LOS ANGELES -- Expressing frank disappointment with its 1997 performance in its annual report, Smart & Final here outlined its plans to turn earnings around this year. Earnings fell 73% last year, primarily due to problems in its Florida operations, the report noted.
"Our results reflect the fallout that can accompany aggressive market expansion," Robert J. Emmons, chairman and chief executive officer since earlier this year, wrote in the report. "While we are disappointed in our performance, we are not discouraged.
"Our sales trends [an increase of nearly 12% for the year] reassure us that we can continue to grow our business. We are confident that we have identified the areas that need corrective action and are moving rapidly to bring them in line."
Smart & Final operates 172 membership warehouse stores in California, Florida, Arizona, Nevada and northwest Mexico. Its plans for 1998 and beyond, as discussed in the annual report, include the following:
Opening a new frozen food distribution facility in Miami to complement its existing warehouse there and to help address the warehouse capacity issues in Florida that plagued the company last year.
According to the report, operating results declined sharply in Florida last year "as a result of inadequate distribution capacity. Overcrowded warehouse conditions caused service levels to decline, which reduced sales as customers chose other alternatives; reduced gross margins as prices were cut to retain customers, and sharply increased distribution costs."
The report also said new-store sales in Florida did not meet expectations.
Opening up to 10 larger-format Smart & Final Plus stores this year as it moves toward its goals of 35 Plus units over the next three years.
The company opened its first two Plus stores last year -- 30,000-square-foot units in North Hollywood and Santa Barbara, Calif. -- that feature expanded perishables and an increased selection of food-service equipment and janitorial suppliers. According to the annual report, the next generation of Plus stores will range from 20,000-25,000 square feet, compared with a chain average of 15,500 square feet.
"To effectively manage this exciting concept and maintain its entrepreneurial spirit, we have established a separate division for our Plus stores," the report noted.
Absorbing the 39 Cash & Carry stores in the Pacific Northwest that Smart & Final acquired earlier this year from United Grocers, Portland, Ore.
Implementing a Market Impact Program to keep stores up to date, including refurbishing and remerchandising of 30 stores in 1998 and 30 more in 1999.
Enhancing the value of its SmartAdvantage customer card by linking advertised specials exclusively to card usage.
"Our ultimate objective is to shift from mass marketing to individual store sales and marketing programs -- the ultimate in efficient marketing," the report said. It also said the company hopes to develop promotional programs with suppliers based on customer purchasing patterns.
The card, introduced less than a year ago, represents 50% of all transactions, the report said, "(and) we anticipate growing this participation significantly as the values associated with the card continue to be emphasized and increased."
Developing a food-service operation in southern California similar to its established northern California operation. "We are optimistic about our ability to leverage our well-recognized Smart & Final name in the market where we have the greatest retail presence," the report said.
Continuing to expand its corporate brands line and deepen its penetration, particularly in its food-service operation. The company said corporate brand products represented more than 20% of sales in 1997, "and we anticipate significant growth over the next five years."
Restructuring its retail and food-service business into three divisions (northern, southern and eastern), while increasing the role of the central office in such areas as information systems and financial management -- part of an effort "to get closer to our customers," the report noted.