Will using limited cash to buy fast turnover items reverse negative cash flow?
Not once, but three times, did I receive photos of the empty D’Agostino shelves from readers and staff with the question, “Are they going out of business?” And in my repeated e-mails to Bob James the D’Ag president and CEO since August of last year, the answer was always a polite “No.”
This morning, Tuesday July 26th, I had a conversation with Joe Fedele, the VP of Press for the supermarket employee’s union. He sent me a just-printed Progressive Grocer article that quoted D’Ag president James, saying in the officially important trade journal, “.No we are not going out of business or selling.”
He offers that the empty shelves problem is cash flow. It seems the contract D’Ag had with its major suppliers was cash up front, that is, pre-payment “and we didn’t have the cash—we could only buy so much,” James offered, “We’ve had to refine our buying practices, with a focus on things that will turn faster,” and today they are supposed to bear the fruits of this new buying policy (Maggie B reported that they’d been out of butter and sugar).
But there is more. D’Ag seems to have an especially good relation with its employees, I am told by many who have been with the company for decades. Bob James alludes to this: “Closing stores was the hardest decision we had to make because it meant laying off employees—something that we’ve never done before. Previously when we’ve closed a store, we’ve absorbed the employees. Unfortunately, that created a bit of a problem for us on the cost side.” (I suspect they are still paying salaries for workers they no longer need in stores with ever-shrinking inventory.)
And here you have part of the reason why D’Ag is experiencing negative cash flow but not all the reasons. Nearly all the old traditional supermarket chains are having problems. When I asked Nick D’Agostino if he was working on a 1½ percent profit margin, which is what I remember from being on the Co-Op board, he said, “I wish,” and went on to
explain how the drug stores were competing. And indeed more than half of Rite-Aid looks like, and is, a supermarket and we have Fresh Direct, and you can order a meal on-line from a growing roster of restaurants. Young people like my daughter, Athena, want “healthy places” like Whole Foods and that is exactly the image that Mrs. Green’s projects. And they are just around the corner from D’Ag and have an unlimited Canadian hedge fund budget to snuff out D’Ag’s non-existent ad budget. Mrs. Green’s mails its sales flyer to every mailbox in its sales territory, and finally you have Trader Joe’s with 30 check-out counters and the line that starts as you get into the door.
As to selling out—James did offer that they had discussions with Key Foods and a few other chains when they were closing locations in February, but that’s it.
Progressive Grocer invited who I assume is a venerable guru of the industry, Burt P. Flickinger III, who was “shocked at the condition of the store” and allowed that, “they have a chance but you have got to have concerns.”
Maggie B just sent me an e-mail showing the store filling up with merchandise, so Bob James is a man of his word. I just hope it is not too late.