DG's huge store expansion, Kroger's luck runs out, how not to load groceries in a car

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DG's huge store expansion, Kroger's luck runs out, how not to load groceries in a car

By Mike Troy - 12/10/2019
Dollar General plans to open 20 of its smaller format DGX stores in 2020, giving it a year end total of 30 locations.

With its best customer traffic and same store sales growth in nearly five years, Dollar General’s third quarter results revealed the strength of the American economy and the health of consumers. The lower income shoppers Dollar General serves are benefitting from a record low unemployment rate of 3.5%, relatively low fuel prices and wage growth. Those factors provide a strong tailwind and explain the company’s 4.6% same store sales increase. And with its 16,000 store footprint, Dollar General has become an economic bellwether the likes of Walmart.

“We continue to believe we operate in one of the most attractive sectors in retail and with the plans and initiatives we have in place, we are well positioned to drive continued growth in the years ahead,” said Dollar General CEO Todd Vasos.

The biggest of those initiatives is a lot more stores, 1,000 new units in 2020 compared to 975 this year, and a major increase in remodeling activity with 1,500 project planned compared to 1,000 this year. These are stunning new store expansion numbers in the digital age.

DG gets fresher, more convenient

Most of the remodeled stores feature an increased number of freezer and cooler units and by year end Dollar General will have added 40,000 freezer/cooler doors. Next year, it expects to offer fresh produce in 250 stores. Supporting the initiative is a new fresh distribution supply chain called DG Fresh which now includes five facilities and services 5,500 stores. Meanwhile, the company continues to expand its conventional distribution center network and recently added its 17th location in Amsterdam, NY.

Continued expansion and investment in older stores are the main drivers of growth, but 2020 will see a major expansion spurt for the company’s smaller format, convenience-oriented concept branded as DGX. After opening the first unit in early 2017, the pace of expansion picks up next year with 20 locations planned, leaving the company with a year-end total of 30 DGX stores and another step toward a potential new growth platform.

Kroger exits a business few knew it was in

Three years after Kroger made what it described as a meaningful investment in natural and organic retailer Lucky’s Market, the company is exiting the business and taking a pre-tax charge of $131 million. The news was announced in conjunction with the release of third quarter results last week which held few surprises since Kroger had recently held its annual investor conference. The move to exit the 35 unit Lucky’s chain is part of the company’s approach to be disciplined in its approach to capital allocation to improve return on invested capital and create sustainable total shareholder return, according to CFO Gary Millerchip.

Walmart president and CEO Doug McMillon

Walmart’s McMillon talks missed opportunities, future themes and crazy ideas

In a wide-ranging conversation with Barclays analyst Karen Short, Walmart president and CEO Doug McMillon shared new perspectives on playing catch up and missed opportunities to become what the company now wants to be. He was a featured speaker at the firm’s Gaming, Lodging, Leisure, Restaurant & Food Retail Conference. A transcript of the conversation is available and it’s always worth paying attention when the CEO of the world’s largest retailer shares a vision of where retail is headed. Do yourself a favor and check it out.

Speaking of transcripts...

One is available for The future of digital food retailing webinar Retail Leader hosted recently with IDC Retail Insights and Precima. The topic of conversationon centered on exclusive research and perspective on the industry's future direction. Check it out here.

Meijer's new concept opens Jan. 29 near Detroit.

INSIGHTS AND INNOVATION

 

Opening date set for Meijer’s second small format near Detroit

Small formats are all the rage in retail and the Detroit suburb of Royal Oak is where Meijer plans to reveal its latest handiwork. On Jan. 29, Meijer plans to open Woodward Corner Market, the second smaller format store for Meijer since it opened Bridge Street Market in its hometown of Grand Rapids in 2018. The 41,000-sq.-ft. new store will feature fresh and prepared foods, including bakery items, fresh meat and deli offerings; an estimated 2,000 local, artisan items, including Daily Dozen Doughnuts, New York Bagel and Bath Savvy Soaps. It will feature a Great Lakes Coffee coffee shop, an extensive beer, wine and liquor counter and an expansive international food aisle that will feature eight ethnic backgrounds. When the weather is warmer, six garage-style doors open to an outdoor fresh produce and floral area.

Flir's new Kobra robot is not who you want putting groceries in customers' cars.

Robotics hold promise for C&C, eventually

Technologies developed for the military and those appearing in movies have a way of becoming a reality. The 2002 movie Minority Report starring Tom Cruise is an often cited example as is the cartoon series The Jetson’s which first aired in 1962. Now a new robot from FLIR Systems, known as an unmanned ground vehicle, or UGV, shows what the future of material handling in retail could look like. Flir’s robot branded as Kobra can lift 330 pounds, reach up to 11.5 feet, works indoors and outdoors and maintains mobility in difficult terrain. The U.S. Army just ordered 350 Kobras at a cost of $109 million for use by the Army’s explosive disposal unit. At the current price, they aren’t practical for use in a retail environment, and from the looks of things shoppers won’t want the Kobra anywhere near their vehicle.

Ignite emerging brand incubator secures funding

Just as retailers are chasing after the small format opportunity, emerging brands are all the rage in CPG land. Now a trio of former Johnson & Johnson executives have secured $7 million in funding for their venture called Ignite Growth Brands, which is designed to help incubate, cultivate and accelerate emerging brands. The group was founded by Josh Ghaim, former chief technology officer at J&J, Jeff Smith, company group chairman of North America at J&J and Marc Schorpion, who served as VP of human resources for J&J’s R&D and external innovation group. “As more and more startups are jockeying for a strong position in the evolving health and wellness space, it is critical to provide these entrepreneurs not only with funding, but also the critical infrastructure so they can grow and thrive,” Smith said.

Customer obsession has its limits at Whole Foods

Amazon-owned Whole Foods Market may share its parent company’s customer obsession philosophy, except when it comes to the retail reality of needing to drive traffic to physical stores. That’s why it is requiring shoppers to visit its physical stores to take advantage of a 12 Days of Cheese promotion where each day from Dec. 12 to Dec. 23 a different cheese will be offered at half off. A customer obsessed retailer wouldn’t restrict shoppers’ method of purchasing the awesome cheeses by requiring a visit to a physical store.

The smell of innovation is in the air

Newell Brands home fragrance division, which includes the ubiquitous Yankee Candle brand, opened a 20,300-sq.-ft. innovation center to support its transition from being a candle company to a home fragrance company. “As we expand our market leadership in candles and significantly increase penetration in the adjacent categories, it is vital that we have this capability in-house to meet and exceed consumer and customer needs, desires and expectations,” said Daily Gist, VP of R&D at Newell’s home fragrance division. The facility employs 65 people, a huge increase from five just three years ago, and is three times the size of an earlier R&D facility co-located at a candle factory. Newell acquired Yankee Candle in 2015 as part of its acquisition of Jarden Corp., who two years earlier acquired Yankee Candle.

 

RETAIL LEADERS ON THE MOVE

 

The retail executive reshuffling season kicked off if grand fashion with a major move by Tractor Supply Company to name Macy’s president Hal Lawton, 45, as president, CEO and member of the board. Fast-growing Tractor Supply, operator of 1,814 stores, said Lawton would begin Jan. 13, and fill a position previously held by Greg Sandfort, 64, who is retiring after a lengthy career, including 12 years at Tractor Supply. Lawton spent a little more than two years at Macy’s, two years as an SVP at eBay and prior to that 10 years in various roles at Home Depot.

Fabian Garcia was named president of Unilever North America following the retirement of 30 year veteran Amanda Sourry. Garcia joins Unilever from Revlon on Jan. 1. Another key executive move involved the appointment Conny Braams to the role of chief digital and marketing officer. She previously served as EVP of Unilever Middle Europe.

“Conny Braams is one of our most successful and talented leaders, as well as a highly effective driver of change,” said Unilever CEO Alan Jope. “Her experience will be critical to the transformation of Unilever into a future-fit, fully digitized organization at the leading edge of consumer marketing.”

James Scully is filling in as interim CEO in addition to his role as chairman at apparel retailer J.Jill after Linda Heasley’s departure was announced. The operator of 280 stores reported a third quarter loss and a 7% same store sales decline. An 8% to 10% comp decline is forecast for the fourth quarter.

IN CASE YOU MISSED IT

 

The great Northwest beckons C&S Wholesale

Independent grocers in the Northwest have a new enabler of growth following C&S Wholesale Grocers announcement that it is expanding operations with a new warehouse in Troutdale, Oregon. The company said the state-of-the-art warehouse will open by the summer of 2020 but did not indicate its size. The company also recently opened a facility in Houston. “Earlier in the year, we started evolving our C&S Commercial Excellence organization to enable growth by becoming our customers’ partner of choice,” said Joe Cavaliere, C&S’ chief commercial officer. “Our expansion into this key geographic area is another milestone in our evolution.”

Same store sales at At Home, Big Lots, Michaels and Ulta

It’s never a good sign when a rapidly expanding retailer reports weak or declining same store sales growth. Comps are supposed to increase when store locations mature. That’s not the case with At Home, an operator of 213 large format stores that has roughly doubled its store count since going public in August 2016. Despite a very young store base, At Home posted a 0.8% first quarter comp decline, a 0.4 second quarter decline, and recently had its worst showing of the year with a 2% third quarter decline. Bad weather was blamed for weakness earlier in the year, but lately the reasons offered include poor holiday décor sales, a late Thanksgiving and a highly promotional holiday environment.

With 1,274 stores, Michaels Stores is the nation’s leading arts and crafts retailer, but its third quarter same store sales still declined 2.2%, gross margins slumped to 36.1% from 37.6% and profits declined to $60.1 million from $79.8 million, even when adjusted for several non-recurring expenses. The company is expecting a 2% to 3% fourth quarter comp decrease and cited the shortened holiday season as one of the reasons.

Big Lots said its third quarter sales increased 1.6% to $1,149 billion, same store sales were essentially flat and it lost $7 million, excluding a $136.6 million gain on the sale of a distribution center in southern California. Those aren’t great numbers, but analysts were expecting a lot worse so Big Lots shares surged more than 31% on Friday to close at $25.21.

Ulta Beauty remains one of the nation’s fastest-growing retailers and disruptive force in beauty care retailing. It opened 31 stores in the third quarter, bringing the full year opening total to 78 units and its total store count to 1,241. Sales increased 7.9% to nearly $1.7 billion and comps increased 3.2% on top of a prior year increase of 7.8%.

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