Business is booming at first Amazon Go stores

Initial reports about the Amazon Go store concept have been positive, and sales appear strong. In fact, advisory firm Brick Meets Click estimated that sales per square foot at the Seattle store are about $2,700. That's nearly $5 million in annual sales for an 1,800 square foot, cashierless store.

According to Brick Meets Click, "Amazon Go stores produce more sales per square foot than virtually any other retailer except Apple and a few other specialty stores."

The company also estimates that the inventory turns over around 50 times per year, which is four-to-five times more than at other retail operations.

Furthermore, digital marketing firm inMarket believes Amazon Go stores are more of a threat to fast-casual restaurants and convenience stores than to supermarkets. Peak visitation hours at Amazon Go stores in Seattle and Chicago over the past 60 days have been on weekdays during lunch and breakfast.

"Amazon Go's combination of ready-to-eat and ready-to-cook food choices challenges both grocers and restaurants," reported Brick Meets Click Co-Founder and Managing Partner Steve Bishop. "With no lines or waiting, it's easy to see why people would stop by twice a day - first to grab lunch and later to pick up a dinner portion on their way home."

There are six Amazon Go stores open, all with the company's "Just Walk Out" technology, and more locations are planned. In fact, Bloomberg reported in September that Amazon is mulling plans to open up to 3,000 Amazon Go stores by 2021.

Amazon considering larger Whole Foods stores to aid storage and distribution efforts

A recent report stated that Amazon "is betting on its online delivery business by investing in bigger Whole Foods Market locations across the U.S."

These larger Whole Foods stores (50,000 - 80,000 SF, according to a Bloomberg report) would include storage facilities that could hold electronics, books and fitness gear from Amazon.com. It's unclear at this time whether the extra space would be used solely as a distribution center, or whether customers would be allowed to shop there. What is clear is that the move is meant to consolidate business operations and provide for faster delivery to customers.

Markets with large numbers of Amazon Prime subscribers are the prime targets for the larger Whole Foods stores.

Some reports have stated that Amazon may be interested in Toys R Us and Babies R Us stores, which could be used for Amazon showrooms or be used as distribution centers, but the list of bidders for the initial group of soon-to-be-vacant stores did not include Amazon.

Albertsons and Rite Aid announce merger; new company to have $83 billion in sales

Albertsons and Rite Aid announced yesterday that the companies plan to merge into a new publicly traded entity with an estimated $83 billion in annual sales. It is expected that the deal will close during the second half of the calendar year.

Here are some of the details of the planned merger:

• Albertsons' private food label products will be sold in Rite Aid stores, and most Albertsons pharmacies will be rebranded as Rite Aid.
• The new company will operate about 4,900 locations, 4,350 pharmacy counters and 320 clinics across 38 states and Washington D.C. It will service more than 40 million customers per week.
• The name of the company has not been determined, but it will have dual headquarters - Albertsons' current home in Boise, ID, and Rite Aid's current home in Camp Hill, PA.
• Rite Aid's John Standley will become CEO of the combined company, and Albertsons' Bob Miller will serve as Chairman.
• The company says it is too soon to determine if any overlapping stores will close. In the Greater Philadelphia market, both Albertsons (Acme Markets) and Rite Aid have a strong presence.
• According to Burt Flickinger III, managing director at the Strategic Research Group, "(Rite Aid) will get Albertsons distribution power and they both have good distribution centers. It is a strategic triumph for Albertsons, and whereas Kroger is selling off assets like convenience stores, Albertsons is profitably growing and making strategic acquisitions."
• In exchange for every 10 shares of Rite Aid common stock, Rite Aid shareholders will have the right to elect to receive either one share of Albertsons Companies stock plus $1.83 in cash, or 1.079 shares of Albertsons Companies stock. Depending on the result of the election, Rite Aid shareholders will own a 28% - 30% stake in the combined company.
• Walgreens and Rite Aid planned to merge last year, but the deal encountered resistance from the FTC and fell apart. Shortly thereafter, Walgreens agreed to acquire 1,932 Rite Aid stores and select distribution centers. According to Bloomberg, the newly formed company will have fewer pharmacy counters than Rite Aid did before it agreed to sell the stores to Walgreens. 

Aldi's fastest growing line: organic

A recent article on Bloomberg.com said that Aldi is now trying to make itself more attractive to the type of customer that shops at Trader Joe's.

According to the report, Aldi U.S. CEO Jason Hart believes that American shoppers are increasingly concerned with the content and quality of the food they eat, so the company, which has about $8 billion in sales in the U.S. and is growing at a steady rate, has added items like organic quinoa and coconut oil, chia seeds and grass-fed beef. In fact, Aldi's Simply Nature all-natural and organic line has become its fastest-growing brand.

"This isn't your grandmother's Aldi," Hart said. (That's for sure, considering that Aldi opened its first U.S. store in 1976 when my grandmother was 63, and that store was in Iowa. The chain didn't get to the east coast until many years later.)

According to the Nutrition Business Journal, Americans spent about $33 billion on organic items last year, and these days they expect to find organic selections at both traditional supermarkets and discounters. Aldi's plan is to not only offer such items, but offer them at extreme discounts.

Regarding the company's pricing, a July survey by Bloomberg Intelligence found Aldi to be cheaper than other discounters, including Walmart and Save-A-Lot.

Dollar General and Dollar Tree fighting for Family Dollar Stores

In late July it was announced that Dollar Tree would buy competitor Family Dollar Stores in a cash and stock deal worth $9.2 billion, and that both companies unanimously approved the merger. However, reports today said that Dollar General offered $9.7 billion in cash for Family Dollar.

Today's move by the top dollar store in the U.S. is widely seen as a defensive move, as a Family Dollar - Dollar Tree combo would represent a long term market share threat. However, some analysts expect Dollar Tree to make a counteroffer, since the acquisition would do more to transform Dollar Tree's business than it would for Dollar General, which is more similar to Family Dollar.

According to a Bloomberg story, the combined Dollar General - Family Dollar company would need to sell as many as 700 stores to gain antitrust approval. Still, the result would be about 20,000 locations, making it the nation's largest retail chain in terms of locations.

Currently, Dollar General is the largest dollar store chain, followed by Family Dollar and Dollar Tree. 

A&P may put itself up for sale

According to multiple reports, A&P, formally known as the Great Atlantic and Pacific Tea Company, has hired Credit Suisse to help review strategic alternatives that may include selling the company. A&P brands include Pathmark, which recently announced the closing of three stores in New Jersey, as well as Superfresh, Waldbaum's, The Food Emporium and Food Basics.

Bloomberg News reports that A&P may also raise new capital from investors, consider new business partners or refinance the company.

A&P, which emerged from bankruptcy last year, has more than 300 locations. The Wall Street Journal said yesterday that the company's asking price could be as high as $1 billion.

Supervalu attracting buyers for parts, not the whole

A Bloomberg story reported last week that Supervalu (Acme & Save-A-Lot in the Philadelphia market) has attracted buyers that are interested in parts of the company rather than the whole. Supervalu prefers to sell the entire company, and has extended the deadline for offers past the original October 15 deadline. It has been working with Goldman Sachs and Greenhill & Co. to find a buyer since mid-summer.

Bloomberg's sources say that KKR & Co., TPG Capital, Cerberus Capital Managment LP and billionaire Ron Burkle have expressed interest. Burkle and his company, Yucaipa Cos., helped A&P emerge from bankruptcy earlier this year.

Supervalu is the country's third largest grocery chain and has several retail banners, including pharmacies and a distribution business. In the last two years it has lost more than $2.5 billion over the past two fiscal years, and its market value has plummeted.

Many analysts continue to believe that Save-A-Lot may be Supervalu's most valuable asset, and the company's distribution business may also be attractive to buyers. 

Buyers looking at Supervalu units, but not the entire company

According to a Bloomberg story last Friday, Supervalu (Albertsons, Acme, Save-A-Lot, among others) has received several inquiries from potential buyers interested in individual units of the company, but would prefer to sell off the entire business as a whole. Supervalu hired Goldman Sachs and Greenhill & Co. earlier in the summer to find a buyer.

Reportedly Cerberus Capital Management is interested in Albertsons, and Ahold (Giant, Stop & Shop) is looking at the Shoppers chain, which operates in Maryland, Virginia and Washington.

Most analysts believe selling the company as a whole would be far more difficult than selling off its units separately, unless a buyer was willing to keep some of the chains and sell off others. That's a risky, venture, though, since such a buyer would be taking on $6.14 billion in net debt along with $1.05 billion in pension obligations.

Save-A-Lot, which has a number of stores in the Philadelphia market, would be the most valuable Supervalu asset, according to a Citigroup analyst who thinks the chain is worth about $817 million.

Currently Supervalu and its 11 chains have approximately 2,400 retail food stores and a wholesale business with 2,660 customers.

Occupancy and rents are up at shopping centers

Good news from Reis, Inc., a research company that tracks shopping centers.

• In the three months ending June 30, occupied space rose by a net 2.06 million square feet, the third largest addition since the first quarter of 2008.
• Shopping center vacancies dropped for a second consecutive quarter. Vacancies are now at 10.8%, down from 10.9% in the previous quarter.
• Effective rents averaged $16.55 per square foot, up from $16.49 a year ago.
• The Bloomberg shopping center REIT index has risen 20% so far in this calendar year, making it the second best performing group of real estate investment trusts, trailing only the Bloomberg mall REIT index, which gained 22%.

Supervalu can be bought at a big discount, analysts say

Supervalu (Acme, Save-A-Lot), which operates more than 2,000 supermarkets in the U.S. including Albertsons, Jewel-Osco and Shaw's, continues to generate press as a  takeover target. Last week, Bloomberg said that Supervalu "is offering private equity shoppers the biggest discount of any supermarket chain in America."

Here's why:

• The company is expected to turn a profit this year for the first time in three years and has the industry's highest free cash flow yield (an overall return evaluation ratio of a stock). Bloomberg's data shows that their free cash flow yield is more than 10 times higher than the median for U.S. food retailers with at least $100 million in value.
• After Supervalu stock fell to a 30-year low last week, its valuation was 3.9 times earnings before interest, taxes, depreciation and amortization. According to Bloomberg, that's a third less than the industry median and about half the multiple for consumer staples companies in the S&P MidCap 400.

On the other hand, an analyst for Guggenheim Securities LLC points out that buyers may be turned off by Supervalu's debt. Bloomberg's data shows that the company's debt is higher than Kroger's and Safeway's, and almost five times the industry median.

Taking all factors into consideration, a strategist at JonesTrading Institutional Services LLC concludes that "the grocery store business is tremendously competitive, but a buyer that has an understanding of retail, would they take a shot at this? Absolutely."

Food Lion closing 126 stores, including 2 in PA

Delhaize America announced this morning that it plans to close 126 under-performing stores in this year's first quarter as part of its "new game plan which is aimed at accelerating profitable growth." Stores set to close include 113 in the Food Lion chain, 7 in the Bloom chain and 6 in the Bottom Dollar chain.

The two Pennsylvania closings are the Food Lion stores in Sinking Spring and Shippensburg. No stores are slated to close in Delaware, which has a number of Food Lion locations. Several Food Lion stores remain in the Harrisburg, PA market.

According to its website, Food Lion operates approximately 1,300 stores in 11 Southeastern and Mid-Atlantic states under the names of Food Lion, Bloom, Bottom Dollar, Harvey's and Reid's. According to a Delhaize Group press release, the company has experienced excellent fourth quarter revenue growth at Bottom Dollar stores in the Philadelphia region. In addition, it plans to open 14 new Bottom Dollar stores in the first quarter of 2012 in Pittsburgh, PA and Youngstown, OH, and 10-15 more stores in its "newer markets" by year-end.

Walmart calling on experts to keep their shelves stocked

Not only is Walmart suffering from declining sales, but they are also having trouble keeping their shelves stocked in an efficient manner. A Bloomberg News story last week reported that the world's largest retailer has hired consultants to "walk the aisles and track whether hundreds of items are in stock."

A combination of more products (the return of about 8,500 items in an effort to boost their competitiveness) and reduced labor hours has created a logjam in storage areas, so much so that an industry expert says some items meant for bare shelves may actually be misplaced in the back room. Although a Walmart spokesperson claimed last week that the company's in-stock levels are at historical highs, one Walmart supplier thinks they are worse today than in the past. The supplier said that during the summer less than 90 percent of items in a typical basket of goods were available for shoppers.

Problems stocking the shelves must be an embarrassing issue for Walmart, which attributes much of its success to superior supply chain practices. Factor in their nine consecutive quarters of declining same-store sales, caused in part by competition from Aldi, dollar stores and Amazon, and the retail giant needs some good news to report.

"Grocery is the next frontier" for malls

The following article from Bloomberg is one of many recent stories to report that malls are adding grocery stores in an effort to lure back shoppers. Younger readers (and this graying blogger) may not recall that, as the article points out, supermarkets were once tenants in many American shopping centers. However, they fled to cheaper locations in the 60s and 70s. Now, with so much vacant mall space, they're beginning to come back.

Heirloom Tomatoes, Coffee Help Attract Foodies to U.S. Malls