The Insider - Heard on the Street
Last week the San Francisco Chronicle and a couple papers in nearby Berkeley published brief stories in which they reported eight-store, family-owned grocery chain Andronico’s Community Markets is having financial problems.
The reports were based on e-mails sent to the papers from suppliers/vendors the grocer owes money to on a past-due basis.
It's true the grocer is past-due to the vendors. But Andronico's financial struggles aren't a new development, as reading the reports might suggest. Instead, the grocer's financial difficulties began in earnest in late 2005-2006, becoming very serious in 2009, and remaining so today, due primarily to too much debt, increased competition and later the economic recession.
The 82-year-old upscale-oriented eight-store independent, headed by CEO Bill Andronico and founded in 1929 by his grandfather, Frank Andronico, moved on April 26, 2011 from its longtime headquarters located at 1109 Washington Avenue in Albany near Berkeley to a suite of offices above and next to its store (pictured above) on Irving Street in San Francisco’s Inner Sunset District.
The lease on the Albany digs, where Andronico's has been for about 25-years, was up May 1. The grocer didn't renew it, instead deciding wisely to save some cash by utilizing what is a fairly decent amount of office space at the San Francisco location, which is its best overall performing store out of the eight supermarkets it operates - four in Berkeley, and one unit each in San Francisco, Palo Alto, Los Altos and San Anselmo.
Palo Alto and Los Altos are in the South Bay Area, not far from San Jose. San Anselmo is in Marin County.
In the past Andronico's rented out some of the office space above and attached to the supermarket in San Francisco's Inner Sunset District.
The store is the only supermarket in the densely-populated neighborhood, which among other things is home to the University of California at San Francisco, a medical professions' campus which has a medical school, school of pharmacy, graduate school of health sciences, a major research hospital and additional research institutes.
Since I've known about Andronico's serious financial problems since 2009 - and its overall financial struggles since 2006 - I thought I would offer some details, analysis and commentary on the topic and issue for Fresh & Easy Buzz readers, many of whom are very familiar with Andronico's Community Markets, which until last summer was known simply as Andronico's Market, and before that as Andronico's Park & Shop.
The signs on the Andronico's stores still say Andronico's Market, even though the name of the chain and stores were changed to Andronico's Community Markets last summer. I'm told by a person in a position to know at Andronico's there are no current plans to put up new signs because of the expense of doing so.
First off, last week Bill Andronico responded to the San Francisco Chronicle with an e-mail, which was published May 26.
According to the May 6 item in the paper, Bill Andronico wrote in the e-mail that the grocer is looking to "recapitalize" and to "bring in lending/investor partners to replace the existing lender group and, additionally, provide growth capital." (You can read the rest of his e-mail as published in the Chronicle here.)
Last week the San Francisco Chronicle and a couple papers in nearby Berkeley published brief stories in which they reported eight-store, family-owned grocery chain Andronico’s Community Markets is having financial problems.
The reports were based on e-mails sent to the papers from suppliers/vendors the grocer owes money to on a past-due basis.
It's true the grocer is past-due to the vendors. But Andronico's financial struggles aren't a new development, as reading the reports might suggest. Instead, the grocer's financial difficulties began in earnest in late 2005-2006, becoming very serious in 2009, and remaining so today, due primarily to too much debt, increased competition and later the economic recession.
The 82-year-old upscale-oriented eight-store independent, headed by CEO Bill Andronico and founded in 1929 by his grandfather, Frank Andronico, moved on April 26, 2011 from its longtime headquarters located at 1109 Washington Avenue in Albany near Berkeley to a suite of offices above and next to its store (pictured above) on Irving Street in San Francisco’s Inner Sunset District.
The lease on the Albany digs, where Andronico's has been for about 25-years, was up May 1. The grocer didn't renew it, instead deciding wisely to save some cash by utilizing what is a fairly decent amount of office space at the San Francisco location, which is its best overall performing store out of the eight supermarkets it operates - four in Berkeley, and one unit each in San Francisco, Palo Alto, Los Altos and San Anselmo.
Palo Alto and Los Altos are in the South Bay Area, not far from San Jose. San Anselmo is in Marin County.
In the past Andronico's rented out some of the office space above and attached to the supermarket in San Francisco's Inner Sunset District.
The store is the only supermarket in the densely-populated neighborhood, which among other things is home to the University of California at San Francisco, a medical professions' campus which has a medical school, school of pharmacy, graduate school of health sciences, a major research hospital and additional research institutes.
Since I've known about Andronico's serious financial problems since 2009 - and its overall financial struggles since 2006 - I thought I would offer some details, analysis and commentary on the topic and issue for Fresh & Easy Buzz readers, many of whom are very familiar with Andronico's Community Markets, which until last summer was known simply as Andronico's Market, and before that as Andronico's Park & Shop.
The signs on the Andronico's stores still say Andronico's Market, even though the name of the chain and stores were changed to Andronico's Community Markets last summer. I'm told by a person in a position to know at Andronico's there are no current plans to put up new signs because of the expense of doing so.
First off, last week Bill Andronico responded to the San Francisco Chronicle with an e-mail, which was published May 26.
According to the May 6 item in the paper, Bill Andronico wrote in the e-mail that the grocer is looking to "recapitalize" and to "bring in lending/investor partners to replace the existing lender group and, additionally, provide growth capital." (You can read the rest of his e-mail as published in the Chronicle here.)
There's really nothing new about Andronico's trying to bring in new investors and raise capital. It brought in new money a decade ago, which is how from the late 1990's to the early 2000's it built a new store and fresh foods facility in Emeryville (East Bay), two very upscale and expensive-to-construct stores in the East Bay Area cities of Danville and Walnut Creek, and how it financed the remodeling of the San Francisco store in 2008, along with doing a few other things.
Additionally, the grocer has been seriously trying to raise money from existing and new investors for at least six years that I'm aware of. It continues to try.
The first major sign Andronico's was having serious financial difficulties beyond those that surfaced in 2005-2006 was when in 2009 it let a number of category managers and buyers go at its then headquarters in Albany. The grocer had established a well-staffed professional category management system in the late 1990's, after having just a couple grocery buyers, a produce buyer, meat buyer and small prepared foods headquarters' staff prior to that.
Shortly after the cutbacks, Bill Andronico brought in former Whole Foods Market executive Justin Jackson as a consultant. Before joining Andronico's, Jackson was the vice president of purchasing for Whole Foods Market's Pacific Northwest Region
As part of his job, Jackson, who is executive vice president of Andronico's, recruited a new senior management team, largely comprised of ex-Whole Foods Market guys from the Pacific Northwest and Northern California divisions.
That team includes: John Clougher, Andronico's president and COO; Steve Epidendio, vice president operations; and Anthony Gilmore, who's titles are chief strategist and chief administrative officer. Bill Andronico remains CEO.
Clougher is the former president of Whole Foods' Pacific Northwest Region. Epidendio was the vice president of retail operations for Whole Foods Markets' Northern California division. He was previously a store manager for Andronico's for about nine years, from the late 1980's to early 1990's, later joining Whole Foods Market in Northern California.
Anthony Gilmore was recruited by Jackson and Clougher to Andronio's. Just prior he was vice president of corporate lifestyle, new concept development and corporate perishables at Pleasanton, California-based Safeway Stores, Inc., from 2007 until leaving in 2010, where among other things he worked on the development of its "The Market" small-format stores, which Safeway has stopped opening. There are two "The Market" stores - one in Long Beach, California, the other in San Jose. [See - October 15, 2010: Safeway Shelving 'The Market' Small Store Format; Won't Be Part of its Strategy Going Forward.]
Gilmore, who has 34-years experience in the food and grocery retailing business, most of it at Safeway and Whole Foods Market - and most of those years in Northern California - was president of Whole Foods' Northern California Region from 2004-2007. During his tenure in the position he was responsible for leading the development of numerous new Whole Foods locations in Northern California, many of which opened this year and last.
He went to work for Whole Foods in 1996 as the manager of its store in Palo Alto, California, where one of Andronico's eight stores is located.
Gilmore later managed a store in Boulder, Colorado and was later promoted to regional vice president of the natural and organic-focused grocer’s Southwest Region, taking over as president of the division a short time after.
From 2002-2004 he was president of Whole Foods' Midwest division, getting promoted to president of the much larger Northern California Region in 2004.
Before joining Whole Foods Market in 1996, Gilmore spent 19-years working for Safeway Stores' in Northern California at the store-level, including as a store manager.
One of the casualties of the shake up at the grocery chain was the departure of Gary Wallner, who for 21-years was the face of Andronico's to the vendor-broker-supplier community. Wallner joined Andronico's in 1989 as a buyer-merchandiser, progressed to director of buying and merchandising, and then became vice president, which was the title he held when he left in May 2010.
In addition to Wallner, a couple other senior executives were let go in the reorganization.
One of the first things the new management team at Andronico's did last summer was to change the name of the chain, from Andronico's Market, to Andronico's Community Markets.
The change reflects the grocer's attempt to reposition the stores from their historic higher-end, upscale/specialty focus to a more community or neighborhood-oriented grocer. The stores still focus on specialty, natural, organic and fresh and fresh-prepared foods, along with offering basic groceries as they always have, but the group has been trying to tone down the upscale aspect in order to try to reach a broader customer base.
The recession that first hit in 2008 added to Andronico's financial problems, along with its debt load and the increased competition, because some its core-customers were forced to trade-down to grocery stores that offered lower prices. Although the Bay Area economy has improved somewhat since, as is often the case when consumers start shopping around elsewhere, they continue doing it even when things get better economically, at best splitting their business among two or three food retailers.
The family-owned grocer has a history of name changes. For example, until the late 1980's-early 1990's the stores were called Andronico's Park & Shop Markets, then becoming Andronico's Market, the company name and store names until last summer.
Going Forward
First and foremost, Andronico's is looking for new investors - and money - plain and simple.
Additionally, the grocer has an experienced and seasoned senior management team.
Bill Andronico knows the Bay Area food and grocery retailing market extremely well, as does Gilmore and Epidendio, most particularly out of the others, although I question if Andronico's can afford as much high-priced talent as it has brought on in the senior management ranks.
For example, Bay Area competitor Mollie Stone's Markets (nine stores), which is privately-owned and very similar in format to Andronico's historic format positioning, has a much leaner management structure and team and is doing well despite the continued economic recession and competition from major chains and other independent grocers in the Bay Area. Mollie Stone's opened its ninth store in San Francisco's Castro District in March of this year, for example.
Andronico's has what in my analysis and opinion are three strong stores out of the eight it operates in the Bay Area. Those stores are its Inner Sunset supermarket in San Francisco and two stores in Berkeley - Shattuck Avenue and Telegraph Avenue - out of the four units in the Easy Bay Area city.
The other five stores are decent-to-marginal.
The two other Berkeley units, on University and Solano Avenues respectively, haven't been great performers for many years.
And Andronico's has and faces increased competition in Berkeley, where for decades it was the leading grocer with its four stores.
For example, Trader Joe's opened its first store in Berkeley this year. The TJ's store on University Avenue, not far from the Andronico's Communty Market unit on the same street, which leads to the world renown University of California at Berkeley campus, has taken a significant bite out of sales at the Andronico's store.
Additionally, local independent Berkeley Bowl opened a new store in the city last year. That and its existing store - the grocer is super-popular and focuses on fresh foods (particularly produce) as well as natural, organic and specialty products - have also hurt Andronico's considerably, as has the Whole Foods store (near the Telegraph Avenue Andronico's), which has come on stronger over the last few years, compared to its past performance.
Even though it's still a strong store, the Inner Sunset District Andronico's unit got some new competition earlier this year when Whole Foods Market opened a store a five minute drive away, at Haight and Stanyon streets in San Francisco's Haight-Ashbury District.
The Whole Foods' store went into a vacant building that for decades was home to a Cala Foods market, which was closed a number of years ago by Kroger Co., its owner. Ironically, the Haight and Stanyon Whole Foods store was one of the many locations acquired by Gilmore during his tenure as president of Whole Foods Market's Northern California division.
During the years the former Cala Foods building and now Whole Foods store was vacant, the Andronico's unit in the Inner Sunset gained added business and sales because the store was the nearest full-service supermarket for many people in the Haight-Ashbury neighborhood.
The Palo Alto, Los Altos and San Anselmo Andronico's stores are what I call decent-to-marginal performers, and are subject to becoming worse-performing with increased competition, which is coming everywhere in the Bay Area, with Trader Joe's, Sprouts Farmers Market, Whole Foods Market, Sunflower Farmers Market, Target and Tesco's Fresh & Easy Neighborhood Market all opening numerous new stores, along with continuing new store growth from Safeway and others, in the region.
Walmart also plans to start opening some of its new smaller-format Walmart Market and Walmart Express stores in the Bay Area, beginning later this year or in early 2012.
So what's Andronico's to do?
Option one is to bring in new investors with cash - this the grocer's preferred option because it desires to stay independent, according to my good sources - and not sell the 82-year-old chain bearing the family name, although investors do own a piece of it now.
When founder Frank Andronico stepped down, Bill Andronico's father took over. And when his Dad retired, Andronico, who's a graduate of the University of Southern California's Food and Grocery Industry Management Program and has worked in the family business for about three decades, became CEO. That's a serious and important legacy to uphold and maintain.
In its 82-years Andronico's has also been a innovator, no only in the Bay Area but nationally.
For example, it was one of the first grocers in the U.S. to offer fresh-prepared foods made in-store by chefs.
Andronico's was also one of, if not the first, grocers to install multi-shelved refrigerated produce cases in its stores. In fact, when it first did so many decades ago, such produce cases didn't exist, so the grocer had them custom made.
The family-owned chain also is a pioneer in specialty, gourmet, natural and organic food and grocery product merchandising and promotion. For example, long before Whole Foods Market opened its first store in the Bay Area in the 1980's, Andronico's was already firmly established as a leader in the then just-starting-to-emerge categories in the United States.
Andronico's was among the first wave of supermarkets in the U.S. that provided significant space on its shelves to natural and organic product brands like Lundberg (rice), Celestial Seasonings (tea), Newman's Own and many others, as well as to specialty and gourmet foods from abroad and at home.
Andronico's was also the first grocer I'm aware of that completely replaced the standard metal grocery shelving in its stores with wire Metro shelving, something that not long after it did so became popular among grocers in the Bay Area and throughout the U.S., thanks in part to Bay Area-based grocery store designer John Sutti, who built his considerable reputation in large part on the innovative store design work he did in partnership with the family in their stores.
A story: When Whole Foods Market co-CEO Walter Robb went to work for the then fledgling grocery chain in the early 1990's, his first task was to spearhead the renovation of a vacant building on Miller Avenue in Mill Valley, California that he previously had the lease on and had planned to turn into his own grocery store. But failing to raise the cash, Robb instead did a deal with Whole Foods' founder (and the other co-CEO) John Mackey, which was that in return for a little money and a job as the store's planner and then manager he would sell the lease to Whole Foods so the location could become the grocer's first store in Mill Valley.
It was a good decision for Whole Foods, Robb and Mackey. The 14,000 square-foot store has among the highest sales-per-square-foot of any Whole Foods unit - averaging about $550,000 a week in sales. Robb later became president of Whole Foods' Northern California Region. The Northern California Region has become a top-performer for Whole Foods. Mackey and Robb, who later became co-president of Whole Foods, went on to have a great working relationship, so much so that Mackey and the grocer's board named Robb co-CEO last year.
Robb (and Whole Foods) hired John Sutti and his firm to do the design work for the Miller Avenue store, which is one of two Whole Foods Market stores in the small town of Mill Valley (about 10,000 residents), in large part because Robb was impressed with the work Sutti did for Andronico's, who Robb called on for a couple years prior to that as a sales consultant for a number of Bay Area natural and organic products' companies. He also got had gotten to know Bill Andronico and the Andronico's stores fairly well prior to that as the manager of a natural foods store in Marin County.
Jean Greenfield, who for a number of years in the 1990's worked as Whole Foods' Northern California regional buyer out of a tiny converted closet, accessible by climbing a latter, atop a small loft in the backroom of the Miller Avenue store, later went to work for Sutti's retail store design firm. Whole Foods later established its Northern California headquarters in Emeryville, where it is today.
Bottom Lines(s)
Andronio's has been working hard on option one, bringing in new investors, for nearly one year now, since the new senior management team took over. So far - no new investors or cash.
This brings us to what I call option two, which would be an outright acquisition or major investment - controlling or significant minority interest - in Andronico's.
I see two grocery chains this might make sense for - Tesco's Fresh & Easy Neighborhood Market and Bristol Farms - both of which are headquartered in Southern California and have stores in Northern California's Bay Area.
Bristol Farms and Endeavour
In October 2010 members of Bristol Farms' senior management team, including CEO Kevin Davis, along with investment firm Endeavour Capital bought the upscale 14-store chain from its then owner, Supervalue, Inc. Bristol Farms has one store in Northern California, in San Francisco, and is scouting the region, with a focus on the Bay Area, for potential future stores. [See - October 29, 2011: CEO Kevin Davis, Execs and Investment Firm Buy Upscale Southern California Bristol Farms Chain From Supervalu, Inc.]
Andronico's and Bristol Farms are very similar chains, even though the new team is trying to position Andronico's Community Markets more into the community or neighborhood market space - which to date in my analysis and opinion hasn't and isn't working.
Therefore, I see some definite synergies (and mutual opportunities) between the two grocers in terms of Bristol Farms/Endeavour Capital taking a look at Andronico's, as either an investment opportunity or acquisition.
Both grocers are also supplied by wholesaler Unified Grocers, which doesn't want to lose the Andronico's business.
Will Bristol Farms take a look? I would if at the helm. Would Andronico's be interested? One would think so.
One problem though: Andronico's is union. Bristol Farms is not. That means a deal of any kind is going to involve the United Food & Commercial Workers (UFCW) union on some level, which is something Bristol Farms would like to avoid.
Tesco and Fresh & Easy
The other opportunity I find most interesting is Tesco and its Fresh & Easy chain.
Andronico's offers the following to Tesco and its Fresh & Easy Neighborhood Market chain, which has opened 11 stores in Northern Californa (nine units in the Bay Area) so far this year, and opens its first store in San Francisco June 22, followed by its second unit in the city on August 24.
>Talent: Bill Andronico and Anthony Gilmore (and maybe one additional member of the senior management team), both know as much about the Northern California market region as most grocers operating in it do. That would be a big plus for Tesco and Fresh & Easy, which as a dearth of senior executives with experience in Northern California or elsewhere in the U.S.
>Fresh Foods: Andronico's has a, history of having among the finest fresh produce, meat and fresh-prepared foods programs not only in Northern California but in the U.S. Tesco's Fresh & Easy could benefit greatly from this expertise and experience.
>Store Locations: Tesco could utilize all eight of Andronico's stores.
What I would do as Tesco:
>Get rid of the Andronico's Community Markets name and go back to Andronico's Market, keeping the San Francisco, Shattuck Avenue-Berkeley and Telegraph Avenue-Berkeley stores under the Andronico's Market banner and format. Use it as the basis of a possible upscale chain down the road. Invest some money in the two Berkeley stores, although it need not be much as they are in pretty good shape.
>Change the University Avenue and Solano Avenue stores in Berkeley to Fresh & Easy Nieghborhood Market stores. Both locatons are about the same size as Fresh & Easy markets - 10,000-12,000 square-feet - and geographically fit the format best of the four.
>Also convert the San Anselmo, Palo Alto and Los Altos locations to Fresh & Easy stores.
Tesco's Fresh & Easy has no stores in Berkeley, which is one of the better cities in the Bay Area for the format.
Tesco's Fresh & Easy also doesn't yet have any stores in Marin County (San Anselmo), Palo Alto or Los Altos, all desirable locations.
Andronico's fresh-prepared foods program and the high quality of the products it produces could be helpful to United Kingdom-based Tesco overall, in the UK where it's a major player but far from the best - Marks & Spencer, Waitrose and Sainsbury's are better in my view - in ready-to-eat and ready-to-heat prepared foods' merchandising and globally in some of its other operations.
Lastly, Andronico's specialty-oriented expertise and historic upscale format might also be a benefit to Tesco in the UK if it ever decides to create an upscale format and position it against the nation's leading upscale-specialty-natural-organic grocery chain,Waitrose, and Whole Foods Market, which is opening additional stores there.
Union redux: Like Bristol Farms, Tesco's Fresh & Easy is a non-union food and grocery retailing chain. And, as readers of Fresh & Easy Buzz are well aware because we cover the issue more extensively and more in-depth than any other publication does, the United Food & Commercial Workers Union (UFCW) has been trying to unionize Fresh & Easy Neighborhood Market since early 2008. Therefore, the fact Andronico's is a union grocer could pose a serious barrier to Tesco making any sort of investment in Andronico's - even buying it - should the UK-based global retailing giant-come-to-America consider my scenario.
The jury is still out on whether the Fresh & Easy format will succeed. Right now in my analysis the majority of the jury is voting no. But Philip Clarke and company might still be able still change that verdict, although the clock is ticking very fast.
Were I an advisor to Tesco CEO Philip Clarke and his deputy CEO Tim Mason (and I'm not and don't seek such a position), who's also CEO of El Segundo, California-based Fresh & Easy Neighborhood Market, I would tell then to call Bill Andronico post-haste and set up a meeting with him, Anthony Gilmore and the CFO, to start. The investment in time is well worth the potential outcome.
And, of course, Andronico's could benefit - starting with surviving - from an investment or more from Tesco. As such, were I advising Bill Andronico (and I don't), I would tell him not to wait to hear from Tesco CEO Clarke or his deputy Tim Mason. Instead, I'd suggest he reach out and ask for a meeting. Perhaps he already has - Philip Clarke was in San Francisco late last week, leaving the airport on Saturday to return to London?
if Andronico's had hired that social media director it's been advertising for on its website for nearly a year - I first saw the ad on the website in August 2011 and noticed Andronico's removed it about one week ago - it could communicate with Tesco on Facebook and Twitter, two important social media sites Andronico's has zero-presence on. See its Facebook site, for example, assuming it's actually the grocers.
If I were being paid the big bucks to turn a grocery chain like Andronico's around, one of the first things I would do is create a significant presence on Facebook, Twitter (Andronico's has neither that I can find) and a couple other social media sites. You can hire a talented college intern to help for near-nothing, for example.
The sites are free but potentially powerful. They also allow a grocer to address customers and potential customers directly and instantly - no need to send e-mails to third parties like local newspapers, which is so 20th Century.
Bill Andronico should call Mollie Stone's co-owner Dave Bennett, who understands the potential power of social media, and chat a bit. Then he should ask his numerous senior executives what they're waiting for on the social media front? After all, 82-year-old Andronico's needs and deserves solutions rooted in the 21rst Century, not the 20th.
A Sugar Daddy of sorts isn't needed for social media and many other low-to-no-cost operations, merchandising, marketing and promotional programs that are needed but I'm not seeing being implemented at Andronico's, which makes me wonder - are things that close to the end financially? Or is it time for another new senior management team? Or both?
It would be a shame to lose the 82-year-old chain completely. So time and much better effort from the senior management team seems to me to be of the essence.
