Key Food posts flat annual comps as it fought deflation, A&P effects

Key Food Stores Cooperative finished its fiscal year Saturday posting flat comparable-store sales, and record earnings, revenues and store count, said CEO Dean Janeway.

The comps came amid deflation and the effect of cycling the New York metro area disruption triggered by the respective bankruptcies and liquidation of A&P and distributor AWI in 2015, Janeway noted. Though precise sales and earnings figures weren’t immediately available, Janeway said Friday that sales results for the year would come in the range of the $2.7 billion he projected during the cooperative’s annual vendor summit six months ago.

That marks the ninth straight year of sales growth for the Staten Island, N.Y.-based cooperative, as well as the ninth straight year of improved profits and store count. It finished the year with 240 stores, all but two owned by independent operators under a variety of store banners.

Speaking at a store opening event in Brooklyn Friday, Janeway (left) said achieving flat comps was something of an accomplishment given industry conditions and the anniversary of 2015’s bankruptcies. A&P’s sell off took out more than 100 grocery stores and redistributed around 200 others among new owners. Between A&P and AWI, Key Food added around 80 new stores to the cooperative.

“For a while it didn’t look like we going to do that [achieve flat comps],” he said. “Our Q1 was real strong, but in Q2, Q3 and Q4, we got hit with deflation like everyone else and we also got hit comping A&P from a year ago. With A&P going bankrupt, people were looking for a place to shop, so our same store sales were up, period by period, 4%, 5% or 6%. And going against those numbers this year was tough.”

Janeway said Friday he expected Key Food would cycle out of the sales effects of the A&P bankruptcy by July of this year, but said the company was keeping an eye on the market for additional opportunities for consolidation that struggling operators might present. He also anticipated further easing of deflation pressures in the new fiscal year and easier year-over-comparisons as it cycles the falling prices of meat, eggs and other commodities in 2016.

“We don’t take credit for inflation, and so we can’t make excuses for deflation,” he said. “Our biggest problem was that we got hit with a lot all at once. Deflation and the A&P event. And we are learning that having a weak competitor around was a good thing. Now you have 16 Stop & Shops in the boroughs, you have ShopRites that are closing [acquired A&P stores] and reinvesting in them, and they are much tougher competitors.”

He said stores have thus far adapted to New York City’s minimum wage increase, which began phasing in in January and will raise minimum wages to $15 per hour by 2019. The January increase raised the minimum to $11 per hour, which was in range of or below rates at most stores already.

“Year one wasn’t too bad, but year two and three are where the challenges are going to be,” he predicted. He said the full effect of the increase would cost Key Food’s corporate-owned stores about $100,000 each annually.

“For independent supermarket operators this is money right out of their pockets,” he said. “The question will be how do they overcome it?”