funicello, an original Mouseketeer and the star of many beach movies and television shows with Philadelphia native Frankie Avalon. Funicello, who was discovered at age 13 by Walt Disney, passed away on April 8 after a long battle with Multiple Sclerosis. She was only 70. And, we now make a radical shift from “America’s Sweetheart” to a different dimension. Harry Reems is dead. Yes, the same Harry Reems who made porn more mainstream with the release of the 1972 skin flick, “Deep Throat,” which also starred the late Linda Lovelace. Reems (born Herbert Streicher in 1947) left the porn industry nearly 25 years ago, disdaining his connection with the business which brought him a unique kind of fame a decade earlier. In the end, Reems, 65, lived quietly with his wife Jeanne in Salt Lake City, UT where he sold real estate…and, just before presstime, the great Jonathan Winters passed away. The comedian and actor appeared in more than 70 movies and television roles dating back to 1954, but what I remember best about Winters were his numerous appearances on “The Tonight Show” in which his zany improvisational style more often than not resulted in laugh-out-loud experiences. Among his best known characters were “Maude Frickert,” a seemingly sweet grandmother with a foul mouth and a roving eye, and “Piggy Bladder,” the football coach for the State Teachers’ Animal Husbandry Institute for the Blind. A funny, funny, man, Winters was 87.

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