KB USA Holdings, the Delaware-based company owned by a group of businessmen from Qatar, promised to inject life into Balducci’s and Kings, a once great grocery company that had been largely neglected by its previous owners, private equity firms Angelo Gordon & Co. and MTN Capital.
The Qatari firm, GSSG, said it would provide capital and guidance to help the 35-store regional chain restore its once iconic image as one of the leading upscale perishable merchants in the country.
Promises, promises, promises – that were never fulfilled. As best I can assess, GSSG did a great job of ignoring their lone U.S. possession, perhaps not realizing how challenging and expensive it is to fix a grocery chain that had been losing share of market for years.
After posting a loss of $8.6 million for the 52-weeks ended July 25, 2020 (which is hard to explain since sales should have been booming during the COVID-related supermarket sales surges for five of those months), debt now stands at almost $115 million, much of that occurring during the less than stellar period of ownership by GSSG.
Interest payments have been missed over the past two years and due to poor sales, Kings/Balducci’s has also defaulted on several agreements.
Meanwhile Judy Spires, who took the helm at the beleaguered Parsippany, NJ-based operator in 2010 after spending more than 30 years with Acme Markets, has witnessed this scenario before. When she first joined Kings a decade ago, then-owner Angelo Gordon had already shifted into “full neglect” mode of the merchant, having acquired it in 2006. Four years earlier the New York-based PE firm acquired Kings from British conglomerate Marks & Spencer (best known for once owning haberdasher Brooks Brothers), which began the tradition of ignoring its U.S. based stepchild several years after it purchased the company in 1988 from the great Allen Bildner, whose brilliant father Joe, founded the company in 1936.
After Kings/Balducci’s filed for Chapter 11 bankruptcy on August 24, the full unraveling had begun. A prospectus had been issued 18 months earlier. And according to the filing, while 67 entities were interested enough to sign a non-disclosure form, a mutually satisfactory deal could not be consummated.
Instead, another hedge fund, TLI Bedrock, posted the best bid – $75 million (which was $33 million less than what Marks & Spencer paid for the regional chain in 1988) – and was awarded a stalking horse advantage. An auction to determine the “winner” will be held on October 8 with a confirmation plan slated to be finalized by December 8.
Based on the previous semi-apathy by other bidders during the “sales exploration process, it’s a pretty good bet that TLI Bedrock will walk away the winner.
But what would they have actually won? I talked to Andrew Siegel, managing partner of TLI Bedrock whose principal owner is Lawrence Benenson, one of three brothers that control Benenson Capital Partners, a large New York real estate firm.
Siegel was hopeful that TLI Bedrock’s bid would be the winning one but was reluctant to speculate further until the process is finalized. He did admit that he and Larry Benenson were big fans of the retailer, noting they do a lot of their personal shopping at the Balducci’s in Westport, CT.
Sentimentalities aside, Siegel acknowledged that beyond the selling price, significant capital needed to be infused into a company whose once great image has suffered due to a variety of factors including ultra-high pricing and the inability to grow and innovate against a very competitive field.
When the Bildner family owned Kings, they built the company to become the finest upscale retailer in their market – primarily Northern and Central New Jersey. And in the best move made by Angelo Gordon in its ten years of ownership, the acquisition of Balducci’s in 2009 had proven to be a winning investment.
There is still value here; Kings’/Balducci’s maintains great locations and the quality of their perishable offerings is strong. However, with ShopRite, Whole Foods, Wegmans, McCaffrey’s and The Fresh Market now firmly in the Kings’ formerly exclusive space, the new owners clearly will have to overspend to gain back sales and share.
This is the last roundup for a company with an 84-year old legacy. If TLI Bedrock gains control, it should be prepared add more than $100 million above the final selling price to make Kings competitive on all levels once again. And while they’re at it, a little TLC wouldn’t hurt either.
New Owners Seek To Take Advantage Solutions Public
The national food brokerage business is changing rapidly, and more so than any period in the last 20 years. That’s when (long-defunct) Marketing Specialists, Acosta, Crossmark and Advantage Solutions collectively began acquiring hundreds of local and regional brokerage firms. Recently, both Acosta and Crossmark have restructured their entire organizations after multiple private equity owners managed to pile up significant debt making the big brokers witness commission declines.
Now, Advantage has made the biggest move of all. After years of speculating as to whether a food brokerage firm could ever become publicly-traded, the answer is yes.
Just before presstime, we learned that the Irvine, CA-based broker has entered into a merger agreement to combine with Conyers Park II Acquisition Corp (Conyers II), a publicly traded Special Purpose Acquisition Company (SPAC) founded by consumer goods and finance industry executives including Jim Kilts (former CEO of Gillette) and David West (former CEO of Hershey) and financial executive Brian Ratzan. Former Kraft CEO Irene Rosenfeld is on the investment firm’s board.
Prior to this deal, the same group of officers, under another SPAC (Conyers Park I Acquisition Co.) bought Atkins Nutritional (now called Simply Good Foods) in 2017 for $730 million. The enterprise value of the Advantage deal, which is slated to close in late October, is estimated to be $5.2 billion. Conyers II, which went public in July 2019, will provide up to $450 million of cash raised during its initial public offering and a private placement.
SPACs (also known as blank check firms) are companies with no commercial operations that are formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company. In 2020, more than 50 SPACs have been formed in the U.S., including Utz Brands with investment firm, Collier Creek Holdings (which went public on August 31).
After 30 years as a privately-held business, Advantage will have greater financial flexibility to invest in its business as a publicly listed company, according to Conyers II.
Financing for the transaction includes secured commitments for a $700 million common stock private placement at $10 per share. Existing private equity partners of Advantage, including CVC Fund VI, Green Equity Investors VI and Bain Capital Private Equity, in addition to rolling over their entire existing stake in the business, are investing an additional $200 million in the company as part of the $700 million common stock private placement. The remaining $500 million of common stock raised in the private placement has been committed by institutional investors that include both existing Conyers II investors and new investors. These funds, along with up to $450 million in cash from a Conyers II trust account containing the proceeds of its initial public offering and the new debt financing, are expected to be used to refinance existing debt at Advantage.
Tanya Domier, current CEO of Advantage, will continue in that role after the closing of the transaction and lead the company along with the current management team. Current director of Conyers II, Kilts, will be chairman of the newly combined company, and will join West and Ratzan on the Advantage board of directors.
“Our approach has always been to help our clients win by providing exceptional core services while building solutions that meet their evolving needs and help solve tomorrow’s problems,” said Domier. “We are proud after many years of strong performance as a private company to now be able to create value for public shareholders by continuing to drive profitable growth for our clients and further capturing significant share of the market for omnichannel services. In addition to the unparalleled insights and relationships they bring to our business, partnering with Conyers Park strengthens our balance sheet, enabling us to continue investing in growth initiatives for the benefit of all of our stakeholders.”
Kilts, who was also chairman of the Nielsen Company and CEO of Nabisco, commented, “We couldn’t be more excited to be joining forces with Advantage and bringing its story to the public markets. Advantage’s clear leadership position in the mission-critical sales and marketing industry, together with unmatched scale and capabilities and a management team of the highest quality, make it an outstanding business. I have worked closely with Tanya and the team and have witnessed Advantage overcome every obstacle in its path and come out on top. The Conyers Park II team looks forward to helping Advantage execute on its future growth strategy.
“The company operates in a very large and stable end market and offers essential services and a compelling value proposition of driving sales for its clients and customers while also saving them money. This is one of the best management teams I’ve worked with, consistently investing in the right strategies to evolve with the market and grow. And the company has multiple future growth opportunities ahead.”
Still to be answered is: can a service-based sales organization gain traction with potential shareholders as a publicly-traded entity? We’re about to find out. In the meantime, I give Advantage a lot of credit for finding a partner willing to take that risk.
‘Round The Trade
Walmart will launch its highly anticipated Walmart+ membership service on September 15. The new subscription service is taking dead aim at its chief rival, Amazon, in what should prove to be a fascinating battle. The Bentonville Behemoth is offering its order and delivery service for $98 annually compared to Amazon’s $119 yearly subscription fee for its Prime membership. However, there are some distinct differences between what the two juggernauts offer. With a Prime membership, all Amazon customers qualify for free shipping on every order (although grocery deliveries through Amazon Fresh are free, there is a fee charged for orders under $35); Walmart+ members receive free shipping on all orders over $35. Amazon Prime also offers free music streaming, TV shows and movies along with unlimited photo storage. Walmart chief customer officer Janey Whiteside, said that Walmart+ was not developed to compete against Amazon Prime, but rather to deepen customer loyalty for customers who shop at the Behemoth’s 4,700 U.S. stores (I’m taking that statement with a grain of salt). “This is really about doubling down with the customers we have and getting more share of wallet and more share of mind,” Whiteside noted. On the financial front, Walmart enjoyed another strong quarter. For its 13-week second quarter ended July 31, the Bentonville, AR-based retailer saw sales increase 9.5 percent to $93.3 billion and comp store revenue grew 9.3 percent. While store traffic decreased by 14 percent, that was more than offset by a 97 percent jump in the world’s largest merchant’s e-commerce business. Additionally, the average basket size rose 27 percent during Q2. In terms of sales by department, grocery comps increased by mid-single digits, fresh food sales grew in the high single digit range, general merchandise sales increases were in the mid-teens and Walmart’s pickup and delivery services produced all-time volumes. On the earnings side, Walmart’s income skyrocketed to $6.48 billion, compared with $3.61 billion a year ago, adding that operating losses at its U.S. e-commerce business were significantly lower. At the follow-up conference call with financial analysts, CEO Doug McMillon said: “As it relates to our Q2 performance, I’ll begin with the Walmart U.S. segment. Comp sales were strong again this quarter at 9.3 percent, excluding fuel. There were several tailwinds affecting our Q2 performance, including government stimulus, more people eating at home, a focus by customers on entertaining themselves at home and investing in their homes and yards. We also had some headwinds, including reduced store hours and out-of-stocks. As the benefits from stimulus waned towards the end of the quarter, we saw comp sales settle into a more normal range. We’re pleased with the progress we’re making on walmart.com. We had really strong sales growth and significantly reduced losses. The tailwinds we’re experiencing are accelerating our progress to build a healthier e-commerce business, as we add new brands, improve product mix, grow the marketplace and achieve more fixed cost leverage. The stores and online merchant teams are now integrated, and we believe we’ll benefit from that change going forward. The improvements in contribution profit and reduced operating losses are really good to see.”
Speaking of all things Amazon, the company’s long-awaited debut of its first Amazon Fresh store in Woodland Hills, CA occurred on August 27 (the store opened as a “dark” store in March). An industry friend who visited the store in early September said it resembled a scaled-down (35,000 square feet) Whole Foods units with emphasis on perishables and of course, non-organic/natural offerings such as Coke, Chips Ahoy cookies and even local favorite Duke’s mayonnaise. At sister firm Whole Foods (no Coke, no Chips Ahoy), the natural/organics retailer opened its own “dark store” earlier this month in the City of Industry/Sunset Park section of Brooklyn. The newest WFM is the company’s 15th store in the Big Apple and fourth in Brooklyn. The new unit will fulfill delivery orders initiated online, a piece of Whole Foods’ business that has exploded over the past six months. Parent firm Amazon will be holding its first virtual career day on September 16 and said its hopes to hire 33,000 new associates, corporate and technology workers. “Godzilla” said the average compensation per job would be approximately $150,000.
At Costco, the sales trend continues to be encouraging as well. For the 16 weeks ended August 30, the nation’s largest club operator posted an overall sales increase of a very healthy 12.7 percent in its fourth quarter. Comp store revenue at its 552 U.S. stores rose 11 percent and Costco e-commerce business skyrocketed by 90.6 percent. For its entire 52-week fiscal year, the Issaquah, WA-based merchant rang up overall volume of $163.2 billion, a 9.2 percent gain…I’m usually fairly critical when the consumer media writes about food industry related business issues, but New York Times writer Kim Severson nailed it in the September 8 issue when she scribed “Seven Ways The Pandemic Has Changed How We Shop For Food.” Utilizing her own research with added commentary from academics, industry executives and consumers, Severson highlights these key points: Trips Are Fewer, But Shopping Lists Are Better; Online Aisles Are Bustling; Oranges Are The New Snack; Redrawing The Store – wider aisles, more attention paid to sanitation, an increase in self-scanning and self-checkout stations; (Product) Choices Are Shrinking; The (Frozen) Food Freezer Is Hot; and Local Is A Bigger Lure. It’s a story worth reading.
And how about that John Standley? After being ousted as chairman and CEO of Rite Aid in 2019, the former Yucaipa Cos. executive has reappeared as president of Walgreens drug stores, the major piece of corporate parent Walgreens Boots Alliance’s business. As I’ve often said – the industry is comprised of the same 500 people who keep recirculating with new jobs at different companies every few years. Actually, I think very highly of John Standley, who really did do excellent work with Rite Aid despite inheriting an awful balance sheet, a demoralized culture and little faith from Wall Street when he became chief executive (and later also chairman) of the Camp Hill, PA-based drug chain as in 2010.
Local Notes
Karl Racine is not a happy man these days. The Attorney General for the District of Columbia has filed suit against grocery delivery service, Instacart, claiming the rapidly growing upstart has failed to pay hundreds of thousands of dollars in DC sales tax and also alleging that Instacart has deceived local consumers into believing extra service fees were actually tips for workers. According to The Washington Post, Racine’s office claims that from September 2016 through April 2018, Instacart charged consumers in the District a default “service fee” set at 10 percent of the order total, which the lawsuit alleges appeared as a tip to any “reasonable customer.” Instacart users had an option to adjust the percentage or waive the fee entirely, the suit says, but “unlike a tip, the service fee went to Instacart and did not change the wages or commissions that the company paid its shoppers.” Racine’s office says Instacart implemented a mandatory service fee in 2018 after media reports highlighted the issue but has since refused to refund customers who they say were deceptively charged. The suit, filed in DC Superior Court, also claims Instacart failed to collect sales tax on the service and delivery fees it charged users for the entire time it has operated in the District. Racine stated: “Instacart tricked District consumers into believing they were tipping grocery delivery workers when, in fact, the company was charging them extra fees and pocketing the money. Instacart used these deceptive fees to cover its operating costs while simultaneously failing to pay DC sales taxes. We filed suit to force Instacart to honor its legal obligations, pay DC the taxes it owes, and return millions of dollars to District consumers the company deceived.” Instacart called the lawsuit meritless. “In our product, we disclose to customers that tips are always separate from and in addition to any service fees, and we clearly indicate that service fees go towards our operations,” the statement said. “Additionally, 100 percent of customer tips always go to Instacart shoppers who are providing an important essential service for customers.” Late last year, Racine’s office also sued foodservice delivery firm DoorDash, accusing the company of pocketing millions in worker tips and using them to cover labor costs. That suit is still active.
Our old friend, former Giant Food president Anthony “Slick” Hucker, currently CEO of Southeastern Grocers, has completed phase two of a strategic plan to de-emphasize its Bi-Lo and Harveys banners in North Carolina, South Carolina and Georgia. In June, the Jacksonville, FL-based retailer sold 62 units (46 Bi-Los and 16 Harveys stores) and a distribution center in Maudlin, SC to Ahold Delhaize USA’s Food Lion brand for $29.2 million. Phase two, announced late last month, involves the sale of 20 Bi-Lo stores to Alex Lee, parent company of Lowes Foods, and wholesaler MDI, and three stores (two Bi-Los and one Harveys) to independent retailer B&T Foods.
And things are heating up at the UFCW International in its quest to have its 1.3 million unionized members – including clerks and meatcutters employed by Kroger, Albertsons, Whole Foods, Stop & Shop, Giant Food and ShopRite – have their hazard pay restored. The large Washington, DC-based labor organization said that as part of the first phase of the UFCW’s national hazard pay campaign, at least 26 worker actions were held the week of September 1 at grocery stores and other essential businesses across the country in nine states hit hard by the effects of COVID-19 including Maryland, Virginia and West Virginia. The new campaign will include grassroots actions as well as targeted paid and digital media to highlight the serious health threats these workers continue to face. UFCW will connect customers and communities with essential workers to call on these businesses to guarantee hazard pay as long as the COVID-19 pandemic continues. Most retailers, both organized and non-union, discontinued hazard pay in May or June. UFCW International President Marc Perrone said, “America’s grocery workers are putting their lives on the line every day that they walk into the store, because this pandemic is far from over and the health threats are just as real now as they were when this crisis began. It is outrageous that the CEOs of these companies refuse to restore hazard pay even as more of these workers are getting sick and dying every week. Hazard pay for grocery workers must be reinstated now.” In early September, the UFCW said that there have been at least 103 grocery worker deaths and over 14,300 grocery workers infected or exposed to COVID-19. “While top grocery chains rake in billions in profits during this pandemic, these frontline grocery workers continue to put themselves at risk to ensure our families have the food we need. As long as the hazard of COVID-19 continues, these companies must do what is right and provide the hazard pay these grocery workers have earned and deserve,” Perrone added.
And yes, we have some obituaries to report this month. Diana Rigg, the underrated British actress who won both a Tony and Emmy award, passed away earlier this month at the age of 82. Although she appeared in 70 film and TV roles (and at least a dozen more on stage) in her career which spanned more than 60 years, Rigg will always be known for her role as Emma Peel in the British spy series “The Avengers” (1965-1968). She was smart, sexy, witty and way cool, especially to a teenager who lived during the unliberated period of the 1960s.
And three gentlemen from the sports world, all of whom made a major difference in other people’s lives, have also passed away during the past month. Lou Brock, the Hall of Fame outfielder who played most of his career with the St. Louis Cardinals, has died at the age of 81. Not only was Brock a great player – the rare combination of batting average, stolen bases and power made him dominant on the field – he inspired and mentored many younger players after he retired in 1979. An example of his prowess could be seen in 1964, after he was traded from the Cubs (where he was considered a disappointment) to the Cardinals for Ernie Broglio in what is considered one of the most one-sided deals in the history of baseball. In his 103 games with Cardinals, he hit .348, stole 33 bases and helped the Cards beat the Yankees in an exciting seven-game World Series. All told, his .391 World Series batting average is the highest for anyone who played more than 20 Series games and his 14 stolen bases in World Series play are also a record. Brock was considered the fastest player in the game during the 1960s (although I would consider the Dodgers’ Willie Davis, who I saw score from first base on a routine single to right field, as being slightly speedier). When he retired in 1979, Brock held the record for stolen bases with 938 thefts (that record would later be broken by Rickey Henderson). Brock was elected to the Baseball Hall of Fame in 1985.
Also passing on was legendary Georgetown University basketball coach John Thompson. An imposing figure at 6’ 10” and weighing 300 pounds, Thompson was an excellent basketball player at Archbishop Carroll High School in his native Washington, DC and later at Providence College. When he was drafted in the third round by Boston in 1964, Thompson readily saw that his career would not be a long one. He primarily served as a back-up to the Celtics’ great Bill Russell, whom he also viewed as a mentor. He left the NBA after two years and started coaching high school basketball on a part-time basis. In 1972, Thompson was named head basketball coach at Georgetown. His hiring was somewhat of a surprise when he was chosen over more established local candidates such as Morgan Wooten, who had established one of the nation’s most successful high school programs at DeMatha. However, his first year of coaching did not begin as hoped – his ’72-’73 Hoyas posted a 3-23 record. But when Thompson began recruiting many Black players who would previously never have been considered for admission to a primarily all-white, private, religiously affiliated university, things began to change quickly. His in-game tactical skills were admired as was his ability to motivate his players (and sometimes agitate referees). By the early 80s, his recruiting reach extended nationally and internationally when such players as Patrick Ewing (Cambridge, MA), Dikembe Mutombo (Republic of the Congo) and Alonzo Mourning (Chesapeake, VA) played for the Big East school. In 1984, Georgetown won the NCAA Basketball Championship and a year later nearly won again, only to be upset by the lower-seeded Big East rival Villanova team which played out of their minds that evening in Lexington, KY. Believing that his players’ educational priorities should fall above their basketball exploits, every one of Thompson’s players graduated from Georgetown over a 25-year period until 1996 when Allen Iverson left for the NBA after his sophomore year. Thompson was 78 when he passed.
And it’s with personal sadness that I report of the death of Tom Seaver, 75, one of the greatest pitchers in baseball history and somebody who I admired (in a different way than Diana Rigg) from the time he joined the New York Mets in 1967. Seaver not only had great stuff as a pitcher; he was probably the smartest, most competitive athlete I’ve ever followed. He had three great pitches – an upper 90s fastball with great movement, a wipeout slider, and a “6 to 12” curveball that he used as his off-speed pitch. Along with his power arsenal, Seaver viewed baseball as truly a thinking man’s game – it was him against the batter and every at-bat was a chess match. During his 20-year career, Seaver’s record was 311-205, his ERA was 2.86 and he struck out 3,640 batters, sixth on the all-time list. One notable Seaver achievement that I don’t think will ever be duplicated occurred in 1970 when facing the San Diego Padres, he struck out the last 10 batters in a row. Seaver won the Cy Young Award three times and was inducted into the Hall of Fame in 1992, his first year of eligibility. A tremendous player and a great family man – Tom Seaver leaves quite a legacy.
