NEW YORK -- Having consolidated retail operations, Riser Foods aims to upgrade its store base to larger formats.
The Bedford Heights, Ohio-based wholesaler also plans to boost its distribution business by extending its geographic reach, broadening product selection and seeking acquisitions, Anthony Rego, chairman and chief executive officer, told investors and analysts at an American Stock Exchange forum here.
Last week, Riser reported first-quarter fiscal 1997 results. In the 16 weeks ended Oct. 19, sales rose 7.2% to $404.6 million from $377.4 million a year ago. Net income climbed 58.9% to $5 million from $3.1 million, due to incremental sales and productivity gains plus a favorable effect from the timing of recognizing expenses from the company's annual incentive program, Riser said.
Riser's volume, $1.3 billion last year, is almost equally split between retail and wholesale. Its retail division accounts for 50% of sales vs. 49% for its wholesale arm. Its Eagle Ice Cream manufacturing business generates 1% of sales.
On the retail end, the company has steadily pared its corporate-owned store count since its formation in 1988, going from 52 units to 37 in fiscal 1996, which ended June 29. It now operates 32 Rini-Rego Stop-n-Shop units and five large-format Rini-Rego Marketplace units, and supplies a total of 55 Stop-n-Shop stores in northeastern Ohio.
"We're going to renovate our retail base, expanding the existing stores in good locations in size, decor and format," Rego said. "Second, we will develop two formats: a larger Marketplace format where the demographics are right for 60,000- to 75,000-square-foot stores, and a smaller version of that in our Neighborhood store of 42,000 to 55,000 square feet."
Riser stores now average 47,995 square feet. "By 1998, our 37-store chain will average 55,000 square feet," Rego said.
Store remodels mainly involve interior upgrades and the development of full-service "destination-type departments -- that is, departments that are as good or better than the competition," Rego said. Departments include floral, fresh and value-added produce, prepared foods to go, bakery, deli, fresh seafood, meat, wine, a walk-in beer cooler, international foods, greeting cards, books and magazines, one-hour photo processing and in-store banking.
"Because of our excellent locations, we can compete on more than just price," Rego noted. "Our locations surround the city of Cleveland and its most vital suburbs."
Riser is slated to remodel six stores in fiscal 1997, Ronald Ocasek, chief financial officer, said at the forum. At the start of the year, 18 of its 37 stores had been remodeled, he said.
So far, two of the six have been upgraded, including a new 75,000-square-foot Marketplace unit in Strongsville and a 66,000-square-foot Marketplace in Amherst that replaced two smaller stores of about 35,000 square feet, Ocasek said. Upcoming remodels, he added, include a 10,000-square-foot addition to a Middleburg Heights store, making it a 53,000-square-foot Marketplace; a 20,000-square-foot addition to a store in Manor to make it a 66,000-square-foot Marketplace; an old 65,000-square-foot store in Cleveland that will be demolished, relocated and rebuilt as a 58,000-square-foot unit, and a new 58,000-square-foot store in Sheffield Lake to replace a 38,000-square-foot unit.
"By year-end 1999, we will have 14 to 15 Marketplace stores and 25 to 26 Neighborhood stores, and our remodeling program will be essentially completed," Rego said.
"While our current plans do not show any increase in the number of stores from 1995, this program should increase our square footage approximately 11% from the beginning of 1995. Of course, we are always looking for new sites, which will only be a plus to this plan."
Riser's strategy of moving to bigger stores has been an effective sales driver, according to Chuck Cerankosky, senior vice president at the Cleveland office of Tucker Anthony, Boston.
"They've been upgrading the store base, closing some of the smaller stores and relocating to sites with bigger parking lots that could accommodate the larger store footprint and higher traffic flows. And it's been very successful," he said.
On the wholesale end, Riser's plans include the following:
Expand into contiguous geographic regions, including Michigan, West Virginia and Pennsylvania.
"At present, Riser Foods' wholesale division can promptly service customers within a 200-mile radius of Cleveland. Obviously, there's great potential for growth there," Rego said. He did not specify how Riser might expand in those areas, but Riser's 1996 annual report said the company aims to snare more independent customers.
In the new trade areas, new wholesale customers could include independent operators, small chains or larger chains where Riser would be a secondary supplier, Cerankosky said. "They'll continue to look for the incremental customer there, because they have the distribution facilities."
Riser, the nation's 19th-largest grocery wholesaler, now supplies more than 500 stores, including 127 independent supermarkets, 102 Phar-Mor deep-discount drugstores and 164 Hills department stores.
Bolster product offerings, notably in produce and nonfood.
"When we first opened Riser Foods in 1988, we only sold produce to our own corporate stores. Today, our wholesale produce division accounts for over $30 million in sales," Rego said. "So what we're trying to do is sell our customers more of the products that we have, including produce, health and beauty care and general merchandise along with general grocery items, bakery, deli, etc."
Seek out potential acquisitions.
"In the past, we have recognized and acted upon opportunities that have come up," Rego said. He noted that Riser acquired an HBC/general merchandise warehouse in 1994 and absorbed the wholesale business of rival Peter J. Schmitt Co., Buffalo, N.Y., which went bankrupt in 1992. "We eventually took over the lion's share of that business. We added $200 million in new sales to our wholesale division and have since grown that business. We've also done that in HBC and the meat business, spreading our business to Michigan and adding a division in HBC with over 10,000 stockkeeping units."
Possible acquisitions include small distributors in the new trade areas, Cerankosky said. "They would also look at small groups of stores that might become available, either to control them so they can be resold to wholesale customers or to upgrade them into Stop-n-Shops. They've done both."
Enlarge its main distribution center in Bedford Heights.
"With the wholesale business expanding the way it is, we're putting an $8 million expansion on our warehouse, which should increase the capacity by about 20%," Ocasek said.
The project, which would increase the facility to about 900,000 square feet, is scheduled for completion by the end of fiscal 1997. "They need to do that for their internal growth and as they add customers," Cerankosky said.
In its retail and wholesale arms, Riser also continues to upgrade information, procurement, warehouse and logistics systems to improve efficiency and hone costs, the executives said. It also has stepped up employee training to promote a "total quality management" image to boost customer service and productivity. The company, too, will seek more members for its Preferred Shoppers Club loyalty card, introduced in 1995.
Capital expenditures, directed primarily for store projects, were $31 million in fiscal 1996 and are expected to be about $45 million in fiscal 1997, Ocasek said. Riser estimates capital spending of $30 million in 1998 and in 1999. From 1992 to 1994, cap-ex levels were $26 million to $28 million, Ocasek noted.
Riser's growth strategies stem from a five-year plan initiated in 1994 that targets 5% annual compounded sales growth plus after-tax productivity gains of at least 0.1% per year. "That's a very reasonable objective, and I expect them to outperform that," Cerankosky said.
And Riser has done so, Rego said. "Over the last two years, we've beaten those goals, and our aim is to continue to beat those goals. In 1995, we had sales growth of 5.7% and in 1996 8.5%. Our productivity gains were 0.22% in 1995 and 0.31% in 1996."
Retail sales growth in fiscal 1996 was just under 5%, while wholesale growth exceeded 5%, he noted. "The achievement of these 1994 [goals] would produce double-digit increases in earnings per share over the following five years," he said.
