Taking Stock

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‘Round The Trade

Major national industry news to report just before presstime: David Dillon will be stepping down as CEO of Kroger on January 1 and will be succeeded by current Kroger president Rodney McMullen, 53. Of the industry’s largest chains, nobody has been a more effective leader for as long as Dillon has. The 64 year old industry executive took the helm at the Cincinnati-based merchant in 2003 and has helped transform Kroger into a powerful and competitive player against all channels of competition. Dillon, who has spent 37 years at Kroger, has done it by giving more control to local managers and “walking” the price game, rather than just “talking” it. Although a CFO by training, a lot of Dillon’s success has come at diminishing “process” and opening an improved line of communications with Kroger’s associates, helping them react to competitive issues on a market-by-market basis. He will remain chairman of Kroger’s board until the end of next year…other big national news includes the announcement that Yucaipa Cos. is acquiring Fresh & Easy Neighborhood Markets (F&E) from Tesco, the British retailing juggernaut that failed with its initial U.S. entry that began in 2007. About 150 of F&E’s nearly 200 stores will become part of the Yucaipa organization, which will also acquire the perishables-driven small format retailer’s distribution and production facilities. Those stores that are not sold are expected to close in the near future. Fresh & Easy’s stores are located primarily in California. Tesco invested about $1.6 billion over a six year period but never realized a profit. Based on published reports, Tesco won’t receive any money for the deal and will essentially be paying Yucaipa to take on about $235 million in liabilities. Additionally, if Yucaipa does succeed in turning around F&E, Tesco would have the option to buy a stake in the company. Don’t be shocked if Yucaipa’s managing partner Ron Burkle ends up converting the stores to the Wild Oats banner, a company he in which he was heavily invested until the natural and organics retailer was sold to Whole Foods in 2007…. another private equity company that is also well versed in supermarket ownership, Cerberus Capital Management, has agreed to acquire United Family Markets, the Lubbock, TX –based retailer that operates 51 supermarkets and 22 gas stations in Texas. The company has been family-owned since its founding in 1916. When the deal closes later next month, United will become part of Cerberus’ Albertsons LLC unit. Robert Taylor, currently United’s CEO will remain as president and will report directly to Bob Miller, chief executive of Albertsons LLC, which will now operate nearly 1,700 stores nationally under such diverse banners as Albertsons, Acme Markets, Shaw’s and Jewel …at Safeway the action is really heating up, but it has nothing to do with sales and earnings. Jana Partners LLC, a New York hedge fund firm, earlier this month acquired a 6.2 percent stake in the Pleasanton, CA based retailer. Jana, which had previously discussed with Safeway management its concerns about shedding some unprofitable divisions, returning more capital to investors and divesting the retailer’s 73 percent stake in Blackhawk Network Holdings (the retailer’s gift card unit that went public earlier this year) surprised Safeway with its aggressive stock purchase. In turn, Safeway stepped up to the plate by putting in place its own “poison pill” that effectively blocks an investor from acquiring more than 10 percent of the retailer’s outstanding shares (that number climbs to 15 percent for institutional investors)  …in adjacent market news, Wegmans opened its 82nd unit on September 15 in Germantown, MD. The 123,000 square foot mega-store is the family-owned uber-retailer’s first Montgomery County unit and seventh store in Maryland. We’ve also talked recently about Wegmans’ potential interest in opening a new unit in the District of Columbia. According to a memo from Wegmans’ senior VP-real estate development Ralph Uttaro to Advisory Neighborhood Committee 4A (ANC) commissioners, that interest for a site in the soon to be redeveloped former Walter Reed Army Medical Center on 16th Street NW is real. However, Uttaro told the ANC that any possible deal at the location would have to involve DC-based real estate firm Roadside Development LLC, which Wegmans works with exclusively. Uttaro noted that Wegmans has been studying the Walter Reed site for more than 18 months and has worked with Roadside to develop a plan “that meets Wegmans’ needs to create a successful store.” Uttaro expressed his concerns to the ANC that other developers that made presentations about the site have included Wegmans’ logo in their proposals or claimed that the Rochester, NY-based retailer has been having discussions with them regarding Wegmans’ plans. By the way, Wegmans’ next opening after Germantown will be in Montgomeryville, PA on November 3…in more Kroger news, the chain’s first step of its five year $250 million market upgrade plan for the region (it now operates 10 units in the Tidewater area of Virginia) was a grand-slam. A 124,000 square foot Marketplace recently opened in Virginia Beach (on the site of a former SuperKmart unit) and sales have reportedly topped the one million dollar a week barrier for the past month (that’s better than the first Virginia Marketplace, which opened in Chesterfield County last December). Kroger also has other combo Marketplace units slated for Portsmouth and Suffolk, with more new store announcements expected soon…at Supervalu, Micky Nye has been named president of Farm Fresh, replacing Bill Parker, who departed about two months ago, and Bob Gleeson is the new president of Shoppers Food & Pharmacy, taking that job on a permanent basis from Bob Bly, who left the B-W unit of Supervalu about two months ago. We wish Micky and Bob well (some of you might remember Bob from his stint as senior VP-merchandising at Acme in Malvern, PA in 2010 before returning to a similar post at Shoppers where he began his career more than 30 years ago)… moving north apiece, the titanic intra-family battle between the two Demoulas families (Market Basket) continues as the company’s board, led by Arthur S. Demoulas, attempts to oust current company CEO Arthur T. Demoulas (they are first cousins). Most recently, the seven person board has agreed to delay a $300 million distribution payment to shareholders which Arthur T. Demoulas has sought to block, arguing that the disbursement would be harmful to the company’s shareholders. The truth of the matter is that Arthur T. is not only unusually popular with Demoulas’ associates, he has led the company to significant growth over a 15 year period and has helped create the reputation that Market basket is one of the best regional food chains in America. Sadly, this is another family battle centered on greed.  …the National Grocers Association (NGA) has released its 2013 Independent Grocers Financial Survey. Some of the other nuggets from the report include: improvement on net profit in 2012 compared to 2011 – from 1.12 percent to 1.65 percent; inflation-adjusted increases in overall comp store revenue to an average of 1.46 percent; total store margins gained slightly to 26.48 percent; and healthcare costs continued to spiral upward, increasing 7.6 percent over 2012 levels. The survey found that the economy continued to improve and that lower unemployment proved to be a positive factor in gains made by the more than 250 independent retailers surveyed.  “Fiscal year 2012 was quite the comeback year for independent food retailers,” said Peter Larkin, president and CEO of NGA. “We found vast improvements in financial performance, much higher levels of store development, stabilized payroll and lower levels of theft-related shrink for the majority of respondents.”