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. However, prior to the closing of this deal, F&E filed for bankruptcy protection (Yucaipa also sought the Chapter 11 route prior to completing the A&P deal in 2012). Several published reports indicated that F&E has been negotiating with landlords to reach settlements. Once Yucaipa gains control of the majority of the F&E units, don’t be shocked if Yucaipa’s managing partner Ron Burkle ends up converting the stores to the Wild Oats banner, a company 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 600 units in 16 states. 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)…locally, Wegmans’ newest unit in Germantown, MD is off to a lightning fast start, reportedly eclipsing the $2 million barrier each of first two weeks.  It is the family-owned uber-retailer’s first MontgomeryCounty unit and seventh store in Maryland…congratulations to Bob Gleeson and Micky Nye, who have been named presidents of Shoppers Food & Pharmacy and Farm Fresh respectively. Both are talented industry veterans who are getting their first shot at running their own show. Bob has spent virtually his entire 29 year industry career at Shoppers (beginning under the Herman family ownership) and is ready for this big opportunity. And Nye, who has served as second in command for many retailers in her distinguished career, will relocate to the Tidewater area to take the helm of the Supervalu’s struggling unit in that competitive market. While both face significant competitive challenges, I’m confident that both will do a fine job of improving the culture and esprit d’corps at each organization. Of course, both Gleeson and Nye would both be greatly aided if Supervalu contributes enough capital expenditures at each regional chain (especially in real estate) to make success more attainable… 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, a Massachusetts Superior Court Judge Judith Fabricant allowed a $300 million distribution payment to shareholders which Arthur T. Demoulas had sought to block, arguing that the disbursement “a money grab by some of the shareholders and is the very definition of irreparable harm from a business perspective” that would “break Market Basket’s proven business model and forever change how the company operates and grows.” He probably right, and while he’s in the midst of a board battle which seeks his ouster, 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 his company earn the reputation that Market Basket is one of the best regional food chains in America. Sadly, this is another family battle centered on greed.