Taking Stock

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‘Round The Trade

Good news for two premium operators – Inserra’s ShopRite and Fairway Market – which respectively have reopened and will shortly reopen two stores that were ravaged by Superstorm Sandy last October. On February 9, Inserra’s store reopened inHoboken,NJto enthusiastic crowds and $8 million of repairs and improvements. On March 1, Fairway’s largest volume store in the Red Hook section of Brooklyn, which was also gutted by the effects ofSandy, will reopen. “Our store in Red Hook is the cornerstone of the neighborhood,” said Howie Glickberg, whose grandfather found Fairway in 1934. “I am so proud of what we have done. That store was devastated.” Fairway, which is currently in a “quiet period” while it attempts to gain enough capital support to go public (Sterling Investment Partners acquired controlling interest of the chain in 2007), is also doing well with its new Manhattan store, located in the Kips Bay section of the city, which opened in late December. Fairway plans another new unit later this year in Nanuet, NY (Rockland County)…not far from Fairway’s offices in Manhattan sits Gristede’s headquarters. The urban grocer’s CEO, John Catsimatidis, who also serves as chairman of the Red Apple Group (a mini-conglomerate consisting of oil, aviation and real estate interests), announced that he will enter the 2013 mayoral race in New York City as a Republican, seeking to fill a seat that’s been held for nearly the entire millennium by Michael Bloomberg, who is retiring because of term limits (including an extra term he helped create for himself). Catsimatidis, one of the most colorful individuals in the any industry, praised Bloomberg for helping restore confidence in New York City, but also offered this gem to politiker.com: “It’s not that I’m only a business person, I came from 135th Street(Harlem). I never forgot where I came from. I’m not a Mike Bloomberg billionaire, I’m not wearing a $5,000 suit. I think my wife paid $100 for this,” adding that his suit came from the discount rack at Joseph A. Bank. He then said he’d work cheaper than Bloomberg’s $1 a year annual salary. “I’m a grocer, I’ll work for 99 cents”…in other industry news, there’s a lot of chatter about Harris Teeter’s announcement that it is exploring its potential options for its future. The Matthews, NC upscale merchant acknowledged it has retained J.P Morgan Securities LLC as its advisor, inferring that approaches by two private equity companies caused the company to make an announcement. Its official press release states: “While it is the long-standing policy of Harris Teeter Supermarkets, Inc. not to comment on rumors regarding mergers and acquisitions, in response to certain media articles as well as to remove any disruption to the conduct of its business and its associates, the company confirmed on February 13 that it has retained J.P. Morgan Securities LLC to assist the retailer in holding discussions with certain parties regarding strategic alternatives.” Harris Teeter said it was approached by two private equity firms who expressed an interest in purchasing the company. In order to fulfill its duty to its shareholders to evaluate opportunities to increase shareholder value, Harris Teeter has will conduct discussions with certain highly qualified parties. The company said it intends to continue its strategic new store growth plan and maintain the employment of its associates in its stores, and its distribution and manufacturing facilities in Indian Trail, Greensboro, and High Point,NC, as well as at its corporate headquarters in Matthews, NC. The release added, “There can be no assurance that these discussions will result in any transaction. If a transaction were entered into, there can be no assurance as to the price, timing or other terms of such transaction.” Harris Teeter said it does not plan to provide any additional information until such discussions are concluded. The retailer currently operates 211 stores in North Carolina, Virginia, Washington, DC, Maryland, Tennessee, Florida and Delaware. So here’s my take (and that of about 20 callers and emailers who contacted me in the two days before we went to press on February 15): where there’s smoke, there’s fire. In my 40 years of covering this industry I’d say 90-95 percent of all “explorations” have ultimately led to sales. And to drill into the Harris Teeter scenario a bit deeper, the company, while publicly-traded, is closely held by the (non-grocer) Dickson family, where it seems there is no logical successor to perpetuate the business, which now only consists of Harris Teeter Supermarkets. Last year one of the company’s patriarchs Alan Dickson passed away at 81. His brother Stuart is 83, and no longer serves on the board, but his son, “Tad” is currently CEO of the company. Fred Morganthall, one of the most talented retail executives in the entire business, has skillfully served as president since 1997. As one of our readers noted, “You always want to dance with the prettiest girl at the prom,” and Harris Teeter has never looked better. Its stores are in great shape, its sales and earnings are solid and its share price continues to rise, performing well ahead of its industry peer group. So are there perpetuation issues, estate issues at play here, or just a need to seek an objective appraisal of its worth? From any perspective, there’s already a lot of buzz and interest. Aside from the two PE companies who have expressed their desires, Ahold, Kroger and even Publix, which already has begun a planned major market expansion into Charlotte, are all likely candidates to at least perform significant due diligence once a “book” (prospectus) is made available…another North Carolina based retailer, Delhaize America (DA) is also making news, but this ain’t the kind of news that will make you applaud. Roland “Chainsaw” Smith, who replaced the retired Ron Hodge as CEO last October, has already gutted his management staff and announced that about 45 stores (Food Lion, Sweetbay and Bottom Dollar units) would close by the end of this month. To perform that kind of whackin’ in only three months is quite remarkable. Clearly beleaguered DA needed a major overhaul, but the fear here is that Smith really hasn’t recruited any notable replacements from the outside or promoted broadly from within the ranks of the Salisbury, NC retailer. He seems to have essentially given more responsibility to those executives who made the cut. That’s putting enormous pressure on those who have taken on more responsibility without any visible payoff thus far at store level or with sales. In the past few weeks another round of layoffs was announced; this time 350 associates (500 if you include 150 “open” positions) above the store manager level were riffed. Smith’s mandate clearly is to “change the view” at the struggling Belgian-owned retailer, but you’ve got to wonder how this will pay off in the long run without a discernible new game plan…one former Delhaize America executive has found a new home. Rick Anicetti, former Food Lion CEO, has re-emerged as interim CEO of 99 Cents Only stores, a Los Angeles based dollar store merchant that was acquired last year by private equity firm Ares management and the Canada Pension Plan Investment Board for $1.6 billion. Anicetti, who abruptly left Food Lion in 2010, has served on the 99 Cents Only’s board for the past eight months. He replaces Eric Schiffer, part of the family management team that sold the company, which operates 311 discount units in California, Texas, Arizona and Nevada…as we noted last month, fast growing Flowers Foods is in another expansion binge. The Thomasville, GA-based baker, which acquired Tastykake in 2011, has agreed to purchase the prime time bread brands and bakeries from Hostess, which closed up shop in November following its second bankruptcy. Flowers will acquire Wonder Bread, Nature’s Pride, Butternut, Home Pride and Merita as well as 20 former Hostess bakeries and 38 depots for $360 million. In a separate deal, Flowers has agreed to acquire Hostess’ Beefsteak brand for $30 million. Now two other private equity firms – C. Dean Metropolous & Co. and Apollo Global Management – have emerged as the lead bidders to acquire Hostess’ snack cake business (Twinkies, HoHos, Ding Dongs, etc.) and McKee Foods (Little Debbie) is set to acquire the company’s Drake’s line of products (Devil Dogs, Yodels, Ring Dings, etc.)…and just before presstime, Warren Buffet’s Berkshire Hathaway group and Brazilian businessman Jorge Paulo Lemann, principal in 3G Capital (a couple of billionaires who happen to be personal friends), have agreed to acquire H.J. Heinz for $28 billion including the assumption of $4 billion in debt. Both parties will control 50 percent of the acquisition. That’s a whopper of a deal especially for Lemann, whose firm acquired control of Burger King in 2010, and might know a little bit about ketchup consumption.