Taking Stock

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‘Round The Trade

After six years of operating control, Morgan Stanley Capital Partners (MSCP) has sold its 66 percent stake in Buffalo based Tops Friendly Markets to six current executives including veteran top CEP Frank Curci. No great surprise here as MSCP has been looking for an exit strategy for quick a while and a public offering didn’t seem likely since the  regional chain lost $9.5 million during the first six months of 2012. Along with Curci, the other Tops executives  included in the deal are: Kevin Darrington, COO; Rick Mills (former Weis exec), CFO; John Persons, SVP-operations; Jack Barrett, SVP-HR; and Lynne Burgess, SVP-general counsel. Terms of the deal were not disclosed, but you can bet that Curci & co. got a cool deal since MSCP’s options were limited and the management group has done a solid job in improving the organization since MSCP acquired Tops from Ahold USA six years ago. (Curci served as Top’s CEO when AUSA owned the retailer). You can also expect a further refinancing plan to be announced after this deal closes by year’s end…While many retailers are continuing to face another prolonged period of soft sales, the November 1 federal government reduction of SNAP (Supplemental Nutrition Assistance Program) benefits will only add more salt to their wounds. The government mandate cutback affects 47 million families. On a monthly basis that means household reductions of $11(one person), $20 (two people), $29 (three people) and $36 (four people). That’s a big number to swallow especially when retailers have seen SNAP usage escalate in recent years to where 5-8 percent of total sales for a typical store are comprised of food stamp usage. And it may even get worse if the House of Representatives get its way. The House wants to cut an additional $40 billion from the food stamp program as part of the pending new Farm Bill…Kroger has named 38-year veteran Mike Ellis president and COO effective January 1, 2014. Ellis will assume the post held by Rodney McMullen, who will replace retiring Dave Dillon as CEO. Ellis, 55, is currently senior VP of Kroger’s retail divisions. Just before presstime, Kroger held its annual “investor day” in New York. Key takeaways from the meeting included the big Cincinnati chain’s desire to accelerate its “fill-in” strategy by adding stores in both existing markets and newer areas (think Baltimore-Washington market after the Harris Teeter deal gains FTC authorization). Outgoing chief executive Dillon noted that while market adjacencies are important, Harris Teeter would have been a prime acquisition candidate no matter where it operated because of strong management, a reputable name in its markets and an established infrastructure. Dillon also inferred that the Internet won’t be as dominant in food purchasing as some analysts believe. “I wouldn’t be too quick to assume that the leap to home delivery ends up replacing everything,” he noted, adding that there remains a large percentage of customers that like to get out and have interaction with friends and neighbors in their community as they walk through the store…now that U.S. Bankruptcy Judge Kevin J. Carrey has granted court approval for a November 19 auction, it looks like the path has been cleared for Yucaipa Cos. to officially bid on about 150 Fresh & Easy stores on the West Coast that current owner Tesco seeks to dispose of. As per Carrey’s ruling, made last month in Wilmington, DE, all potential buyers must submit offers by November 15. The company would hold the auction only if it receives a competing qualifying bid. If that happens, a hearing on November 21, would determine the auction winner. There was also an interesting piece on nasdaq.com reporting that, knowing it was losing money ($22 million a month) and facing bankruptcy, parent firm Tesco pulled $215 million out of Fresh & Easy to cover other company expenses and possibly make it easier for potential creditors that were not paid (due to the bankruptcy) to sue to challenge the sale of Fresh & Easy to an interested party such as Yucaipa Cos. The nasdaq.com story notes that of the funds pulled out of Fresh & Easy, $18.9 million was used to repay debt owed Tesco; another $10 million went to cover Tesco payroll costs in the U.K. and India; and $15 million was termed “all other payments.”…remember Hank Mullany, ex-Genuardi’s president, who also headed Wal-Mart’s Northeast business and later served as CEO of ServiceMaster? Mullany has a new job as president of Toys “R” Us, where he will oversee all U.S. merchandising, marketing, e-commerce and store ops for the struggling 878 store toy firm which is based in Wayne, NJ, not too far from his Philadelphia roots…it was another flat quarter for Wal-Mart in the U.S. as comp store sales decreased 0.3 percent in its third quarter ended October 25. Additionally, grocery comps dropped 0.7 percent for the 13-week period. On the earnings side of the ledger, the Behemoth’s profit increased $3.6 billion to $6.3 billion. At its Neighborhood Markets banner, which is targeted for major expansion in the next two years, comp store revenue rose 3.4 percent. And, a few weeks earlier at its annual investor conference held in Bentonville, AR, Wal-Mart said it expects earnings this year to fall in the 1.9-3 percent range compared to the five percent earnings increase it achieved last year. Moving forward, the Behemoth also said it plans to reduce its cap-ex in fiscal 2015 by approximately $200 million (to $11.8-$12.8 billion). “We’re spending in a disciplined manner by setting up a more streamlined real-estate process,” Mike Duke, president and CEO, stated. “As we continue to improve our sales per square foot, Wal-Mart will continue to grow through new stores and e-commerce while expanding our logistics and fulfillment network in critical markets.” The world’s largest retailer said it plans to open 115 supercenters in fiscal 2015, compared with 125 this year; and will also accelerate the growth of small-format stores, mostly Neighborhood Markets, projecting between 120 and 150 next year, compared with 120 this year. According to Bill Simon, president and CEO of Wal-Mart U.S., “We will accelerate growth of our Neighborhood Markets because of their strong returns, consistent comp-sales performance and double-digit net sales increases; and we will continue to build and leverage the supercenter format, which remains our primary format for growth. The combination of our large and small-store formats allows us to strengthen our market share position and give customers convenient access to shop for food and general merchandise, as well as access to our e-commerce offerings. We believe our multi-format portfolio will fuel the next generation of retail; enable the convergence of digital and physical store locations through e-commerce; and unlock value, giving our customers anytime, anywhere access to Wal-Mart.”…now that the Affordable Care Act has moved into its next phase of implementation, organized retailers and their local UFCW unions are finding it more difficult to hammer out new agreements. Such is the case in Metro New York where retailer clerks and meatcutters at Local 1500 are continuing to bargain with Stop & Shop & King Kullen over new multi-year contracts. All parties are still talking beyond the original September 28 deadline and Local 1500 president Bruce Both has clearly singled out “Obamacare” as a significant obstacle in getting a deal done. Another group of contracts that has been extended, in part due to “Obamacare” options are the ones that Safeway and Giant/Landover are bargaining with UFCW Locals 27 (Baltimore) and 400 (Washington). Those agreements expired on October 31 and have now been extended twice (no through December 20). While negotiating continues, Local 400 members have voted to authorize strikes against both chains (Local 27 has not). “Our members put Giant on notice that it is long past time to come to the table with a proposal that provides them with the security, respect and dignity they have more than earned,” said Local 400 president Mark Federici. “It is our members whose hard work, unmatched productivity and outstanding customer service that made Giant so profitable and the dominant grocer in the Washington, DC metropolitan area. All our members ask of management is a fair deal that reflects all they contribute to the bottom line. No one wants a strike, but if that is the only way to get a contract providing living wages and health and retirement security, that is what we will do.” Federici also acknowledged that “the big issue at the table has been health care.”  One more note about Giant/Landover: Gordon Reid has been named president succeeding Anthony Hucker (now at Schnuck’s) who resigned in September. Reid, a Scotsman, has never worked in the U.S., having toiled for Tesco and most recently for Dairy Farm in Europe and Asia. He will try to provide stability at the Landover, MD-based Ahold USA unit as that top job has become a revolving door in recent years (Hucker, Robin Michel and Bill Holmes).