Taking Stock

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Beyond Collateral Damage, Brown’s ShopRite Of Haverford Becomes First Tax Victim

Jeff Brown was right. Brown, one of Wakefern’s ShopRite member/owners, predicted the negative impacts of the Philadelphia beverage tax (one of the highest in the nation at 1.5 cents per ounce on sweetened beverages) even before it became law two years ago this month. With seven (six ShopRites and a Fresh Grocer) of his 13 stores located within Philadelphia’s city limits, Brown’s business has been arguably impacted more than any other supermarket operator in the Delaware Valley, and nowthe dramatic loss of sales will result in a store closing.

On March 14, Brown will shutter his 41,000 square foot store on 67th Street and Haverford Avenue in West Philadelphia, marking (to our knowledge) the first supermarket that will close because of the impact of the beverage tax. The fourth-generation independent retailer said that all current associates (about 110) will be given an opportunity to transfer to other stores. He will also offer current customers free ride-sharing via Lyft to his next closest store on 52nd Street and Parkside Avenue, about two miles away.

According to Brown, revenue at the Haverford store has plummeted 23 percent over the past two years and last year the store lost more than $1 million. An overall store analysis indicates Brown’s city stores are down approximately 15 percent primarily due to the beverage tax.

Border stores like Haverford Avenue, which is about a mile from the Montgomery County line, are even more affected as consumers can travel short distances to buy beverages in Montgomery, Bucks or Delaware counties where there is no supplemental beverage tax – they only pay the state sales tax of 6 percent.

What seems so cruelly ironic about this situation is that Brown is one of the most socially active and selfless retailers in the country. He and his wife Sandy founded Uplift Solutions 10 years ago, a non-profit organization designed to help entrepreneurs in underserved communities (food deserts) gain access to funding and training so they can open stores that can offer residents fresh and healthy foods. In fact, most of Brown’s stores in Philadelphia are located in neighborhoods that would qualify as food deserts.

Brown fears that other supermarkets in the city will also be forced to close due to the effects of the beverage tax (most vulnerable, based on number of city stores, are five other ShopRite member/owners and Acme Markets). That will leave more areas to eventually become underserved and will affect the quality of the lives of those residents.

“Mayor (Jim) Kenney talks about the tax helping education in the city and that’s a good thing, but it shouldn’t also hurt low income residents and result in the loss of good businesses and jobs in the city,” proclaimed Brown. “We are also helping people by providing careers in the supermarket industry and access to affordable fresh food, produce and groceries. The loss of the Haverford store means the area could become a food desert.  All of those things must be factored into the equation about how we help people live longer, healthier lives.”

In the two years since its inception, Kenney’s original projection that the tax would raise $90 million annually has fallen short. Kenney has also reduced the number of community schools and pre-K programs it will fund.

Asked about his current relationship with the mayor, Brown, who lives in the city, said it’s virtually non-existent.

“Clearly, he’s not interested in having a dialogue about the financial realities that all retailers face with the beverage tax,” Brown noted. “Furthermore, he’s made this a political issue with his attacks on me. But this isn’t just about me. It’s about all food retailers who do business in Philadelphia. And ultimately it’s about the citizens who live here who will find fewer shopping options because of the burden that’s placed upon businesses by this unfair tax.”

Then again, it’s an election year and Kenney’s attempt for a second term as mayor will likely be challenged as never before.

Rite Aid In Jeopardy Of Being Delisted From NYSE

Rite Aid Corporation announced January 3 that the New York Stock Exchange (NYSE) has notified the company that it is no longer in compliance with NYSE continued listing standard rules because the per share trading price of its common stock has fallen below the NYSE’s share price rule. The NYSE requires the average closing price of a listed company’s common stock to be at least $1.00 per share over a consecutive 30 trading-day period.

Shares of the drugstore chain have fallen 64 percent over the past year. Rite Aid’s stock has hovered under $1 per share over the past month, breaking the NYSE’s rule. At presstime on January 17, the Camp Hill, PA-based drug chain’s shares were trading at 88 cents.

Rite Aid has been left to pick up the pieces after two merger plans failed in recent years. In 2015, it agreed to sell nearly 4,600 grocery stores to Walgreens for $17.2 billion. After nearly two years of review by the Federal Trade Commission, which cited antitrust concerns, the large federal agency would only allow a portion of the deal to proceed. That decision resulted in a restructuring of that deal in which Walgreens acquired 1,932 Rite Aid stores (and three distribution centers) for $4.4 billion.

That left Rite Aid weakened and in early 2018 it announced it had struck a deal to merge with supermarket chain Albertsons. However, Rite Aid shareholders voiced their unhappiness with the terms of that deal and it was pulled off the table on August 8, a day prior to a shareholder vote, when it became clear that the merger would not be approved by Rite Aid’s holders.

After the deal collapsed, Rite Aid overhauled its board of directors with three new members replacing existing directors. It also separated the CEO and chairman positions, naming director Bruce Bodaken as chairman and leaving John Standley in place as CEO. Standley, who joined Rite Aid in 1999 as executive VP and CFO, left the company for three years to become CEO of Pathmark, before rejoining the drug chain in 2008 as president and COO. In 2010, he was elevated to chief executive and two years later added the title of chairman.

In accordance with the NYSE’s rules, Rite Aid has six months from the receipt of the notice to regain compliance with the NYSE’s price condition or until the company’s next annual meeting of stockholders if stockholder approval is required, as would be the case to effectuate a reverse stock split, to cure the share price non-compliance. During this time period, Rite Aid’s common stock will continue to be listed and trade on the NYSE as usual. Rite Aid is currently in compliance with all other NYSE continued listing standard rules.

Rite Aid said it intends to pursue measures to cure the share price non-compliance, including through a reverse stock split of the company’s common stock, subject to stockholder approval no later than at Rite Aid’s next annual meeting, if such action is necessary to cure the share price non-compliance.

Under NYSE rules, Rite Aid can regain compliance at any time during the six-month cure period if on the last trading day of any calendar month during the cure period Rite Aid has a closing share price of at least $1.00 and an average closing share price of at least $1.00 over the 30 trading-day period ending on the last trading day of that month or on the last day of the cure period.

Rite Aid had fiscal 2018 annual revenues of $21.5 billion.