Taking Stock

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‘Round The Trade

Along with Supervalu, another company with stuff to sell is A&P. It will certainly be interesting to see what ultimately becomes of the retailer’s Food Emporium stores in Manhattan. Way back when (in the 1980s), the Food Emporium model was unique and very well run. But those days have been ancient history for quite some time as the Tea Company operated itsManhattanstores with its typical reverse Midas touch. It didn’t surprise many that Food Emporium would be chairman Ron Burkle’s first “dumping” because, despite its poor operations coupled with superior and newer competition from the likes of Whole Foods, Fairway and Trader Joe’s, Food Emporium still should attract many prospective buyers on the strength of its real estate value. Where else can you find 16 stores in the 20,000 square foot range in the country’s largest and best demographic area? This reporter likes Trader Joe’s (owned by the wealthy Albrecht family) as the early favorite, although this deal could also set up well for a financial/private equity player. And, once Food Emporium is moved, I still expect A&P to start selling off other assets… more tales from Manhattan. Fairway Market has officially filed the paperwork with the SEC to begin the process to go public (it’s trying to raise $150 million), something that’s been rumored for months. Sterling Investment Partners, which has owned 80 percent of the high-volume metro New York retailer since 2007, will still control the business after the IPO is completed. The registration statement noted that Fairway’s model could be expanded beyond metro NY as far as Mew England and Washington, DC and could support up to 90 stores in that region – a figure that I’d say is mighty ambitious and possibly a significant overreach. And as well as Fairway is doing on the top line ($554.9 million in revenue with nine stores through March 2012 (it has since opened two other units), it lost $11.9 million this year and expects to post losses at least through 2014. As great as Fairway’s stores are, it just shows how intensively labor and capital oriented the retail food business is, especially when perishables are your signature calling card…another IPO is also in the works. Safeway’s hugely successful Blackhawk gift card division will be spun off in early 2013. The move makes a lot of sense, given the unparalleled success of Blackhawk and the recent struggles of Safeway’s grocery business. Analysts believe that the offering will be well received, but several Wall Streeters wondered if, without Blackhawk, Safeway’s weaknesses would be further exposed. Over the past several months, Safeway and its longtime CEO Steve Burd have been hammered over flat sales and an unwillingness to deal with some the chain’s underfunded pension plans. With more competition also threatening Safeway’s long protected West Coast business, the shedding of Blackhawk will certainly put more pressure on the chain’s core supermarket business…big news from “Snackland USA” in Central PA. Hanover based Utz Quality Foods has agreed to acquire certain assets ofReadingbased The Bachman Company. Utz will purchase the Bachman brands (which also include Jax, Thin ‘n Right and Chipitos), its distribution, its intellectual property and its manufacturing facility inEphrata,PA.Bachman will retain ownership of itsReadingmanufacturing facility and will continue to produce salted snack items for Utz and other companies. The 125-year old privately-held firm will change its name to Savor Street Foods. The deal is expected to close later this month. Down the street inHanover, Snyder’s-Lance (which also operates from Charlotte, NC) has agreed to acquire Snack Factory for $340 million in an all cash deal. Princeton, NJ based Snack Factory, makers of Pretzel Crisps, was founded in 2004 by Sara and Warren Wilson (who also founded New York Bagel Chips). Snyder’s-Lance said it should consummate the purchase early in its fourth quarter…earlier this month Sheetz announced that will build a new $32.8 million distribution and food production center inBurlington,NC. The 245,000 square foot center is a key element in the c-store retailer’s rapid expansion plan for new convenience restaurants, particularly in theVirginiaandNorth Carolinamarkets. The depot will look much like Sheetz’s facility inClaysburg,PA(BlairCounty). TheBurlingtoncenter, which is slated to open in December 2014, will produce sandwiches, salads and other convenience foods. It will create 254 new jobs. Sheetz, based in Altoona, PA, currently operates 429 c-stores, with 46 of those units located in the Tar Heel State and an additional 59 units in Virginia…on September 12, Redner’s cut the ribbon on its newest store in Hegins, PA (its third unit in Schuylkill County and 42nd overall). The Hegins store is 40,000 square feet in size and features a fuel station…Kraft Foods, Inc (KFT) exists no longer. Effective October 2, the company has split its brands into two separate publicly-traded business units – Mondelez International (now trading as MLDZ), will now sell such brands as Cadbury, Nabisco, Oreo and Trident – and Kraft Foods Group (now trading as KRFT), which is larger and houses such well-known grocery brands as Kraft, Oscar Mayer and Maxwell House…a bit closer to our base, The Hershey Co. recently unveiled its new 340,000 square foot chocolate manufacturing plant. Hershey invested $300 million in the unit, which it calls the “world’s most technologically advanced chocolate making facility,” adding that the upgraded plant “positions the company for its next 100 years of global growth.” According to the company, the new development infused $70 million into Pennsylvania’s economy and created more than 300 construction jobs. About 700 Hershey employees transferred from the manufacturer’s old facility on East Chocolate Avenue to the new plant which is officially located in West Hershey…improving news for independent retailers: the National Grocers Association’s annual financial survey was recently released and showed that independent grocers posted an average net profit of 1.12 percent and raised same store sales levels by 2.6 percent. “Economic, market and shopper challenges are demanding that grocery retailers seek new ways to grow sales and profits and find further efficiencies in their businesses,” said Peter Larkin, NGA president and CEO. “It is extremely encouraging to see independents have done just that. They have pushed through one of the worst economic downturns in our nation’s history and continue to do so with much success.” The survey added that with continued economic woes and their far-reaching impact on the shopper, independents were faced with difficult decisions relative to pricing and margins in an inflationary environment. Same-store sales among independents increased over 2011 by 0.6 percent, but once adjusted for food-at-home inflation, the independent sector lost ground at a rate of minus 2.2 percent. However, the total store gross margin increased to 26.33 percent, with important gains in key departments. This ultimately translated in increased net profits before taxes of 1.12 percent of sales in 2011 from 1.08 percent in 2010. The survey was co-sponsored by our friends at FMS Solutions and included data from 123 independent grocery firms.