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    Thursday, July 18, 2024

    Experts in Conn. conflicted on ‘underperforming’ Stop & Shop stores they expect to close

    Supermarket industry and retail experts say recent news that Stop & Shop officials had made public plans to close an unspecified number of their stores across the Northeast later this year comes as the company is at a crossroads where unprofitable stores could be returned to profitability if swift action is taken.

    Stop & Shop officials still haven't identified any specific locations in Connecticut or elsewhere that are slated for closure. But given current supermarket competition levels and other nearby states in the Northeast, failure to take appropriate steps to adjust their current business model could result "in a death spiral that will be hard to recover from," said John T. Niccollai, president of the Local 464A of the United Food and Commercial Workers .

    "I don't see them selling or going out of business entirely because their parent company (Dutch food giant Ahold Delhaize) has very deep pockets, but I think you could see as many as third of their stores in our jurisdiction," Niccollai said, "We're rooting for Stop & Shop; we don't want to see the company go out of business. We want them to be successful and profitable."

    A Stop & Shop spokeswoman on Tuesday declined to discuss a more specific timeline for store closures, how many workers might lose their jobs or explain in detail the process used to determine how it identifies unprofitable stores.

    "It is too early in the process to share any additional information regarding potential store closures," said Stephanie Cunha, a spokeswoman for the Massachusetts-based chain. "Stop & Shop continues to hold a strong market share position in the Northeast with our portfolio of nearly 400 stores. We've completed more than 190 remodels to date, which continue to perform well, and we're committed to continuing to invest in our stores — as well in our prices — to deliver a great in-store experience and great values for our customers. Stop & Shop will make some difficult decisions to close select underperforming store locations to help ensure the long-term health and future growth for our business."

    In Connecticut, Stop & Shop has stores in nearly 75 cities and towns. But whereas its Massachusetts-based rival Big Y has been in expansion mode in Connecticut, Stop & Shop has been culling select locations.

    Local 464 represents workers in about 90 stores in New Jersey and Noccollai said he sent a letter to Ahold Delhaize to take corrective action that includes returning meat cutting operations to individual stores. Stop & Shop eliminated in-store meat cutting in its New Jersey stores about two and half years ago and replaced it with pre-packed cuts of meat that are cut up and packaged off-site.

    In his letter, Niccollai cited about a dozen complaints from customers who had meat that either had an unpleasant odor when the packaging was opened or looked unappetizing.

    "If you have customers experience that once or twice, it's difficult to get them to come back," he said. "They are going to shop somewhere else."

    The off-site packaging of expensive cuts of meat for ticket for Stop & Shop stores is widespread, said Burt Flickinger, managing director of the New York City-based Strategic Resource Group. Flickinger, whose company has done consulting work for Stop & Shop, said a decline in meat sales at the chain's stores in Connecticut and elsewhere has had a significant impact on the company's profits.

    The average purchase per visit at a Stop & Shop is between $35 and $40 for shoppers using non-express checkout lanes, he said.

    "The same average purchase when meat is included is between $79 and $95," Flickinger said.

    At one time, Connecticut Stop & Shop locations had the highest average of meat sales in the nation, according to Flickinger. Now, he said that research indicates the meat department at big box retailer Costco has that title, with $400,000 in meat sales per store per week.

    "Meat determines the whole menu for many families every week," Flickinger said. "And it's highly profitable."

    Retail experts with knowledge of the Connecticut grocery marketplace are divided in their opinions about how many Stop & Shop stores in the state will close or where the shuttered stores will be.

    "The locations they have which were renovated have been doing well," said David Cadden, a professor emeritus at Quinnipiac University's business school. "The stores that they have which weren't revamped and are located in areas that aren't that great or where the customer base is poor, those are the locations that are going to lose out."

    The Stop & Shops in less desirable locations are losing customers to Aldi, the German grocery chain that focuses on cost conscious customers, he said. And Aldi is one of several grocery chains that is expanding in Connecticut.

    Cadden said Stop & Shop needs to take steps to refocus how Connecticut consumers view it.

    "It's called the deadly middle," he said. "You either differentiate yourself in terms of the quality of you offerings or by having a wider selection than your competitors or you compete on price."

    Flickinger said Stop & Shop "could quickly do a course correction and become more responsive to the consumer."

    "But rather than fixing the problem, they are accelerating it," he said. The company's focus has become cost cutting its way to the profit margins it wants to achieve, according to Flickinger.

    Jim Mohs is an accounting and taxation professor at the University of New Haven who has an expertise in corporate profit margins. Mohs said he expects Stop & Shop executives "to be responsible" in determining which Connecticut stores it will close.

    "I don't see them doing something dire like a widespread closing," he said. "With the number of stores that Stop & Shop has in Connecticut, there is going to be duplication and over-reach and when there is overlap, profit margins fall apart. An under-performing store is one that is not making the (profit margins) that the company has set for it and you can't expect a company to keep a store open that is operating at a loss."

    That could mean looking at parts of the state where Stop & Shop has an over-abundance of stores in a given area as opposed to closing one in an area where the chain has the only grocery store in a several-mile radius.

    Mohs acknowledged that the definition of what is an under-performing store is not something that is set in black-and-white.

    "There is no hard and fast rule as to what the hurdle rate is," he said, using a financial term that is defined as the minimum rate of return that an investment must achieve to be approved by an investor or manager. "A good margin in manufacturing is around 30 percent, but grocery stores are different, in part because much of what they sell is perishable. An appropriate rate of return varies from company to company. For many businesses, if they have a 10 percent profit margin, it's probably pretty good."

    One hint at what Stop & Shop locations might close is stores that formerly had supermarket branches, according to Mohs. He lives in upper Fairfield County and a Stop & Shop location near his home that once hosted a People's United branch was closed after the Bridgeport-based bank was taken over by Buffalo, N.Y.-based M&T, Mohs said.

    Mohs said the problems that Stop & Shop is currently experiencing and being exacerbated by inflation.

    "Inflation is more of a driver of people's shopping habits," he said. "ShopRite seems to do more volume in Connecticut because the prices are better."

    Whatever Connecticut stores that Stop & Shop decides to close, Cadden said there is likely to be a high demand for the space that they will be vacating.

    "Stop & Shop has some of the best commercial real estate," he said.

    Flickinger said any store that Stop & Stop closes could attract interest from Massachusetts-based Big Y or an Aldi rival, Lidl, another German chain. Lidl entered the competitive grocery chain marketplace in the New York City metropolitan area in 2018 when it acquired 27 Best Market stores in New York and New Jersey.

    Taking that route allowed Lidl to get into the New York Market more quickly than if it had built new stores, according to Niccollai.

    "In some cases, the chain that is going out of business will sell the retailer that is buying the real estate the shelving and coolers at a fraction of what they cost to buy new." he said.

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