Costco and Target are primed for growth, experts say

According to participants in Supermarket News' 23rd annual Financial Analysts' Roundtable, warehouse clubs, specifically Costco, may be primed for a growth surge.

Wolfe Research Managing Director Scott Mushkin said that Costco's broad mix of offerings make it a big draw.

"Costco, over time, has created more and more reasons to pay for that membership," Mushkin said. "It's an incredibly positive business model."

"They are probably the best merchants of any retailer I've ever covered," added Karen Short, managing director for equity research at Barclays Capital. "They keep pushing the envelope and keep pushing their vendors, and the deals and price point just keep getting better and better."

As for BJ's Wholesale Club, Mushkin had a negative outlook. "If there were a Costco and a BJ's next to each other, it doesn't make any rational sense to actually have a membership to BJ's because the offering is so much more extensive at Costco and the savings are better," he said.

The participants also singled out Target, which they believe could be a sleeping giant in grocery if it continues to improve its fresh offering and out-of-stocks, and improves on its execution. The panel cited Target's strong private labels and the company's ability to develop innovative departments and merchandising.

Walmart to increase hourly wages, expand parental benefits, close 63 Sam's Club stores

Walmart said earlier this month that it plans to increase its starting wage for all hourly workers in the U.S. to $11 per hour , pay a one-time bonus of up to $1,000 to select employees, and expand benefits for parental leave.

The increased starting rate is scheduled to become effective in February for all Walmart, Sam's Club, supply chain, e-commerce and home office hourly workers. The bonuses, which will range from $200 to $1,000, are for workers who don't benefit from the hourly salary increase.

Walmart President and CEO Doug McMillon said in a blog post that the company is in the "early stages of assessing the opportunities tax reform creates for us to invest in our consumers and associates to further strengthen our business, all of which should benefit our shareholders."

Karen Short, an analyst at Barclays Capital, estimated that tax reform could generate about $4.3 billion in cash flow for Walmart. With the salary hike and increased benefits costing about $700 million plus the incremental cost for expanded parental leave and adoption benefits, Short thinks that about $3 billion per year will be available for the company to invest in lower prices, technology and shareholder returns.

In related news, Walmart said the company plans to close 63 Sam's Club warehouse stores in the next several weeks, with about 10 of the locations to be converted to e-commerce fulfillment centers.

Amelia's parent company could fetch $1 billion in sale

Grocery Outlet, the discount supermarket with a remarkable track record of profitability, is exploring a sale that may bring more than $1 billion, according to reports. The company's private equity owner, Berkshire Partners, LLC, has hired Barclays and Goldman Sachs to run a sale process.

Grocery Outlet, whose stores are mostly in California, Washington and Oregon, wasn't known in Pennsylvania grocery circles until late 2011 when the company purchased Amelia's. Amelia's currently operates 16 stores in Eastern PA, while Grocery Outlet has about 180 stores.

Sales for Grocery Outlet in 2013 were approximately $1.3 billion.