CHICAGO -- IGA here is back on track in the United States.
After a year in which it lost Fleming, one of its principal wholesale distributors, and 300 stores -- nearly 20% of its U.S. store base -- IGA has licensed three new wholesale companies and put its banner on nearly 170 stores already this year, and sales are on the upswing again, Thomas P. Haggai, chairman and chief executive officer, told SN.
"Despite the collapse of Fleming last year, our U.S. stores have been able to maintain their overall sales volumes. In fact, one manufacturer told us his sales at IGA stores are up 5% this year," he said.
"I always think positive, and when the smoke clears in two or three years, I think we will be stronger in the U.S. by one-third to one-half than we were before Fleming folded."
IGA's overall sales last year fell by $1 billion, or approximately 4.2%, to an estimated $23 billion, with 1,300 U.S. stores doing a volume of $7 billion (down from $8 billion at 1,600 stores in 2002), 800 Canadian stores doing $6 billion, and 2,000 stores in 44 countries overseas doing $10 billion.
"It will probably take the rest of 2004 for the new distribution companies to get their IGA infrastructures in place, but by next year everything should be ready, and 2005 should be a very good year," Haggai said.
He pointed out several reasons why he's so upbeat, including the following:
The addition of 167 stores to its U.S. total this year.
A commitment by C&S Wholesale Grocers, Brattleboro, Vt., which took over much of Fleming's former business, to developing a program for independent operators under the IGA banner.
A potential willingness by Bashas', Chandler, Ariz., to consider developing an IGA program for stores in Southern California, a region in which IGA has historically been severely under-represented because of the absence of a local IGA distributor.
On a broader stage outside the United States, expectations that IGA's international division is on the verge of signing up 61 stores in Costa Rica and moving into Russia by the end of the summer; and that wholesaler H.Y. Louie Co., Burnaby, B.C., will rejoin IGA Canada after a 50-year absence.
Of the 167 U.S. stores IGA has added this year, 90 are IGA stores formerly supplied by Fleming that are now being supplied by one of the three new wholesalers. The remaining 77 are independent retailers supplied by other IGA-licensed wholesalers that have opted to convert their stores to the IGA banner.
"We'll probably be able to 'replace' most of the rest of the 300 stores we lost as we convert additional stores in Texas, Florida and the Midwest as the new wholesalers get their IGA programs going," Haggai said.
The newly licensed distributors are Affiliated Foods Midwest Cooperative, Norfolk, Neb.; Associated Grocers of Florida, Miami; and Grocers Supply Co., Houston -- all of which were previously blocked by Fleming from affiliating with IGA because it had prior distribution rights in overlapping areas, Haggai pointed out. Their inclusion boosted the number of licensed IGA wholesalers in the United States to 24.
"Many of the new retail members we've added, and the ones we expect to add, will come from the ranks of independents who need a banner and would like to share in the relationship we have with manufacturers," Haggai explained.
Another new IGA distributor is C&S, which acquired most of Fleming's assets last year. Although C&S gets most of its estimated $11.3-billion volume from major chain accounts, Haggai said he believes the company is committed to developing more independent business. "After talking with C&S, I have no reason to doubt they want to develop an independent distribution division that will involve IGA," he told SN.
C&S officials could not be reached for comment. However, despite its longstanding reputation as a chain-oriented wholesaler, the company has said previously it is committed to accommodating the needs of more independent operators.
Haggai said he sees smooth sailing for the new distribution companies once they're able to develop an IGA mind-set.
However, he said they will need a period of adjustment to get their IGA programs fully in place. "We still need to assess their stores to make sure they're up to IGA standards, and they will need to set up systems to serve the IGA store base, carry our private-label lines, align their sales programs with the four major promotions we have each year, accommodate our educational programs, and understand the 'language' of IGA."
Another cause for his positive attitude, Haggai said, is the potential he sees for developing an IGA program in Southern California. Although IGA doesn't have a licensed wholesaler that supplies stores in that region, Haggai said he anticipates that Bashas', a retailer that used its own warehouse to fill the breach as a supplier to some IGA stores in Arizona when Fleming left the area, may serve as the vehicle for supplying an IGA store base in Southern California.
Bashas' officials told SN they are not considering expanding their supply operation into California at this time, "though we've had some discussions with IGA about supply opportunities outside of Arizona," a spokeswoman said.
THERE WERE WARNING SIGNS
Haggai's general optimism was sorely tested last year when Dallas-based Fleming, IGA's oldest surviving licensed wholesaler -- which was serving a base of 800 IGA stores -- filed for reorganization under Chapter 11 and then decided to get out of the wholesale business altogether.
"Five years ago, Fleming was the strongest wholesaler in our group," Haggai said, "and it was deriving its best profits from IGA stores. Even after it filed, I thought Fleming would enter a valley and then come back as a stronger company dedicated to family businesses.
"My tendency is always to think very positively about all the distribution companies, and my feelings about Fleming were particularly strong because of my friendship years ago with [founder] Ned Fleming.
"As a result, I probably gave Fleming more latitude than I should have and didn't see the warning signs," he acknowledged. "At one point, I was spending two or three hours a day on the phone with retailers who asked me questions about what to do -- questions for which I had no answers."
In retrospect, the warning signs were clear, Haggai pointed out. "Historically, Fleming was at the top of the industry in terms of efficiency, operating at a 95% service level. But it dropped down to an 85% level in 2001, and continued to decline."
Haggai said he initially attributed the drop-off to Fleming's involvement with Kmart, "which I thought was not projecting its grocery needs properly, which I thought was prompting Fleming to supply them with merchandise that otherwise would have gone to our IGA stores."
Ultimately, Fleming's service levels dropped to 40% or less, "but our stores proved how resilient independents can be," Haggai said. "They did what they had to do to serve their customers and hold on to their customer base, even if some of them didn't make any money."
While some IGA stores were forced to shut their doors, Haggai said, "most of those were stores we should have lost anyway. Of the stores that went out of business, there were only a handful whose problems were related directly to Fleming."
IGA lost another group of stores after the majority of Fleming's assets were sold to C&S, and C&S opted to sell some of those assets to other wholesalers, Haggai explained.
"When C&S sold some of the former Fleming distribution centers to Associated Wholesale Grocers and AWG chose not to become an IGA distributor, that caused problems for some members whose leases had been controlled by Fleming, and they had no choice but to go with AWG," he stated.
"However, we gave them a two-year window to sort things out, and the IGA signs at most of those stores are still in place."
IGA also lost some stores when C&S sold the former Fleming distribution center in La Crosse, Wis., to Supervalu, which opted not to keep the IGA banners on the stores in that area, Haggai said.
Haggai had some critical words about Fleming and its policy of extending credit to its retail customers.
"That was one of Fleming's problems -- lending money too easily and too quickly," he told SN. "Good retailers need help from their wholesalers, but only with good credit terms. A wholesaler can't afford to over-promise, but Fleming did.
"When it comes to retail loans, you're guilty if you extend too much credit too often to family-owned businesses. With 20/20 hindsight, I can see Fleming used its checkbook not so much out of concern for family-owned businesses, but to keep its own sales high to impress Wall Street."
SERVICE SETS IGA RETAILERS APART FROM BIG CHAINS AND DISCOUNTERS
The secret to IGA's success, Haggai said, is high service levels. "Customers can't tell the difference between a store that's 80,000 square feet and one that's 140,000 square feet, but they know the difference in service, particularly in this impersonal age we're living in.
"IGA stores are community centers, and that's the key to the future success of family-owned independent businesses. This is our time, and if the independent doesn't take advantage of that over the next five years, then shame on us."
Haggai praised family-owned regional chains such as H-E-B, Wegmans, Raley's and Publix. "This is the day of the independent, and when you can create a good business with a family name on your stores, it can compensate for lack of size.
"The big national chains -- Kroger, Safeway and Albertsons -- have a dilemma as they keep growing because they're having a difficult time going up against operators like Target, Costco and Wal-Mart. Our stores don't compete with those stores, so it's up to us to be smart, and we have good days ahead because we're so resilient."
Haggai, 73, said he has no plans to retire "as long as I'm healthy. I still have a passion for this industry -- it's sort of my ministry -- and I'm still able to make believers of our members."
He said IGA's board is addressing the need for a successor as chairman and CEO. "We probably need to find someone who is different from me, though we're not quite sure what those differences should be. But life is like a relay race, and each runner relies on his own style to reach his goals."
Statistics on IGA's New Wholesalers
Affiliated Foods Midwest, Norfolk, Neb.
Annual volume: about $1 billion
No. of retailers: 850
Distribution area: N.D., S.D., Wyo., Colo., Okla., Iowa, Neb., Kan., Mo., Ill., Minn., Wis.
IGA stores: 22
Associated Grocers of Florida, Miami
Annual volume: about $675 million
No. of retailers: 520
Distribution area: Fla., 48 countries including the Caribbean, South and Central America
IGA stores: 20
Grocers Supply Co., Houston
Annual volume: $1.5 billion (est.)
No. of retailers: 750
Distribution area: Texas, La., Okla., N.M.
IGA stores: 50
IGA is a good place to be, according to three wholesale companies that are newly licensed IGA distributors.
Executives at each of the companies told SN they are excited to be part of IGA as they seek to build their base of IGA-banner stores.
All three said they had wanted to be affiliated with IGA for years, but were blocked by Fleming, which had prior rights in each company's distribution area.
Grocers Supply Co., Houston, was interested in becoming an IGA wholesaler "because we wanted to have the identity of a nationally recognized shield," Dave Hoffman, senior vice president of sales and marketing, told SN.
After becoming an IGA wholesaler a year ago, the company got a quick volume boost when it added 50 former Fleming customers in Texas and Louisiana to its store base, Hoffman said. Grocers Supply has subsequently added the IGA banner to a handful of existing stores in Texas, and is looking for other conversion opportunities, he added.
Grocers Supply has an annual volume of approximately $1.5 billion and serves 750 customers in Texas, Louisiana, Oklahoma and New Mexico. Thomas P. Haggai, chairman and chief executive officer of IGA, said he believes the wholesaler could convert 200 to 250 stores to the IGA banner over the next few years.
Affiliated Foods Midwest Cooperative, Norfolk, Neb., has added 22 IGA accounts in the past few months, "and we have a very aggressive plan for prospecting new accounts that were former IGA accounts with Fleming in Kansas, Oklahoma, Nebraska, Minnesota, Wisconsin, Missouri and Illinois," Martin Arter, president and CEO, told SN.
Affiliated services 850 customers in 12 states, with a volume reportedly approaching $1 billion, according to industry sources. Arter said the company welcomed the opportunity to become an IGA partner, "not only to continue the proud tradition of IGA accounts among retailers that have become our members, but also to help strengthen our existing membership with an additional private-label option if we have multiple stores in the same town.
"It will also give our members' stores strong recognition, much like a perceived chain store -- allowing them to keep their individual identities while enjoying access to all IGA programs, promotions and advertising events."
Calvin Miller, president and CEO of Miami-based Associated Grocers of Florida, said his company had wanted to affiliate with IGA "because it's a nationally known brand."
He said his retail customers across Florida and the Caribbean will benefit from having IGA-label products on their shelves "because we get a lot of vacationers in the winter who will recognize the IGA name from their hometowns, which will be a huge advantage for us."
Associated services 520 customers, with annual sales of approximately $675 million, Miller said. The company has seen a sales pickup this year -- 50% in its domestic and import divisions in Miami, and 127% in Ocala, which he said benefitted from the transfer of several accounts from the Miami division.
The company has put the IGA banner on 20 stores in Miami and Ocala, and Miller said he sees opportunities to convert another 120 stores over the next few years.