Amazon’s $13 billion purchase of Whole Foods in June added a sense of urgency, raising the prospect that the e-commerce giant would find a way to upend groceries just as it has every other aspect of retail. This month, Walmart responded with its own plan to start offering an online grocery delivery service in 100 cities.
These digital initiatives — and aggressive price cuts and expansion by other deep-pocketed retailers like the German entry Lidl — are weeding out the weakest links.
“There is a tremendous shakeout in food retail right now,” said Burt P. Flickinger III, a managing director of the retail consulting firm Strategic Resource Group, whose family founded a grocery business more than a century ago.
At stake is not only the price of toothpaste and bananas, but the fate of thousands of cashiers, cake decorators and meat cutters, many of whom belong to labor unions and are owed pensions when they retire. Tops employs more than 12,000 unionized employees at about 160 stores in New York, Pennsylvania and Vermont.
Maribeth Druse made a lifelong career in groceries, but given the industry’s struggles, her experience will increasingly be harder to replicate.
Ms. Druse, 61, was still in high school when she started working in the meat department of a grocery chain that Tops eventually acquired. She now collects a $20,000-a year-pension and is still able to work part time at the Tops in Cooperstown, N.Y.
“Who works in the same job for 44 years and gets a pension anymore?” Ms. Druse asked. “Nobody.”
Like businesses in other industries — including Toys “R” Us, which announced liquidation plans this month — many failing supermarkets are owned by private equity firms that have loaded the companies up with debt. That hampers their ability to compete in an environment where prices in some markets have dropped by as much as 25 percent, Mr. Flickinger said.
Tops was long challenged by the debt its former private equity backer, Morgan Stanley Investment Management, heaped on it.
The private equity firm Lone Star has cashed out $980 million in dividends from Winn-Dixie’s parent company since 2011, according to Moody’s Investors Service. Most of the payments were made by taking out debt on the chain, leaving less money to invest in stores.
Marsh Supermarkets, an Indianapolis regional grocer that had been backed by private equity, laid off more than 1,500 workers and required a federal takeover of its pension plan last year.
And Fairway, the iconic New York grocer that Blackstone took ownership of after it went bankrupt in 2016, is still trying to distinguish itself in a crowded field, but reports making some progress on its turnaround.
This month, Fairway executives met with the company’s roughly 3,500 workers, most of whom are unionized, to unveil a set of new initiatives — like investments in a new marketing campaign. It plans to emphasize the company’s role in bringing new foods to market, as it did with Chobani yogurt and Cape Cod potato chips.
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