The Flickinger Files Part 4: WinCo, Roundy's, Sprouts, Haggen

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.

WinCo – ranked No. 20 on PG's Super 50

WinCo is the best ESOP, or employee owned company in the western U.S. Whether entering a newer market, like the Phoenix and Glendale, AZ stores on opposite ends of Bell Blvd. or Texas, WinCo can beat Walmart in key markets.

WinCo will not work with food manufacturers that do not give WinCo the "Robinson Patman" price (proportionate and fair relative to Walmart and Costco). By insisting on a level playing field on cost of goods (COGS) with Walmart, et al., WinCo can meet and beat Walmart on key item pricing.

Given their profit and stock participation, WinCo's team members take great care of the customers while maintaining excellent store conditions and standards.

As WinCo has evolved from Waremart and Cub Foods to WinCo as a "winning company" for its employee owners, WinCo appears unstoppable as it grows from its first 100 stores to potential geometric growth in the decade ahead.

Roundy's – ranked No. 24 on PG's Super 50

Roundy's is going though some challenging financial transitions as it recapitalizes its debt from converting from a co-op to a publicly held company.

Roundy's exited its Rainbow stores in the Minneapolis-St. Paul markets where no Rainbow owners had been able to achieve the sales and market that seminal merchant and Rainbow operator, Sid Applebaum achieved.

With the buyout of highly capable, multi store Pick 'n Save operators, like Frank Serio, in Wisconsin, Roundy's lost some of the volume per store in Wisconsin that some of the strong independent co-op operators consistently generated.

The move to Chicagoland with Mariano's stores has been aggressive throughout the region. The challenge may be high property/lease prices and smaller shopping centers with limited power retail co-anchor and in-line retailers, which is a challenge that numerous Chicago area food retailers face. The Mariano's stores are popular in the greater Chicago market, so the challenge is accelerating to favorable cash on cash investment returns as the newer stores start to mature.

After selling and closing the proud and previously extremely popular Rainbow stores in Minnesota, Roundy's very significant cap-ex commitment to Chicago may be a big, possible "bet the company" initiative as Roundy's Pick 'n Save is facing well capitalized, highly capable competition in Wisconsin.

Sprouts Farmers Market – ranked No. 33 on PG's Super 50

Sprouts has had success in the West as it has combined operating companies under the leadership of a good executive team that is both "home grown" as well as recruiting some good people from other food retailers.

Sprout has some positive initiatives expanding fast moving food and beverage categories. As Whole Foods invests record expansion and remodels, Sprouts may have to invest more "catch up" on store remodels to avoid what appeared to be a cap-ex challenge that may have gotten ahead of The Fresh Market.

Sprouts has very loyal people and customers. As the competition gets stronger, Sprouts gets better. As Sprouts grows, more shoppers and suppliers are both winners.

Even though, the market for fresh and organic products is increasing at 10% a year, this segment of food retailing is getting more crowded. In Grant’s Interest Rate Observer, “All You Can Eat,” David Pelletier referenced why Sprout’s may be overvalued along with others. In the last two years Sprout’s stock has declined nearly 40 percent, while The Fresh Market’s stock has declined more.

Every retailer from Whole Foods to Wegmans to Ahold are improving in fresh

And each retailer is giving shoppers more choices and better alternatives, so Sprouts and others will have to continually improve to maintain impressive growth rates.

Haggen – Not ranked on PG's 2015 Super 50

Haggen has the biggest expansion challenge and opportunity in multi-regional food retailing in 15 years.

With its core strengths rooted in quality produce, meat, fresh seafood, prepared foods, and its longstanding support of local producers, the upstart retailer is increasing its total chain volume 700 percent in a year by purchasing the FTC ordered divested stores from Safeway-Albertsons and converting them to Haggen, which now has the opportunity to improve quality and pricing in its new stores.

Notwithstanding the talented veteran it has in Bill Shaner, there is always retail risk in taking on a transformational acquisition with new markets, states, major suppliers, and a United Nations of consumer constituencies.

Unified Grocers and Haggen are working well together to convert a record

number of stores. As Haggen achieves more size and scale, particularly in its new California markets, the divested former Albertson’s supermarkets that Haggen acquired and converted have a high level of opportunity to be successful

With risk comes opportunity, and vice versa.