Competitors Analysis – Supermarket

Howard Wang, CPA

$600 billion U.S. supermarket industry

• Intensely competitive segment - conventional, supercenter, natural/gourmet, limited assortment and warehouse.

• Conventional supermarkets have experienced overall share decline from approximately 73% in 2005 to 67% in 2012, according to the Progressive Grocer.

• An increasing consumer focus on healthy, fresh and quality offerings as well as organic and conventional offerings.

• An increasing consumer interest in locally-grown products including regionally and locally sourced food.

Public Trading Companies in Supermarket business

• Village Super Market operates a chain of 29 supermarkets under the ShopRite name in New Jersey, Maryland and eastern Pennsylvania.

• Fresh Market is a fast-growing specialty retailer focused on creating an extraordinary food shopping experience and operated 151 stores in 26 states across the United States.

• Sprouts is a high-growth, natural and organic food retailer offering a complete grocery shopping experience and operating 167 stores in eight states.

• Ingles operated 194 supermarkets under the name “Ingles,” and 9 supermarkets under the name “Sav-Mor” with locations in western North Carolina, western South Carolina, northern Georgia, eastern Tennessee, southwestern Virginia and Northeastern Alabama.

• Safeway Inc. is one of the largest food and drug retailers in the United States, with 1,335 stores at year-end 2013. The Company’s U.S. retail operations are located principally in California, Hawaii, Oregon, Washington, Alaska, Colorado, Arizona, Texas and the Mid-Atlantic region.

Revenue Trend• No significant

growth in big guys.

• Sprouts opened 22 and 16 stores in 2013 and 2012.

• Fresh Market opened 19 and 9 stores in 2013 and 2012 respectively.

• Village acquired 1 store in 2012.

Safeway Ingles Sprouts Fresh Market Village0%

10%20%30%40%50%60%70%80%90%

100%

$36,139,100 $3,738,540 $2,437,911 $1,511,657 $1,476,457

$36,068,300 $3,718,315

$1,794,823 $1,329,131 $1,422,243

$35,356,700 $3,569,023 $1,105,879 $1,108,035 $1,298,928

REVENUE 3-Year stacked ($’000)2013 2012 2011

Safeway Ingles Sprouts Fresh Market Village0

200

400

600

800

1000

1200

1400

1600

1335

203 167 15129

1346

203 148 12929

1377

203103 113

28

Number of stores (2011 - 2013)2013 20122011

Sales Per Store

• 2012 higher growth is due to the economic recovery.

• Sprouts growth driven from the demand for healthier food choices and same-store private label sales growth.

• Sprouts and Fresh Markets operate a smaller than other peers’ average stores.

Sprouts Village Fresh Market Safeway Ingles0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%10.7%

2.9%2.1%

1.0%0.6%

9.7%

4.9% 4.6% 4.4%

5.5%

Sales increase % - Same Store2013 2012

Village; 56,690

Ingles; 54,562 Safeway; 47,491

Sprouts; 27,442

Fresh Market; 21,123

Total square feet per store

Store Performance

Village Safeway Ingles Sprouts Fresh Market $-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$50,912

$27,070

$17,728 $14,598

$10,798

$49,043

$26,797

$17,623

$12,127 $10,985

$46,390

$25,677

$16,698 $10,737 $9,806

Sales Per Store (in thousand) 2013 2012 2011

• Village has the highest square feet and sales per store were 56,600 sq. ft. and $50,912 are among the highest in the supermarket industry.

• Larger store sizes enable Village to offer the specialty departments including pharmacies, natural and organic departments, ethnic and international foods, and home meal replacement.

Village Safeway Fresh Market Sprouts Ingles $-

$200

$400

$600

$800

$1,000

$1,200 $1,140

$570 $535 $532 $465

$1,118

$565 $524

$442 $464

$1,003

$543 $501

$406 $437

Comparable Sales per square feet2013 2012 2011

Profitability • Gross margin has less than 1% changes over the years.

• Sprouts improved the income of operations to 5.7% from 3.9% due a $17.1 million decrease in acquisition and integration costs.

• Fresh Market has lower income from operation % due the higher compensation at the new open stores.

Fresh Market Sprouts Village Safeway Ingles0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

34.1%

29.7%26.9% 26.3%

22.1%

34.0%

29.5%27.3% 26.2%

22.1%

33.1%

28.1% 27.0% 26.8%

22.2%

Gross margin % 2013 2012

Fresh Market Sprouts Village Safeway Ingles

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

5.5% 5.7%

3.0%

1.8%

3.2%

7.6%

3.9% 3.9%

2.0%

3.3%

7.5%

-2.3%

2.9%

2.0%

3.2%

Income from operation as % of Sales 2013 2012

Profitability• EBITDA % range

from 4.3% to 9.1% in 2013.

• Fresh Market EBITDA % decreased by 2% due to impairment charges, and higher SG&A, partially offset by improved gross margin.

• Ingles EBITDA % decreased by 1.1% due to the higher compensations of higher sales volume and new distribution facility opened.

Safeway Sprouts Fresh Market Village Ingles$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

$1,800,000 $1,552,900

$168,484 $138,259 $68,764 $180,273

$1,699,500

$29,282 $119,576 $59,144 $208,094

EBITDA in thousand (3-year comparison)

2013 2012 2011

Safeway Sprouts Fresh Market Village Ingles0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

4.3%

6.9%

9.1%

4.7% 4.8%4.7%

5.9%

11.1%

5.5%5.9%

4.8%

2.6%

10.8%

4.6%

5.8%

EBITDA as % of Sales 2013 2012 2011

Capital Expenditure & Debt

• Fresh Market has the highest CAPEX% among the competitors.

• Ingles has the negative FCF in 2012 since a new distribution facility and renovation of stores.

• Fresh Market has the lower FCF after higher CAPEX %.

Fresh Market Sprouts Ingles Safeway Village0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%8.1%

3.6%

2.7%2.1%

1.5%

6.1%

2.6%

4.9%

2.3%

1.5%

7.9%

2.5% 2.7% 2.8%

1.5%

CAPEX as % of Sales

2013 2012 2011

Fresh Market Village Ingles Sprouts Safeway

$(200,000)

$-

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$18,006 $29,385 $43,748 $73,125

$476,700

$20,998 $44,203

$(278)

$24,790

$1,031,200

Free Cash Flow2013 2012 2011

DIO & DSO • Ingles offering a broad array of products and currently supplies approximately 56% of its supermarkets’ inventory from its warehouse and distribution facilities, thus, it has the longer DIO.

• Safeway has the higher DSO due to the gift card receivable and pharmacy business.

Village Fresh Market Sprouts Safeway Ingles -

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

13.9

18.3

23.1

31.9

41.3

14.0 17.0

23.4

34.5

39.9

Days Inventory Outstanding (DIO)2013

Sprouts Fresh Market Village Ingles Safeway0.0

2.0

4.0

6.0

8.0

10.0

12.0

1.32.2

2.8

5.9

10.7

1.2 1.6

2.5

5.8

7.9

Days Sales Outstanding (DSO)2013

CCC=DIO+DSO-DPO Village holds an

investment in Wakefern, its principal supplier. Village purchases substantially all of its merchandise from Wakefern in accordance with the Wakefern Stockholder Agreement. Thus, a lower inventory and higher A/P resulted in a negative CCC.

Safeway has higher DIO but also has higher DPO, which resulted in a very short CCC.

Village Safeway Sprouts Fresh Market Ingles

(5.0)

-

5.0

10.0

15.0

20.0

25.0

30.0

(2.8) (2.0)

3.8 5.3

27.0

(3.1)

1.0

4.9 3.9

24.9

Cash Conversion Cycle (CCC)2013

Fresh Market Village Ingles Sprouts Safeway -

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

15.1

19.4 20.3 20.7

44.5

14.6

19.6 20.8 19.7

41.4

Days Payable Outstanding (DPO)2013

Earning Growth Strategy• Expand store base –

replicating successful store to new store or acquisition, remodeling the existing stores

• Drive comparable store sales – new and creative products/private label brand

• Improve operating margin – efficiency on the process of operation and finance/accounting

Earnin

g Growt

h

Store base

ProcessProducts