The latest grocery market share figures from Kantar Worldpanel in Ireland, for the 12 weeks ending 5 November 2017, reveal that Dunnes Stores has returned to the top spot for the first time in nine months, capturing a 22.4% share of the market.
David Berry, director at Kantar Worldpanel, commented: “Dunnes Stores traditionally posts a strong performance towards the end of the year and 2017 is no exception. While growth of 1.4% compared to this time last year is slightly behind the market average, shoppers have spent almost €2 more per trip this period, which has been enough for the retailer to edge ahead of the competition.”
SuperValu is in the second spot with a 22.0% share of the market – in line with last month – though larger basket sizes have contributed to a sales improvement of 0.5%.
The strongest growth this month has come from Tesco, as Berry explained: “Tesco’s sales are 5.1% higher than they were this time last year, which has lifted its share of the market from 21.3% in 2016 to 21.9% today. The retailer is the only one of the top five not to lose shoppers this year, and customers have been tempted in by lower prices. On average, consumers have paid 2% less than this time last year and in turn this has contributed to shoppers making bigger trips and returning to store more often.”
Meanwhile, Aldi and Lidl both continued to see sales grow ahead of the market – up 2.9% and 3.8% respectively. Unusually, Lidl performed well in branded goods, particularly in the alcohol, biscuits and confectionery aisles as shoppers gear up for the festive season.
Kantar Worldpanel’s data showed that grocery market inflation stood at -0.2% for the 12 week period, in line with the previous month.
- More importantly, the combined sales of Aldi & Lidl give the discounters No. 1 share (23.1%) of the market…
- …and growing faster than the mults…
It’s just water with carbonation—no calories, no sugars, no artificial ingredients, nothing but zeros on its nutrition labels—and something it calls “natural essence oils.”
But from those sparse raw materials LaCroix has fashioned a super-brand in the burgeoning healthy beverage market. It’s a billion-dollar brand for its parent company, Natural Beverage, as LaCroix puts to shame competing water offerings from some of the titans of the beverage business.
At Coca-Cola’s Investor Day, Chairman and CEO James Quincey was asked about the growth of LaCroix (and whether Coca-Cola had been nimble enough to spot the opportunity), and admitted “we weren’t nimble enough. Now, having said that, it’s not our expectation that we will capture every available opportunity and be the first to get them, I mean that’s an unrealistic expectation and our ability to grow 4% to 6% doesn’t require us to do so. We need to consistently gain share in a growing industry and that’s what will take us to the right level of top line growth. Competitors, new and existing, will find opportunities.”
And on PepsiCo’s most-recent earnings call, Chairman and CEO Indra Nooyi was asked by an analyst why “I see LaCroix in some Targets having 30 feet of space and Coke and Pepsi each maybe five or six.” She responded: “Maybe in a couple of cases we were slow to respond to some of these newcomers who have taken a lot of (shelf) space. And believe me, we will fix that.”
Sparkling water consumption is booming as Americans look for sensorily satisfactory ways to get their carbonated soft drink fix. Sales grew for the segment by 26% in 2016, according to Beverage Marketing Corp. Other estimates give it 30% market share, about double that of Perrier. But LaCroix has bubbled up above rivals, helping drive sparkling water sales overall.
“If you live in America or have any exposure to social media, you’ve witnessed the juggernaut that is LaCroix sparkling water,” rhapsodized Bon Appetit earlier this year. “You’ve heard its praises sung by paleo bloggers, #Whole30 devotees, fashion designers and late-night TV hosts.”
https://www.instagram.com/p/BbzTkIgBy7s/embed/captioned/?cr=1&v=7&wp=574#%7B%22ci%22%3A0%2C%22os%22%3A2232.9950000000003%7DLaCroix was founded in 1981 by G. Heileman Brewing, a regional beer maker in La Crosse, Wisconsin. Later it was acquired by National Beverage and has become the rainmaker for that company. Its ingredients are just carbonated water and the flavors. And it doesn’t do any TV advertising.
One big factor in LaCroix’s transformation from a sleepy regional brand to a national powerhouse was that National Beverage wanted it that way. About five years ago, the company relaunched LaCroix with eye-catching candy-colored packaging and broader distribution, aiming at consumers of fancier sparkling waters such as Perrier with a mainstream price.
Quirky marketing tactics have been another big reason for LaCroix’s rise, including social media debates that rage about which of LaCroix’s many flavors are best, and brand-directed tactics such as its 40 Can Challenge in 2014 that encouraged fans to trade a can of soda for LaCroix for 40 days and then share their experiences online. There alsowas a logo redesign in a font that speaks fluidity, and rendered in blue—the color of water.
Partly because National Beverage doesn’t share much information about LaCroix, there’s also developed an air of mystery around exactly what ingredients produce flavors ranging from peach pear to pomme baya. National will say only that the flavors are derived from these natural essence oils.
A LaCroix spokesperson told the Wall Street Journal only that “essence is our picture word” and that “essence is feelings and sensory effects.” As WSJ noted, “Essence is, essentially, the mystery behind a billion-dollar brand.”
After some digging around, WSJ’s reporters concluded that LaCroix’s “Essence is actually a clear, concentrated natural chemical that’s been used for decades in products as varied as gravy, ice pops, coffee, shampoo and even insecticide, according to industry executives and scientists.” WSJ’s investigation adds that it’s “a clear, concentrated natural chemical derived by heating the skins or rinds of fruits.”
“The flavors are derived from the natural essence oils extracted from the named fruit used in each of our LaCroix flavors,” the LaCroix website states. “There are no sugars or artificial ingredients contained in, nor added to, these extracted flavors.”
Smooth sailing for NY-NJ’s first 14,000-TEU service call
The Port of New York and New Jersey hosted its first 14,000-TEU ship on a regular service without a hitch Tuesday, five months after the opening of the elevated Bayonne Bridge, in a sign of the steady increase in the size of vessels coming to the port.
About 50 ships that could not have in the past passed under the bridge have now done so, the Port Authority of New York and New Jersey said. Fourteen percent of the ships that entered the port in 2017 could carry 9,000 TEU or more, compared to 9 percent in 2016.
The visit of the 14,400-TEU CMA CGM T. Roosevelt — which arrived at Maher Terminals in Elizabeth at about 10 a.m. Tuesday and was expected to leave Wednesday evening — comes as the port waits to see the long-term impact on port volumes of the elevation of the bridge, and the expansion of the Panama Canal a year earlier.
Figures released Wednesday show that October capped the port’s best six-month period in its history, the authority said. The port in October handled 408,764 loaded TEU, with loaded imports increasing by 5.8 percent over the same month in 2016, and exports increasing by 1.3 percent.
Yet the port is struggling to hold onto its market share, which has declined steadily since 2010. In the third quarter, the port’s share of loaded imports on the East Coast fell by 0.44 of a percentage point, to 34.3 percent, over the same quarter in 2016, according to PIERS, a sister product of JOC.com within IHS Markit. The port’s export share ticked up by 0.14 of a percentage point to 21.2 percent, and the port’s share of both stayed about the same as in 2016, at just over 29 percent.
Some port stakeholders have questioned whether the port — and other ports — can handle the kind of sustained stress on equipment, resources and the drayage community that is expected when big ships come into the port on a regular basis. But port officials said the Roosevelt docked and unloaded largely without equipment logjams or truck congestion.
“There haven’t been any issues at all,” said Beth Rooney, the port’s assistant port director. She added, however, that “the reality is that until you start seeing these larger vessels as the workhorse, until most of the vessels are probably about 12,000 TEU or larger, I don’t anticipate that we would have a problem.”
Bruce Fenimore, CEO of Columbia Container Services, which opened a new chassis yard close to Maher Terminals three weeks ago, said late Tuesday that the yard had “no issues at all” from the ship’s arrival. “We had plenty of chassis.”
A representative of Maher Terminals wasn’t available for comment.
CMA CGM added the Roosevelt, which docked at the port in July for a publicity event, to its South Atlantic Express route from China via the Panama Canal, which previously stopped only at Charleston, Norfolk and Savannah. The weekly route includes two 14,400-TEU vessels, the other is the CMA CGM J. Adams, and the rotation is rounded out with 10,000-TEU ships.
“Ever since the announcement at the inauguration of the Bayonne Bridge that the CMA CGM T. Roosevelt, and our other ships with 14,000-TEU capacities, would call New York/New Jersey on the South Atlantic Express (SAX), interest in the service has steadily grown,” Marc Bourdon, President, CMA CGM, said in a statement released by the carrier.
Although CMA CGM has three other routes to New York and the East Coast, the SAX route provides an “advantageous alternative,” offering additional flexibility with different port calls and sequences on routes from China, he said.
No other regular service calls the port with ships of 10,000 TEU or above, although the overall size of ships coming to the port continues to increase, Rooney said. The percentage of ships that are 8,000 TEU or above rose from 43 in the first nine months of 2016 to 56 percent in 2017.
Until June, vessels of more than 9,500 TEU were unable to pass below the Bayonne Bridge, which prevented them reaching three of the port’s four main terminals – Maher, APM Terminals and Port Newark Container Terminal. The only terminal that could handle them was GCT Bayonne.
The port embarked on the $1.6 billion project to elevate the bridge’s roadway, from 151 feet to 215 feet, as part of its effort to prepare for mega-ships, many of which are expected to come through the Panama Canal. The canal was expanded in June 2016 so that it could accept vessels up to 14,000 TEU, compared to 4,500 to 5,500 TEU before the upgrade.
The port authority and federal government have spent $4.7 billion on dredging, rail access, and other projects, including raising the Bayonne Bridge, and GCT Bayonne has introduced an appointment system to smooth the flow of trucks in and out. Other efficiency moves planned, such as a port-wide chassis pool and extended gate hours, have yet to materialize
Every year, Americans complain about the holiday shopping season starting earlier and earlier. But here we are again in Thanksgiving week, and retailers are all about getting you into their stores now.
“It’s showtime. The holiday season casts the scene. We’ll see what retailers have made the most progress in the past year when customers walk with their feet and clicks,” said Christina Boni, Moody’s vice president.
Dallas-Fort Worth shoppers should be easy pickings this year and are among the 69 percent of Americans — an estimated 164 million people — who said they plan to shop during the long Thanksgiving weekend including Cyber Monday, according to the National Retail Federation.
Area residents said they plan to spend more than last year and well above the national average, according to a Deloitte survey.
Local residents surveyed said they expect to spend $1,699 on gifts, entertaining, airline tickets and non-gifts of clothing, home decorations and furnishings related to the winter holidays.
That compares with $1,228 nationally and makes Dallas shoppers standouts in this year’s survey results, said Ed Tauriac, partner with Deloitte in the Dallas office.
It’s the economy
Both the national and local economies are being driven by low unemployment rates and high consumer confidence.
Sightings on the horizon of the “state bird” (construction cranes), Tauriac said, are just one visible sign of a growing economy. D-FW’s unemployment rate stands at 3.4 percent vs. 4 percent a year ago, according to the Bureau of Labor Statistics. And that’s below the U.S. rate of 4.1 percent.
More D-FW residents said they’re confident about their household finances, according to the survey, with 83 percent saying they felt better or the same as a year ago. That’s up from 78 percent in 2016.
What reasons did local shoppers give that would make them alter their plans? Saving more or paying down debt were mentioned more often than a hit to the wallet such as a job loss or major repair.
For the first time, D-FW shoppers said they plan to spend more online (50 percent) than in stores (45 percent). Retailers with roots in physical stores have spent money building operations and mobile apps that link their stores to shoppers from anywhere, to match the higher expectations Amazon.com has set.
Free shipping rules
After all these years and investments in speed of delivery and cool apps on your smartphones, shipping costs are still top of mind for online shoppers. D-FW residents in the Deloitte survey who said they will shop online call out free shipping (66 percent) as a reason. Likewise, people who say they will shop in stores (60 percent) say it’s because they want to avoid shipping costs.
Adobe Analytics forecasts online sales this holiday season will top $100 billion for the first time, up 13.8 percent to $107.4 billion. The record-breaking season will be “built on the strength of the big players,” said Mickey Mericle, Adobe vice president. Specifically, she said, it’s the biggest retailers with wide selections, easy shopping experiences and free shipping who will drive online holiday growth.
Many of the big discounts in holiday circulars are also offered online and before Thanksgiving Day and Black Friday. J.C. Penney and Kohl’s have had Black Friday deals available online since Sunday and Monday. Wal-Mart plans to make its Cyber Monday deals available Sunday at midnight.
The national big box discount chains and department stores aren’t giving up on their stores or the not-so-controversial idea anymore of shopping on Thanksgiving Day. Doors open Thursday at 7 a.m. this year at Big Lots and Dollar General, followed at 8 a.m. by Bass Pro Shops and Cabela’s. Afternoon staggered openings begin with J.C. Penney at 2 p.m. and Belk and Old Navy at 4. Then 5 and 6 p.m. have the longest lists including Wal-Mart and Target.
Most experts who forecast the holiday think it’s going to be decent and similar to last year with one outlier that’s expecting a really good Christmas. PwC forecasts sales will be up as much as 6 percent.
Deloitte forecasts combined November-December sales will increase 4 to 4.5 percent, with e-commerce grabbing market share based on a forecast for online sales to increase 18 percent to 21 percent.
The National Retail Federation forecasts a 3.6 to 4 percent increase in sales to $679 billion, excluding autos, gasoline and restaurants. Last year, sales increased 3.6 percent. There’s one more day between Thanksgiving and Christmas this year, and with Christmas on a Monday instead of Sunday, people will have one extra weekend day to shop.
“Everything is lining up to be a robust season for the consumer,” said Kalypso analyst Al Meyers. The retailers who will find success over the next few weeks are “the ones who have the right value, unique and innovative products and break through the sea of sameness.”
Some of the best deals come with in-store-only, limited quantities and no rain checks.
Besides Apple iPhone X deals at Best Buy, Target and Wal-Mart, there are a few toys new to the market that probably aren’t already in your child’s toy box.
Fingerlings, interactive finger puppets, are already hard to find. The mysterious L.O.L Surprise, which is mostly listed as being temporarily out of stock, introduces an “unboxing experience” where a $69.99 version unpacks 50 surprises — all individually wrapped and buried in layers. It takes hours to peel through the 13-inch dome. It comes in smaller sizes too, and it’s made by California-based toy maker MGA Entertainment, which in past holiday seasons has had hits such as Bratz dolls and makes respected longtime brands of Little Tikes and Zapf Creation dolls.
Every holiday season has its kitchen gadget. Who can forget the chocolate fountain from years ago and the more recent veggie spiralizer? This year, it’s the Instant Pot. It comes in different sizes and a 5-quart one is featured in Wal-Mart’s Black Friday ad for $49 as a “special buy.” It’s a multi-function pressure cooker that can be programmed to cook rice, steam vegetables and brown meat.
4 Ways to Get Honest, Critical Feedback from Your Employees
I recently observed a town hall meeting where a new leader had just been promoted to run his division. In his introductory remarks, many – including me – were struck by his declaration, “One of the things you’ll find is that I’m very self-aware and open to feedback.” Even from the side of the room, I could see the eye rolling.
Over my 30-year career working with leaders, I’ve heard many declare such self-enlightenment. But telling people you’re self-aware doesn’t mean you are. And while we know that higher self-awareness leads to better team performance, unfortunately, research suggests that most people aren’t very self-aware at work.
After the leader’s speech, I introduced myself and asked him with curiosity, “So what have you done to become so self-aware and open to feedback?” Proudly, he responded, “I make it a priority to get a 360 feedback review every year.” I probed further, “And what kinds of things have you been able to improve in your leadership as a result of all that feedback?” With remarkable sincerity, he said, “Well, for example, last year I received feedback that our staff meetings were too long so I shortened them by 30 minutes.” I now fully appreciated the eye rolling.
Fortunately, you don’t need to collect formal 360 feedback to learn how others experience you as a leader. If you want to understand how people genuinely perceive you, try these four things instead:
Ask your coworkers’ to push back. The most basic way to understand what people think of you is to ask them. If you’re not soliciting dissent, it’s unlikely you’re hearing the truth about what it’s like to work for you. No news is not necessarily good news. Whether in group meetings, or one on one, people need to feel comfortable pushing back and if you don’t have people routinely offering dissenting ideas, or raising concerns about actions you are contemplating or have taken, you should worry. After meetings where particularly difficult issues or decisions are discussed, one leader I work with asks a few members of her team, “How do you feel that went, and what could I have done differently?” Her team has come to realize she genuinely wants pushback and accepts it graciously. Too many 360 feedback processes, because they allow people to hide behind anonymity, have become replacements for great conversations instead of instigators of them. But any feedback exchanged between leaders and followers should ultimately strengthen the relationship, not further strain it.
Read nonverbal cues. People are constantly telling you how they feel about you through their nonverbal cues. While people may withhold verbal feedback, their faces and bodies will often tell a different story. If you learn to read them, these cues can provide a steady stream of useful feedback about how your words and actions are being received. Allan and Barbara Pease suggest in their book, The Definitive Book of Body Language, that because more than 65% of interpersonal communication is nonverbal, spotting the contradictions between someone’s words and body language will dramatically increase your ability to accurately perceive what’s happening. When people look down or avoid eye-contact with you, when a typically engaging colleague suddenly becomes quiet, or when an even-keeled colleague gets defensive, pay attention. Don’t ignore these critical cues. Offer your observation graciously. One leader I worked with did this masterfully. When moods or countenance took a sudden shift, he would say something like, “Tell me how I should interpret your silence,” or “You suddenly seem to not want to look directly at me. I’m concerned something I’ve said isn’t sitting well. Can you help me understand if that’s true?” These tactful observations invited others to share what was happening internally, and in turn, helped the leader adjust, deepening the trust between him and those who observed his changing behavior.
Monitor how you narrate the story. We are naturally inclined to interpret how things are going in overly positive ways. Pay attention to your inner narration of what’s happening around you. If that voice is working to convince you things are fine, step back and re-assess. Watch out if the voice in your head is doing a lot of self-justifying or self-soothing, like, “I think that presentation went really well…so what if they didn’t have any questions,” or “They understand that you get a little impatient sometimes, but they know it’s because you really care,” or “I can’t believe they think I’m indecisive! You can’t rush the creative process!” Force yourself to consider alternative explanations. Perhaps they don’t understand why you get impatient or you are being indecisive. Be careful not to become overly self-critical either. You’re aiming for a balanced, informed perspective, not one that protects or harms your ego.
Know your triggers and encourage others to call them out. All leaders have buttons that get pushed. Some leaders react defensively when confronted with mistakes. Others become sarcastic or passive-aggressive when they don’t get their way. And some become harshly impatient when things don’t move quickly enough. Whatever they are, self-aware leaders know their triggers, and let others name them. One leader I worked with became painfully verbose when he was anxious. During meetings where contentious issues were being discussed, he would launch into lengthy diatribes in an unconscious effort to calm his discomfort with conflict. One of the ways he worked to improve was to acknowledge to his team that he was aware he did it (which they greatly appreciated) and he asked them to simply hold up their hands when they felt he’d gone on too long. The first few times people raised their hands, he struggled to shut up. Someone on the team finally said, “If you want us to help you stop rambling, you have to agree to actually stop talking when we raise our hands.” He did. He eventually learned to be brief, by writing out concise statements he could employ as needed. Great leaders also apologize when they’ve behaved poorly, cleaning up any emotional messes they’ve left behind.
There is a lot of data already available to you about how you are perceived as a leader. To be effective, don’t over-rely on a formal 360, just start listening to – and acting upon — the information that’s already there.
These Are The 7 Companies Amazon May Purchase Next
On Monday, a Morgan Stanley report that Amazon was contemplating “disrupting” the Healthcare Distribution sector slammed stocks in the industry, sending the sector sharply lower. Fast forward two days, when Amazon’s disruption appears to have started earlier than even MS anticipated, after a CNBC report that AWS CEO Andy Jassy is planning to announce that Amazon is teaming up with Cerner, one of the world’s largest health technology companies, to help health-care providers better use their data to make health predictions about patient populations.
Yet while Amazon is pursuing aggressive market share theft in the healthcare sector, in retail it is expected to have a more amicable approach, and according to a note by Citi, shortly after its acquisition of upscale grocery chain Whole Foods, the next corporate move by the world’s richest man will be to buy a prominent retailer. The question is which.
As Citi’s Paul Lejuez explains, when AMZN bought WFM in June 2017, it led many to believe that AMZN might have aspirations to establish more of a bricks and mortar presence in the US. Citi also argues that while “grocery is different” (and AMZN may just stop there), Amazon may next target a retailer. It also make the following explicit caveat:
To be very clear, we are not asserting that AMZN will buy any of the names we suggest in the foreseeable future. We have no insight into any AMZN M&A activity or deal flow. We are simply performing an exercise where we consider the question “If AMZN were to buy something in our universe, who could make sense?”
Below, we show who Citi believes may be the best candidates for acquisition by Amazon, and summarize some key components of each of the companies that Citi suggests AMZN may eventually buy.
Why ANF?: (1) EV of only $620MM for 2 brands (A&F/Hollister); combined sales of $3.4BN, (2) own college like campus in Columbus, OH, (3) instant infrastructure to design, source and merchandise apparel on a global basis, (4) young customer base, (5) can use flagships (in amazing locations) to sell proprietary AMZN product.
With ANF, AMZN would acquire a very impressive headquarters in Columbus, OH, which is similar to a college campus. It has a strong culture and has a young workforce that could be leveraged across the AMZN organization.
As far as AMZN’s apparel aspirations, ANF offers an instant infrastructure to design, source and merchandise apparel on a global basis. ANF is vertical, so the brands would become AMZN’s proprietary brands to sell on its own website. And don’t forget they not only have a teen and young adult customer, they also have the A&F kids brand (abercrombie), which could have appeal to the mom shopping for kids clothes on Amazon’s website.
For less than $1BN, AMZN gets three apparel brands they would own (A&F, Hollister, abercrombie kids), a seasoned design/sourcing organization, ~850 stores (including instant access to some of the most desirable locations in the world), and a campus like headquarters they can use (with space to build on further). Oh, and we estimate ANF generates in the range of $50-100M of FCF annually (and imagine how much more productive/profitable those flagship stores could be if they were selling AMZN product). At that small price tag, there wouldn’t be much to lose.
if you’re AMZN, might it be more of an asset to suddenly have control over these flagship stores that are in some amazing locations. Just look at this list:
- NYC (34,000 sq ft on 5th Ave and 56th St)
- London (24,000 sq ft on Savile Row)
- Tokyo (30,000 sq ft on 11 floors in the Ginza shopping district)
- Paris (28,000 sq ft on the Champs-Elysees)
- Milan (20,000 sq ft) – Corso Matteotti
- Shanghai (25,000 sq ft) – Nanjing West Road
- Singapore (20,000 sq ft) – Orchard Road
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Why SFM?: (1) They’re already partners, (2) potential synergies with AMZN grocery delivery business, (3) compliments the WFM platform with a high/low price approach.
We outline 3 possible methods of obtaining a takeout value per share for SFM using the recent Whole Foods transaction as a guide (which may be more relevant in this case than looking at historical precedent transactions). The more likely of the scenarios is a $27-$33 takeout price, representing a 30-62% premium to the current price of $20.37 (11/16/17). Stock Price Premium Using Whole Foods As a Guide: Whole Foods was taken out at a nearly ~30% premium. This would imply a takeout price of ~$27/ share for SFM (using it current stock price of $20.37), at a ~13x TTM EV/EBITDA. Note that this would be significantly higher than the historical average of precedent transactions in supermarkets of 7.4x TTM EBITDA and Whole Foods at 10.3x TTM EBITDA.
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Why BBBY?: (1) Store space already dedicated to online pick-up, (2) access to growing furniture space, (3) logistical/fulfillment know-how for large items, (4) overlap of merchandise assortments, (5) 1,100 off-mall stores across N America.
AMZN could acquire BBBY for a similar figure as RH – about $4.4B assuming the same 20% stock price premium – and would achieve still gain a physical F&HF presence and large-items fulfillment know-how while avoiding the drawbacks associated with a potential purchase of RH…. We do not think an AMZN purchase of BBBY is imminent. Only about 8% of BBBY’s sales come from furniture, while the majority of the remaining sales are items that consumers are increasingly-willing to buy online. BBBY looks significantly over-stored, even excluding non- BB&B brands. And BBBY’s product assortment is narrow compared to a retailer like KSS. Finally, from a financial standpoint, BBBY looks to be in structural decline and while we believe AMZN could certainly turn BBBY around, it’s unclear to us whether they would have interest in investing the capital and resources necessary to do so.
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Why RH?: (1) Access to growing furniture space, (2) logistical/fulfillment know-how for large items, (3) overlap of high-income consumers, (4) both run a membership model, (5) equity/recognition of RH brand.
Within our furniture and home furnishings (F&HF) coverage, RH comes up most frequently in conversations as a potential AMZN target. The F&HF market is an attractive one given it is highly-fragmented, is growing at a MSD rate overall and is seeing sales rapidly shift online. Over the last five years, ecommerce F&HF sales have grown at a 15.9% CAGR and are projected to reach 17% of the domestic industry total by the end of 2017, up from 10% in 2012.
We think a F&HF acquisition makes sense for AMZN for two main reasons. First, an acquisition would aid AMZN’s build-out of large-package fulfillment, which – like grocery – is fraught with complexity. And second, an acquisition could provide AMZN with an immediate physical F&HF presence, a factor that remains important to consumers purchasing furniture and home furnishings product (again, similar to groceries).
RH’s valuation isn’t particularly compelling as the stock is trading at 25x FY2 P/E and 15x EV/EBITDA. Assuming a 20% stock price premium, an acquisition of RH would cost $4.7B which is far from prohibitively expensive for the online giant, but likely does not represent the best use of capital given the factors noted above.
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Why AAP?: (1) AMZN’s growing interest in the automotive space, (2) price is important for the DIY customer, but convenience and immediacy is more important, which highlights the need for stores, (3) highly specialized inventory build out will take time; AAP provides inventory breadth and depth, (4) specialized supply chain, (5) even at a 20% premium, AAP is less than half the value of ORLY and AZO.
We think we can make the argument that Amazon could buy one of the auto part retailers. When considering the needs of the DIY customer, we argue that most DIY’ers aren’t going to drive to a store, ask a store associate a bunch of technical questions on what they need to buy and do and then purchase the parts on AMZN and make the repair themselves. Most DIY’ers likely don’t make the same repair more than once so they always need guidance. Therefore, Amazon owning an auto part retailer with brick and mortar presence would achieve the ability to cater to consumers looking for the convenience and immediacy needed.
However, we think a buyout of AAP is likely a long shot due primarily to 1) AMZN could likely finance the deal but it’s fairly soon to do an acquisition of this size, especially with the upcoming WFM integration and 2) AAP has experienced challenging demand trends (similar to WFM) but lacks large synergistic characteristics that would make AMZN uniquely capable in improving productivity. In the end, if the argument for AMZN’s acquisition of AAP is to gain market share through buying a major player in that sub-industry of retailing, the list of targets could get fairly long.
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Why KSS?: (1) 1,100 off-mall stores to sell AMZN top-sellers, use for pickup/returns, (2) would own KSS proprietary and exclusive brands, (3) middle America customer, (4) $1BN+ annual FCF, (5) already an AMZN/KSS partnership.
After AMZN bought Whole Foods, if we had to come up with a list of ten companies AMZN could target next, KSS would have been on that list. After seeing the partnership between the two companies with KSS accepting AMZN product returns in 82 of its 1,100+ stores (with 10 of the stores home to a 1K sq ft AMZN shop in shop), we would argue KSS moved higher up that list. One of the reasons we believe AMZN might have chosen KSS as a partner to test its product returns to stores is that they have off-mall locations, which offer an easyin, easy-out shopping experience. Their store base is also relatively young, as 30% of their stores have been opened over the past 10 years (vs ~10% at JCP and ~7% at M – and M and JCP are largely mall-based).
The 1,100 KSS stores would offer AMZN many points of distribution that could help them in several ways. And let’s keep in mind, if AMZN bought KSS, we shouldn’t necessarily think of them as simply running the KSS chain. These stores could be rebranded as Amazon stores or “Amazon Kohl’s”.
At a $12BN acquisition price (assuming a 20% stock premium), a KSS deal would be about 10% less than what Whole Foods cost ($13.7BN). It would cost AMZN $9BN plus the assumption of $3BN in net debt. And let’s be honest, department stores are in a tough spot in the current retail environment, which might make KSS a more willing seller. Since department stores are facing serious challenges, we believe if there is one that can link up with AMZN, the others will be in that much more difficult of a spot. And let’s not forget, over the past 4 years KSS has generated an average of $1.2BN in FCF, including $1.4BN last year. We estimate they will generate around $1BN this year and for the next several years.
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Why KR?: (1) Sizeable grocery presence with assets that may be of interest, (2) provides another point of attack against WMT, (3) obtain valuable consumer data via KR 84.51 division, (4) significant click and collect presence to help with last mile grocery challenges.
KR is the 2nd largest grocery store in the U.S. and would allow AMZN a way to take a sizeable 14% share of the US grocery market (vs. the paltry 2% share they attained through WFM). KR has 2,796 store locations- of which 1,445 fuel centers and 2, 255 pharmacies reside (pharmacy and fuel centers could be additional segments of long-term interest to AMZN). KR is also one of the best run grocery chains, in our opinion, which has led to continual market share gains. Competitive advantages for KR include: real estate locations, data analytics, purchasing power, vertical integration (they own several processing/production facilities, have self-distribution capabilities which can be enhanced by AMZN, and also have a large private label sales mix which may be of interest to AMZN), and a large loyal customer base.
KR has a treasure trove of data that could be useful to AMZN to better personalize promotions and improve space optimization (could improve both AMZN and KR grocery operations). Their 84.51 data analytics division tracks 2,700 consumer attributes to determine geo density from a competitive perspective (including restaurants), hobbies (spend index across entertainment, travel), and social connectedness data, which are used to create a rich picture of their customers. This data allows them to more truly personalize their offerings and the shopping experience.
We outline 3 possible methods of obtaining a takeout value per share for KR using the recent Whole Foods transaction and past supermarket transactions as guides. The scenarios indicate a $29-$34 takeout price, representing a 30-53% premium to the current price of $22.28. Stock Price Premium Using Whole Foods As a Guide: Whole Foods was taken out at a nearly ~30% premium. This would imply a takeout price of ~$29/ share for KR (using it current stock price of $22.28), at a ~6.8x TTM EV/EBITDA. Relative P/E Multiple Turns Using Whole Foods As a Guide: Whole Foods was taken out at nearly 30x ’18 P/E at the time of announcement which was ~6x turns higher than its ~24x ’18 P/E before the announcement. Adding 6x turns to KR’s current ’18 P/E of 11.3x results in a 17.3x P/E multiple. Applying a 17.3x multiple to KR 2018 EPS estimate of $1.98 results in a ~$34 / share takeout price. EV/EBITDA Multiple Using Precedent Supermarket Transactions As a Guide: Using the supermarket precedent transaction (see Figure 3 below) average EV/EBITDA takeout multiple of 7.4x TTM EBITDA derives a $33 takeout value.