Key Food Volume Keeps Rising; Co-Op Unveils Bold Growth Plan

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More than 900 suppliers, brokers and distributors made their way to the Hilton Garden Inn on Staten Island to attend Key Food’s annual vendor summit. Led by CEO Dean Janeway and chief operating officer George Knobloch the audience heard a detailed two hour-and-thirty minute presentation filled with facts, candor and sometimes biting humor as the Staten Island-based co-op addressed the year in review, future corporate initiatives, a Metro New York market recap and its new market expansion into Florida.

Knobloch opened the meeting by providing a recap of Key Food’s performance over the past 12 months. The 82-year old company currently services 141 store owners who operate 274 units in the Tri-State area. During the past year, Key Food added 17 new stores to its base and its net operating profit increased 8.64 percent (3.92 percent of sales). Knobloch noted that for the 52-week period ended January 17, 2019, total retail sales jumped 11.5 percent. To date (the company’s fiscal year ends in April), same store sales have increased 1.9 percent.

During the past year, Key Food engaged Instacart to provide grocery delivery. There are currently 115 stores utilizing that service which contributed $8.5 million in additional revenue. The veteran industry executive emphasized the importance of top-line revenue growth as the major component to offset increasing salaries (New York City’s minimum wage increased to $15 an hour late last year) and the rising cost of goods.

Janeway provided updates on industry changes focusing primarily on those that will impact the Metro New York market. He expressed concern about the long-term stability of UNFI, following last year’s acquisition of Supervalu, noting the huge debt inherited by UNFI and its plummeting stock price (currently trading at $14.15 per share, a big decline from its 52-week high of $49.40 per share). He also questioned whether the company’s three-year synergy savings of $175 million was realistic.

He also discussed the recent acquisitions of Lidl (Best Market) and Stop & Shop (King Kullen), noting both those deals could potentially help Key Food’s operators. Janeway was impressed with Best Market’s performance and wondered whether the conversion to Lidl’s limited assortment model would be effective in a marketing area like Long Island (he also noted that he visited a recently opened Lidl store in Union, NJ and was a bit baffled that adjacent to the refrigerated cases, the discounter was merchandising musical instruments – “when I’m buying a ham, I’m not usually in the market for a guitar, too.”).

He saw the King Kullen sale as a case of a tired family-owned regional chain, affected by an underfunded pension plan, looking to exit the market. He hoped that with Stop & Shop’s 88 Long Island stores, some in overlapping locations, it might look to divest some of its sites.

Earlier, Knobloch had addressed the potential growth opportunities for Key Food, stating that in the five-borough area there are 875 independent stores, 200 of which are part of the co-op. He declared the remaining 675 stores as targets for his company.

Dovetailing on that, Janeway felt that independent retailers affiliated with Associated Grocers (AUA Private Equity Partners), Allegiance and Krasdale would continue to be targeted as potential Key Food members. He also mentioned regional retail groups such as Fairway Market and Western Beef as being challenged.

In a not so veiled appeal, Janeway noted that this is the time for wholesaler Bozzuto’s to make its best offer to supply Key Food, adding that the timing of the co-op’s contract with C&S (expires 7/2021) and the upcoming loss of part of King Kullen business could yield a productive partnership.

Janeway concluded his presentation by highlighting Key Food’s nine major initiatives: member succession planning, future supply, headquarters relocation, natural/organic/specialty, store brands, SAP/ERP (enterprise resource planning)/CRM (customer relationship management) integration, company website, accelerating growth and geographic expansion.

Chief financial officer Sharon Konzelman addressed the critical issue of membership succession planning, a major challenge when dealing with 141 store owners/members, all with unique profiles. Her goal is to find solutions for Key Food members who seek an exit strategy while also keeping those stores as viable members of the co-op. She explained that members don’t always have clear exit strategies and are seeking to monetize their investment. Konzelman works with each member individually to address their specific needs. Solutions include identifying possible buyers, securing loans to help potential new buyers or buying stores directly to operate as corporate stores (Key Food currently has two corporately-owned supermarkets).

The former While Rose executive also discussed her company’s future supply challenges. With its currently primary supply pact with C&S due to expire in 30 months, Konzelman stated Key Food is focused on improving its supply chain control. The company is currently exploring partnering with distributors which specialize in specific segments of the business (prepared foods, meat, produce, etc.), but Konzelman said that having better control of its grocery, frozen and dairy business is vital. She offered four potential possibilities: engage a local distributor on acquisition interest; negotiate with C&S on a new contract; engage another full-service distributor (Bozzuto’s, Supervalu, Wakefern were mentioned); and partner with an existing distributor on a local grocery, frozen and dairy solution.

Key Food’s growth spurt over the past decade has created a space capacity issue at its current Staten Island office. Beginning last year, the company has been exploring relocation options that would allow for more parking, meeting rooms and a test kitchen. Konzelman acknowledged her company has applied for a business relocation grant with the state of New Jersey, which would be an ideal place for Key Food to operate from because a majority of its current workforce resides in the Garden State and the opportunities for retention and recruiting are greater in New Jersey. Even if Key Food ultimately remains on Staten Island, it hopes to move into new offices no later than December of this year.