Food World Market Study 2013: Giant, Wal-Mart Hold Top Spots In $44.3B Mid-Atlantic Region

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The message remains the same: a still uncertain economy, a region that remains significantly overstored and greater food penetration from non-supermarket channels created another challenging year for many traditional grocers.

While supermarkets remain the dominant outlet to buy food, the combined growth rate (in sales) from mass merchandisers, drug chains, club stores, military commissaries and convenience stores now outpaces that of supermarket by nearly a 4-1 margin. Not only are those “alternates” currently adding more stores than supermarket operators, they are expanding their grocery offerings, too.

And the news isn’t getting better. While it was a difficult year for many retailers (including quite a few non-supermarket operators), the past two months have even been rockier.

Our survey measures sales for the 12 month period ended March 31, 2013. A great majority of retailers noted that their identical store have dipped noticeably in the period beginning at Easter (March 31) and continuing until the present – with no sign of improvement in sight.

While there was little change among the top 10 retailers in the Mid-Atlantic region, there were a few notable winners and losers among the market leaders.

Giant/Landover remained atop the leaderboard with sales increasing slightly ($5.80 billion vs. $5.67 billion) at its 168 stores. The big unit of Ahold USA certainly felt the pressure of alternate channel competition, but from a competitive standpoint what affected Giant the most this year were new store openings by Wegmans and Harris Teeter. In fact, Giant once again opened no “from the ground up” stores during our measuring period (it did acquire three stores from Fresh & Green’s and also cut the ribbon on a new Washington DC stores after our measuring period ended). In recent years, the perennial market leader has elected to spend more of its cap-ex money on remodels rather than net new stores.

Wal-Mart, which last year jumped onto the second slot among all retailers in the region, had a solid year, bolstered by converting or opening nine stores (three new units, six conversions) to its SuperCenter format (now 86 of its 137 stores in the Mid-Atlantic operate as SuperCenters). The Bentonville Behemoth continued to relentlessly promote price and remained the most troublesome competitor for traditional supermarket merchants. Extrapolated sales (which includes revenue from grocery, HBC/GM, pharmacy, tobacco and beer & wine) increased to $3.84 billion.

Remaining in third place this year was Food Lion (Bottom Dollar) which had another subpar this performance. The largest arm of Delhaize America (DA) continued to be punished by years of mediocre management, questionable marketing programs and a pricing image that consumers found no longer linked to its once discount image. Events began to change last October, when Delhaize America CEO Ron Hodge retired and was replaced by Roland Smith. The Salisbury, NC based chain already had begun a “repositioning” of sorts, closing unproductive stores, lowering prices in certain markets and refreshing most if its stores. While Smith has succeeded in “whacking & hacking” stores and management (including the sale last month of its Sweetbay, Harvey’s and Reid’s banners and also closed 13 stores in the Mid-Atlantic) and the new repositioning program is showing modest gains, the former Pepsi and P&G executive, still has a long ways to go. Smith knows he’s cycling several years of poor DA results and gaining ground in this ultra-competitive environment will be difficult. Also notable at parent firm Delhaize is the recent announcement that Belgian CEO Pierre-Olivier Beckers will be “retiring” at the end of 2013. He’s only 50.

Safeway held on to fourth place this year, although its business was certainly challenged by market conditions. Overall sales remained flat at an estimated $3.16 billion at its 124 units, which included two new on-site replacement units. Safeway also made headway this past year by amping up its fuel program, adding more gas stations and unveiling a marketing tie-in with Exxon/Mobil. The company also launched an innovative digital platform – Just for U – designed to attract more shoppers who utilize the Internet and mobile communications. As we’ve stated previously, Safeway’s eastern region could benefit by giving its talented local executives more decision making authority, something that its large national peer Kroger has successfully implemented over the past five years. It will be interesting to watch if there will be more flexibility offered to the chain’s operating divisions in the future now that process guru Steve Burd has retired as Safeway chief executive after 20 years at the helm. He was replaced by Safeway COO and former CFO Robert Edwards.

Giant/Carlisle continued to chug along at a nice clip during the past 12 month. Most of the gains made by the non-unionized unit of Ahold USA came from its core Central PA stores, although there was some improvement in its Richmond area Martin’s stores. The good news about those former Ukrop’s units is that after two years of struggle since its acquisition, Giant/Carlisle has begun to slowly gain traction. That firmer footing, along with continued slippage at Food Lion, helped Martin’s regain the top market position in Richmond. Sales at Giant’s (Martin’s) 80 stores in the overall Mid-Atlantic market were $2.72 billion, an increase of $132 million over 2012.

CVS remained the largest drug chain in the Mid-Atlantic. Operating 483 units (16 more than last year), the large Woonsocket, RI merchant amassed estimated sales of $2.49 billion versus $2.33 in revenue last year. CVS, like Walgreens and Rite Aid, continue to add more grocery items (including refrigerated and frozen products) and has also accelerated marketing those items in its advertising.

Shoppers remained in seventh place among all Mid-Atlantic retailers as the regional unit of Supervalu continued to struggle, although not quite to the same degree as in the past four years. Overall sales dropped to an estimated $1.70 billion (from $1.76 billion) as the Bowie, MD based retailer continued to be plagued by lack of capital and poor leadership at the corporate level. That should change to some degree, because on March 21 (10 days before our measuring period ended), private equity firm Cerberus Capital acquired a controlling stake (30 percent) in the troubled retailer/wholesaler. New more experienced management was installed (led by industry veterans CEO Sam Duncan and chairman Bob Miller) and the company promised to return to its roots of operating a fundamentally solid grocery organization. It’s still too early to measure progress but without significant capital investment, it will be hard for Shoppers to move the needle noticeably forward. In the first three months, since the new corporate leadership was announced, Shoppers, which is being led by another industry lifer, Bob Bly, has lowered prices and has aggressively marketed its new image as it attempts to win back customers who were first attracted to the company’s discount profile.