Taking Stock: Healthcare Concerns Shorten UFCW Pacts With Giant, Safeway

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I learned many moons ago that mixing politics with my brand of industry analysis is a stone cold dead end. So while this opinion piece about the recent UFCW contract agreements with Giant/Landover and Safeway may have political overtones, it is by no means a polemic against either political party.

I’m talking about two huge national issues that impacted these recent contract negotiations – health care and the gross underfunding of many union/employer pension plans.

And while we all debate operating styles, merchandising plans and market share gains and losses, these two issues have real potential to irreparably harm this great industry and many others as well.

I suppose it’s good news that labor and management once again smoked the peace pipe and, despite the back and forth shoving that occurs during bargaining, mutual settlement ground was reached. Certainly, it beats the alternative.

But the fragility and future uncertainty concerning the Affordable Care Act (“Obamacare”) has put this country into such frenzied political polarization that we’re actually in worse shape now than before 2010 when we had a seemingly crippled system controlled by insurance companies and Big Pharma.

Why is it worse now?

Because Blue Cross, Kaiser Permanente, Merck and Pfizer still control the ball, but now the retail clerk, the small-business owner and the plumber’s assistant have become even less meaningful while idiots like Senators Charles Schumer and Mitch McConnell feel the need to defend their positions (and ideologies) at the expense of any real progress.

As for the underfunding of so many pension plans that affects hundreds of industries (and millions of workers), that discussion might not be as politically inspired, but will almost certainly have a political solution in many cases.

Yes, it’s unfortunate that poorly run companies have been driven out of certain marketplaces (in Baltimore-Washington former pension fund members Grand Union, Food Fair and Food-A-Rama aren’t even around, and two other chains – A&P and Acme – withdrew from the B-W  market, but still exist in shrunken versions from their halcyon days). Those departures have placed a tremendous burden on the existing contributing chains which must pick up the slack of those members that have left. But that’s not the only reason for the deep deficits. For the past 15 years, the unions and chains collectively have not been able to make progress on reducing liabilities as more associates enter the system, more retire (through normal attrition or buyouts) and the aneurysm continues to grow to the point that the bubble will burst in many cases leaving retired workers (who counted on the pensions) with reduced payouts and current employees wondering if their retirement plans will be protected. Of course, you can also put some blame on poor decisions made by pension fund administrators and some lawlessness, too. But for too long both management and labor have failed to aggressively and collaboratively tackle these growing shortfalls aggressively.

And like General Motors in 2008, it’s not going to be a pretty day when a 30-year retail clerk who has toiled tirelessly for his or her employer finds out that his or her retirement benefit is worth 30 percent of its original value.

Hey, I’m happy that once again at the 11th hour Baltimore-Washington’s two largest retailers and the two largest labor organizations in the food industry have come to a mutual agreement.

However, until real national progress is made in health care policy and pension reform, this seems like a hollow victory for both sides.

St. Joseph’s University Food Summit Once Again Provides Great Learning Experience

We’ve long praised St. Joseph’s University for providing the best academic forum for preparing graduates of its food marketing program to enter the grocery industry. The entire Food Marketing Enterprise also offers us industry veterans with some wonderful learning opportunities.

One of the best “opportunities” is SJU’s annual Food Industry Summit, now in its sixth year. Without exception, all of the “Summits” have been interesting, lively and thought provoking. And while at first blush, you might think that this year’s theme “Eat With Us…Leveraging Digital Technology for Profitable Meals” may not have been meaty enough for those primarily interested in retail, a closer examination would produce a different perspective.

As the grocery industry as a whole continues to undergo great change, one emerging commonality is that all segments of the food business are becoming more interconnected.

Last year’s summit focused on the growing importance of social networking and digital marketing as its primarily affected retail channels.

Many of the same themes were discussed again this year, but with a foodservice twist.

Todd Hale, VP-consumer and shopper insights for Nielsen kicked off the forum and noted the importance of convenience and quality and the growth of the “foodie” movement, particularly on college campuses. He stated that that health and wellness are gaining even more momentum, with chains such as McDonald’s testing items like apple fries as “better for you.” Hale asserted that the line between the retail and foodservice channels is becoming more blurry, but noted common factors impacting both segments include continued spending restraint and increased use of social media (e.g. Houlihan’s tweeting live on billboards in Chicago and ShopRite utilizing YouTube to demonstrate recipes using its private label products). In further illustrating the ambiguity between channels, Hale noted these up and coming “hot” concepts: healthy vending machines, gourmet food trucks and using your iPad as an “instant sommelier.”

Hale was followed by Larry Pulliam, executive VP of Sysco, who has been with the nation’s largest foodservice distributor since 1987. Pulliam entertained the audience of more than 200 industry executives with the early history of Sysco and some of his personal experiences in his 25 years with the company. One hilarious story involved Pulliam’s sudden shift from warehouse manager to chief information officer when he couldn’t even turn on a computer. And while Pulliam is certainly “old school” (the business needs more people like him), his message was very timely: technology is vital, but nothing is more important than the relationship between Sysco and its customers.

Kim Bartley, VP-marketing and menu development atWhiteCastlerestaurants followed Pulliam and was very entertaining and insightful in her own right. Bartley emphasized the importance of creativity and risk taking in competing against bigger quick serve restaurants like McDonald’s and Burger King. As a privately-held organization with only 410 company-owned stores nation-wide, Bartley noted that thinking outside the box was integral toWhiteCastle’s success. She illustrated how her company has benefited from social media marketing by promoting such unique entities as “Finger Football” and offering reserved seating on Valentine’s Day. “We’re fully aware that social networking can accentuate our brand, separate our brand and reinforce our brand image,” she said.

Prior to lunch, Brendan Foley, president of Heinz’sU.S.foodservice business addressed the group, and what an impressive speaker he was. It doesn’t hurt that the man possesses a 30 pound brain, but Foley’s intelligence was combined with a very interesting presentation about customer engagement and digital marketing. Foley noted that improving how Heinz connects with its customers is a key first step to a successful relationship. That would include blogging, which has led to making available more detailed nutritional information. On-line customer feedback has also helped the company develop a “frequently asked questions” link and a new mobile application. “The potential of the Internet is endless,” Foley explained. He viewed its potential as a kind of “virtual” salesperson for Heinz. More specifically, he demonstrated a board game Heinz developed with one of its key customers – Chili’s. In 21 days, the “mash up” contest generated 39,000 fans and nearly 3,300 winners. He then showed a short “web film” designed to create excitement over the packer’s new “dip and squeeze” ketchup pack. which has proven to be a big winner particularly at customers like Chick-fil-A. And Heinz has also been successful in using the web as a platform to introduce its new “plant” bottle (the technology is licensed from Coca-Cola). Heinz’s theme was “plant one on every table” and its eco-friendly, sustainable message resulted in two million visits to its website and one million mobile application hits.

Leading off the afternoon session was Mark Allen, CEO of the International Foodservice Distributors Association, the primary trade group representing foodservice distributors. Allen brought the audience up to speed on the industry global standards supply chain initiation (GS1) which hopes to have items representing 75 percent of all foodservice revenue GS1 standardized by 2015.

Allen was followed by Edna Morris, another “old school” foodservice veteran who had executive stints at Red Lobster, Quincy’s and Blue Coral Seafood & Spirits. Today, Morris is a managing director at Axum Capital Partners, a private equity company. She is also CEO of a new restaurant concept, CityRange. Much like Larry Pulliam, Morris spoke with passion on customer engagement: “Marketing is the entire product, not just the guest experience.” She framed her view of the new digital age by noting its “immediacy;” the “loss of control” that comes with the speed and reach of the Internet; and the “transparency” that the web offers. Morris noted that the fundamentals of positive customer engagement aren’t much different than when she began in the industry 30 years ago, but grasping the speed of the digital age is much faster so we all need to “get our agility muscle in shape.”

Danna Vetter, VP-customer strategies for Aramark, was arguably the most intuitive digital marketer of all the speakers. Like several of her predecessors, Vetter spoke about the importance of customer engagement. She noted how the consumer decision process has changed and explained that marketers must understand that a combination of knowledge and engagement can create a competitive advantage. She also told the audience that mobile media is emerging as a dynamic marketing tool and that today’s “connected consumer” most likely owns a smart device, is utilizing digital signage and is a significant social media user. Hearing Danna Vetter speak so fluently about digital marketing was very impressive.

Wrapping up a full day of brain food was the venerable Howard Stoeckel, chief executive of Wawa. Having heard Howard speak many times, the takeaway is always impressive. In his fluid and low-key manner, Stoeckel talked about Wawa’s history which dates back to 1803 (“from cannonballs to meatballs”), and the retailer’s upcoming expansion intoFlorida(TampaandOrlando), where the dynamic c-store retailer will debut this fall. He noted that Wawa’s gas and convenience store foundation will remain in place, but theSunshineStateunits will have more of a restaurant look with space for outdoor dining. With nearly 600 stores now in five Mid-Atlantic states, Stoeckel said plans call for an additional 300 units inFlorida. And in his typical humble manner, Stoeckel praised the effort of Wawa’s associates (who own 30 percent of the company) and the difference that servant leadership has contributed to Wawa’s success. And if anybody doesn’t know how successful Wawa really is, consider these factoids: Wawa is the number three retailer from all channels of trade in theDelawareValley; it’s the number eight seller of coffee in theU.S.; and it controls 1.5 percent of all gasoline sales in the country (although its sells gas in only 286 stores).

A great way to end a productive day with one of the top CEOs in the entire grocery business delivering a very relevant message.

‘Round The Trade

Wal-Mart is clearly “walking the talk” when it comes to pricing aggressiveness. Numerous suppliers have told us that Wal-Mart is pushing back hard against price increases (“it reminds me of the 90s,” said one vendor) and is also taking its pricing image to the competition. More specifically, the Behemoth is looking to reduce grocery prices by $1 billion. It conventional units and SuperCenters generated about $145 billion in sales last year (55 percent of total U.S. sales vs. 53 percent the prior year). In the Charlotte, NC market, where the chain is the market leader, Wal-Mart recently debuted a series of ads featuring head-to-head pricing comparisons with its closest rival, Harris Teeter. Expect this program to expand to other markets, especially where Wal-Mart’s primary competitor is not a “price player.” And expect Wal-Mart’s new “small format” model to begin making inroads later this year in the northeast. Retailers and developers have both told us that Wal-Mart is aggressively seeking sites in the 30,000-60,000 square foot range in metroNew Yorkand theDelawareValley. The Behemoth has already committed to build six units in Washington, DC and 12 stores in Chicago and six in Washington, DC, areas it believes to be vastly underserved …Whole Foods, whose earnings and ID sales have been the best in the entire retail food industry, cut the ribbon on the former Genuardi’s unit in Glen Mills, PA on March 14 and I was very impressed with how they reformulated the 38,000 square feet of space they had to work with. That store, which was originally slated to be built inWilmington,DE, will certainly affect both Acme’sConcordville,PAunit and The Fresh Market’s store just up the road in Glen Mills. Whole Foods also gained approval to build its first store inBrooklyn, a 52,000 square foot unit that should open in early 2013. The Gowanus site was purchased in 2004, but has been delayed for this long because of environmental and NIMBY (Not In My Back Yard) concerns. And there’s speculation that Whole Foods is eyeing a second Brooklyn site in the upscale Williamsburg section…at Springfield, NJ based Village Super markets, ShopRite’s second largest member (and only public-traded retailer), it was a good fourth quarter for the men and women from “Sumasville.” Second quarter earnings rose 38 percent to $9.1 million and same store sales jumped a healthy 6.6 percent. And those results included losses at its two newMarylandstores (former A&P units), which it is investing in to build brand awareness. Village also acquired Charlie Shakoor’sOld Bridge,NJShopRite for $4.35 million. That brings Village’s store total to 28…The Fresh Market, the perishables-driven chain which went public in late 2010, has big plans for fiscal 2012. The Greensboro, NC retailer, which now operates 115 stores in 21 states, said it will open between 14-16 units over the next 12 months, including its entry into the California market. CEO Craig Carlock told financial analysts that his company was “enthusiastic about business and growth prospects and we expect 2012 to be another exceptional year for both revenue growth and profitability.” Carlock also predicted earnings per share growth in the 18-22 percent range…Target is slowing its pace of P-fresh (hybrid food) conversions to about 230 units this year, about half the number of retrofits it completed in 2011. The primary reason: many of the high-volume market conversions (its first priority) have been completed and the lower volume store conversions are not at the same urgency level…it didn’t take Brian Cornell long to find a new gig. The former EVP of marketing at Safeway, CEO at Michaels and most recently chief executive of Sam’s Club (Wal-Mart) rejoined his old company as CEO of PepsiCo Americas Food. He will oversee Frito-Lay North America, Quaker Foods and Snacks North America, PepsiCoMexico,South Americafoods and PepsiCo customer teams. He will be based at Pepsi headquarters in Purchase, NY and report to company CEO Indra Nooyi…we learned that Weis will be changing private label brokers from Daymon Worldwide to Marketing Management Inc. (MMI). The change becomes effective April 28…now that A&P has officially exited bankruptcy and is now a privately-held company controlled by Ron Burkle, several readers reported an actual Burkle sighting at the newly remodeled Weehawken, NJ Pathmark. The highly successful private equity guru reportedly toured the refurbished store, apparently gave his approval to the store manager and left with his entourage. As one of readers commented:  “It’s not every day that you cross paths with a billionaire, particularly one who made much of his wealth in our industry.” Yes, it’s true and that’s why Ron Burkle truly is the “King Of All Supermarket Venture Capitalists.”

Local Notes

Giant/Landover opened two former Fresh & Green’s stores late last month. Ribbon cuttings were held in Parkville, MDand on 41st Streetin BaltimoreCity(a store that will essentially serve as a replacement unit for Giant’s closed Rotunda location). A tip of the hat to the Giant crew that converted two of the ugliest looking stores to modern, clean, well-merchandised units. We’re also hearing that a deal may be close at hand between the chain and Fresh & Green’s for the latter company’s Perry Hall store. Maybe the Canadian hedge fund that controls Fresh & Green’s (Catalyst Capital) had it all figured out from the beginning: operate the former Super Fresh stores that they acquired so poorly, while knowing that the quality of some those locations would draw interest from competitors and then sell those stores at a premium. Isn’t that the way private equity firms should think? On the other hand, that strategy may not work as well in Cambridgeand Chestertown, MD where Fresh & Green’s unbelievably awful management can’t save it from itself…busy times at Wegmans these days. The Rochester based uber-retailer will open three stores in the next seven months – King of Prussia, PA (May 6); Columbia, MD (June 17); and Gambrills, MD (October 28).  And nobody will ever accuse the Wegmans management team of having taken stupid pills while growing up. In an ingenious move, Wegmans has garnered a liquor license contiguous to its store in Woodbridge, NJ. The new wine shop will be controlled by Joan Wegman Goldberg (Danny’s sister and the daughter of founder Robert Wegman). And in the least enlightened comment of the month, Paul Santelle, president of the New Jersey Liquor Store Alliance and owner of Garden State Discount Liquors in Perth Amboy (about three miles away from the Wegmans’ Woodbridge store) said, “Wegmans has successfully circumvented the two license limitation law with the help of family members. They’ve been doing it all over the state and they’re hurting scores of businesses.” Two points to be made here: the basic statute is unfair and unconstitutional (bravo to the Wegmans) and as far as I know, we all operate in a free enterprise system. You don’t think that Mr. Santelle’s interests may be a bit self serving, do you? More Wegmans stuff: with its very successful opening of its first Boston area store in Northborough, MA late last year and three other “Hub” units planned in Burlington, Westwood and a downsized 70,000 square footer in Chestnut Hill, CEO Danny Wegman told the Boston Chamber of Commerce on March 28 that he believed his company should be operating in the city of Boston itself, perhaps in the urban upscale Downtown Crossing area of the city. And an online story in The Atlantic offers a unique perspective about the family owned company (“The Anti-Wal-Mart: The Secret Sauce Of Wegmans Is People”). The piece is written by the talented David Rohde. Another highly stimulating (and beautifully written) essay by financial writer James Surowiecki can be found in the March 26 issue of The New Yorker (“The More The Merrier”). Both stories share a common theme: don’t undervalue the importance of real customer service and training… also in the B-W market, JOH, the regional food broker based in Billerica, MA announced the acquisition of CBS Brokerage, LLC in the Mid-Atlantic region effective March 1, 2012. Dick Hartzell and Bob Reitz will bring their veteran team of confection and grocery specialists to the JOH family of companies. They will report to Kevin Shea, executive VP of confection. This addition, the company noted, solidifies JOH’s full service coverage for all trade classes in the New England,Albany and Mid-Atlantic markets. John Saidnawey, president and COO of JOH, commented, “The addition of CBS is a perfect fit and allows us to provide additional value-added service with local accountability to our clients and customers in the Mid-Atlantic region. Dick Hartzell, president of CBS commented, “We are thrilled! JOH is a strong organization enabling us to grow in this changing environment.”…Ruddick Corp. is no more – the parent company of Harris Teeter has officially changed its corporate name to Harris Teeter Supermarkets, more accurately reflecting the company’s name since it sold its thread unit, American & Efird, late last year. Also officially completed is Bi-Lo’s acquisition of significantly larger Winn-Dixie. Controlled by private equity firm Lone Star (which already owned Bi-Lo) the $560 million deal will include 688 stores in eight states and be run by Randall Onstead, whose experience encompasses retailing (Randall’s – now part of Safeway) and the venture capital world. Onstead will serve as CEO. The new firm will also eventually relocate its headquarters from Mauldin, SC to W-D’s base in Jacksonville, FL. No specific timetable was given for the shift, but Onstead noted that “…theJacksonville infrastructure is best positioned to host the combined Bi-Lo and Winn-Dixie support center, corporate office and distribution facilities.”…my quick non-partisan take on the “pink slime” controversy which has had a profound effect on retailers and many of their beef suppliers: the critics are correct in chastising the industry for not being more transparent, and retailers and particularly those processors who produce “lean textured beef” should have developed a better SWOT strategy (strengths, weaknesses, opportunity, threats). On the other hand, the product has met all USDA standards and has not been proven by anyone to be unhealthy. And one potential economic impact of this mess is that 1.5 million more cattle will have to be raised to offset the elimination of the added fat trimmings. Of course, the real issue now is consumer perception. And retailers, regardless of their knowledge and opinion, have virtually been forced to offer product that no longer includes the additive. And that will almost certainly mean significantly higher ground beef prices…two notable deaths to report this month. Passing on was pioneering banjo player Earl Scruggs, 88, who with his partner guitarist Lester Flatt, formed one of the most successful bluegrass acts of all time. Long before Eric Clapton and Stevie Ray Vaughn perfected the art of bending strings on their guitars, Earl Scruggs had already mastered the skill on his five string banjo. Scruggs was simply one of the best pickers of any stringed instrument – ever. Also ascending into bagel afterlife was Murray Lender, founder of Lender’s Bagels.Murray, whose sales skills and passion allowed him to sell those chewy ring shaped dough rolls fromManhattan toMontana, passed away at age 81 last month. Actually, it was Murray’s father, Harry, a Polish immigrant, who founded the company in New Haven, CT in 1927, but it was Murray who took the company to stratospheric levels when it rolled out frozen bagels in the early 1960s. From there, Murray Lender’s name and face became closely linked with a product he loved and promoted tirelessly. He sold the company to Kraft in 1984 and for the past nine years Lender’s has been owned by Pinnacle Foods. I was fortunate to befriend Murray early in my career in the mid-70s and his strong work ethic, belief in his products and the kind and gentle way that he treated people made him a true mensch.