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Bolstered by new additions, Key Food CEO outlines growth plans
In a spirited presentation Thursday, Key Food CEO Dean Janeway described how an ultimately failed attempt to acquire a Waldbaums lease in Brooklyn rolled into “an opportunity of a lifetime.”
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In a spirited presentation Thursday, Key Food CEO Dean Janeway described how an ultimately failed attempt to acquire a Waldbaums lease in Brooklyn rolled into “an opportunity of a lifetime.”
Speaking at Key Food Stores Co-operative’s annual vendor summit in Staten Island, Janeway said the recently approved acquisitions of 23 former A&P stores would transform Key Food into the largest grocer in New York’s five boroughs; jump-start a strategy to operate corporate-owned stores for the first time; and spark an aggressive plan for growth that will take the company from an estimated $2.5 billion in sales this year to $3 billion by 2020.
A&P’s bankruptcy and subsequent store auction, he said, was “something that comes along maybe once every 25 years.
“Key Food wasn’t going to sit on the sidelines,” he said. “We were going to be right there in the mix.”
But it was pursuit of a single store, A&P’s Waldbaums unit on New Utrecht Avenue in Brooklyn, that prepared Key Food to go after the opportunity, he explained. That pursuit began two years ago when the retailer negotiated with the store’s landlord on a 49-year lease, only to run into complications when it was revealed the landlord owned approximately two-thirds of the property, with the remainder belonging to A&P.
Key Food had been busy opening new stores even before its purchase of A
During the course of discussions with A&P this spring — “I called to introduce myself as A&P’s new landlord,” Janeway joked — A&P officials revealed they were reviewing strategic alternatives, a process resulting in A&P’s Chapter 11 bankruptcy filing this July and a subsequent auction of all of its stores.
Janeway described a harrowing process of aligning investment bankers, lawyers and Key Food’s member-owners to assemble a bid. Key Food initially shot for a package of 52 stores, he said, but got “stalking horse” approval for only 19 of them. That package was eventually dropped to 17 stores when Key Food rejected two for having been what Janeway described as “the worst environmental disasters I’d ever seen.”
As the auction neared, A&P informed Key Food that one of its intended acquisitions — the New Utrecht Waldbaums — had attracted interest from another investor and was pulled from the package (the store remains unsold at this point). In exchange, Key Food received “super bid protection,” that helped secure the 16 stores without an auction. “Ironically, the store that got us into this is the one we had to surrender,” he noted.
At auction, Janeway described surprising other operators with aggressive bids for stores, ultimately winning seven more locations including a Manhattan Food Emporium store coveted by competitor Morton Williams Supermarkets. When Key Food opened bidding at $7.5 million for the unit, which eventually sold for $9 million, Janeway said, “I will never forget the gasp in the room for the rest of my life.”
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The new acquisitions, including two stores the company will operate corporately under the Food Universe banner, will play into ongoing sales momentum at Key Food, where comp sales are up by 3.7% this year, Janeway said. The corporate stores will help Key Food secure its loan portfolio to members, provide member-owners a potential exit strategy, diversify its revenue stream, and allow the company to test concepts and develop best practices, Janeway said.
Conversions of acquired stores are already underway, he added, and are expected to be complete by the end of November.
While the A&P collapse cost supplier C&S Wholesale Grocers — also Key Food’s primary supplier — an estimated $1 billion in sales, it remains the New York area’s top distributor, Janeway said. He predicted stability among suppliers in the near-term but said retail consolidation would likely continue, citing reports of perilous financial conditions for grocers like D’Agostino Supermarkets and Fairway.
Regarding Fairway — which later on Thursday announced a $12 million quarterly loss and the pursuit of additional capital — Janeway said, “This is pure speculation on our part, but we see another A&P coming in the first half of 2016."
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