IWAN T TO BU Y WEGMANS. Now, we all know that is not going to happen. I will just have to be satisfied with those specialty sand- wiches in the deli and the coconut
custard pastries, which are better than…
well, you know.
However that is the fantasy, or at least
the sentiment expressed in a lot of retail
boardrooms and financial enclaves.
Which may come true over the next three
to five years if management of super-regionals like Wegmans, H.E. Butt and
Meijer decide it is time
move on to different, if
not greener, pastures.
Now you are going
to ask who is interested. Kroger? Maybe.
Private equity firms?
Probably. Maybe the
question to ask is—
who is not?
Truly, what is not
to like? We are talking about established
names with impeccable reputations, creative management, dedicated employees, growth-minded but not overly so,
highly profitable with sales per square
foot far ahead of most in the industry.
Cost structures may be a little high but
that goes with the territory.
But this really is not about Wegmans or
others as much as it is about the future of
some family businesses and what the outlook might be when they change hands.
According to a study by PWC, nearly
three quarters of family businesses do not
have a succession plan in place, strength-
ening the possibility of outside interests
taking over. Then we have the “sticky
baton syndrome” where senior manage-
ment cannot quite give things up to the
next generation, even those wanting to
carry on in their footsteps.
A family business is about more than
just longevity, as we see with Wegmans.
It is about being able to grow in the face
of intensifying pressure from all manner
of competitors. That is going to put an
increasing strain on any family business
that may lose its taste for innovation as
the price of doing business escalates.
We have spent a lot of time vilifying
venture capitalists and private equity
firms by characterizing them as raiders,
pillaging hordes that look for quick gains
with little interest in building viable long-term businesses.
Clearly, vampires are out there in the
shadows, but bringing in outsiders is not
always a bad idea and may indeed save a
business from extinction. We may be see-
ing more of this benevolent outside inter-
vention. Merger and acquisition activity
in general is expected to be brisk this year
and there is considerable interest in the
grocery sector, which equity firms see as
a profitable investment. As Brian Todd,
president of the Food Institute told me
recently: “Grocery is seen as a lot sexier
business than it used to be.”
This alone is creating a seller’s market,
giving strong retailers the upper hand
in negotiations. Demand could crest
at any time. But it seems strong for the
foreseeable future—whatever that is
Basically, equity firms are looking for
a relatively safe place to park some cash
or a modest return, which means they
are less likely to be among the ranks of
activist investors looking to make massive changes in already healthy companies. In fact, their presence may be less
destructive than dissention in the family
ranks. We have all seen what can happen
when familial disagreements create an
untenable work environment or worse—
devolve into lawsuits.
However, private equity’s involvement
should be more than just passive in some
cases. Their experience in grocery may
be at the 30,000-foot level, but they also
know what levers to pull to make companies work. Their strength lies in the basic
“blocking and tackling” including inventory management, distribution and general efficiencies. The fact that they are not
merchants is not that important if they
can see ways to improve operations without disrupting the customer proposition.
Whoever the buyer may be, now is
the time to develop an exit strategy, but
everyone has to be on board with the
plan. This can be difficult when multiple
generations are involved in the business
or the next generation does not have the
skills or financial wherewithal to continue
the legacy. This is why a sellout or even
partial liquidity might be best to insure
the company’s future. This not only provides funding but the opportunity to
bring in fresh, out of the family box talent
capable of strategic thinking.
A FAMILY AFFAIR
The full or partial sale of a family business is an extremely emotional time.
By Len Lewis
Len Lewis is a regular Grocery
Headquarters columnist and
veteran industry journalist.