Winn-Dixie Stores (WINN)

TOP CONTRIBUTORS

Adam Szymanski

Greisert91

Paul Briguglio

Business Overview

Winn-Dixie Stores, Inc. (NASDAQ:WINN) is a grocery store located mainly in the Southeastern United States with stores in Florida, Georgia, Alabama, Mississippi, and Louisiana^[1]. As of June 30, 2010, they operated 514 stores in these five states. The company originated in Burley, Idaho in 1913, then quickly moved to the booming economy of Florida, where it is still headquartered today.

The company officially became Winn-Dixie in 1925. Winn-Dixie ranks 340 on the FORTUNE 500 list. Along with providing national brands carried in nearly all other grocery chains across the United States, Winn-Dixie also distributes and sells its own brands: Thrifty Maid, Winn-Dixie, and Winn & Lovett. The company’s stores offer grocery, meat, seafood, produce, deli, bakery, floral, health and beauty, and other general merchandise items. Its stores also provide pharmacy, liquor, and fuel products. Winn-Dixie also has 401 pharmacies, 80 liquor stores, and five fuel centers at its stores^[2].

For the fiscal year (FY) ended June 30, 2010, Winn-Dixie recorded revenues of $7,247 million, down 1.64% from $7,367 million in FY 2009. The revenues from FY 2009 was an increase of 1.16% from $7,281 million. Winn-Dixie saw net income numbers of $28.9 million in FY 2010, which was a decrease of 37.7% from FY 2009, when they recorded a net income of $39.8 million. Fiscal year 2009 had a net income increase of 67.8% from FY 2008 when they recorded net income of $12.8 million^[3].

Contents 1 Business Overview 2 Business Segments and Product Portfolio 3 Competitive Landscape 4 Financial & Operating Metrics 4.1 Cash Conversion Cycle 5 Marketing and Supply Chain 5.1 Products 5.2 Place 5.3 Promotion 5.4 Price 5.5 Supply Chain 6 Human Resources 6.1 Employees 6.2 Employee Compensation 6.3 Key Executives 6.4 Executive Compensation 7 References

Analysts view Winn-dixie as a relatively stable investment, with most recommending a hold of the stock and few suggesting a purchase^[4]. In FY 2010 Winn-Dixie reported an Earnings Per Share of $.52; however, analysts project Winn-Dixie to report an EPS of -$.40 in FY 2011. This can be attributed to another analyst projection, that revenues will fall -5.8% in FY 2011 from 2010. The projections analysts have for FY 2012 are slightly better, predicting an EPS of -$.25 and revenues to grow 2.3% from FY 2011^[5].

Business Segments and Product Portfolio

Winn-Dixie, like all grocery stores, shelves a multitude of branded products from hundreds or even thousands of suppliers. However, the company is known for its extensive list of private label brands, which has included approximately sixty different products throughout history. Currently, its private labels are characterized based upon a three-tier system. Originally there was what they call a prestige brand, which includes upscale products; a Winn-Dixie brand, which includes all its traditionally mainstream products; and a Thrifty Maid brand for value products. Four years ago, they changed the prestige brand with Winn & Lovett and last year they changed Thrifty Maid to ValuTime. Also well-known is the Chek brand, which includes Winn-Dixie’s private label soda products and its Kuddles brand for its baby products.

In addition to its line of private label products, Winn-Dixie also provides consumers with various other mainstream products and services. Like many grocery store chains, Winn-Dixie also shelves department store items, including health and beauty, bed & bath, and other general merchandise products. Also, many of its stores provide pharmaceutical service to their customers.

Competitive Landscape

As a major grocery store chain from the southern states, it’s clear that Wal-Mart serves as one of the company’s fiercest rivals. However, it also faces stiff competition from many other grocery store chains as well as numerous firms from separate channels, such as convenience stores, pharmacies, discount stores, dollar stores, and small farmers-market-based companies. Winn-Dixie’s top competitors include Kroger, Safeway, Whole Foods, Publix, Target, Ingles Market and Wal-Mart.

Winn-Dixie competes on a differentiation basis by providing what they term Fresh & Local merchandising in addition to their popular selection of private label branded products. The Fresh & Local strategy is aimed at delivering food products to consumers based on geographic region^[3]. . Culture and tastes are different anywhere you travel regardless of the distance. Not all Americans are exactly the same; accordingly, Winn-Dixie is addressing different consumers’ needs and wants by providing foods that are both locally grown or produced and that are considered traditional and appropriate for that specific region. For example, the company is now tailoring their Hispanic-based stores to the wants of the local residents by providing a larger selection of traditional Hispanic foods and cuisines.

Furthermore, after the financial struggles incurred during the crisis over the last few years, Winn-Dixie decided to update and remodel its existing stores in order to appeal to a more modern audience. Stores are becoming cleaner, sleeker, and more extravagant. The idea is to improve upon store and brand recognition, while also serving as a community frontrunner in the jump towards more modernization. The remodeling developments are following a benchmark of professionalism displayed by two of the company’s stores in 2010, located in Covington, Louisiana and Margate, Florida. Stores now offer more expansive fresh departments, consisting of locally-grown fresh produce as well as other locally-grown or produced foods.

Competition in the grocery/supermarket industry is very intense due to many factors. First and most obvious is the fact that food is a necessity and people must have it. It is no wonder that food merchants have been around since civilization began. People will always require food for sustenance and, accordingly, the industry will survive with the human race. Second, this market does not provide significant barriers to entry. As stated, even small local convenience stores, act as competitors to big-chain supermarkets like Winn-Dixie. This is because these stores provide consumers with food and other products at conveniently locations. Founding and operating a convenience store does not require significant capital and can be maintained without substantial economic risks. On a larger scale, firms with abundant resources can penetrate the market without incurring overly-large risks. Most products, even private labels regarded as possessing higher value, can be easily substituted. Switching costs are virtually non-existent for consumers and price elasticity can be quite high for many of them. Because the industry does not possess significant barriers to entry, there is a very high threat of new entrants. The way companies fight this threat is by taking advantage of their experience and scale economies, if applicable. Retaliation by existing market leaders can be substantial according to capital resources these firms possess.

Due to the vast amount of firms competing in this industry, buyers (consumers) have very strong buying power. Winn-Dixie, despite its large size and success as a major grocer, itself only holds a small market share. The figure to the below shows market shares of the top revenue-generating grocers. As noted, Winn-Dixie competes on several fronts due to the abundance of food retailers whether publicly-held corporations or small local businesses. Also, there is not a perfectly clear line drawn between what constitutes a “grocery store” versus a supermarket or discount retailer. So, it is difficult to visualize graphically any single firm’s true share of the grocery and supermarket industries. Nonetheless, it is clear that Kroger is a dominant figure across the country, whereas Winn-Dixie is more concentrated.

Supplier power in this industry is moderate. As with consumers, companies in this industry do not incur substantial switching costs due to the numerous suppliers of fresh produce and meats. However, as many of the products shelved in grocery stores are popular brand name products, such as Cheerios cereal or Prego pasta sauce, suppliers have leverage over pricing schemes. Many of these suppliers are able to take advantage of their own branding successes to force grocery stores to compete for their business.

Financial & Operating Metrics

For fiscal year 2010 in terms of sales and store locations, Winn-Dixie is among the smaller competitors when compared amongst other grocery stores. In regards to their location and size some of their comparable competitors are Kroger, Publix, and Ingles Markets. Winn-Dixie generates less sales and has fewer store locations that that of Kroger and Publix.

The average store size of a Winn-Dixie supermarket is approximately 46,900 square feet. This is similar to the average size of Publix's supermarkets (46,500 square feet) but much smaller than that of Kroger's. Although Winn-Dixie's supermarkets are similar in size to Publix, the revenue generated per square foot ($.30) is significantly less than both Publix ($0.52) and Kroger ($0.55).

For fiscal year 2010 Winn-Dixie has posted a gross margin of 29% which is slightly higher than Ingles Markets, Publix, and Kroger. This indicates that Winn-Dixie is better able to retain profits after incurring direct costs. For every of dollar of revenue Winn-Dixie generates, they retain $0.29 of profit which can then be used to pay off additional expenses. Winn-Dixie has been able to increase its' gross margin by 1% for each of the past three years. However, when comparing the operating margins amongst the competitors, Winn-Dixie reports an extremely low operating margin of 0.4%. This would indicate that Winn-Dixie conducts less efficient operations and has a less effective pricing strategy than its' competitors. A low operating margin means that Winn-Dixie is less able to pay off their fixed costs than of their competitors Kroger, Publix, and Ingles Markets. Winn-Dixie's operating margin decreased 0.7% from fiscal year 2009.

Additionally, when analyzing the grocery store industry, inventory turnover is an essential operating metric that can be used to shed light on a company's efficiency in terms of selling and replacing their inventories. Over the past four years Winn-Dixie has averaged an inventory turnover ratio of approximately eleven times. This indicates that throughout the fiscal period, Winn-Dixie is able to sell and replace their inventories eleven times. For fiscal year 2010 Kroger had an inventory turnover rate of fourteen times, Publix had an inventory turnover rate of eighteen times, and Ingles Markets was more comparable to Winn-Dixie, turning their inventory approximately twelve times for the fiscal period. Given these turnover rates, Winn-Dixie is much less effective at selling and replacing their inventories than that of Kroger, Publix, and Ingles Markets which may give way to their low operating margins.^{[6] [7] [8] [9] [10] [11]}

Cash Conversion Cycle

The cash conversion cycle of a company is an important metric in that it shows how long it takes a company to convert resource inputs to cash inflows. Winn-Dixie's days sales of inventory is much higher than Kroger, Publix, and Ingles Markets. This measure indicates how many days it takes a firm to turn its' inventory. It takes Winn-Dixie approximatley 46 days to turn their inventory as compared to 27 days for Publix. Winn-Dixie recorded the same DSI as their prior 2009 fiscal year. Next it is important to examine days sales outstanding. Firms within this industry traditionally experience a relatively low DSO. Winn-Dixie has the lowest days sales outstanding when compared to Kroger, Publix, and Ingles Markets. This measure indicates that Winn-Dixie is able to collect sales from customers much faster than Kroger, Publix, and Ingles Markets. Winn-Dixie's DSO has remained relatively unchanged over the past several years. Additionally, it is important to look at days payables outstanding to calculate a company's cash conversion cycle.

Winn-Dixie, similarly to Ingles Markets, had a much higher DPO than Kroger and Publix for the fiscal year of 2010. This would indicate that Kroger and Publix are able to pay off their creditors much faster than Winn-Dixie. This shows that Winn-Dixie is less liquid than Kroger and Publix, and therefore less able to pay off their current obligations on a timely basis. Winn-Dixie's DPO has remained relatively unchanged over the past three years. Taking each of these measures in the aggregate, they comprise a firm's cash conversion cycle. Winn-Dixie's cash conversion cycle, similarly to Ingles Markets, is approximately more than double the cash conversion cycles of both Kroger and Publix. This indicates that Winn-Dixie takes a significantly longer time to convert resource inputs to cash inflows. Winn-Dixie's cash conversion cycle has remained relatively constant over the past five years aside from 2007 when it was 31 days. The chart below on the left displays Winn-Dixie's cash conversion cycle over the past five years.

In the past five fiscal years, Winn-Dixie has had the worst Return on Invested Capital (ROIC) number compared to competitors Kroger, Publix and Ingles Market: 2006 with an ROIC of -21.64%. They have also have the most volatile ROIC in the past five years, while recording the lowest average return the past three years. ROIC is a very good indicator of the return a company is generating on the assets in which it has invested. Using the past five years worth of financial data, Publix has been the most efficient when using its invested capital; the graph below on the right compares the four companies ROIC for fiscal years 2006-2010.

^{[6] [7] [8] [9] [10] [11]}

Marketing and Supply Chain

Products

Winn-Dixie primarily sells food products such as produce, seafood, grocery, meat, frozen foods, pet foods, bakery and deli products. However Winn-Dixie also sells cleaning products, pharmacy products, general health and beauty products, and fuel. Winn-Dixie also sells its own brand products as well as national brand products^[12][13].

Place

Winn-Dixie sells its products through grocery warehouse stores. Winn-Dixie also has pharmacy stores, fuel centers and liquor stores inside their food retailer stores. Winn-Dixie has stores in Florida, Alabama, Georgia, Louisiana and Mississippi^[14].

Promotion

Winn-Dixie stresses local neighborhood marketing. For example, they offer gift cards to other local stores and restaurants like American Eagle Outfitters, Blockbusters, Applebees, and Burger King just to name a few^[15].

Winn-Dixie also stresses the importance of a college education. The Upromise education program allows all Winn-Dixie membership card holders to 1%-5% off every time they use their card on Upromise items. Winn-Dixie uses these kind of programs to encourage customer loyalty^[16].

Winn-Dixie tries to earn the loyalty of parents. This firm has a Baby Club program that rewards a cardholder with an infant of 2 years or younger with 1 point for every dollar spent in the baby department. After accruing 200 points the customer can redeem $10 back^[17].

Price

Winn-Dixie uses a traditional supermarket strategy that competes on the most frequently bought items. Winn-Dixie uses coupons, and certain loyalty programs mentioned above to lower prices for consumers and to ensure that the customers keep coming back^[18]. Due to the sheer number of products that both Winn-Dixie and its competitors sell, I will just compare prices for bread, eggs and milk against Walmart and Kroger's prices.

Winn-Dixie sells its white bread for $.99/loaf, Wal-Mart sells for $1.18/loaf, and Kroger sells for $.99/loaf^[19].

Winn-Dixie's cost per dozen of its large organic eggs is $3.69^[20], Wal-Mart's is $4.09/dozen^[21], and Kroger's is $1.58/dozen^[22].

Winn-Dixie's cost per half gallon of milk is $3.79^[23], Wal-mart's is $3.94, and Kroger's is $2.99^[24].

Supply Chain

Winn-Dixie has 6 main distribution centers, 3 manufacturing plants and 500 plus retail stores. The company ships their products from their plants and distribution centers to their retail stores^[25].

Winn-Dixie uses SuperStore Forecasting and ordering software provided by SAF USA to efficiently manage their inventory^[26].

The reference information is from 2007. Winn-Dixie sold all manufacturing facilities and owns 4 Distribution Centers now.

Human Resources

Employees

Winn-Dixie currently operates with about 50,000 employees, and has a fairly basic management structure. Their company's mission is simply, "to earn trust & loyalty every day". ^[31]. As you can see in the graph on the right, both Wal-Mart and Target have successfully been able to reduce the number of employees in their stores over the past several years. This reduction has come even with the addition of more stores. The result of such a reduction is reduced labor costs. Winn-Dixie has closed many stores over the past few years, but they haven't cut workforce enough because they are holding steady at 90-100 employees per store. By maintaining this trend, they will incur more labor costs which will affect their bottom line.

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Employee Compensation

As you can see in the chart on the left, Winn-Dixie underpays both their Store Managers and Assistant Managers, when comparing competitor's data. They are not the lowest paying employer in regards to Cashiers, but they are very close. Lower pay for employees may result in higher employee turnover, which in turn, may result in higher HR costs. Also, if the employees feel like they are underpaid, they may lose interest in their duties, which could cause quality and service issues and eventually lead to lower customer satisfaction. The chart is in accurate, the average compensation for a Store Director according to Glass Door is 92,166 as of Oct 2, 2011

Key Executives

In the table on the right, you will find data on the top five most important executives at Winn-Dixie and their competitors, as given by Definitive 14A Proxy Statements. This data includes experience of the executives at the executive level, and the average annual salary raise awarded to these executives. One thing you will notice is that Winn-Dixie has decent executive experience, and they are neither the leader nor the laggard. Despite this decent level of experience, Winn-Dixie executives are receiving relatively low average annual raises as compared to their competitors. For example, on average, Winn-Dixie executives are receiving annual raises of about 6% of their base salaries. But, their competitors are offering a higher annual raise with less experience. This suggests that Winn-Dixie executives, like other Winn-Dixie employees, are underpaid. Under paying executives may result in frequent management changes, because the executives may be inclined to work elsewhere for a higher pay. A lot of management changes could result in inconsistent ideologies, which may negatively impact business operations.
The Key Executives at Winn-Dixie as of FY 2010 are as follows:

• Peter L. Lynch- Chairman and Chief Executive Officer
• Bennett L. Nussbaum- Senior Vice President, Chief Financial Officer
• Dan Portnoy- Senior Vice President, Chief Merchandising and Marketing Officer
• Larry B. Appel- Senior Vice President, Human Resources and Legal, General Counsel
• Frank O. Eckstein- Senior Vice President, Retail Operations^[33]

Executive Compensation

In the above charts, you will find the base salaries for the top five Winn-Dixie executives from 2003-2010. To the right of this graph, you will find Revenue and Net Income or Loss of Winn-Dixie over the same period. From the above graphs, you could conclude that perhaps executives are being wrongly rewarded for their performance. Revenue has been falling over the past several years and Net Income has been relatively flat, yet all executives have consistently received pay raises over the same period. This could be a result of unfair compensation, or simply, company policy that guarantees base salary raises annually. In either case, it is apparent that Winn-Dixie executive's base salary is in no way tied to company performance.

References

1. ↑ WINN Areas of Operation Retrieved From Winn-Dixie Website April 19, 2011
2. ↑ WINN Business Profile Retrieved From Yahoo! Finance Website April 19, 2011
3. ↑ ^{3.0 3.1} WINN 2010 10K Retrieved From SEC Website April 18, 2011
4. ↑ Yahoo! Finance Analysts Opinions of WINN Retrieved From Yahoo! Finance April 18, 2011
5. ↑ Yahoo! Finance Analysts Estimates for WINN Retrieved From Yahoo! Finance April 18, 2011
6. ↑ ^{6.0 6.1} WINN 10K 2010
7. ↑ ^{7.0 7.1} WINN 10K 2009
8. ↑ ^{8.0 8.1} WINN 10K 2008
9. ↑ ^{9.0 9.1} KR 10K 2010
10. ↑ ^{10.0 10.1} PUBLIX 10K 2010
11. ↑ ^{11.0 11.1} IMKTA 10K 2010
12. ↑ New York Times Article Retrieved From NY Times Website April 17, 2011
13. ↑ Advertisement For Winn-Dixie Retrieved April 19, 2011
14. ↑ Winn-Dixie Article Retrieved From NY Times Website April 20, 2011
15. ↑ Winn-Dixie Promotions Retrieved From Winn-Dixie Website April 19, 2011
16. ↑ Winn-Dixie Reward Program Retrieved From Winn Dixie Website April 18, 2011
17. ↑ Winn-Dixie Baby Club Info Retrieved From Winn-Dixie Website April 20, 2011
18. ↑ Winn-Dixie Pricing Retrieved From Tampa Website April 20, 2011
19. ↑ Winn-Dixie Pricing Retrieved April 20, 2011
20. ↑ Winn-Dixie Price Retrieved April 18, 2011
21. ↑ Wal-Mart Pricing Retrieved April 19, 2011
22. ↑ Kroger Pricing Retrieved April 19, 2011
23. ↑ Winn-Dixie Pricing Retrieved April 20, 2011
24. ↑ Kroger Pricing Retrieved April 21, 2011
25. ↑ Winn-Dixie Distribution Info Retrieved April 21, 2011
26. ↑ Winn-Dixie Forcasting Retrieved April 23, 2011
27. ↑ WINN 2003-2010 10-K Financial Statements April 19, 2011
28. ↑ WMT 2003-2010 10-K Financial Statements April 19, 2011
29. ↑ TGT 2003-2010 10-K Financial Statements April 19, 2011
30. ↑ KR 2003-2010 10-K Financial Statements April 19, 2011
31. ↑ WINN Corporate Profile April 19, 2011
32. ↑ WINN, WMT, TGT, KR Average Pay, as submitted by Glassdoor.com members April 11, 2011
33. ↑ ^{33.0 33.1 33.2} WINN 2003-2010 Definitive Proxy Statements April 19, 2011
34. ↑ WMT 2001-2010 Definitive Proxy Statements April 19, 2011
35. ↑ TGT 1994-2010 Definitive Proxy Statements April 19, 2011
36. ↑ KR 1991-2010 Definitive Proxy Statements April 19, 2011