Taking Stock

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Among Today’s Supermarket Executives, ‘Retirement’ Age Is Becoming Much Younger

In my next life, I want to return as a personnel executive. Make that a human resources professional. If I can’t achieve that, perhaps I can become a chief financial officer. The sheer joy of being able to utter the words “traction,” “incent,” or “attrit.” Of course, I could be an attorney who would have final say over the language of any corporate announcement or financially-oriented speech. As a company’s general counsel I would be the ultimate arbiter of “nothing speak.” I take that thought back – I could never be a lawyer.

Don’t insult me by telling me to navigate your “blue ocean,” or question my “core competency.” Please don’t ask me to focus on my “swim lane” because I don’t think that’s a “scalable” approach to success. From now on, I will not refer to A&P’s status as beleaguered or troubled; The Tea Company is really on the “bleeding edge” and clearly this is a chain that hasn’t absorbed its “learnings” effectively.

Modern business jargon may be silly and stupid, but at least I can translate the nothing-speak. It took the simple minds of seemingly thousands of HR executives to employ the word “retirement” in a manner that not many are familiar with.

“Johnny turned 65 today and after 40 years with the company he is retiring. We wish him all the best in his future endeavors,” Johnny’s boss might have said. Or, “We’d like to present Jimmy with this beautiful gold watch commemorating his 38 years of service to our company. May you have a long and enjoyable retirement,” was typically how a retirement ceremony used to be conducted.

Oh, how things have changed. Currently, the new “retirement” apparently doesn’t happen when you’re 65, and rarely is a gold watch associated with the process. In fact, if you thought that the word retirement implied some type of voluntary action, think again.

To wit, some recent examples: Rick Herring, president of Ahold USA’s Giant/Carlisle division and Herb Ruetsch, chief executive of fast-growing Fairway Market. Both men are in their early 50s and by my best guess, neither of them had assembled a long list of “honey dos” in preparing for futures that would also probably include fishing trips, golf vacations and an annual pilgrimage to Washington to visit AARP’s headquarters.

Additionally, late last year, Pierre-Olivier Beckers, chief executive of Brussels-based The Delhaize Group (Food Lion, Hannaford), “retired” at the ripe old age of 50. Word on the street had it that Beckers wants to spend more time venturing on the “Pirates of the Caribbean” ride at Disneyland Paris. By “retiring” so young, none of these men will qualify for the early-bird seniors discount at Old Country Buffet, either.

While I can’t tell you the full story, I can make a fair to middling guess as to why Herring and Ruetsch recently joined the ranks of the Golden Agers. In the case of Rick Herring, he has a new boss, and he’s nothing like the old boss. The “old boss” was Carl Schlicker, former COO of Ahold USA, who like Herring had strong roots in the Giant/Carlisle organization which for years resembled the “little engine that could” among the three AUSA banners. For the past four years, Herring, whose background is not in operations or merchandising (he’s a finance guy who formerly headed Ahold Financial Services), headed the profitable and growing division that oversaw Giant (Carlisle) and Martin’s stores in Pennsylvania, Maryland, Virginia and West Virginia. Beyond performance, Rick Herring was greatly admired by the company’s associates and its vendors. A gentleman and a class act all the way. But times are a changin’ rapidly in this business.

Schlicker retired last February at the age of 62 and was replaced by James McCann, a Brit who has been with Ahold in Europe since 2011 and also did tours with some of Europe’s other leading food retailers – Tesco, Carrefour and J. Sainsbury. Clearly the culture began changing at Giant/Carlisle and AUSA’s three other divisions after the corporate consolidation of 2009. While Carlisle remained the company’s primary base of operations, the folksy, entrepreneurial feel of the organization began to erode. And since McCann took the helm a year ago, most of the original ambience and flavor of Giant/Carlisle (Schlicker often termed the associates in the division as being “simple country grocers”) has dissipated. This is by design. McCann is a no-nonsense, hard-charging, tireless, results-driven executive. It’s clear that changing the culture is a priority. Of course, when changes occur they usually begin at the senior management level. Anthony Hucker, former president of the Giant/Landover unit, left in September (he is now executive VP-COO of Schnuck’s in St. Louis) and Paula Price resigned as executive VP-CFO of Ahold USA in December. I’m fairly certain there’ll be other leadership changes, too.

There’s clearly nothing wrong with McCann’s desire for a more disciplined and regimented team. Ahold corporately is also becoming more streamlined, as witnessed by the recent revampment of Ahold Europe (which technically no longer exists as a unit). It’s obvious that’s how chief executive Dick Boer wants it and it’s a style that both Boer and McCann seem comfortable with, despite increasing agita from the associates in the U.S.

But matey, it’s all about the results. For the first time in many moons, Ahold USA lost market share in its recently completed fourth quarter. Its overall sales decreased and ID revenue also flashed red numbers. That is a triad that I’ve never witnessed in my 36 years of covering Ahold or its banners. And in Europe the numbers are arguably worse, with competitors carving out market share from Albert Heijn’s huge base in The Netherlands and its other brick and mortar entities in other parts of Europe also struggling. McCann and Boer can argue that outside factors such as the economy, new and diverse competition, the government sequester or Hurricane Sandy were all contributing factors to the company’s struggles and they wouldn’t be wrong. However, the truth is that Ahold and its banners have become vanilla in the way they go to market. Everything from pizzazz at store level (remember “sell more stuff?”) to the perception of its everyday pricing to the differentiation of its banners isn’t as sharp as it once was.

McCann is keenly aware of this (his intelligence quotient is at an extremely high level) and perhaps believes that radical culture surgery is the only way to turn to get the ship moving forward at full speed again.

However, unlike most other retailers we’ve written about that are in change mode, Ahold is not in trouble. At least not yet. The company remains the largest supermarket chain in the Northeast. It’s got the finest or among the best locations in most of the large metropolitan areas in which it operates (Boston, Providence, Hartford, Metro NY, Philadelphia, Central and Northeast PA and Baltimore-Washington) and a number one or two market share in all those areas to boot. And in areas such as consumer research, technology and digital marketing, Ahold remains an industry leader.

McCann’s awareness of the big picture is certainly an asset. And one or two quarters of flat or declining sales can partially be attributed to the re-culturization and the implementation of new programs (along with the above mentioned outside factors). But nobody in business today has a long leash and without better results both McCann and Boer know they are also vulnerable and could become candidates to “retire.”

And speaking of “retirement,” how about Herb Ruetsch’s seemingly sudden sayonara vacation cruise from Fairway? Reutsch, who had been with Fairway since 1998 and was named CEO two years ago, was reportedly offered a great “retirement” package to get out of Dodge as quickly as possible (he will remain a “special advisor.” Then again, isn’t “retirement” alone something special?) His departure might be linked to Fairway’s recent financial statement. In its third quarter ended December 29, the now publicly-traded supermarket “like no other” lost $31 million and saw ID sales dip 1.7 percent. Its stock price also plunged significantly (on February 13 shares were trading at $7.34, an all-time low since its April 2012 IPO launch. Fairway’s share reached $28.87 last July).

Current president Bill Sanford will become interim chief executive, and executive chairman Charles Santoro will remain in his post (both Santoro and Sanford are connected to Sterling Investment Partners, the private equity firm that gained control of Fairway in 2007 and helped engineer the plan to go public).

The Manhattan-based retailer also noted that it plans to cut $3-4 million in annual overhead as a means to bring the company to profitability (it has lost money each of the three quarters it has reported earnings) and is searching for a permanent CEO.

So, here’s the big issue with Fairway. As merchants they are wonderful. Fairway’s stores are unique in the way they are merchandised, in the products they offer (particularly fresh) and in their ability to really create a positive and differentiated shopping experience.

However, in the early going (and it’s still very early) there are too many moving parts, and as merchants among its senior leadership team, only co-president Kevin McDonnell has the hands-on industry experience required for such a special brand of retailing (Ruetsch, too, has a supermarket background, having worked for Grand Union for about 16 years).

That’s not meant as a knock against Santoro or Sanford, clearly two very bright men who have been instrumental in developing a strategic plan for Fairway. But that plan may also have flaws.

The company’s stores in Manhattan and Brooklyn are killers. With high volume units in a densely populated area and an extremely loyal customer base, Fairway is best in class at most of its locations. But its newest store in Chelsea isn’t hitting it as far as its other urban supermarkets and its two newest stores planned for Manhattan – in the Hudson Yards and in Tribeca – are costly start-up projects. Whole Foods and Trader Joe’s are expanding, too, and pose a real threat to Fairway’s dominance.

Furthermore, Fairway’s expansion efforts outside the five boroughs have brought mixed results. Certainly, the stores are doing enough volume to eventually become profitable. But most of those stores aren’t going to generate the same level of sales when compared to their sister city stores. And it’s clear that the savvy “foodie” mentality that successfully connects with Fairway’s shoppers in Red Hook or on Broadway isn’t as strong in the suburbs.

Prior to the IPO last spring, Fairway executives envisioned a plan which could find stores stretching from Boston to DC – as many as 90 stores in all, including up to 40 in the Metro NY area. Forty stores in the New York metropolitan area – perhaps that’s possible. Beyond that 50 mile radius, as good as the Fairway shopping experience can be, I just can’t see it working in the Boston, Philly and Baltimore-Washington areas where there are far fewer “foodies” and many more “shoppers” who won’t be able to appreciate Fairway’s unique offering. And that’s assuming the regional chain can improve its infrastructure and execution levels and ultimately its bottom line.

In the long-term, maybe it’s best for the psyches of Messrs. Herring and Reutsch that they won’t be around to witness the radical changes that lie ahead at their former organizations. They’ve paid their dues and earned the respect of many in the trade. They’ve both had stellar careers.

But couldn’t they have just resigned or been fired? At their ages and with their job skills, I’m betting it won’t be long before each of them makes a remarkable comeback from “retirement.”