“As difficult a year as we’ve faced in a long time.” Those were the words of the president of a large Mid-Atlantic based regional chain. “The cutback in consumer spending was significant, labor staffing and retention remain a big issue and the reduction of SNAP benefits made keeping our comps at a positive level very challenging. Additionally, we had more than a dozen new stores open in our trading area from mass merchandising units (Target) to discount markets (Aldi) to convenience stores (Wawa) and to traditional supermarkets (Wegmans, ShopRite). We will survive, but the road is getting rockier,” he added.
Actually, the caution markers had begun to appear more than a year ago and as we began compiling data for this year’s annual market study, it was obvious that same store sales volumes were reverting back to pre-COVID levels. When you factor in that level of revenue deceleration and add the difficulties of playing in an overstored field with a diversity of retail styles, it shouldn’t be surprising that these past 12 months were arguably the most challenging that many merchants have ever experienced.
Here’s some color:
Inflation was already slowing, and consumer spending was also tightening, even before the federal government cut supplemental SNAP benefits, returning them to pre-COVID levels, in March 2023.
Over the next 15 months, confidence in the economy, especially when it comes to spending on groceries, hasn’t noticeably improved. A trend that began during COVID – the decline of unit sales – has continued, but not even increased private label sales have been able to offset the belt-tightening that’s occurred.
A shift in economics often means there’s a shift in the retail landscape. In many of the Mid-Atlantic markets we cover, seismic changes occur infrequently because of the dominant market shares the leading retailers have in their respective markets and the cost and availability of real estate in urban areas makes it difficult for upstart and aggressive retailers to add stores and grow their shares of market.
However, when viewed over a five-year span, markets are shifting with drug chains and some conventional retailers being most vulnerable. The gains in that period by relative newcomers such as Aldi, Lidl and Trader Joe’s (who are growing their store bases), won’t destabilize any market, but their impact is painful for many traditional retailers whose market shares are declining. Old guard retailers like Walmart and Costco, which can more readily affect trading areas, have seemed unfazed by the current economic conditions, even if they don’t open new stores.
All of these disrupters have one thing in common: a point of difference that resonates with consumers. It might be price (Walmart, Aldi, Lidl) or the continued fascination of a treasure hunt experience (Costco, Trader Joe’s, Wegmans), but behind the consumer allure lies a steadfast operating philosophy backed by strong execution.
If I were guessing what this analysis might look like next year, I’d predict the malaise will still be present, the gridlock will remain at paralyzing levels and there may be a few retailers surrendering after they assess their cumulative battlefield casualties.
Here’s my annual take on some of the largest retailers in the $120 billion 70-county Food Trade News marketing area.
ShopRite:In many ways, it was a year of change for the perennial market leader in both Metro New York and the Delaware Valley. Most of those changes occurred in the c-suite where veteran Mike Stigers replaced the great Joe Sheridan as president of parent company Wakefern. The former UNFI executive took several months to analyze the state of play and then made several key moves to “modernize” the organization including bringing in former teammate Darren Caudill as chief merchant and letting several other veterans go. The most important takeaway is that most members approved of the realignment. As usual, most owners held up their share of the bargain – producing better than industry average comp store sales and opening new supermarkets by the Sumas (Village), Inserra, Romano (Ronetco) and Zallie families.
Stop & Shop (New York Metro Div.):After years of minimal attention to what used to be Ahold Delhaize USA’s biggest brand (now number two to Food Lion), Stop & Shop paid the price this year. Over the past 12 months, Stop & Shop closed three stores and performed poorly in holding serve with its comp store sales. Despite its solid locations, Stoppie is vulnerable to virtually every competitor in its marketing areas from discounters to traditional supermarket rivals. After years of waiting, ADUSA CEO JJ Fleeman is finally doing something about it: last month he announced that an unspecified number of supermarkets will be shuttered in the near future (our sources are telling us the number will be in the 30-store range) and more capital will be deployed to areas where the company’s share is strongest. Will it be enough? We should know in the next 18 months, but competing against the likes of ShopRite in Metro New York or Market Basket in New England is a huge challenge.
The Giant Company:A steady, not so flashy a year for the dominant retailer in Greater Philadelphia, Central Pennsylvania and the Lehigh Valley. I have a feeling that’s the way president John Ruane and his superiors at ADUSA like it. Ruane, who replaced Nick Bertram last year (on a permanent basis), made a few key executive changes over the past 12 months including promoting Dave Lessard to oversee store ops, naming Joanna Crishock chief merchant and elevating Rebecca Lupfer to CFO. Comp store sales were slightly above industry average with new stores planned for Allentown, PA: Jenkintown, PA; Pocono Summit, PA and at S. Broad & Washington in Philly.
Acme Markets (Kings/Balducci’s/Safeway): Acme’s challenges remain linked to its aging store base and its retail pricing image. The grandfather of all retailers operating in the Delaware Valley (and more recently Metro New York), the Malvern, PA-based division of Albertsons controls valuable real estate and still maintains a loyal following. However, the former DelVal market leader is more vulnerable than most to competitive openings and lacks significant capital to take advantage of its still strong market position. Those capital investment decisions are made at the corporate level in Boise, ID. And that is where most of its problems now lie. It’s been 21 months since the company announced it would merge with Kroger in a dragged-out scenario that continues. Many sources tell us the process has semi-paralyzed Albertsons’ decision-making abilities and overall nimbleness. A bigger problem may loom: if the merger attempt ultimately fails, Albertsons would be hard pressed to recreate the energy it once had.
Walmart:Fearless and undaunted. Walmart’s continuing comp store sales gains in the market (and nationally) have more to do with just offering lower prices. Its ability to constructively apply technology, both in distribution and in its growing digital business, has only added to Walmart’s efficiency and potential for growth. Walmart was one of many retailers in the 70-county region which did not open a new store over the past 12 months. During the past year, it remodeled its high-volume SuperCenter in Secaucus, NJ. And there’s more upgraded and new store activity finally on the horizon – with 650 remodels slated for this year and 150 new stores planned for the next four years.
Weis Markets:The Sunbury, PA-based regional chain continued on its steady path. Comp store revenue was right at the industry average and the tightly controlled publicly-traded merchant also added some store upgrades to make its fleet more modern. During the next few years, Weis plans six new stores (the new unit planned for Middletown, DE is the only one in the FTN area) and has again committed to a record level of capital spending. Weis’ secret sauce may well be its culture with CEO Jonathan Weis working with his talented management group to utilize their creative talents to build a winning team.
Wawa:Once again, one of the best performers in the entire retail market study. Not only were comp store sales way above the industry norm, but the perennial c-store leader also opened 11 new units in the region. The Wawa, PA-based merchant also began opening stores in new states. The growth effort will ultimately see the Wawa logo expanding into new states – Alabama, Georgia, Indiana, Kentucky, North Carolina, Ohio and Tennessee – over the next few years.
Wegmans:A very solid year for the Rochester, NY-based uber-merchant despite an economy that might make one think that the family-owned retailer might be vulnerable. However, comps were solid, and Wegmans’ market position was also helped by new store openings in Yardley, PA and Manhattan (which is producing huge sales). A hidden part of Wegmans’ success is its site planning and demographics research. While all economic strata have been impacted by uncertain economic conditions, the company’s great store locations (in addition to size, selection, overall product mix and execution) have protected it against major slumps. When you’re averaging more than $80 million per store in sales annually, you are doing a lot of things right. Next up for the family-owned merchant are new stores in Lake Grove, NY (its first Long Island unit) and Norwalk, CT (its debut in the Nutmeg State).
New York Metro Independents (Allegiance Retail Services, Associated Supermarket Group, General Trading, Key Food, Krasdale Foods):The race to gain market share in the fiercely competitive and nuanced go-to-market styles of serving Metro New York independents (and most particularly those retailers that operate in the five boroughs of New York City) is unique. Unless you’re in that battleground it might be difficult to figure out how Allegiance, ASG, General Trading, Key Food and Krasdale operate on a day-to-day basis. Serving thousands of traditional supermarkets, superettes, bodegas and greengrocers is a challenge that is not seen on the scale that those independent retailers pose in any other operating area in the country. As witnessed by the longevity of those wholesalers and marketing groups, survival is not an issue – each knows the “inside baseball” rules of the market and has operated effectively for a long time. This year, things have become more difficult though, as they have experienced inflation levels higher than the national average for the past three years, diminishing inflation and continued retail shrink (much higher than the national average). One key change to note: late last year, popular Joe Fantozzi was elevated from CFO to president and chief operating officer of Allegiance/Foodtown.
Amazon Fresh:I know it is not one of the market leaders (although with sister company Whole Foods, they rank 14th in the 70-county region), but I can’t resist putting my two cents in. After failing spectacularly with its initial foray with “from the ground up” food retailing, AF is returning with a new version of its small grocery store model. And based on a few of the revamped stores in Southern California and in the Chicago market, the largest digitally driven company in the U.S. still doesn’t get it. Yes, there are more SKUs, the product assortment is slightly improved and Krispy Kreme donuts are now available, but it’s still the same less than mediocre retailing experience that existed when the first AF store opened in in our marketing in Warrington, PA almost three years ago. According to multiple real estate sources, some of those old leases are expected to be activated including new version AF units in Eatontown, NJ; Bensalem, PA; Langhorne, PA; and Willow Grove, PA. Many of the original group of leases signed by Amazon have been canceled, a few have been sold and others are the subject of landlord litigation. While Amazon CEO Andy Jassy continues to express optimism about the future of Amazon Fresh, I think he’s delusional about the retailer’s long-term prospects, at least with a loser format like this.
‘Round The Trade
It’s been quite a recent run for Walmart. Last month, the Bentonville, AR merchant posted strong Q1 sales and earnings, especially in this difficult operating environment. Overall revenue increased 6 percent, reaching a staggering $161.5 billion for the 13-week period ended April 28. Comp store revenue (excluding fuel) jumped 3.8 percent and total profit grew 9.6 percent to $600 million. Additionally, e-commerce sales were up 21 percent and membership in Walmart’s “Plus” program rose 18 percent.
During the post-release call with financial analysts, CFO John David Rainey said that Walmart’s e-commerce business could be profitable within the next two years and noted that sister firm Sam’s Club is already making money from its digital platform. Walmart is also trimming parts of its business that it deems no longer profitable including the recent announcement that it would close all 51 Walmart Health clinics as well as its telehealth operations. Earlier, the “Behemoth” said it is cutting several hundred jobs and asking some associates to move from smaller office locations to more centralized hubs. That’s according to The Wall Street Journal which noted that while the world’s largest retailer will still allow its associates to work remotely some of the time, it is now demanding that employees work primarily from their offices.
On the growth side, the planet’s largest retailer has expanded its InHome delivery service to four additional cities including Philadelphia and Boston and will now cover 50 markets nationally. InHome began five years ago as a premium service where groceries and other essentials are delivered to a customer’s doorstep or unpacked directly into their refrigerators in kitchens and garages.
And just before presstime, we learned that Walmart will be taking the major plunge and will place digital shelf labels in all of its 2,300 U.S. stores, a huge investment that will take about two years to fully implement. The decision to convert its shelves to all DSLs came after a successful test at a single Texas store.
In a post, Daniela Boscan, the chain’s food and consumable team lead stated: “This represents a significant shift in how I, and other store associates, manage pricing, inventory, order fulfillment and customer interactions, ensuring our customers enjoy an even better shopping experience. Walmart stores have over 120,000 products on the shelves, each with an individual price tag. Every week our stores support thousands of pricing updates on new items, Rollbacks and markdowns. Digital shelf labels, developed by the Vusion Group, allow us to update prices at the shelf using a mobile app, reducing the need to walk around the store to change paper tags by hand and giving us more time to support customers in the stores.”
Obviously, this is a major undertaking that other retailers will be adding to their operational functions, especially if the costs continue to come down…and who’s got numbers comparable to (if not slightly better than) Walmart? Well, that would be Costco, of course. In his first full quarter as CEO, Ron Vachris is off to a fast start. In Q3,the Issaquah, WA-based club king saw its net sales increase 9.1 percent over a year ago to $57.4 billion and at its nearly 600 U.S. stores, comp store revenue grew by 6.2 percent.
On the earnings front, Costco’s net profit for the 13-week period was $1.68 billion, a gain of more than $300 million from last year. Costco’s “hidden gold mine,” membership fees, raked in $1.12 billion in its third quarter, a 7.6 percent increase versus the corresponding period last year. Shortly after Costco posted its most recent earnings, new CFO Gary Millerchip (who had held that same title at Kroger since 2017) until he joined Costco this past January, told The Wall Street Journal that he’s got high hopes to significantly increase Costco’s e-commerce sales. “We believe there’s a lot more opportunity to grow digitally. I have experience in those areas and would hope that I can bring some of that help us continue to evolve, but very much in the Costco way.”
This looks like a no-brainer for Millerchip and his new company. Digital growth has been increasing since the pandemic and in Costco’s recently completed third quarter, e-commerce revenue grew 20.8 percent…the bottom line continues to look a lot different at wholesaler UNFI. First some good news: the Providence, RI-based distributor, which also owns the Cub and Shoppers retail banners, has extended its supply contract with its largest customer, Whole Foods Market, for an additional eight years (through May 2032). While the WFM deal comes at a comparatively low margin, it was an important renewal both as an infrastructure foundation for Wall Street and industry perception.
UNFI also cut the ribbon on a beautiful new 1.3 million square foot distribution center in Manchester, PA (York County) this month. The modern depot will supply most of UNFI’s independent customers in the Mid-Atlantic market. Now, for the not-so-good news. Approximately 75 truck drivers at the company’s nearby Harrisburg depot (the old SuperRite warehouse) have agreed to unionize (Local 776), continuing an 18-month cycle in which drivers at other UNFI facilities in Connecticut, Arizona, California, Georgia, Iowa and Washington have agreed to organize. And then there’s the current state of UNFI earnings and sales.
The encouraging news is that the losses are getting smaller – negative $21 million in its recently completed Q3. Its sales decline is also shrinking – down only 0.1 percent. But the balance sheet isn’t the only issue that UNFI needs to improve. As I’ve stated in previous columns, UNFI must upgrade its overall efficiency and execution – once the early kinks from the new DC are worked out, that’s likely to happen in terms of warehousing and logistics. But other issues that are vital to its many independent customers in the Mid-Atlantic – a more competitive private label program and better one-on-one interaction – would go a long way to improving its image among its customers. Again, that’s not just an observation, those are criticisms and frustrations I’m hearing directly from the independent owners…and it’s not only UNFI that’s got union issues, but the labor group (the Amazon Labor Union) that unionized an Amazon fulfillment center on Staten Island two years ago, is likely to become affiliated with the International Brotherhood of Teamsters, which should give organized labor a lot more clout in its efforts to unionize other Amazon depots nationally. By the way, “Godzilla” still has not recognized the ALU and continues to fight the decision in court…
And speaking of Amazon, John “Whacky” Mackey, founder and former CEO of Whole Foods who sold his business to Amazon for $13.7 billion in cash in 2017, told Fortune magazine that he really likes former Amazon chief executive Jeff Bezos and the company “because they didn’t try to change Whole Foods.” Maybe Mackey was referring to the period right after the deal was consummated and Mackey had just gotten his big check. To be fair, Bezos left his post as head honcho nearly three years ago, but even before then, the folksy culture that permeated WFM was disappearing and today Whole Foods has become almost fully “Amazonized.” It’s still a very good merchant, just not as nearly at the top of its game as when Mackey was running it. It also should be noted that the enlightened one is currently peddling his new book – “The Whole Story.”…
Recently I’ve written about how many start-up companies in the in all realms of the food universe are folding. Recently, we’ve seen the likes of Foxtrot, Gorillas, Boxed, Chef’d and Buyk go bankrupt or fail in the U.S. You can add Takeoff Technologies to that list. The tech firm, which builds automated micro-fulfillment centers and includes Wakefern, Albertsons and Hy-Vee as clients, filed for Chapter 11 bankruptcy protection earlier this month and plans to sell its assets (estimated at $50 million). The Waltham, MA-based firm said it has been underperforming since the pandemic ended. It is seeking to gain court approval to keep operating until a buyer can be found. This is not only a continuing story of “too many cooks and not enough kitchens” but also the belt-tightening of private equity enterprises which currently are much less inclined to throw money at a concept rather than a business that demonstrates it can produce black ink.
Local Notes
Mike Stigers just celebrated his first full year as president of Wakefern and it’s clear he’s not shy about making changes that he feels are necessary to modernize the organization. Earlier this year, three key senior VPs exited the Keasbey, NJ-based wholesale co-op and earlier this month we were told there was a strategic departmental realignment where several positions were shifted. As a result of those reassignments, VP-advertising and social media Ranjana Choudhry and VP-business process Dave Howlett have left the company…
It’s been quite the busy month for Sprouts Farmers Markets as it ramps up its Mid-Atlantic expansion plans. Three new units have opened in a three-week period beginning in early June including stores in Aberdeen, NJ; and Cottman Avenue and W. Oregon & 23rd in Philadelphia. Other new Sprouts stores that will open at a later date in the region include markets in Limerick, PA; Wilmington, DE; and York, PA…
Dollar Tree announced that it is conducting a strategic review of its stumbling Family Dollar business which it acquired in 2015 for $9 billion. Earlier this year, Family Dollar closed 970 stores and it continues to underperform as a whole. These strategic reviews usually lead to a sale; however, with more than 16,000 Family Dollar stores, good luck finding a buyer in this environment….
From the obit desk, just before presstime we learned of the death of Willie Mays, 93, the greatest baseball player I ever saw. He was the Michael Jordan of his sport and a player of not only great skill but of tremendous charisma. He used a basket catch to snare fly balls; he was among the fastest players in the game (339 career stolen bases); his power was prodigious (660 career home runs despite playing half of his games in two pitcher-friendly ballparks – the Polo Grounds and Candlestick Park); he finished his career with a batting average of .301 and drove in 1909 runs while scoring 2068 runs; he appeared in 24 All-Star games and won 12 Gold Glove awards.
Willie Mays seemingly changed every game he played in with his baserunning, his defense, his slugging, his clutch hitting and his incredible baseball IQ. He was inducted into the baseball Hall of Fame in 1979. Perhaps San Francisco Giant’s chairman Greg Johnson summed it up best: “Today we have lost a true legend. In the pantheon of baseball greats, Willie Mays’ combination of tremendous talent, keen intellect, showmanship and boundless joy set him apart. He had a profound influence not only on the game of baseball, but on the fabric of America. He was an inspiration and a hero who will ever be remembered and deeply missed.”…
From one end of the spectrum we spiral downwards to find the greediest dude of the month. And the unanimous winner is: Jeffrey Stein, who was named Rite’s Aid’s chief executive last October when the troubled drug chain filed for bankruptcy protection. As the company wends its way out of the Chapter 11 process, one of the final stumbling blocks is Stein’s exit payout. He’s asking for a ridiculous $20 million for his nine-month tour. And that’s on top of his $300,000 monthly consulting fee…
We have one more monthly award to hand out – the “new product most likely to never appear on a supermarket shelf” trophy: of course, that would be Rudy Coffee. That’s the new brew being hawked by former New York City Mayor Rudy “Forked Tongue” Giuliani. “Modestly” priced at $29.99 for a two-pound bag, the disgraced former mayor claims “it’s the best coffee you’ll ever try.” Giuliani claims the organic java is made from 100 percent Arabica beans and is “smooth, rich, chocolatey and gentle on your stomach. It’s so good, I even recommend drinking it black” (perhaps with a splash of Just For Men A-65 Rich Black color).
