Kroger expands online ordering to Lebanon store
Kroger associate Ashley Scharfenberg collects items for the new online shopping service at the Liberty Twp. Kroger store, Thursday, June 11, 2015. GREG LYNCH / STAFF
Staff Writer
LEBANON —
Tuesday, June 30, 2015
One year after walkout, Market Basket is thriving
Bitter family dispute didn’t stifle growth
JOHN BLANDING/GLOBE STAFF
Market Basket stores, such as this one in Burlington, are now well-stocked.
It no longer has two dueling Arthurs at its helm, raucous employee rallies, or board meetings fit for reality TV.
But in the year since Market Basket’s near meltdown over a feud between two cousins, at least one thing at the Tewksbury-based grocery chain hasn’t changed: its ability to make money, lots of it.
The company is on track to record total revenues of about $4.8 billion in 2015, top executives say, the most in its nearly 100-year history. It is also in expansion mode, opening five new stores in the last year, some with upscale accents such as massive gourmet cheese islands, expanded organic food offerings, and outdoor cafe seating. Two new stores are under construction in Plymouth, Mass., and Rochester, N.H.
“Our business model is completely intact, and we’re running the shop with a lot less distractions,” Market Basket’s president and chief executive, Arthur T. Demoulas, said in an interview with the Globe. “We certainly see growth in the future — not just those two stores [in Plymouth and Rochester] but other locations we’re in discussions with.”
The company’s strong performance comes despite a slump of $405 million in sales amid an employee walkout organized last summer in protest of Arthur T. Demoulas’s firing as president and chief executive by a board controlled by his first cousin, Arthur S. Demoulas, and other rival family members.
The walkout severed the company’s supply chain and left its store shelves empty throughout New England for weeks as the Demoulas family struggled to resolve its 25-year feud over the company.
In buying full control of Market Basket from his relatives last August, Arthur T. Demoulas was forced to borrow about $1.6 billion. Analysts at the time predicted the debt burden would force Market Basket to either back away from its discount pricing model or curtail its unusually generous profit-sharing plan for employees.
‘Our business model is completely intact, and we’re running the shop with a lot less distractions.’Arthur T. Demoulas, Market Basket president and chief executive
But so far, executives say, neither has happened. More than $129 million was handed out in employee bonuses and profit-sharing contributions in the past year, which is on par with prior years. And the consumer research firm Nielsen found, in a June report on supermarket pricing, that the company’s groceries were 15.9 percent cheaper than its competitors’ in the first six months of 2015. That’s nearly a full percentage point better than the same period in 2014.
“The whole fiasco last year has done nothing but increase its business,” said Kevin Griffin, publisher of the Duxbury-based Griffin Report of Food Marketing. “It increased curiosity about the company and strengthened existing customer loyalty.”
Market Basket, with 75 stores across New England and a 4 percent market share in the Northeast, continues to grow sales despite the competition from an ever-growing list of food sellers. Wegmans, Whole Foods, and Trader Joe’s have all expanded in the region, and department stores such as Target and Walmart pose significant competition in the discount grocery market.
Last week, the Dutch parent company of Stop & Shop supermarkets struck a $10.4 billion deal to buy the conglomerate that owns Hannaford Bros. Co., a move that could boost its buying power and profit margins.
But while those and other grocery retailers battle to maintain their positions in the industry, privately owned Market Basket appears to be gaining strength.
SUZANNE KREITER/GLOBE STAFF/FILE
Last summer, the shelves at the Burlington Market Basket weren’t fully stocked — they were pretty bare.
Its new store in Waltham has a decidedly upscale feel, featuring an explosion of landscaping and outdoor seating under a pergola where shoppers can dine on everything from panini to eggrolls to gelato. Demoulas and other executives said the company is trying to freshen up stores with larger prepared food sections, modern designs, and more variety.
After being reinstated and taking control of the company last summer, Demoulas revamped the company’s board of directors, reducing its size from seven to five members. He also appointed directors who share his management philosophy.
Previously, the board had been controlled by his first cousin, Arthur S. Demoulas, who constantly battled with Arthur T. Demoulas and other managers on real estate and financial matters, often leading to explosive confrontations at meetings.
“The new board does not disrupt the flow of the company, and it’s working well for the whole organization,” Arthur T. Demoulas said. “You can conduct constructive discussions and talk about positive business issues that move the company forward in a very simple way.”
Market Basket has preserved its position in the region’s grocery industry in part by sticking to its formula of maintaining clean stores, friendly customer service, and low prices without the hassles of loyalty cards and other membership programs.
The company delivers low prices and substantial profits by running on a smaller corporate staff, buying a consistent array of products in large quantities, and maintaining an experienced and extremely loyal workforce.
A large part of its formula has also been avoiding debt. But even with the recent borrowing, Demoulas said the company has not been forced to increase prices or cut employee compensation. It is unclear whether the additional debt will affect profits.
“We have a solid financial structure and favorable interest rates, and quite frankly we’re well ahead of schedule in paying down the principal on the debt,” Demoulas said. “The most important thing we were able to achieve in this past year is maintaining our competitive pricing model while providing the same level of service and type of quality.”
PAT GREENHOUSE/GLOBE STAFF
Market Basket operations manager David McLean said the chain is expanding its healthy food and prepared food offerings.
In the past year, Market Basket followed through on prior plans to open five new stores in Revere, Waltham, Attleboro, Athol, and Littleton. It also started construction on the stores in Plymouth, Mass., and Rochester, N.H. Company executives would not disclose plans for further expansion, other than to say several new store locations are under discussion.
The company has also kept busy renovating and modernizing its stores, and it is adding larger prepared food sections and healthy food options to keep up with surging demand in those categories.
“Healthy foods is the largest area of growth right now. We’re expanding organic food offerings and gluten-free products,” said David McLean, operations manager for the 26,000-employee company. McLean added that the chain has expanded prepared food sections in three stores and is currently renovating four others.
Business experts said Market Basket, more so than other supermarket chains, must be in perpetual growth mode to keep opportunities flowing to the loyal suppliers and longtime employees who are keys to its success. Expansion also brings in new customers and community stakeholders.
“They make sure that everyone is benefiting a little bit, and that in my eyes is the magic of Market Basket,” said Daniel Korschun, a Drexel University business professor and coauthor of the book “We Are Market Basket.”
“They look at all the pieces working together, rather than looking at one customer or one supplier in isolation,” he said. “That’s a very hard thing to do, and Market Basket does it better than anyone.”
Overall, sales are up 3 to 4 percent so far in 2015, McLean said, which is at least a percentage point better than average annual sales increases in the industry. In 2014, Market Basket collected about $4.1 billion in sales, even with the six-week shutdown that cost it $405 million.
This year, it is projecting total sales of about $4.8 billion, proving that last summer’s disruption did not erode its customer base.
“That was really the great unknown,” McLean said. “We had experienced a 92 to 93 percent loss of sales, so people were asking whether the customers would come back. Well, not only did they come back, we are seeing a lot of new faces.”
Monday, June 29, 2015
Instacart is asking its customers to do something new
The grocery delivery service has premiered a new feature that some customers may want to avoid.
Grocery delivery service Instacart recently premiered a new feature asking users to share their personal data and shopping histories with retailers.
One of the darlings of the on-demand economy, Instacart lets customers order groceries online from stores like Whole Foods, Safeway, PetCo, and Costco. Instacart does the shopping and then delivers the items to the client’s door within a matter of hours.
Now Instacart is giving at least one retailer — Whole Foods — the ability to collect data from Instacart’s customers. People who order from the grocery store chain get a message asking whether they want to share their personal data including their names, email addresses, home addresses, current and historical order details, and phone numbers.
It’s unclear what Whole Foods WFM -0.77% plans to do with the information. But brick and mortar retailers are pushing to learn as much as they can about shoppers — especially ones they have no direct relationship to — so they can better personalize any coupons, ads, and emails.
Instacart confirmed the new data-sharing feature, which debuted earlier this month, but declined to disclose any additional information about it including whether retailers pay for the data. It’s also unclear whether Instacart shared data with retailers prior to introducing the new feature, but without telling customers.
In the company’s online FAQs, Instacart pointed out that retailers decide individually how much data they want and that any that they do obtain will be subject to their privacy policy. Some retail partners are unable to participate in the opt-in feature, according to Instacart’s online policy.
Whole Foods is Instacart’s largest retail partner, and last year, the two companies signed a deal that let Instacart’s employees work full-time in the grocery giant’s stores to speed up delivery.
If retailers pay Instacart for the consumer data, it would mark another way for the delivery service to grow revenue to justify its recent $2 billion valuation. The New York Times reported in April that Instacart’s gross revenue topped $100 million in 2014. At the time, the company declined to reveal whether it is profitable.
Instacart, which is available in 15 U.S. cities, makes money by charging grocery stores a fee to set their own price for groceries they sell through Instacart. Some grocery stores also pay Instacart a commission for each order.
Sysco Walks Away From US Foods Merger
Scrapping of deal comes days after federal judge halted the transaction
Sysco Corp. tractor trailers sit parked outside the company's distribution center in Louisville, Ky., in April. PHOTO: BLOOMBERG NEWS
Sysco Corp. on Monday said it abandoned its planned purchase of rival US Foods Inc. following a federal judge’s ruling against the deal, forcing the food-distribution giant to find a new strategy for its future that is likely to include smaller acquisitions.
Among its plans, Sysco said its board authorized new purchases of $3 billion of its own stock over the next two years, equal to about 13% of its total shares outstanding at recent prices.
U.S. District Judge Amit Mehta in Washington last Tuesday issued a preliminary injunction against the deal on concerns it could hurt competition, after the Federal Trade Commission filed a lawsuit in February challenging the transaction on antitrust grounds.
RELATED
- Federal Judge Halts Sysco-US Foods Merger (June 23)
- Sysco Buys Rival US Foods for $3.5 Billion to Create Food-Distribution Giant (December 2013)
- FTC Files Lawsuit Challenging Sysco-US Foods Merger (Feb. 20)
- Sysco, US Foods to Face Off Against FTC at Hearing (May 3)
- US Foods Will Kill Sysco Deal if Court Delays Merger, Executive Says (May 11)
- Judge Presses Both Sides in Battle Over Sysco Merger (May 28)
“After reviewing our options…we have concluded that it’s in the best interests of all our stakeholders to move on,” Sysco Chief Executive Bill DeLaney said in a statement Monday. “However, we are prepared to move forward with initiatives that will contribute to the success of Sysco and our stakeholders.”
“We will continue to make prudent investments in our business,” Mr. DeLaney said, adding that Sysco would “continue to look for strategic acquisitions.” The company said it would fund the planned stock buybacks through a combination of new borrowing and cash flow from operations. Mr. DeLaney said Sysco expects to be able to eliminate or avoid more than $750 million in annual product and operating costs.
Related Video
A federal judge ruled in favor of the Federal Trade Commission and blocked a merger between Sysco and US Foods on antitrust grounds. WSJ’s Brent Kendall joins Lunch Break with Tanya Rivero. Photo: AP
Many investors seem sanguine about the outcome. Sysco shares rose 1.6% early Monday after gaining 2% last week following the court’s ruling, which came shortly after markets closed on Tuesday.
Monday’s announcement eliminates what has been Sysco’s core strategic plan for the future for at least the past 18 months, since the deal to buy US Foods for $3.5 billion was announced in December 2013. Sysco, which provides food and other supplies to restaurants, hotels, and other clients, had said that combining with its largest rival was vital because it would help the companies reduce costs and pass along those savings to customers, improving Sysco’s shrinking profit margins and helping it compete with newer and smaller rivals.
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The failure has immediate as well as long-term costs. Sysco must pay US Foods a $300 million breakup fee, on top of at least $355 million Sysco already had spent on integration planning, attorneys and other merger-related costs as of the end of March. Sysco said it also will pay a $12.5 million breakup fee to Performance Food Group to terminate an agreement to sell it some of US Foods’ assets if that deal had closed.
Sysco could have appealed the judge’s decision, but Sysco’s Mr. DeLaney had hinted at a conference earlier this month that it would likely spend the summer coming up with a new three-year plan for the business if the court ruling didn’t go its way.
“While there is a tremendous strategic fit here with US Foods, this was not a bet-the-company type of deal for us,” Mr. DeLaney said at the conference. “The savings will not be as great as what the synergies would have been,” but, he added, “there’s actually some things that we can probably do a little faster without the deal.”
At a board meeting Friday, Sysco executives recommended to directors that they approve a plan to dismantle the US Foods plan and take another route. That will likely entail smaller acquisitions and expansion into markets where it couldn’t have gone had it been digesting US Foods and its some $20 billion in annual sales.
Ahead of Monday’s announcement, Andrew Wolf, an analyst at BB&T Capital Markets, said smaller acquisitions could help Sysco get into the business of selling ingredients to grocery stores for their prepared foods and delis, which makes up about 10% of food-distribution sales. “After decades of eschewing grocery stores for their relative [small size] versus restaurants, Sysco appears to be more focused on trying to serve this growing part of the market,” Mr. Wolf said.
“We had always seen risks with combining two large companies, particularly as Sysco continues its own process of better leveraging its size and scale,” said Morgan Stanley analyst Vincent Sinisi.
Still, not everyone is confident Sysco can bounce back from this. “Plan B” sends the company back to its yearslong cost-cutting plan that was put on hold when US Foods approached it about a merger in late 2013.
“This plan B is not that compelling to us,” said Guggenheim analyst John Heinbockel.“Sysco has embraced cost-reduction efforts before without much bottom-line benefit.”
In Judge Mehta’s more-than-100-page decision, released Friday, he said the Sysco-US Foods tie-up was the type of large combination that lawmakers were concerned about long ago when they gave the government the power to halt mergers.
“The proposed merger of the country’s first and second largest broadline food service distributors is likely to cause the type of industry concentration that Congress sought to curb at the outset before it harmed competition,” the judge wrote.
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