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11/23/2015

Rick Anicetti Aiming to ‘Reinvent’ The Fresh Market

In his brief time with The Fresh Market, Rick Anicetti – who joined the Greensboro, N.C.-based specialty grocer as its new president and CEO in September – is taking a long, hard look “under the hood at all aspects of the company” to unearth “tangible opportunities in a number of areas.”

One of these areas is center store, which Anicetti, a veteran of Delhaize America’s Hannaford and Food Lion banners, intends to reinvent through a “phased approach” he plans to incorporate into remodels beginning in 2017, according to comments he shared during a third-quarter earnings call last week with the investor community.

The reason for his focus on revitalizing the fresh-focused chain’s center store game plan is simple: For the amount of space it takes up, The Fresh Market’s grocery sections are falling woefully short of their sales potential. “Center store represents a significant portion of real estate and is the least differentiated in terms of production – product selection, customer facing appeal, and compatibility with our brand,” Anicetti explained in his inaugural call with investors as the chain’s new chief executive.

Reclaiming 'Heritage'

During the question-and-answer period, he noted that center store is “about 40 percent of the space [in the stores] … And that 40 percent of the space is generating currently about 20 percent of sales. So we think on a per square foot basis, it’s not generating the kind of performance that we would like to.” In some ways, he continued, “we’ve drifted more toward appearing and looking like a supermarket, which is not our heritage. And I think we need to reinvent the kind of product offering that we see springing up in that space that is far more supportive, both [of] the brand and our fresh offering on the perimeter.”

As to what the reinvented sections might look like, he offered few specifics, but indicated that “a lot of the work I envision… is about beginning to leverage that space differently in an effort to drive greater baskets. And all of this comes as a result of increased and better differentiation.”

Noting that The Fresh Market’s center store sections tend to average an insufficient $200,000 per week per store, industry observer Burt Flickinger, of New York-based Strategic Resource Group, expressed confidence that Anicetti, whom he identified as “one of top two or three turnaround officers in all the United States and Canada,” would be able to increase customer counts.

Flickinger pointed out that The Fresh Market had in the past underspent significantly on capital expenditures, getting inadequate returns for the money it did spend, as well as receiving “a lot of regrettable advice” on store equipment and design, resulting in such problems as stores that are too dark. When it comes to fixing such issues, Anicetti “knows exactly what to do,” noted Flickinger.

Potential 'Pet Projects'

As for center store specifically, Flickinger predicted that Anicetti would concentrate on power categories such as cereal and pet, turning them into destinations, with pet remade into “a reincarnation of Petco.” Under Anicetti’s guidance, center store categories, including coffee and tea and beverages and juices, would become “more competitive and relevant” to consumers, especially those households with kids and pets, he said, through such strategies as working more closely with local vendors, a wider offering with more items, and forging a greater link between fresh items and grocery products. In particular, Flickinger felt that Anicetti would concentrate on lowering the cost of goods, thereby freeing up much needed capital to reinvest in center store and other initiatives.

However, The Fresh Market’s disaggregated stores across more than half of the United States, which make it hard for the grocer to achieve the operational size and scale for it to compete effectively, and the stiff competition it faces, even in its core Carolinas markets, from the likes of Harris Teeter, Lowes Foods and Ingles, have resulted in “much challenging work to do” before Anicetti can effect an successful turnaround, cautioned Flickinger, who said it would probably take “three to five years to get the company to where Rick can take it.”

Q3 and Year-to-date Financials

Meanwhile, total sales for the third quarter of fiscal 2015 rose 3.3 percent to $433.1 million compared with the year-ago period, while comparable-store sales fell 3.7 percent to $386.5 million from the last year, which The Fresh Market attributed to a 3.7 percent decline in the number of transactions.

The company's gross profit increased 4.3 percent, or $5.9 million, to $144 million in the third quarter of fiscal 2015, versus the year-ago period, while the fiscal 2015 third quarter gross margin rose 30 basis points from last year to 33.2 percent. According to The Fresh Market, this gross margin improvement was mainly because of lower supply chain costs, a favorable LIFO expense adjustment and reduced store supplies expenses, partly offset by a rise in occupancy costs.

Additionally, during the third quarter, The Fresh Market opened six new stores: two in Florida, and one each in South Carolina, Georgia, Alabama and Connecticut.

For the 39-week period ended Oct. 25, sales were $1.34 billion, a 5.1 percent increase from the year-ago period, while comps dipped 1.6 percent from last year. Net income was $42.6 million for the 39-week period ended Oct. 25, versus $42.8 million in the prior-year period. Diluted earnings per share for the first 39 weeks of fiscal 2015 were 88 cents, flat with the corresponding thirty-nine week period in fiscal 2014.

"As our management team and board conduct a comprehensive strategic and financial review of the business, we are simultaneously moving forward aggressively with a number of initiatives to strengthen our foundation, increase productivity, drive store traffic, and regain operating momentum," said Anicetti. “With the holiday season fast approaching, we are making changes as quickly as prudently possible to our productivity, price optimization and brand differentiation to help stabilize traffic trends and drive sales during this key shopping period."

The Fresh Market operates 183 stores in 27 states across the United States.