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Over the past 12 months, food retailing in the Mid-Atlantic style has not been for the meek. In a region already impacted by overstoring and intense and diverse competition, the plunging economy (particularly over the past six months) has made conditions as difficult and vexing as they’ve been in the last 35 years.
Retailers claim the biggest challenge they face is the unpredictability of shopping patterns and, ultimately, sales.
“It changes week to week,” said the president of one of the largest retail organizations in the region. “We know that consumers are trading down and there are more shopping choices than ever, but this situation is different. We just can’t seem to sustain a consistent sales flow.”
During our market study measuring period (April 1, 2008 - March 31, 2009), we found that the 12 month period could be divided into two separate clusters. While the economy began to collapse early last year, retailers were aided by significant inflation, particularly in commodity costs. They were able to take advantage of those higher prices with solid identical store sales. For the past six months, prices have come down (but not enough in the eyes of some retailers) and sales gains are tougher to come by. And the economy is in poorer condition.
One company that did make progress while driving into those headwinds was Giant/Landover. And what’s surprising is that much of that progress was made during the
overall economic turbulence of the past six months. The Landover, MD unit of Ahold posted its first ID sales gains since 2002 and it’s clear that the once beleaguered market leader has not only bottomed out, but now the needle is moving noticeably forward. New leadership at the top, a significant cap-ex program that’s improved stores along with heavy market spending helped Giant’s sales increase from $4.83 billion to $4.9 billion this year while operating 177 units in the region.
Food Lion maintained it secure hold of second place in the region, amassing estimated sales of $3.68 billion with its 328 stores. The biggest unit of Delhaize spent significant capital to remodel all of its Richmond area stores (a process that took place in the Tidewater and Washington markets the past two years) and has overtaken Ukrop’s as the market share leader in Richmond.
Remaining in third place among all Mid-Atlantic retailers was Safeway, which is nearing the three quarters pole in its effort to change all of its stores to its upscale Lifestyle model. The Pleasanton, CA chain, which has struggled in recent months with identical store sales, has proven it can build world-class stores as witnessed by new units in Washington, DC (5th and K Streets), Arnold, MD and McLean, VA. Sales at its 138 stores in the region were $3.43 billion.
Wal-Mart had a relatively quiet year on the growth front, opening just one new SuperCenter in the market (Front Royal, VA). The Bentonville Behemoth also debuted its first Neighborhood Market in Norfolk, VA (another one is due this summer in Williamsburg, VA). Extrapolated sales for the company’s 122 stores (including 62 SuperCenters) were $3.24 billion. Wal-Mart was one of the few retailers in the Mod-Atlantic that made headway during the economic challenges of the past 12 months.
The region’s (and nation’s) largest drug chain, CVS, maintained its hold on fifth place among all retailers in the market. The Woonsocket, RI company made major news two years ago when it combined its business with large pharmacy benefit management firm Caremark, and continues to dominate the Mid-Atlantic landscape operating 438 drug stores (with an increasing grocery presence) which amassed estimated sales of $2.09 billion.
Shoppers Food & Pharmacy, which began life in 1939 as a conventional family-owned independent (the Herman family) and eventually reinvented itself as a pure warehouse chain, has moved somewhere between the two models during past few years. The Lanham, MD based unit of Supervalu felt the effects of a competitive marketplace, particularly in parts of Northern Virginia, where new Wegmans and Harris Teeter units impacted sales. The heavy spending and overall improvement of Giant/Landover also affected Shoppers’ performance. Still, there were victories to be claimed, including a beautiful new unit in Annapolis and the retailer’s entry into the competitive Eldersburg, MD market. Sales for Shoppers’ 64 units were $1.99 billion.
Giant/Carlisle had another predictably stellar year. Sales rose from $1.75 billion to $1.82 billion at its 53 stores, some of which trade as Martin’s. During past 12 months, Sander van der Laan assumed the helm of the large Ahold unit, replacing Carl Schlicker, who became chief executive of Ahold’s larger and more troubled units, Stop & Shop and Giant/Landover.
Delicately holding down the eighth spot in the region was Rite Aid, which operated the most drug stores in the market (395), but had little to show for it. As we went to press, the Camp Hill, PA drug chain’s stock was trading at $1.74 per share, an improvement from the company’s rock bottom share price of 20 cents per share achieved in late February. While its comp sales have slightly improved, its acquisition of Eckerd last year has proven to be somewhat of a bust and its sales per unit continue to drag considerably behind competitors CVS and Walgreens.
Another retailer in better long-term shape than Rite Aid, but which has struggled during the past 12 months, is Target. The Minneapolis, MN based mass merchant has seen comp revenue decline and its attempt at ramping up its grocery business has been slow and a bit unsteady. However, it did survive an attempt by New York hedge fund manager Bill Ackman (his firm Pershing Square Capital Management owns about eight percent of Target’s stock) to revamp the board. Under Ackman’s plan, which was vetoed by shareholders at Target’s annual meeting on May 28, the board would have been expanded from 12 to 13 and five new directors including Ackman and former Safeway, Pathmark and Starbucks executive Jim Donald would have joined the board. Target CEO Gregg Steinhafel promised shareholders that he would address the company’s challenges more aggressively. For the year, Target operated 94 stores in the region (including three Super Targets), seven more than last year, and rang up extrapolated sales estimated to be $1.27 billion.
Rounding out the top 10 retailers in the Mid-Atlantic region, 7-Eleven made some headway as it is slowly upgrading its stores. While the perennial c-store leader is still miles behind regional competitors Wawa and Sheetz, the sheer penetration of 7-Eleven’s network makes it a formidable competitor when viewed on an overall market basis. The Dallas, TX based firm operated 928 stores in the market, and garnered $1.21 billion in sales.
Other retailers which made an impact during the past 12 months include: Weis Markets (65 stores, sales of $979.1 million, and is progressing quickly and positively under the leadership of new CEO Dave Hepfinger); Farm Fresh (44 stores, sales of $962.1 million – another solid performance from president Ron Dennis and his team); and Harris Teeter (33 stores, estimated sales of $707.4 million), which opened thee new stores over the past 12 months and is slated to open six new units during the next 12 months.
The leading club store operator was Costco, whose ID sales were adversely impacted by the economy, but still posted strong per unit sales. The Issaquah, WA based chain operated 24 units in the market and posted extrapolated sales of $961.5 million.
Also of note was the sharp spike in volume at the 21 military commissaries in the Mid-Atlantic. With a poor economy there’s real price value to be gained if you qualify to shop at these government subsidized grocery stores, and sales rose from $842 million to $874.2 million over the past year.
New this year to our study is the inclusion of international supermarkets. Our research indicated there are currently 49 such ethnic and specialty stores that are larger than 25,000 square feet in size. Those primarily Asian and Hispanic-owned units amassed $705.8 million in sales.
Among the independents (those operating 19 or fewer stores that are unaffiliated with any marketing or advertising group), Mars continued to lead the pack, amassing estimated sales of $209.5 for its 16 Baltimore area units. Other independent retailers who broke the $100 million sales barrier were: B. Green (seven stores, $123 million sales); Karns (seven stores $105 million in sales) and Magruder’s (seven stores, $105.2 million in sales).
As a group, the 16 independent retailing organizations operated 78 stores and rang up sales of $984.75 million or 2.46 percent of the Mid-Atlantic region’s volume. A note: this year’s study included one fewer independents than last year as Klein’s Markets joined the ShopRite group, and subsequently has been reclassified as a chain rather than in inedependent.
The 50 leading organizations that trade as chains (20 or more stores corporately) operated 4,396 units and collectively produced $38,950.2 billion in annual sales.
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© Copyright 2008 Best-Met Publishing Co., Inc.