Dive Brief:
- SpartanNash grew net sales by 5.9% in the third quarter to $1.91 billion, up from $1.80 billion in the same period a year ago, according to a company release. The company’s distribution channel drove growth, with sales rising 16.5% year-over-year to $937.4 million, thanks primarily to the acquisition of specialty wholesaler Caito Foods and 5.2% organic growth. Despite flat year-over-year sales, the military commissary business showed some improvement compared with last quarter.
- SpartanNash's retail segment continued to be a drag on sales and profits. Retail store sales were down 5.2% to $463.6 million compared with $489 million in the third quarter last year. The drop was attributed mainly to store closures, as the company tries to streamline operations, and a 2.5% drop in comparable-store sales, due in part to price investments the company has made in a hyper-competitive grocery environment.
- The company recorded a $123.5 million loss from continuing operations for the third quarter, compared with earnings of $16.7 in the same year-ago period. The loss resulted largely from restructuring and asset impairment charges associated with its retail store rationalization program, start-up costs at the company’s new Fresh Kitchen operation, and acquisition and integration activities.
Dive Insight:
Weakness in SpartanNash’s retail operations continue to overshadow growth in the wholesale division. The company’s conventional supermarkets, including Family Fare Supermarkets and D&W Fresh Markets, are having a hard time differentiating themselves in a crowded market. Like other middle-of-the-road operators, they’re under pricing pressure from Walmart, discounters and dollar stores.
Despite the ongoing struggles, SpartanNash is taking some promising steps to improve the retail shopping experience, including remodeling stores with an increasing emphasis on fresh departments and foodservice. A 50-year-old Forest Hills Foods store near Grand Rapids, Michigan, bought by the company in 2012, recently got a facelift, and could serve as the poster child for future remodels as well as a testing ground of new products and concepts for use across the broader chain.
Going live with its e-commerce offer could also prove to be a boon for SpartanNash. The company launched a click-and-collect program, called Fast Lane, at a Family Fare Supermarket location in Grandville, Michigan in July. The service has since rolled out to 25 locations with plans to expand to up to 50 stores by year’s end. The company reportedly is also testing home delivery in select areas.
"We will continue to improve our retail consumers' experience through an improved assortment of better for you products, convenient meal solutions and increased value offerings in private brands and produce,” CEO David Staples said in a statement. “We expect these initiatives, as well as our Fast Lane and pilot of home delivery services, will lead to increased customer satisfaction and loyalty as they are deployed over the next year.”
Spartan should also have an advantage in its Fresh Kitchen fresh food processing facility, which came with its Caito Foods acquisition last year. The facility, which has been slow to come on board, should help the company source more in-demand fresh items to wholesale customers as well as to its own retail stores.
During today's earnings call, Staples noted, "While the Fresh Kitchen start-up is still underway, the offer of such products as meal components, better-for-you meals, and grab-and-go items remain a key aspect of our meal solutions strategic initiative." In August, Staples said the Fresh Kitchen likely won’t start contributing to company growth until next year.
Despite some moves in the right direction, it remains to be seen just how long SpartanNash can continue investing in company-owned retail stores without getting more of a return. Not unlike Supervalu — which also recently showed sales at its stores falling while distribution was doing well — the retailer/wholesaler could face some tough decisions ahead.