PG plots the progress of the top 50 U.S. supermarket chains in a derby where the stakes are ever greater.
Analysis by PG Staff Editors/Research by Debra Chanil
In the slugfest that has come to define food retailing, the nation's supermarket competitors are duking it out harder and heavier than ever to enhance their performance and accelerate market share. Gaining an edge over the many faces of competition in the present era, however, requires an ever more delicate balancing act between price, selection and service on one end and cost containment, capital investments in people, facilities and shopper engagement strategies on the other, to attract and retain a strong customer base.
And though the hypercompetitive backdrop of the current retail food business is undisputedly the most trying and complex, with no signs of abatement, the past year has been among the most productive and satisfying for the best-managed and -capitalized companies profiled in PG's annual Super 50 countdown of the nation's top supermarket operators.
While our annual study's methodology has been revamped this year by seeking the direct guidance of each company profiled on the list (see related Methodology sidebar on page S5), the ranking of the top 50 largest U.S. grocery chains remains relatively unchanged from previous years, with the exception of a select few. However, we take a closer look at the progress of some of the most noteworthy companies residing at the top of the leader board, beginning on page S10.
The Super 50 Methodology
Each company profiled in The Super 50 was contacted by PG for guidance regarding the four categories included in the report: annual sales from their most recently concluded fiscal year, store count, top banners and employee counts (either total or full-time equivalents). Full-time equivalent employees are the sum of regular workers, plus one-half the number of part-time employees.
In cases where companies didn't respond, data was sourced from public records, including 10K and annual reports. For privately held companies, results are based on information from Nielsen TDLinx, which collects and maintains store information across all channels selling consumer packaged goods. Nielsen TDLinx uses the Food Marketing Institute's definition of a supermarket: grocery stores with a minimum of $2 million in annual sales; its data omits sales from convenience, drug and other retail channels that may be part of total revenue for some companies.
Wholesale membership clubs such as Sam's, Costco and BJ's are also not included. Supercenters are included, but only for their grocery-equivalent merchandise. Not included are soft goods; clothing; general merchandise such as hardware, appliances, computers and auto service; and other items not common to supermarkets.
Sales estimates from Nielsen TDLinx are presented in terms of all-commodity volume (ACV), which is defined as an annualized range of the estimated retail sales volume of all items sold at a retail site that pass through the retailer's cash registers. TDLinx's ACV is an estimate based on best available data — a directional measure to be used as an indicator of store and account size, not an actual retail sales report. All data is collected by TDLinx from a wide range of independent sources, and then enhanced with computer modeling. Information shown is from the February 2013 database.
* Sales figure represents total annual sales; retailer does not break out segmented sales by category.
1. Wal-Mart Stores Inc.
Though Walmart has handily retained its top seed on The Super 50 list and its U.S. supermarket share has grown exponentially since it first charged into the grocery business almost 25 years ago, the Bentonville, Ark.-based mega-retailer has had a tumultuous journey of late. For the latest year ended Jan. 31, Walmart posted a 5 percent increase in sales, to $466 billion, and saw its U.S. business pick up beginning in late 2011 after grappling with a nearly two-year slump. Grocery made up 55 percent of Walmart U.S. sales in 2012, which was flat from the previous year.
To reignite its growth engines, Walmart has aggressively promoted its low prices, including via market-specific, documentary-style "Market Basket Challenge" TV commercials. The local spots have launched in 60 markets this year, up from 50 last year, and the company will collectively tally some 1,500 television ads this year — double what it ran in 2012.
As it continues to infiltrate the airways — and infuriate its retail food competitors in the process — with its audacious campaign, Walmart has been rocked by a series of corruption scandals at its global subsidiaries in Mexico, Brazil, China and India, which cost the company $157 million last year to probe, along with prompting it to make improvements to its compliance programs. Some observers say the size and nature of the scandals are indicative of a systematic rather than an isolated problem, but the company is confident that the best is yet to come.
"Walmart is only getting stronger as the world's healthiest and best-positioned global retailer," said Walmart President and CEO Mike Duke in a letter to shareholders sent on April 22. "I'm pleased with our business and financial performance last year. But what gives me the most confidence is the changing landscape of retail around the world, and how our people, our strategies and the customers we know and care about fit in. Whether it's everyday low prices, a seamless shopping experience, the most talented team of associates or our model for making a difference, we are on the right path."
Duke detailed Walmart's strategic focus areas:
Making sure the company has the best retail talent at every level of the organization by recruiting, developing and retaining the best associates;
Delivering on the productivity loop that enables Walmart to operate for less, so the company can drive prices even lower for its customers;
Being even more disciplined about operating expenses and capital spending;
Investing to serve more customers globally and accelerating the vision of anytime, anywhere access by bringing together best-in-class online, mobile and social capabilities and its more than 10,700 stores; and
Benefiting communities with a world-class compliance organization.
2. Kroger Co.
Being the biggest player in the grocery game has its advantages, primarily its capable, well-rounded corporate and regional leadership teams, at the helm of which is a pair of the most competent, complementary executives in the business: David Dillon, chairman and CEO, and Rodney McMullen, president and COO. Kroger's formidable performance in recent years is a direct reflection of the duo's empowered trust and lead-by-example style, which has enabled the Cincinnati-based supermarket stalwart to hit 37 consecutive quarters of positive same-store sales growth, and, in recent weeks, a 14-year-high stock price.
Building on strong momentum from its long-running "Customer 1st" strategy, Kroger is immersed in an aggressive, targeted expansion strategy to increase square footage and store penetration in existing and new markets to drive sales and further refine its market-specific store formats. Concentrating carefully on maximizing its regional market presence, Kroger's Memphis, Tenn.-based Delta Division, for instance, which operates 115 eponymous stores and 70 fuel centers in five states, is pumping $100 million into its regional portfolio. With a $50 million purse for 2013 and another $50 million over the next three to five years, the Delta Division will benefit further from store upgrades and store replacements.
On a wider scale, Kroger continues to gain momentum through its admirable alliance with consumer insights subsidiary partner dunnhumby, which has resulted in powerful promotional and loyalty programs that are helping to further customers' perception of the grocer's prices, while accelerating market share in wellness and natural/organic products.
"We are always impressed by our visits to Kroger stores," says Charles Cerankosky, managing director and principal at Cleveland-based Northcoast Research. "Neighborhood by neighborhood, the stores show customized merchandising that reflects local demographics," ranging from perishables to general merchandise to center store selections and services.
Kroger's next chapter of growth will center on further empowering its sizable base of more than 339,000 associates in 2,425 supermarkets and multi-department stores to look at the long term, as they would at a private company, to deliver the best possible shopping experience.
At the recent FMI Future Connect conference in Orlando, Fla., Dillon conveyed a telling message about his leadership style and worldview in a general session address. "The bar is always being raised; we want our game to be better," he said, offering a rising-tide-lifts-all-boats analogy to attendees that "we want your game to be better, too. Competitors make us better. We should all expect more [of ourselves] tomorrow than we do today."
4. Safeway Inc.
With former president Robert Edwards officially named to succeed Safeway Inc.'s longtime chairman and CEO, Steve Burd, a new chapter for the Pleasanton, Calif.-based operator of 1,638 namesake banners, as well as regional ones such as Vons, Pavilions, Randalls and Tom Thumb, is about to unfold. "Since he arrived here in 2004, Robert has successfully met every challenge he has faced," Burd said when revealing his successor. "He has demonstrated the ability to lead the company in all facets of its operations, and has earned the respect of the entire organization."
Edwards is picking up the baton at an interesting juncture in Safeway's timeline. Indeed, with the exception of its first quarter of 2013, Safeway recorded 11 straight quarters of earnings growth, including seven times in double digits. During the 2012 fourth quarter, Safeway netted a 40 percent year-over-year increase — its biggest gain in years — in tandem with a two-year-high stock price posted on April 12; shares of the company have climbed 47 percent since the beginning of the year.
Charles Cerankosky, managing director and principal at Cleveland-based Northcoast Research, says: "The shelf presence of Safeway's store brands always looks strong. Package graphics are consistently top-notch, with unique attributes that do not tie them to typical private label offerings. Safeway is not afraid to offer products with unique flavor profiles — the company wants to go beyond national brand equivalency."
In-store, Safeway's biggest victory of late has been its "just for U" digital marketing/loyalty platform, which tailors personalized prices to individual shoppers. Seeing early success as both a same-store sales catalyst and unit-volume driver — the one-two punch of retail bliss — company executives say the initial results of just for U have only begun to scratch the surface and may well enable the company to discontinue print ads in the United States in the not-too-distant future.
Safeway also continued the rollout of its fuel rewards program in the first quarter through a partnership with more than 650 Chevron stations in Northern California. Nearly all Safeway markets will offer the fuel rewards program by July, according to company estimates.
On the heels of its recent gangbuster $230 million Blackhawk Network IPO, Safeway is better poised to do several important things with the proceeds: accelerate shareholder dividends, pay down debt, sharpen its focus on mainstream retail operations, and improve its competitive position.
5. Publix Super Markets Inc.
For the longtime market leader in its core Florida marketing turf — where it enjoys a market share larger than every other competitor combined — Publix Super Markets clearly has no intention of resting on its laurels in the face of intensifying competition.
With Walmart continuing to worm further into the most population-dense pockets of the Sunshine State as part of an aggressive two-year expansion plan launched last year, and flooding the local airwaves with its "Market Basket Comparison" ads, Publix is firing back with its own campaign to counter the mega-retailer's price-superiority claims.
Earlier this year, the Lakeland, Fla.-based grocer launched ads offering customers "The scoop: Walmart doesn't always have the lowest price." Beyond price, Publix — which operates 1,069 stores in Florida, Georgia, the Carolinas, Alabama and Tennessee — is also adamant about its well attended, up-to-date stores, strong private label products, expansive fresh food offering and responsive service.
As part of an ongoing northern migration, Publix recently opened its 30th store in Tennessee, in the southwest Nashville suburb of Fairview. The Southeast regional grocer entered the Nashville market eight years ago with seven recently acquired Albertsons stores. Further, having opened its first North Carolina store in Charlotte last year and with a second store in the same area on the way, observers believe Publix will continue its northern push, yet not at the expense of surrendering an inch of its existing marketing territories.
6. Ahold USA Inc.
Largely thanks to its parent company's ongoing "Reshaping Retail" strategy to streamline business and lower costs, from which it started to reap the benefits last year, Ahold USA, the American arm of Amsterdam-based retail conglomerate Ahold, was able to realize impressive fourth-quarter and fiscal 2012 results — even as a monster storm slammed into the East Coast last October, wreaking havoc on many of the communities served by the company's Stop & Shop, Giant-Landover, Giant-Carlisle and Martin's banners.
In fact, Ahold USA's solid fourth-quarter gains "were partly driven by the exceptional efforts of our teams during Hurricane Sandy, which enabled our stores to remain open and to serve our customers during these difficult times," noted the company, adding, "We achieved market share gains in both the supermarket and all-outlets channel as sales benefited from our strong promotional activities and a good holiday performance."
According to Ahold CEO Dick Boer: "Our U.S. businesses are improving their own-brand product lines to give customers more choices at different price points to fit their budgets. We are building our online business … to give customers more shopping alternatives" — including the establishment of the first Peapod pickup points in the United States — "and we continued to achieve double-digit online sales growth in food."
Further, Ahold USA expanded its geographic reach in 2012, acquiring and converting 15 Genuardi's stores to the Giant-Carlisle banner in the greater Philadelphia area. The company has declared itself "satisfied" with the stores' integration and performance.
Buoyed by its success in 2012, Ahold USA will continue to follow the Reshaping Retail plan, and expects to flourish accordingly.
8. H-E-B Grocery Co.
San Antonio-based H-E-B, with sales of more than $19.4 billion, operates more than 350 stores in Texas and Mexico. Guided by a highly talented corporate leadership team that relies heavily on the skills and loyalty of its diverse and dedicated front-line partners, H-E-B has secured the dominant market position in its extremely competitive home state.
Focusing closely on price, tailored neighborhood stores and unique products, the privately held H-E-B, which employs more than 80,000, is facing a host of new competitors in and around its core markets this year, in the form of Trader Joe's, Whole Foods Market, Target and, of course, Walmart, the last of which plans to add four more supercenters in San Antonio alone by early 2014, on top of its existing 450 stores and 16 distribution centers now dotting the Lone Star State's landscape.
9. Delhaize America Inc.
It's been a wild year at Salisbury, N.C.-based Delhaize America, the U.S. division of Brussels-based international retail conglomerate Delhaize Group. A comprehensive restructuring effort resulted in massive layoffs, including 25 percent of its top leadership positions; the closure of 134 Food Lion stores (among them all Florida locations), 33 Sweetbay Supermarket stores (one-third of the chain's locations) and three Bottom Dollar Food stores; the retirement of the Bloom banner; and, amid a flurry of significant executive changes, the replacement of Cathy Green Burns with Beth Newlands Campbell as Food Lion president.
Still, the company's cost-cutting campaign, which began last summer, has enabled Delhaize America to begin reinvesting the resultant savings in its store base. Also during 2012, the company continued the brand repositioning of Food Lion, rolling out the program to 537 stores, with another 360 set to undergo rebranding this year.
Delhaize America attributed its positive fourth-quarter volume growth to the Food Lion brand repositioning, continued price investments at Hannaford and the expansion of Bottom Dollar. The rebranded Food Lion stores additionally racked up higher comparable-store sales during the quarter.
With the aim of further accelerating growth at Food Lion, the next phase of the brand strategy, covering 180 stores mostly in the Baltimore/Washington D.C., markets, launched in the second quarter. Additional plans include continuing to boost Hannaford's price competitiveness. The company hopes to partly fund the planned price investments through cost savings across Delhaize America, and improved results at Bottom Dollar and Sweetbay.
One to Watch
16. Supervalu Inc.
Supervalu's recent sell-off of the five Albertsons banners it purchased seven tumultuous years ago resulted in the Minneapolis-based grocery operator's loss of standing in our Super 50, but the new leaner-and-meaner entity should remain a force to be reckoned with as it refocuses its efforts on its historic roots in food distribution and serving independent retailers.
To be sure, investors' spirits were buoyed by new CEO Sam Duncan's revelation last month that not only will Supervalu be investing more of its attention in its independent customers, but also would cede much of the home office's decision-making authority to its remaining retail banners — hard-discounter Save-A-Lot, plus Cub Foods, Farm Fresh, Shoppers Food & Pharmacy, Shop ‘n Save and Hornbacher's.
"To a person, our independents believe in Supervalu, and the enthusiasm that they have demonstrated towards our renewed focus on the core distribution business is truly exciting," Duncan told investors during the company's first-quarter earnings call in April. "Working with and supporting these retailers will be a big focus of my time."
A thread of consistency will be the retention from the previous management team of Janel Haugarth to lead the independent business and supply chain operations. "She has been a strong champion of the independent retailer and will play a critical role in supporting and driving this segment," Duncan said. "We recently put in place our national retail advisory group, which will meet for the first time in June. This will be a platform for independents to provide feedback on the initiatives we have underway or may be thinking of launching."
Duncan also heralded some tweaking with Save-A-Lot, long considered a beacon amid Supervalu's sagging fortunes. "The cost structure had gotten out of line, which meant our licensees and corporate stores were not as competitive as they should be. Save-A-Lot merchandise mix had strayed from the private label focus that drove compelling price points and brought great value to customers. And as a result, the store growth was simply not happening," he explained. "Moving forward, our focus will be on being a low-cost operator, both in our stores and at headquarters."
In March, Supervalu completed the $3.3 billion sale of its Albertsons, Acme, Jewel-Osco, Shaw's and Star Market stores, as well as related in-store pharmacies, to AB Acquisition LLC. The deal with the affiliate of a Cerberus Capital Management LP-led investor consortium includes $100 million in cash and $3.2 billion in debt assumption.
The transaction created a new $17 billion company focused more strongly on distribution and serving nearly 2,000 independent retailers in 43 states, with plans to continue growing the Save-A-Lot format and Supervalu's five remaining regional retail banners.
The sale was the culmination of a transformative journey for the struggling grocer that began last July when Supervalu ousted CEO Craig Herkert following a string of negatively performing quarters. Company director Wayne Sales took Herkert's place at the helm to oversee a turnaround that resulted in the sale of Albertsons, Jewel-Osco, Acme, Shaw's and Star Market, which it acquired for $12 billion in 2006.
The "new" Supervalu now consists of three business units: Independent Business, a leading food wholesaler serving nearly 2,000 stores across the country; Save-A-Lot, the largest hard-discount grocery chain in the United States, with more than 1,300 stores; and five regional retail banners.
As part of the grocer’s ambitious growth plans for the coming year, Iowa-based Hy-Vee’s new 93,000-square-foot Ankeny store is located in the Prairie Trail planned community, a 1,100-acre development that includes residential, commercial and retail properties as well as parks and other recreational facilities. PLAY VIDEO
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