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Food Lion, Stop & Shop, and Giant to Merge Into One of America’s Largest Supermarket Chains

Food Lion, Stop & Shop, and Giant to Merge Into One of America’s Largest Supermarket Chains



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The grocery store companies will combine to create the fifth-largest grocery chain in the United States

Wikimedia Commons/AlbertHerring

Dutch retailer Ahold owns Giant and Stop & Shop, and will now also own Food Lion.

Food Lion, Stop & Shop, and Giant owners announced on June 24 that they are planning to combine these shops to create one of the largest supermarket chains in America.

According to The Washington Post, Giant and Stop & Shop are owned by a company in the Netherlands called Ahold, which is acquiring Belgium-based food retailer Delhaize. Food Lion is owned by Delhaize.

As of now, all stores are anticipated to keep their names and no stores will close. The deal is expected to be completed in 2016 and the resulting company will be called Ahold-Delhaize.

Grocery chains are finding that they need to merge in order to survive. With competition from warehouse stores like Costco, discounted grocery stores like Aldi and Trader Joe’s, and retailers like Walmart and Target, these companies are having a hard time. Ahold and Delhaize are expected to save about $560 million in annual costs three years after the merger, according to The New York Times.

Combined, Ahold and Delhaize currently have 6,500 stores in the United States and Europe.


Stop & Shop/Giant-Landover

Stop & Shop/Giant-Landover is a combined supermarket chain that is owned by the American subsidiary of the Dutch retailer Ahold. The company took its current form in 2004, after Ahold decided to combine the operations of its New England-based Stop & Shop chain with its DMV-based Giant Food chain to create the largest supermarket company in the Mid-Atlantic States. Previously Giant's headquarters were in Landover, Maryland while Stop & Shop kept their headquarters in Quincy, Massachusetts.

Stop & Shop operates a total of four hundred stores in Massachusetts, Rhode Island, Connecticut, upstate and metropolitan New York, and New Jersey. Giant boasts 170 locations in Delaware, Maryland, Pennsylvania, Virginia, and the District of Columbia. The combined chain competes with regional chains such as Shaw's, Hannaford, Tops, Big Y, Wegmans, Price Chopper, ShopRite, Pathmark, A&P, Waldbaum's, King Kullen, Weis Markets, Acme, and Food Lion as well as national chains such as Aldi, big box stores such as Walmart Supercenters and Super Targets, and warehouse chains such as Sam's Club and Costco.


Contents

Beginning Edit

Stop & Shop's roots can be traced back to 1892, when Solomon and Jeanie Rabinowitz opened a grocery shop, called the Greenie Store, at 134 Salem Street, in the North End of Boston, Massachusetts. This store operated at this location until 1908. [4] According to the company's web site, Stop & Shop was founded in 1914 in Somerville, Massachusetts, by the Rabinowitz family as the Economy Grocery Stores Company. Four years later, the store adopted the new self-service supermarket model recently pioneered by Piggly Wiggly. A second store opened later in 1914, several stores opened a year later and by 1917, the chain had 15 stores. Initially the stores sold only grocery items but soon after added meats, produce, milk, dairy, and some frozen foods. Like A & P, they were pioneers of the modern grocery store, selling all types of food items under one roof. Stores were 10,000 to 15,000 square feet (930 to 1,390 m 2 ) and in downtown and inner city areas in the Boston and Springfield metro areas. The chain had grown to 86 supermarkets by 1946, when the name was officially changed to Stop & Shop, Inc. [5]

Pre-1980s Edit

In 1959, Stop & Shop had 100 stores by opening in Natick, Massachusetts. In 1961, Stop & Shop bought the now-defunct department store chain Bradlees, based in Connecticut. Later, in the 60s, they bought the three-store chain ORBIT'S stores and merged them into Bradlees. Stop & Shop stores in Massachusetts were opening in suburban areas and in shopping plazas. In the early 1950s, Stop & Shop entered Connecticut and Rhode Island, in the early 1960s in New York, and the late 1960s in New Jersey. With Bradlees in the company, Stop & Shop began offering non-food items in their supermarkets. In many areas Stop & Shop and Bradlees were adjacent, allowing one-stop shopping several of these combination stores were designated Family Centers. Stop & Shop also operated the Medi-Mart pharmacy chain and the Perkins Tobacco chain.

1980s Edit

In 1980, Stop & Shop had supermarkets in Massachusetts, Connecticut, Rhode Island, New Jersey, and southern New York state. The stores were then typical in size at about 30,000 square feet (2,800 m 2 ) on average. Many were next door to their then-co-owned Bradlees Department stores. In the New York and Philadelphia metro areas, Stop & Shop was not able to compete successfully. In 1982, Stop & Shop exited New Jersey, selling most of the stores that were profitable to A&P, which would use these stores to replace their aging fleet of stores. A few stores were sold to Shop Rite owners as well as Foodtown owners. Other stores were closed and converted to other uses. In New York State, they sold some of their stores to A&P while selling others to Grand Union and closing others, converting them also to other uses.

In 1982, Stop & Shop built its first superstore in the Pembroke, Massachusetts, area. Superstores were 45,000 to 80,000 square feet (4,200 to 7,400 m 2 ). In addition to traditional supermarket offerings, these stores featured bakeries, pharmacies, moderate selections of general merchandise one would not expect to find at a supermarket, expanded deli departments, cafes, and a salad bar. Some of these stores would feature a bank, expanded liquor and beer, video rentals, etc. Throughout the 1980s and into the 1990s, the traditional supermarkets were converted into superstores. Some were remodeled, others were torn down and a new store rebuilt in the same location, while others were closed and replaced with a superstore within two miles.

In early 1985 Stop & Shop bought the small discount store chain Almy's. The remaining Almy's locations closed in 1987. [6]

In the late 1980s, following an attempt hostile takeover bid by Herbert Haft's Dart Group, The Stop & Shop Supermarket Company was acquired by leveraged buyout specialists Kohlberg Kravis Roberts and was taken private. Shortly thereafter, Medi-Mart was sold to Walgreens Bradlees was spun off as its own corporation. After several years, while KKR explored merger possibilities with Safeway (which it also controlled at the time), Stop & Shop was sold at public offering.

By 1990, Stop & Shop operated in Connecticut, Rhode Island, and in Boston and Springfield, Massachusetts. areas, with one store in New York state.

1990s Edit

In 1994, Giant-Landover began northern expansion by opening stores in Pennsylvania, Delaware, and New Jersey under the Super G trade name. This was done to differentiate itself from future sister company Giant Food Stores of Carlisle, Pennsylvania. During 2005, the newly formed Stop & Shop/Giant made the decision to phase out the Super G name in New Jersey and Delaware. In New Jersey, four Super G stores were shuttered and the remaining eight stores were converted to the Super Stop & Shop banner and became a part of Stop & Shop's New York Sales Division in an attempt to revive sales at the stores. These stores continued to underperform and were subsequently sold in 2007 to ShopRite franchise owners. The Delaware Super G stores were to be remodeled under the Super Stop & Shop format and reopened under the Super Giant banner. Super G stores in Pennsylvania were generally close to Giant-Carlisle locations and were converted to Giant of Carlisle stores but continued to be unionized unlike most of the other Carlisle bannered stores.

In 1995 the Stop and Shop chain acquired competitor Purity Supreme supermarkets, [7] and then in 1996 Stop & Shop was bought by Ahold USA, Inc..[1] Ahold had previously bought First National Supermarkets, whose Edwards Super Food Stores and Finast chains also had a strong presence in Connecticut Ahold planned to operate both Edwards and Stop & Shop there. However, in the wake of the acquisition, Connecticut Attorney General Richard Blumenthal raised antitrust questions, as Stop & Shop and Edwards combined had more than half of the grocery share in Connecticut. Following negotiations with Blumenthal, Ahold decided to convert its New England stores to the Stop & Shop banner, while selling some locations to other chains such as Shaw's, Shop Rite, and Grand Union. Ahold also began building a few stores under the Edwards Super Food Stores banner in New York state and New Jersey. Ahold also acquired 26 independent Mayfair Foodtown stores in that area, converting them to Edwards. In 1998 and 1999, several Super Stop & Shop stores were built in the Poughkeepsie area.

In 1999, Ahold and the New Jersey-based Pathmark entered merger talks, and a deal was struck under which Ahold would acquire Pathmark and rebrand Edwards and its Carlisle, Pennsylvania based sibling Giant under its banner. After the government rejected the deal due to their belief that Ahold would hold too large a stake in the grocery store market in the New York and Pennsylvania areas, Ahold eventually pulled out because they were not willing to make a series of divestments necessary for approval.

2000s Edit

In 2000, Ahold decided again to try to rebrand the Edwards stores and eventually decided to bring the Stop & Shop chain back to the New York area. By the end of 2000 the rebranding was complete and the Edwards name was discontinued.

In 2001, Ahold made moves to expand the Stop & Shop brand further into New Jersey and New York these came as Grand Union, one of its competitors, was going through a bankruptcy liquidation. Through a series of moves, C&S Wholesale Grocers acquired the Grand Union chain of stores and downsized it significantly, selling many of its New Jersey and New York area stores to Ahold. Ahold in turn started supplying these stores with merchandise but did not immediately rebrand their acquisitions to Stop & Shop that would happen in the spring and summer of 2001.

In 2003, Ahold acquired many of the A&P Foodmart locations in the Hartford, Connecticut area, Rhode Island, Massachusetts, and the one remaining New Hampshire store. Other A&P locations in that region closed or were sold to other supermarket chains. In 2004, Ahold integrated Stop & Shop Supermarkets with Giant Food LLC and created one combined company with the name of Stop & Shop/Giant-Landover.

In 2006, Stop & Shop signed a contract with Starbucks, placing the coffee shop chain's licensed stores inside certain supermarkets. Many Stop & Shop stores feature Dunkin' Donuts outlets inside the store. Also in May 2006, Stop & Shop began piloting the Shopping Buddy program in select stores in Massachusetts and Connecticut. The Shopping Buddy is a personal shopping assistant that allows customers to track their purchases and to do in-cart bagging as they move through the store.

In October 2007, Stop & Shop launched an advertising campaign which was intended to have users submit stories and videos to a website detailing their grocery store experiences. The campaign was significant in that it is an early example of a regional traditional brand employing Web 2.0 concepts such as user-generated content to promote their stores. [8]

In 2007, Stop & Shop made an attempt to expand further into northern New England. They built, but did not operate, a single Vermont store in Rutland before selling it to rival supermarket operator Delhaize. Delhaize opened the store under its Hannaford banner in February 2008.

In July 2007, Stop & Shop opened a single Maine store in Kennebunk. The store was closed in October 2009, citing slow sales as the primary reason. At the same time, they abandoned plans to build a second Maine store in Portland. [9] Delhaize purchased the vacant Kennebunk location in December 2009 and later reopened the property under the Hannaford banner. [10] [11]

On August 22, 2008, Stop & Shop changed its logo as a re-branding project along with its sister company, Giant-Landover. In August 2009, Stop & Shop announced closures and re-brandings for a large portion of the licensed Starbucks stores opened in 2006. [12]

2010s Edit

By late 2013, Stop & Shop operated stores in Massachusetts, Rhode Island, Connecticut, New York, and New Jersey. Connecticut, Massachusetts, and Rhode Island in particular, have a very strong Stop & Shop base. All six of the remaining New Hampshire stores had closed in August 2013, marking the chain's departure from northern New England. [13] A few Connecticut stores, in Bridgeport, Hamden, and Orange, also closed during the two subsequent years.

In April 2015, Stop & Shop started construction of an anaerobic digester at its distribution center in Freetown, Massachusetts, [14] which now supplies 40% of the site's electricity needs. [15] In July 2015, Stop & Shop announced the intentions to purchase 25 stores from A&P (which filed for Chapter 11 bankruptcy earlier that month), including A&P's most profitable location in Mt. Kisco, New York, and convert all of the purchased stores to the Stop & Shop banner by the end of November 2015. On September 22, 2015, the sale of 25 A&P stores to Stop & Shop and 70 A&P stores to competitor Acme Markets was approved by a judge in federal bankruptcy court. [16] Most of the stores purchased by Stop & Shop and Acme had been operating under the Pathmark or Waldbaum's banners (A&P had acquired Waldbaum's in 1986 and had bought Pathmark in 2007). As of March 2018, Stop & Shop operated 411 stores throughout the three southern New England states, as well as in downstate New York and northern New Jersey. [17]

In October 2018, Stop & Shop began renovations at many of their Hartford, Connecticut regional stores and began adding new features to these stores including cafes, in-store meat smokers, smoothie bars and taqueria stations. A new version of the old logo was also implemented at these stores which will serve as a test market for the entire chain. [18]

On January 4, 2019, it was announced that Stop & Shop would be acquiring the King Kullen supermarket chain on Long Island. Stop & Shop would acquire the chain's 32 King Kullen and 5 Wild By Nature stores. [19] On April 17, 2020, it was announced that the deal was set to close on April 30, 2020. [20] However, on June 10, 2020, it was announced that the acquisition deal had been terminated and that King Kullen would remain independent due to “unforeseen changes in the marketplace”. [21]

In 1999, one of Stop & Shop’s shell companies sold a property in Quincy, Massachusetts with deed restrictions explicitly naming Stop & Shop as the beneficiary. The restrictions state that the property cannot be used to sell fresh fruits and vegetables, baked goods, dairy products, frozen foods, fish, poultry, and meat. The restrictions remain in effect for a total of 99 years. The property, which was purchased by Daniel J. Quirk and developed as a car dealership, sits directly across the highway from a Super Stop & Shop. [22]

In 2003 Connecticut Attorney General Richard Blumenthal (later a US Senator), opened an investigation into Stop & Shop for its land-acquisition practices and allegations of anti-competitive behavior in the early 1990s, said Jaclyn Falkowskie, spokeswoman for the Connecticut Attorney General. Investigators, however, found that Stop & Shop’s actions did not violate the state’s antitrust laws, and the investigation was closed, she said. Regardless of the strategy's legality, consumer advocates find fault because it limits the potential number of supermarkets in an area, reducing competition and selection for consumers. [22]

Another shell company with ties to Stop & Shop placed similar deed restrictions on a property in Harwich, Massachusetts before selling it to Eastward Homes Business Trust in 2006. The wording is materially similar, going so far as to list specific brands of pet food under restriction. The restrictions can remain in place for up to 90 years. [22]

2007 Edit

On February 17, 2007, the collective bargaining agreements between Stop & Shop management and its employees expired after three years. In an attempt to maintain their current health care benefits, union workers threatened to strike. Stop & Shop wanted employees to share the cost of health care, but union workers believed Stop & Shop should pay it in full. [23] Workers were paying co-payments for office visits and medical procedures, as well as deductibles for health care costs and hospital costs. The grocery chain wanted to implement weekly contributions of between $5 and $21 on top of the co-payments. These fees would increase over the course of the three-year contract.

At midnight on February 23, 2007, Stop & Shop grocery workers in Connecticut, Rhode Island, and Massachusetts had voted overwhelmingly to reject a contract proposal and to authorize a strike against the grocery chain. The contracts for United Food and Commercial Workers Locals 328, 371, 919, 1445, and 1459 expired on February 17, 2007, and were extended to cover until February 22, 2007, but the union and the grocery chain agreed to extend the deadline two more days, to midnight February 24, 2007. [24] Officials with Stop & Shop and the United Food and Commercial Workers continued negotiating through March 2, 2007, extending the contract until 12:01 a.m. March 3, 2007, given that talks were scheduled to continue through Friday. Both sides extended the negotiations, which resumed February 26, 2007. [25] On March 3, 2007, the five unions involved gave the company a comprehensive contract proposal that covered every aspect of their five agreements and identified what they believed to be a fair and equitable contract for everyone. On March 7, 2007, the five locals representing workers in Connecticut, Rhode Island and Massachusetts scheduled voting on a new contract, extending the strike deadline to March 12, 2007. The locals delivered a comprehensive contract to Stop & Shop negotiators. Approximately 43,000 unionized Stop & Shop workers in three states could have either had a new contract that Sunday or begun walking picket lines, possibly that Monday, according to union officials. [26]

The stop-and-go negotiations concluded with a three-year contract overwhelmingly ratified by union members across New England, and a strike was averted. In addition to raises and retroactive payments, Stop & Shop made changes regarding health insurance. Full-time workers would be required to contribute each week to their healthcare plans, while part-time workers would continue to make no contributions toward health care premiums, retaining the existing practice which covered union workers' health insurance entirely except for co-payments and deductibles. [27]


Who bought Food Lion?

Click to explore further. Thereof, who bought Food Lion stores?

Similarly, did Food Lion buy Martins? Royal Ahold, based in the Netherlands and operating stores under the Stop & Shop, Giant, and Martin's banners, and Delhaize, operating stores in the U.S. under the Food Lion and Hannaford names, now are united in a $28 billion merger. In the decision, the first group of Martin's stores to be bought &mdash those at 4591 S.

Correspondingly, are Kroger and Food Lion owned by the same company?

Food Lion, now owned by international grocer Ahold Delhaize, also got its start in 1957 as Food Town. Kroger, which owns Harris Teeter, also has several stores under its own brand in the area, including the larger Marketplace stores, which sell appliances, clothing and other non-grocery goods.

Does Food Lion own Publix?

The stores are up for sale as Martin's parent company &mdash Ahold, which also operates Giant and Stop & Shop &mdash is prepping to merge with Delhaize, parent company of Food Lion. Publix in February announced two new stores in Virginia, including one in the Richmond area.


The Big Grocery Merger No One’s All That Excited About

If you can’t compete with the big guys, might as well join forces with another smaller guy and hope you can do better together.

That’s essentially what’s happening, as two European absentee landlords are combining their grocery companies and creating a huge supermarket conglomerate on the U.S. East Coast in the process.

A month after first publicly discussing a potential merger, Netherlands-based Ahold and Belgium-based Delhaize announced this morning that they plan to merge, in a $29 billion deal that ties up their European and American holdings. Each company owns thousands of grocery stores in their part of the world. But they do more than half of their business in the U.S., where Ahold owns Stop & Shop, two different Giant divisions and Martin’s, and Delhaize owns Food Lion and Hannaford.

“We are bringing together two world-class organizations to deliver even more for the communities we serve,” Ahold CEO Dick Boer said in a statement. “Ahold Delhaize will accelerate innovation, bringing together both companies’ expertise to deliver increased value and choice for customers across its supermarket formats and online platforms,” Delhaize CEO Frans Muller added.

If the deal is finalized as expected next year, the combined company’s footprint will extend from Maine all the way down to Georgia, with a presence further west in Kentucky and Tennessee. Together, they’ll operate just over 2,000 stores.

There’s notable overlap between Hannaford and Stop & Shop in places like Massachusetts and New York, and between Food Lion and Giant/Martin’s in Virginia and Maryland. Federal regulators are likely to take a close look at places where a merger might make the market anti-competitive, and force the closure of some stores. In some places, the two companies operate the number-one and number-two stores in town. In other places, Walmart is moving up the rankings and bumping the traditional, former market-leading grocery chains down.

When Kroger, the country’s biggest grocery chain, acquired North Carolina’s Harris Teeter a couple of years ago, it was a big deal – an already wildly successful supermarket chain adding an even better competitor to its trophy case. When, a few months earlier, Albertsons swallowed up several grocery chains and later acquired Safeway, it was a very big deal, as a regional supermarket chain suddenly became a coast-to-coast powerhouse, second in size only to Kroger.

The Ahold-Delhaize merger will create the United States’ third largest grocery chain. But no one’s really talking about it in the same terms as they did the Kroger and Albertsons deals. Those mergers made strong performers even stronger. Today’s merger merely gives a bunch of arguably mediocre stores a better chance at survival.

Delhaize has been working hard to modernize and refresh its U.S. holdings, doing everything from redesigning stores and changing up the product assortment, to offering small touches like blue grocery bags for your refrigerated and frozen items, so you know which bags need to be unloaded first when you get home. The company has also jettisoned underperforming chains like Sweetbay, Harveys, Reid’s and Bottom Dollar, in order to focus on Hannaford and Food Lion.

Ahold, in contrast, apparently hasn’t been doing enough to rescue many of its stores from near the bottom of several best-and-worst grocery store surveys. Stop & Shop and Giant didn’t do so well in Consumer Reports’ most recent annual survey.

Yet Ahold is the larger company. So while today’s deal is being pitched as a “merger of equals”, Ahold’s CEO will assume that role in the new company, and Ahold is expected to be the one taking the lead in the combined entity. So the merger could either end up being a case of Ahold dragging down Delhaize and undoing the progress it’s made, or learning from its junior partner to improve its own stores.

Then again, for all the work Delhaize has done, Food Lion hasn’t been a shining star in consumer surveys, either. And while there’s no clear dominant player in the Northeast, where the other Ahold Delhaize supermarkets operate, Food Lion is increasingly facing withering competition in the South from the likes of Publix and Harris Teeter. One industry insider even managed to “question the future of Food Lion’s long-term presence in the U.S.”

In addition to being the larger company, Ahold does have the upper hand in a couple of areas. It also owns the grocery delivery service Peapod, so online grocery shopping could ultimately come to Food Lion and Hannaford. Ahold’s stores also have far superior coupon policies. All of its U.S. stores double coupons, and many of them accept competitors’ coupons and allow coupon stacking. Food Lion and Hannaford do none of those things.

So maybe Delhaize has a little something to learn from its new partner as well.

Regardless, with the Krogers and Albertsons of the world getting bigger and better, the Trader Joe’s and Whole Foods turning grocery shopping into an experience, and the ALDIs and Walmarts offering more for less, it’s getting harder for the old-fashioned, middle-of-the-road, “plain vanilla” Food Lions, Stop & Shops and the like to compete. So the Ahold-Delhaize pairing is less a match made in heaven than a marriage of necessity. If you shop at any of their stores, it may well be that you don’t see much change at all – except that now, at least, your store is at less risk of going completely under.


COMPLEMENTARY FIRMS

Ahold Chief Executive Dick Boer, who will also lead the combined company, said he did not expect any difficulties receiving regulatory approval for the deal.

“We’re really complementary to each other in most of our markets, that’s the uniqueness of this merger,” he said.

One source with knowledge of the deal said they expected the firms to make small divestitures in the United States to overcome antitrust issues there.

Muller will become deputy CEO in the new company and oversee the integration.

A source familiar with the merger discussions said that Boer, 57, could step down within several years, opening the way for Muller to take the top job if the merger is successful.

“The Dutch realised the only way to do this was to have a 50-50 governance split,” he said.


Deal Unites Major Supermarket Players

The new company, Ahold Delhaize, will have more than 6,500 stores—including Food Lion—with 375,000 workers able to serve over 50 million customers a week in the U.S. and Europe.

Ian Walker

Annie Gasparro

The planned merger of Ahold NV and Delhaize Group would create one of the biggest U.S. supermarket chains, giving the grocers greater buying clout as they grapple with slow growth and intensifying competition from discounters and upscale chains.

On Wednesday the two announced their all-stock deal to create a company with a market value of about $29 billion, combining Ahold, the Dutch owner of the Stop & Shop and Giant chains in the U.S., with Delhaize, the Belgian operator of American chains Food Lion and Hannaford. Ahold Delhaize, as the new company will be called, will be based in Europe but generate about 60% of its sales in the U.S.

Ahold Delhaize would have a 4.6% share of the U.S. grocery market, making it the fourth-largest player by revenue, according to research firm Euromonitor International, and would be among Europe’s largest food retailers.

With more than 6,500 stores on the two continents, Ahold Delhaize will employ 375,000 and serve up to 50 million customers a week.


Grocery war: Rivals H-E-B and Walmart battle for turf and shoppers in the region

1 of 11 Walmart will open a new Supercenter near the intersection of Kitty Hawk Road and Universal City Boulevard to compete with a nearby H-E-B. William Luther /San Antonio Express-News Show More Show Less

2 of 11 Land is being cleared for the Universal City Walmart behind this H-E-B near the intersection of North Loop 1604 and Kitty Hawk Road. William Luther /San Antonio Express-News Show More Show Less

3 of 11 Earth-movers at work at the Universal City site for a new Walmart. William Luther /William Luther Show More Show Less

A new Walmart Supercenter is under construction to compete with the H-E-B Plus at Highway 46 and U.S. 281 in Bulverde.

William Luther /William Luther Show More Show Less

5 of 11 Walmart has cleared a large construction site for its new commercial development at U.S. 281 and Highway 46 in Bulverde. William Luther /William Luther Show More Show Less

6 of 11 Construction of the new Walmart Supercenter in Bulverde is well under way. William Luther /San Antonio Express-News Show More Show Less

7 of 11 The existing H-E-B Plus in Bulverde can be seen in this aerial photo behind the new Walmart, which will soon open. William Luther /San Antonio Express-News Show More Show Less

8 of 11 Shoppers make their way the Walmart Neighborhood Market at the intersection of Blanco Road and Wurzbach Parkway. Walmart has opened several smaller-scale Neighborhood Markets in San Antonio. William Luther /San Antonio Express-News Show More Show Less

9 of 11 One of the aisles at the Walmart Neighborhood Market at the intersection of Blanco Road and Wurzbach Parkway. William Luther /San Antonio Express-News Show More Show Less

10 of 11 Walmart has studied H-E-B’s produce sections to improve its own fruit and vegetable business. William Luther /San Antonio Express-News Show More Show Less

11 of 11 Maria Chavez, left, makes sure shelves are stocked as a shopper makes her way through the Walmart Neighborhood Market at the intersection of Blanco Road and Wurzbach Parkway. William Luther /San Antonio Express-News Show More Show Less

As the world&rsquos largest retailer, Walmart operates more stores in Texas than in any other state, has its largest international footprint in Mexico and is expanding aggressively on both sides of the border.

Walmart&rsquos growth puts it in direct conflict with H-E-B, the 110-year-old local grocery chain that has long dominated South Texas and has broadened its reach into northern Mexico, where it operates 50 stores.

Ground zero in this grocery war: San Antonio, H-E-B&rsquos hometown, where it operates large fruit and vegetable warehouses and manufactures its own in-house brands, everything from Creamy Creations ice cream to potato chips.

The two companies compete for shoppers, scoop up prime real estate and regularly try to outflank each other by price-checking thousands of items in their competing stores.

With $473 billion in global sales, Walmart generates 20 times more revenue than H-E-B, which netted about $22 billion in sales last year. But, operating on its home turf, H-E-B has a record of beating major competitors &mdash and is a formidable rival.

Since 2010, Walmart has added nine Supercenters in the San Antonio area &mdash bringing it to a total of 29 stores in the city, including grocery-only Neighborhood Markets. Its expansion has been so aggressive that the Bexar County Appraisal District now tracks its construction activity.

Still, H-E-B dominates its hometown, with 45 stores and a &ldquoLow Prices Every Day&rdquo strategy that gives it a local market share of 52 percent, more than double Walmart&rsquos. H-E-B also has engaged in a frenzy of new construction and unveiled new concepts, including an upscale &ldquoGucci&rdquo store in Stone Oak and a chef-driven restaurant in its Schertz supermarket. It also opened an H-E-B Plus on steroids &mdash the 182,000-square-foot store near Sea World.

The stakes for both companies are enormous in the highly competitive, low-margin industry. Over the last two years, the San Antonio Express-News has interviewed executives in both companies, as well as numerous analysts, public officials and suppliers for H-E-B and Walmart. The newspaper also has analyzed market data and toured stores and distribution centers in Texas and Mexico.

Unlike other grocery chains, H-E-B anticipated the threat Walmart posed and employed some of the same practices, notably Walmart&rsquos famous &ldquoproductivity loop,&rdquo in which the chain attracted more customers with low prices.

As more people flocked to Walmart stores, the mega-retailer could increase sales and squeeze suppliers for lower prices, allowing it to sell those items at deeper discounts. That loop drives most conventional grocery chains out of business, said Leigh McAlister, author of the &ldquoGrocery Revolution&rdquo and a professor of business marketing at the University of Texas at Austin.

&ldquoH-E-B, though, saw it coming and got themselves into the productivity loop before Walmart had a significant presence in H-E-B&rsquos markets,&rdquo she added. &ldquoThat is why H-E-B is pretty much the only grocery chain in the world that can compete effectively with Walmart.&rdquo

The regional grocery war began six years ago when Walmart focused on San Antonio in its push to earn more of the Texas market.

While increasing its presence, Walmart also has sought to imitate H-E-B by setting up a reconnaissance office in San Antonio to glean lessons on fresh produce from H-E-B&rsquos suppliers.

Meanwhile, H-E-B watches its competitor by sending workers into Walmart stores across the state to price check between 25,000 and 40,000 items a week. A Walmart spokesman said that company uses the same tactic.

&ldquoThey are the world&rsquos largest retailer,&rdquo Craig Boyan, H-E-B&rsquos chief operating officer, said of Walmart. &ldquoThis is their largest market, and this is our largest market. So we are fighting very hard for our share of the Texas pie.&rdquo

In public, executives at both companies praise their main competitor in the Lone Star State for helping keep prices low for Texas families. But behind the scenes, the two retail titans have studied each other like wartime enemies and employed aggressive tactics to get an edge.

Among them: Land grabs. The real estate divisions at H-E-B and Walmart have staked out hundreds of acres in Bexar County &mdash either to develop new shopping centers near each other as quickly as possible or to keep prime grocery intersections unused and out of the hands of the other.

One example is in San Antonio&rsquos booming northeast neighborhoods, where
H-E-B recently remodeled a store in Universal City. Walmart snapped up a 13-acre plot next door and plans to debut a 182,000-square-foot Supercenter in 2016, dwarfing the 92,000-square-foot H-E-B.

Farther north, Walmart is building a Supercenter at the intersection of U.S. 281 and Highway 46 in Bulverde, competing with an H-E-B Plus on the south side of the intersection. Walmart also will soon break ground for a store across Boerne Stage Road from a popular H-E-B Plus that recently was expanded.

And in an abandoned H-E-B at Nacogdoches Road and MacArthur View on the Northeast Side, Walmart unveiled its fifth grocery-oriented Neighborhood Market location since it brought the concept store here in early 2014.

Maintaining their regional dominance is getting harder for both companies as other grocers, such as Trader Joe&rsquos and Whole Foods Market, enter the state&rsquos booming metropolitan areas, chasing increasingly scarce consumer dollars.

The industry&rsquos overall flat growth has led to mergers of major chains, including the announcement last week that the parent company of the Food Lion and Hannaford chains will merge with a competitor that owns Stop & Shop and Giant stores, creating one of the largest supermarket chains the U.S.

Walmart is the national leader, though, with more than 25 percent of the grocery market, while H-E-B, operating mainly in South and Central Texas, is the sixth-largest chain, with 2 percent of the market.

&ldquoThe industry as a whole has been declining in total units (sold), so retailers are seeking growth wherever they can,&rdquo Boyan said in a 2013 interview.

&ldquoThat brings a lot of folks to Texas,&rdquo he added. But &ldquorelentless growth is our battle cry.&rdquo

According to an Express-News analysis of data compiled by Metro Market Studies, H-E-B and Walmart compete for grocery sales in 17 metro areas in Texas.

In nine of those metro areas, both retailers lost market share between 2009 and 2014 as new and old competitors &mdash including Costco, Kroger and Safeway &mdash opened more stores and rattled the status quo.

Walmart increased its share of grocery sales over those five years in only one market: San Angelo. H-E-B, however, enjoyed boosts in eight metropolitan areas: Abilene, Beaumont, Brownsville, Bryan-College Station, Corpus Christi, Dallas-Fort Worth, Houston and San Angelo.

Those gains appear to have improved H-E-B&rsquos top line.

Its estimated sales in the U.S. soared 36.6 percent from $16.1 billion in 2010 to more than $22 billion last year.

Tracking Walmart&rsquos Texas sales isn&rsquot as easy. The retailer doesn&rsquot break out revenue by state. Nationwide, Walmart&rsquos net sales, 56 percent of which comes from its grocery department, topped $288 billion last year, an increase of 10.6 percent from 2010. The company&rsquos global sales are up about 17 percent in the same period.

David Norman, a Senior Vice President, Small Formats for the Western Region, said grocery sales here are stronger than at stores in other parts of the country. Norman oversees operations of Walmart's small-format stores (Neighborhood Markets) for the western region of the United States.

&ldquoObviously having H-E-B (in Texas), we compete very well together, and we make each other better,&rdquo Norman said. &ldquoCompetition makes it a lot better situation and brings more value to the customers. It turns up everyone&rsquos game.&rdquo

Roots of the war

H-E-B started to up its game more than 20 years ago.

One evening in July 1991, H-E-B closed one-third of its Texas stores early, slashed prices on 12,000 food and household items overnight, and reopened 17 hours later under a new, &ldquoLow Price Every Day Plus&rdquo banner.

The campaign, which H-E-B tested in the San Antonio area before expanding it companywide, promised to save customers between 10 percent and 15 percent on each shopping trip.

H-E-B tweaked the slogan and still refers to its &ldquoLow Prices Every Day&rdquo pledge in weekly advertisements. Recalling the company&rsquos shift in strategy, Boyan said: &ldquoWe had a great event where we used to be a traditional grocer (but) really changed course at that point.&rdquo

At the same time, Walmart began gobbling market share across the nation. Some U.S. grocers tried cutting prices to turn around falling sales, but couldn&rsquot stop the bleeding.

H-E-B officials insisted they weren&rsquot prey to such concerns and said its price-cut campaign stemmed from a three-year study that helped it identify ways to increase efficiency and substantially reduce costs. Still, the new strategy came at a convenient time.

Between 1982 and 1991, Walmart more than tripled its presence in Texas, ballooning from 59 stores to 264. The company wasted no time expanding elsewhere, but in no other state did it open so many stores in just one decade.

Even though H-E-B never publicly acknowledged the threat from Walmart, 1991 ushered in another dramatic shift in business for the grocer.

H-E-B spent the year expanding a warehouse store concept called Bodega &mdash Spanish for &ldquowarehouse&rdquo &mdash that industry experts compared to Walmart&rsquos Sam Club&rsquos locations. It also experimented with a fresh-food format based on a chain in Atlanta.

Also in 1991, H-E-B Chairman and CEO Charles Butt began meeting privately with officials in northern Mexico to chart his company&rsquos first push south of the border.

Today, the stakes in the grocery war are getting higher because of slipping personal incomes.

&ldquoThe big question is what happens in the next 30 to 40 years,&rdquo Boyan said.

Referring to an internal company presentation, he said his biggest worry is the shrinking grocery dollar in Texas. One slide in the presentation showed median household income in the U.S. has remained flat for at least four decades and actually started to decline during the Great Recession.

With dwindling consumer spending power across the U.S., more retailers &mdash Walmart foremost among them &mdash have eyed the Lone Star State&rsquos booming population as a key growth market.

Ground zero in San Antonio

In San Antonio, the competition between Walmart and H-E-B is especially fierce, so much so that Boyan described Walmart&rsquos rapid expansion here as &ldquodeeply uneconomic&rdquo for both retailers.

Daniel Morales, a spokesman for Walmart, dismissed that concern. He pointed out that while Boyan criticized his company&rsquos rapid expansion in San Antonio, the regional grocer similarly has extended its footprint in markets such as Austin and Houston.

&ldquoI mean, they&rsquore growing in Houston. We&rsquore growing in Houston,&rdquo Morales said. &ldquoWe&rsquore building stores. They&rsquore building stores. We think that serving customers is important.&rdquo

In the past five years, Walmart has acquired more than 250 acres of new property &mdash valued at about $123 million &mdash in Bexar County, according to an Express-News analysis of land records.

It also spent $8 million on an expansion to double the shipments from its distribution center in New Braunfels, which services stores in Central and South Texas.

Norman described South Texas as &ldquoa focal point&rdquo for Walmart executives, who he said approve several projects a month for its market in H-E-B&rsquos backyard. San Antonio means so much to Norman&rsquos bosses that not long after Walmart&rsquos CEO Doug McMillon took the reins of the company last year, he spent the day at one of his stores here.

H-E-B, meanwhile, acquired nearly the same amount of new real estate in Bexar County as Walmart &mdash about 250 acres valued at more than $90 million &mdash between 2009 and 2014.

The push extends beyond the Alamo City. H-E-B opened or remodeled a dozen stores in San Antonio in 2013, and more are on track. Altogether, H-E-B operates more than 340 stores.

H-E-B officials often dismiss the suggestion that this flurry of construction projects is in direct response to Walmart &mdash or any competitor&rsquos &mdash growth.

&ldquoWalmart and H-E-B are the two main grocery competitors here,&rdquo Boyan said. &ldquoBut what people often don&rsquot know is that Texas is its largest U.S. market by a factor of two-to-one.&rdquo

With 574 stores today in Texas, Walmart&rsquos second-biggest market in the U.S. is Florida with 348 stores, according to its most recent annual report.

Walmart opened an office here to study how H-E-B attracts customers with its meat and produce selection, said Jack Sinclair, head of Walmart&rsquos grocery division, at the company&rsquos annual meeting for investors in October. He said the San Antonio office would work with H-E-B&rsquos suppliers to learn how Walmart, the nation&rsquos largest grocer and produce seller, can do &ldquofresh&rdquo better.

A regional spokeswoman explained Walmart has added several new items to its produce section as a result of the program, which works directly with local farmers.

David Rogers, an expert on Walmart at the retail consulting firm DSR Marketing Systems, applauded Walmart for its recent focus on fresh produce.

&ldquoTrying to attract shoppers to their stores even more often, that&rsquos very clear thinking by Walmart,&rdquo Rogers said. &ldquoIf they execute it well, which is always a big if, they will put more pressure on
H-E-B.&rdquo

H-E-B has studied Walmart, too, by flooding the state with its price-checkers.

&ldquoWe are not the lowest-priced on every item in every store every week,&rdquo Boyan said. &ldquoWhat we think the true test is, as people shop the entire store and shop a full basket &mdash a basket which includes national brands and our own brand &mdash that mix will be better priced at H-E-B than anywhere else.&rdquo

Key difference: Local brands

The key phrase is &ldquoown brand&rdquo &mdash H-E-B-made products that may be the company&rsquos most effective weapon against Walmart.

The grocer operates 13 factories throughout the state, with most of them in San Antonio. Here, it produces ice cream and Greek yogurt, prepares floral bouquets at a seasonal warehouse, makes tortilla chips at a snack plant, marinates fajitas and brisket meat and packages its own muffins and brownies at a sweets goods bakery.

Boyan identified these own-brand products as the top way H-E-B distinguishes itself from Walmart.

&ldquoNumber one: We work really hard on having the great differentiated, unique own-brand items that are tailored for Texas taste,&rdquo he said.

&ldquoIf you are a national brand supplier, and you&rsquore making something the whole country needs, then you&rsquore fielding and developing the taste profile for the average American,&rdquo Boyan added. &ldquoFrom California to McAllen to San Antonio, all three have a real mix of Anglos and Hispanics. So demographically, they&rsquore not very different, but it&rsquos unbelievable how differently they eat.&rdquo

H-E-B&rsquos manufacturing division doesn&rsquot just increase the variety on store shelves.

The dairy plant here processes all Horizon milk &ndash a non-H-E-B brand &ndash sold at its stores, said Bob McCullough, H-E-B's manufacturing chief, at a public San Antonio Manufacturers Association forum last year. In 2013, its annual sales as a provider of outsourced manufacturing topped $100 million.

The H-E-B plants are a fundamental difference between the organizational structures of H-E-B and Walmart.

&ldquoWe don&rsquot actually make anything,&rdquo Michelle Gloeckler, Walmart&rsquos executive vice president of U.S. manufacturing, said during a supplier conference in July 2014. Instead, Walmart relies on its massive purchasing power to secure the cheapest prices from its suppliers in order to pass those savings onto its customers.

Walmart keeps its operations trim, which David Livingston, a supermarket analyst with DJL Research, said reflects its main priority.

&ldquoThat is keeping labor and prices low,&rdquo he said. &ldquoThey&rsquore strictly low price (and) it&rsquos more of a one-stop shopping place, where everything&rsquos based on cost, and you see that in their operations.&rdquo

H-E-B, on the other hand, employs about 2,000 manufacturing workers and even operates a Center of Manufacturing Excellence. Through a subsidiary named Metrix360 Laboratories, H-E-B also offers microbiological, chemical and physical testing services as part of its research and development arm.

In addition, the grocer opened a culinary center and cooking school in downtown San Antonio to train its employees.

&ldquoIt&rsquos an extremely well-run company,&rdquo Livingston said. &ldquoThey&rsquove got manufacturing. They&rsquove got their own brands.&rdquo

Walmart&rsquos Norman downplayed H-E-B&rsquos own-brand efforts, saying they have no impact on the shelf space that Walmart reserves for its private-label products.

&ldquoWe want to have our Great Value (private label) brand, which is really high quality,&rdquo Norman said. &ldquoBut what we really focus mostly probably on is the name brands. We want customers to see that they can save money on name brands, and we really work with a lot of suppliers to guarantee that.&rdquo

Nevertheless, Walmart executives last August revealed they soon would launch an extreme-value store brand called Price First at stores nationwide.

The winner is?

Phil Lempert, a food industry analyst with SupermarketGuru.com, suggested demographics may factor into the ultimate victory in the Lone Star State&rsquos grocery battles.

&ldquoCan Walmart go head-to-head with H-E-B? That&rsquos a tough question,&rdquo Lempert said. "It really depends, because the interesting thing about H-E-B is they select certain stores for different demographics.

&ldquoIt just depends on whether or not Walmart decides to fight in an upscale neighborhood,&rdquo he added. There, &ldquoH-E-B is going to win, but in an average neighborhood, it&rsquos going to be a fair fight.&rdquo


Chains' Competitive Efforts Pay Off in First Half

The efforts of the nation's largest public supermarket companies to differentiate themselves and strengthen their formats against competitive threats drove strong top- and bottom-line results in the first half of the year, although analysts said it's not clear whether the second half will be as robust.

Continuing the upswing of the prior 12 months, financial results for the half were strong among the industry's 10 largest chains that have public equity or public debt:

Sales grew 3.6%, on top of a 5.2% increase in last year's first half (excluding results at Supervalu, whose acquisition of Albertsons in June 2006 would have boosted overall sales gains to 16.8% for the half, making for less meaningful comparisons).

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, or operating cash flow, exclusive of one-time and other special charges) for the remaining nine companies increased 5.7%.

Same-store sales during the first quarter of the calendar year rose an average of 2.1%, following a 3.3% jump in the first half of 2006, and gained an average of 2.7% in the second quarter of the calendar year, compared with a 3.6% increase in the year-ago period.

“The first half was the apogee for supermarkets, with the industry enjoying its best performance since 1998,” Gary Giblen, executive vice president at Goldsmith & Harris, New York, told SN.

But midway through the second half, “things are turning south,” he said, “though it's still hard to say if the downward shift is sharp or slight.”

Giblen said he attributed the industry's first-half performance to several factors.

“The consumer was still very flush during the first part of the year, and most supermarkets had figured out how to compete better against Wal-Mart, with Kroger and Food Lion leading the way.

“You also saw better sales and earnings at chains undergoing format initiatives, like Safeway with its lifestyle stores, and Sweetbay at companies that improved operations through restructurings, like Winn-Dixie and A&P and at chains that cracked the code on doing a better job with natural foods to compete more effectively against Whole Foods.”

Giblen said he expects the industry to find itself on middle ground during the second half. “Things are still OK, but not as good as they were earlier in the year, now that the consumer finds himself in an extremely grave condition as the housing market continues to dry up and people see their financial bubbles bursting, and there are some early indications of trading down.

“We're also seeing perishables inflation reaching double-digit levels, and combined with other pressures on consumers, retailers can't simply pass on all the increases, so margins are being squeezed.

“Further, a strengthening by BJ's Wholesale Clubs of its food offerings has hurt supermarket operators in New York, New England and the Southeast and with Wal-Mart failing in apparel, it's become more aggressive on food pricing,” Giblen said.

Karen Short, an analyst with Friedman Billings Ramsey, New York, said first-half operating performance was strong, “with a lot of retailers fully realizing the benefits of several years of initiatives.

“As we moved into the second quarter there were a lot of built-in expectations of immediate benefits from what was perceived as broad-based inflation, and there was some disappointment the numbers were not stronger than they were,” she said.

“But that judgment was a little hard, and as the industry moved into the second half, it seemed likely inflation would help.

“And there's no reason to believe operating performance will change dramatically in the second half, especially with the likelihood of more inflation,” Short added. “Investors are looking anxiously for signs of consumer changes in anticipation of a recession, and while there may be some trading around within categories, I don't see consumers changing their habits or any drop-off in sales.”

Andrew Wolf, managing director for BB&T Capital Markets, Richmond, Va., said he is leery about the impact retail food inflation could have on second-half results.

“Inflation accelerated from the first to the second quarter,” he said, “and although many of the chains had healthy same-store sales growth, inflation was at 2.8% during the first quarter and at 3.8% during the second, so not all the growth they enjoyed came from improved volume.”

With 40% of the U.S. population earning less than $35,000 a year, “there's a large segment of consumers being hurt by food inflation,” Wolf said, “and if the economy gets worse in the second half, it could have a negative impact on retail business.”

Jonathan Ziegler, a Santa Barbara, Calif.-based analyst for Dutton Associates, El Dorado Hills, Calif., was enthusiastic about first-half performance but also a bit apprehensive as he looks ahead. “Despite numbers that were up against relatively strong comparisons, it was a darn good first half,” he said, “with EBITDA up dramatically because of positive sales along with better cost controls.”

He said the industry's financial performance also reflected improved merchandising some inflation in retail pricing to reflect higher commodity costs and higher gas prices, which forced more consumers in the mid- to lower economic strata to eat at home more often. He said the industry's second-half financial performance should benefit from some of the same factors.

In addition, he also anticipates further inflationary pressures from the impact of ethanol on commodity prices and challenging comparisons with the second half of 2006, “which was a strong operating period.”

For Bryan Hunt, managing director for high-yield research at Wachovia Capital Markets, Charlotte, N.C., the industry's first-half financial performance was “strong but slowing,” with sales increases propelled by significant increases in perishables prices and escalating gas prices, which prompted more consumers to eat at home more often.

“But at the same time, you also saw increased penetration of private-label items and the greater incidence of discounting of generic drugs, which helped boost earnings,” Hunt pointed out.

Chuck Cerankosky, managing director at FTN Midwest Securities, Cleveland, said the first half was “pretty good overall,” with Safeway, Kroger and Harris Teeter showing a lot of momentum and Wal-Mart showing somewhat weaker results.

“The companies that did well benefited disproportionately on the earnings line by getting operating leverage from the sales increases or from their ability to take additional market share,” he pointed out.

Cerankosky said he anticipates few changes in the second half. “There will be some impact from inflation pass-through, though that will take awhile to work through the system. But the companies with the most momentum in the first half will continue to show similar trends through the balance of the year,” he said.

Following is an analysis of the financial performance of each company:

KROGER CO., Cincinnati, whose first-half sales rose 6.7% to $36.9 billion, with comparable-store sales up 5.4% in the first quarter and 5.3% in the second, while EBITDA rose 5.6% to $1.9 billion.

Kroger's first-half results reflect the success the chain has enjoyed for the past several years, analysts said.

“Kroger's results are strong relative to most of the other public chains, because it has a better go-to-market strategy that combines merchandising and store ambience with more compelling prices — a combination that resonates with customers,” Wolf said.

Giblen offered a similar assessment. “Kroger has found a delicate balance between pricing and margins, and that's a good place to be. And because consumers are smart and they recognize that balance, it builds upon itself for good results on an ongoing basis.”

Cerankosky said Kroger is also benefiting from using loyalty-card data to shape each store to the neighborhood in which it operates — not simply by operating different formats, but also by gearing Kroger-banner stores to local needs.

“I'm constantly impressed by the way individual locations are merchandised to the local market,” he said. “The company is learning all the time how to do that better, and it gives them a huge advantage over operators with a one-size-fits-all philosophy.”

SUPERVALU, Minneapolis, whose acquisition of the premium operations of Albertsons in mid-2006 helped boost sales 126.4% during the first half of the calendar year to $23.6 billion, with comps up 1.2% in the fourth quarter and 1.4% in the first, and EBITDA climbing 210.6% to approximately $1.5 billion.

Giblen said Supervalu's financial performance in the half benefited from the company's ability to work on “a lot of low-hanging fruit” among the acquired stores. “The first six months after an acquisition are the best time to get the easiest gains, and Supervalu has achieved that by doing a better job operating those stores,” he noted.

Supervalu also got some extra momentum at its Shaw's chain in New England while Ahold's Stop & Shop division was distracted by some of the challenges involved with combining administrative operations with Giant Foods of Landover, Giblen pointed out.

The company also benefited during the half from the fact so much of its wholesale customer base is in the Midwest, Giblen added. “In areas where agriculture is a big part of the economy and where ethanol prices are rising, Supervalu has a real cushion in its favor,” he explained. “And with escalating gas prices, more consumers are shopping at independent stores that are closer than supercenters.”

Cerankosky said he was disappointed that same-store sales numbers weren't stronger. “Albertsons, which is the biggest part of Supervalu's retail component, was having sales momentum issues before the sale, and that's one of the reasons it was sold. Now Supervalu is working on those challenges, and it's just a matter of time before it puts it all together and begins achieving the same kind of sales gains as the other major chains.”

However, sequential same-store sales showed signs of weakness late in the first half, Wolf pointed out, “because of Supervalu's broader store mix, which encompasses Sav-A-Lot, which appeals to a lower-income segment that's affected more by changes in the economy.”

SAFEWAY, Pleasanton, Calif., which saw sales grow 4.8% to $19.2 billion for the half comps increase 4.8% in the first quarter and 4% in the second and EBITDA rise 8.9% to $1.3 billion.

“Safeway continues to ride the rollout wave of its lifestyle remodeling program,” Cerankosky said. “And even at stores that aren't operating with the lifestyle format, Safeway is using a lot of elements from that format, such as better prepared foods and a wider variety of high-quality perishables, and consumers like that.

“Safeway is also doing a good job getting its price message across, as it's found a way to combine a merchandising program that emphasizes perishables quality with great Center Store pricing.”

Giblen also said Safeway's gains are a direct result of its continued success with lifestyle stores. “Lifestyle not only builds sales, but with the emphasis on perishables, it also builds higher-margin sales,” he pointed out.

AHOLD USA, Quincy, Mass., whose first-half sales increased 4.3% to $11.3 billion, with comps up an estimated 1.5% in the first quarter and 1.6% in the second and EBITDA dropping 17.1% to $871 million.

While same-store sales at Giant Foods-Carlisle jumped 6.3% during the first quarter and 4.4% during the second, those gains were offset by weak comps at Giant Foods-Landover, which saw declines of 0.8% in each quarter, and moderate comp gains at Stop & Shop of 0.7% in the first quarter and 1.7% in the second.

Several factors influenced Ahold's U.S. results, Patrick Roquas, an analyst with Rabo Securities, Amsterdam, said, including robust market growth in the Northeast, implementation of a cost-saving program and “the first signs of a successful implementation” of the company's Value Improvement Program at Stop & Shop and Giant-Landover.

VIP involves lowering prices and cutting back on assortments.

Giant Foods-Carlisle continued its strong sales momentum, Roquas noted, with exceptionally strong EBIT margins during the second quarter due to less promotional activity.

Giblen said the numbers at Giant-Carlisle were so strong “because it is a good operation without the problems of the other two Ahold chains, and it goes up against less competition than Ahold's other U.S. operations.”

DELHAIZE AMERICA, Salisbury, N.C. — encompassing Food Lion in the Southeast, Sweetbay in Florida and Hannaford Bros. in New England — which saw first-half sales grow 4.9% to $8.9 billion, with comps up 1.4% in the first quarter and 2.8% in the second and EBITDA up 11.7% to $492.6 million.

Sales and earnings were driven mainly by market renewals and customer segmentation initiatives at Food Lion and by the further rollout of organic concepts at Hannaford, Roquas told SN, “though results at Sweetbay lagged expectations due to highly competitive market conditions.”

Giblen said each of Delhaize's three business segments showed improvements during the half, with Food Lion developing a more vibrant competitive format Hannaford continuing to weather Wal-Mart's entry into its operating area and benefiting from distractions at Stop & Shop and Sweetbay benefiting from store closures by Winn-Dixie and Bi-Lo, as well as from its new format.

A&P, Montvale, N.J., whose sales fell 0.2% to $3.6 billion for the half, while comps fell 1.5% in the fourth quarter and rose 1% in the first, and EBITDA dropped 11% to an estimated $79.2 million.

With the sale of A&P's Farmer Jack stores in the Midwest late in the company's fourth quarter, overall performance improved, with analysts pinpointing first-half sales in the chain's Northeast core up an estimated 1.7% to $2.9 billion, fourth-quarter comps in the Northeast up 0.9% and EBITDA for the half up 13.6% to $75 billion.

A&P officials were unable to confirm a precise EBITDA number, explaining, “In light of our ongoing divestiture of non-core operations, the [EBITDA] figures are being revised to align, for the sake of more accurate comparison, with results of continuing operations.” Until those revised numbers have been filed with the Securities and Exchange Commission, a chain spokesman told SN, “A&P is not at liberty to disclose them.”

Short said A&P sales and profits are benefiting from the chain's decision to upgrade its stores to a more fresh orientation — “on a caliber with Safeway's lifestyle remodels,” she noted.

With close to 40 stores having undergone major remodelings by the end of the first half of the calendar year, and elements of those upgrades installed at other locations, “A&P's overall same-store sales are up 10%,” she said. Improvements in EBITDA in the Northeast core are the result of the higher-margin fresh mix around the stores' perimeters, she pointed out, “and we're also seeing a more aggressive move toward lowering Center Store pricing to improve the chain's image. Eric Claus [A&P president and chief executive officer] has instigated a small revolution by sticking with the chain's strategy and not worrying about what the competition is doing,” she added.

According to Giblen, A&P started to see benefits late in the first half from shutting down its Midwest business and pulling back its operations exclusively to the Northeast, “which is its strongest area.”

Giblen also had kind words for Claus. “He's really been able to get A&P back to basics,” he pointed out.

WINN-DIXIE STORES, Jacksonville, Fla., which saw sales in the half rise 1.5% to $3.3 billion, comps rise 1.3% in the third quarter and 1.7% in the fourth, and EBITDA turn positive, to $95.6 million.

Cerankosky called Winn-Dixie “an exciting, classic turnaround where sales per store needed to increase. It went through a period where previous managements tried to find ways to operate a large, geographically diffuse chain, but none of that worked.

“Now it has a strong merchant, Peter Lynch, as CEO, and the company has found a critical mass of stores it can develop to increase sales per store and improve its market share — though it still has to go up against Publix.”

According to Giblen, “It's wonderful what happens when you can dump the bottom half of your store base during a bankruptcy and restructure so you're left with your better stores only.”

In its favor, however, Giblen said Winn-Dixie is doing “fewer things wrong. Lynch is a stronger leader than some of his predecessors, and he knows how to run a tight ship.”

WHOLE FOODS MARKET, Austin, Texas, whose sales jumped 12.4% in the half to $3 billion, with comps up 6% in the second quarter and 7% in the third, and EBITDA up 0.8% to an estimated $238.5 million.

“The relatively low EBITDA gain is a result of the company putting too much effort behind getting new stores open, which takes a lot of money,” Cerankosky pointed out.

“Pre-opening expenses have been higher than expected, but that goes with a rapid expansion. The real estate selection is as astute as in the past, however, so the new store start-up expenses will look like a smart investment down the road.”

In terms of sales, Whole Foods “continues to be a retail juggernaut,” he said, that attracts a strong consumer response to the freshness, wholesomeness and quality of the offerings around the perimeter, “though it's clear people are not there for Center Store merchandise.”

According to Wolf, Whole Foods is a growth company, “with square footage growing in the low-double-digit range. And when you grow your store base, sales grow.”

He said comp-store sales were decent — at the low end of Whole Foods' historic range — “and they stabilized during the latter part of the half as the business overall firmed up.”

“The numbers are not good,” Giblen said. “The first half of the year has been a turning point where Whole Foods encountered real competition, both from traditional operators and from Wild Oats before Whole Foods acquired it.

“It was also evident that Whole Foods was enormously distracted by its fight with the Federal Trade Commission [over whether it would be allowed to buy Wild Oats] and by the Web posturings of its CEO, John Mackey, which denigrated Wild Oats while he was trying to buy it.”

PATHMARK STORES, Carteret, N.J., which saw sales decline 0.2% to $2 billion during the half, comps drop 0.3% in the first quarter and 0.2% in the second, and EBITDA jump 22.5% to $68.7 million.

With its sale to A&P expected later this year, “Pathmark is running on automatic pilot right now,” Giblen said.

According to Short, “Knowing the sale is pending and knowing many of the Pathmark people could lose their jobs, simply keeping enough focus to run flat sales is a positive accomplishment.”

Among other factors affecting results, she said, were ShopRite's more aggressive positioning in the market in anticipation of Pathmark's sale to A&P, “and Pathmark's very concerted effort to sustain profitability while not putting as much emphasis on promotions.”

Hunt said Pathmark's EBITDA was up “because the company had been remerchandising the stores a year earlier and marking down a lot of products, which meant gross margins were weaker than normal in terms of the comparison.”

STATER BROS. MARKETS, San Bernardino, Calif., whose first-half sales rose 1.5% to $1.8 billion, while comps rose 1.5% in the second quarter and 1.7% in the third, and EBITDA climbed 41.1% to $113.3 million.

Hunt said Stater benefited from a lessening of promotional activity in Southern California during the half while its major competitors were distracted by labor talks, “which meant it was able to manage the business for cash flow rather than top-line growth.”

Stater itself was not distracted because it opted to sign an early agreement with the union, he pointed out.

2007 First-Half Financial Results

Below are financial results for the 10 largest supermarket chains with public equity or public debt. Although reporting periods vary, the table represents sales, EBITDA and same-store sales for the two quarters most closely paralleling the first half of the calendar year, encompassing the first and second quarters for Kroger Co., Safeway, Ahold USA, Delhaize America and Pathmark Stores the second and third quarters for Whole Foods and Stater Bros the third and fourth quarters for Winn-Dixie and the fourth and first quarters for Supervalu and A&P.


Contents

Early history Edit

The retail company launched in 1923, when David Javitch opened a small meat market in Carlisle, Pennsylvania called Carlisle Meat Market. In 1936, Javitch purchased a store in Lewistown, Pennsylvania, which he named the Giant Shopping Food Center. It was a major change from the original Carlisle Meat Market in that it was a total grocery store. The new store offered dry goods and perishables under one roof a new concept at that time. The store was a success, and soon a decision was made to expand the original Carlisle store from a basic meat market into a full-fledged grocery store.

The business also experienced a number of setbacks. Prior to purchasing the Lewistown store, Javitch purchased a store in Hagerstown, Maryland, that opened and closed within the same month. In addition, his main store in Carlisle was destroyed by fire, and the Lewistown store was completely flooded on two separate occasions. [5] [6]

Expansion Edit

After each setback, Javitch started over and the stores continued to grow in the 1950s. Shopping malls became a new American experience with the population moving outside of the cities and into the suburbs, and Javitch took advantage of the strip malls dotting the landscape. As a result, the company embarked on a plan of steady growth, opening new stores in suburban areas. Javitch moved his downtown Carlisle store to a newly built structure at 100 North Hanover Street in 1953, renaming it Carlisle Food Market. The Carlisle store was very modern for its time, with features like a parking lot, baggers, and outside lighting. A second Carlisle Food Market location opened in 1964 at the Carlisle Plaza Shopping Center. The company continued to open other stores under the Giant Foods name. In 1968, the ninth store opened in Harrisburg, Pennsylvania. David Javitch became chairman of the board, passing the presidency to his son, Lee Javitch. The company's growth accelerated with the purchase of the MARTIN’S chain (though these stores retain the MARTIN’S name to this day) in Hagerstown, Maryland. The company purchased of the Martin's chain, based in Hagerstown, Maryland, in 1969, and expanded to New Jersey in 1970, opening three stores under the name Clover-Markets. In 1972, Nick Riso joined the company as vice president of sales and operations. A new merchandising effort began with the introduction of "Everyday Low Prices." By 1973, the company's 50th anniversary, the company operated a total of 18 stores. In 1974, David Javitch died, and Lee established the David Javitch Memorial Scholarship Fund to benefit children of GIANT/MARTIN’S employees. As the 1970s closed, 24 stores were in operation. Nick Riso was appointed president, and Lee Javitch assumed the position of chairman. As the 1980s approached, the company had grown to a workforce of 3,400. [5] [6]

Acquisition by Ahold in 1981 and growth in the ’80s and ’90s Edit

In 1981, the Javitch family sold the company to Royal Ahold Corporation, a food retailing business based in Zaandam, the Netherlands. At the time of the agreement, Giant was operating 29 supermarkets. Throughout the 1980s, Giant continued to grow. In 1988, Allan Noddle assumed the position of President of Giant Food Stores, as the 50th Giant store opened. Noddle served as a spokesman in Giant's radio and television advertising campaigns.

The late 1980s through mid-1990s saw a complete modernization of Giant and Martin's stores as remodels, expansions, and interior upgrades were completed in virtually every store within the chain. In addition, many new customer conveniences were added including in-store banks, pharmacies, Chinese kitchens, coffee shops, photo processing, and dry cleaning services. By the end of 1996, Giant had grown to 75 stores.

1997 brought major changes in the company's history as Giant merged with Edwards Super Food Stores, another Ahold-owned company. Upon completion of the merger, Giant was operating two divisions, with 23,000 employees in six states including Maryland, New Jersey, New York, Pennsylvania, Virginia, and West Virginia. Additionally, Tony Schiano became president and Chief Executive Officer of Giant. [5] [6]

2000s to present Edit

As 2000 approached, Giant Food Stores underwent many technological changes. In addition, the first new 2000 prototype store opened in Hellertown, Pennsylvania and additional new stores opened with shopping conveniences for customers including gas stations, full-service floral departments, smoothie and juice bars, expanded deli and bakery departments, and organic produce. The new millennium brought about additional change within the organization, as Edwards transitioned to another Ahold-owned company, Stop & Shop. The Edwards stores throughout New Jersey and New York were remodeled and reopened under the Stop & Shop banner. With the major change, Giant concentrated on its plans to expand, and opened stores in new market areas such as Altoona, Pennsylvania. In 2001, Giant formed an alliance with another Ahold company, Tops Markets, LLC in Buffalo, New York. The new partnership, called Shared Services, was designed to allow both companies to continue to operate individually as separate and distinct businesses while partnering to support corporate functions. U-Scan self checkout registers were implemented company-wide, and a new marketing campaign, "Quality. Selection. Savings. Every Day" was introduced. Giant Food Stores also began sponsoring the Giant Center arena in Hershey, Pennsylvania, the home of the Hershey Bears hockey team, as well as the Skyview at Hersheypark. [7]

Major organizational change occurred in January 2003. Ultimately, Shared Services evolved to the extent that Tops was fully integrated into the Giant organization. On October 12, 2005, Giant opened the doors on a new "Super Giant" in Camp Hill, Pennsylvania, in part due to competition from Wegmans supermarkets moving into the area. Another new Super Giant opened in Willow Grove, Pennsylvania on March 5, 2008 with a total area of 97,300 square feet (9,040 m 2 ), making it Giant's largest store in Pennsylvania. [8]

On September 6, 2006, Jack Clemens of Clemens Family Markets Inc. and his family sold 14 of their 22 stores to Royal Ahold, and eight to C&S Wholesalers. Thirteen of the Ahold stores were rebranded as Giant and one remained branded FoodSource (which was Clemens' upscale gourmet banner), while C&S immediately sold six of the stores to A&P, which re-branded them SuperFresh stores. [9]

On February 1, 2007, Carl Schlicker assumed responsibility as CEO of Giant/Tops, replacing the retiring Schiano. [10] A year later, on July 10, 2008, Royal Ahold announced that Sander van der Laan, current Executive Vice President of Marketing and Merchandising for Albert Heijn, has been appointed president and CEO of Giant-Carlisle, succeeding Carl Schlicker, who has been appointed president and CEO of Stop & Shop/Giant-Landover. [11]

On October 11, 2007, Ahold USA announced the sale of Tops Markets, LLC to Morgan Stanley Private Equity, separating Giant-Carlisle from Tops. It was announced on December 17, 2009, that Giant-Carlisle would purchase the Ukrops chain, expanding their market further into Virginia. [12] These stores operated under the Martin's banner.

On January 7, 2010, it was announced that Rick Herring would become the new president and CEO of Giant-Carlisle. [13]

Giant opened its first grocery store within the limits of the City of Philadelphia in 2011 on Grant Avenue. [14] As of December 14, 2011, Giant and Martin's together have 92 gas stations and they have more than 180 stores in four states. [15]

On January 5, 2012, Giant announced it would acquire 16 Genuardi's Family Markets across the Philadelphia area in a $106 million deal. [16]

In January 2018, Nicholas Bertram became the new President of GIANT/MARTINs. [17]

In November 2018 Giant-Carlisle announced that it would acquire 5 Shop 'n Save supermarkets from SuperValu, Inc. and operate them under its Martin's Food Markets banner. [18] In November 2018 Giant-Carlisle announced that it would acquire 5 Shop 'n Save supermarkets from SuperValu, Inc. and operate them under its Martin's Food Markets banner. [19] [20] In 2019, the GIANT also acquired one store from Ferguson & Hassler [21] and three stores from Musser’s Markets in Pennsylvania. [22]

In 2019, Giant began the rollout of a robotic assistant named "Marty" to all of its locations. "Marty" travels unassisted around the store and checks for hazards and reports accurate price checks. The addition of the robotic assistant to stores allows for employees to spend more time engaging with customers. [23]

In 2019, Giant introduced Giant Heirloom Market, a smaller store format designed for urban areas. The first Giant Heirloom Market location opened on January 25, 2019 in the Graduate Hospital neighborhood in Philadelphia. [24] Giant Heirloom Market has also opened locations in the Philadelphia neighborhoods of University City and Northern Liberties while an additional Philadelphia location is planned in Queen Village. [25] The Northern Liberties location also features an underground taproom. [26]

In August 2019, Giant announced it will be opening a two-story, 65,000-square-foot (6,000 m 2 ) flagship store in Center City Philadelphia as part of the RiverWalk development along the Schuylkill River. The store, which features dedicated shelf space for local vendors, an outdoor terrace, and a free parking garage, opened on March 19, 2021. [27] [28]

In February 2020, Giant Food Stores announced its plans to adopt a new name, The Giant Company, and update logos across its grocery retailer business locations. [29] In August 2020, following the re-branding campaign, the company introduced a new slogan "For Today's Table", with the focus on family values. [30]

Martin's Foods is a chain of supermarkets operating in Maryland, Virginia, West Virginia and western Pennsylvania. Like Giant stores, they are operated by Giant-Carlisle and are owned by Ahold Delhaize. The stores are generally identical to Giant-Carlisle stores. In 1998, when Ahold purchased Giant-Landover, some Martin's stores were closed and sold to other chains to comply with Federal Trade Commission regulations. These locations included stores in Frederick, Carroll, Harford and Cecil counties in Maryland, where the Giant of Landover name was seen as more dominant. However, two stores in this area, in Eldersburg and in Rising Sun, were not sold and continue to operate as Martin's to this day.

The chain, along with Giant-Carlisle, implemented the Bonuscard program in 2000. Around that same time, the chain began selling gasoline in front of its stores.

Since August 2020, the chain's new slogan is "For Today's Table". [30] "Quality. Selection. Savings. Everyday" and "We're with You" were previously used slogans. The majority of Martin's stores are open 24 hours, 7 days a week. Martin's is strong in its trade area, usually being first in market share.

The Martin's name originates from a small chain based in Hagerstown, Maryland. Giant-Carlisle purchased Martin's while expanding in 1968. The name, once known only in Hagerstown, was expanded into nearby Waynesboro, Pennsylvania Martinsburg, West Virginia Frederick, Maryland and Winchester, Virginia. The chain has since expanded further west into Maryland's Allegany County, into West Virginia's Jefferson and Mineral counties, into Virginia's Culpeper and Warren counties, and as far south as Petersburg, Virginia. The Martin's name was extended into west central Pennsylvania upon the purchase of corporate-owned Jubilee Foods stores these stores use the Martin's banner instead of Giant to avoid confusion with Pittsburgh-based Giant Eagle, which has stores in many of those same markets. Martin's now operates stores in Altoona, Duncansville, Connellsville, Indiana, and DuBois. Despite these locations being located relatively close to Pittsburgh, the Connellsville location is the only store located within the Pittsburgh metropolitan area, and Martin's currently has no plans to further expand there, mainly due to Giant Eagle's tight grip on the market there.

With the purchase of Ukrops Super Markets, Martin's moved even farther into central Virginia, with stores as far south as Petersburg and as far east as Williamsburg. Among the notable differences in the Richmond and Williamsburg stores were that they maintained the Ukrops recipes and brand in the bakery and prepared foods departments, and associates usually carried customers' groceries to their vehicles. These locations offered the Fuelperks branded fuel program instead of that offered at other Martin's stores. Martin's exited the Richmond metropolitan area in 2017, closing some stores and selling the remainder to Publix Super Markets. The latter was due to Ahold's merger with Delhaize Group, the parent company of Food Lion, which has several stores in the Richmond area, some of which were located in close proximity to the Martin's stores.

In 2018, the Giant became official grocer of the Philadelphia Phillies and in October 2019 the company became official partner of the Philadelphia 76ers. [31] [32] In 2018, GIANT also entered into a multi-year agreement with the Commonwealth of Pennsylvania and the Pennsylvania Department of Agriculture to become the official sponsor of the Exposition Hall at the Pennsylvania Farm Show Complex & Expo Center in Harrisburg. [33] [34] The Giant Company has been engaged in other charity endeavors such as the Please Touch Museum, the Children’s Hospital of Philadelphia and more. [35] [36] [37] [38]


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