Hannaford’s Golden Age, courtesy of Arthur S. Demoulas

by Datechguy | August 5th, 2014

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Hannaford's Golden Age, courtesy of Arthur S. Demoulas

Ran­dolph Duke: Exactly why do you think the price of pork bel­lies is going to keep going down, William?
Billy Ray Valen­tine: Okay, pork belly prices have been drop­ping all morn­ing, which means that every­body is wait­ing for it to hit rock bot­tom, so they can buy low. Which means that the peo­ple who own the pork belly con­tracts are say­ing, “Hey, we’re los­ing all our damn money, and Christ­mas is around the cor­ner, and I ain’t gonna have no money to buy my son the G.I. Joe with the kung-​fu grip! And my wife ain’t gonna f… my wife ain’t gonna make love to me if I got no money!” So they’re pan­ick­ing right now, they’re scream­ing “SELL! SELL!” to get out before the price keeps drop­ping. They’re pan­ick­ing out there right now, I can feel it.

Trad­ing Places 1983

The 21st cen­tury has been the great­est time in liv­ing mem­ory if you are a New Eng­land sports fan in gen­eral and a Red Sox Fan in particular.

The Bru­ins & Celtics both won titles and make it to their respec­tive finals, the Patri­ots have won three super bowls and manged to make it to two more and the Boston Red Sox not only ended 80+ years of frus­tra­tion with a World series win (and an even more mem­o­rable defeat of the Yan­kees) in 2004 but man­aged to win two more World Series in spec­tac­u­lar fashion.

Yes if you are a Boston Sports fan there is no bet­ter time to be alive and when things go back to nor­mal you’ll talk about this period as your Golden Age!

Right now Hannaford’s board and stock­hold­ers much be feel­ing the same way.

Over the last three weeks their chief rival in the area has self destruc­ted forc­ing tens of thou­sands of new cus­tomers into the mar­ket snatch­ing up whole departments.

That wind­fall is pretty good but it doesn’t con­vey the real advan­tage, not only is the traf­fic up but they are in the posi­tion to improve their profit mar­gins with­out touch­ing their shelf price.

Let me explain this by first point­ing out a sim­ple fact. Most com­pa­nies set up their sup­ply chains months in advance, if they plan, for exam­ple, on sell­ing say 100,000 gal­lons of Ice cream in July & 120,000 in August they already have the fruit, the sugar and the paper or plas­tic con­tain­ers order and ready to be deliv­ered months before the actual pro­duc­tion date to be sure they will be on hand when they are needed.

That way when the day comes they are pre­pared to sell those gal­lons to the var­i­ous chains and keep them supplied.

But what hap­pens if sud­denly one of those chains is sud­denly not buying?

What hap­pens when a Mar­ket Bas­ket is not order­ing or tak­ing deliv­er­ies of your prod­uct. What hap­pens when you have 10,000 gal­lons or more of Ice Cream that sim­ply isn’t being ordered? You have to find a buyer and quick!

Now con­sider you are Han­nafords, you have increased demand but you can’t order as if that’s going to be true for­ever because you don’t know from one day to the next if Arthur S. Demoulas or one of his share­hold­ers will decide it’s more impor­tant to have a viable busi­ness than revenge,

So you might slightly increase orders but that’s not good enough because the seller needs to move those 10,000 extra ice cream pack­ages or that huge vol­ume or corn or that fruit that is just get­ting ripe. They are fac­ing at best the era­sure of their entire profit mar­gin or at worst collapse.

They need to sell and sell badly and you don’t need to be William Shat­ner to know that the Han­naford buyer can pretty much name their own price on that extra product.

Sud­denly your cost per unit is down and because your old cus­tomer base is used to your price pat­terns and your new cus­tomer base isn’t expect­ing bet­ter you have absolutely no incen­tive nor need to adjust your retail prices to reflect the bet­ter whole­sale prices you are getting.

In other words you now have improved mar­gins with­out hav­ing to change a sin­gle thing, and even bet­ter every sin­gle day the Mar­ket Bas­ket tur­moil is a day that your mar­gins keep that increase.

You’re in the sweet spot, the moment that every busi­ness dreams of and as a Han­naford share­holder years from now when things are back to nor­mal you’ll talk of that golden era when you could just sit back and watch increased prof­its roll in with­out wor­ry­ing about doing any of the things Arthur T Demoulas did to make Mar­ket Bas­ket a success

Then they’ll raise a cup to Arthur S. Demoulas who made it all pos­si­ble say­ing: “Those were the days!”

Update: added the movie quote

Randolph Duke: Exactly why do you think the price of pork bellies is going to keep going down, William?
Billy Ray Valentine: Okay, pork belly prices have been dropping all morning, which means that everybody is waiting for it to hit rock bottom, so they can buy low. Which means that the people who own the pork belly contracts are saying, “Hey, we’re losing all our damn money, and Christmas is around the corner, and I ain’t gonna have no money to buy my son the G.I. Joe with the kung-fu grip! And my wife ain’t gonna f… my wife ain’t gonna make love to me if I got no money!” So they’re panicking right now, they’re screaming “SELL! SELL!” to get out before the price keeps dropping. They’re panicking out there right now, I can feel it.

Trading Places 1983

The 21st century has been the greatest time in living memory if you are a New England sports fan in general and a Red Sox Fan in particular.

The Bruins & Celtics both won titles and make it to their respective finals, the Patriots have won three super bowls and manged to make it to two more and the Boston Red Sox not only ended 80+ years of frustration with a World series win (and an even more memorable defeat of the Yankees) in 2004 but managed to win two more World Series in spectacular fashion.

Yes if you are a Boston Sports fan there is no better time to be alive and when things go back to normal you’ll talk about this period as your Golden Age!

Right now Hannaford’s board and stockholders much be feeling the same way.

Over the last three weeks their chief rival in the area has self destructed forcing tens of thousands of new customers into the market snatching up whole departments.

That windfall is pretty good but it doesn’t convey the real advantage, not only is the traffic up but they are in the position to improve their profit margins without touching their shelf price.

Let me explain this by first pointing out a simple fact. Most companies set up their supply chains months in advance, if they plan, for example, on selling say 100,000 gallons of Ice cream in July & 120,000 in August they already have the fruit, the sugar and the paper or plastic containers order and ready to be delivered months before the actual production date to be sure they will be on hand when they are needed.

That way when the day comes they are prepared to sell those gallons to the various chains and keep them supplied.

But what happens if suddenly one of those chains is suddenly not buying?

What happens when a Market Basket is not ordering or taking deliveries of your product. What happens when you have 10,000 gallons or more of Ice Cream that simply isn’t being ordered? You have to find a buyer and quick!

Now consider you are Hannafords, you have increased demand but you can’t order as if that’s going to be true forever because you don’t know from one day to the next if Arthur S. Demoulas or one of his shareholders will decide it’s more important to have a viable business than revenge,

So you might slightly increase orders but that’s not good enough because the seller needs to move those 10,000 extra ice cream packages or that huge volume or corn or that fruit that is just getting ripe. They are facing at best the erasure of their entire profit margin or at worst collapse.

They need to sell and sell badly and you don’t need to be William Shatner to know that the Hannaford buyer can pretty much name their own price on that extra product.

Suddenly your cost per unit is down and because your old customer base is used to your price patterns and your new customer base isn’t expecting better you have absolutely no incentive nor need to adjust your retail prices to reflect the better wholesale prices you are getting.

In other words you now have improved margins without having to change a single thing, and even better every single day the Market Basket turmoil is a day that your margins keep that increase.

You’re in the sweet spot, the moment that every business dreams of and as a Hannaford shareholder years from now when things are back to normal you’ll talk of that golden era when you could just sit back and watch increased profits roll in without worrying about doing any of the things Arthur T Demoulas did to make Market Basket a success

Then they’ll raise a cup to Arthur S. Demoulas who made it all possible saying: “Those were the days!”

Update:  added the movie quote

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