Taking Stock

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‘Round The Trade

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 had 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 New 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…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…just before presstime, Safeway posted its third quarter sales and earnings. Net income for the 12 week period ended September 8 rose 20.6 percent to $157 million, overall sales declined 0.2 percent and ID sales (ex-gas) were virtually flat at 0.1 percent. Safeway CEO Steve Burd said the disposition of its 16 Genuardi’s stores was a prime reason for the sales drop. Those 16 units were sold for $111 million. Safeway said it expects to close the three remaining Genuardi’s stores in its fourth quarter, which it estimates will produce a loss of $11 million.