VLGEA - Village Supermarket

[Cigarbutt]

I love the acquisition, but I'm concerned about competition in New Jersey starting to heat up. A big part of the thesis for me was that these stores are really productive. However, if the small format discount grocers take share, that could really hurt them. Would be very curious what people think about that?

 

https://www.northjersey.com/story/news/bergen/bergenfield/2019/12/18/aldi-and-lidl-german-grocery-chains-competing-north-jersey/2650269001/

It looks like competition has come and gone in NJ but the European discounters are a formidable threat. Grocery stores have a relatively small geographic radius and intruders will make it necessary to adjust (cost, convenience etc) and perhaps to endure lower margins for a while. Weaker competitors will go and I guess VLGEA may suffer. The Manhattan business, if acquired, would probably be hostile territory for Aldi and Lidl?

If interested:

https://www.cnn.com/interactive/2019/05/business/aldi-walmart-low-food-prices/index.html

https://www.bain.com/contentassets/8fcd2dd898ea4815b24c58d703495a04/bain_brief_how_us_grocers_are_standing_up_to_europes_hard_discounters.pdf

 

In my area, the "Super C" brand (part of Metro) has been able to apply some of the cutting to the bone cost aspect without compromising the convenience aspect too much. I would say adaptation is possible. Also, in my local area, despite high population growth, supply outpaced demand for a while and it's the weaker competitors that left, for the benefit of the survivors.

 

The threat of discount retailers (I think you like Ross stores?) is directly proportional to expectations that people will become more cost conscious or budget constrained going forward, an assumption that makes a lot of sense. Discount retailers have done well in this 'recovery' and it would be reasonable to expect more of the same if not more.

[bizaro86]

I am sure, in the short term, you are also going to see supermarkets gets whacked because everyone is terrified of the coronavirus

 

Sure. But I suspect all the people who dont actually die will continue eating.

 

@cigarbutt Yes, ROST is one of my long term holds, and interestingly doesn't seem to be perceived as Corona virus exposed, which surprised me somewhat. I think discount groceries (Aldi/Lidl) are a similar theme. I have a starter in Village, but if the same store sales really do end up at -2% because of competition that would put them in a bad spot re operating leverage.

[spartan]

WSJ: “Specialty Grocers Lose Their Edge”

 

https://www.wsj.com/articles/upscale-specialty-grocers-lose-their-edge-11583058601?emailToken=a28d592c7507de7cc16caa8e6f205f9eGE9BiftkKnE4R0iayckCHkJNpQqrcAUAcL6/dEwJ+OnlfQ1QM+zVmiH6VzbrTZF4SeAkfZNSRtRjfMUa2SNmlcr0ltlOlbvz6A3G2Kglw2Y%3D&reflink=article_copyURL_share

[DooDiligence]

Earnings out tomorrow.

[DTEJD1997]

Hey all:

 

Earnings are out.  They don't appear to be very good.  Earnings were $.10 vs. $.38 in the year ago period.

 

There were some one time charges, but it also appears that overall costs are expanding faster than they grow sales.

 

As incredible as it sounds, I've started to notice some labor shortages (resulting in businesses closing/scaling back when workers don't show) in the metro Detroit area.  Not a lot, but a few, and this is the first time I've ever seen such a thing.  I would think that in NYC, and the East coast, that they have an even tighter labor market than we do.

 

That is going to make expansion plans that much more difficult.  Where are you going to get the workers?  If you can get workers, are they going to be second and third rate?  Existing workers could jump ship to other employers that pay more/offer better conditions.

 

Finally, Gov. Cuomo has declared a state of emergency in NYS.  This is probably not going to be good for business.

 

Any thoughts?

[DooDiligence]

Hey all:

 

Earnings are out.  They don't appear to be very good.  Earnings were $.10 vs. $.38 in the year ago period.

 

There were some one time charges, but it also appears that overall costs are expanding faster than they grow sales.

 

As incredible as it sounds, I've started to notice some labor shortages (resulting in businesses closing/scaling back when workers don't show) in the metro Detroit area.  Not a lot, but a few, and this is the first time I've ever seen such a thing.  I would think that in NYC, and the East coast, that they have an even tighter labor market than we do.

 

That is going to make expansion plans that much more difficult.  Where are you going to get the workers?  If you can get workers, are they going to be second and third rate?  Existing workers could jump ship to other employers that pay more/offer better conditions.

 

Finally, Gov. Cuomo has declared a state of emergency in NYS.  This is probably not going to be good for business.

 

Any thoughts?

 

Took a non-cash hit on pension plan funding.

 

Decreased departmental gross margin percentages & decreased patronage dividends and rebates received from Wakefern.

Higher promotional spending partially offset by decreased warehouse assessment charges from Wakefern and a favorable change in product mix.

 

Departmental gross profits decreased in both the 13 and 26 week periods ended due primarily to price investments, including the ShopRite's Right Price Promise pricing strategy, a commitment to everyday low prices on the items customers purchase most frequently, introduced in October 2019, and decreased pharmacy margins as a result of continued downward pressure on prescription reimbursement rates from third party providers.

 

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Same store sales increased due to continued sales growth in the Bronx, New York City store opened on June 28, 2018, recently remodeled or replaced stores and continued growth of ShopRite from Home including expansion to five additional stores. These increases were partially offset by the impact of one competitor store opening, decreased promotional spending in Maryland and the early release of Supplemental Nutrition Assistance Program ("SNAP") benefits in January 2019.

 

The Company expects same store sales in fiscal 2020 to range from a 0.5% decrease to an increase of 1.0%

Last Q management was expecting SSS down 2% to flat.

 

They don't give hardly any guidance but I don't see anything unexpected here.

 

If it became sustained I'd get worried but for now I'm hoping they'll incrementally improve margins & costs.

 

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https://newyork.cbslocal.com/2020/03/07/coronavirus-update-tri-state-area-confirmed-infection-numbers-continue-to-grow/

 

They should take this seriously to avoid a catastrophe.

 

Could mean that Village won't have any competing bidders for the Fairway stores.

 

NJ/NY are not only tight markets for labor but for food too.

You gotta eat.

 

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Fairway bankruptcy filings re: KEIP are funny.

 

25 employees were key in making this a not for profit business & they want to be rewarded.

 

The debtors objection.

 

"All too often [management bonus plans] have been used to lavishly reward — at the expense of the creditor body — the very executives whose bad decisions or lack of foresight were responsible for the debtor’s financial plight. But even where external circumstances rather than the executives are to blame, there is something inherently unseemly in the effort to insulate the executives from the financial risks all other stakeholders face in the bankruptcy process."

 

4. Local 1500 represents approximately 2,260 of Debtors’ workers — about 89% of Debtors’ union-represented employees, and approximately 75% of all of Debtors’ employees. Local 1500 and Debtor are parties to a collective bargaining agreement (“CBA”) which expires in April 2021. Local 1500 represents employees including those who work as “managers, assistant managers, first Clerks, department heads, ... grocery, dairy, produce, appetizing delicatessen and drug department employees, ... butchers, ... fish and meat managers, porters, maintenance,” and other employees. (CBA, p.1).

 

5. These Local 1500-represented workers do the hands-on work which makes Fairway unique. They create the legendary displays of cheeses, baked goods, meats, and produce which entice customers to shop at Fairway. They keep the stores attractive. They wake up early and stay late to ensure that shoppers can buy the freshest products available. Their day-to-day work and expertise make Fairway a unique shopping experience. Their continued dedication will be a key factor in maximizing the value of Debtors’ assets while in bankruptcy and ensuring that Debtors’ stores continue to operate successfully, albeit under new ownership, after the proposed sales.

 

6. Compared to the proposed KERP and KEIP recipients, these employees work for more modest wages: Local 1500-represented employees in Fairway’s New York City stores earn a minimum hourly rate of between $15.25/hour and $25.00/hour; employees in their Long Island and Westchester stores make a minimum hourly rate of between $13.25/hour and $25.00/hour; and employees in their Paramus store make minimum hourly rates of between $11.25/hour and $25.00/hour. (CBA, p. 15). Unlike the proposed Payout beneficiaries, these workers made none of the decisions which drove Fairway into bankruptcy, although they are living and will live with the consequences of those decisions.

 

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I hope Village gets these stores (they have the right to reject 2) & whips them into shape.

The volume increases at Wakefern would also bring Village more patronage dividends.

 

The revenue boost would make for nice optics in the market, although it may take a few quarters to smooth out expenses.

I'm betting management will improve the numbers.

 

I have no proprietary info for this belief other than reading the 10Q's & thinking these guys know what they're doing.

 

There's a 3% breakup fee for Village if the Fairway deal falls apart.

 

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We could also have a corona zombie apocalypse & the whole thing go to hell in a hand basket.

Troubadours will be held in high regard.

I will survive.

[Cigarbutt]

...

Earnings are out.  They don't appear to be very good.  Earnings were $.10 vs. $.38 in the year ago period.

There were some one time charges, but it also appears that overall costs are expanding faster than they grow sales.

...

Any thoughts?

Took a non-cash hit on pension plan funding.

 

Decreased departmental gross margin percentages & decreased patronage dividends and rebates received from Wakefern.

Higher promotional spending partially offset by decreased warehouse assessment charges from Wakefern and a favorable change in product mix.

 

Departmental gross profits decreased in both the 13 and 26 week periods ended due primarily to price investments, including the ShopRite's Right Price Promise pricing strategy, a commitment to everyday low prices on the items customers purchase most frequently, introduced in October 2019, and decreased pharmacy margins as a result of continued downward pressure on prescription reimbursement rates from third party providers.

 

---

 

Same store sales increased due to continued sales growth in the Bronx, New York City store opened on June 28, 2018, recently remodeled or replaced stores and continued growth of ShopRite from Home including expansion to five additional stores. These increases were partially offset by the impact of one competitor store opening, decreased promotional spending in Maryland and the early release of Supplemental Nutrition Assistance Program ("SNAP") benefits in January 2019.

 

The Company expects same store sales in fiscal 2020 to range from a 0.5% decrease to an increase of 1.0%

Last Q management was expecting SSS down 2% to flat.

 

They don't give hardly any guidance but I don't see anything unexpected here.

 

If it became sustained I'd get worried but for now I'm hoping they'll incrementally improve margins & costs.

...

Competitive pressures will come and go and longer term trends are more important.

Imo, one could wait for a fatter-pitch entry point but this thing makes at least some sense at present levels.

https://www.macrotrends.net/stocks/stock-comparison?s=roa&axis=single&comp=KR:VLGEA

Edit: There are two threads about Kroger on this Board and i've found them useful (including for the longer term drivers of the industry).

Who said grocery was not sexy?

[DooDiligence]

A rehash of the quarter.

 

www.winsightgrocerybusiness.com/retailers/shoprites-edlp-strategy-hits-margin-line-village

 

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Notice of adjournment of qualified bid for Fairway stores.

 

I can't find any info on whether there are other bidders.

Notice_of_Adjournment_of_Qualified_Bid.pdf

[DooDiligence]

Qualified overbid from Bogopa Enterprises Inc. for sale of Fairway assets.

 

https://casedocs.omniagentsolutions.com/cmsvol2/pub_47371/806050_295.pdf

[Spekulatius]

Qualified overbid from Bogopa Enterprises Inc. for sale of Fairway assets.

 

https://casedocs.omniagentsolutions.com/cmsvol2/pub_47371/806050_295.pdf

 

So what’s the VLGEA thesis now? Dead?

[DooDiligence]

Qualified overbid from Bogopa Enterprises Inc. for sale of Fairway assets.

 

https://casedocs.omniagentsolutions.com/cmsvol2/pub_47371/806050_295.pdf

 

So what’s the VLGEA thesis now? Dead?

 

I went into this believing that if they don't get these stores, they'll continue chugging along.

If the barrier to entry into their market disappears though  :-\

[Cigarbutt]

^Thank you DooDiligence for the update.

It looks like this will be resolved at auction.

The new bid is barely above the previous bid. The five stores appear to be where the real value is and the additional store may be more marginal.

I guess it depends how they really want the prize.

[bizaro86]

^Thank you DooDiligence for the update.

It looks like this will be resolved at auction.

The new bid is barely above the previous bid. The five stores appear to be where the real value is and the additional store may be more marginal.

I guess it depends how they really want the prize.

 

I read the contract, and almost all the value in VLGEA's bid was assigned to 2 stores. I dont recall the exact figures, but something like $65 MM of the $70MM was for the top two stores. I doubt the addition of one Village didn't want makes much difference, and they might be willing to take it to win the bid, especially if the extra cost is nominal.

 

I think they also get a small break fee if they are outbid, but that probably just covers the cost of professional advice on the matter.

[DooDiligence]

^Thank you DooDiligence for the update.

It looks like this will be resolved at auction.

The new bid is barely above the previous bid. The five stores appear to be where the real value is and the additional store may be more marginal.

I guess it depends how they really want the prize.

 

I read the contract, and almost all the value in VLGEA's bid was assigned to 2 stores. I dont recall the exact figures, but something like $65 MM of the $70MM was for the top two stores. I doubt the addition of one Village didn't want makes much difference, and they might be willing to take it to win the bid, especially if the extra cost is nominal.

 

I think they also get a small break fee if they are outbid, but that probably just covers the cost of professional advice on the matter.

 

I guess we'll know in 3 more days?

NOTICE_OF_I_DESIGNATION_OF_CERTAIN_EXECUTORY_CONTRACTS_AND_UNEXPIRED_LEASES.pdf

[Cigarbutt]

^Anything could still happen but it looks like the auction is on Monday.

There's the winner's curse risk but the two bidders appear sophisticated (although the recent runner-up may have run on VLGEA's coattail) and they likely invest the way widenthemoat described earlier today.

May the best win.

[DooDiligence]

38 Potential bidders were served. The names of these parties have not been stated due to the need to maintain confidentiality.

 

https://casedocs.omniagentsolutions.com/cmsvol2/pub_47371/807294_310.pdf

 

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The West Side Rag gives a good glimpse of the age of Corona in NYC.

 

www.westsiderag.com/tag/fairway

 

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You gotta eat.

[DooDiligence]

Am I reading this right?

 

Village got 5 stores, a distribution center & a parking lot in Harlem for $76m?

 

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NOTICE OF SUCCESSFUL BIDDERS AT GLOBAL AUCTION

 

https://casedocs.omniagentsolutions.com/cmsvol2/pub_47371/808617_378.pdf

 

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Yay?

[Cigarbutt]

Am I reading this right?

 

Village got 5 stores, a distribution center & a parking lot in Harlem for $76m?

 

Yay?

-It looks like it.

-The Bogopa people's bid was probably stretched (and credit has gotten tighter).

-So VLGEA let go of the Harlem store (kept an uninspiring parking lot) and went for the Pelham store that Bogopa had targeted.

-Bizaro is likely right that the cream was on top and the 4th or 5th stores in the winning bid may be more marginal.

-I think this needs to be approved by the Court tomorrow, if i understood or remember correctly.

Overall, this seems like a winning combination and the grocery business has certainly been more "resilient" lately.

 

If interested, the following link 'judges' what went wrong at Fairway and I think they have a point.

This is the type of business where the top manager should be comfortable meeting the 'beloved' clients in person.

https://www.theatlantic.com/ideas/archive/2020/02/how-private-equity-ruined-fairway/606625/

 

Hope you're well DooDiligence.

Yesterday, my daughter went to a grocery store with her boyfriend and only he was allowed to go in (only one person) and he had to keep a space of one meter (that's 3 feet for you) between himself and the other customers. We live in a funny world.

 

[Cigarbutt]

The relevant Court appearance appears to be in April.

It may be helpful to look at a recent document in the docket that describes operations up to March. It gives an idea of the sales volume and profitability of the acquired stores. I come now to an estimate of about 280-285M for the five stores. It is reasonable to expect that sales had stalled under the previous tenure and possibly decreased related to the uncertainty surrounding the bankruptcy. So, the price paid is not cheap but they are getting an access to the Manhattan market and the two flagship stores appear to be very strong.

https://casedocs.omniagentsolutions.com/cmsvol2/pub_47371/808641_379.pdf

 

I don't understand the part of the deal related the parking lot. It may have been a technical move to define a superior (barely) offer. It seems they may remove the lot from the offer (100K) if someone buys the adjacent Harlem store. A small Google street visit suggests that the store and the area may not be a superior site for a grocery store. I also found this, which gives an idea of the parking lot. BTW, 100K seems to be a good deal to get the lease (in terms of parking spaces) but the terms of the lease are not disclosed AFAIK:

https://www.loopnet.com/Listing/2308-2316-12th-Ave-New-York-NY/12013381/

See photo 3

 

The Pelham store is quite large but is out of Manhattan and is within an Aldi radius.

[Gregmal]

To add some anecdotal shit, it amazes me how much better prepared Shop Rite stores are for the current situation. I have a Stop N Shop, Weis, and several small chains near me. All are barren. Expect Shop Rite. Not just one, but all of them are packed with not just essential goods, but pretty much everything. They easily ramped up the workforce. They, starting a couple weeks ago, were getting deliveries 4-5x a day. U boats in the aisles consistently, and all in a very organized and efficient manner.  Some of the stores I am referring to are Village stores, some arent.

[DooDiligence]

West Side Rag is on it.

 

www.westsiderag.com/2020/04/08/fairway-on-125th-expected-to-close-for-good-without-last-minute-bidder

 

---

 

OK, which one of you is this?

 

www.westsiderag.com/2020/04/06/man-seeks-coronavirus-girlfriend-for-germ-free-monogamy

[DooDiligence]

Kind of boring in the midst of a meltdown in oil but,

 

ORDER (I) APPROVING ASSET PURCHASE AGREEMENT AMONG

THE DEBTORS AND VILLAGE SUPER MARKET, INC.

 

https://casedocs.omniagentsolutions.com/cmsvol2/pub_47371/814449_449.pdf

 

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"The financial breakout of Village’s purchase is: $27 million for the Upper West Side/Broadway location, plus an additional $1.89 million in inventory; $27 million for the Upper East Side/86th Street Store, plus an addition $1.4 million in inventory; $2.6 million for the Kips Bay/2nd Avenue store, plus $1.42 million in inventory; $4.1 million for the Pelham Manor store, plus $1.84 for the inventory; $100,000 for the parking lot at the Harlem store; $0 for the Chelsea/West 25th Street store, but $920,000 to acquire the supermarket’s inventory."

 

www.foodtradenews.com/2020/04/16/village-gets-5-stores-key-food-amazon-also-confirmed/

[Cigarbutt]

Kind of boring in the midst of a meltdown in oil but,

ORDER (I) APPROVING ASSET PURCHASE AGREEMENT AMONG

THE DEBTORS AND VILLAGE SUPER MARKET, INC.

...

So there's a new and expanded Village Supermarket and virus adjustments that may remain unadjusted for a while.

There's some kind or correlation between oil and food prices so food prices may stay low for a while and that could make a difference for most as the food discretionary budget may be easier maintained if gasoline stays cheaper. People may, by hysteresis, maintain a different ratio of making meals at home vs eating out. In the past, grocers such as Kroger and Village had to eat into their margins because of competition and food inflation and that may work in reverse for a while.

https://www.marketwatch.com/story/grocery-prices-are-rising-as-eat-at-home-demand-soars-during-the-coronavirus-pandemic-2020-04-07

https://finance.yahoo.com/news/kroger-ceo-unsure-normal-look-164059234.html

 

[DooDiligence]

Kind of boring in the midst of a meltdown in oil but,

ORDER (I) APPROVING ASSET PURCHASE AGREEMENT AMONG

THE DEBTORS AND VILLAGE SUPER MARKET, INC.

...

So there's a new and expanded Village Supermarket and virus adjustments that may remain unadjusted for a while.

There's some kind or correlation between oil and food prices so food prices may stay low for a while and that could make a difference for most as the food discretionary budget may be easier maintained if gasoline stays cheaper. People may, by hysteresis, maintain a different ratio of making meals at home vs eating out. In the past, grocers such as Kroger and Village had to eat into their margins because of competition and food inflation and that may work in reverse for a while.

https://www.marketwatch.com/story/grocery-prices-are-rising-as-eat-at-home-demand-soars-during-the-coronavirus-pandemic-2020-04-07

https://finance.yahoo.com/news/kroger-ceo-unsure-normal-look-164059234.html

 

I really miss going to Chinese buffet.

I'd almost risk getting COVID for some hot & sour soup, General Tso chicken & a big pile of steamed broccoli.

(and some of those little steamed dumplings!!!)

(aaand a fortune cookie...)

[Gregmal]

Ive interestingly observed that Shop Rite brand products, particularly Bowl & Basket are making massive gains in terms of shelf space. This is not just one store, its across the board including a couple Village locations. Obviously demand is there, but also interesting is that they are keeping up with that demand, whereas most other brands go through long stretches of depletion.

 

For instance, the potato chips and pretzels, back in February had about the same representation as Herrs. Now only Frito Lay has more space. But Frito Lay asp is about $3.99, Bowl & Basket, $1.29. Soup, Campell's is $1.89, SR is $0.88. Bread, Freihofer is $3.49, Pepperidge Farm $3.99, Bowl & Basket $0.99-$1.39, English Muffins, Thomas's $4.49, SR 2/$3. It's really quite remarkable and there is not much quality drop off.