Showing posts with label John Mackey. Show all posts
Showing posts with label John Mackey. Show all posts

Tuesday, July 19, 2011

Whole Foods Market's Potential Irish Opportunity Dashed in A Flash; Musgrave Group Buys Superquinn

Pictured above is a Musgrave-affiliated 16,000 square-foot Supervalu banner supermarket in Virginia, County Cavan, Ireland, owned by the McEvoy family. The independent-owner-operators of the Supervalu store, which features full-service meat and seafood counters staffed with experienced butchers and fish mongers, along with an in-store bakery, service deli and post office branch, say 70-75% of the food items offered in the supermarket are grown and produced in Ireland.

Wholesaler Musgrave has a major fresh and local foods program, including private brands its developed, that's used by its Supervalu and other banner retailers, including the McEvoys. Superquinn, which Musgrove is buying, also puts a major emphasis on fresh and local foods in its 23 stores in Ireland. The two should be a good fit.

News/Analysis/Commentary

[Companion Story: July 18, 2011: The Superquinn Irish Sweepstakes Offers An Opportunity For Whole Foods Market On the Emerald Isle.]

Writing about breaking news and selling fresh foods have more in common than might first meet the eye. For example, both are extremely perishable and therefore are subject to having a short shelf life.

Such is the case regarding our story of less than 24-hours ago in which we suggested that Ireland's Superquinn supermarket chain, which went into financial receivership and for sale on the auction block yesterday, offered an opportunity for Austin, Texas-based Whole Foods Market in its efforts to grow its business across the pond.

What a difference a day makes tough.

Ireland's Musgrave Group, which is a family-owned grocery wholesaler and operates supermarkets in partnership with independent owners under the Supervalue, Centra and Daybreak banners in Ireland, along with the Budgens and Londis brands in Great Britain and Dialprix in Spain, said today it's buying Superquinn and that it would retain the grocery chain's 2,800 employees at its 23 stores in Ireland.

Chris Martin, Musgrave's CEO, said about the deal today: "Having come to this agreement with the Joint Receivers, we are excited by this opportunity. Purchasing Superquinn, when approved, supports our growth agenda and will sustain our competitiveness. We are looking forward to working with the Superquinn team to develop the future of the business."

Neither Musgrave Group or the creditors and receivers said how much the Irish grocery wholesaler-retailer is paying for Superquinn.

But the Irish Times reported today (here) that according to its sources Musgrave bought Superquinn for about €100 million, which if true is €350 million less than debt-ridden owner Select Retail Holdings paid for it in 2005 when it bought the 51-year-old supermarket chain from founder Fergal Quinn.

The paper also reported today Musgrave Group is buying a distribution center in Blanchardstown, Dublin and 11 properties around the city as part of the deal, which is included in the €100 million price tag.

In our piece yesterday we said Musgrave Group/Supervalue was one of the potential buyers for Superquinn. We didn't expect such a quick deal though, even though based on the confidence the bank creditors and receivers voiced in their statement yesterday it was clear discussion were already in the works with one or more potential buyers.

If Musgrave Group's purchase of Superquinn is approved by the Irish authorities, the retailer, which has a combined market share of between 23-24% with its Supervalu, Centris and Londis bane stores, will overtake United Kingdom-based Tesco as the leading food and grocery retailer in Ireland. Tesco has an about 27% share. Musgrave Group's will rise to about 29-30% with the addition of Superquinn's 23 stores in Ireland. The Supervalue brand (and stores) is the groery wholesaler's leading food and grocery retailing banner in Ireland with an about 19.5% market share.

We think Ireland's Competition Authority will look closely into Murgrave Group's purchase of Superquinn but  will approve it without much difficulty for two primary reasons. Those reasons are:

>Better to have a local retailer, Musgrave, buy another local retailer, Superquinn, than have one from outside Ireland do so. The two fastest-growing grocers in Ireland for example are the German hard-discount chains Lidl and Aldi.

>Musgrave's has pledged to keep all 23 Superquinn stores open and retail its 2,800 employees. That will be a tough promise for the group to make. But its music to the ears not only of the workers but of Ireland's politicians because the country continues to struggle with high unemployment.

In announcing the deal today Musgrave Group CEO Martin said: "Superquinn has been challenged by the scale of its debt burden and the difficult trading environment. This purchase secures the jobs of 2,800 people and on completion of the sale process, Musgrave intends to invest in the stores and work with the Superquinn employees to develop the future of the business."

Musgrave Group was founded in 1876 by brothers Thomas and Stuart Musgrave. Today it's Ireland’s leading food and grocery wholesaler/distributor, serving around 3,300 stores in Ireland, Great Britain and Spain.

The wholesale grocer reported sales of €4.4 billion for its 2010 fiscal year, with a pre-tax profit of €72 million. Sales for 2010 were 3% less than in the previous year. But the 2010 profit amount was 3% higher than the profit for 2009.

Musgrave also eliminated €59 million in debt which it started out with in 2010, closing the year with a net cash surplus of €21 million.

We expect Musgrave to keep the Superquinn banner because of the brand's strong standing and iconic status in Ireland.

We also expect the wholesaler to over time find independent grocer-owners for most or all of the 23 Superquinn stores because Musgrave Group's model and focus is to be a product wholesaler and value-added partner providing financial, operational, marketing, advertising and merchandising services and the like to its independents who own their own stores.

As for our story yesterday, although its shelf-life is already over in terms of timeliness for Whole Foods Market, unlike perishable fresh foods which go away when the sell-by date is up, the story remains useful perhaps as a case history, despite its short shelf-life as part of a breaking news story.

For example, Whole Foods' got its start in the UK, where it has just five stores, by acquiring four markets previously owned by Britain's Fresh & Wild chain. As we detailed in our story yesterday, the natural and organic-focused grocery chain plans to at least double its store count in the UK over the next five years by building new stores. It's signed leases for two new units in metro London thus far and soon will open a store in Scotland.

Perhaps Whole Foods Market, taking its UK origin (Fresh & Wild) and our case history example (Superquinn) as twin points of departure, should start thinking small acquisitions as well as organic growth in the UK and surrounding area, considering the retailer continues to say it's bullish on the region as one of its existing two (the other being Canada) markets outside the U.S.

Monday, July 18, 2011

The Superquinn Irish Sweepstakes Offers An Opportunity For Whole Foods Market On the Emerald Isle

Pictured above: Superquinn's newest supermarket, an urban unit below a residential complex, at Heuston South Quarter, St. Johns Road West, Dublin, Ireland.

News/Analysis/Commentary

A syndicate of banks, including the main debt-holders Bank of Ireland, AIB and National Irish Bank, announced today the 51-year-old Irish supermarket chain Superquinn is being put into financial receivership due to the struggling grocer's debts, which are said by its creditors to be in the range of €400 million, which is about $635 million based on today's Euro-to-dollar conversion rate.

The banks said in the statement today they've appointed Kieran Wallace and Eamonn Richardson of the KMPG accounting firm as the receivers.

The recievers' charge from the bank creditors is to find a buyer for the 23-store Superquinn supermarket chain, which was founded by Fergal Quinn in 1960 and sold by the family to the Select Retail Holdings consortium in 2005 for about €450 million (slightly more than the current debt-load), post-haste.

Here's what one of the receivers, Eamonn Richardson, said today: "The Group [Superquinn owner Select Retail Holdings], which has been operating in a tough trading environment, has been heavily indebted, primarily due to property related loans. Therefore, this receivership, together with the planned sale as a going concern is a positive development for Superquinn, its employees and customers. We hope to be in a position to release further details on a proposed sale in the coming days."

The statement also said Superquinn's current CEO, Andrew Street, will remain in charge of the supermarket chain during the receivership process.

The banks and receiver administrators added in the statement today they're "confident of a successful sale of the business to a suitable buyer with a view to maintaining the Superquinn brand, the existing Superquinn stores, all of the jobs in these stores, and the highly regarded Superquinn product and service offering."

That's a tall order. But we imagine the creditors would settle for any one element out of the four listed above if the acquisition price is right.

The Superquinn brand does have iconic status in Ireland. For readers in the U.S. or elsewhere unfamiliar with the Irish grocer, think Ralphs in Southern California or H-E-B in Texas, for example, two chains with decades of operation and solid brand equity.

Therefore, the buyer - say any of the UK's top grocers like Waitrose, Morrisons, Tesco, Walmart-owned ASDA or Sainsbury's, for example - will have a struggle in deciding whether to change the banner, although if a big chain does buy Superquinn, it would probably eventually change the banner to its own, regardless of what it does in the interim.

Superquinn says it has about 2,800 employees at its stores located throughout Ireland and at its headquarters offices.

The chain had 24 stores until 2009, when it closed its store in Dundalk. Superquinn also fired 400 employees the same year, including those who worked at the shuttered supermarket.

It's hard to say because of the heavy debt load, but in our analysis the two leading candidates to acquire Superquinn are probably the UK supermarket chains Waitrose and Morrisons. Of the two, Superquinn's up-market format and fresh foods-focus fit Waitrose best from a merchandising standpoint, in our analysis, although the fit is also a good one for Morrisons.

Tesco, which is the food and grocery sales market share leader in Ireland with a 27.1% share, according to the most recent figures (12 weeks ended April 18, 2011) from Kantar Worldpanel Ireland, might also be interested in acquiring Superquinn, although we believe the competition authorities would likely veto any such deal because of its dominance in the Republic.

Also from Tesco's perspective as the market share leader in Ireland, as it is in the entire UK, the cost-benefit analysis - 23 stores (14 of which are in the metropolitan Dublin area) with about €400 million in debt - makes little sense in terms of a Tesco buy, at least in our analysis.

Ireland's second-largest supermarket chain by market share, Dunnes, (23.6% according to Kantar) and number three Supervalu (19.5%), which isn't affiliated with the U.S. grocery chain of the same name, might also be interested in buying Superquinn, which according to Kantar Ireland has a 6.4% share of the national market, which is down from 6.9% last year.

However, in our analysis, competitiveness would also be a potential political issue for both chains, as would the simple fact Superquinn's heavy debt load might not justify buying a competitor grocer with a declining 6.4% market share, although that share is pretty good for 23 stores.

Walmart's ASDA chain and Sainsbury's, Tesco's top two competitors in the United Kingdom and which according to Kantar have a meager combined 1.5% market share in Ireland, might also be interested in Superquinn, although of the two we think Sainsbury's would be the more likely grocer to perhaps make a bid because of its closer fit (than ASDA's) from a merchandising standpoint with Superquinn. In fact, in our analysis Superquinn would be a good play for Sainsbury's if it can get a good deal.

Whole Foods Market's Irish Opportunity

But it's not just UK-based chains that Superquinn presents an opportunity for in our analysis.

For example, we think the Superquinn "Irish sweepstakes" offers an interesting strategic opportunity for Austin, Texas USA-based Whole Foods Market, which currently has just five stores in the UK, four of which it acquired when it bought the small Fresh & Wild chain a few years ago. The fifth store,Whole Foods' only built-from-the-ground-up unit to date in the UK, is its 80,000 square-foot High Street Kensington mega-market in London, which it opened in 2007. All five stores are in and around London, England.

Earler this year Whole Foods Market co-founder and co-CEO John Mackey said the natural grocery chain plans to at least double the number of stores it has in the UK over the next five years.

Thus far the natural grocer has signed two new leases in London's Richmond and Fulham districts, which is nearly half-way to that doubling. The two stores are scheduled for late 2012 or early 2013 openings.

Whole Foods Market is also opening its first store outside the London area soon, in the city of Gifnock, which is a fairly high-income suburb just south of the city of Glasgow. Walter Robb, Whole Foods' co-CEO, said in a talk given earlier this year we attended that additional stores are being planned in metropolitan Glasgow, Scotland.

The Texas-based natural and organic grocery chain has been struggling and losing money in the UK for years, although its getting closer to break-even with its operations there. In its fiscal 2010 year Whole Foods' lost £3.06 million (about $5.8 million) in its UK operations, which was down significantly from the previous year's loss of £4.36 million (about $7 million).

On top of that improvement, Whole Foods' mega-Kensington High Street store in London turned a profit for the first time since 2007 in the grocer's latest quarter, along with experiencing strong comparable store sales in the double-digits.

Whole Foods Market says its committed to expanding in the UK. In fact, last year co-founder/co-CEO Mackey  said publicly that if the natural-organic grocer had to choose between Canada and the UK - its two international divisions outside the U.S. - it would choose the UK.

Despite this commitment, Whole Food Market suffers from a lack of critical mass in the UK.

It's also not clear to us if Whole Foods' focus on London and the surrounding environs makes much sense, considering the competition from up-market grocer Waitrose, which offers a substantial selection of natural and organic foods and has a strong brand franchise in the UK. This geographical focus in fact is something Whole Foods agrees on in part, which is why it's expanding into Scotland - to geographically diversify.

In our analysis, Ireland, which shares a long kinship with the United States where Whole Foods is a huge success, is as good or better a potential market for the natural grocer as England or Scotland is.

And Superquinn, which shares numerous merchandising and operational elements with Whole Foods Market - a focus on fresh foods; local foods procurement, merchandising and promotion; natural, organic and specialty product offerings; a high-level of customer service; and more - is as good an acquisition fit as Whole Foods' could find across the pond, in our analysis, assuming it could get a good deal on the 23-store chain, considering the heavy debt-load it's carrying.

Superquinn operates as a conventional supermarket along with its specialty and fresh foods focus. This isn't something that fits Whole Foods Market's culture or strategy in the U.S. But Ireland isn't the U.S. And different countries often call for different approaches and strategies, including within those regions or nations.

For example, after it acquired chief rival Wild Oats Markets in 2007, it sold the then hybrid conventional-natural-specialty 30-plus-store Henry's Farmers Market chain to Southern California-based Smart & Final, giving as the reason that operating such a chain wasn't part of its culture or strategic plans. We suspect that might be the case with Superquinn, although it need not be.

But that wouldn't have to be a problem for Whole Foods Market were to acquire the Irish supermarket chain.

For example, under one scenario, it could keep all of the Superquinn units that make sense from a demographic and lifestyle perspective (Whole Foods' key data point in terms of store locations is percentage of college graduates and consumers who've attended college), change the banner to Whole Foods Market on those stores and sell off the remaining Superquinn markets, using the proceeds to help pay down the debt.

Another scenario, regardless of how many units it were to keep, would be to co-brand the stores using the iconic Superquinn brand in combination with the Whole Foods name - or keep the Superquinn name completely, which might be its smartest strategy.

Doing this wouldn't be unheard of for the grocer. For example, Whole Foods Market operates a few stores in the U.S. that don't have the Whole Foods Market name, including the Harry's Farmers Market stores in Georgia, which were acquired via acquisition a number of years ago.

The Harry's stores in fact are a hybrid conventional-natural-organic-specialty format. In other words there's precedent for the natural grocer's doing so.

Therefore, in our analysis it wouldn't be a stretch, and perhaps would be a wise move, for Whole Foods Market to operate the Superquinn stores, in this scenario, as a hybrid format, keeping the best of what the 51-year-old Irish chain offers and adding some of the best elements from Whole Foods, such as its focus on organics. Both Whole Foods Market and Superquinn put a major focus on fresh foods - produce, meats, deli, in-store bakery and fresh-prepared foods - which is a natural marriage.

We also think Whole Foods' decentralized culture and operations structure, particularly as it pertains to its UK operations but also the way it operates in the U.S., would serve it well were it to acquire Superquinn and operate it as a best-of-both-chains-type hybrid conventional-natural-organic-specialty food and grocery chain. It could retain many of the Superquinn people, who all have a local focus, and blend them with the Whole Foods' UK folks, who already understand the grocer's culture, for example.

Superquinn also operates an online ordering and home delivery business, which could allow Whole Foods Market to extend its business and sales on the Emerald Isle far beyond the 23 (or however many Superquinn units it would end-up keeping) brick-and-mortar supermarkets.

When Irish eyes are smiling

The Devil is always in the details when it comes to deals like Superquinn, particularly since the chain has a heavy debt-load, a declining market share and negative sales growth. Kantar Ireland's figures for the period described earlier have Superquinn with negative sales growth of about 5%, for example.

But it is also under such circumstances - heavy debt and a decline in market share - that good deals can also be made. In those cases ... God is in the details.

As far as Whole Foods Market - which recently announced its long-term strategy is to go from slightly over 300 stores currently in America to 1,000 units, which could easily more than triple the grocer's current annual sales of nearly $9 billion - goes outside the U.S. (a few stores in Canada and the UK), an acquisition of Superquinn and a presence in Ireland is certainly something the Austin, Texas-based grocer should seriously look into, in our analysis.

After all, from a historic and cultural perspective, is there really any better and more logical place for an American grocer to go overseas than Ireland, where nearly every resident either has a family member or friend who at one time or another has lived in the U.S?

Whole Foods Market is also a known brand name in Ireland because of the extensive travel and trade relationships between the two countries.

Like the U.S., Ireland is in an economic slump. But also like in the U.S., there continues to exist in Ireland a food and grocery retailing up-market. Superquinn offers a opportunity for Whole Foods Market to perhaps participate in that niche, as well as to jump-start its strategy across the pond and from there across the channel.

Like we said, both the Devil and God are in the details. But we do think Superquinn is worth a look for Whole Foods Market. After all, co-founder and co-CEO John Mackey's Irish eyes do remain clearly focused across the pond.

Saturday, September 18, 2010

Keep On Truckin' - Whole Foods Market Celebrates 30 Years This Weekend

Serendipity and Opportunity + Planning, Innovation and Hard Work = A Formula For Success For John Mackey and Whole Foods Market

Sometimes the light's all shinin' on me
Other times I can barely see
Lately it occurs to me
What a long, strange trip its been...

- Truckin' - The Grateful Dead (Listen to the song)

This weekend, Austin, Texas-based Whole Foods Market, Inc. is celebrating its 30th birthday. In a spirit similar to the lyrics above from the Grateful Dead song, Truckin', Whole Foods' 30-year journey has been a "strange trip," in the 1960's definition of the term. However, it hasn't been all that long. But in its fairly brief 30-year history, the grocer has achieved more, both quantitatively and qualitatively, than most food and grocery retailers do in a lifetime.

It was just 30-years ago, on September 20, 1980, when 25-year-old John Mackey, sporting bushy red hair and a matching mustache (see the link to the video below to see the young Mackey), and partner Renee Lawson Hardy, along with 19 store team members, opened the first Whole Foods store in Austin, Texas.

That first store wasn't even called Whole Foods Market. Instead, the name was 'Safer Way Natural Food Store,' a suggestion the market would be a "safer," alternative - as in offering healthier foods - the then, and still, giant supermarket chain with a similar name. That's pure Mackey. Iconoclastic from the start.
The first Whole Foods Market (banner) store, pictured above, came later, in 1981. (You can watch a video about the store here.)

Renee Lawson Hardy later left Whole Foods. But many others joined Mackey for his great adventure in natural, organic, healthy and upscale food and grocery retailing.

One of those who joined him, in 1989, is Walter Robb, who was named Whole Foods Market's co-CEO earlier this year.

The story of Robb's joining Whole Foods Market is worth telling, as it exemplifies the 'Serendipity and Opportunity + Planning, Innovation and Hard Work' formula, which in many ways sums up John Mackey's 30-year journey with Whole Foods, which next Wednesday will hit the 300 store mark. Those 300 stores are in 40 U.S. states. And in addition to the U.S., the natural/organic grocer, which now has $8 billion-plus in annual sales, has stores in Canada and the United Kingdom.

After owning his own small natural foods market, Mountain Marketplace, in Weaverville, in Northern California's north coast region for 10 years (1976-1986), then managing one of the two then popular (and now closed) Living Foods natural foods stores in Marin County for a couple years, Robb struck out on his own as an independent marketing and sales agent for various natural and organic foods companies in Northern California, where he lived. [Take a look at Walter Robb in the produce section of his Mountain Marketplace store.]

At the same time he acquired the lease on a plot of land in Marin County's Mill Valley. On the plot was a vacant metal Quonset Hut that was previously home to an independent butcher shop called Jerry's Meats. Robb's plan was to renovate the building and open his own natural foods store at the location.

But circumstances - and John Mackey - intervened. Mackey, chomping at the bit to expand Whole Foods Market further in Northern California, offered Walter Robb a deal: Sell the lease to Whole Foods, take charge of designing the store, and become its manager. Robb said yes. The store, the 14,000 square-foot Whole Foods unit on Miller Avenue in Mill Valley, opened in 1991, less than a year after construction started.

Robb went on to become the president of Whole Foods' Northern California region, a position he held for a number of years. He then was promoted by Mackey to a corporate executive position, then made Whole Foods Market's Co-president. Earlier this year Robb joined John Mackey as co-CEO. [See: Newly-Named Whole Foods Market CO-CEO Walter Robb Comes Full Circle With the Opening of the New Store in Mill Valley CA.]

This is classic Mackey. He saw an opportunity in Mill Valley - and in Walter Robb - who he was friendly with at the time, and brought him on board, getting Whole Foods' first store in Mill Valley as part of the deal. It was a deal good for both Whole Foods Market, John Mackey and Robb. The store on Miller Avenue has turned out to be among Whole Foods' top units in sales-per-square-foot. Robb turned out to be a good catch for Whole Foods. And Whole Foods has been very good to Robb.

Serendipity played a huge part as well. Had the stars been in a slightly different formation, Robb might have said no to Mackey, and opened the Mill Valley store as his own natural foods market. But opportunity, followed by planning and hard work, struck.

The corporate co-CEO arrangement has a history of being less than easy. That's one reason you don't see it often. But Mackey and Robb appear to work well together. Perhaps the history described above has a little to do with their good relationship.

The two co-CEO's, who balance each other well, were interviewed today by Austin, Texas television station KVUE for its evening newscast. You can view the two-minute video of the newscast piece here.

For its birthday celebration, Whole Foods has created a virtual shopping cart full of information about its first 30 years. At this link, you can view fact sheets, a photo album, which includes pictures of the 'Safer Way' store and the first Whole Foods Market banner store, videos and more, all charting John Mackey's and Whole Foods' grocery retailing journey over the last 30 years. We suggest looking through the materials. They're among the best we've seen a grocer produce for its birthday, be it a 30th or 100th anniversary.

Additionally, Whole Foods is holding a variety of special events and promotions for its 30th birthday this weekend. To see what's happening click here.

Fresh & Easy Buzz writes often about Whole Foods. You can read a selection of our stories here. (In an upcoming piece, we'll look at what the next 30 years might hold for Whole Foods Market.)

But our focus today, primarily, is to wish the innovative grocery chain - and founder and co-CEO John Mackey - a happy birthday.

Mackey, with Walter Robb now sharing the CEO duties, is still combining Serendipity and opportunity with planning, innovation and hard work. John Mackey also continues to speak out on various issues of the day, ranging from health care reform to labor unions and much more, from his Libertarian perspective

What's "in-store" next for Whole Foods Market? We'll let John Mackey tell you:

"We're going to do five wellness clubs where we're going to have intensive educational programs, a healthy dining club. Once you graduate from the club, you'll get a membership card that will give you discounts on produce and other really healthy items we sell."

Keep on Truckin'

The next 30 years should be very interesting for Whole Foods Market - and the grocery retailing business.

U.S. food and grocery retailing has been made better (and consumers have benefited too) - and far more interesting - having Whole Foods Market and John Mackey around for the last 30 years. May there be many more birthdays for the Whole Foods team.