Taking Stock

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‘Round The Trade 

More Wegmans news: two of the mega-grocer’s in-store “Pubs” have been remodeled. The in-store restaurants in Malvern, PA and Collegeville, PA now feature a new décor package and updated menus. All told, there are five Wegmans “Pubs” in its Pennsylvania stores – King of Prussia, Montgomeryville and Allentown are the other three…just before presstime we learned that Ahold has agreed to settle a class action suit concerning the pricing practices of U.S. Foodservice during the period 1998-2005 when the large Dutch company owned the foodservice supplier (it sold the large institutional distributor in 2007 to two private equity firms for $7.1 billion). Under the terms of the agreement, Ahold will pay $297 million into a settlement fund in return for a release from any claims by all participating class members relating to the pricing practices.…the Inserra’s ShopRite in New Milford, NJ reopened earlier this month. The store had been closed for two months after a winter ice storm collapsed the roof. During the closure, the Bergen County unit was also remodeled with the addition of new flooring, a coffee shop and a redesigned store layout…The Fresh Grocer’s first New Jersey store, a 50,000 square footer which opened in a food desert area of New Brunswick less than two years ago, has closed. The reason: underperformance. “We believed The Fresh Grocer to be an experienced supermarket provider that would provide the residents of New Brunswick with access to a variety of fresh and healthy foods, Unfortunately, their success in the Philadelphia area did not translate to New Brunswick. After months of discussions, negotiations and efforts to come up with a suitable arrangement, we were not able to come to an agreement that would allow them to continue operating here,” said New Brunswick Mayor Jim Cahill… congratulations to the entire leadership team at Boyer’s Markets. The Orwigsburg, PA independent has announced that it will build its first ground-up store in decades. Construction has begun on a new 27,000 square foot unit in Birdsboro, PA (Berks County), which they hope to open before the end of this year…concerning Weis’ recently released first quarter earnings, which were a bit disappointing, I have to agree with chairman Jonathan Weis’ thought that driving sales is a greater short-term priority. Over the past six months, Weis has refocused on moving more cases with aggressive merchandising and advertising programs. That’s going to impact margin and profits and in time, if Weis stays the course, both sales and earnings will improve. The “back your way” into meeting earnings guidance by raising prices, cutting infrastructure and reducing labor almost always yields short-term results that ultimately produce adverse results…a tip of the hat to the Greater Philadelphia Chapter of the ALS Association, members of the RMG group (Thriftway/Shop ‘n Bag) and the Philadelphia Phillies for their efforts in this month’s annual “Phillies Phestival,” held at Citizens National Bank park. Former Fleming executive Jim Pinciotti, currently executive director of the Ambler, PA chapter of the ALS Association, is doing a marvelous job in helping create awareness about the dreaded affliction while also working with many medical facilities and business organizations in raising money to find solutions to a disease that still remains incurable… Supervalu continued to improve its financial performance with the announcement late last month that its fourth quarter earnings rose to $26 million for the period ended February 22. That compares to an operating loss of $174 million in the corresponding period last year, which marked the final full quarter of disastrous leadership under former CEO Craig Herkert. Fourth quarter ID sales increased 2.1 percent at its Save-A-Lot unit and 0.2 percent at its group of regional chains – Shoppers Food & Pharmacy, Farm Fresh, Cub, Shop ‘n Save and Hornbacher’s. “Fiscal 2014 was an important transition year for Supervalu as we stabilized the organization and set the foundation for our future,” said CEO Sam Duncan. Sales at the company’s independent (wholesaling) division dipped 0.6 percent to $1.82 billion. While the numbers are certainly impressive given the warm pile of manure that Duncan and his new management team inherited, there are still some red flags to keep an eye on. The way Supervalu is currently structured, Save-A-Lot remains by far its most valuable asset. Word on the street has it that banking agreements that would not allow Supervalu to sell any of its assets are due to expire in September of this year. It would be very reasonable to visualize that controlling partner Cerberus Capital Management would look to monetize its strongest unit, and the real estate and market share that Save-A-Lot controls would certainly be of interest to several potential buyers. With regard to its group of regional chains, although there was slight improvement this past quarter, none of them has shown any significant growth patterns over the past five years. Nor has Supervalu been inclined to spend significant cap ex monies to improve current stores or, more importantly, build new ones. As a matter of fact, trade reports have recently surfaced that Supervalu has been listening to offers for its Farm Fresh and Shoppers regional chains, something that the company has denied. As for wholesale, while it’s still a significant chunk of SVU’s business, it is the most fragile of the Eden Prairie, MN firm’s “three legged stool.” It would be hard to imagine that a business whose customers are committed through short-term contracts would be able to sustain itself as the prime entity in a publicly held firm if Save-A-Lot (or SVU’s regional chains) were sold. More Supervalu news: the company has elected Frank A. (Terry) Savage and Mathew M. Pendo to its board of directors, effective April 24. Savage and Pendo were both appointed to the board as designees of Symphony Investors LLC, a Cerberus Capital Management L.P.-led investor consortium. They replace Mark Neporent and Lenerd Tessler, who recently resigned due to conflicts concerning parent company Cerberus’s potential acquisition of Safeway. Additionally, Supervalu stands to be the big winner in the recently announced sale of 18 Rainbow Supermarkets in the Minneapolis- St. Paul area for $65 million in cash. Rainbow’s parent firm Roundy’s sold the stores to Supervalu and several of its independent retailers, including Lund Food Holdings (three units). Roundy’s said it is actively seeking additional buyers for its nine remaining Rainbow stores, and at the conclusion of that process expects to either sell or close those remaining stores and fully exit the Minneapolis/St. Paul market. In other related news, Bob Miller, currently CEO of Albertsons LLC (another Cerberus unit), recently told students at BoiseStateUniversity that his company might consider changing banner names once the Safeway acquisition is completed. He added that decentralization will remain a key part of the newly expanded organization, saying, “I think we have a really great structure that gives people authority and responsibility at the local level that make our company successful. In other words, I don’t have to look too much.” There’s some “pushin” & “shoving” at one of Miller’s key divisions. – Acme Markets. The tussle involves Acme’s need to negotiate for planned obligated increases to its multi-employer employee benefit fund with UFCW Local 1776. Acme emphasized that it will continue to pay current rates while negotiations continue on a new contract. The Malvern, PA based retailer has noted that its associates in Local 1776 had health care costs that were 25-100 percent higher than the four other UFCW Locals which represent Acme, and its costs were 400 percent higher than the national average. Local 1776 claims that Acme failed to make the required contributions to its joint welfare fund, noting that Acme owed the plan more than $1.6 million as of December 2013. As of April 26, both sides agreed to extend their labor contract for an additional 60 days…in national news of note, Safeway reported a net loss of $76.5 million in its first quarter while also posting overall revenue and identical store increases (excluding fuel) of 1.0 and 1.8 percent respectively. The Pleasanton, CA chain is currently in that “gray period” of waiting for its sale to Cerberus to be completed by the fourth quarter of fiscal 2014. And according to an SEC filing by Safeway, Kroger may have been closer to acquiring the big West Coast-based firm than many thought. According to the proxy, Company “A” (believed to be Kroger) contacted investment firm Goldman Sachs to inquire about its interest in selling all or part if the company. After nearly a month of discussions beginning in late February, Company “A” decided not to make a firm bid, citing costs associated with anticipated divestitures would not ultimately yield a sufficient return on its investment. Back to Kroger’s other big recent deal – Harris Teeter. The first clear linkage between the two chains is starting to become visible. The Matthews, NC retailer, which is operating as a separate unit, has lowered thousands of prices in its stores in several North Carolina markets, including its core market in Charlotte. “Over the years, our customers have asked us to lower prices and we’ve listened by introducing various pricing and promotional strategies which drive value to them. This new program is the big change our shoppers have been asking for. Through our recent merger, we have achieved better efficiencies and have chosen to reinvest those savings into, among other things, lower prices for our customers,” said Catherine Becker of Harris Teeter. Expect the lower price initiative to spread across the entire HT spectrum, including the Baltimore-Washington market, where it could significantly impact market leaders Giant/ Landover and Safeway…one of Harris Teeter’s prime competitors, Food Lion, continues to show improvement. The U.S. unit of the parent company, Delhaize America (Food Lion, Hannaford and Bottom Dollar Foods), posted a 4.1 percent revenue gain in its first quarter. However, underlying earnings decreased 8.2 percent to $155 million, reflecting price investments at Le Lion, and Hannaford. Delhaize CEO Frans Muller noted that competitor Market Basket’s (Demoulas) four percent price cutting plan impacted Hannaford’s margin…and while the battling family factions at Market Basket are at least for now not having an adverse impact on day-to-day operations for the Tewksbury, MA based supermarket company, the skirmish behind the scenes continues. Arthur T. Demoulas, the president of the high volume 74 store regional chain, recently sent a letter admonishing the company’s board for replacing the retailer’s company-based trustees with an investment advisory firm, Evercore, based in Manhattan. While Arthur T. remains the leader of the company, his estranged first cousin, Arthur S. Demoulas has control of the board. It’s a nasty internal situation, given the fact the Arthur T. still has the firm support of the rank and file associates and current senior management…no major surprise in the ouster of Target CEO Gregg Steinhafel, who paid the ultimate price after the company’s massive security breach of late last year that occurred on his watch. Steinhafel, who spent 35 years with the Minneapolis-based mass merchant, has been replaced on an interim bases as chief executive by current CFO John Mulligan. Current board member Roxanne Austin has been appointed non-executive chairwoman. And just before presstime Target announced that it has whacked its Canadian president, Tony Fisher, after a two year run as the catalyst for Target’s Canadian expansion in 2012. Mark Schindele has been named new president and will report to Kathee Tesija, chief merchandising and supply chain officer. In the U.S., more changes have been announced as Trish Adams, Jose Barra and Keri Jones have been promoted to executive VP positions…another so-so quarter for Wal-Mart’s U.S. stores as overall revenue increased 2 percent to $67.9 billion, but comps were off 0.1 percent in its first quarter ended May 2. Operating income dipped 4.3 percent to $5 billion. The Behemoth’s one bright spot were the gains made by its Neighborhood Markers unit, where comps gained about five percent and traffic rose 4 percent. According to Bill Simon, CEO of Wal-MartU.S., Neighborhood Markets has shown increased comparable store sales for 46 consecutive quarters. Currently operating 359 Neighborhood Markets, the planet’s largest merchant plans on opening another 180-200 new units this year…Herb Lotman, founder of Conshohocken, PA-based Keystone Foods, passed away earlier this month at the age of 80. The Philadelphia native began his career in the food industry with his family’s wholesale beef business. In the late 1960s, he helped pioneered a cryogenic process for McDonald’s which led to the development of making frozen hamburgers. Today, Keystone’s annual sales are more than $5 billion and it operates in 15 countries. In 2010, Keystone Foods was acquired by Mafrig Global Foods, a large Brazilian food processor. Lotman was also a major philanthropist serving on several boards including The Children’s Cancer Research Foundation and the Philadelphia College of Osteopathic Medicine and he co-founded the McDonald’s LPGA Championship, which has raised more than $48 million for Ronald McDonald House Charities in the 29 years since it was founded. Other deaths of note include Bob Hoskins, the terrific British actor who left this earth at the age of 71. Hoskins was best known for appearing as a live action character in “Who Framed Roger Rabbit” (1992), but some of his best work can be seen in several UK-made taut suspense films including “The Long Good Friday” (1980) and “Mona Lisa” (1986), which earned him an Oscar nomination for Best Actor. Another actor of note has also passed. Efrem Zimbalist Jr., best known for his role as FBI agent Lewis Erskine in the hit TV series “The FBI” (1964-1974). I first remember Zimbalist though from his earlier television series “77 Sunset Strip” (1958-1964), where he played swinging private investigator, Stu Bailey. Zimbalist, 95, had nearly 100 film and TV roles in a 62 year career that began in 1946. Noted crooner Jerry Vale has also passed away at the age of 83. The Bronx native (born Genaro Louis Vitaliano), chose singing over entering into his father’s excavation business (good choice). Vale recorded more than 50 albums for Columbia Records in a career that spanned more than 50 years. With Vale’s passing, except for Tony Bennett, still going strong at the age of 87, all the other famous crooners from the 1950s such as Frank Sinatra, Dean Martin, Perry Como, Nat King Cole, Vic Damone and Al Martino are either dead or retired. And not to make our readers dwell any deeper about their mortality, but here’s a sobering note to ponder: Mick Jagger just became a great-grandfather.