Taking Stock

Print Friendly

Except For A Select Few, It Was Tough Sledding For Supermarket Retailers In The Mid-Atlantic

If you took Whole Foods, Costco, Wegmans and Trader Joe’s out of the mix, it would be an even more depressing story. And I’m not just talking about same store sales and earnings – in that regard several other retailers performed at or above expectations. This is about building incremental sales through customer loyalty.

And in that regard, this was the most challenging year that most retailers faced since “The Great Recession” arose in 2008 and there’s not too much light in the tunnel that would indicate that the outlook is going to be much sunnier anytime soon.

Forget the economy for a moment (it remains a significant factor, but one that none of us can control). The fact is that there are simply too many stores in virtually any given marketing area/neighborhood, making it harder than it’s ever been to dominate a consumer’s shopping list.

Millennials and those in the “Gen Y” portal have made multi-retailer shopping part of their lifestyle, and unfortunately for the traditional supermarket operator, they are getting less and less of that shift than ever before.

Of those four retailers mentioned in the opening paragraph (along with a few other merchants), each has a connection to its customers that separates them from the rest of the pack. And even though their operating models are differentiated from each other, all get high marks in operational consistency, strong customer service perception (although there really isn’t all that much customer interaction at either Costco or Trader Joe’s), strong perishables presentations and a creative and likeable product mix.

So, while conventional operator Giant/Landover remains the dominant retailer in the market and Wal-Mart (the second biggest operator in the region) is still recording “telephone book” sales on a per-store basis, neither chain has moved the needle significantly forward in attracting new, younger customers or offering anything that the current younger generation of shoppers is that excited about. That’s not to say that either company isn’t successful – both retailers had solid years by financial measures and Giant has done a strong job of protecting its many premium locations, while Wal-Mart continues to build new SuperCenters or expand existing “Division One” units to combo stores and create even more competitive issues for traditional supermarket merchants.

Whether it’s great locations or relentless discount pricing, at least Giant and Wal-Mart have something dominant in their arsenals. Imagine if you were Food Lion, fumblin’, bumblin’ and stumblin’ for the past decade before it finally looked into a mirror and recognized it offered very little of value (convenience aside) to the consumer. So, parent company Delhaize decided to blow up the stale old model, bring in a new CEO (both in the U.S. and at its headquarters in Brussels) and tried to re-invent themselves by lowering prices, putting a few coats of paint on its stores and rolling out a new private label. Good luck with that strategy in the long term.

In a nutshell, it’s been a very tough year for most involved in food retailing (vendors included), and as long as market conditions remain as they are, I don’t see much reason for a lot of flag waving in the near future.
That said, here’s my up close and non-personal view of the major operators in the Baltimore-Washington market with a closing rhetorical question for each retailer.

Giant/Landover -A solid year sales-wise, but Giant really failed to take advantage of all the tools in its shed. After spending more than $300 million on its store revitalization program over the past few years, the chain’s physical plants are in good shape and, as mentioned earlier, who can compete with the great upscale locations in which the company operates stores? But there’s something still missing. The stores seem more “vanilla” than ever; it’s as though the corporate mandate is shifting to a “one size fits all” approach, rather than offering more creative and diversified plan-o-grams or upgrading its perishables departments. The result of that strategy was particularly noticeable when Wegmans debuted in Columbia, MD a year ago. Giant, which has long dominated Howard County with seven high-volume stores, did little to offset the explosive force that Wegmans offered. Certainly, Giant has the resources (parent company Ahold is highly successful), and it’s got the local talent, but there could still be more improvement between all of Ahold USA’s divisions and its administrative support headquarters in Carlisle, PA, especially when it comes to flexibility and communications. Rhetorical question: Can Giant/Landover and Ahold USA improve on its solid base and take the chain to the next level to achieve its potential?

Safeway – Safeway’s sales were flat for a lot of the reasons mentioned earlier in this piece. What are the points of separation that will draw more customers into its stores? One can argue that the new and creative programs the big Pleasanton, CA chain unveiled this year – “Just For U” and its marketing tie-in program with Exxon/Mobil – should be a difference maker to produce better sales, but that’s not enough. Perhaps those program would yield bigger dividends (and maybe they ultimately will) if Safeway’s stores were perceived in a better light by consumers. Or, if it offered sharper retails. Or, if it wasn’t so private-label happy (another criticism I could level at Giant, as well). It’s not any one thing that hampers Safeway; it’s the chain’s inability to make one particular area of its operation stand out. Maybe the company’s locations aren’t quite in the class of Giant (except in DC proper), but they’re very good. Safeway’s marketing is solid and its stores are well-balanced, departmentally. However, there’s clearly a need for some store makeovers (many of the Lifestyle units resemble a format whose time has passed) and I’d like to see more labor in the stores. As I’ve said many times, Safeway’s presence in the Baltimore-Washington market is safe and secure, but the needle isn’t really moving forward enough. Rhetorical question: Now that Steve Burd has retired after a 20 year run as CEO, will new chief executive Robert Edwards allow the Eastern division more freedom and local-decision making, or will we continue to see a company with a lot of potential be hindered by an ongoing process-like approach?

Shoppers Food & Pharmacy – The good news: Shoppers managed to reduce its market share shrinkage this year and is showing renewed signs of life as its attempts to regain its image as an aggressive discounter. More good news: Craig Herkert was fired as CEO of parent company Supervalu to ultimately be replaced by solid grocery executives Sam Duncan (chief executive) and Bob Miller (chairman) who now are part of an expanded Cerberus Capital Management supermarket organization. Now the sobering news: the old Supervalu leadership team of Herkert and his predecessor Jeff Noddle damaged the company so severely that a ripple effect will be felt for a long time. That’s a tough break for relatively new Shoppers’ president Bob Bly, a very capable industry veteran, and his re-energized local team led by Bob Gleeson (merchandising) and Micky Nye (operations). In the first three months of the “new” Supervalu, Shoppers has lowered prices across the board and initiated a “Hot Prices” advertising campaign. But without some earnest money being dumped into building new stores and significantly remodeling existing ones, it will be tough to move the pile in a fiercely competitive market. I give Shoppers credit for stepping on the accelerator but have to ask this rhetorical question: Will the new Supervalu organization (controlled by a private equity company) provide the necessary financial resources to make Shoppers a viable player in a market where it has slipped so sharply in recent years, or will we ultimately see not much more than a rearranging of the furniture?

Food Lion – A train wreck. Food Lion (Delhaize America) is yet another example of a company that has been poorly run now trying to reinvent itself without a lot of capital commitment. New CEO Roland Smith wasted no time before commencing the whackin’ and hackin’. There wasn’t a lot of new talent added, the survivors were just asked to do more. And if Mr. Smith thinks Food Lion’s brand “repositioning” effort is going to pay long-term dividends, he needs to buy a funhouse mirror. Still, it’s early in the tenure of the former Arby’s CEO and one of his recent ”whackin’” moves was a good one – the selling of secondary banners Sweetbay, Harvey’s and Reid’s. Although that deal (with Lone Star Funds) didn’t fetch much money ($265 million in cash for 82 stores), it’s a step in the right direction in dumping perennially unprofitable units and hopefully deploying those resources into improving the remainder of Delhaize America’s properties where Food Lion is the dominant banner. Rhetorical question: Will Roland Smith put earnest capital back into Food Lion, or will the retailer continue to veer into no man’s land?

Harris Teeter – Very solid year on every level for a quality retailer who still cares about the fundamentals of retailing – clean stores, superior training, quality perishables, strong customer service. Harris Teeter also continued to be in the upper percentile of performance when measuring financial metrics, but of more long-term importance is the fact that the Matthews, NC based retailer operates the type of upscale store that is supported in Baltimore and Washington. That’s the hallowed ground that used to be “owned” by Giant, but “The Teeter,” (along with Wegmans and Whole Foods, too) has supplanted the market leader in upscale, service-oriented perception. Not every new store in its now 15 year presence in B-W has been a success for the regional merchant, but its overall expansion into the market has been a winner. Of course, there’s a bigger issue pending, which is our rhetorical question: Will Harris Teeter’s current “sales exploration” lead to a new owner of the 211 store regional chain, and if so, who might that buyer be?

Wal-Mart – A big year for the Behemoth in terms of new SuperCenters in the B-W market (six expansions and one new combo store). And by any measure, a new SuperCenter creates havoc for all retailers in a local marketplace. The boys from Bentonville know how to operate SuperCenters and there are at least two dozen more expansion opportunities and probably 25 more viable sites that could be open as SuperCenters in this region alone. Still, Wal-Mart has its flaws, including stores whose out-of stock levels are pronouncedly increasing (something acknowledged by U.S. CEO Bill Simon, but later denied by Wal-Mart’s PR machine) and an inability to expand its renewed Neighborhood Market and smaller format initiative at the pace it originally projected. Wal-Mart will always be a formidable player because of its sheer scale and relentless pursuit of low everyday prices. Rhetorical question: Will Wal-Mart ever get beyond its high skill level as a SuperCenter operator and actually make its new smaller formats an effective weapon in its arsenal, particularly in urban areas?

Wegmans – An outstanding year for another company that “gets” it and executes the basics. In the case of Wegmans, the “basics” are executed in a more complex and detailed manner, making it truly a one-of-a-kind company. There are certainly benefits to operating a private, family-owned enterprise, but in the end, Wegmans is a success not only because of the uniqueness of its presentation, but in the human factor, where well trained associates interface with their customers and the passion exuded by a true merchant makes differentiation an obvious major advantage. Its two new stores that opened in the past 12 months in Columbia, MD and Gambrills, MD are both big winners and you can expect the next new unit in Germantown, MD this fall to also deliver sales in the $1.5-$2 million weekly range. Rhetorical question: Can Colleen and Nicole Wegman (Danny Wegman’s daughters who represent the next generation) successfully maintain the pace of growth and high standards created by their father and grandfather? And a bonus question: With expanded geographical boundaries and tremendous new store growth achieved in the past 15 years, is Wegmans in danger of stretching its infrastructure too thinly in the next few years?