KROGER

BANNERS:  Baker’s Supermarkets, Bi-Lo Discount Foods, City Market, Dillons, Food 4 Less, Fred Meyer, Fry’s Food & Drug, Fry’s Marketplace , Gerbes Supermarkets, Hilander Food Stores, JayC Food Store, Kessel Food Markets, King Soopers, Kroger, Owen’s, Pay Less Supermarkets, Quality Food Centers (QFC), Ralphs, Smith’s (list not exhaustive of all store formats).

The Kroger Company is the largest supermarket chain in the United States.  Ranking 26th on the Fortune 500 list for 2007, it is also one of the nation’s largest corporations in revenues and profits.  Kroger operates 2,491 supermarkets in 31 states under two dozen banners.  It also operates convenience stores, jewelry stores and food manufacturing/processing facilities, and its food store sales (not including fuel) account for 87 percent of the company’s total sales.  In 2006, the company built or acquired 38 new stores and closed 77 stores, resulting in a net decrease of 39 stores, but maintained the same total food store square footage as the previous year-end. 

The company employs approximately 310,000 full and part-time employees, a majority of whom are covered by a collective bargaining agreement. About 190,000 employees are represented by the UFCW.  

Sources: 2007 Form 10-K, 2007 Form 8-K, company website, 2007 Fortune 500 list.

Kroger continues to excel nationally
Kroger’s total and same-store sales are growing, with total sales in fiscal year 2006 at $66 billion, up 8 percent from 2005 sales of $61 billion. Same-store sales increased by 5.6 percent from 2005-2006, and by 5.1 percent from the first to second quarter in 2007 (excluding fuel).  Kroger’s 2007 performance has been solid thus far, with its overall sales from the first two quarters at $36.9 billion, growing 6.7 percent from the same time period last year.  Over the last eight quarters (Q2 2005 – Q1 2007), sales have risen steadily at 3 percent. Kroger’s continued sales growth and a gross margin increase is due partly to its ability to pass some rising food costs on to consumers, and lower shrink, distribution costs and advertising expenses. 

Kroger has also been able to keep operating costs under control, recovering from a net loss of $104 million in 2004, and earning a net profit of $958 million in 2005 and $1.1 billion in 2006.  Its net earnings for the second quarter of 2007 also increased to $267.3 million, or 28 percent, from the corresponding period last year.  The increased cash flow prompted a $1 billion share buyback authorization announced during the summer of 2007.

Stock earnings grew 16.4 percent from $1.31 per diluted share in 2005 to $1.54 per diluted share in 2006, with predictions of $1.64-$1.67 for 2007.  Bear Stearns called the first quarter of 2007 a “blowout” for Kroger, and rated it “outperform.”   General assessment by investors is to hold or buy Kroger stocks, with HSBC recently upgrading from Neutral to Overweight (meaning, it will outperform its industry).

Sources: 2007 Form 10-K, 2007 Form 8-K, Bear Stearns, Morgan Stanley

Kroger is competitive, even against ‘big box’ retailers

Kroger’s market share is strong, and the company is ranked #1 or #2 in 38 of their 44 major markets.  The sale and break-up of several competitors’ subsidiaries in Kroger’s markets might further strengthen its ability to gain market share. For example, Ahold sold Tops Friendly Markets in North Central and Northeast Ohio, and Greater Atlantic & Pacific Tea Company sold all Farmer Jacks in Michigan.  Kroger purchased 20 of the latter in the Detroit metro area, and also purchased Scott’s Food & Pharmacy in Northeast Indiana.

Kroger is holding its own in market share against discount super-centers.  Of the 34 major Kroger markets where discount super-centers (such as Wal-Mart) have a rank of #3 or greater in market share, Kroger’s market share across these markets has increased overall.  Kroger’s private label production and sales, and its new Marketplace format in Southern California and Fresh Fare format, the latter emphasizing quality perishables and “top-notch customer service,” might help the company maintain its edge. Additionally, Wal-Mart has slowed down in super-center growth.  

Sources: 2007 Form 10-K, MergentOnline, Kroger’s 2006 Fact Book (available online), Bank of America, Morgan Stanley

 
Kroger shows potential for long-term success
Industry analysts are optimistic about Kroger’s future, citing its stability, strong management, stable margins, and new customer data project that is “ revolutionizing its merchandising.”  CIBC calls Kroger the “premier player among large-scale American grocers.”

 

Sources: analyses from Bear Sterns, CIBC World Markets

SAFEWAY

BANNERS:  Safeway, Pak n’ Save Foods, Vons, Pavilions, Dominick’s, Carrs, Randall’s Food Markets, Tom Thumb, Simon David, and Genuardi’s Family Markets.

Safeway is a major player in the retail grocery industry, and is the 4^th largest grocery retail company in the U.S.  In 2006, the company reported $40.2 billion in sales. 

Safeway is a national presence, and the company operates 1,740 stores in 21 U.S. states (plus the District of Columbia) and five Canadian provinces.  In the U.S., the greatest concentration of Safeway locations is in California (522 stores), followed by Washington (169 stores) and Colorado (124 stores).

Approximately 110,000 of Safeway’s 207,000 full-time employees are represented by the UFCW.

Safeway is a highly profitable and growing company

Safeway is one of the most profitable grocery retailers.  In 2006, Safeway had profits from operations of $1.6 billion.  Its bottom line of $871 million for 2006 works out to 2 cents per dollar of sales, which is competitive by industry standards.  

Safeway is investing heavily in growth, remodeling, and brand image. In 2005, they invested $1.4 billion in building new stores and remodeling existing stores, and $100 million in a marketing campaign to improve the image of its private label goods. Management attributed Safeway’s 4.6 percent sales growth in 2006 to its “marketing strategy, lifestyle store execution and increased fuel sales.”  The lifestyle model is a strategy of renovating stores to focus on upscale products, fresh produce and deli departments. 

In addition, Safeway’s new gift card business called Blackhawk Network is expected to strengthen the company’s profitability in upcoming years.  Analysts agree that Safeway will continue to benefit from these investments.  Morgan Stanley upgraded Safeway’s rating in December 2006, saying that it expects the company’s “core grocery store to continue to deliver solid results in 2007” and they predict a 12 to 15 percent Earnings per Share growth rate over the next five years.

Safeway is standing up to the Wal-Mart competition

Safeway has shown strong growth in sales. Overall, sales grew by 5 percent between 2005 and 2006, from $38.4 billion to $40.2 billion. Over the last ten years, their sales more than doubled, from $17.3 billion to $40.2 billion.  

Safeway is holding its own against Wal–Mart in its key market—California—where nearly one–third of their stores are located. According to Bank of America analysis, "Safeway holds strong market positions in key California metro areas, which we believe Wal–Mart will continue to struggle to penetrate."

Safeway had same-store sales growth (defined as growth in sales over a year at stores that have been open all year) of 3.3 percent last year, a dramatic improvement over the 2004 same-store sales growth of less than 1 percent.  Management expects same-store sales to continue growing by about 3 to 4 percent a year.  

A bright future is in store for Safeway

Safeway reported operating profits of $392 million for the first six months of 2007 and the outlook continues to be positive.   According to Safeway CEO Steven Burd, “the outlook for 2007 and beyond is quite bright for Safeway.”

SUPERVALU

BANNERS:  Acme, Acme Express, Jewel Express, Albertsons Express, Farm Fresh Fuel Express, Albertsons, Bigg’s, Bristol Farms, Cub Foods, Farm Fresh Food & Pharmacy, Hornbacher’s, Jewel and Jewel-Osco, Lazy Acres, Lucky, Osco and Save-on Pharmacy, Save-A-Lot, Shaw’s, Shop’n Save, Shoppers Food & Pharmacy, Star Market, Sunflower Market, and Supervalu Pharmacies.

After acquiring almost half of the former Albertsons stores, Supervalu is the second largest grocery retailer in the U.S.  Supervalu doubled its sales and tripled its operating profit in the last year, and gained immense market strength from the acquisition.  Continued growth can be expected as former Albertsons stores become further integrated into Supervalu’s business.

Supervalu has 2,464 retail operations in 40 states, with 878 in-store pharmacies and 121 fuel centers.  The Supervalu wholesale operations consist of 24 distribution centers, serving approximately 5,000 retail endpoints.  They are the primary supplier for more than 2,200 stores, not including their own stores.  

Approximately, 101,000 of Supervalu’s 191,400 employees are represented by the UFCW.

Supervalu enjoys increasing financial success after Albertsons purchase

In FY 2007, the first full post-acquisition fiscal year, Supervalu reported $37.4 billion in annual sales and an operating profit of $1.3 billion.  In 2008, the estimated savings from combining merchandising and distribution across the original Supervalu operations and the acquired Albertsons operations will be $150 to $175 million.

Supervalu continues to realize merger-related gains every quarter and the post-merger gains are in line with analysts’ expectations.  The retail side of Supervalu’s business showed even larger growth because of the acquisition of Albertsons stores.

The acquisition has changed the make-up of Supervalu. Prior to the Albertsons acquisition, approximately half of Supervalu’s sales were from retail, with the remaining half from wholesale operations. After the acquisition, retail constitutes about 75 percent of sales. Retail is a higher-margin business than wholesale, thus enhancing Supervalu’s profitability. After the acquisition, Supervalu also increased the number of in-store pharmacies and fuel centers, both of which have stronger comparable store sales growth than food retail, and this should help Supervalu reinvigorate its same-store sales.

Supervalu can compete well with Wal-Mart

Supervalu spent $927 million on capital improvements in FY 2007, primarily to fund retail store expansion and remodeling.  The company expects to spend $1.2 billion on similar initiatives in FY 2008.  According to analysis by Lehman Brothers, about 80 percent of their (pre-acquisition) stores have either been built or remodeled in the last seven years.  According to analysis by HSBC Global Research, the company is likely to derive considerable benefit in the near future from recent capital investments. Lehman Brothers believes that “the supply chain investments will not only benefit the wholesale business, but will also provide advantages on the retail side of the business….leading to a more efficient supply chain.” According to analysis by J.P. Morgan, “the Albertsons assets… purchased by Supervalu are the best of that company,” operating close to “industry-leading” operating profit margins.  HSBC Global Research concurs, stating that “Supervalu had the opportunity of taking its pick from the Albertsons flock.”

Supervalu has #1 or #2 market share in several major metropolitan markets, including Chicago (#1), Las Vegas (#1), Minneapolis-St. Paul (#1), Philadelphia (#1), Boston (#2), St. Louis (#2), and Virginia Beach/Norfolk (#2). Particularly in Chicago and Philadelphia, mismanagement of #2 competitor Safeway’s Dominick’s and Genuardi’s banners has strengthened Supervalu’s position.

Analysts concur that Supervalu is likely to maintain market share in spite of competition from Wal-Mart. HSBC Global Research believes that Supervalu’s “strong #1 and #2 market shares are largely immune to Wal-Mart.”  Many of Supervalu’s major markets, such as Chicago, Philadelphia, and Boston, are dense urban markets in which Wal-Mart has had trouble penetrating.

AHOLD

BANNERS:  Giant Food, LLC, Stop & Shop Supermarket Company, Tops Markets, LLC, Peapod LLC.

Ahold is a large multi-national grocery retailer with almost 3,500 stores in the U.S., the Netherlands, Lithuania, Latvia, Estonia, Czech Republic, and Slovakia.  According to Fortune Global 500, Ahold reported over $59 billion in sales, ranking the company 5th in the world in terms of revenue in the food and drug industry for FY 2006.

Ahold operates nearly 800 supermarkets in 11 states and the District of Columbia and provides Internet-based home shopping services in the major metro markets through a partnership with Peapod.  Much of the corporation’s sales are concentrated in the Northeastern area of the U.S.  Competitive operating costs and solid market shares have made Ahold the seventh largest U.S. grocery retailer with $24 billion in 2006 U.S. sales.   

Approximately 86,000 of the Ahold’s 127,000 U.S. workers are represented by the UFCW. 

Corporate fraud and mismanagement threatened the company in 2003

In 2003, shareholders discovered that Ahold’s U.S. Foodservice division – since divested - overstated its earnings by $800 million, which caused the company’s market value to plunge by two-thirds.  The accounting scandal prompted a number of operational changes, including a major divestment program. As a result, Ahold’s overall sales declined from $70.6 billion in 2003 to $59 billion in 2006.  Ahold settled a class action shareholder lawsuit against U.S. Foodservice for $1.1 billion in 2004.

Despite these challenges, Ahold has continued to enjoy dominant market shares in all of its major metropolitan markets.  Ahold operates in 10 out of the 50 largest metropolitan areas in the U.S., with the highest market share in six of these areas (including a greater than one-third share in four), and the second highest market share in the remaining four. 

Divestitures and new growth program resulting in positive changes

In the past few years, Ahold has restructured its operations by selling and purchasing numerous operations worldwide.  In November 2006, the company announced the sale of all Tops stores and U.S. Foodservice in the U.S., as well as its operations in Poland and Slovakia and its joint venture in Portugal.   Ahold’s financial performance reflected the company’s turmoil during this period.  According to a Deutsche Bank analyst, “it's clear that performance is likely to get worse before it gets better as (the program) gets rolled out to more product areas." 

However, its performance is recovering, and analysts are taking notice of the company’s gains.  According to an Amsterdam-based trader, “Happy days are here again for Ahold.”  In August 2007, the retailer exceeded expectations and reported robust second-quarter sales driven by increased demand at all its stores across the U.S. and the Netherlands.  The company’s total sales from continued operations in the second quarter of 2007 rose to $9.15 billion, up 2 percent from $8.97 billion in the same period last year, due in part to its divestiture of U.S. Foodservice and its Polish operations.  According to an analyst at SNS Securities, “Ahold is headed in the right direction…  changes in the U.S. are progressing and seem to be working,”

LOBLAW COMPANIES

1 President's Choice Cir.
Brampton, Ontario L6Y 5S5, Canada
   http://www.loblaw.com

Loblaw Companies Limited is the market share leader among Canadian supermarket operators.  Its corporate, franchised, and associated banners fly over more than 1,500 stores.  Trade names include Loblaws, Atlantic SaveEasy, Extra Foods, Fortinos, No Frills, Provigo, Your Independent Grocer, and Zehrs Markets. Its stores offer nearly 8,000 private-label products, including its President's Choice brand (featuring financial services, as well as traditional and organic grocery fare).  Loblaw is also Canada's largest wholesale food distributor.  Parent company George Weston owns about 63 percent of Loblaw's voting shares.  Sales in 2006 totaled $28.6 billion.  Approximately 68,876 of Loblaw’s 139,000 employees are represented by the UFCW.

WAKEFERN FOOD CORPORATION

600 York Street
Elizabeth, NJ 07207
   http://www.shoprite.com

Wakefern Food is the largest retailer-owned supermarket cooperative in the U.S.  The co–op is owned by 40 independent grocers who operate more than 200 ShopRite supermarkets in five eastern states, including New Jersey (where it is a leading chain). More than half of ShopRite stores offer pharmacies. In addition to name-brand and private–label products (ShopRite, Chef's Express, Reddington Farms), Wakefern supports its members with advertising, merchandising, insurance, and other services. Wakefern's ShopRite Supermarkets subsidiary acquired the assets of Florida–based Big V Supermarkets, which filed for bankruptcy in 2000.  Sales in 2006 totaled $7.5 billion. Approximately 24,266 of Wakefern’s 50,000 employees are represented by the UFCW.

THE GREAT ATLANTIC & PACIFIC TEA COMPANY

2 Paragon Drive
Montvale, NJ 07645
    http://www.aptea.com

The Great Atlantic & Pacific Tea Company, Inc. (A&P) is engaged in the retail food business, and operates about 335 supermarkets in eight states and the District of Columbia.  A&P sold its Farmer Jack chain in Michigan in mid -2007 and its Canadian division to METRO INC. in 2005. In addition to its mainstay A&P chain, the company now operates six other chains, including Super Fresh along the East Coast from New Jersey to Virginia, and The Food Emporium and Waldbaum chains in the New York and New Jersey areas.  A&P has agreed to acquire Pathmark Stores—its rival in the Northeast—for about $1.3 billion. Germany's Tengelmann Group owns 57 percent of A&P.  Sales for 2006 totaled almost $6.9 billion. Also for the same year, the total number of employees reached 38,000.  Approximately 18, 000 of A&P’s 38,000 employees are represented by the UFCW.

GIANT EAGLE

101 Kappa Drive
Pittsburgh, PA 15238
   PRIVATE HREF="http://www.gianteagle.com" MACROBUTTON HtmlResAnchor http://www.gianteagle.com

Giant Eagle is the number one food retailer in Pittsburgh.  It operates about 150 corporate and nearly 80 franchised supermarkets, as well as more than 100 GetGo convenience stores, throughout Maryland, Pennsylvania, Ohio, and West Virginia.  In addition to food, many Giant Eagle stores feature video rental, banking, photo processing, and ready-to-eat meals. Giant Eagle is also a wholesaler to the licensed stores and sells groceries to other retail chains. Chairman and CEO David Shapira is the grandson of one of the five men who founded the company in 1931, and the founders' families own Giant Eagle.  Sales for 2006 totaled $6.2 billion. Approximately, 15,182 of Giant Eagles 36,000 employees are represented by the UFCW.

ROUNDY'S SUPERMARKETS, INC.

875 E. Wisconsin Ave.
Milwaukee, WI 53202
   PRIVATE HREF="http://www.roundys.com" MACROBUTTON HtmlResAnchor http://www.roundys.com

Roundy's Supermarkets owns and operates about 150 grocery stores in Wisconsin, Illinois, and Minnesota under the names Pick 'n Save, Copps Food Center, and Rainbow Foods.  The company also operates Metro Market, a smaller-format store concept in Milwaukee that specializes in gourmet foods and features an in-store cafe. In addition to its retail operations, Roundy's has three distribution centers that serve a small number of independent grocers, as well as its own stores.  Founded in 1872 by a partnership that included Judson Roundy, the company is owned by private equity firm Willis Stein & Partners.  In 2005, Roundy’s generated nearly $3.7 billion in net sales.  Approximately 8,231 of Roundy’s 21,000 employees are represented by the UFCW.

PATHMARK STORES, INC.

200 Milik St.
Carteret, NJ 07008
    http://www.pathmark.com

Pathmark Stores, Inc., is a supermarket chain in New York, New Jersey and Philadelphia metropolitan areas, operating as a single segment. The company operated 140 supermarkets located in New Jersey, New York, Pennsylvania and Delaware in FY 2006.  Many of its stores are Pathmark Super Centers, which offer an expanded selection of general merchandise and foods.  Nearly all Pathmark Super Centers have pharmacies, and more than half have in-store banks. The supermarket chain briefly operated under Chapter 11 bankruptcy in mid -2000, emerging after two months as a public company and $1 billion lighter in debt.  The Yucaipa Companies, led by supermarket investor Ron Burkle, acquired 48 percent of Pathmark's shares in 2005.  A&P, Pathmark's rival in the Northeast, has agreed to acquire the chain for about $1.3 billion in a deal that will create a 550-store supermarket chain. Pathmark generated about $3.97 billion in net sales during FY 2006. Approximately 19,748 of Pathmark’s 22,400 employees are represented by the UFCW.

STATER BROS. HOLDINGS INC.

21700 Barton Rd.
Colton, CA 92324
    http://www.staterbros.com

Stater Bros. Holdings operates more than 160 full service Stater Bros. Markets in about six counties in Southern California, primarily in the Riverside and San Bernardino areas. The grocery chain also owns and operates milk and juice processor Santee Dairies (aka Heartland Farms), one of the state's largest milk processors. Founded in 1936 by twin brothers Leo and Cleo Stater, the company is owned by La Cadena Investments, a general partnership consisting of Stater Bros. chairman and CEO Jack Brown. In 2006, Stater Bros. generated nearly $3.5 billion in net sales.  Approximately 11,613 of the company’s 17,800 employees are represented by the UFCW.

RALEY'S INC.

500 W. Capitol Ave.
West Sacramento, CA 95605
 http://www.raleys.com 

Raley's operates about 130 supermarkets and larger -sized superstores, mostly in Northern California and Nevada.  In addition to its flagship, Raley's Superstores, the company operates Bel Air Markets, Nob Hill Foods (an upscale Bay Area chain), and about a half dozen discount warehouse stores under the Food Source banner. Raley's stores typically offer groceries, natural foods, liquor, and pharmacies. Founded during the Depression by Thomas Porter Raley, the company is owned by Tom's daughter Joyce Raley Teel.  During FY 2006, Raley’s reported that net sales totaled $3.4 billion.  Approximately 7,526 of Raley’s 15,000 employees are represented by the UFCW.

SAVE MART SUPERMARKETS

1800 Standiford Ave.
Modesto, CA 95350

Save Mart Supermarkets has doubled in size in California and Nevada as a result of its recent acquisition of 132 Albertsons supermarkets, and the company now operates about 255 grocery stores in California and Nevada.  Its supermarkets and warehouse stores operate under the Save Mart Supermarkets, S-Mart, and FoodMaxx names. Save Mart also owns distributor SMART Refrigerated Transport. CEO Robert Piccinini owns most of Save Mart, which was founded in 1952 by his father, Mike

Piccinini, and uncle, Nick Tocco.  Save Mart had sales estimated at $2.6 billion in 2006 and the acquired Albertson’s stores will add an estimated $2.4 billion.  Approximately 16,033 of Save Mart’s 23,000 employees are represented by the UFCW.

DIERBERGS MARKETS INC.

16690 Swingley Ridge Rd.
Chesterfield, MO 63017
  http://www.dierbergs.com

Dierbergs operates about 24 upscale supermarkets in the St. Louis area.  The company’s  stores offer food, drugs, photo processing, and video centers, as well as cooking schools, banks, self-service checkout, Krispy Kreme donuts, and made–to–order Chinese food at some locations.  Dierbergs Florist and Gifts, affiliated with FTD, offers gift baskets and floral services at its stores and over the Internet for local and international delivery. Founded as a trading outpost in 1854, the Dierberg family has owned and operated Dierbergs since 1914.  In 2006, Dierbergs had an estimated $447 million in net sales.  Approximately 3,484 of the company’s 4,126 employees are represented by the UFCW.

LUND FOOD HOLDINGS, INC.

4100 W. 50th St., Ste. 2100
Minneapolis, MN 55424
    http://www.lundsmarket.com

Lund Food Holdings operates about 20 Lunds and Byerly's upscale grocery markets in the Twin Cities area of Minnesota.  The company took its present form in 1997 with the merger of Lunds and Byerly's. Both chains specialize in gourmet, high-quality foods, with locations offering artisan breads, bakeries, a line of organic foods and natural products, wine stores, florists, catering services, housewares, cooking demonstrations, and community meeting rooms. Byerly's also runs a culinary school out of one of its stores. Lund launched an online shopping and home delivery service in 2006, and is adding pharmacies to its stores through a partnership with Minnetonka-based PrairieStone Pharmacy.  Lund generated an estimated $488 million in FY 2005.  Approximately 3,632 of Lund’s 4,500 are represented by the UFCW.

OVERWAITEA FOOD GROUP

19855-92A Ave.

Langley, British Columbia V1M 3B6,

Canada

Overwaitea Food Group (OFG) is Western Canada's leading grocery retailer, and operates about 125 supermarkets under the Overwaitea Foods, Save-On-Foods, Urban Fare, and Cooper's Foods banners, among others. In addition to large selections of natural and bulk foods, OFG's stores also offer private-label products (Western Classics, Value Priced, and Good & Kind).  Urban Fare's upscale markets are located in cities in Western Canada, and OFG's wholesale operation supplies nearly 1,800 grocery and convenience stores throughout Alberta, British Columbia , and Saskatchewan. OFG is a division of The Jim Pattison Group, Canada's third-largest private company, which reported total sales of $6.3 billion in 2006.  Approximately 8,853 of OFG’s 15,000 employees are represented by the UFCW.