MINNEAPOLIS -- Nash Finch Co. here is in the midst of a 21st-century Marshall Plan, putting a greater emphasis on retail to serve the wholesale end of the business.
"To be a successful wholesaler, we must be a very good retailer," Ron Marshall, president and chief executive officer, told SN. "That's one of our core beliefs.
"The primary strategy at one of our major wholesale competitors is to become a retailer, while the strategy of another is to be primarily a wholesaler. At Nash Finch our intention is to leverage our retail business and communicate those skills to our independent customers."
NFC's 128-store corporate retail segment accounts for 25% of its sales base -- up from 17% two years ago. Marshall said he would like to see corporate sales rise to 50% of the total -- a process he said could take five or six years.
"Boosting the total to 50% will give us the opportunity to use corporate retail as an anchor to drive most of the business on the wholesale side, particularly in the areas of technology, promotions and operations," he explained.
A key selling point for today's Nash Finch, Marshall told SN, is "that we feel we offer a set of retail and marketing competencies no one else does and can provide better service than other wholesalers can. At the same time we believe we can grow wholesale by helping customers become more successful at growing their sales."
Improving the strength of its corporate stores and its independent customers is becoming more important as competition from supercenters increases, Marshall said. "It's important for our stores to dominate each of the areas in which they operate, because as supercenter competition increases, we've found the first- or second-place competitor always does OK and increases his share, while the third-, fourth- and fifth-place operators end up disappearing.
"We're not going to disappear."
On the wholesale side Nash Finch is boosting warehouse-productivity levels and reducing customer costs. "We've talked about cost reductions a lot over the past two years -- all wholesalers do," Marshall said. "The difference is, we've made the reductions and then reinvested in our company -- in load audits, in service level discipline, in training -- to become better, to become the best operator in this industry."
Marshall said he's willing to put Nash Finch's wholesale credentials up against any competitor.
"It's important to us to make sure we execute in consistent fashion in the wholesale business before we begin to market ourselves aggressively," he said, "and I can say with confidence there's not a division of Nash Finch where a wholesale competitor is better than we are, and as a company, there is no competitor as good as we are."
According to Marshall, Nash Finch is pursuing a variety of initiatives to strengthen its competitive position, including the following:
Growing its corporate-store base under three realigned banners and using the knowledge gained from those stores to make its independent customers better retailers.
Expanding two pilot store groups -- Buy n Save, a limited-assortment format, and Wholesale Food Outlet, a Hispanic-oriented price-impact concept. (See sidebar.)
Investing in professional supervision at its distribution centers -- a move that has helped NFC improve its service levels -- while also reducing inventories, improving cube utilization and lowering costs per case to its customers.
Planning to consolidate its three regional buying centers into a single central buying facility within the next two years.
Developing a business-to-business model called NashNet designed to help independent customers achieve supply-chain management capabilities over the course of the next 12 months.
When Marshall joined Nash Finch in mid-1998 -- after leaving his position as executive vice president and chief financial officer of Pathmark Stores, Carteret, N.J. -- "there was a sense this company had lost its way, though there wasn't a true sense of how significant that erosion had been," Marshall told SN.
"But it was also clear Nash Finch had not built the processes needed to succeed in today's world, nor was it as customer-focused as it needed to be."
One approach Marshall took to revitalizing the company was to shake up the management team, with only three holdovers left from the pre-Marshall era. The rest of the 14-person executive staff was recruited from a variety of retail and wholesale companies, to provide new perspectives on longstanding challenges. (See sidebar.)
One personnel change that didn't work out was the hiring in early 1999 of Jack A. Haedicke as executive vice president and chief financial and administrative officer. Haedicke, who left Nash Finch in April, has filed a lawsuit against the company, alleging it asked him "to take certain improper actions regarding (financial) records, which would have had the effect of overstating the ... earnings of the company."
Nash Finch is in the market for a new CFO.
At the time Marshall joined Nash Finch, its food-distribution segment accounted for 60% of its revenue base, compared with 22% for military sales, 17% for corporate retail and 1% for a produce subsidiary. Less than two years later wholesale revenues account for 56% of the total, with military doing 23% and retail 21%.
Nash Finch sales in 1999 fell 0.9% to $4.1 billion, while earnings were positive at $19.8 million, compared with a loss during the prior year. Adjusted for various onetime items in both years, the company said earnings last year were up nearly 12% to $9.4 million.
Sales rose 16% in the company's 128-store retail segment and 5.1% in its military segment but fell 8.5% in the wholesale segment -- reflecting the shutdown of five distribution centers and a shift in sales from wholesale to retail when NFC acquired an 18-store customer late in the year, Marshall pointed out.
George Dahlman, a senior securities analyst with U.S. Bancorp Piper Jaffray here, told SN he expects Nash Finch to show earnings growth during the next few months "that should exceed industry norms because the company is coming off a low base. But the improvements should be substantial now that the company has momentum on its side."
However, he said, he doubts there will be much short-term revenue growth.
"The key thing Ron Marshall has done, to this point, is to stop the bleeding at Nash Finch," Dahlman said. "The company has sold its produce subsidiary, given up its investments in a couple of dairies and disposed of other pieces of the business to generate cash and remove some problems from its books.
"It has also clearly made substantial progress improving its wholesale operations, which was a big task because it was not doing very well. The company's productivity measurements were very low, and the easiest part has already been done.
"There have also been basic changes in the company's leadership to revitalize the thinking there and to get rid of people who longed to go back to the old days -- an approach that had the company headed down the tubes. The next big task is to make some real financial progress.
"That will mean establishing a clearer picture of what earnings will look like, expanding the investment in retail stores and achieving economies of scale to allow Nash Finch to compete with other distributors."
Dahlman also said he anticipates some additional divestitures -- "possibly shutting down additional warehouses or swapping certain geographies to concentrate on the retail side."
Nash Finch closed five distribution centers in the last couple of years as part of its restructuring, encompassing facilities in Appleton, Wis.; Denver; Grand Island, Neb.; Rocky Mount, N.C.; and Liberal, Kan. Marshall told SN no more closings are scheduled.
He also said he does not anticipate any new warehouse openings in the short term. "We have more than adequate capacity at our 13 distribution centers for the next two or three years," he noted, "though I can foresee operating additional facilities going forward, depending on how and where the business grows."
He said the company is looking at several warehouse expansions -- "none this year but possibly some in 2001."
Nash Finch's 13 distribution centers operate in three divisions -- Midwest, Central and Southeast -- with three regional buying offices (in Dayton, Ohio; Statesboro, Ga., and here) for all categories except perishables, which are purchased centrally.
That will change soon, Marshall said. "Over the next two years we plan to consolidate all buying into one national center in Minneapolis," he said.
"During our restructuring there were systems issues that made it easier to do the buying at three locations, and we thought it was important to be responsive to regional tastes. So we decided to buy on a regional basis and grow from there.
"It's our intention going forward to maintain regional merchandising centers that will receive assorted products, but we think a national fulfillment center is the way to go from the standpoint of buying."
NFC signalled its commitment to retail early on, acquiring Erickson's Supermarkets, an 18-unit chain based in Hudson, Wis., in June 1999, in the midst of its turnaround. "We felt it was a premium retailer, and when the opportunity was available, we had to take advantage of it," Marshall said.
It acquired another customer -- Omaha, Neb.-based Hinky Dinky Supermarkets, a 12-unit chain -- earlier this year, boosting its corporate retail base to 128 stores doing about $1 billion in annual sales.
According to Marshall, comparable-store sales rose 0.9% IN 1999 and sales per customer improved 2.2% at corporate stores, "which reversed declining trends in prior years. And, with better item selection and our new fresh-store concept, we look for continued growth."
He said Nash Finch intends to make additional retail acquisitions, "though it's difficult to say when transactions will occur."
As to where they will be, Marshall said the bulk of NFC's retail growth will be in the Upper Midwest, where the nation's three largest retail chains -- Kroger, Albertson's and Safeway -- have a relatively limited presence.
In the process of strengthening its corporate retail division, Nash Finch has whittled down its 34 ad programs and 17 store banners to three: Econofoods, an everyday-low-price format; SunMart, a conventional format with high-low pricing; and Family Thrift Center, an EDLP format similar to Econofoods whose stores are all in western South Dakota, where the name is well-established.
"We did a lot of market research to determine what customers and competitors thought of our trade names, and these were the three with the most brand equity," Marshall said.
The company would consider adding other banners, he said, "if we acquired a regional chain with a strong franchise."
By the end of July, Marshall said, he anticipates that all the Erickson's will have been converted to either SunMart or Econofoods and all but one of the Hinky Dinkys will be operating under the SunMart banner; Nash Finch is also in the process of converting its 26 IGA stores in Virginia and North Carolina to the SunMart banner, he said.
The IGAs, which previously operated under the Food Folks name, were converted to IGA last year and are scheduled to be co-branded with the SunMart name this month.
"We decided to use the IGA banner in the Southeast a year ago because we thought it had a better equity," Marshall said, "and now we're extending the SunMart brand from the Midwest to the Southeast so we can do co-marketing programs."
Nash Finch also plans to incorporate a second banner on selected stores: The Fresh Place -- a concept geared to making independents more competitive and to boost their market positions, Marshall noted.
According to Art Keeney, senior vice president for corporate retail stores, The Fresh Place is a store-within-a-store concept, featuring top-quality produce, scratch bakeries, expanded delis, natural and organic foods, full-service meats, specialty and ethnic departments, pharmacies, in-store childcare centers and a greater emphasis on customer service.
Seventeen of NFC's corporate stores already carry The Fresh Place logo alongside their own banner, including all the former Erickson's that are being converted to Econofoods. Three former Hinky Dinkys will carry the logo in the next few months, along with seven remodeled units, Keeney said.
The Fresh Place designation will also be added to most new corporate stores of 35,000 to 55,000 square feet, including five of six new Econofoods that will open this year, he pointed out.
LeAnne Matthews Stewart, vice president and corporate controller, told SN that Nash Finch plans to spend nearly 65% of its $60 million capital budget, or $35.7 million, on corporate retail projects this year, encompassing 12 new stores and 55 remodels, compared with $26 million spent last year to build seven new stores and complete 48 remodels. "By the end of this year, all our Midwest stores will have been upgraded within the last three years," she said.
While expanding its retail segment, Nash Finch has made significant improvements in its food-distribution segment, which serves more than 2,000 customers -- both by capturing new customers and by improving its productivity measurements at the warehouse level.
Deborah A. Carlson. vice president for store development, said NFC has picked up a total of 254 accounts from other wholesalers over the past couple of years, including 44 so far this year, 137 last year, and 73 in 1998, "and we anticipate some significant switches over the next six months," she said.
"But it takes time to build a relationship, to convince a retailer to go through the trauma of switching suppliers."
Nash Finch executives said productivity measures are up at the company's warehouses, including the following:
Service levels, up to 95.5% to 97% on a weekly basis, compared with 94% at the end of 1999 and 69% in 1998 -- due in large measure to hiring auditors at all 13 distribution centers, William A. Merrigan, senior vice president for distribution and transportation, told SN.
"Customers want their loads to be accurate, on time and damage-free, and we're making adjustments to succeed in those areas. As a result, we measure on-time deliveries at each stop, not just on the first delivery as many companies do, and we're performing consistently."
Merrigan said he attributes the better results to hiring professional warehouse supervision. "It's costing us money, but it's improved our service to customers," he noted.
Order accuracy, up to 99.7%, compared with 99.3% six months ago, "which is as good as anyone in the industry," Merrigan said, "though we're still not satisfied. Our goals keep going up."
Fill rates (service levels), up to between 96.8% and 97.5% per distribution center per week.
"When you look at industry numbers, you see a range of fill rates, but no one has a higher standard than Nash Finch," Christopher A. Brown, executive vice president for merchandising, told SN. "If a retailer orders 100 cases, we measure our performance by that order. We don't accept any excuses, such as vendor cuts or late deliveries to our distribution centers. If a customer orders 100 cases, we measure our service levels by how many he gets."
Inventory levels, down nearly 10% to the $220 million range, compared with $243 million a year ago and more than $270 million in 1998, Brown said.
"We've dived into every division across the board, looking at every type of report and getting the warehouse guys to work with the buying and merchandising guys, and then asking customers to advise us on which stockkeeping units are critical and which are unnecessary. Everyone must agree on what lines to keep and what lines to drop, and it's something we're constantly reviewing," he explained.
Trailer capacity, up 58% to 1,500 cubic feet of product per load, compared with 950 cubic feet a year and a half ago, Merrigan said.
"When we were at 950 cubic feet, we thought it would be an easy task to improve on that. We spent a lot of money training people to do the right thing to improve our cube. And since we installed Manugistics [a computer routing system] in our Midwest and Central regions, we've seen cube rise to over 1,600, and as we roll that system into the Southeast, we think we'll see more increases."
He also said Nash Finch has been able to reduce its fleet from 1,100 trucks to 800, which are shipping the same volume.
Cost per case, down 15% from 1998 to 1999 and down another 5% to 7% so far this year, including all warehouse, transportation and store-occupancy costs, Brown said, "with no specific goals for how low we can go."
Besides stronger warehouse operations, Nash Finch is trying to offer customers stronger retail programs, using the corporate stores as a reference point for developing programs and information that can work for independents.
To communicate better with its customers, Nash Finch has formed an advisory group consisting of the chief executives of its 10 largest customers, who meet three or four times a year "so we can lead them through all our logistics objectives, walking them through each program and explaining why we're doing it and where we are in the development process," Brown pointed out.
"We also talk about new merchandising programs we're offering in conjunction with vendors, using our corporate stores -- with their $1 billion in sales -- to get the attention of vendors and then adding volume from our ad groups into the fold."
NFC also discusses technology initiatives with its customers, Bruce Cross, senior vice president for business transformations, pointed out. "Once every quarter we go through the plan and work with them to align their strategies with ours. The goal again is to test programs at the corporate stores and roll them out."
Members of the executive team also talk among themselves to work out interdiscipline problems. For example, Brown said, he and Keeney confer on the company's go-to-market strategies to lower the cost of goods.
Some of NFC's promotional strategies, all introduced since January, include the following: Price Break, which offers 12 weeks of promotional allowances on groceries, frozen food and dairy to enable retailers to fuel their pricing, highlighted with Temporary Price Reductions shelf tags.
Money Line, a similar program for perishables, offering deals lasting a minimum of four weeks.
Slam Dunk, a spot-buy program from vendors on meat, produce and deli. According to Brown, "We told vendors, if they have five extra truckloads of merchandise, they should make Nash Finch their first call. We have a hotline to each of our 13 divisions and from there to our customers, and in one instance we were able to sell 25 truckloads of an item above the norm."
A permanent price rollback on all 127 items in NFC's second-tier private-label line, Fame.
Ongoing price reductions on its first-tier private-label lines, Our Family and IGA.
Introduction of Checkout Coupons and a frequent-shopper card program from Catalina Marketing, St. Petersburg, Fla. -- programs Nash Finch had tried to get for years, Brown noted. "Now we have nearly 200 customers committed to the first rollout of the program from June through September, anchored by our corporate stores," he added.
Nash Finch also offers several retail-accountability programs, which are being developed at the company's corporate stores and then offered to the entire customer base. "That's one way we differ from our two major wholesale competitors -- we regard the stores as a laboratory for developing programs and then rolling them out to our independent customers," Brown said.
Those programs include the following:
G.R.E.A.T. Service Program, designed to help retail customers improve their interactions with consumers. G.R.E.A.T. is an acronym for the attributes NFC believes retailers should adopt, Keeney said: Greet customers; React to their needs; Escort them to a desired item; Anticipate their needs; and Thank them by name.
"It's an associate-driven program that focuses on training on a store-by-store, department-by-department basis. We've done it for a year, and there's a clear correlation between the companies that have adopted the program and their individual performance," Keeney said, noting that the 25 top-performing corporate stores also showed the best same-store sales increases after adopting the G.R.E.A.T. program.
REWARDS, a package of basic retail skills being offered to all customers. According to Keeney, "REWARDS is our commitment to teach retailers how to operate better, from receiving at the backdoor to using standardized bookkeeping and better methods for handling center-store inventory -- all very ABC stuff that's exportable to customers."
Added Marshall, "REWARDS is a good example of how we bring value to our retail customers. It's a best-practices program that we developed with an outside consultant that has enabled us to increases sales per labor hour by nearly 13%; to reduce the number of clerical hours from more than 100 a week to 56; and to increase productivity by about 100%."
Retail Radar, a sales-reporting program in which store managers forecast sales, which is scheduled to be rolled out from the corporate stores by year's end.
A labor-scheduling program that will be introduced at corporate units in July and rolled out to independent customers in the first quarter of 2001.
Two of NFC's 13 distribution centers -- in Norfolk, Va., and Baltimore -- service the military exclusively.
Nash Finch has maintained a military supply program for over 50 years, working with DeCA -- the Defense Commissary Agency -- at 68 military bases in the United States and Europe, plus supply ships at sea. "It's a stable element of our business, and we expect growth to be in the area of 1% to 3% a year," Marshall said.
Sales volume does not depend on military deployment, he pointed out. "Any increase or decrease in military spending affects weapons systems and technology but not food," he said.
In the realm of e-commerce, Nash Finch supplies several home-shopping companies but does not plan to enter that business itself. "We've spent time thinking about business-to-consumer strategies like those pursued by Webvan, Peapod and Streamline, but we think they are immature business models and we don't believe we should be in that business today," Marshall said.
"However, we are very excited about certain customer strategies in that area, and we have partnered with a couple of them, including SimonDelivers.com in Minneapolis and ShoppingMade Easy.com in Omaha, both of which accept grocery orders electronically and then deliver them to customers' homes.
"We're also looking at other e-commerce opportunities, and we want to be the first to market. For example, we will be the first company in the Midwest to roll out Priceline later this month at corporate stores in Grand Rapids [Mich.] and St. Cloud [Minn.].
"That's our first experiment in the consumer-to-business model, and we expect to see a bump in corporate store sales as a result," Marshall said.
