business news in context, analysis with attitude

Published on: March 30, 2022

In my recent conversations on MNB with Albertsons CEO Vivek Sankaran and former PepsiCo CEO Indra Nooyi, they both touched on early work experiences that reminded me of an old saying from my acting days:  "There are no small roles.  Only small actors."  The lesson, I think, is relevant to retail.

Published on: March 30, 2022

The Wall Street Journal reports that "billionaire activist investor Carl Icahn is seeking two board seats at Kroger Co., pushing the U.S. supermarket giant to make changes among its pork suppliers and to address what Mr. Icahn said was a widening gap between worker and executive pay.

"Mr. Icahn sent a letter Tuesday to Rodney McMullen, Kroger’s chief executive and chairman, criticizing the way pregnant pigs are housed on farms that supply pork to Kroger’s stores, as well as the median pay for workers at the Cincinnati-based company."

The letter reads, in part:

"Thank you for the candid conversation on Friday. It remains clear, however, that our perspectives concerning Kroger are very much at odds. While I would always rather have peace than war, since today is the last possible day to nominate a slate of directors, we are planning to file two impressively qualified candidates by today’s deadline. These individuals have superior knowledge and experience relating to animal welfare and other ESG weaknesses, as well as dealing with rubber stamp boards that permit egregious wage gaps which are the major cause for poor worker morale. The wage gap between the CEO and median worker at Kroger is unconscionable. Our candidates will take our concerns about deplorable animal suffering and these wage gaps (and other governance problems) at Kroger seriously and add proper oversight.

"Our concerns regarding Kroger’s governance go beyond animal suffering and other terrible practices taking place at industrialized factory farms – that are supported by Kroger’s patronage. Kroger’s inaction towards creating meaningful animal welfare policies and verification methods is totally out of step with consumer desire and current legislation. The Board of Kroger is also completely tone-deaf to other growing ESG concerns, specifically that of providing a living wage to your employees. You’ve helmed a company that certainly has the gravitas to steer change, yet instead have condoned cruelty towards those who are the most defenseless.

"It is not my goal to tell you how to run Kroger operationally nor make money from my small investment and proxy campaign. However, I remain very troubled by the glaring oversight of needless distress caused by your company’s policies and see an opportunity to make a difference. At this point in my career, I view it as my mission to make changes where I can by doing what I do best, in areas that I consider to be glaring injustices. Your company is conducting itself in ways which are unconscionable with regards to animal cruelty and flagrantly side-stepping financial obligations to workers who don’t make a fair wage (while you received $22.4 million dollars in 2020). What is totally reprehensible is that you managed to personally profit from the extremely high margins caused by the pandemic while at the same time reneging on your 'Hero Bonus' promise to front-line workers. Heroes they are indeed, and while these workers risked their lives to keep America fed and Kroger’s business alive, the board allowed you to give yourself a staggering pay package while inexplicably removing the workers’ meager $2 dollar an hour raise. This mockery of meritocracy is the quintessential example of why capitalism and business get a bad rap and people are disillusioned with the American Dream."

The letter went on:

"Even in a hard-nosed capitalistic system like ours, it is obscene that a CEO makes 900 times what workers earn. It is truly difficult to point to anything comparable, even when considering the grave injustices in the early days of the Industrial Revolution. At Kroger, amazingly, it will take an average worker 20 years to make what the CEO earns in one week. In my 40 years of being an activist, I have never seen anything like this."

The Journal writes that Kroger "said in a statement that it isn’t directly involved in the raising or processing of any animals but that it regularly engages with advocacy groups and its suppliers to understand animal-welfare topics.  The company said its executive compensation is aligned with shareholders’ interests and mostly based on performance. Kroger said it has raised the average employee wage by 25% to $17 an hour over the past four years."

The Journal also notes that the animal welfare complaints are part of a broader effort by Icahn "to eliminate the use of gestation stalls, small crates that prevent breeding pigs, or sows, from turning around or interacting with other hogs on farms. Last month Mr. Icahn launched a proxy fight for two board seats at McDonald’s Corp., pushing the burger giant to require its own suppliers to change their treatment of sows.

"The use of gestation stalls is at the center of a debate over how pigs in the $43 billion U.S. pork industry are housed. The state of California, animal welfare groups like the Humane Society of the United States and Mr. Icahn have all been involved in pressing pork producers, restaurants and retailers to eliminate the stalls’ use, saying they cause hogs unnecessary suffering.  Pork producers and suppliers have said that moving away from them would raise meat prices by causing farmers to spend millions of dollars changing their operations, while creating supply-chain chaos and risking pigs’ health. Farmers have said the stalls keep sows, which can be aggressive, from fighting and injuring each other."

Published on: March 30, 2022

The Des Moines Register reports that in a 12-minute video posted to an internal communications platform, Hy-Vee CEO Randy Edeker addressed the recent layoffs of 121 corporate/headquarters employees by saying, ""The reality is, and I never lose sight of the fact, this office does nothing."

According to the story, "Edeker said that while 121 of its 1,534 corporate positions were eliminated, the company offered 102 of those staff members new positions as store managers.

"The company, he said, is primarily focused on filling 10,000 open jobs at retail stores across the company's portfolio. He said he found it 'offensive' that any Hy-Vee employee would not want to work a grocery store job.  'We started looking at where do we need to cut back in this office and shove people back out into retail,' Edeker said in the video.  'Our retail stores are the heart of Hy-Vee, and some people just simply see it being

beneath them to work at the retail stores. I think it's crazy, and I think that it's offensive'."

The story goes on:  ""Some people that we've moved out, we've offered them jobs,' Edeker said in the video. 'They don't want to take our jobs. They don't like our jobs. They don't want to work at retail, and if they don't want to work at retail, frankly, I don't want them to be a part of the company, and that's OK'."

The Register writes that19 people in technology-related jobs,  10 of whom were working from remote locations not in a Hy-Vee market, were not offered new positions.  ""We were given a list of people that our leaders of IT felt were not helping, that they were not good for the company, so we asked them to leave." Edeker said on the video.

Edeker also used the video to detail major cutbacks in Hy-Vee's online offerings:

"Soon, fewer stores in Hy-Vee's portfolio will offer Aisles Online pickup because, according to Edeker, the company makes "no money on what we process in e-commerce.

"Aisles Online first launched in 2015 at every Hy-Vee store in the company's portfolio. During the COVID-19 pandemic, Hy-Vee heavily expanded the service, which allows customers to shop for groceries virtually and schedule a pickup time … One reason for the change, Edeker said, is that in a 'post-COVID world,'  Aisles Online volume is about a third of 'what it used to be' … 'Frankly, it doesn't make sense,' Edeker said. 'The reality is we're just going to take the people that work at other stores, because we don't have enough people to run e-commerce ... and move those people to those other stores. We're not getting rid of anybody. We're going to move people to the power centers and just run the e-commerce out of those stores'"

Edeker added:  "nobody in the country makes money on e-commerce the way it is done today.  So we've got to figure out, how do we control the costs.  Some customers are not going to be happy, but strategically, there's no choice.  We probably literally waited about nine months too long."

Edeker also used the video to say that the company's foodservice operations will put a greater emphasis on breakfast and lunch, that Hy-Vee has not recovered foodservice sales lost during the pandemic, and that Hy-Vee has not been doing "a good job" with its Market Grille and Wahlburgers installations.

According to the story, "Hy-Vee officials declined to answer the Register's questions regarding the content of the video."

Published on: March 30, 2022

FMI-The Food Industry Association this week announced its annual Executive Leadership Awards, recognizing a half-dozen industry executives for what it called "masterful leadership in overcoming challenges of the rapidly evolving food industry."

•  Norman Mayne, CEO of Dorothy Lane Market, received the Sidney R. Rabb Award, for "excellence in serving the consumer, the community and the industry."

•  Jonathan Mayes, the retired senior vice president and chief diversity officer of Albertsons Companies, received the Esther Peterson Award for Customer Service.

•  Mike Stone, president and CEO of Mollie Stone's Markets, received the Robert B. Wegman Award for Entrepreneurial Excellence.

•  Neal Berube, the retired president and CEO of Associated Food Stores, received the Herbert Hoover Award for Humanitarian Service.

•  Todd Schnuck, chairman and CEO of Schnuck Markets, received the Glen P. Woodard, Jr. Award for Public Affairs.

•  Steve Cahillane, chairman and CEO of Kellogg Company, received the William H. Albers Industry Relations Award.

Separate and apart from the 2022 awardees, FMI CEO Leslie Sarasin offered a special tribute to the industry and its stewardship through the pandemic, acknowledging the entire industry with a 2021 Esther Peterson Award. Named after the person considered to be the first industry consumer adviser and a former adviser to presidents Kennedy, Johnson, and Carter, the Peterson Award recognizes "a lifetime of dedicated service and extraordinary contributions to consumers."

The awards were presented at FMI’s Midwinter Executive Conference Awards luncheon in Orlando.

Meanwhile,  the National Grocers Association (NGA) presented Randy Arceneaux, president and CEO of Amarillo, Texas-based wholesaler Affiliated Foods, with its Spirit of America Award, recognizing his "commitment to community service and government relations on behalf of independent grocers."

Arceneaux received the award during the Affiliated Foods annual shareholder meeting in Amarillo, Texas.

Published on: March 30, 2022

Random and illustrative stories about the global pandemic and how businesses and various business sectors are trying to recover from it, with brief, occasional, italicized and sometimes gratuitous commentary…

•  The United States now has had a total of 81,686,628 total cases of the Covid-19 coronavirus, resulting in 1,005,056 deaths and 64,876,974 reported recoveries.

Globally, there have been 485,726,078 total cases, with 6,158,117 resultant fatalities and 421,152,329 reported recoveries.  (Source.)

•  The Centers for Disease Control and Prevention (CDC) says that 76.9 percent of the total US population has received at least one dose of vaccine … 65.5 percent are fully vaccinated … and 44.8 percent have received a vaccine booster dose.

•  Axios reports that the US Food and Drug Administration (FDA) has authorized "a second COVID-19 booster shot for Americans age 50 or older on Tuesday … The agency cleared an additional dose of the Pfizer-BioNTech or Moderna vaccines in an effort to protect older Americans if there is another surge in infections.

"The authorization comes as communities across the U.S. are shutting down COVID testing and vaccination sites, despite warnings from experts that another wave caused by new variants could be coming soon."

The Washington Post adds:  "The shots, which can be given at least four months after a first booster dose, are not a permanent solution to the pandemic. But with a still-more-transmissible version of the omicron coronavirus variant becoming dominant in the United States, even a short-term immunity boost among those at risk of severe illness could provide a valuable layer of protection."

Published on: March 30, 2022

With brief, occasional, italicized and sometimes gratuitous commentary…

•  From the Seattle Times:

"Regulators with the state Department of Labor and Industries have cited and fined Amazon four times in the past 11 months — a total of $81,000 — for alleged violations of workplace safety laws, accusing the company of setting an unsafe pace that puts employees at risk as they quickly move package after package.

"The company disputes the violations, saying it sets a safe and comfortable pace of work and is constantly looking for new technologies and processes to keep workers safe in its warehouses and delivery stations. Amazon appealed the first three citations and plans to appeal the fourth.

"Those appeals, the start of an often lengthy legal process, don’t mean Amazon can continue operating as usual. But, for the most part, Amazon still is.

"Under Washington law, employers are required to address workplace safety violations even while an appeal is pending. Since issuing their first in a string of citations against Amazon last May, state officials say the company hasn’t done enough to satisfy their concerns and risks more injuries each day."

I'm sorry, but the idea that Amazon and Washington State are tussling over $81,000 in fines is almost laughable.  I did a little checking, and apparently it can cost as much as a half-million dollars - or more, considering the price of gas these days - to fill up a super yacht like the one Jeff Bezos owns.  Sounds to me like regulators are bringing a dull knife to a gun fight.

•  Benzinga reports that DoorDash Inc has announced a new partnership with BJ's Wholesale Club, allowing even non-BJ's members to "get same-day grocery delivery through BJs.com. The partnership covers all 226 BJ's locations in 17 different eastern U.S. states."

Unless I'm missing something, doesn't this mean that the $50 membership fee at BJ's has just become obsolete?   BJ's has something like five million members, so this deal potentially could take $250 million in revenue off its books.  I hope the non-members who buy from BJ's via DoorDash are able to compensate for that possible loss.

•  The Information this morning reports that "Gopuff, the instant-delivery company valued at $15 billion last fall, is preparing to lay off hundreds of employees, or around 3% of its global workforce, said a person with knowledge of the matter. The cuts are part of an effort to reduce annual head count costs by at least $40 million, said another person who was briefed about the move."

The layoffs, according to the story, "follow a hiring freeze earlier this month and the resignations of several key executives. The moves show how private companies, even those that raised billions of dollars last year, are looking to rein in expenses as investors increasingly favor companies with lower cash burn."

•  There was an announcement yesterday that energy company/c-store retailer bp and Uber Technologies have "a new global strategic convenience delivery partnership, extending their existing local arrangements to reach more consumers across the world. Together, the partners will offer a huge range of quality convenience products, including fresh and prepared ranges, from select retail locations.

"bp is the first convenience retailer to team up with Uber Eats on a global level and aims to have more than 3,000 retail locations available on the delivery platform over the next three years. The partnership supports bp’s goal of growing its access to customers and expanding its delivery footprint, in response to soaring demand for food, groceries and everyday essentials brought to the door.

"The new partnership covers retail sites in Australia, New Zealand, Poland, South Africa and the west coast of US. Sites in the UK and eastern US will be added to the app for the first time this year, with plans to launch in other European markets from 2023."

Published on: March 30, 2022

•  From the Washington Post:

"Americans continued to switch jobs at near-record rates in February, with 4.4 million workers leaving their positions in a historically tight labor market.

"Employers hired 6.7 million people that month while reporting 11.3 million job openings, according to a report released Tuesday by the Bureau of Labor Statistics."

According to the story, "The latest report builds on months of economic momentum, with U.S. employers adding a record 7 million jobs over the past year. The economy created 678,000 positions in February alone, sending the unemployment rate to a pandemic low of 3.8 percent, Labor Department data shows.

"U.S. adds 678,000 jobs in February, with labor market nearing full recovery from pandemic.

"That strong reading — which added to the Federal Reserve’s resolve to begin increasing interest rates this month — also has given new leverage to workers as they look for more-favorable working conditions and higher pay."

Published on: March 30, 2022

MNB reader Thomas Murphy had some thoughts about the acquisition of The Save Mart Companies, which operates some 200 stores in California and Nevada under the  Save Mart, Lucky California, and FoodMaxx banners, by private equity group Kingswood Capital Management.  (We noted here that Alex Wolf, the Managing Partner at Kingswood, has supermarket experience on his resume - he was part of the original Cerberus team that invested in Albertsons, and later founded Kingswood.)

I realize that the world is made up of those with capital and those without, with numerous levels between the top and the bottom.  This, in itself, will always drive consolidation…those without need it and those with it want more.  Some acquisitions work, some don’t…but without having done a scientific analysis, I would venture that a significant percentage of PE retail acquisitions are structured to do one thing … build investor value (usually at the cost of the employee base and the consumers).  They are frequently disasters.

I consulted for nearly 10 years with Save Mart from 2000 - 2010.  Bob Piccinini and his team were tight with the dollar, but were always focused on brand, employees and consumers…maybe only as a family business could be.  But I don’t see this Kingswood acquisition being a winner for any employee or customer … and maybe not the investors either.

By the way, Cerberus experience on the resume is not necessarily a glowing recommendation.  They have frequently managed to throw off cash for the investor at the expense of the brand, employee and consumer.

MNB reader Rich Heiland weighed in on Walmart's decision to stop selling tobacco products at some of its stores:

When we lived in Huntsville, TX CVS stopped selling tobacco products. East Texas is a big smoking area. I wondered how it would go. A few months later I was in the store and asked the manager what the impact was. His answer? "Surprisingly little." He said some customers he knew to be smokers still were coming in for other things. He added "the ones we lost probably weren't buying much other than cigarettes anyway." That's just one store but I suspect it might be the case elsewhere.

Another MNB reader wrote:

Unfortunately it is like bacon, people are going to find it and consume it, but I applaud their decision regardless.

Yesterday MNB took note of a Wall Street Journal report that "the Justice Department Monday endorsed legislation forbidding large digital platforms such as Amazon and Google from favoring their own products and services over competitors’, marking the Biden administration’s first full-throated support of the antitrust measure."

One MNB reader wrote:

Beyond the obvious that most large retailers do exactly what Amazon et al are doing – it’s called private label…

Prioritized placement and predatory pricing vis-à-vis brands is the norm…

What say you KC?

I say that I have been making exactly that same observation for months.