C.A. Fortune Newsletter- July 2015 by C.A. Fortune

ORTUNE

Natural Specialty Bakery

Newsletter July 2015 Volume 3 - Issue 7

Distributor News ORTUNE Natural

Specialty

Bakery

July 2015 Vol. 3 - Issue 7 Inside This Issue Distributor News 2-3 Future of Food 3-4 Consumer Trends 5 Retailer News 6-12

UNFI Terminating Contract With Albertsons, Safeway United Natural Foods Inc. (UNFI) says its contract as a distributor to Albertsons Cos. Inc., which includes the Albertsons, Safeway and Eastern Supermarket chains, will terminate on Sept. 20, 2015, rather than upon the original contract end date of July 31, 2016. For the company’s fiscal year ending Aug. 1, 2015, revenue from Albertsons is expected to be approximately $410 million. The Providence, Rhode Island-based company says it does not expect its fiscal fourth quarter financial results or its current fiscal 2015 guidance to be impacted by this announcement. The company anticipates taking a one-time charge reflecting severance and associated termination costs in the first quarter of fiscal 2016, which will be disclosed in September when the company reports its fourth quarter and full year 2015 results and provides its fiscal 2016 guidance.

Shows & Events 13

Offices Headquarter Central Region 141 Covington Drive Bloomingdale, IL 60108 630.539.3100 East Region 2 Van Riper Rd Montvale, NJ 07645 201.307.9100 South Region 801 Stadium Dr. Ste. 107 Arlington, TX 76011 817.522.3200

“We are disappointed to end our existing relationship with Albertsons,” said Steve Spinner, the UNFI President and CEO. “However, we believe that this course of action is in the best longterm interests of United Natural Foods as it will now allow us to redirect our resources to pursue our previously announced plans to expand our focus in fresh categories such as proteins and specialty cheeses across the country, grow our gourmet and ethnic business, and serve as an e-commerce solution for our customers. We plan to utilize the capital freed up from the termination of our Albertsons’ relationship to further pursue our strategic objectives, and we believe this will provide greater value for our shareholders longterm.” UNFI carries and distributes more than 80,000 products to more than 40,000 customer locations throughout the U.S. and Canada. The company serves a variety of retail formats, including conventional supermarket chains, natural product superstores, independent retail operators and the food service channel.

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Distributor News UNFI Delays Opening of Gilroy DC In a message to suppliers on July 22, 2015, John Raiche, VP of Marketing for UNFI, made it known that due to no longer holding the contract with Albertsons, Safeway in the NorCal market, the opening of the Gilroy distribution center will be delayed. All POs for the Gilroy DC were canceled on Friday, July 24 and UNFI will notify suppliers once a new opening date has been determined Partners were informed to direct questions to a UNFI Supplier Relationship Manager.

Future of Food In the Future, Grocery Stores May be More Like ATMs Non-robotic grocery stores are so early 2015. That’s what shoppers in Des Moines, Iowa might be saying later this year, reports Consumerist’s Ashlee Kieler — the city may be the first to test out a grocery store that feels more like an ATM than a place to buy bread, milk and fresh produce. The secret’s in a machine called Oasis24Seven, writes Kieler. It’s a standalone grocery store that offers on-demand groceries via what Kieler calls “a cross between an ATM and a very large vending machine.” Featuring about 200 fresh, refrigerated grocery items, the machine uses a series of conveyor belts to select and dispense items selected by a consumer using a touch-screen. The machine only accepts electronic payments (KCCI’s Emmy Victor notes that EBT and other food assistance cards are included).

Could the machine, which is bulletproof and features a myriad of languages, be the solution to bringing fresh grocery items to food deserts? If so, it could be a real breakthrough — the USDA estimates that 23.5 million people live in areas without access to fresh, healthy food. Or perhaps Oasis24Seven could be a boon to people who would rather interact with a robot than be subjected to small-talk with their shopping. For those who prefer a more human grocery experience, be warned: you might not think you’re interacting with machines, but machines are certainly watching you. Progressive Grocer reports that new devices are making it easier to detect theft and increase sales. One tool in stores’ arsenal is the Smart Sense Dwell, which detects the presence of shoppers in specific store areas and alerts employees to their presence via two-way radio. The emits a “discreet” chime that can deter wouldbe thieves — but it also lets stores know when and where shoppers gather, allowing them to sell, sell, sell. Source

Future of Food House Passes National Food Labeling Bill The U.S. House of Representatives on Thursday passed the Safe and Accurate Food Labeling Act by a vote to 275 to 150. The bill, which still must be passed by the Senate before it becomes law, establishes a federal labeling standard for foods with genetically modified organisms (GMOs), giving sole authority to the Food and Drug Administration to require mandatory labeling on such foods if they are ever found to be unsafe or materially different from foods produced without GM ingredients. The Grocery Manufacturers Association (GMA) is applauding the bill’s passage, “Today’s bipartisan passage of the Safe and Accurate Food Labeling Act clearly demonstrates the growing support for this critically important legislation,” said Pamela G. Bailey, president and CEO of GMA. “We thank the sponsors of this bill, Congressmen Mike Pompeo (R-Kansas) and G.K. Butterfield (D-North Carolina), along with Congressmen Mike Conaway (R-Texas), Collin Peterson (D-Minnesota), Fred Upton (R-Michigan) and the other members who supported it for standing on the side of consumer choice, science and fact-based labeling. We now call on the U.S. Senate to move quickly on a companion bill and pass it this year.” GMA says that House Resolution 1599 protects the consumer from a costly and confusing 50-state patchwork of labeling laws by ensuring that the federal government retains its authority at the top of America’s food safety pyramid. It would also create a single, unified standard for food to be labeled as “GMO free” as part of a USDA program modeled after the popular USDA Organics program, according to the bill’s proponents. “A federal approach to food labeling remains the only way to ensure that Americans everywhere can access accurate information about the food they purchase,” added Bailey. “HR 1599 is fact-based, common sense legislation that will provide the kind of clarity and consistency in the marketplace for food labels that American consumers deserve.” The Snack Food Association (SFA) also commended the House passage of the bill. “Absent a federal GMO solution, manufacturers will have essentially three options in order to comply with state labeling laws—redesign packaging, reformulate products or halt sales to that state,” said SFA CEO Tom Dempsey. “Each option is difficult, costly, time-intensive and, at worst, could eliminate jobs and consumer choice in the marketplace.” Dempsey says SFA has worked closely with the Coalition for Safe Affordable Food to build support for the legislation. Opponents of the Safe and Accurate Food Labeling Act, however, have dubbed the bill the “DARK Act” (Deny Americans the Right to Know). They say the bill does not allow for mandatory GMO labeling and preempts state GMO labeling initiatives, such as the one that is slated to take effect in Vermont next year.

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Consumer Trends Boosting Hispanic Advertising Leads To Sales Spurt For CPG, Retail Brands Consumer packaged goods and retail marketers are seeing a direct correlation between revenue growth and Hispanic media investment, according to a new report from AHAA: The Voice of Hispanic Marketing. CPG and retail companies among the top 500 U.S. advertisers increased their Hispanic media spend by 67% percent during 2010 to 2014 versus the prior four-year period. Hispanic spending overall was up 20% during the same period. Carlos Santiago, chair of the AHAA Research Committee, said: “For every five-point shift from English to Hispanic media, we found, on average, a 1.75 percent boost in revenue growth rates – tangible evidence that shifts to Hispanic media directly impact total market revenue growth.” The study found that since 2006, the aggregate Hispanic ad spend by CPG/Retailers increased 100%, while English-language budgets for the category dropped 7%.

According to the report, P&G spends the most against Hispanic advertising with $439 million followed by L’Oréal, MARS, Walmart, Anheuser-Busch and SABMiller. Goya leads in highest percentage toward Hispanic with 59% of its advertising going to Hispanic with Constellation Brands (wine, beer and spirit marketer whose portfolio includes brands like Clos du Bois, Robert Mondavi, Corona, Modelo) and L’Arche Green (Heineken) close behind with 46% and 35%, respectively. Over the past five years, the top 500 advertisers boosted their spending in Hispanic targeted media by 63% or $2.7 billion from $4.3 billion in 2010 to $7.1 billion. The top 500 advertisers boosted their average spending from $9 million in Hispanic targeted media in 2010 to $14 million now. The study is based on data from Nielsen Monitor Plus which tracked over 340,000 companies’ advertising expenditures in English and Spanish. This data was analyzed by Santiago Solutions Group for AHAA. Source

Retailer News Albertsons Slates 115 Remodels, 8 New Stores Albertsons and Safeway’s parent company will open eight new and replacement stores in 2015 and remodel a total of 115 existing stores across most of its operating divisions. “Our goal is to be the favorite local supermarket for every one of our shoppers by making sure they have an outstanding experience in our stores,” said Bob Miller, Albertsons chairman and CEO. “And keeping our stores fresh and up to date is an important component of that. We’re investing in making our stores places where customers want to shop and employees want to work, because we know that’s the best way to win in the marketplace.” The eight new and replacement stores either already opened this year or are slated for grand opening in fiscal year 2015 are located in various markets, including Safeway in Hawaii, northern California and Maryland; United Supermarkets in west Texas; and Acme Markets in Long Beach Twp., N.J. The new and remodeled stores will feature a number of specialty departments, including: l Bakeries featuring custom cakes by the company’s “five-star” cake decorators l Floral showcasing exclusive designs by Debi Lily l Butcher Blocks with in-store meat cutters to provide customers with custom cuts l Sushi and olive bars to be located near the fried chicken prepared daily in the service deli l In-store Starbucks at many locations

Most stores will also offer customers one-stop pharmacy services, and many Safeway locations will also provide online grocery ordering and delivery, in addition to services such as Western Union and DVD rentals through Redbox. In January 2015, Albertsons combined with Safeway to form the nation’s second-largest supermarket chain, and pledged to earn the loyalty of grocery shoppers by delivering higherquality products as well as enhancing service and values. Overall, this year, as previously disclosed, the company plans to invest more than $1 billion in improving its stores, manufacturing facilities, distribution centers and offices. AB Acquisition LLC operates approximately 2,200 stores and 1,700 pharmacies in 34 states and the District of Columbia under 18 banners: Albertsons, Safeway, Vons, Jewel-Osco, Shaw’s, Acme, Tom Thumb, Randalls, United, Pavilions, Star Market, Market Street, Amigos, Lucky, Super Save, Albertsons Market, Pak N’ Save and Carrs. The company is privately owned by a consortium led by Cerberus Capital Management.

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Retailer News Whole Foods Releases Its Q3 2015 Financial Results Whole Foods Market has released its Q3 2015 financial results, with total sales increasing 8 percent to a record $3.6 billion. The company also commented on its plans for store growth, saying it expects to open at least 76 new locations from now until fiscal year 2017. “In this rapidly changing marketplace, we believe we are taking the necessary steps to position ourselves for the longer term,” commented Walter Robb, Co-Chief Executive Officer of Whole Foods. “We remain focused on innovating and evolving to best serve our customers’ diverse purchasing preferences. From the unique experience of our Whole Foods Market stores, to our growing online channel for home delivery, to the exciting launch of our 365 by Whole Foods Market stores, we are making investments to extend our reach to both new and existing customers.” Just recently, Whole Foods signed leases for four Whole Foods Market and four 365 by Whole Foods Market stores. The company has also renegotiated one lease in development, converting it from a Whole Foods Market to a 365 by Whole Foods Market store. The Whole Foods Market leases are located in Akron, OH, Exton, PA, Charleston, SC, and Kirkland, WA. The 365 by Whole Foods Market leases are located in Los Angeles and Santa Monica, CA, Portland, OR, Houston, TX, and Bellevue, WA. “We are really excited about the progress we have made with securing real estate in markets where there is high demand for both quality food and value in a convenient format. We plan to open up to five 365 by Whole Foods Market stores in the second half of next year with the expectation of doubling the number of openings in 2017,” said Jeff Turnas, President of 365 by Whole Foods Market.

The company currently has 424 stores and expects to cross the 500-store mark in fiscal year 2017. Longer term, Whole Foods sees demand for more than 1,200 Whole Foods Market stores in the United States, however the new 365 by Whole Foods Market format is expected to expand growth opportunities even further. Other highlights from Whole Foods’ report include: l Comparable store sales on a constant currency basis increased 1.3% l EBITDA was $353 million, or 9.7% of sales l Diluted earnings per share were $0.43 l $287 million in cash flow from operations l $47 million in quarterly dividends to shareholders l Total cash and cash equivalents, restricted cash, and investments reached approximately $1 billion Source

Retailer News Earth Fare’s New Atlanta Store Is First To Use Grocer’s Urban Design Earth Fare opened its 37th store ... in the Emory Point development at 1578 Avenue Place in Atlanta. The specialty grocer, which opened its first Atlanta-area location in Peachtree Corners, a northern suburb, in January, now operates four Georgia stores. The Emory Point store is the first of the grocery chain’s locations to use a new urban concept design. The layout places a greater emphasis on fresh prepared food items, including sandwiches and wraps, juices, smoothies and coffees, plus made-in-house sushi, salads, and other prepared entrees and sides. The store features a 50-seat, indoor/outdoor cafe with free Wi-Fi. “We have been anticipating the opening of our location at Emory Point for months now, and are thrilled to finally be bringing our fresh, healthy options to Emory Point and the surrounding neighborhoods,” said Earth Fare President and CEO Frank Scorpiniti. “We pride ourselves on providing our customers with a superb shopping experience, and our team members are looking forward to serving this vibrant community.” All products offered in the full-service 24,000-s.f. store adhere to a rigorous set of food quality standards, which ensures that all items are free of trans fats, artificial dyes, preservatives and sweeteners; and that fresh meat and dairy products also are free of added hormones and antibiotics, according to the Asheville, North Carolina-based company. Additionally, all fresh-baked breads are free of bleached and bromated flour. “We believe that healthy food improves lives, and we want to make it easy for our customers to make the best choices for themselves and their families,” said Scorpiniti. “The high quality of our assortment, combined with our breadth of selection, makes Earth Fare the ideal destination for customers seeking healthier options.”

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Retailer News Sprouts Farmers Market Welcomes New Execs Two new execs have joined the ranks of fast-growing Sprouts Farmers Market. Shawn Gensch has come aboard the Phoenix-based retailer as its new chief marketing officer and Dan Sanders has signed on as Sprouts’ EVP of store operations. “Shawn and Dan share deep retail leadership experience, and with their marketing and operations expertise, Sprouts will continue to grow as a healthy grocery store offering fresh, natural and organic foods at great prices,” said Doug Sanders, Sprouts president and CEO.

In his new role, Gensch – who brings 25 years of experience in marketing and finance with executive roles in both the retail and financial services industries – will serve as a member of Sprouts executive leadership team and will report directly to Sanders. Most recently, he served as co-founder and CEO of a start-up consumer loyalty company, and prior to that, served as Target’s SVP of marketing, responsible for brand marketing, media, loyalty and public relations. Gensch, who is a board member of GWG Holdings Inc., Anser Innovation LLC and Avenues for Homeless Youth, also served as president of Target Bank, where he led the company’s financial product development. “Never before have consumers had so many options when it comes to making decisions about where to shop for groceries and health products,” said Gensch. “Sprouts is uniquely positioned to meet the needs of our guests on that journey, by delivering value and variety for healthy living,” which he described as a “mission [that] is paramount to the Sprouts brand.” Reporting to Jim Nielsen, COO, Sanders accumulated 25 years of experience in supermarket operations, including three years as division president for Supervalu’s former Albertsons and Acme Markets divisions. He also spent 10 years with United Supermarkets of Texas, serving in many roles, including CEO. ‘Sustaining a Unique Approach’ A military veteran and a bestselling author of two business books, Sanders has served on the boards of the Food Marketing Institute and the Western Association of Food Chains. “I look forward to helping Sprouts sustain its unique approach to inspiring healthy living for all through this period of growth,” said Sanders. “Sprouts puts customers first by providing the best value, service and experience every day and I am honored to join the organization.” Sprouts employs more than 19,000 associates and operates more than 200 stores in 13 states. Source

Retailer News A&P Files Bankruptcy And Will Sell 120 Stores The Great Atlantic & Pacific Tea Co. (A&P) has secured financing of $100 million and voluntarily filed for Chapter 11 bankruptcy protection. It named Christopher McGarry chief restructuring officer, effective July 19. A&P sought court approval to enter into a $100 million debtor-inpossession (DIP) financing agreement with Fortress Investment Group. A hearing to approve the DIP was held July 20. The court granted A&P immediate access to $50 million. This DIP facility enables A&P to continue operating its stores and pay its suppliers, vendors, employees and others in the ordinary course of business. The Montvale, New Jersey-based chain also has purchase agreements covering about 120 stores for approximately $600 million. A&P filed a voluntary petition under Chapter 11 with the U.S. Bankruptcy Court for the Southern District of New York. The retailer said it does not expect the bankruptcy to have any impact on its customers and that the “vast majority” of its stores are operating normally and will be fully stocked during the process. It will close 25 stores in the near term due to “lack of interest and significant ongoing store operating losses.” “While some stores will close in the near term, the vast majority will continue providing customers with the same high-quality products and exceptional customer service,” A&P said in a statement. “We will also continue to honor all existing customer promotional and loyalty programs.” The company operates 296 stores under the A&P, Best Cellars, Food Basics, The Food Emporium, Pathmark, Superfresh and Waldbaums banners. All asset and store sales will be conducted through a court-supervised sale process, subject to court approval and certain other conditions. The sale process could include a possible credit bid for certain assets to be purchased by A&P’s current investors. “After careful consideration of all the alternatives, we have concluded that a sale process implemented through Chapter 11 is the best way for A&P to preserve as many jobs as possible and maximize value for all stakeholders,” said A&P President and CEO Paul Hertz. “The interest from other strategic operators has been robust during the company’s sales process to date, and we have every expectation that will continue in Chapter 11. And while the decision to close some stores is always difficult, these actions will enable the company to refocus its efforts to ensure the vast majority of A&P stores continue operating under new owners as a result of the court-supervised process.” Hertz said he was pleased that the court granted the first day motions July 20 so that the company could continue “to pay employees, work with suppliers and serve customers. “I want to thank our employees for their hard work and commitment to our company, as well as our suppliers for their help in guaranteeing that our stores are fully stocked and that we are able to continues on next page...

Retailer News A&P Files Bankruptcy And Will Sell 120 Stores continued... continue meeting the needs of our customers and their families without interruption,” Hertz said. Stop & Shop, Acme Markets to purchase 100 stores Quincy, Massachusetts-based Stop & Shop Supermarket Co. LLC will purchase 25 A&P stores in Greater New York for $146 million. The acquisition is subject to further terms and conditions, including the potential for a subsequent auction under which other higher bids could be received and accepted by A&P for these stores. It also is conditioned on regulatory requirements. Stop & Shop, which is a division of Ahold, said it plans to convert the Waldbaums, Pathmark and A&P stores it acquires to Stop & Shop locations. “Stop & Shop is always looking for convenient locations to better service our customers,” said New York Metro Division President Don Sussman. “We are very happy to have the opportunity to expand our presence in greater New York and serve new customers.” Malvern, Pennsylvania-based Acme Markets plans to acquire 76 A&P stores in Connecticut, Delaware, Maryland, New Jersey, New York and Pennsylvania under the A&P, Superfresh and Pathmark banners. This offer also is subject to customary legal and bankruptcy court approvals, including the potential for higher bids to be submitted as well as anti-trust approval. Acme is a wholly-owned subsidiary of AB Acquisition LLC and operates 107 stores across Pennsylvania, Delaware, Maryland and New Jersey. The transaction, if completed, would expand the Acme Markets footprint in what Albertsons said is “a strategic and vibrant market.” A&P has asked the court for an order requiring other bidders to submit their bids by Sept. 11, with an expectation that court approval for the sale of the stores would be received by Oct. 15. Source

Food City Buying 29 Bi-Lo Stores, Will Enter Georgia With Purchase Abingdon, Virginia-based K-VA-T Food Stores/Food City has reached an agreement with Southeastern Grocers, which operates the Bi-Lo, Winn-Dixie and Harveys banners in the Southeast, to purchase 29 Bi-Lo stores. The stores are located in Chattanooga, Tennessee, and northwest Georgia. Food City will enter a new state—Georgia—with the deal, while Bi-Lo will exit Tennessee. Food City currently operates 105 food retail outlets. “Food City already operates in southeast Kentucky, southwest Virginia and northeast Tennessee, and so the acquisition of our Bi-Lo stores in that region is a natural expansion for them. All stores and store associates will convert from Bi-Lo to the Food City banner,” according to an internal memo from Southeastern Grocers to associates on Thursday. continues on next page...

Retailer News Food City Buying 29 Bi-Lo Stores...continued... “We believe this is the right decision not only for Southeastern Grocers, but also for our stores and associates in Chattanooga and northwest Georgia,” the memo says. “By transitioning what represents around 3 percent of our entire store base, we will be able to accelerate reinvestment in other areas of the Bi-Lo banner. Given K-VA-T’s reputation in the market, the compelling value they offered and their focus on creating a smooth transition for our associates, we believe the transfer has the potential to be a great opportunity for all of our stakeholders. “It was not our strategy to transfer these stores; K-VA-T approached us about these stores because they recognize the value these locations and our associates offer to our communities and local customers. Furthermore, any rumors of the Bi-Lo banner being sold by Christmas are entirely untrue! In fact, after transitioning to K-VA-T what represents less than 4 percent of our entire store base, we intend to use much of that profit to accelerate reinvestment in other areas of the Bi-Lo banner.” Southeastern Grocers says the store transfer and handover dates will be provided as the company get closer to the completion of the transfer of each store. Southeastern Grocers anticipates that stores will begin to transition on Aug. 30, with all stores fully transitioned by Oct. 5. “It is important for all of us to remain focused on continuing to provide our customers with the same everyday high-quality service they’ve come to expect and enjoy,” Southeastern Grocers says in the memo. Food City President and CEO Steven C. Smith said in a statement, “We are extremely excited to have this opportunity to expand our operation into the Chattanooga and northwest Georgia markets. We certainly look forward to welcoming the Bi-Lo associates to our Food City family and serving the region. Our consumers can rest assured that we plan to complete the conversion process as quickly as possible, with the least interruption to the normal flow of business. It’s our intention to enhance the overall variety and selection and further develop the services and conveniences provided to our shoppers.” Rob Ikard, president and CEO of the Tennessee Grocers and Convenience Store Association, told The Shelby Report on Thursday, “K-VA-T Food City is a great company, a great employer and a great corporate citizen in any market they reside in. The Chattanooga area is lucky to have them.” Added Ian McLeod, president and CEO of Southeastern Grocers, “We are pleased to enter into this transaction with K-VA-T, which we believe is the right decision not only for Southeastern Grocers, but also for our stores and associates in Chattanooga and northwest Georgia. This was not an easy decision for us, as we have the utmost respect for our associates who serve our customers in these stores so well. In the approach by K-VA-T, we believe we have identified a strong partner to ensure these 29 stores and our associates are positioned for continued success under another reputable regional brand. On behalf of the management team, I want to thank all of our hardworking Bi-Lo associates for their dedication and support over many years.”

To view a list of current Bi-Lo locations that are expected to become Food City stores by Oct. 5 click the “Source” button below.

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Shows & Events Show

Location

Date

Valu Merchandisers Company Fall Show

Kansas City, MO

August 12-13, 2015

Affiliated Foods Fall Show

Amarillo, TX

August 13, 2015

Midwest KeHE Tabletop

Minneapolis, MN

August 19, 2015

Southwest KeHE Tabletop

St. Louis, MO

August 26, 2015

KeHE Natural Show

Long Beach, CA

September 9-10, 2015

Associated Wholesale Grocers Oklahoma City, OK Oklahoma Fall Show

September 10, 2015

Great Lakes KeHE Tabletop

Bolingbrook, IL

September 16, 2015

Expo East

Baltimore, MD

September 16-18, 2015

Midwest KeHE Tabletop

Milwaukee, WI

September 23, 2015

Haddon House Fall Show

Uncasville, CT

Sept 30 - Oct 1, 2015

Associated Grocers Fall Show

Baton Rouge, LA

Southeast KeHE Tabletop

Orlando, FL

October 2, 2015

North East KeHE Tabletop

New York, NY

October 7, 2015

Great Lakes KeHE Tabletop

Fort Wayne, IN

October 14, 2015

Kosher Fest

Secaucus, NJ

TBD November, 2015

September, 23 2015