Randall's: The Turnaround Story
NEW YORK -- Randall's Food Markets, Houston, represents "one of the best supermarket turnaround stories in the last two years," according to Randall Onstead, chairman and chief executive officer.
Since taking Kohlberg Kravis Roberts & Co., the New York-based investment company, as its majority partner in 1997, Randall's has seen overall sales remain steady at $2.4 billion, while same-store sales have risen an industry-leading 8.7% for the second quarter and operating cash flow (earnings before interest, taxes, depreciation and amortization) has jumped 27.2% to $124.2 million.
In response to a question at last month's Food & Drug Retailing Conference sponsored by Donaldson, Lufkin & Jenrette here, Onstead said Randall's has no plans "at this time" to go public.
According to Onstead, same-store sales have risen from a negative 1.3% in fiscal 1997 to a positive 3.9% last year and a plus-8.7% through the second quarter of the current fiscal year -- "the best comparative-sales performance in the industry for the second quarter in a row," noted Michael M. Calbert, senior vice president and chief financial officer.
Calbert said he attributes the company's strong comparative-sales performance to an effective replacement-store program, more efficient promotions centered on the company's loyalty card "and vibrant economic conditions," despite 20 competitive openings so far this year and 20 last year.
He said he expects same-store sales numbers "will soften a bit as we go up against strong numbers last year, but they will stabilize at respectable levels."
Onstead said the second-quarter EBITDA increase of 6.8%, or $42.3 million, marks the first time Randall's has ever penetrated the 6% EBITDA level. "And with self-distribution on the horizon, we are confident we can continue to increase EBITDA," Calbert added.
According to Onstead, Randall's attributes the earnings improvement to an accelerated store-development program, reduced operating costs, moves toward self-distribution, an increase in private-label penetration and introduction of a customer-loyalty program.
Over the last 18 months, Randall's has opened 10 new stores and completed 39 remodels, with eight more new stores and five major remodels currently under way, Onstead said. He said Randall's expects to spend $113 million this year to add 16 new stores (13 in Dallas/Fort Worth, three in Houston) and to complete 53 remodelings (29 in Houston, 19 in Dallas/Fort Worth and five in Austin).
By the end of the year, he added, almost 60% of Randall's 117-store base will be either new or remodeled within the last two years.
He said the company expects to add fueling stations at two more stores this fall, in addition to the two it already operates, with 14 more in development. He also said he expects self-distribution to begin by late summer.
Randall's private-label penetration has risen nearly 4.5% to more than 1,000 items "on our way to 1,500-plus," Onstead said. Randall's is also "very enthusiastic," he said, about its loyalty-card program.
Richfood: Not Afraid to Reinvent Itself
NEW YORK -- "Anybody can buy a company," said John Stokely, chairman, president and chief executive officer of Richfood Holdings, Glen Allen, Va.
"The real trick is what you do when you get your hands on them."
Stokely made his remarks at the Food & Drug Retailing Conference sponsored by Donaldson, Lufkin & Jenrette here.
With third-quarter sales up 27.2% to $946.6 million and earnings rising 10.6% to $19.4 million -- gains Richfood attributed to continued success at two of the company's 1998 acquisitions -- Stokely had the numbers to back up his claim that those purchases "turned the corner."
He was referring to Farm Fresh, a 42-unit chain based in Norfolk, Va., and the 38-store Shoppers Food Warehouse chain based in Lanham, Md. Richfood, a not-for-profit co-op 12 years ago, has made eight acquisitions in eight years.
"Our whole philosophy is to try to generate national economies of scale on a regional basis. Trust me -- it's possible," Stokely said, adding that his company is "not afraid to reinvent itself."
Citing the latest acquisitions and the two new Shoppers Food Warehouse stores the company is planning to open in the Baltimore-Washington area in fiscal 1999, Stokely said, "Every time we open a store it becomes a customer of our wholesale business."
He added that "we anticipate" Shoppers Warehouse "to be a significant growth vehicle."
Stokely called the quest to create economies of scale "the new competitive battle ground" and pointed to "back-office savings" his company realized by linking its three retail businesses to a central "technology center" to share accounting, purchasing, legal, internal audit and marketing services.
"If you're not willing to play in that battleground, you won't be in business for long," he warned, adding "shared technology, shared services, will keep us ahead of the pack."
Looking ahead, Stokely said the company is not expecting its wholesale business "to grow as rapidly as our retail business." Saying that "nobody can touch us in operating efficiency," he added that Richfood is poised for any future wholesale growth by reserving "facilities and capacity to accommodate another $1.5 billion in volume."
For capital spending, Richfood has averaged 2.5% to 3% of revenues the past few years and "we plan to [spend] that or even more" in the future, projecting a fiscal 1999 capital expenditure budget of approximately 3.4% of revenues. "But we reserve the right to increase that level of spending should real-estate opportunities present themselves faster than we anticipate," Stokely said.
Asked if Richfood would be seeking any acquisitions out of the geographic market it now operates in, Stokely said, "Historically, we stay close to home. We feel that's where the population growth is and no one knows our retail market like we do. There are plenty of opportunities for us without looking outside our market.
"It would have to be a pretty unique opportunity for us to look at it."
Jitney-Jungle Marketing and Remodeling
NEW YORK -- Jitney-Jungle Stores of America, Jackson, Miss., is counting on an aggressive companywide marketing strategy and a remodeling program for its Gulf Coast stores to drive sales and earnings in fiscal 1999.
The company kicked off a print, radio and television ad blitz Super Bowl Sunday that highlights its stores' high-low pricing and an enhanced emphasis on fresh products and friendly service. Jitney-Jungle will also retrofit the Delchamps stores it acquired last year while holding the line on capital spending.
"We expect to remodel more stores in 1999 than we did in 1998 and spend less money," Michael Julian, chairman and chief executive officer, said at the Food & Drug Retailing conference sponsored by Donaldson, Lukfin & Jenrette here.
"Last year, our average remodel cost us $1 million; this year we're expecting the remodels to run at about $620,000 apiece," he said.
According to Julian, "1999 is the year we reap the benefits of synergy of the merger." He explained that, "Those stores require us to move very little of the departments around, to put very little new refrigeration in.
"In most cases, it requires us to add shelving, spruce up the decor and, more importantly, go from a conventional Delchamps to the Combo Premier format that adds significant variety and product."
The company, which spent $58.9 million on capital projects last year, has budgeted $54.5 million for fiscal 1999, Julian said. "In the all-important Gulf Coast region, we are clearly the players," Julian declared. "That's where most of our capital expenditures are being spent."
Further, "The Delchamps acquisition put us into a larger store format and larger metropolitan populations; Jackson [Miss.] and Memphis [Tenn.] were our two big markets with Jitney; we are now in population centers along the Gulf Coast that are among the fastest growing areas in the U.S.," an area Julian defined as "from Panama City to New Orleans."
Ron Johnson, president and chief operating officer, said the marketing strategy centers around the company's "Fresher/Friendlier" motto and its frequent-shopper card program. "We worked hard to put together a marketing program to convince not only our customers but our associates that we did make the turn."
In addition to running the ads, the company conducted 91 training sessions at 39 locations and stepped up its mystery-shopper spot checks. "The results from our own associates [to the ads and training] are nothing short of spectacular in the positive feedback we got," Johnson said.
