Permanent gridlock? Perhaps in a few more years the competitive pressure of the Mid-Atlantic market will abate a bit, but the landscape that food and drug retailers now face seems to be locked in for the foreseeable future.
That this region is significantly overstored with too many retailers operating in some cases with divergent merchandising and operating styles isn’t really a new story – it’s how those retailers can adapt and potentially prosper to insure a successful future that is really the larger issue. Clearly, not all will survive, but those merchants that have the right mix of proper capital expense (primarily for upgrading their store bases and investment in technology and ecommerce) coupled with a focus on their associates (and overall company culture) have the best chance of breaking away from the pack and ascending to the next level.
Obviously, there were some specific stories to report about how the Mid-Atlantic market evolved over the past 12 months. On an industry-wide basis, there was some good news to report about some of the deflationary issues over the past two years: the bottoming of wholesale pricing, particularly with perishables, has largely disappeared. In a region that is so competitive in selling milk and eggs at ridiculously low costs (as opposed to extremely low prices), made daily operations even more difficult.
On the news front, the story of the year was Amazon.com’s $13.7 billion cash acquisition of Whole Foods Market, a stunning deal that is just beginning to reshape retail. More locally, the debuts of Lidl and Publix (in Richmond) last summer were much anticipated, but as it stands now, much overhyped. And after our survey period ended, Supervalu pulled the plug on its Farm Fresh corporate store division (24 of 38 stores sold only for approximately $2 million per unit) and last month SVU announced that merchandising and administrative operations for its Shoppers Food & Pharmacy regional chain would shift to Cub headquarters in Stillwater, MN. Can a sale of those 51 stores be far off?
Our annual retail market survey measures sales for the 12-month period ended March 31, 2018 and covers an 89-county territory that ranges from Central Pennsylvania to Southeastern Virginia including the key marketing areas Baltimore-Washington, Harrisburg-York-Lancaster and Richmond-Norfolk.
Here’s a look at how the top 10 retailers fared in a year when there were no superstar performances and sales gains were measured with the fierce competitive marketplace in mind.
Giant Food remains the largest retailer in the region and for the first-time in the past 10 years has stabilized its store count and sales in the market. The Landover, MD-based unit of Ahold Delhaize USA (ADUSA) still operates 161 stores (primarily in the Baltimore-Washington area) and sales were $5.28 billion, down by less than $11 million from 2017. Giant president Gordon Reid and his leadership team deserve much of the credit for Giant’s trend over the past year and if ADUSA’s decentralized structure (which went into effect on January 1) proves to be effective, Giant can potentially make bigger strides in the near term, too.
Remaining in second place was Walmart which continues to reshape itself as the “behemoth” that it was in the 1990s and early 2000s. Store conditions are improved and there’s more labor on the floor at in-store. Walmart’s combo punch of utilizing its upgraded digital initiative and its strong brick and mortar presence has definitely aided sales as well. Extrapolated food and drug sales at its 163 Mid-Atlantic units (two more than last year) was estimated at $4.77 billion.
CVS, the largest drug chain in the Mid-Atlantic, retained its third-place ranking in the market, despite a rather flat year sales-wise. The Woonsocket, RI merchant operated only two more stores (624) than last year (its lowest net store gain in 15 years) and amassed estimated annual sales of $3.02 billion. CVS’s numbers were bolstered significantly last year after it acquired Target’s in-store pharmacy business, which impacted more than 100 units in the region.
Last year, we reported the divestiture of more than 35 Food Lion stores in the region (created by the Ahold-Delhaize merger and subsequent FTC mandate) and many observers predicted that Food Lion would continue to suffer sales losses due to its smallish stores and center store-driven operating style. The critics were wrong. The company’s “Fresh & Affordable” remodeling effort has paid off and put some roar back in “Le Lion.” While sales at its entire 253 store fleet in the Mid-Atlantic were generally flat – estimated at $2.80 billion – given current market conditions and the previous sales declines posted by the unit of ADUSA, this year should be considered a moderate success and give hope that Food Lion can survive the rugged terrain ahead. Food Lion also added three former Farm Fresh Tidewater stores to its roster. Those supermarkets opened after our market study measuring period and will be reflected in next year’s figures.
There’s no sugar coating Safeway’s year – it was challenging. However, help is on the way, mainly in the shape of veteran Albertsons executive and new division president Jim Perkins. Perkins knows Safeway’s eastern division well and provides a huge upgrade in talent and leadership from previous Safeway “rentals” Steve Burnham and Dan Valenzuela. Since his arrival late last year, Perkins has initiated more aggressive pricing and merchandising programs and also utilized his strong motivational skills, which has improved morale at the company’s Lanham, MD headquarters and at its 114 stores (four fewer than last year) in Maryland, Virginia, Delaware and Washington, DC. Sales for the 12-month period were $2.46 billion.