The Flickinger Files Part 3: H-E-B, Bi-Lo Holdings, A&P

By Burt P. Flickinger III, managing Director, Strategic Resource Group

Editor's Note: An interesting past year has given rise to some subtle yet significant changes on the latest edition of Progressive Grocer’s annual Super 50 ranking of the top grocery retailers. With this in mind, PG enlisted retail food industry expert Burt P. Flickinger III, managing director of Strategic Resource Group, to share candid observations and in-depth insights about select retail newsmakers on the annual retail leaderboard. His assessment of nine retailers – which are segmented into four parts and which draws on his personal and professional opinions and years of research, as well as from archival data contained in the 10th anniversary of PG’s Super 50 in 1975 – appears in a new PG online exclusive feature, The Flickinger Files.

H-E-B Grocery Co. – ranked No. 6 on PG's Super 50

Twenty five years after Sam Walton and Walmart tried to lay waste to H-E-B in Texas in a "store war" that resembled the food retail reenactment of the Battle of the Alamo, H-E-B is the winner from Mexico to the Southwest. After some of the fiercest price wars in the history of retail, all consumer constituencies clearly prefer H-E-B over Walmart, as well as a range of other national and regional food and drug competitors in the Lone Star State.

Charles Butt has built the best leadership team of all the privately held retail chains with seminal retail leaders like Fully Clingman, Bob Bolinder, Steve Harper and Bob Chapman to take H-E-B Grocery from the fourth largest grocer in Texas on the 10th Anniversary of Progressive Grocer’s Top 50 (1975) to the fourth largest U.S. headquartered food retailer and the sixth ranked retailer overall on PG’s 50th Top 50 Anniversary (2015). H-E-B has consistently impressive innovation ranging from formats to in-store departments to customized and flex assortments.

H-E-B's leaders are great both intramurally, as well as the best in retail relative to every type of chain stores. Suzanne Wade's team's achievements are particularly impressive, and Martin Otto has been a peak performer in finance and strategic planning to leading edge merchandising.

H-E-B's private brand portfolio development is some of the best in the U.S. and its 360 degree efficiency from manufacturing to retailing ranks among the best in the industry.

Starting 50-plus years ago, every Sunday after church, my father, Burt Jr. and mother, Dr. Bonnie Flickinger, would take my sisters and me either to McDonald’s for lunch or Freddie’s Original Doughnuts factory and quiz us first on what we learned in Sunday school followed with a discussion of what was new and better in each of Progressive Grocer’s “Store of Month” – required Saturday reading afternoon after work – as well as who was growing and why.

Aside from H-E-B, Clyde Smith's Smitty's Town & Country superstores in Arizona, John F. Schwegmann's giant New Orleans food emporiums (up to 255,000 sq. ft.) – which was everything that Sam Walton copied at Walmart for decades – Hannaford, Kroger, as well as the range of great food retail entrepreneurs from Andy Balducci's original "cathedral of food" in Greenwich Village, to the evolution of Russ Byerly's elegant "emporiums of food" along with Lund's in Minneapolis, and Butch and Bob Castellani's Tops International Stores – which produced higher sales than Wegmans in the beginning – were regular Flickinger family retail visits. Indeed, they were memorable parts of our family discussions about the most innovative regional leaders in food retailing.

But I digress.

Dr. Wendell Earle and Gene German the great leaders of Cornell University’s world renowned Food Industry Management Program referred to H-E-B as "the best of the best" and sent undergrad and grad students to Cornell’s Mann Library to study how a understated family business could be the proverbial David beating all the major chain Goliaths.

During the category dominant retail era of the late 20th Century, some communities reportedly requested Walmart super centers. In the 21st Century, the preferred retail chain for all communities is H-E-B, as Walmart super centers are in the beginning of a long, slowly developing unplanned obsolescence cycle.

On the 110th anniversary of H-E-B, founder Florence Butt can proudly smile from "upstairs" on Charles Butt and her H.E. B. Grocery Co.'s extended family, for both raising standards of living for all consumers in every community and for providing the greatest philanthropy from a retailer to essential charities since the early 1900s, when George Draper Dayton founded what became DHC (Dayton Hudson Corp., now Target).

BI-Lo Holdings LLC, ranked No. 11 on PG's Super 50

Bi-Lo Holdings was fortunate to attract Ian McLeod as CEO. Ever since Jon Wilken and Marsh Collins led Bi-Lo to greatness in the 1980s and 1990s, Bi-Lo and Winn Dixie had respectively and collectively struggled for 15 years when compared to key competitors like Kroger-Harris Teeter, Ingles, Publix, Rouse's, Lowes Foods, Walmart, and others.

Ongoing management turnover and apparent underinvestment in cap-ex monies were more pronounced at Bi-Lo Winn Dixie relative to many highly capable food retail competitors.

If given sufficient financial reinvestment resources, McLeod, Bill Nassham in buying and merchandising and other proven leaders from other chains will have the opportunity to bring Bi-Lo and Winn Dixie back.

With very good population and income growth, Winn-Dixie's legacy markets in Florida remain major opportunities along with Bi-Lo's hometown market areas in the Carolinas. Moreover, New Orleans and the Gulf Coast region could be promising if McLeod and his team are given enough capital by ownership to develop high opportunity areas, which are underserved by supermarket chains.

A&P (The Great Atlantic & Pacific Tea Co.) – ranked No. 19 on PG's Super 50

A&P's future appears uncertain. While Yucaipa has had significant success, it has been primarily in Western states. In my professional view, Yucaipa has been less than successful starting with Almac's in New England and other investments in eastern supermarket chains.

The "white knight" hypothesis of "Kroger" or another strategic food retailer buying A&P appears very unlikely. Kroger and other food retailers with strong financial foundations only buy "thoroughbred" companies, and A&P has failed to win, place or show – or even finish anywhere near the money for most of the last 15 years.

After Jim Wood – the CEO who is credited with saving A&P nearly 25 years longer than it otherwise would have lasted – died in April 2015, with the exception of great A&P merchant George Graham and a few notable veterans, I didn't see anyone from A&P's management – major suppliers, food brokers or Grand Union (where he served as CEO prior to A&P) – show up to pay respects to Wood and his family at a small church in Saddle River, N.J. Their conspicuous absence was symbolic of the issues at A&P, with some vestiges of "absentee" management and questions about how deep and how close are the relationships with all the people, at every level, who rolled up his or her sleeves every day to try to help make a company with tremendous challenges better.

The new A&P isn't going to cut a profit by counting check out bags when its appears to have many more challenges at the back door, as well as with the "revolving door" of the very good people leaving "Mt. Montvale" (A&P's N.J. headquarters) than the plastic bags going out the front doors of the stores.

A&P's former crown jewels, Pathmark and Waldbaum's, appear to have had the sales volumes decline to what several industry veterans describe as "levels low enough that A&P can handle." Pathmark's  former powerhouse stores in metro New York City, i.e., Inwood, Bartow (Co-op City), Bruckner Blvd., Inwood, Starrett City, Cropsy Ave., Jersey City and Newark, N.J., and its Philadelphia locations like Aramingo Ave., Oregon Ave. and N. Broad St., have gone from stores that once generated $40-$55 million per store per to dramatic declines.

When Pathmark controlled its own buying and distribution, the average Pathmark stores did approximately $900,000/week and the average ShopRite did $600,000/week/per store. Now the average ShopRite does $1.2 million per week per store and the average Pathmark, under A&P, does less than $600,000 per week per store.

When A&P bought Waldbaum's, A&P was excited to get Ira Waldbaum, the Brown brothers, Barry Sherman, and the tremendous talent on the Waldbaum's team. That talent left A&P long ago and Waldbaum's sales have declined almost as precipitously as Pathmark's. 

In his best selling business books Good to Great and How The Mighty Fall and Why Some Companies Never Give In, Professor Jim Collins analyzes the exceptional leadership at Kroger, which leads to extraordinary success, while A&P is described as a “fallen company” with chronicled issues ranging from complacency to denial of risks and associated potential perils.

Like Pathmark and Waldbaum's, A&P's Food Emporium, Food Basics, Super Fresh, and A&P banners have good locations and hard working people in the stores, so there can be hope with a focused coordinated effort between the investors, management, buying, merchandising, and operations.