Taking Stock: Market Gridlock Means Nowhere To Run, Nowhere To Hide

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In the early stages of assembling our market study issue, I noticed that a slight thinning of the herd might have somewhat eased the gridlock that has suffocated the Baltimore-Washington market for the past decade.

After all, during the past 12 months, market leader Giant/Landover closed five stores, second ranked Safeway operated six fewer stores than last year and Food Lion closed nine units as part of a corporate restructuring that saw 25 stores shuttered and the elimination of its Bloom banner. And A&P (Super Fresh) virtually disappeared altogether.

Let it be stated that suffocating continues as most retailers in the B-W market and throughout the entire Mid-Atlantic region once again realized on a relative basis that only growing slightly or in some cases, surviving, wasn’t such as bad thing.

Folks, it continues to be tough out there and, despite some closures, there are still too many stores in the market with diverse operating styles. Given that diversity and significantly changed consumer buying habits, it look like gridlock is here for at least the next few years.

That said, here’s my take on the players in the B-W market for the past year and looking ahead, too.

Giant/Landover – There’s a new sheriff in town (note to old-timers: he doesn’t reside on Sheriff Road anymore) and he is Anthony Hucker, who assumed the top spot in Landover last October. Hucker’s extremely intelligent, has a strong pedigree (Wal-Mart, Aldi) and is a great listener. After several years of aggressive store improvements and culture change (the old Stop & Shop taint is gone), this past year was one of settling in. Over a three year period, the stores are improved and Hucker’s right hand men – Jim Nazzaro in merchandising and Shane Sampson in store operations – are first rate, but Giant has been somewhat victimized by the after-effects of Ahold USA’s huge corporate consolidation which was completed last year. We were promised more local merchandising and decision making. To date, there’s been little progress to report on those fronts and the stores themselves seem very vanilla. I’m certain Hucker and his boss Carl Schlicker (COO of AUSA) are aware of this, but from an execution analysis, the pace needs to be accelerated. Having known Schlicker for many years and gotten to know Hucker a bit in the past few months, my bet is that within 12 months Giant will have made significant strides with these “local” initiatives.

Safeway – Did somebody say “vanilla?” Actually, Safeway has shown it can produce a lot of “flavor” when it wants to (its on-site replacements in Georgetown, Olney, MD and Bethesda, MD, etc,. are elite stores by any measure), but as it has been over the past few years, there isn’t enough balance between those high-flying replacements and the typical Safeway unit that comprises most of its local fleet. Its marketing/advertising program is solid, but I don’t think Safeway gets enough credit for running a strong ad and promoting its “specials” aggressively. Perhaps that’s because it got into the price repositioning game a bit late or perhaps it’s because many of its stores look like it’s still 2005. As I’ve said many times, Safeway is on solid ground with great store locations and knowledgeable local leadership. As an observer in the box seats, I wish Eastern division president Steve Neibergall and VP-merchandising Rick Stein would be allowed more improvisational opportunities. They certainly have the talent and it would be interesting to see what Safeway’s eastern division could accomplish if the leadership team at headquarters in Pleasanton, CA would loosen its corporate grip.

Shoppers – If you’re looking for positive, the losses at Shoppers over the past 12 month were mitigated to some degree, but on an overall basis the prognosis is still not good. It took the loss of its price image several years ago coupled with years of ineptness from parent company Supervalu to put Shoppers in its current state, but it’s hard for me to see the once mighty regional chain regaining its glory days of a decade ago anytime soon. Yes, the negative IDs continued, but not as profoundly as in the past three years. So, how can Shoppers regain its mojo? Finding a new president whose talent and independence can make a difference would be a good start. However, given the personnel cutbacks at the company in recent years, a dried up new store program and (most importantly) a chief executive at Supervalu (Craig Herkert) who is totally delusional about how his retail banners are performing (or will perform once the new analytical tools and hyperlocal marketing program kick in), I’m not going to the $50 window at Pimlico and making any bets. Then again, if Supervalu would just replace Herkert, the odds that Shoppers might improve would increase substantially.

Food Lion – As far as Baltimore-Washington goes, Food Lion (Bottom Dollar) is almost yesterday’s news. Sure, it still has 93 stores in the market, but other than a handful on the outskirts of the market, the retailer continues to head toward becoming middle of the street “roadkill.” Over the past six months, it has closed stores, converted some Bloom stores back to the Food Lion banner while purging the Bloom banner altogether (parent company Delhaize America stated the Bloom name has been “retired”). Remember Bloom? Only six years ago, this new upscale model was supposed to provide a differentiated alternative for a more upscale demographic (like the DC-Northern Virginia market). Within a year, the Bloom stores reduced customer service dramatically until the concept finally fizzled. Now Food Lion is attempting to reposition itself again with a fresh look, lower prices and a new private label program – “My Essentials.” It almost begs the question, “What took them so long?” The company’s revitalized look and new marketing programs may be successful in some markets, but Baltimore-Washington won’t be one of them.

Harris Teeter – A very solid year from a very good retailer. Although they share some similarities to fellow North Carolina based Food Lion (their headquarters are about 50 miles apart, both chains operate in the Southeast and Mid-Atlantic and both are publicly-traded), there are miles of differences between the two organizations. Food Lion never paid much attention to customer service, didn’t seem very interested in upgrading its “fresh” departments and milked its price reputation until it became obvious to everybody that Food Lion hadn’t been a “price” player for almost a decade. Food Lion’s “one size fits all” program should have disappeared long ago, but really wasn’t addressed until last year. At Harris Teeter, the devil is in the details and president Fred Morganthall understands the value of those details – be it customer service, customizing plan-o-grams toward regional preferences or putting the time and financial resources towards associate training (not a popular line item on Wall Street). The attention to detail has paid off and, while Harris Teeter is still struggling with some “green” stores outside the Beltway, its entry into the B-W market has been largely successful. With at least six more new stores on the drawing board, Harris Teeter has proven it can compete with almost everyone in the B-W market as long as not too many more Wegmans open nearby.

Wal-Mart – While the Behemoth began to turn things around last year from a corporate ID sales perspective, its stores in the B-W market have actually performed better than the company’s national average. Again, it’s all relative because “flat” sales at a million dollar a week SuperCenter still means somebody else is feeling the pain. The boys from Bentonville have found the right man in Bill Simon to head its U.S. operations. Simon’s a no-nonsense, top line driven executive who has brought back the fierce price-driven mindset that the company utilized to its advantage for many years. Not that price ever strayed too far, but the previous huge emphasis on SKU reduction and private label growth has been tempered by a more singular effort to move product. In the B-W market, Wal-Mart is expanding consistently with 3-5 new Supercenters a year (either new stores or expansions), and if its much ballyhooed “small format” program ever gains some momentum, then competing retailers will not only have to worry about a Stephen Strasburg-like 100 mile per hour fastball, but also a Hoyt Wilhelm-like knuckleball. On the downside, the service levels at its SuperCenters have never been worse, and the Behemoth is costing itself millions with its worsening out-of-stock performance.

Wegmans – For those retailers that have to compete with the Rochester, NY uber-merchant in Howard County, MD and Anne Arundel County, MD there will be some pain felt during the next four months. With new store openings slated for Columbia (June 17) and Gambrills (October 28), much of that hurt will be felt by the market’s two largest operators, Giant/Landover and Safeway, because both new Wegmans units have the potential to consistently do $2 million per week. Volumes like those can crater any local marketing area and with the widest reach of any retailer in the entire Mid-Atlantic, Wegmans will dish out some collateral damage. When the Gambrills unit opens in October, Wegmans will have opened four new Maryland stores in 17 months (totaling a combined 550,000 square feet of space), with other B-W units planned for Germantown. MD, Owings Mills, MD and Alexandria, VA.  And now that the uber-merchant announced it will build a downsized 70,000 square foot store in Chestnut Hill, MA, that smaller model opens up a world of possibilities for the family-owned company. Some trade observers have pointed out that Wegmans’ world-class customer-service and product in-stock (service) levels have declined slightly over the past year, but I’m not seeing anything that’s potentially damaging. Wegmans is by far the toughest retailer in the Mid-Atlantic to defend against because of the uniqueness of their model and their high level of execution on every front. One long-term question concerning Wegmans’ future: will the company’s tremendous growth initiative (both in new stores and geographical expansion) ultimately dilute its ability to perform at the same high levels as it continues to add new stores and develop the necessary management talent?

Supervalu Shakes Up Store Operations Leadership; CEO Herkert ‘Earns’ $20.9 Million In Fiscal 2012

Pete Van Helden. Toast. Sue Klug. Adios. Kevin Holt. Welcome to the nightmare.

My man Craig Herkert is finally blowing up the weakest part of Supervalu’s overall weak organization – its store operations team.

Now before I give too much praise to “The Spinmeister,” I think it’s important to note that these changes should have been made at the beginning of Herkert’s tenure in 2009. And while I’ll admit that Van Helden’s reign (under Herkert’s regime) as executive VP of retail operations only produced declining sales and worsening morale at the divisions and in the stores and that his buddy, Ms. Klug, also saw diminishing revenue and earnings at Supervalu’s large Southern California unit, Herkert never provided the necessities at retail (cap-ex funding, analytical tools, pricing flexibility) that perhaps would have made it easier for Van Helden and Klug to succeed.

Kevin Holt, formerly of Meijer and Sears (maybe he’s like to omit that stint from his resume) has been named to oversee all of corporate retail. And with his entrance coincides with other recent changes at Supervalu’s retail banners. Keith Wyche is the new president of Acme; Dan Sanders, moves from Acme to Klug’s former post in SoCal: Brian Audette takes over Wyche’s old job at Cub; and Tim Lowe has left the presidency of Shoppers Food & Pharmacy to relocate to headquarters in Eden Prairie, MN to become senior VP-merchandising, reporting to Janel Haugarth (no replacement for Lowe has yet been named).

Holt walks into what is arguably the most challenging job in the grocery industry. Virtually every aspect of retail operations is at least partially underwater. Supervalu has only opened a handful of stores (that’s one handful) in Herkert’s awful three year reign. Even though, the company has been fairly active in the remodeling a lot of its older and smaller units, many of those remodels (especially at Acme) have been more cosmetic than substantial. And morale in the stores is not good and getting worse. And if that isn’t a steep enough mountain to climb, Holt inherits a situation across the entire retail operations spectrum, where all of its retail supermarket banners have been perceived as old, tired and one of the most expensive places to shop in that given market (by the company’s own admission Supervalu’s share has continued to decline in all of its top 20 markets).

And just before presstime, SVU announced Holt’s first major move: Beginning June 18, at the company’s large Albertsons Southern California division, the banner will reduce positions across its SoCal and Las Vegas stores. According to the internal memo, “every district and store will approach this in ways to best meet the needs of their respective business and neighborhood. This process should be complete by the week of July 1. We anticipate that the workforce reduction will impact about 2,200-2,500 positions. In addition to the layoffs, some positions will be reduced from full-time to part-time status. All of this will be done in accordance with union contracts. We expect this change will directly impact a small number of positions at any specific store location.”

I feel badly for Dan Sanders, who just moved to Southern California. What a way to begin his new gig. To him, this must be Acme déjà vu (all over again).

And as for Craig Herkert, the brilliant mastermind who’s really behind all the whackin’ and hackin,’ don’t feel badly for him. Supervalu just released Herkert’s salary and bonus for the year ended February 28, 2012. While his company may have had a putrid year, Herkert wasn’t feeling too much pain, as witnessed by his total compensation of $2.09 million Part of that robust figure included a $364,395 bonus, which the company paid to him in April. And because of his continued “stellar” performance, the board sought fit to give him a $75,000 basic salary increase for fiscal 2013. That’s a true Mutual Admiration Society: SVU’s board of directors and “The Spinmeister” himself.

Perhaps by the time Supervalu holds its annual shareholder’s meeting on July 17 in St. Louis, disgruntled shareholders will mount enough resistance to finally force some changes to the board and leadership of a once mighty company.

‘Round The Trade

According to several sources, the Wal-Mart annual shareholders meeting held June 1 in Fayetteville, AR, was a much more subdued affair than usual. The somewhat somber tone of the meeting, was set by CEO Mike Duke, who emphasized to shareholders that the world’s largest retailer, which is celebrating its 50 anniversary in 2012, will fully investigate its bribery scandal, which occurred about eight years ago, but just came to light in April, when the New York Times published a blistering story about the methods of Wal-Mart’s growth in Mexico. “Let me be clear,” Duke pledged to the crowd of about 16,000 who gathered at the Bud Walton Arena at the University of Arkansas, “Wal-Mart is committed to compliance and integrity everywhere we operate. I want to personally assure you that we’re doing everything we can to get to the bottom of this matter.” And despite the efforts from three of the largest pension funds (and Wal-Mart shareholders), who voted against members of Wal-Mart’s board (Duke, former CEO Lee Scott and chairman Rob Walton were specifically targeted), all 16 director were reappointed. However, before the business affairs part of the meeting occurred, Wal-Mart once again staged an extravagant entertainment-fest for the shareholders. Taylor Swift, Justin Timberlake, Lionel Richie, Celine Dion, Juanes and the Zac Brown Band all performed before the large and enthusiastic audience. Even former President Bill Clinton appeared in a pre-recorded video in which he praised Wal-Mart’s sustainability efforts. In other Wal-Mart news, the Bentonville, AR based merchant reported that its first quarter financials were improving. In the U.S., operating income rose 8.1 percent and comp sales increased 2.6 percent. Other positive metrics included a 1.1 growth in traffic and a 1.5 percent gain in average ticket size. “Price was the focus of our first quarter marketing and this will continue to be a key message this year,” said Bill Simon, president and CEO of Wal-Mart U.S. While Wal-Mart clearly made gains focusing on its core price programs, it did come at some cost as its gross profit rate declined by 24 basis points, reflecting those price investments. And the Behemoth just can’t seem to rid itself of those “frivolous” lawsuits and settlements. Last month, the big retailer agreed to pay $4.8 million in back wages to more than 4,000 associates after an investigation by the U.S. Department of Labor found violations of the Fair Labor Standards Act’s overtime provisions. On top of the $4.8 million, Wal-Mart will pay about $464,000 in civil fines…Wegmans has completed the third phase of its large Pottsville, PA (Schuylkill County) distribution center. The $70 million investment includes a new 492,000 square foot depot and will warehouse fresh and frozen foods. About 200 new jobs will be added, bringing the total number of Wegmans associates at the Pottsville complex to 529. More locally, still no word on whether the new Wegmans unit in Columbia, MD which will open on June 17, will include a 9,800 square foot liquor store. There’s been a lot of pushback from local businesses (especially competing liquor stores) and the Howard County Alcohol Beverage Hearing Board won’t reconvene until June 14, just three days prior to the ribbon cutting. And could there be a Wegmans coming to Washington, DC in the near future? After a meeting with Wegmans officials last month, DC Mayor Vincent Gray suggested that the Rochester, NY retailer is interested coming to the District. Gray mentioned tow possible sites: the Walter Reed Medical Center in Northwest and the St. Elizabeth’s hospital redevelopment project in Southeast…one of the recurring issues that the grocery industry has to face is the growing number of bottle bills that seem to be part of many city governments’ attempts to secure more revenue. Last month it was announced that the city of Richmond (VA) voted to put a special soda tax proposal on the general ballot on November 6. Earlier, Baltimore City tried to raise the ante on its already harmful two cents per bottle tax to five cents. That bill, with any luck, looks ready to die in committee. Earlier this month, New York City Mayor Michael Bloomberg offered up the granddaddy of all stupid bills when he proposed a ban on the sales of sugared sodas larger than 16 ounces. We all agree that most of our country’s larger cities are facing huge revenue shortfalls. And I think we can all acknowledge that obesity, particularly, childhood obesity, represents a major health crisis today. On the first point, it is not the responsibility of the  beverage industry or the retailers its services (or for that matter most businesses) to subsidize the financial problems of any municipality. And as for obesity, you can’t change social habits by restricting availability of a product. The problem doesn’t lie with the manufacturer that produces the product or the retailer who sells it…very solid opening for the new 56,000 square foot ShopRite on Perring Parkway in Baltimore, which cut the ribbon on June 1. The former Super Fresh store (which has been closed since 2007) has been very nicely refurbished and is in an area that is somewhat underserved. The project is the first of two that ShopRite operators the Klein family and Jeff Brown will open. Next year, the two retailers will open their 68,000 square foot “from the ground up” ShopRite store in the Howard Park (Liberty Heights Road) section of Baltimore, which clearly is a food desert. And at parent company Wakefern, ground was broken last month on a new 524,000 square foot distribution center that will replace a 50 year old depot in Elizabeth, NJ. The new warehouse is expected to be operational by May 2014 and will primarily handle dry groceries…a few words about the recent FMI Convention in Dallas: the show is definitely getting better and CEO Leslie Sarasin have worked diligently to enhance what only a few years ago was a “left for dead” event. The speakers and seminars have clearly improved and there is much better retailer attendance from the VP, director and store manager levels. However, there is still much work to do. In the inertia that occurred in the 10 year period before Sarasin took the helm of the industry’s trade group in 2009, the FMI show lost many major vendor/exhibits while also losing focus and direction. Some of those larger CPG companies transferred those budgets to more targeted shows like PMA, IDDBA, the Boston Seafood Show, etc. and as we all know, once an expense is removed from a company’s budget, it’s sometimes difficult to get back on. However, I do believe the big trade group is on the right track and the move back to Chicago for the 2014 show, should also provide a boost…I’m sad to report too many deaths this month, both from our industry and from the world of entertainment. Passing away at the age of 78 was Jack Twyman. Many of us old farts remember Twyman from his days as a National Basketball Association player with the Cincinnati Royals in the 1950s and 60s. During his basketball career he became the legal guardian for teammate Maurice Stokes, who had been left paralyzed after a head injury suffered during a game in 1958. His guardianship ensured that Stokes would receive medical benefits. After Twyman retired from basketball, he joined Dayton, OH based grocery wholesaler Super Food Service and in 1972 was named CEO of the company. Back in my earliest years in the food business, I remember Jack as being a true gentleman and a real industry leader on a national scale. Also passing on was Alan Dickson, co-founder of Ruddick Corp. , the former parent company of Harris Teeter. Dickson, 81, and his brother Stuart, founded Ruddick in 1968, which at the time consisted of the American & Efird Thread Company. A year later, the brothers purchased Harris Teeter. Also entering grocery heaven in the past month was Pat Roche, 83, who along with his brother, Daniel “Bud” Roche, founded Roche Bros. regional grocery chain in the Boston area. When I entered the grocery business in the mid 1970s, Pat and Bud were two of the most entertaining and shrewdest independent retailers in the Boston area. Pat Roche was a member of the Massachusetts Food Association’s Hall of Fame and was well known in New England as a great philanthropist. His good works included a $20 million donation to his alma mater, Boston College. Richard Dawson, one of the wittiest game show personalities in the history of television, passed away late last month at the age of 79. The British born entertainer first gained fame on the sitcom “Hogan’s Heroes” which aired 1967-1971. In 1976, Dawson debuted as the host of “Family Feud.” The game show become so popular it was aired in both daytime and evening versions for nine years. And one of my favorite guitar players of all time, “Doc” Watson, has left us at the age of 89. Blind since the age of one, Watson didn’t record his first album until he was nearly 40. To hear his lightening fast style of flatpicking was to listen to a true master at work. Watson received seven Grammy Awards. If you have a moment, listen to Watson’s rendition of “Tennessee Stud.” It will leave your craving more.