It was reported in last week's SN that cooperative wholesaler Associated Grocers, Seattle, has been grappling with some decisions about its future that could involve the formation of a partnership with another company, the sale of the company or renewed investment in the company as it now stands. A decision about specific action is to be made next month.
That in itself is not startling news, since the wholesaler has been involved in strategic reviews about its future and has contemplated just such actions for some time. What's of more interest, though, is the reason behind the reviews at AG. As was reported in these pages almost exactly one year ago (SN, July 11, 2005), Ron Brake, the co-op's chairman, said, "In five years or so, the major manufacturers are not going to call on a company our size. They'll communicate with us only through email. So the future of our business ... dictates that we must be of a certain size to get their attention."
While those who run the co-op noodle out its future, let's reflect about the import of the statement made last year, namely the reality or perception that companies the size of AG will no longer win the attention of vendors in upcoming years. How big is AG? It weighed in as the nation's 20th largest wholesaler on SN's list of wholesalers published early this year as part of the Top 75 ranking. AG's top line was pegged at $1.05 billion. By comparison, the nation's largest wholesaler, Supervalu, prior to its merger with Albertsons, had a top line of nearly $20 billion, of which more than half was produced by corporately owned stores. One more benchmark: Kroger Co., the nation's largest conventional food retailer, has a top line of nearly $60 billion.
So judging by the spread between large companies and smaller ones, it seems justified to contemplate the possibility that small food distribution companies will have difficulty being heard through the cacophony emanating from large-scale food distribution companies. Bolstering that possibility is what's going on the manufacturing side. The recent merger of Procter & Gamble and Gillette illustrates how massive manufacturers can become. Those that aren't getting larger are shedding ancillary brands, which will result in a greater focus on remaining powerhouse brands. Manufacturers in that situation include H.J. Heinz, Pfizer, Sara Lee Corp., ConAgra Foods and Kraft Foods.
While manufacturers acquire mass and renewed focus, or both, at the top end of the food distribution spectrum, mass is shed, or attention is being returning to shoring up existing assets, not increasing mass. The best example of deconsolidation is the Albertsons-Supervalu transaction. That made Supervalu larger, to be sure, but it deconsolidated Albertsons by splitting its food retailing assets apart, sending 1,124 to Supervalu and 655 to a capital-management group. Nearly 700 drug stores were sent in yet another direction. An example of a food retailer involved in shoring up existing assets is Safeway, now involved in revamping stores according to its lifestyle concept. Moreover, Safeway is looking for a new advertising agency to further boost the concept by way of its "Ingredients for Life" campaign.
In sum, then, smaller companies have reason to get bigger. Bigger companies have incentive to trim their size, or return to the basics.
