Supermarkets Top Alternative Formats (Part 1)

1 2016alternativeformats

Now more than ever, alternative formats like mass merchandisers, natural food retailers, dollar stores and even drugstores are encroaching on supermarket food sales. The following companies from the 2016 Top 75 list of U.S. and Canadian retailers represent the alternative formats with the most food sales.

1Walmart

1. Wal-Mart Stores

Annual sales: $247.5 billion (estimated, consumables only)

2costco

2. Costco Wholesale Corp.

Annual sales: $69.4 billion (consumables only)

3CVS.jpg

3. CVS Health

Annual sales: $44.4 billion (estimated, consumables only)

4Target.jpg

4. Target Corp.

Annual sales: $34.2 billion (estimated, consumables only)

5Walgreens.jpg

5. Walgreen Co.

Annual sales: $28.3 billion (estimated, consumables only)

6Meijer_0.jpg

6. Meijer, Inc.

Annual sales: $16.9 billion (estimated)

7WholeFoods.jpg

7. Whole Foods Market

Annual sales: $15.4 billion

8DollarGeneral.jpg

8. Dollar General Corp.

Annual sales: $15.3 billion (estimated, consumables only)

9_7Eleven.jpg

9. 7-Eleven

Annual sales: $13.3 billion (estimated, consumables only)

10TraderJoes.jpg

10. Trader Joe’s Co.

Annual sales: $13 billion (estimated)

Analyzing the potential Kroger-Fresh Market hookup.

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Should Kroger’s reported interest in The Fresh Market result in a deal, it would give the Cincinnati-based retailer additional ammunition as it battles for the Southeast, an opportunity to accelerate whatever plans it may have for a small-store rollout and give it yet another platform to churn sharper pricing into greater market share, industry observers told SN.

“Kroger is not fooling around,” Jay Jacobowitz, president of Brattleboro, Vt.-based natural products consultant Retail Insights, remarked of the big retailer’s interest in the struggling high-end chain. “They bought Vitacost, they could certainly buy The Fresh Market.”

Kroger was among four bidders for The Fresh Market as the auction for the Greensboro, N.C.-based specialty retailer advanced into a second round, Reuters reported Thursday. The Fresh Market announced its board was reviewing strategic options late last year, but none of the parties have commented publicly on the report.

As the only strategic bidder, Kroger would be in good position to outbid private firms, according to Andrew Wolf, an analyst at BB&T Capital Markets in Boston. Reuters identified Apollo Global Management, KKR and TPG Capital as Fresh Market’s other suitors.

Wolf said he likes Kroger to prevail in the bidding because it was best-suited to address the pricing concerns at the heart of The Fresh Markets’ slowing sales. In a research note, Wolf hypothesized that Kroger could lower Fresh Market’s prices by 2% across the board simply by investing the cost synergies it would gain acquiring the chain, plus about $18 million, and still be accretive to earnings, assuming a $27 per share buyout.

“They have the expertise and the refined, nuanced tools to figure out how to leverage price investments and promotions into market share,” Wolf told SN. “And that [market share] is the problem with The Fresh Market. I think they’ve proven they can do that with Harris Teeter. That chain used to be known as Harris Gucci.”

Karen Short, an analyst at Deutsche Bank, was more circumspect, noting that Fresh Market’s margins would require a tight shave to regain sustainable sales, envisioning EBITDA margins dropping from 9.8% to 6.8%, making the retailer significantly less attractive.

The Fresh Market operates 183 stores, concentrated primarily in the fast-growing Southeast, where Kroger is arming for battle with Publix, Wegmans, Sprouts Farmers Market and Lidl, all expanding in the area. Significantly, Wolf noted, a deal would give Kroger 40 stores in Florida where it would encounter Publix and a fast-growing Trader Joe’s, a favorite of young shoppers.

Short’s analysis suggested however that The Fresh Market was not a real estate play, saying it was likely that Kroger could replicate the company’s footprint at cheaper rents by building itself. “The only potential real estate play for a strategic bidder would be if the strategic bidder wanted to accelerate their footprint by 180 stores overnight,” she said.

But that too could be a factor. Food retailers including Kroger and Ahold have been experimenting with smaller, fresher focused stores including Kroger’s Main & Vine store that opened earlier this month in Washington, and Ahold’s bFresh, a store focused on Millennial foodies.

“The Fresh Market is like a bFresh for Baby Boomers, but not every location has to be,” Wolf said. “It’s a huge market with lots of room for segmentation.”

2016 Top 75 U.S. & Canadian Food Retailers & Wholesalers.

 2016-01-04_15-18-33
    1. Wal-Mart Stores Company News
    2. Kroger Company News
    3. Costco Wholesale Corp. 2016
    4. Albertsons 2016
    5. CVS Health 2016
    6. Target Corp. 2016
    7. Loblaw Cos. 2016
    8. Walgreen Co. 2016
    9. Publix Company News
    10. C&S Wholesale Grocers 2016
    11. Ahold USA Company News
    12. H-E-B 2016
    13. Supervalu Company News
    14. Delhaize America Company News
    15. Meijer Inc. 2016
    16. Sobeys 2016
    17. Wakefern Food Corp. 2016
    18. Whole Foods Market 2016
    19. Dollar General Corp. 2016
    20. 7-Eleven 2016
    21. Trader Joe’s Co. 2016
    22. Aldi USA 2016
    23. Southeastern Grocers 2016
    24. Dollar Tree 2016
    25. Giant Eagle 2016
    26. BJ’s Wholesale Club 2016
    27. Hy-Vee Food Stores 2016
    28. Metro Inc. 2016
    29. Associated Wholesale Grocers 2016
    30. Rite Aid 2016
    31. SpartanNash 2016
    32. United Natural Foods Inc. 2016
    33. Wegmans Food Markets 2016
    34. WinCo Foods 2016
    35. Demoulas Super Markets 2016
    36. Save Mart Supermarkets 2016
    37. Stater Bros. Markets 2016
    38. Unified Grocers 2016
    39. Overwaitea Food Group 2016
    40. Smart & Final 2016
    41. Ingles Markets 2016
    42. Price Chopper Supermarkets 2016
    43. Sprouts Farmers Market 2016
    44. Houchens Industries 2016
    45. Raley’s Supermarkets 2016
    46. Weis Markets 2016
    47. Tops Markets 2016
    48. Schnuck Markets 2016
    49. Key Food Stores Co-operative 2016
    50. Alex Lee Inc. 2016
    51. K-VA-T Food Stores 2016
    52. Bozzuto’s 2016
    53. Amazon.com 2016
    54. Associated Food Stores 2016
    55. Brookshire Grocery Co. 2016
    56. Central Grocers 2016
    57. The Fresh Market 2016
    58. Saker ShopRites 2016
    59. Grocery Outlet 2016
    60. Superior Grocers 2016
    61. Woodman’s Markets 2016
    62. Affiliated Foods Midwest 2016
    63. Big Y Foods 2016
    64. 99 Cents Only 2016
    65. Village Super Market 2016
    66. Affiliated Foods 2016
    67. Bashas’ 2016
    68. Bodega Latina 2016
    69. Coborn’s 2016
    70. Piggly Wiggly Midwest 2016
    71. Brookshire Brothers 2016
    72. Fareway Stores 2016
    73. Inserra Supermarkets 2016
    74. Lowe’s Market 2016
    75. Northgate Gonzalez Market 2016

Top 25 Global Food Retailers 2015.

biz_walmart082313_11359680_8col

    1. Wal-Mart Stores 2015 — Global edition
    2. Costco 2015 — Global edition
    3. Carrefour 2015
    4. Kroger Co. 2015 — Global edition
    5. Tesco 2015
    6. Seven & I 2015
    7. Schwarz Group 2015 (Lidl)
    8. Walgreens Boots Alliance 2015
    9. AEON 2015
    10. Aldi 2015 — Global edition
    11. Target Corp. 2015 — Global edition
    12. Auchan 2015
    13. Metro Group 2015
    14. CVS 2015
    15. Casino Group 2015
    16. Woolworths 2015
    17. Rewe Group 2015
    18. Edeka 2015
    19. Albertsons 2015 — Global edition
    20. Leclerc 2015
    21. Coles Group 2015
    22. Ahold 2015 — Global edition
    23. ITM (Intermarché) 2015
    24. Sainsbury’s 2015
    25. Loblaw 2015 — Global edition

Wall Street concerned with The Fresh Market results.

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Wall Street analysts expressed concerns with The Fresh Market a day after the chain reported flat earnings per share and negative comparable-store sales.

“Results were even more disappointing than we thought and suggest the company is not moving fast enough to address the challenges of a fast-changing food retail landscape,” Kelly Bania, an analyst with BMO Capital Markets, New York, said.

“The weak results were likely exacerbated by temporary factors — including produce deflation and double-digit meat inflation — yet we believe TFM is in an identity crisis as it struggles to maintain its industry-leading EBITDA margins while resisting the temptation to more aggressively compete on price but maintain its premium quality and in-store experience.”

Those goals, she added, are complicated by the lack of a permanent CEO and, as of Thursday, the departure of Marc Jones as SVP and chief merchandising and supply chain officer.

“Near-term initiatives — encompassing productivity, brand awareness, advertising, testing and changing promotional and pricing strategies — do not appear to be enough to stabilize comps, [which] leaves a high degree of uncertainty for earnings.”

Karen Short, an analyst with Deutsche Bank, New York, said she believes Greensboro, N.C.-based TFM “needs to invest in price to drive traffic and comps and should cut its unit growth until it can stabilize the core business.”

In discussing financial results with analysts Thursday, Sean Crane, interim president and CEO, said The Fresh Market plans to review its pipeline of expansion targets with a greater focus on returns.

“While the success of our most recent store openings gives us confidence there are significant opportunities for unit growth, we also believe it is prudent to continue to review our current pipeline,” he explained. “In light of current sales and margin performance, we are reviewing the assumptions with a focus on managing return-on-invested-capital for our company and shareholders.”

Addressing the flat earnings and negative comps, Crane said they reflected “changes in our pricing and promotional investments that were less effective than anticipated in a more challenging macro environment, which were partially offset by successful marketing activities as well as the benefit of our expense controls.”

Jeffrey C. Ackerman, EVP and CFO, said the company’s promotional goal in the second quarter was to improve traffic flow by replacing one-day events with multi-day events, “which we thought would result in better in-store execution and thereby better sales. But looking back, we realize that as we chose the promotions, it required us to take a different approach in terms of the items, and we believe that had an effect on the traffic that came in.

“As we move forward, we’re going to continue to make sure we’re providing a great experience for customers, with great execution, but that we’re also balancing the traffic-driving capabilities of the promotions so we have the right promotions at the right price.”

CMO’s departure

Crane announced the departure of the CMO, noting a search is underway “for an individual who will help us accelerate the improvement of our pricing, selection and merchandise offering.”

Until a successor is named, Crane said he will be more hands-on, working with the merchandising team “to bring up some fresh ideas and help with merchandising, pricing, selection and that kind of thing.”

On the supply chain side, Crane said Maria Ross has been hired as VP, supply chain, following three years as VP, supply chain strategy, at BJ’s Wholesale Club and previous stints at Home Depot and Oldcastle.

Crane, The Fresh Market’s VP and COO, was named interim CEO earlier this year. He said the TFM board “continues to interview candidates for the CEO position.”

He said TFM expects negative comps to continue through the second half because of more difficult comparisons with last year and continued deflationary pressures.

Crane listed several initiatives the company has implemented to improve financial results, including a multi-media brand-positioning; refinement of targeted marketing promotions to develop more personalized programs; increased use of social media; an improved customer service program; and efforts to develop more productive backrooms to create better in-stock positions.

Ackerman said the company is also implementing new recruiting tools to help better assess “people that have a propensity to serve”: testing new incentives to align staff with service; eliminating non-value-added tasks to better serve customers; and, at a couple of stores, testing incremental labor-hour investments.

Regarding pricing, Ackerman said The Fresh Market intends to be competitive on like-for-like items and charge a price commensurate with value on differentiated products.

Asked if customers recognize the company’s pricing strategy, Crane said they do if they shop the stores on a regular basis.

“We invested pretty heavily this quarter in produce prices, but we saw a sequential deflation in produce of 600 basis points. So customers need to shop the store a few times to really start to feel the improved pricing. There’s also a little bit of a headwind [because] our research indicates that even if we are equally priced, there is a price perception issue because of the premium attributes of the [store] experience.

“So we have to keep finding ways not only to invest in price but also to communicate it better. Once we find that balance, we can start to make those investments.”

Fresh Market to exit California by March 31.

218749_Wellington_Storefront

The Fresh Market said Thursday it plans to discontinue operations in California by March 31 “to focus on higher growth opportunities.”

The Greensboro, N.C.-based specialty grocery retailer operates stores in Palo Alto in Northern California, Santa Barbara in Southern California and Laguna Hills south of Los Angeles in Orange County. The chain closed three locations in the Sacramento market in March 2014.

The company said the decision to exit California is consistent with its previously announced strategy to concentrate its growth resources over the next three years in the Eastern half of the U.S.

According to Sean Crane, the company’s EVP and COO and interim president and CEO, “Despite improving results in California, the company concluded the pace of organic store growth was going to be slower than anticipated and believes it can achieve more consistent financial results and a better return on its investments by continuing to grow in markets within or closer to its existing markets at this time.”

The company said operating losses and other expenses from its California stores totaled approximately $4.8 million, excluding impairment charges. As a result of the store closures, it said it anticipates additional charges in fiscal 2015 of approximately $20 million to $26 million related to recognition of lease liabilities, asset disposals, severance and other costs.

For the 13-week fourth quarter ended Jan. 25, The Fresh Market said net income rose more than 900% to $20.2 million off a year-ago comparison that included charges for asset impairment, a leadership change and store closures. Sales for the quarter rose 12.8% to $480.5 million, and comparable store sales rose 3%.

For the year net income increased 24.1% to $63 million, while sales were up 16% to $1.8 billion and comps rose 2.9%.

Crane said The Fresh Market expects to generate increased sales during fiscal 2015 and to expand operating margin as it executes its real-estate strategy “and work[s] to drive greater promotional and operational efficiencies while making strategic investments for the long-term growth of the company.”

He said the chain expects to open approximately 19 new stores this year — two in the first quarter, five or six in the second and 11 or 12 in the second half, all within or near existing markets in the Eastern U.S. — and to complete 10 remodels, most in the first half.

The chain expects total sales growth between 9% and 11%, with comps growing between 2% and 4% and earnings increasing to $1.77 to $1.85 per share (compared with $1.30 in the fiscal year just ended), with capital spending of $100 million to $110 million, Crane said.

Fresh Market shakeup surprises analysts, displeases investors.

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The sudden departure of Fresh Market CEO Craig Carlock took some analysts by surprise but they said it didn’t necessarily portend a crisis at the upscale specialty retailer.

As reported by SN Monday, Carlock, a 15-year veteran of the company and its CEO since 2009, resigned as CEO and from the company’s board of directors. EVP and COO Sean Crane was named interim CEO while the company launches a national search for a successor. That represents a bit of a change for The Fresh Market which historically has hired its leaders from within.

“It seems unusual to us that someone with as much history with the company as Mr. Carlock would leave without grooming a successor,” Chuck Grom, an analyst following The Fresh Market for Sterne Agee, said in a research note. Grom noted that Carlock was admired by Ray Berry, the company’s founder and board chairman, whose family still holds a large stake in The Fresh Market.

Berry in a statement praised Carlock for his role in taking the company public, and helping it to post increases in sales and earnings during his tenure. He also stressed that the company was maintaining its sales and earnings forecast for the fourth quarter, although stock was down by more than 10% early Tuesday.

Although the departure was sudden, it may have been in the works for months, according to Kelly Bania, an analyst for BMO Capital Markets. In a research note published Tuesday, Bania said the change indicated the board may look to move more aggressively on plans to enhance shopper frequency through marketing initiatives Carlock detailed in a presentation last fall.

Although there was some industry speculation that Carlock could turn up at Jacksonville, Fla.-based Bi-Lo Holdings, which said last week its CEO had stepped down, sources told SN Tuesday that such a scenario was unlikely.

Carlock joined The Fresh Market as its director of marketing strategy in 1999 following several years as a financial executive with Proctor & Gamble. He was appointed to succeed Brett Berry as CEO in 2009, and took the company public in 2010. Carlock’s tenure included a failed effort to expand the brand to California, where its three stores closed last year and triggered the current strategy of expanding in existing markets.

Crane has served The Fresh Market since 2000 when he joined as corporate controller. He was promoted to COO in 2012.

Craig Carlock out as Fresh Market CEO

Fresh-Front-Store

The Fresh Market, Greensboro, N.C., announced that Craig Carlock has left the company and is no longer CEO, president and board member.  Carlock was named CEO in 2009.

Craig Carlock

Craig Carlock

“Under Craig’s leadership, the company successfully transitioned from a private to a public company and experienced five consecutive years of increased sales and earnings,” said Ray Berry, founder of the company and chairman of the board of directors, in a media statement.

“The company is well positioned, both culturally and financially, for future success, and has a significant opportunity, through its unique and differentiated grocery shopping experience, to gain share in existing markets and expand into new markets.”

Current COO and EVP Sean Crane will serve as interim CEO.  The Fresh Market is seeking a permanent replacement.

The Fresh Market strives to be ‘extraordinary’

AAA FRESH MARKET INSIDE

The Fresh Market said Wednesday it has adopted a new position statement to drive growth going forward — inspiring consumers “to make everyday eating extraordinary.”

To deliver on its positioning, the 151-store chain, based in Greensboro, N.C., is beginning to develop initiatives to tell its story more overtly to consumers, building more customer-centric assortments and increasing in-store service, as well as getting employees involved in working to achieve the company’s goals, Chris Miller, VP, strategy and marketing, told investors in an analysts’ day presentation.

“We want to inspire people with food that enables them to achieve their goals in shopping with us and provide knowledgeable service; to offer food that is healthy as well as indulgent on an everyday basis; to enhance eating with delicious, high-quality, differentiated foods; and to be extraordinary by being a special place to shop and providing an environment that serves as a respite from the daily hustle,” he explained.

One of the company’s goal is to add at least one more trip per month from customers who rely on conventional grocers as their primary supermarket — a change Miller said could boost annual comparable transaction growth by 13%, with an increase in frequency leading to more spending per trip.

The Fresh Market also hopes to separate itself from other specialty retailers through differentiation, “to become the customers’ first-choice specialty grocer,” Miller said.

Craig Carlock, president and CEO, echoed Miller’s comments that the company hopes to acquire trip share from conventional grocers and sharpen its own identity as a first-choice retailer for “special.”

‘We’re confident in our ability to grow the store base in both new and core markets,” Carlock said.

Craig Carlock

Craig Carlock

“With sales continuing to be solid, we can strike better terms on new sites with lower occupancy cost.  We also see extensive growth opportunities to double our base in our core Southeast markets because there’s less cannibalization than we expected and also because we do well in smaller markets.”

According to Miller, the goals The Fresh Market has set were gleaned from interviews with approximately 3,500 consumers by an outside research firm. Of those surveyed, one–third were regular Fresh Market customers, with the balance occasional or non-customers, Miller noted.

He said the research indicated many consumers feel shopping at The Fresh Market is already “special” but shop there infrequently — often only for special occasions.

“But we believe we resonate with aspirational consumers wanting more special experiences who are looking for inspiration and solutions, and we believe The Fresh Market has ample opportunity to deepen customer engagement,” Miller said.

“We are not targeting customers who think an apple is just an apple, nor are we targeting customers who make decisions based on price alone. We want customers who see value as a combination of quality and price — aspirational shoppers who will pay more for the kind of fresh food that elevates the eating experience.”

With most consumers shopping at five different channels per month, including at least two retailers per trip, “the concept on one-stop shopping is becoming increasingly irrelevant,” Miller said.

In his presentation to investors, Carlock said the company hoped to communicate four themes to analysts:

• That The Fresh Market provides “a unique and differentiated grocery experience, with quality products, high-touch customer service and a positive in-store experience.”

• That it is successful at competing with conventional and other specialty markets.

• That improved analytics have enabled it to capitalize on real-estate opportunities in new and existing markets.

• That it is able to leverage its scale so it can mitigate margin pressures from competitors with reduced costs.

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