Quick Stats

Quick Stats

    You are here

    FEATURE: The retail newsmakers

    Progressive Grocer places bets on which operators will merit headlines in 2006.

    By PG Staff

    You can count on this: Somebody's going to do the buying, and somebody else is going to get bought, in 2006. The grocery business is ripe for restructuring, and the deals were surfacing even as 2005 came to a close. But all that M&A action won't be the only type of news to break this year. Plenty of retailers will deserve -- and get -- attention for their efforts to stay afloat or stand out, or step it up, as the competitive landscape shifts and many stores change hands. Here, in alphabetical order, are some of the operators most likely to make news in the next 12 months. Stay tuned.

    Ahold USA, Inc.

    The top managers at Ahold USA, the American arm of Dutch retail conglomerate Royal Ahold, would be the first to admit theirs is a company in transition. Aftershocks of a 2003 profit restatement scandal at its U.S. Foodservice division still persist, while its retail businesses are currently experiencing uneven financial results. Ahold USA will continue to have to work hard to restore and maintain shareholder trust and operational profitability. Strategies to achieve those aims include the recent $1.1 billion settlement with shareholders, the split of U.S. Foodservice into two separate businesses, and adherence to its parent company's self-described Road to Recovery restructuring program of debt reduction through selective divestment, improving operational performance, and generating cash flow.

    Industry watchers are still waiting for the upside of all this activity, and some sound hopeful, if cautiously so. According to Fernand de Boer, an analyst at ING Wholesale Banking in Amsterdam, Ahold USA's current tactics "should pay off, but it will not be easy." The analyst notes that separating U.S. Foodservice into broadline and multi-unit businesses should allow special attention to be paid to each division's needs, as well as making each easier to sell, should that direction be taken. Right now, however, the company's aim to "create value and decent returns" in the separate U.S. Foodservice businesses is the correct course, says de Boer, although he acknowledges that Ahold USA "can't fix this thing overnight." He anticipates a three-to-five-year, "slow but thorough" process, which he believes is better than making mistakes by "rushing it."

    The portfolio of Ahold's U.S. supermarkets, meanwhile, is likely to remain a mixed bag. While Stop & Shop, and especially Giant of Carlisle, Pa. should continue to prove they're strong businesses, the Giant-Landover and Tops Markets operations, under siege by such market usurpers as Wegmans, have been performing less well, signaling the possibility of either more troubles ahead, or changes -- perhaps including acquisitions -- to improve the odds. In De Boer's view, Ahold should work on investing in and improving Giant-Landover's store base "in all aspects of retail," while Tops will need to combine such investment with a reduction in the number of stores.

    --Bridget Goldschmidt

    Albertsons, Inc.

    The biggest story of late 2005 will continue to reverberate well into 2006, and even beyond. While Albertsons may have new owners by the time this issue of PG hits the market, the ramifications of Albertsons' fate, and the forces that brought it to this point, will have disruptive effects throughout the industry. The Boise, Idaho-based retailer put itself on the market in September after seeing its profit decline in three of the past four years. At presstime a bidding team including buyout firm Cerberus Capital, Kimco Realty Corp., and Supervalu, Inc. had reportedly placed the highest offer, $9.6 billion, on the table.

    Any deal could lead to heavy layoffs and store closings, particularly in the company's underperforming stores in Texas, Florida, Colorado, and Arizona. Analysts say buyers will likely close about 470 stores in these markets.

    However, it's unlikely that Albertsons' headquarters would be moved, says Burt Flickinger III, managing director of the Strategic Research Group in New York. "In all likelihood, a private equity buyer would get most of Albertsons' operations and would keep its headquarters in Boise."

    One piece of Albertsons that's likely to be sold outright is its 794 Osco and Savon drug stores, which will probably be snatched up by CVS Corp.

    Albertsons' namesake stores run a good chance of staying bundled, while regional banners such as Jewel could be spun off, notes Flickinger. In one ironic twist, gourmet retail chain Bristol Farms, which Albertsons acquired in 2004, could find itself back on the block -- with plenty of interest from other parties.

    --Joseph Tarnowski and Jenny McTaggart

    Costco Wholesale Corp.

    This food-savvy warehouse club chain is already having a great 2006 -- fiscally speaking, that is -- with a 12 percent profit increase in its first quarter. The rest of the year could likely see more of the same.

    Strength in retailing basics helped drive profits in the first quarter of fiscal 2006 at Costco, said c.f.o. Richard Galanti last month. Galanti said the commitment to retail discipline -- such as a strict adherence to SKU counts -- starts right at the top, with president and c.e.o. Jim Sinegal.

    The warehouse club is supporting that commitment this year with new technology initiatives to boost efficiencies and sales. One such initiative, the Costco Collaborative Retail Exchange (CRX) program, allows Costco's manufacturer partners to access and use Costco's point-of-sale data in a structured, collaborative framework, reflecting Costco's category and geography definitions.

    Costco also strengthened its online offerings, making it easier to integrate new suppliers and fulfill orders. This combination of smart retailing and efficient operations promises to deliver strong and steady results this year, whichever calendar you go by.


    Food Lion, LLC

    Salisbury, N.C.-based Food Lion is expected to continue innovating to win Southeastern and Mid-Atlantic grocery shoppers in the year ahead. You can also expect the retailer to roar, if you will, from three sides of its mouth, wielding its trio of formats selectively as markets demand. Executives at the Delhaize USA division said they're in the process of determining which of the company's banners -- Food Lion, Bloom, or Bottom Dollar -- will be best suited for specific store sites in Washington, D.C., which is the location for Food Lion's 2006 market renewal program. Expect to see more of this strategy in other markets where Food Lion is facing tough competition.

    The new Bottom Dollar banner, which scales down the supermarket offering to allow for lower prices, could be "very beneficial to [Food Lion's] asset base very quickly," says Neil Stern, partner at Chicago-based McMillan/Doolittle, LLP.

    Food Lion is also rolling out a new interior and exterior design at some of its namesake stores, to revitalize its core business.

    This large regional retailer will also likely continue to enhance its offering of convenient, andor prepared foods. Food Lion recently began in some of its delis to merchandise exclusive-label imported pasta that can be quickly prepared. Aiding the chain in its efforts is its proactive marketing department, which has been getting more involved with household-based segmentation.


    Great Atlantic & Pacific Tea Co., Inc.

    Beset by financial difficulties in the super-competitive Mid-Atlantic market that's its core, Montvale, N.J.-based A&P has been shedding assets and trying to focus on that core in a bid to survive. So far, the strategy seems to be staving off disaster: The sale of A&P Canada to global grocer Metro last year brought in a welcome infusion of cash, and the expansion of fresh and discount formats promises to bolster the company's customer base and draw new shoppers. But will such a restructuring be enough to save A&P?

    "By selling off -- or, as in the case of [Midwestern banner] Farmer Jack, attempting to sell off -- its assets, A&P has put too many of their eggs in a fairly unstable basket and failed to understand the reason they were in trouble in the first place," notes supermarket observer and PG columnist Ryan Mathews. "It's the A&P culture and vision that need to be redefined. If I were [A&P], I'd take steps to heal myself before I tried to take on the world in what is arguably one of the most competitive supermarket geographies in America."

    Continues Mathews: "My experience tells me that, as a company I'd define as being in crisis, they'll put a much greater emphasis on doing 'something' than on doing the right things. I'm not too optimistic, until I see some signs that the anthropology of A&P is being addressed, and not by the most recent wave of consultants du jour."


    H.E. Butt Grocery Co.

    San Antonio, Texas-based H.E. Butt Grocery Co. is moving full speed ahead with its newest and largest format, HEB Plus!, a major initiative that's consuming most of the company's efforts. Because of its larger mix of nonfoods, the 170,000-plus-square-foot concept will allow HEB to compete more successfully with Wal-Mart supercenters. Shoppers, meanwhile, will be wowed by new departments, including Cook & Grill, Card & Party, Entertainment, Baby, Bed & Bath, Furniture, Do-It-Yourself, and a RediClinic in-store health facility.

    As HEB tackles health and wellness, its upscale Central Market format would be the likeliest vehicle for growth, predicts McMillan/Doolittle consultant Neil Stern. Meanwhile, the retailer will continue to up the ante in ethnic merchandising, with both Hispanic- and Asian-segmented stores based on local demographics. Expect continued innovation in private label from this industry leader as well.


    Kroger Co.

    Well-run Kroger clearly remains focused on seeking -- and seizing -- new opportunities for growth. One of its main challenges for 2006 will be to maintain a balancing act that keeps price in the mix, but not the dominant feature of its total value proposition.

    Make no mistake: tabbing six consecutive quarters of increased same-store sales has been no easy feat for the 2,500-store Cincy-based chain. It has also managed to retain its strong market share position overall while at least one Wal-Mart supercenter operates within 20 miles of roughly two-thirds of its stores.

    The pace of its recovery in Southern California following the protracted labor strike and lockout in 2003-2004 is slower than anticipated. But with a renewed emphasis on placing the customer first, watch for Kroger to seek to improve the shopping experience through insights gained in more focus group interaction. Meanwhile Kroger's executive team will be likely to stay on point with continued cost reductions.

    In the coming year, some observers expect to see Kroger mix it up by introducing select elements of its Fred Meyer lines -- i.e., bargain furniture and jewelry -- into specific locations where demand exists.

    --Meg Major

    Marsh Supermarkets, Inc.

    After posting a $3.4 million loss during in the second quarter of 2005, Indianapolis-based Marsh Supermarkets, Inc. has started 2006 searching for a buyer that might be able pull it free of the quicksand. The family-owned regional will need plenty of rope to get back on its feet. Can this hometown retail brand's once invincible formula be restored after being hammered by a bevy of operationally savvy low-price competitors?

    In the months leading up to the announcement that it would consider offers for a sale, Marsh's management team had worked diligently to try to reduce costs, and at the same time rejuvenate its retail image with an impressive Lifestyle format. However, many view those efforts as too little, too late, given Marsh's lingering high-price image and aging existing store base.

    Several privately held chains have been linked to a possible deal with Marsh, as have several private equity firms. However, in light of Marsh's stifling $250 million long-term debt load and other liabilities, attracting a new suitor will be a job in itself.

    Should a new prospective owner not emerge, most analysts believe Marsh will be left with little choice than to sell off a subsidiary or subsidiaries, such as the Village Pantry c-store or the catering division. Regardless of what comes next, it seems clear that Marsh will need to address its weaknesses in the market, especially in price perception, at warp speed.


    Meijer, Inc.

    Much like the automakers in its own backyard, Meijer faces a horde of ferocious competition from some of the toughest contenders in the business. But it seems safe to say that Meijer has no intention of surrendering an inch.

    Last year the godfather of the supercenter format was busy sticking to its knitting in the hotly contested metro Detroit market. But then in late fall, Meijer Inc. was thrust into the spotlight amid rampant reports that British retailer Tesco was poised to buy a 49 percent stake in the family-owned chain.

    Nothing came of the rumors, save for a vigorous denial of a deal by Hank Meijer, co-chairman and c.e.o.. In an interview with the Detroit Free Press, Meijer took the opportunity to make it clear that his company is on the march, not the wane, shooting to have 400 signature supercenters on the map by 2020, which roughly translates into 15 new stores a year, at double the rate of its existing scorecard of expansion.

    In a nod to Wal-Mart, Meijer's chief executive was also quoted as saying, "We are energized by the challenge of competing with the largest corporation in the history of the planet," and he added the imperative before his company "to keep expenses low to stay in the game."

    Among the key items on Meijer's to-do list for 2006 is to hire a replacement for Larry Zigerelli, the chain's former president, who resigned his post after just seven months, due to pressing personal issues.

    At presstime the chain was in the process of pitching a request to build on 23 acres in the Grand Rapids, Mich. area a 207,000-square-foot store that would include a gas station, an outdoor garden center, and a car wash. If approved, the site will stand as the largest commercial development of Meijer's new store platform and thrust the chain into a whole new ball game.

    With 171 stores in Michigan, Kentucky, Indiana, Ohio, and Illinois, Meijer's plans call for at least five new stores in 2006. Observers say the Chicago area -- where it currently operates nine stores -- seems like the most logical place for an accelerated store expansion. Other observers believe a good number of Marsh stores are ripe for Meijer's picking, as a good strategic fit for a company that won't quit.


    Pathmark Stores, Inc.

    Times have been tough lately for Carteret, N.J.-based Pathmark, but the regional grocer, located in the metro New York-New Jersey and Philadelphia areas, is battling back. A successful takeover bid by Yucaipa Cos. and the subsequent appointment of John Standley to replace Eileen Scott as c.e.o. have appeared to breathe new life into the financially troubled retailer, which is hoping to boost sales gradually through a merchandising and store initiative that includes expanding perishable offerings, introducing new general merchandise categories, and enhancing the overall look of locations.

    According to Karen Short, a retail analyst with New York's Fulcrum Global Partners, LLC, consolidation of Pathmark's business with another grocer's is "inevitable," but when it will actually occur is less clear. Meanwhile Pathmark will have to "re-energize employees to help customers again." One key way the company will do this, says Short, is through "making people accountable for things they weren't [previously] accountable for" as the new leadership remakes Pathmark from the top down.

    Short believes that Pathmark has the potential to grow through such strategies as remodeling its store base, which has essentially been starved for the past eight years: "Things have been so mismanaged, there's nowhere to go but up." Although she notes that the overlap on store base isn't significant enough to preclude Pathmark and rival chain A&P from increasing and improving their respective operations, "in a perfect world" she'd like to see them join forces because of their "compelling" synergies, although "there are no guarantees that's going to happen."


    Publix Super Markets, Inc.

    Publix is one of those fortunate few regional chains that's doing so well it can afford to invest in new concepts, technology, and other important areas of the business to keep its edge on the competition sharp. Last year the Lakeland, Fla.-based retailer introduced Publix Sabor, a format catering to Hispanic shoppers, in the Miami and Orlando areas.

    There are no additional plans to expand the Hispanic format for now, says Publix spokeswoman Maria Brous. However, this year Publix will again grab major headlines when it opens GreenWise by Publix, a stand-alone natural and organic food format inspired by its successful in-store departments of the same name. Opening dates haven't been determined yet, according to Brous, but one store will be located in Boca Raton, Fla., while another will open in Palm Beach Gardens.

    Publix will also open at least one other Pix convenience store, and several locations of the Crisper's quick-serve restaurant chain in which it has invested, confirms Brous. While Crispers is currently limited to Florida, the company is exploring Georgia markets for future expansion.


    Safeway, Inc.

    Last year treated Pleasanton, Calif.-based Safeway pretty well, and observers should expect more of the same this year as the big chain continues to reshape itself into a more consumer-focused operator.

    Boosted by a massive branding campaign in April, the retailer saw mid-single-digit identical-store sales growth throughout the year, with its Lifestyle stores, which are at the center of its rebranding strategy, exceeding expectations. To date, approximately one-quarter of the retailer's stores have been remodeled into the new format.

    Safeway's success has been driven at least in part by its improvements in perishables and private label offerings, highlighted by programs such as Ranchers Reserve beef, Signature Soups, and Signature Salads. The question that remains is whether the cost of all this revamping will outweigh gains in sales.

    At the same time, Safeway has continued to implement cost-cutting measures and completed the restructuring of its labor contracts.

    Now Safeway plans to make approximately $1.6 billion in capital expenditures in 2006, to build 20 to 25 new stores and remodel approximately 280 stores along the lines of the Lifestyle format, from which it expects to continue delivering strong growth into the new year.


    Spartan Stores, Inc.

    With Spartan, it's apparently buy or be bought. And after a period in 2005 of looking for a buyer, it has chosen the former. In the wake of a purchase agreement to acquire D&W Food Centers, Inc. in a deal that could add $200 million a year to its sales, it should be interesting to see what Spartan Stores will do next.

    Based on Spartan's previous acquisition record with Michigan grocery chains, a likely scenario would find the retailer/distributor closing unprofitable D&W locations outside of the immediate Grand Rapids, Mich. area.

    It's also likely that the D&W stores that remain open under Spartan would keep their name and identity, as has been the case with the Family Fare and Glen's units that Spartan absorbed in past transactions. But there's no doubt that the D&W private label will be no more, with Spartan expected to waste little time converting those products to the Spartan house brand.


    Supervalu, Inc.

    As this issue hit the presses, a huge question about Supervalu's future hung in the air: Would the nation's leading wholesaler/retailer also find itself an owner of the huge Albertsons retail portfolio?

    Regardless of whether that question has since been answered, it's clear that Supervalu will be making waves, including some big ones, in the marketplace in 2006.

    In a literal move for "organic" growth, all eyes will be focused on the much-anticipated debut this month of the Minneapolis-based distributor's new concept, a value-priced organic food retail outlet called Sunflower Market, which will open in Indianapolis. The company plans a second 13,800-square-foot store, near Ohio State University in Columbus in mid-2006, as the next step in a rollout that could render as many as 50 units in five years.

    Supervalu's supply chain services operation, meanwhile, will continue to progress with next-generation strategies, including supply chain technology investments, the W. Newell & Co. produce special operation, and third-party logistics.


    Wal-Mart Stores, Inc.

    As a newsmaker, Wal-Mart is always a sure bet. The largest retailer in the world, the company gets its share of press every year just by being there, but in 2005 its less-than perfect performance and status as a pincushion for many anti-Wal-Mart media campaigns could presage a 2006 with marked ups and downs as well.

    For now, Bentonville, Ark.-based Wal-Mart is concentrating most of its energy on the international expansion of its juggernaut supercenter format, as well as the continued conversion of many domestic mass merchandise discount stores to supercenters. The retailer has said it plans to open as many as 370 units, including supercenters and Sam's Clubs, in the United States alone this year. Its Neighborhood Market concept, meanwhile, remains in test mode, at least for now.

    Watch for Wal-Mart to stay busy working with PR agencies to craft itself a more positive public image. "The negative PR has had some effect, but it certainly seems limited," notes Richard Hastings, v.p. and senior retail sector analyst at New York-based Bernard Sands. "The outlook is improving."

    The most interesting news might come from Wal-Mart's bid to move slightly more upmarket and expand its demographic reach. Hastings predicts that the retailer will do it not only by adding new products such as organics and wines, but also by remodeling and reformatting some stores. Meanwhile Wal-Mart executives say they plan to get more aggressive in ethnic marketing.


    Wegmans Food Markets, Inc.

    All systems are go for continued territorial expansion of Rochester, N.Y.-based Wegmans, the industry's quintessential high-quality operator, whose large, amenity-packed locations include gourmet cooking classes, specialty food shops, and in-store cafes. The company's recently opened 69th store launched a whole new market, being its first in the state of Maryland. Even the closure late last year of the retailer's 14 Chase-Pitkin Home and Garden Centers in upstate New York, in the face of stiff competition from home improvement giants Home Depot and Lowe's, will be no more than a momentary blip on Wegmans' radar, allowing it to concentrate on what it does best -- providing high-quality food and excellent customer service.

    "The reason Wegmans will continue to operate the gold standard stores is Danny [Wegman's] fundamental commitment to not being satisfied with past successes," says consultant Dan Raftery. "He has a team of retail partners who share his fixation on constant improvement. This translates into all kinds of positive experiences for shoppers and employees, which in turn should deliver solid performance in the future.

    "The problems they're likely to encounter would be internal -- how to build out the supply chain to deliver continuously improving results in the store," adds Raftery. "Adding stores and expanding geography will complicate things, but will also be met by enthusiastic and hungry shoppers who've been waiting for a Wegmans to open in their area."


    Wild Oats Markets, Inc.

    If there's a lesson to be learned from Wild Oats, it's this: Just being in a hot market doesn't automatically mean that you'll succeed. Unlike its rival Whole Foods Market, which has seen its profits skyrocket, Wild Oats made $82,000 in its latest quarter, and its stock rating was downgraded in December.

    However, that performance is still a long way from a loss of $7.1 million, which it saw during the year-ago third quarter -- proof that the super natural chain is making some headway.

    In 2006 Wild Oats will continue along the lines of a strategic shift it made in 2005 to boost sales by attracting more mainstream consumers to its stores with more traditional, albeit still health-oriented, SKUs at the Henry's Farmers Market banner, which doesn't abide by the strict guidelines that the Wild Oats banner does.

    Wild Oats is also pushing its store brand to the mainstream shopper by offering Wild Oats-labeled products through Peapod, Ahold USA's online retail site, as well as in a store-within-a-store concept in Ahold's Stop & Shop stores.

    These strategic moves aside, 2006 isn't likely to be smooth sailing for Wild Oats. Even as it makes overtures to attract the portion of mainstream shoppers interested in health foods, the natural and organic market will likely be so hot this year that it will become ever more commonplace among conventional grocers to boost their own efforts in this area.


    By PG Staff
    • About PG Staff

    Related Content

    Related Content