GRAND RAPIDS, Mich. -- Spartan Stores here is revisiting retail store ownership for the first time in about 10 years.
The wholesaler plans to acquire retail stores in a move geared to boost financial performance and improve efficiencies in the face of a quickly consolidating industry.
"The most significant change being adopted to accelerate growth is the acquisition of retail stores," said James B. Meyer, president and chief executive officer, at the annual meeting here last week. "Store ownership assures us sales volume. It places Spartan -- and its retailers -- in a position to aggressively compete in Michigan and beyond."
Spartan unveiled a number of other moves and initiatives at the meeting, which include:
The company will soon hire a vice president of retail to run corporate-store activities.
A dedicated portion of profits will be geared to funding additional promotional programs for customers for the first time in five years.
A centralization effort will lead to the combination of the convenience-store operation into one unit and an internal centralization of sales efforts.
The wholesaler is aggressively pursuing productivity improvements by researching and implementing cost-cutting efficiencies.
Wholesalers are increasingly looking to corporate stores to shore up their current businesses, Andrew Wolf, an analyst with Merrill Lynch, New York, told SN.
"It doesn't look like the independent food retailer will provide enough of a future for wholesalers," he said. "Being in retail puts wholesalers in greater control of their destiny."
Wolf said this strategy also helps the wholesaler's existing customer base. "It helps independents survive because in the long run it supports them. It keeps the wholesaler efficient and able to purchase cheaply enough." Meyer noted that Spartan's moves coincide with a period of unprecedented industry consolidation.
"Spartan will not sit on the sidelines and watch other wholesalers consolidate their customers, and potentially Spartan customers, into their operations. There will be changes. Times have changed. We must pursue retail opportunities as we position Spartan for the future."
Meyer did not elaborate on Spartan's acquisition plans, stating neither potential prospects nor a timetable for developing a corporate-store program. Spartan had owned or operated up to 23 supermarkets in Michigan during the late 1970s and 1980s, which were eventually sold to company stockholders.
Meyer cited a recently released study of the wholesale supply system conducted by Food Distributors International, Falls Church, Va. That study, reported in SN, shows a decline in the percentage of supermarket sales represented by wholesale sector supply and a major falloff in the number of full-line wholesalers.
"I can't remember a time during my 26 years with Spartan that has been so challenging," he said. "We are in an industry where the dynamics are changing daily. Mergers and acquisitions are occurring at an unprecedented rate. It's incumbent today, more than ever, that we -- wholesaler and retailer -- take an active role in shaping our future."
Meyer said that the first half of Spartan's 1998-99 fiscal year is showing improvement over the year-ago period. But he said the company needs to "significantly improve earnings." The goal is to have net earnings equal to 1% of sales.
Spartan announced at the meeting record sales in the 1997-98 fiscal year ended March 31. Sales for the fiscal year rose to $2.489 billion, up one-half of one percent compared with the prior year. Earnings advanced 47% to $14.2 million.
In discussing efficiencies, Meyer said combo deliveries are one case of positive productivity efforts at Spartan. "One small example is combo deliveries -- the delivery of multiple product commodities on the same truck. While higher in individual costs, they result in fewer total deliveries. They also provide better in-stock conditions for retailers, and at the same time require less back-room stock. The ultimate overall effect is lower costs."