Southeastern Grocers Could be Facing ‘Worst of Times’
Southeastern Grocer LLC’s impending closures of multiple stores across its seven-state footprint and its reported layoffs of store-level personnel may indicate a company on the brink of financial distress as it tries to cope with a crowded competitive landscape and its own inadequate resources, according to longtime industry observer Burt Flickinger, of New York-based Strategic Resource Group.
Among the winners Flickinger identified in Southeastern Grocers’ eponymous market are Walmart, whose current team, led by President and CEO Doug McMillon and Walmart U.S. President and CEO Greg Foran, has negotiated significantly lower pricing in Florida; Aldi, which has undertaken an aggressive program of expansion ahead of the entry into the region of its European hard-discount rival Lidl; and BJ’s Wholesale Club, which has experienced "sensationally successful" sales growth in the area. Add to that the strong competition offered by powerhouses Publix and Kroger, a newly merged Ahold Delhaize that has regained its footing, and the rising threat of c-stores and dollar stores, and “there’s nowhere for Southeastern Grocers to source volume from,” noted Flickinger, as suppliers naturally prefer to invest with growing retailers.
On the plus side, he pointed out that the Jacksonville, Fla.-based company has “kept a lot of the best and the brightest” from its previous incarnations, but that may not be enough for a company that he described as “undercapitalized and under siege.” The problem, according to Flickinger, is what he referred to as “less enlightened” private equity firms that “look at putting money into a company as an expense rather than an investment.” With the Southeast overstored and in the midst of a price war, however, such investment is a necessity. Southeastern Grocers is owned by Dallas-based Lone Star Funds.
The Southeast itself, as Flickinger observed, is seeing the highest population and income growth in the United States, which could mean great opportunity for businesses, but which attracts “tremendous competition” to be overcome. Given such a scenario, Flickinger invoked Charles Dickens’ famous opening line in “A Tale of Two Cities”: “It was the best of times, it was the worst of times.”
A key indicator of Southeastern Grocers’ ability to survive in such a cutthroat environment, he said, is how well it performs during the crucial period between Memorial Day and Labor Day. If it does well, it should be able to recover its equilibrium going into the new year, but if it proves to be a soft summer for the grocer, that could spell ultimate disaster. Flickinger summed up his expectations regarding Southeastern Grocers’ chances of success as “hoping for the best, fearing the worst.”