What's going at Kroger's Dallas Division?

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What's going at Kroger's Dallas Division?

Post by pseudo3d »

Surprised this wasn't mentioned earlier this week, but the Dallas Division of Kroger (93 stores) actually has a contracted warehouse operated by SouthStar LLC. Right before the holidays, Kroger has suddenly announced that due to a "short and unexpected notice" the warehouse would switch contractors to Penske, and has laid off all 700 workers inside the plant, with only a vague statement of Penske re-hiring workers from SouthStar. Even if they aren't closing the DC (and basically be like the way the South Division of Albertsons is now), this is a complete disaster since most "changing operational hands" (Winn-Dixie to C&S, C&S to Safeway, etc.) is relatively seamless, and especially during the busy holiday season. The thought that Kroger's Dallas stores might run into some serious out of stock issues this Christmas now seems like a real concern (let alone the PR of this sudden change).

http://www.wfaa.com/news/local/tarrant- ... /495281947
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Re: What's going at Kroger's Dallas Division?

Post by architect »

pseudo3d wrote: December 1st, 2017, 11:19 pm Surprised this wasn't mentioned earlier this week, but the Dallas Division of Kroger (93 stores) actually has a contracted warehouse operated by SouthStar LLC. Right before the holidays, Kroger has suddenly announced that due to a "short and unexpected notice" the warehouse would switch contractors to Penske, and has laid off all 700 workers inside the plant, with only a vague statement of Penske re-hiring workers from SouthStar. Even if they aren't closing the DC (and basically be like the way the South Division of Albertsons is now), this is a complete disaster since most "changing operational hands" (Winn-Dixie to C&S, C&S to Safeway, etc.) is relatively seamless, and especially during the busy holiday season. The thought that Kroger's Dallas stores might run into some serious out of stock issues this Christmas now seems like a real concern (let alone the PR of this sudden change).

http://www.wfaa.com/news/local/tarrant- ... /495281947
This changeover is actually just a formality with the state which was blown out of proportion by the media. The warehouse operations are being immediately changed over to Penske from SouthStar (a regular occurrence in the distribution world), but Penske is requiring employees to reapply for their current positions, both to ensure that they meet their qualifications and also as a way of getting rid of low-performing employees. Most employees will be keeping their jobs. Technically since the employees are losing their jobs with SouthStar though, a filing with the state is required. Talk about a bad PR move for Kroger, especially when the general public does not understand everyday business operations such as this.
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Re: What's going at Kroger's Dallas Division?

Post by pseudo3d »

architect wrote: December 2nd, 2017, 8:01 am
pseudo3d wrote: December 1st, 2017, 11:19 pm Surprised this wasn't mentioned earlier this week, but the Dallas Division of Kroger (93 stores) actually has a contracted warehouse operated by SouthStar LLC. Right before the holidays, Kroger has suddenly announced that due to a "short and unexpected notice" the warehouse would switch contractors to Penske, and has laid off all 700 workers inside the plant, with only a vague statement of Penske re-hiring workers from SouthStar. Even if they aren't closing the DC (and basically be like the way the South Division of Albertsons is now), this is a complete disaster since most "changing operational hands" (Winn-Dixie to C&S, C&S to Safeway, etc.) is relatively seamless, and especially during the busy holiday season. The thought that Kroger's Dallas stores might run into some serious out of stock issues this Christmas now seems like a real concern (let alone the PR of this sudden change).

http://www.wfaa.com/news/local/tarrant- ... /495281947
This changeover is actually just a formality with the state which was blown out of proportion by the media. The warehouse operations are being immediately changed over to Penske from SouthStar (a regular occurrence in the distribution world), but Penske is requiring employees to reapply for their current positions, both to ensure that they meet their qualifications and also as a way of getting rid of low-performing employees. Most employees will be keeping their jobs. Technically since the employees are losing their jobs with SouthStar though, a filing with the state is required. Talk about a bad PR move for Kroger, especially when the general public does not understand everyday business operations such as this.
Even if it is a legal formality that involves stating job changeovers, and they would re-hire most, if not all employees (not guaranteed at this point, the article certainly made it sound like they'd only re-hire a core group and kick everyone else out), AND all this is does smoothly enough that Albertsons/Tom Thumb doesn't get Kroger's business because Kroger has stock issues, the question "why" remains. SouthStar LLC only has that Kroger warehouse to operate (on the outside, it's listed as "SouthStar LLC" at 5801 Kroger Drive), so either SouthStar is either a subsidiary of Kroger or a company that does only Kroger work. But Penske is a bigger company that is not affiliated with Kroger, which leads to both theories that lead to questions.

1) SouthStar LLC was a company that ONLY did Kroger work, and they were going out of business. But instead of taking it in-house, Kroger goes with another third party company. Or maybe they lost the contract for whatever reason (thus essentially killing that company). Kroger has the resources to take it in-house (probably like other DCs) but it doesn't, and its failure to re-affirm that sets off all sorts of alarm bells on the longevity of the Dallas Division (or the company as a whole).

2) SouthStar LLC was a subsidiary of Kroger, probably bought at some point to streamline logistics (much like how United bought Llano Logistics), and now they're being outsourced, which raises serious questions about the company and the division, with Kroger perhaps thinking that breaking up the Southwest Division was not the best of plans.

I don't think Kroger will get rid of its Dallas stores entirely, as Kroger's stock price would take a dive and raise even more questions about the operations of the company. (On the other hand, it would be fantastic for H-E-B, as they could snipe the high-volume stores and become a major force in the market). But at the same time, it almost looks like they could pull a reverse Albertsons South merger, with the stronger Houston division operating and supplying the weaker Dallas market (instead of Albertsons with the stronger Dallas division operating and supplying the weaker Houston market). And slightly O/T, but it looks like Albertsons decided to consolidate the United warehouse built in Roanoke two doors down from their current Tom Thumb warehouse, as per a listing here and the fact that it looks awfully empty in Google Earth...
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Re: What's going at Kroger's Dallas Division?

Post by storewanderer »

Safeway years ago had a contractor running its NorCal DC called Summit Logistics. I don't think Summit Logistics had any function other than the run that Tracy, CA Safeway DC. Just like this company that is/was running the Kroger Dallas warehouse. That deal soured in a similar manner to this very suddenly. Summit had undergone a strike that caused some fairly significant supply shortages to the stores for a while and it wasn't long after that, that Summit Logistics was terminated and Safeway took operations of the DC back.

I would not be surprised if what is happening with Kroger Dallas is out of the control of the division itself and something being handled by corporate Kroger. The timing is whenever a contract runs out. Sometimes these things do not start at what an objective spectator would call a logical time (like now).

Keep your eyes open for product shortages and other distribution issues in the stores to see if this is actually a big deal or not. That will tell the story.
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Re: What's going at Kroger's Dallas Division?

Post by pseudo3d »

storewanderer wrote: December 2nd, 2017, 9:06 am Safeway years ago had a contractor running its NorCal DC called Summit Logistics. I don't think Summit Logistics had any function other than the run that Tracy, CA Safeway DC. Just like this company that is/was running the Kroger Dallas warehouse. That deal soured in a similar manner to this very suddenly. Summit had undergone a strike that caused some fairly significant supply shortages to the stores for a while and it wasn't long after that, that Summit Logistics was terminated and Safeway took operations of the DC back.
Well, yes, that's the thing, as I mentioned before C&S had operated a distribution center for the Eastern Division from the late 1990s until a year or so ago when C&S, reeling from A&P's collapse, announced that it would close it down. Safeway (or Albertsons, rather) announced they would step in and run the DC themselves. But unlike Safeway's divisions in Eastern or NorCal, Kroger isn't taking it back in-house and having another third party run it. That's the concerning part. Unfortunately, since my local Kroger stores are in the Houston division and not the Dallas division, I can't observe any changes at Kroger myself, but Architect might.
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Re: What's going at Kroger's Dallas Division?

Post by storewanderer »

I don't know if it is concerning a third party is running the distribution center. It would be interesting to know why a third party is running it. Has a third party always run this distribution center?

Was it ever run by Kroger?
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Re: What's going at Kroger's Dallas Division?

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storewanderer wrote: December 2nd, 2017, 9:55 am I don't know if it is concerning a third party is running the distribution center. It would be interesting to know why a third party is running it. Has a third party always run this distribution center?

Was it ever run by Kroger?
Good question! I did some digging. Firstly, Kroger has been located in Dallas for years, and like many others they had bought their way in (Wyatt Food Stores), though by 1965 they had opened a store near NorthPark Center in 1965 under their own name, which was a contrast to other markets it was pushing around (they still had not fully Krogerized Henke & Pillot in Houston, for instance), and I believe most of their growth in Dallas was organic. The Houston stores had bought AppleTree and Albertsons stores, but Kroger's attempt to take over 74 Winn-Dixie stores in Dallas-Fort Worth was blocked in 2000.

The location at 5801 Kroger Drive suggests that it was built by Kroger or at least purchased by them, and the building was built in 1983 with the warehouse contracted out to SouthStar in 1998. link

The article "tidbit" can be seen below in case Bizjournals thinks you've seen too many articles this month:
Three days after Southstar Logistics Inc. notified the Texas Workforce Commission that it could potentially lay off 230 people, the northern Tarrant County company signed a new labor contract with its union employees, averting a shutdown.

"The circumstances surrounding the potential closing were sudden, dramatic and unexpected," Rick MacDonald, Southstar's general manager, wrote in an Oct. 6 letter filed under the Worker Adjustment and Retraining Notification Act. "Southstar has just been advised that its commercial agreement with its sole client may be canceled due to Southstar's inability to guarantee uninterrupted service during a peak sales period."

Since 1998, Southstar has provided third-party logistics support for Cincinnati-based grocery chain Kroger at a warehouse in an unincorporated area of Tarrant County between Keller and north Fort Worth.

On Oct. 9, about 150 employees represented by Teamsters Local 745 in Dallas voted to approve the new seven-year labor contract, said Randy Thorn, business agent for the union.

MacDonald declined to elaborate on what was causing the potential shutdown other than to say, "It's a personal business issue."

He said the company is now ready to move forward.
Where things get interesting though is despite the exclusivity of SouthStar to Kroger, there's a secret to SouthStar that isn't particularly obvious--it's owned by SuperValu (and other sites often refer to it as an "affiliate" of SuperValu), with this LinkedIn blurb suggesting that the relationship with SuperValu dates back to the mid-2000s. It also probably explains why Albertsons had its Dallas/Fort Worth division be sold and contracted with AWG, seeing how its largest competitor was in bed with SuperValu. Since SouthStar LLC seems to be exclusive to Keller (there's the defunct SouthStar Funding and a real estate company based out of TN and founded in 2001 also named SouthStar), it may have been SuperValu with SouthStar all along. But since I don't have access to if Kroger was the one that built it or not, it's difficult to tell.

So if SouthStar is just SuperValu in disguise, and assuming that Kroger does still own the DC, why is switching to another third party instead of just taking it back in-house as Safeway did? After all, Kroger likes self-distribution and that's one of the things they look for when they go shopping for acquisition targets, nor are they trying to cut corners by outsourcing DCs. This all points back to a theory that Kroger doesn't want to keep the Dallas Division operating in the long haul, and by that I mean having the Houston and Dallas divisions separate.

Edit: Also, I think the media is reacting to the notice filed like "700 people are getting laid off" and instead of saying, "Relax, we're just changing contractors, nobody's losing their job, just a formality, nothing to see here", Kroger's vague statement about a "short and unexpected notice" is horrible damage control in what could turn out to be a PR nightmare, so until then all the public really knows (or think they know) is that Kroger is firing everyone. Still though, the determination between "is there something really going on" or "is the PR person just asleep at the switch" all depends if they can keep adequate stock in the December season.
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Re: What's going at Kroger's Dallas Division?

Post by architect »

pseudo3d wrote: December 2nd, 2017, 8:57 am 1) SouthStar LLC was a company that ONLY did Kroger work, and they were going out of business. But instead of taking it in-house, Kroger goes with another third party company. Or maybe they lost the contract for whatever reason (thus essentially killing that company). Kroger has the resources to take it in-house (probably like other DCs) but it doesn't, and its failure to re-affirm that sets off all sorts of alarm bells on the longevity of the Dallas Division (or the company as a whole).

2) SouthStar LLC was a subsidiary of Kroger, probably bought at some point to streamline logistics (much like how United bought Llano Logistics), and now they're being outsourced, which raises serious questions about the company and the division, with Kroger perhaps thinking that breaking up the Southwest Division was not the best of plans.

I don't think Kroger will get rid of its Dallas stores entirely, as Kroger's stock price would take a dive and raise even more questions about the operations of the company. (On the other hand, it would be fantastic for H-E-B, as they could snipe the high-volume stores and become a major force in the market). But at the same time, it almost looks like they could pull a reverse Albertsons South merger, with the stronger Houston division operating and supplying the weaker Dallas market (instead of Albertsons with the stronger Dallas division operating and supplying the weaker Houston market).
Scenario #1 that you mentioned is far more likely. From what I can gather based on the links posted here and other articles which I have read, SouthStar was experiencing a breakdown with union negotiations, and as a result, Kroger elected to terminate their contract and switch to Penske. The DC itself is likely either owned by Kroger or leased under a seperate agreement, giving Kroger the latitude to make such a move. I definitely agree that it is strange that Kroger is not taking operations in-house. My guess is that if Kroger brought the DC in-house, then its employees would be covered under the same union rules which govern Kroger's other DC's, giving them far less latitude in managing their employees.

Considering that Kroger is continuing to invest in its stores here in DFW and they seems to be pulling just as much traffic as the Albertsons-owned banners combined, I don't see them leaving the market. Kroger's DFW performance is not far behind their Houston performance either, particularly when compared with Albertsons' DFW vs Houston presence (it's not even close). Unless their stores are barely turning a profit due to pricing pressure, I don't see a reason which Kroger would leave the market without a good reason for doing so.
pseudo3d wrote: December 2nd, 2017, 9:30 am
storewanderer wrote: December 2nd, 2017, 9:06 am Safeway years ago had a contractor running its NorCal DC called Summit Logistics. I don't think Summit Logistics had any function other than the run that Tracy, CA Safeway DC. Just like this company that is/was running the Kroger Dallas warehouse. That deal soured in a similar manner to this very suddenly. Summit had undergone a strike that caused some fairly significant supply shortages to the stores for a while and it wasn't long after that, that Summit Logistics was terminated and Safeway took operations of the DC back.
Well, yes, that's the thing, as I mentioned before C&S had operated a distribution center for the Eastern Division from the late 1990s until a year or so ago when C&S, reeling from A&P's collapse, announced that it would close it down. Safeway (or Albertsons, rather) announced they would step in and run the DC themselves. But unlike Safeway's divisions in Eastern or NorCal, Kroger isn't taking it back in-house and having another third party run it. That's the concerning part. Unfortunately, since my local Kroger stores are in the Houston division and not the Dallas division, I can't observe any changes at Kroger myself, but Architect might.
I will keep an eye out for any notable product shortages. However, my guess is that if the Dallas DC is unable to supply certain product temporarily, trucks will be sent from Houston or somewhere else.
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Re: What's going at Kroger's Dallas Division?

Post by pseudo3d »

Of course. Realistically, unless something was going horrifically wrong with Kroger's finances, they won't close the Dallas stores (I'm sure I reiterated that), it's just that Dallas would not be a separate division anymore and they would be merged with Houston again. That's far more likely.
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