Taking Stock

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ShopRite, Wegmans, Trader Joe’s Continue To Drive Sales As Most Others Feel The Squeeze Of Competitive Gridlock

It’s hard to believe that “The Great Recession” is now six years old. And while consumer confidence has improved slightly, the lingering effects of the prolonged economic slump have burned a lasting “mindset of thrift” into most Americans, even those fortunate enough to be in the higher economic strata.

That’s only one reason why so many food retailers once again found the retail landscape extremely challenging and difficult over the last 12 months. Throw in even more overstoring, differentiation of retailing styles and formats and an 11 percent reduction in SNAP (food stamps) benefits and you’ve got trouble in “RiverCity” for most retailers.

That’s not to say that everybody did poorly (although there was a growing number of merchants where sales declines were noteworthy). Most of the “winners” of the past few years – those who proved themselves recession-proof and somewhat undaunted by the fierce competitive climate – remained ahead of the curve.

Those included ShopRite, Wegmans, Whole Foods, Aldi and Trader Joe’s. Other retailers that were usually seen on that “dean’s list” such as Stop & Shop, Wal-Mart and Target all had years that were below their previous standards.

Above all other factors, the level of competition remained the biggest obstacle most retailers continued to face in the $93.1 billion, 70-county market. If you think the region is already so oversaturated that a new store (typically entering at a premium real estate cost) couldn’t possibly open in a given neighborhood or marketing territory, you’d better think again. There’s a strong likelihood that a new retailer will be opening across the street from you nine months later; it could be a Costco, Wegmans, Walgreens or a Dollar Tree. Whether the damage comes from carpet bombing or a thousand paper cuts, it all has an adverse impact on the existing retailers, and by class of trade, usually has the greatest impact on the supermarket channel.

Deep pockets? Virtually all the “growth merchants” possess those. The days of scaring off a group of independents or a small regional chain are over. Today, the competition is truly a heavyweight “mano a mano” battle. That may extend the surrender time for the losing retailer, but it doesn’t blunt the impact of the damage done. With so many styles of retailing now in play, it also makes defending against so much diversity an even more difficult task. That’s especially true for many conventional supermarket retailers.

Along with the measurable reasons why business is currently so difficult comes the financial mumbo jumbo that we’re forced to absorb. “Unemployment is on the consistent decline” and “job growth has significantly improved” are typical of the headlines we’ve seen over the 18 months. Really? And how is this manifesting itself in real sales growth in the overall economy? Unemployment numbers truthfully are somewhat irrelevant when you consider that many of the people who have re-entered the job market have done so at lower level jobs than they had previously held; and so many people remain underemployed despite the “fact” that actual unemployment is on the decline. While big boys such as ShopRite, Wegmans, Whole Foods, Trader Joe’s and upscale independents like McCaffrey’s or Stew Leonard’s may not be feeling as much of the sting of many people’s individual financial challenges, the still rocky, fluctuating economy is one of the primary reasons Wal-Mart has posted negative IDs for five consecutive quarters, and even the once “beloved” (by Wall Street) dollar store channel has flattened out. While there will be market shakeouts or corrections eventually, don’t expect major external changes in the next 2-3 years; however, the internal maneuverings – acquisitions and leadership changes – are already occurring.

So without further ado, here’s my annual take on the retailers operating in Food Trade News’ marketing area based on the year in review and what they may face in the near future.

ShopRite – The perennial juggernaut widened its lead in its two primary markets – New York and Philly. It operated 10 more stores than a year ago. It was among “best in class” when measuring ID sales. It’s about to open its first two member-owned Price Rite stores; its upscale Fresh Grocer banner will almost assuredly be unfurled in the near future. Wakefern’s string of successes over the past decade in increasingly difficult market conditions has an almost surreal quality to it. Despite the changing landscape, the retailers who own and operate ShopRite stores seem undaunted and almost unfazed by the new more ferocious level of competition. Although food retailing has always been a difficult and challenging business, ShopRite makes it seem effortless (although we know it’s not). There’s no reason to expect any stumbles in the next few years and there could be even more fruit on Wakefern’s plate if A&P elects to unload some stores. This lineup is loaded.

Giant/Carlisle – While parent firm Ahold USA lost significant traction across its network over the year, the only non-union division of the large international merchant more than held its own. In its core Central PA market, nearly one-third of all food and drug sales flow to G/C and in the eight-county Greater Philadelphia area Giant now is the leading retailer for the second straight year (in the broader 15-county Delaware Valley market, ShopRite is the market leader). In March, the company replaced popular president Rick Herring with industry veteran Tom Lenkevich (most recently with Save-A-Lot and a Central PA native) as AUSA COO James McCann attempts to make all four U.S. divisions more operations and merchandising-oriented with greater emphasis on private label and perishables. So far the new plan is off to a slow start corporately, but Giant’s favorable share positions, strong customer loyalty and excellent locations have helped the Carlisle, PA-based retailer maintain solid numbers.

Stop & Shop – The distance between the closest Giant/Carlisle and Stop & Shop stores is about 55 miles, but there’s a bigger gap than that in terms of results and progress. Competitive market conditions in Metro New York area stores really stifled Stoppie’s progress over the past 12 months. The leadership switch from Carl Schlicker to the aforementioned James McCann also has proved to be a less than smooth transition. Let’s face it – it’s tough to slug it out with ShopRite, Wegmans, Wal-Mart, Costco, Whole Foods and Trader Joe’s on a daily basis. But some of Stop & Shop’s issues are of their own making. The stores are becoming too vanilla and the new real estate pipeline is no longer flowing, it’s trickling. Even the A&P carcass, which competitors have feasted on for years, has been picked pretty clean. If Stop & Shop wants to prosper as it did only a few years ago, it’s got to make a better connection with its customers on price, perishables image and the entire shopping experience. 

A&P – I hear “Taps” in the background. The music’s getting louder. Yes, I could write the same scathing analysis of the Tea Company as I did in 2013…and 2012…and 2011…and…As bad as it’s been, it really was worse this year because under any banner’s view, sales are even poorer. Yucaipa and Burkle have already utilized the company’s cash flow to its advantage and also prospered from its solid real estate portfolio. But selling more groceries? Please don’t insult us. What’s next? A bigger store sell off? More store closings? Seeking Chapter 11 bankruptcy protection again? There’s a Gilbert Gottfried schtick called “Death or Oog-Goo?” It’s very profane and extremely funny. Listen to it and you might find a connection.

Wal-Mart – We all know by now that Wal-Mart had one of its poorest years ever. But don’t mistake Wal-Mart “poor” for A&P “poor.” The old adage “everything is relative” applies here and after five consecutive quarters of negative ID sales, Wal-Mart’s sales patterns bear watching. But this is far from an impending train wreck. Look at the average per store sales, examine the customer counts and scrutinize basket sizes. All are still well above the industry average. But there’s no denying that the Behemoth certainly has been tamed to a degree as competing retailers know how to better deal with Wal-Mart’s strengths and also attack its weaknesses. The Bentonville, AR merchant still has about a dozen SuperCenters (net new units or conversions) scheduled to open in the relatively near term and look for more Neighborhood Markets to open in the 70-county region (the only one in the market currently is located in Levittown, NY). Now that Wal-Mart has been shaken a bit, expect the internal stirring to accelerate and pay dividends again within the next 18 months.

Acme Markets – Enjoyed its first good year in a decade. Part of the recent improvement at Malvern-PA based division of Cerberus/New Albertson Inc. lies in the professionalism, talent and insight of its management team corporately (Bob Miller) and locally (Jim Perkins) when compared to the last three Supervalu and Albertsons clowns, I mean chief executives – Larry “The Milkman” Johnson, Jeff “I Know Nothing About Retail” Noddle and Craig “The Spinmeister” Herkert. Miller, Perkins and their leadership teams have executed the basics skillfully – the stores are cleaner, retail pricing has been rationalized, more local decision-making is encouraged and morale among the associates has improved (but these areas will still need more attention). Over the past year, Acme seemed to have regained its soul. Now the question is: can it retain that vibe and improve their mojo going forward? It won’t be easy since Cerberus isn’t committing to a lot of capital expenditures for new or replacement stores, the competition remains very tough and Acme’s relationship with the UFCW remains somewhat rocky. How will the numbers look once Acme has to recycle its much improved first year ID sales? All told, give these guys credit – they’re helping make Acme a more enjoyable place to do business and they’re having lots of fun doing it.

Wegmans – With the addition of only one new store this year – in King of Prussia, PA – it wasn’t an especially explosive year for the Rochester, NY-based regional chain. But, that’s not the point. With each new 125,000 square foot store drawing from a legitimate shopping range of up to 15 miles, Wegmans can have an impact on a local market more than any other retailer in the Northeast. Wegmans will continue to gain steady market share growth without the quantity of stores typical of other retailers. And in the next few years when the family-owned merchant opens stores in Concordville, PA, Montvale, NJ and Hanover Township, NJ its coverage net will only become wider. Additionally, with the recent opening of its new smaller (80,000 square foot) prototype in tony Chestnut Hill, MA, the uber-retailer has proven it can get most of its package in a store that’s 40 percent smaller than its larger models. That reduced footprint potentially gives the family-owned merchant markedly better opportunities to penetrate more demographically favorable areas that were not accessible before due to real estate challenges. A Wegmans in CenterCityPhiladelphia? Perhaps an 80,000 square footer near the Main Line? A new Wegmans in emerging yuppie haven Brooklyn? It’s certainly more plausible than a year ago. And one more thing about Wegmans: Over the past 18 months, I’ve heard several industry executives comment that the retailer’s in-store execution has slipped a bit and they’re not as sharp as they were five years ago. My response: pure fiction. Sure, every day might not appear like a grand opening celebration and, by 6:00 p.m., their stores might look a little beaten up. But by comparative standards, Wegmans continues to execute at the highest industry levels. Just check their customer loyalty scores, their average basket size and their sales rings against all comers.

Weis The numbers indicate that it was not a good year for the closely-held publicly-traded retailer. But the numbers are only part of the story. When Dave Hepfinger left last September and vice chairman Jonathan Weis became chief executive and promoted Kurt Schertle to COO, a fundamental change was about to occur. No more cronyism, no “margin tricks” to make the earnings look palpable. The new management team, which continues to evolve and adds more talented industry veterans, is now fully-focused on sales. So you can expect the bottom line to suffer for a few more quarters before the repositioning is complete. The blueprint is already in place and I expect Weis to grow sales and share, especially against its main rival, Giant/Carlisle, if that unit of Ahold doesn’t improve its go-to-market package. Giant’s share of Central Pennsylvania and the LehighValley is so large, it’s a big target and you can expect Weis to go directly after it. The Sunbury, PA-based chain still has a lot of heavy lifting to do, but the new leadership is demonstrating that it’s not afraid to spend extra time in the weight room. 

Wawa – The best c-store strategic plan in the country. The Wawa, PA-based convenience store chain hasn’t seemed to miss a beat over the last 18 months since iconic CEO Howard Stoeckel retired and was replaced by the company’s former CFO Chris Gheysens. Besides a high level of execution (a very hard task to achieve at a c-store chain), Wawa has witnessed an excellent customer response with its Florida expansion plan which began in 2012; it now operates nearly 45 stores in the Orlando and Tampa-St. Petersburg markets. The new foodservice-oriented store design looks great and the company’s slow but steady expansion into North Jersey is also going well. The employee-owned organization sports a great culture filled with creative, innovative and passionate associates. Wawa is truly a unique organization – what other c-store operator in the country ranks as high as third among all food and drug retailers in a market comparably sized to Philadelphia?