LOS ANGELES -- Unified Western Grocers here said last week it believes its financial fortunes are improving as it moves into its second year.
Unified was created in September 1999 through the merger of Certified Grocers of California here and United Grocers, Portland, Ore.
Speaking at last week's annual meeting here, Alfred A. Plamann, president and chief executive officer, told shareholders, "Results from the first quarter are quite strong, indicating that the synergies we anticipated at the outset of our merger are now beginning to reap tremendous benefits for the company and are increasing our marketplace strength and clout. In short, we have become a growing company again."
Sales for the 13-week first quarter ended Dec. 30 fell 9.6% to $740.6 million, while patronage dividends -- the equivalent of earnings in the member-owned cooperative -- rose 70% to $4.6 million. The company said the sales shortfall was the result of a variety of factors, including the loss of Cala Foods, a northern California customer that went to self-distribution; store closures by some members in the Pacific Northwest; strong results in the prior year due to Y2K business; and lower volume at corporate stores acquired from Albertson's during the year.
The big bump in earnings was due to weak comparisons with the year-ago quarter, the company said, when it discovered unanticipated inefficiencies at its distribution center in the Pacific Northwest -- issues that were resolved by the second quarter, Plamann noted.
Unified finished its first year ended Sept. 30 with sales of $3.1 billion, about the same level it had at the time of the merger, while patronage dividends rose 8.5% to $15.4 million -- a notable achievement for former members of United, which did not pay patronage dividends in the two years prior to the merger, the company said.
According to Plamann, synergy savings of $5.9 million were achieved as a result of Unified's improved purchasing clout with vendors; lower costs after eliminating unneeded distribution facilities; improved operating efficiencies after consolidating similar departments and functions at the two companies; and enhanced productivity after implementing best practices.
"Not everything that happened during the 12-month period went exactly according to plan," Plamann told the annual meeting, "as we encountered a bit of unexpected turbulence. But our management team took corrective action and was able to return the company to a smoother, more stable flight path in a very short period of time.
"That quick and decisive action was a key factor in the company's emergence as a successful and financially sound enterprise -- one that is in an excellent position to grow and prosper for many years to come."
Most of the synergy improvements occurred in Unified's northern California division, where Certified and United used to compete, Plamann pointed out. The effort to consolidate two United warehouses in the area into Certified's existing facility in Stockton was completed ahead of schedule, he added, "with virtually no service interruptions. And by accelerating the completion date, we were able to capture additional synergies that were not anticipated."
The company also added $100 million in wholesale volume last year when it acquired 32 divested stores from Albertson's, Boise, Idaho, Plamann noted, with 26 stores transferred to members and six retained as corporate stores under the SavMax Foods banner.
"But the performance of those stores was less than we had hoped," Plamann told the meeting, "and the combined results of retail operations acquired in the United merger and consolidated with our SavMax operations resulted in losses in those operations."
He told SN after the meeting that three of the six former Albertson's stores have been closed, one has been sold and the other two are close to being sold.
Of the 26 locations sold to members, some have closed, Plamann said, while others have been slow to achieve their prior sales levels. "It's no secret that it's difficult for an independent that takes over a chain location to maintain the sales level of the branded store," Plamann told SN, "and while most of those stores are doing fine now, we had projected a higher level of results."
Looking ahead, speakers at the meeting touched on several projects Unified plans to undertake this year, including the following:
Converting all northern California customers to the Western Family corporate brand on private label items -- eliminating the Springfield line among former Certified customers in that area only.
Centralizing availability of products and services from Unified's various specialty subsidiaries.
Seeking growth opportunities in northern California and Hawaii.
Introducing a Hispanic marketing program to all members.
Unified plans to convert all members and customers in northern California this month to a single corporate brand -- the Western Family label that United used to distribute -- to replace the Springfield label among former Certified members, Plamann said.
"It was a difficult decision," he told SN after the meeting, "but we felt the marketing program and brand identity that Western Family had in northern California was stronger than the Springfield program and identity."
Unified will continue to market the Western Family brand in the Pacific Northwest and the Springfield brand in southern California, he said.
Charles J. Pilliter, executive vice president, sales and marketing, said the focus in northern California this year will be on "refining our business processes, growing both retail and wholesale sales to existing members and continuing a very aggressive effort to attract new members." In addition, he said Unified intends to seek growth opportunities in Hawaii, where its customer base in anchored by Star Markets, Honolulu.
Unified also plans to make the full assortment of products and services from its specialty subsidiaries more readily available to all customers "so we can ship them in a more cost-efficient manner on a more centralized basis within each division," Pilliter said.
That approach will involve redeploying products from each of Unified's specialty operations -- its own Grocers Specialty Co. in southern California; Gourmet Specialties and the non-candy business of J. Sosnick & Son in northern California; and Central Sales in the Pacific Northwest -- to distribution centers in each division, he explained.
Pilliter also said Unified plans to unveil a new Hispanic marketing program companywide in a few weeks "that will incentivize member participation by offering approximately 1,000 products with an impact-based pricing and marketing program. By participating in the program and adhering to cost-efficient supply-chain practices, lower charges will be generated to customers who choose to meet these standards."
In other remarks, Plamann said Unified's manufacturing division turned in a stellar performance in fiscal 2000, including producing a record volume of 1.25 million gallons of milk per week at its Los Angeles-based dairy while generating ever-higher patronage dividends. He said the dairy's success was largely due "to investments we made in new equipment and a change in our plastic bottle supplier."
The company's bakery division also produced strong results, Plamann said, including an updated label design, an expanded merchandising program and several new products in the company's Cottage Hearth line of baked goods.
"The program has turned our Los Angeles bakery facility into a one-stop bakery shop that we believe will generate significant new business, both from existing members and from a wide range of new retail customers," he said.
Unified's long-range plan for its manufacturing division will include "looking into ways to expand our manufacturing capabilities into northern California and the Pacific Northwest -- though we are not yet ready to make any announcements concerning this initiative," Plamann said.