Stew Leonard’s mulls succession plan options post-COVID-19, CEO says

Stew Leonard’s, a second-generation family-owned grocery store chain, would consider running a sale process once volatility from the coronavirus pandemic begins to subside, said CEO Stew Leonard Jr.

The Norwalk, Connecticut-based company – which generates around USD 500m in revenue – receives regular approaches from private equity firms, the executive said.

The 65-year-old CEO said he is aiming to reduce his corporate responsibilities over the next five years and is also working to pass leadership down to his niece, nephew and daughter, who each hold management positions at the company.

At the advice of its board of directors, Stew Leonard’s took majority sale pitches from private equity firms and family offices about seven years ago, Leonard said, noting that it received offers in the high single-digit EBITDA multiple range. The company ultimately opted to remain independent at the time due to differing views on exit plans, Leonard said.

“Once we get past the coronavirus, it would probably be a good time to look at that again,” he said. The question of whether to bring in an outside investor or pass the business down to the next generation is one the company will be exploring over the next couple of years, he added.

Leonard’s father founded Stew Leonard’s in 1969, and the CEO took over the family business in 1983. Today, the company operates seven food retail stores and ten wine shops in Connecticut, New York and New Jersey. Its grocery stores are the largest arm of the business, accounting for around USD 400m of the company’s revenue, Leonard said.

While many grocery stores stock tens of thousands of stock keeping units (SKUs), Stew Leonard’s only sells around 2,000 SKUs at any given time, which allows it to focus on more profitable products and save on storage space, Leonard said. He noted that 85% of the products the company sells are fresh perishable items, such as produce, meats and in-store baked breads.

Running a grocery business during COVID-19

Like many grocery chains, Stew Leonard’s has seen an unprecedented spike in sales in recent weeks, as restaurants across the country shutter their doors in response to the COVID-19 pandemic. When asked about 2020 revenue projections, Leonard said, “it’s too early to tell, but they are definitely more than our plan that we (had) a month ago.”

Despite the initial uptick, Leonard said grocery stores are not completely immune to the financial headwinds of COVID-19. He noted that retailers have had to pay food suppliers more money for goods, which could impact overall sales. Stew Leonard’s is also paying its 2,800 employees an additional USD 2 per hour in “appreciation pay” during the pandemic. If employees contract the virus, the company will also have to pay them for the weeks they are quarantined, which Leonard pointed to as another unforeseen expense.

A critical part of keeping up with increased consumer demand during the pandemic is having strong, long-lasting relationships with food suppliers, Leonard said. He noted that Stew Leonard’s purchases most of its products directly from suppliers rather than distributors, although it does go through Connecticut-based Bozutto’s for some grocery products.

While the company’s stores are typically open from 8 a.m. to 10 p.m., Stew Leonard’s began closing two hours earlier this week to give staff more time to sanitize the stores during the pandemic, Leonard said. The company is also offering seniors-only shopping hours in the morning to provide a safer shopping experience for at-risk customers.

PwC serves as Stew Leonard’s accounting firm, and legal matters are handled in house. The company has banking relationships with M&T Bank and Signature Bank.

by Emily Fasold in Chicago
Mergermarket

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