AWI Issues Exacerbated By Challenges Facing Many Independent Retailers
Over the past few years it became increasingly obvious that many of AWI’s financial issues stemmed from the inability of the leadership at the Robesonia, PA co-op to successfully blend its 2006 acquisition of White Rose into what it believed could be a successful and diverse wholesale grocery model.
Even after eight years of marriage, former CEO Chris Michael never seemed comfortable dealing with the differences and nuances of playing in the large and diverse Metro New York market and those of serving small groups of independents who were all joined together by the structure of a co-op. That disconnect was part of the reason that White Rose lost several high-volume independent retailers and also witnessed the departures of some senior White Rose managers.
Now new chief executive Matt Saunders has a very difficult challenge on his hands. He’s attempting to sell White Rose’s distribution center in Carteret, NJ and hopefully persuade important customers such as Fairway, Kings/Balducci’s, Krasdale (perishable business) and Thriftway/Shop ‘n Bag to remain loyal to both AWI and potentially to a new White Rose buyer which may in fact turn out to be an AWI competitor.
And if what several sources are telling us is true – that all of AWI is being considered for sale – then you can understand just how complex Saunders’ task is.
Beyond the dysfunctional relationship that existed between Robesonia, PA and Carteret, NJ stand other market realities. First and foremost is the state of the grocery industry and specifically the health of the independent retailer as a whole.
Business is as tough as it’s ever been. The overstored, diverse makeup of virtually every market in the U.S. has been well documented, as have other day-to-day challenges – a still unsettled economy, an 11 percent reduction in SNAP benefits, rising health care costs, $4 per gallon fuel prices and low price inflation.
All of those factors have made food retailing no place for the meek. And among all retailer segments, none has felt the pain more than the independent retailer. For me to report this is painful because I learned the business from some of the best independent retailers in the country while starting my career in New England (which once was a haven for great independent retailing) in the early 1970s.
And I don’t want to throw all independents into the same bathtub, because surely great independent retailing can and will continue to survive and prosper. The 50 member/owners of Wakefern (ShopRite), Redner’s, Stew Leonard’s, McCaffrey’s Market, Darrenkamp’s, Karns, Boyer’s, Pennington Quality Market, Food Bazaar and Corrado’s remain strong and viable entities that have survived several generations of leadership and tremendous industry change. And part of their success has stemmed from an ability to adapt to changing consumer habits and also use their inherent street skills to continue to make themselves meaningful. People like Ron Murphy at Murphy’s Markets, Morel Estevez at Estevez Family Foodtown and George Endrigian, owner of the Dreshertown Shop ‘n Bag, are not only great entrepreneurs, they’re also terrific merchants who have intangible connections with their customers that most larger retail organizations would never be able to replicate.
But the facts don’t lie and the number of independent retailers is shrinking both in the Northeast and nationally. Sure, perpetuation issues remain a major factor in the long-term survival of the independent retailer. However, today this issue is more acute given the fierce level of competition and the growing unwillingness of future generations to enter the fray. And capital investment is still a hurdle that will always challenge the independent operator more than a chain store merchant. But the amount of capital investment needed to stay competitive has escalated significantly over the past decade and so have the stakes to keep an independent store relevant on the technology side. There are no more weak sisters to battle – today, everyone is in the heavyweight division.
Let’s hope that AWI can successfully sell its White Rose operation where the customer base remains its strongest asset. And let’s also hope that a successful sale will allow the co-op, whose roots go back to 1919, to repair its financial problems so it can regain the positive momentum it enjoyed until recently.
It won’t be easy because as I’ve said too often recently: “There are no more lay-ups – every shot is contested today.”
And while there will always be opportunities for great independent retailing, the herd has clearly been thinned in recent years. That in itself is sad when you consider that it was truly the independent merchant that provided the foundation of this great business.
‘Round The Trade
Supervalu, which has rebounded nicely in the past year under the leadership of CEO Sam Duncan, apparently has its priorities targeted towards wholesale grocery. That’s according to Duncan, who told shareholders at the company’s annual meeting on July 16 (held at the Hilton in Bloomington, MN) “…we’re going to be a great wholesaler, that is our focus. It is more than half of the company and we are damned good at it. I have no desire to be a big retailer.” When questioned about SVU’s just completed retail deal to acquire 18 Minneapolis area supermarkets from Roundy’s, Duncan added, “That transaction we did strictly as a wholesale play. Not only does the deal offer Supervalu more wholesale business, it helps the firm’s retail customers by allowing them to expand.” Duncan’s logic makes perfect sense, especially if you think like some analysts who believe that SVU will spin off its valuable Save-A-Lot division and look to sell parts, if not all of its regional chains, which include Shoppers, Farm Fresh, Cub, Shop ‘n Save and Hornbacher’s. Not only have Supervalu’s measurable metrics improved significantly (ID sales, earnings, individual transactions), its stock price has more than doubled (it was $4.68 per share when parent firm Cerberus/Symphony Investors acquired a controlling 30 percent stake in SVU for $4 per share on March 21, 2013; at presstime SVU shares were trading at $8.61)…one of Supervalu’s prime competitors, C&S Wholesale Grocers, has named David Almeda EVP-chief human resources officer at the Keene, NH-based distributor, effective September 1. He comes to C&S from workforce management organization Kronos. He will report to C&S president Mark Verdi and will focus on talent acquisition, talent development, organizational design and employee engagement…the sad soap opera that has become part of the fabric of Demoulas Market Basket in New England continues. Just before we went to press, approximately 500 clerks, meatcutters, office personnel and truck drivers met at Market Basket headquarters on East Street in Tewksbury, MA in a job action/work stoppage designed to send a message to the new leadership team and the board members who have sided with Arthur S. Demoulas. Two days earlier, a letter to newly appointed co-CEOs Felicia Thornton and James Gooch from “The Market Basket Associates” demanded that “ATD (Arthur T. Demoulas) be rehired with full authority, non-negotiable,” adding that “a non-answer will be considered a no.” They also stated that a “group meeting must be held by 4:30 p.m. on Thursday, July 17, informing us of your decision and that we will not work for anyone but ATD.” Although there was no specific action taken by the two co-CEOs, they did issue a letter to the associates stating that the board plans to meet by phone to discuss their demands on Monday, July 21. The letter also noted at least two Market Basket employees would be given the opportunity to speak with the board either Monday, by phone, or next Friday (July 25), in person. “We believe that while all communication to us has been represented as unanimous – this is an individual decision that each of you have to make, whether you wish to continue to work at Market Basket. To be clear – doing your job is continuing to do the same type of work that you regularly do every day – not newly defined tasks from your supervisor. If you choose to abandon your job or refuse to perform your job requirements, you will leave us no choice but to permanently replace you,” the letter said. Ten days earlier, a group of approximately 75 associates at the high volume regional chain announced their “independence” from the retailer’s new co-CEOs and called for the reinstatement of former CEO Arthur T. Demoulas by the company’s board of directors. It was then that the so-called “Save Market Basket” movement originally asked for a face-to-face meeting with Thornton and Gooch, noting in a facebook posting that “they have had two-and-a-half weeks to try to gain a toehold of legitimacy and have failed.” The posting also stated “F&G (Felicia and Goode) were summoned to the meeting where they were told in no uncertain terms, that from this moment on (July 9) Market Basket is to be run by the people who know it best. The people who have learned from the best. The people who have the culture and philosophies of their founders and their leaders ingrained into all parts of who they are…today we declare our independence from them and we encourage all stores to do the same. Market Basket is our company and we have had enough of playing along and waiting for others to destroy it. The time has come for us to take it back and today our leaders have set our course in the direction. We are Market Basket!” To review the most recent sad state of affairs, on June 23, Market Basket’s board of directors fired chief executive Arthur T. Demoulas, the retailer’s extremely popular and successful leader. That seminal event came after an intra-family legal battle for control that dates back more than a decade and essentially involved Arthur T. Demoulas and his first cousin Arthur S. Demoulas, who gained control of the board in 2010. Also departing on “Bloody Monday” were two of Market Basket’s oldest and most trusted executives, Joe Rockwell and Bill Marsden. Within days of the dismissal of Arthur T., Rockwell and Marsden, other key Market Basket executives – including CFO Dan Mulligan (25 years with Market Basket), deli director Ronald Carnigan (51 years), director of advertising Jay Rainville (30 years), lease administrator Joanne Marsden (45 years), accountant Sue Dufresne (18 years) and executive VP Jim Miamis, one of the cornerstones of the entire Demoulas success story with more than 70 years of service – resigned from the 71-store operation, and a group of approximately 300 associates gathered outside Market Basket’s flagship store in Chelsea, MA to protest the ouster of Arthur T. and the others. In a statement to the Lawrence (MA) Eagle, Marsden, director of store operations, said, “Along with Arthur T. Demoulas, I was also fired as was Joe Rockwell, vice president of grocery. Combined we have more than 110 years of service to the company. Our crime was our commitment to Arthur T. Demoulas, the employees and the promise to customers to always honor the Market Basket commitment to high-quality and value.” He added, “The board’s action today is driven by greed, pure and simple. Arthur T. Demoulas continued the tradition of his father (the legendary Mike Demoulas), promising customers ‘more for your dollar.’ He was fired today after he built the most successful supermarket chain in the Northeast, one of the top in the country by most metrics. He implemented a four percent across-the-board price-cut for 2014 at a time when people needed it. In reaction, some board members threatened his job and litigation, so concerned were they that this would cut into the company’s profit.” The board quickly named two of its members – Thornton and Gooch – to become co-chief executives. Thornton most recently served as CEO of Knowledge Universe U.S., a Portland, OR-based private early childhood education provider. She also served as VP for Kroger and spent some time at Ralph’s/Fred Meyer. Gooch most recently served as CEO of RadioShack Corp. This is as ugly as it gets.
Local Notes
As we go to press, we’re hearing a lot of feedback (mostly positive) about the recent management changes at Ahold USA. Personally, I like the move on several fronts. Moving Mark McGowan back to his original wheelhouse – store operations – is a win. Whatever position in the organization he plays, McGowan is a gamer – he’ll give you all-out effort all the time. However, by moving him back to operations, he gets to utilize his special skill of understanding the challenges that the stores face by deploying his overall intuitiveness about operations along with an ability to effectively communicate with store personnel at all levels – regional VPs, district managers, store managers and unionized clerks and meatcutters. And by creating a “new format” unit, AUSA is following the likes of Giant Eagle (GetGo, Market District, Good Cents + More), Wakefern (ShopRite, PriceRite, Fresh Grocer) and others in trying to capture potential new business where other retail channels which operate smaller footprints are currently getting somewhat of a free ride. To consider that Stop & Shop does not have a store in the five boroughs of New York or the city of Boston and operates only one unit in Philadelphia proper not only gives AUSA an opportunity to add more square footage with different operating models that could also serve a broader economic audience. And by putting Bhavdeep Singh is charge, they are getting a very experienced grocery executive who cut his teeth running the upscale Food Emporium stores for A&P. More Ahold USA news: Dan Glei, the retailer’s senior VP/e-Commerce, has left the organization and will be joining Abingdon, VA-based K-VA-T Food City in an executive position…on the A&P front, I just concluded a tour of about two dozen Tea Company units including a cross-section of banners (Super Fresh, A&P, Food Emporium, Pathmark and Waldbaum’s) and I’ve never witnessed a more moribund organization at store level. Most of the stores look like they’re stuck in a time warp (think 1989), morale is apathetic at best, retail pricing is not sharp and my overall take was: other than convenience and to cherry-pick the featured items, why do these guys deserve anybody’s business? And with the recent departure of VP-center store Donna Banks-Ficcio, A&P lost its only remaining executive with any credibility in the trade. We keep hearing the speculation that the once iconic retailer is close to selling separate blocs of stores to Ahold USA and Wakefern, but that rumor is starting to get a bit moldy. And of course, there’s always the possibility that the 155 year-old chain could file Chapter 11 once again. Just when you thought it couldn’t get any worse…it’s official – as reported earlier, Pat Brown is the new CEO of the Natural Markets Food Group (NMFG), the retail and foodservice group owned by Canadian private equity firm Catalyst Capital Management. Brown, who comes from natural/organics retailer New Seasons in Portland, OR where he served as COO (he also worked for H-E-B), will have his hands full cleaning up the mess left by his predecessor Robin Michel. In related NMFG news, its Irvington, NY-based Mrs. Green’s Natural Markets unit has settled a dispute with UFCW Local 1500 and has agreed to reinstate eight workers at the retailer’s Mount Kisco, NY store. Those workers, who reportedly were in favor or organizing a union, were fired earlier this year after a union vote at that Westchester County store in June 2013 ((Mrs. Green’s narrowly prevailed). According to a statement from the company: “Mrs. Green’s Natural Market is proud of its associates – employing more full-time associates than its competitors, giving bonuses and discounts to hourly employees, and creating profit sharing and promotional opportunities for our team members – and today’s agreement honors that core value. Store leadership embraces these values and core principles and has stepped forward to do the right thing for its associates. Now we are moving forward with a shared commitment to provide Mt. Kisco families with organic, local and all-natural products and access to a healthier lifestyle.” The eight associates will be reinstalled in the same or equivalent jobs with back pay and receive the appropriate training about the updated brand and new procedures since they were let go in January, according to the company spokesman…my condolences to the Maggio family on the death of their matriarch. Rosalie Maggio, mother of Maria Maggio, who serves as VP and general manager of Food Trade News, passed away unexpectedly earlier this month, some 12 weeks after her husband, Mario (Maggio Cheese) also left us…also heading to new pastures is Tom Clare, president of the Oakland (NJ) ShopRite. Clare, 86 along with his two brothers, Charles and Paul, began working in their father’s grocery store in 1953. Shortly after their dad retired, the one store independent joined Wakefern. In 1972, he and Charles Clare opened their second store in Oakland, which Tom oversaw… I’m also sad to report the death of Paul Mazursky, a greatly underrated filmmaker whose movies often focused on modern morality and changing lifestyles in a caustic absurdist manner. His first big hit was “Bob & Carol & Ted & Alice” (1969) which racked up five Oscar nominations and was followed by other critically acclaimed films such as “An Unmarried Woman” (1972) and “Harry and Tonto” (1974). Mazursky, 84, once noted in a magazine interview, “I know there are some wonderful filmmakers with really tragic views of life. But for me, absurdity is just around the corner. I see it all the time.”…also passing on was Jim Brosnan, former major league pitcher (Reds, Cubs, Cardinals and White Sox) whose prose proved to be more skilled than his pitching prowess. Actually, Brosnan, 84, enjoyed a pretty good nine-year career (his lifetime record was 65-47 with 67 saves), but his 1960 “The Long Season” was the first book I read that really dissected the inside view of how players acted off the field. It was a great read at a time when I was a consumed by everything baseball and “The Long Season” certainly provided the foundation of what is considered the greatest “inside baseball” book of all-time – Jim Bouton’s “Ball Four” written in 1970…it is with sadness that I report the death of the great R&B singer, guitarist and songwriter Bobby Womack, who passed away on June 27. A 2009 inductee into the Rock and Roll Hall of Fame, Womack began his career singing gospel music with his family in his native Cleveland at the age of 10. When he was only 20 he wrote and performed (with his group at the time, The Valentinos) the classic song “It’s All Over Now” (made famous by the Rolling Stones) and covered by literally dozens of other singers. Other hits from the Womack archive include “Across 110th Street;” “Trust Me” (covered by Janis Joplin); “I’m A Midnight Mover” (recorded by Wilson Pickett); and “Lookin’ for a Love” (made popular by the J. Geils Band). Womack endured many hardships and personal addictions during his life. However, in the end, he had overcome many of those challenges and he died unexpectedly at his home in Tarzana, CA at the age of 70…and just before presstime, we learned of the death of the great blues guitar player Johnny Winter, 70, who died suddenly while on tour in Switzerland. I remember first seeing Winter in 1970 at the Fillmore East in Manhattan and thinking he was the fastest guitar player I’d ever seen (even faster – though not better than – Mike Bloomfield and Jimi Hendrix). With a guttural Texas twang, Winter was quite a sight on stage – razor thin physique, long white hair (both he and his younger brother Edgar were albinos) and raspy voice. He released his first album in 1968 and if you want to listen to the essence of a great talent check out Winter’s first two albums on the Columbia label – “Johnny Winter” and “Second Winter,” both released in 1969…finally, I’d like to offer a big tip of the hat to Landis Supermarkets., whic
h is celebrating its 75th anniversary this year. The four store independent, based in Telford, PA (Bucks County), has a proud three generation history of providing both excellent customer service and strong community values to its more than 35,000 customers per week. “In this day and age where family-owned businesses are becoming less common, Landis Supermarket is proud to continue to be family owned and operated,” said Scott Landis, chairman of the board. “We see this as a distinct advantage in our marketplace. Being deeply connected to our communities while having long standing partnerships with local vendors makes shopping Landis Supermarket a unique and distinctive experience for our customers.” Having known Scott Landis and his father Dave for many years, I can attest they deeply care about the importance of providing food to those who live in their communities, maintaining a strong sense of philanthropy as well as offering their nearly 600 associates a great workplace environment.
