No Place For The Meek: The Philadelphia-New York Corridor Remains Nation’s Most Competitive Marketplace
We’re not in Kansas anymore. Nor are we in Dallas, Miami, San Francisco or Denver. As we publish our first expanded Food Trade News market study, one fact remains true – there is no more competitive food and drug arena in America than the densely populated zone between Metro New York and Philadelphia.
Like many other markets, the 100 miles stretch between the two markets is overstored and filled with a variety of diverse retailing styles, but what makes it even more challenging to compete successfully is the cost of doing business in the corridor and the intense competition that exists among the operators.
It’s a market where real estate is scarce and very expensive; a territory that’s highly unionized, and – arguably more than any other region in the country – it’s a marketplace where the need for focused local marketing is vitally important. And if you’re planning to enter the lion’s den or open a store in a new neighborhood, expect the existing retailers to compete with even more tenacity as they look to spoil your “welcome” party.
That’s not say that you can’t be successful operating in the corridor – you’ve just got to be smart, resilient and tough. The rewards are there for those who can deliver on that proposition. But with the cost of doing business in “corridor-land” and the high level of execution that exists in much of the marketplace there is simply no room for mediocrity. For those who can’t keep up (but are still breathing), expect the bleeding to get worse.
So, here’s my perspective on the biggest players operating in the America’s toughest marketing area.
SHOPRITE – Whether you’re talking about Philadelphia or New York, ShopRite is the most successful food retailing factor that links the busiest corridor in America together. Although it only operated one net new store in the entire marketplace this year, ShopRite’s dominance can be seen in its consistently strong ID sales. The mighty members of Wakefern have been on quite a roll over the last five years and with their tenacious operating style and strong real estate pipeline, they are poised to gain even more market share in both the DelawareValley and Metro New York. And if Acme and/or A&P elect to sell or close stores, expect ShopRite to be a player in areas where it doesn’t currently operate stores. Another stellar year from one of the best retailing organizations in the country.
GIANT/CARLISLE (MARTIN’S) – Nobody has taken better advantage of the Philadelphia market repositioning than the non-union unit of Ahold USA. With 15 former Genuardi’s now operating at a significantly higher level than when Safeway owned the stores, Giant is now the leading retailer in the eight counties surrounding the city. In the next 12 months the chain has an additional new store opening in Newtown Square, PA and a replacement unit in Flourtown, PA. Giant may not be in the same league as ShopRite when it comes to per store average sales, but the regional chain is following in the footsteps of other Ahold USA divisions with strong locations, a comfortable shopping experience and plenty of money in the bank to add stores organically or make a major or fill-in acquisition.
STOP & SHOP – Ahold USA’s Metro New York division had a very solid year and continued to gain share by improving its store base at the expense of weaker operators such as A&P. Stop & Shop is now the dominant retailer on Long Island, and like overall Metro New York leader ShopRite, has the resources to keep its real estate pipeline flowing by adding new stores, remodeling others or waiting for a competitor to put more stores up for sale (did somebody say A&P?)
A&P – Call the stores A&P, Pathmark, Waldbaum’s, Super Fresh, Food Emporium or Food Basics, it really doesn’t matter. All banners of the Great Atlantic & Pacific Tea Company continue to drift towards the middle of the road, which ultimately means that they are candidates to be road kill. It’s been 16 months since Ron Burkle’s Yucaipa Cos. took control of the now privately held, once iconic grocery chain. Sure, Burkle, a true supermarket financial genius, is sitting on a boat load of valuable real estate and has gained major savings with A&P’s labor unions and its distribution costs, but where’s the beef? The perception of A&P is virtually unchanged from the stale and tired image it has had over the last decade. Morale at store level is mediocre at best and, in a much more crowded and diverse field, how is A&P really going to prove it can be a game changer? Expect more individual store closings and a possible sell-off of key divisions.
WAL-MART – The hidden factor in the entire Philly-New York equation. We all know how much volume a typical Wal-Mart can produce, even if its national ID sales have been generally flat or in slow grow mode. Huge per store volumes alone will upset any competitive marketplace. But Wal-Mart is slowly but steadily converting “Division One” stores to SuperCenters. New Jersey has become prime ground for such expansions and, if Wal-Mart ever gets its act together in terms of opening smaller format units (Neighborhood Markets, Wal-Mart Express), it could threaten ShopRite for overall leadership in the territory between Exit 18 of the New Jersey Turnpike and the five Pennsylvania counties that surround Philadelphia. Always beware the Behemoth.
ACME – I think the worst is over. After all, the whacking of former CEO Craig Herkert at parent company Supervalu sent positive energy to Acme’s headquarters in Malvern, PA. Adding experienced grocery executives Bob Miller and Sam Duncan to head up the new Supervalu and bringing in veteran Albertson’s exec Jim Perkins to head Acme is all positive news. Now the game has to be played on the field and, unfortunately, the previous clowns who ran Supervalu have left the once leading chain in Philadelphia a mere shell of its former self. Acme has dropped all the way to fourth place in the $20.7 billion DelawareValley marketing area. While Acme has fumbled and stumbled over the past seven years, the entire marketplace has become more crowded and diverse. For Acme there is a myriad of issues to address: physical condition of its stores, a non-competitive pricing image, poor morale among the associates and challenging labor contracts. So, it all gets down to how much money controlling entity Cerberus Capital Management wants to spend to fix these problems. Improving the enthusiasm at headquarters and opening the door to more local buying won’t be nearly enough. This is about a total image makeover to convince consumers they should return to Acme and not shop at ShopRite, Giant, Wal-Mart or Wegmans. Either Cerberus addresses these issues with earnest capital investment or the dish has already run away into the spoon.
WEGMANS – When Wegmans entered the Philly-Metro New York corridor in 1998 with the opening of its Princeton, NJ store, a new era of retailing began both for the company and for the rest of the marketplace. Since then, Wegmans has opened 11 more mega-stores in that territory and has produced huge per store volumes that have impacted the entire competitive base of those locales. The past 12 months were an extension of Wegmans’ further penetration with the opening of its King of Prussia, PA store and, later this year, the Rochester-based, family-owned regional chain will cut the ribbon at its new Montgomeryville, PA store. Other new stores in the “corridor” are slated for: Concordville, PA; Montvale, NJ; and Hanover Twp., NJ. Only ShopRite seems to have had some success in slowing down the Wegmans train. Wegmans’ biggest challenges are different from most of its competitors’. Instead of concerns about pricing image, labor unions or capital expenditure, Wegmans’ challenges lie in its ability to keep its talent base at a high level and its overall infrastructure effective enough to support its ambitious growth plan, which now ranges from the Boston area down to Charlottesville, VA.
WEIS MARKETS – After three very successful years, Weis kind of hit the sales wall over the past 12 months. Many of Weis’ stores are in economically challenged areas and it has been a year in which the Sunbury, PA regional chain faced about a dozen “direct hits” from new competitive openings. Still, I like what CEO Dave Hepfinger is doing to enhance the company’s long-term position. The store base has significantly improved over the past three years, the new stores are modern and more perishables-driven and Weis is also investing in infrastructure, particularly in IT. Hepfinger is also trying to expand into more metropolitan areas where the demographics are generally stronger and the population denser. With three former Genuardi’s stores under its belt, a fourth unit to open in Huntingdon Valley, PA , two New Jersey stores under construction and two units in Baltimore debuting earlier this year, Weis’ growth strategy is very sound. Now the proof will be in the execution.
WAWA – Under new CEO Chris Gheysens, the convenience store chain didn’t miss a beat. Gheysens replaced one of the best chief executives of his generation – Howard Stoeckel – who retired at the end of last year. Gheysens was groomed for the top slot and will lead the largest c-store chain in the market on its most important venture of the new millennium – its expansion into Florida. So far, so good. In the end, however, it’s not only about Gheysens’ batting average as the new leader; the skill level of the company’s management team and the passion of its associates make Wawa a unique entity when compared to retail operators, especially convenience stores. From its fuel strategy to its “no fee” ATM usage to its marketing and advertising programs, Wawa’s execution level is at the highest end of the spectrum. \