NEW YORK -- "It was clear the company was sick when I came," Ron Marshall, president and chief executive officer of Nash Finch Co., Minneapolis, said last week about his arrival at the company in June of last year.
Last week Marshall unveiled a revitalization plan for the $4.2 billion company, resulting from an eight-month comprehensive assessment of operations. He detailed his game plan here at the Donaldson Lufkin & Jenrette Annual Food & Drug Retailing Conference and outlined in unusual detail how far off track the company had fallen. Also last week the company released preliminary financial results that included a fourth-quarter pretax charge of $105.6 million and a reduced dividend.
The revitalization program, a five-year effort, would include:
Jumpstarting the corporate retail business by building it to 50% of company sales, compared with just 20% today, and paring the number of banners.
Capturing distribution efficiencies by pursuing regionalized procurement, optimizing warehouse capacity and improving logistics.
Pursuing a new performance-based management compensation program now that a new management team is in place.
"We were profoundly under-managed," said Marshall, whose retail background includes positions at Pathmark Stores, Dart Group and Barnes & Noble Bookstores. "The organization was highly diffused. You could work for Nash Finch forever and never have a performance review.
"Corporate strategies were wishful thinking. Performance wasn't linked to compensation. We didn't have the talent to get the job done."
Citing dissatisfaction from trading partners, he said the wholesaler, which serves about 2,250 independent supermarkets and other retail outlets in some 30 states, needed to better please customers. Customers expressed concerns about cost issues and said they believed the company could do more with technology and private label. "We really didn't have a private-label strategy; we were supporting at least eight private-label lines," he said. Meanwhile, vendors "needed to touch 15 bases to get a product slotted in our warehouse."
The decentralization of merchandising meant "we were buying more like 20 $200 million companies rather than a $4 billion company," he said.
Because of distribution inefficiencies the company was using only 63% of its distribution-center capacity and operating at only 30% of transportation capacity.
Marshall also said Nash Finch, which owns and operates more than 90 retail stores in nine states, "got into retail by accident" and "never had a passion for retail." It also "wasn't very good at IT; it hadn't properly addressed Y2K issues," he said.
"The new Nash Finch is focused and we know where we want to be," he assured his audience. "We're building an organization driven by aggressive business change processes."
Step one is what Marshall called the "defibrillator stage."
"We need to spend a year stabilizing the business; that's what we're doing now," he said. "So 1999 is a year of transition for us."
The company is creating a sense of urgency and fixing the organizational structure and has developed some 39 priorities. But no more than five priorities will be tackled at any one time. So for 1999, the urgencies are: fixing the year-2000 problems so that testing is complete by late summer/early fall; rationalizing stockkeeping units and vendors because the company is "20% to 25% over-SKUed"; creating regional buying centers; installing common operating practices; and making fleet management a high priority.
In the corporate retail arena, Nash Finch hopes to add 10 new stores each year. He said acquisitions will help fuel the strategy of raising retail to 50% of company sales, although he didn't cite details or timetables.
An important goal is streamlining the number of banners, which now stand at about 17. "We want to bring it down to five this year and to one or two in a few years," Marshall noted, citing economies of scale.
Marshall said in an interview he hasn't decided which banners will ultimately remain. "We've gone through intensive focus-group work to determine which names have the most resonance with consumers," he said. "We want a common identity for marketing and advertising plans."
He also said the company has reorganized its retail management structure and is hiring executives with strong retail backgrounds. Last summer Arthur L. Keeney joined the company as vice president of corporate retail stores. Keeney has held a number of prior retail positions, including key roles with Kmart Corp.'s Super Kmart unit.
On the wholesale front, the company has been closing a number of underutilized warehouses and transferring the volume to other facilities. Marshall said the goals in wholesaling are to "execute as closely as possible to being a virtual chain; improve penetration with existing accounts and to seize new opportunities."
In addition to adding to the management team, the company has reworked the organizational structure to improve accountability and decision-making authority. Compensation will be tied to performance and minimum stock ownership requirements are being set for senior officers.
Marshall, who was speaking to an audience of analysts and investors, informed them about how to track Nash Finch's performance. "The leading indicators are our comp-store sales; net new accounts of dollars brought in; status of our cost reductions; working capital management; and the reduction of the company's overall leverage."
In reporting preliminary results for the 12-week fourth quarter and 52-week year ended Jan. 2, 1999, Nash Finch pointed to a number of charges reflected in the results. Charges (including a provision for a discontinued operation) totaled $105.6 million in the fourth quarter. Fiscal 1998 results also reflect a previously reported first-quarter extraordinary charge of $5.6 million, net of tax, relating to debt financing. Comparative results for fiscal 1997 include special charges totaling $31.3 million recorded in the third quarter.
Factoring out the extra week in the 1997 fiscal year and fourth quarter and the effect of the charges, 1998 EBITDA of $96.9 million compares with $108.9 million, as adjusted, in 1997. The fourth quarter 1998 EBITDA of $25.3 million compares with the prior-year's quarter EBITDA of $25.7 million, as adjusted.
