MINNEAPOLIS -- Anyone searching for a way to describe Nash Finch Co. need look no further than to the word "diverse."
After all, Nash Finch is perhaps the most diversified wholesaler in the industry both in terms of operational scope and geographical reach.
Alfred N. Flaten, Nash Finch's president and chief executive officer, told SN in an interview that diversity has worked well historically, since it provided some insulation from regional vagaries of business. But the strategy of diversity has also posed enough challenges to spark thinking about significant change for the future, especially on the corporate-store side: "Right now, we don't have market mass, which has hurt. It has been costly for us. We haven't got what we should have from some of the corporate retail investments."
Flaten is a 33-year veteran of Nash Finch, having started in 1961 as a management trainee who rose through a host of postings to become president and chief operating officer in 1991. He assumed his current titles late last year after the accidental death of Harold F. Finch Jr., chairman and CEO. (See related news article below.) Flaten is also on the boards of National Grocers Association, the National-American Wholesale Grocers' Association and the Food Marketing Institute. "Nash Finch is an unusually diverse company," Flaten said. "The only thing that's common to it all is that it's all in the food business." Nash Finch, a publicly traded company, chalked up a top line of $2.8 billion at the end of last calendar year and is looking to reach $3 billion by the end of this year, Flaten said. The company operates in three main segments:
Wholesale distribution to supermarkets, convenience stores and military bases in no fewer than 31 states. Some 20 distribution centers are under operation. Wholesaling accounts for about 68% of sales volume.
Corporately owned retailing through 125 stores in 15 states under several banners, including Econofoods, Sun Mart, Family Thrift Center, Food Folks and Easter's. Retailing brings in about 31% of volume.
Produce marketing by means of the Nash De Camp operation in California. The operation imports and markets some 2 million cases of Chilean produce annually. The operation generates a tiny slice of net sales volume. Also of interest is Nash Finch's investment in Alfa Trading Co. in Hungary, an investment made to help keep Nash Finch current in globalization issues.
As for domestic geography, Nash Finch, based here, operates in all the time zones of the United States, with produce packing and marketing in California and distribution centers spotted around the upper Midwest, the Mid-Atlantic and Southeastern regions. Corporate stores are through the distribution region. How successful has the strategy of diversity been?
"This has worked fairly well for us in the past, because if there is a glitch on one side of the business, the other can pick it up," Flaten said. "The geographical separation can help in that, too, but it becomes somewhat difficult to manage and it becomes difficult to devote the concentration needed to build a suitable presence in the diverse aspects of the business."
In response, Flaten is proceeding with a two-pronged strategy intended to ameliorate those difficulties:
Nash Finch intends to build market concentration for its corporately owned retailing by identifying markets where it can build or buy stores so market share can be puffed up to at least 50%.
The company also intends to retrench from its corporate store presence in other markets by returning stores to independent ownership. This strategy is intended to strengthen the hand of independent operators by allowing them to build market presence, too.
Flaten said the historic rationale behind corporate store ownership sprang from the occasional need to shore up weak independents on one hand, and to make sure there was a sufficient store base to support distribution facilities on the other.
Neither outlook may survive unaltered into the future, he said.
"We sometimes buy and sell stores among our independents and, unfortunately, we end up with some that we don't really want. When there are problems, sometimes we have to take over stores and try to resell them.
"Also, independents are sometimes unable to get funding from usual sources such as banks or the Small Business Administration, and we are really forced to own or finance stores if we want to grow our business. The same happens to our competitors.
"The corporate operations we designed and built ourselves in the past were designed basically to support the distribution centers. "These may not be our strategies of the future. "We think that if we are going to put money into corporate stores, then we should build market mass to get more value from the corporate side.
"If we don't have any particular mass in an area, it be-comes quite expensive to support corporate retail stores because you need merchandisers and supervision." The building of market mass for corporate stores will be done in two general ways, said Flaten: There are areas in the Midwest that independent operators, or others, would be reluctant to enter because the population is so thin that the cost of entry is high. There corporate stores may be rolled out and market mass obtained. Conversely, the Southeast could be a growth area for corporate stores because of population density.
He declined to identify potential growth markets more precisely.
Meanwhile, wholesale distribution remains Nash Finch's core business and that core will be strengthened as certain corporately owned store groups are sold to independents, said Flaten. Indeed, Nash Finch recently sold five profitable stores in Nebraska to an independent. The idea was to give the independent sufficient market presence to withstand an expected incursion by a Wal-Mart Supercenter. Nash Finch also guaranteed a sufficient cash flow to the operator to ensure his success for at least two years.
"For us this represents the redeployment of an asset, but specifically it's done with the intent of helping the independent," Flaten said. "We believe this kind of redeployment will continue. It will depend on what the market is dictating we do, but we have a strong commitment to independent operators to help them overcome their competition, and I think this is one of the ways we can do that. "We also have an opportunity to supply Wal-Marts in these markets, along with supplying independent operators, so everyone can survive. "We are currently supplying a Wal-Mart Supercenter in Greeley, Colo., and are looking toward supplying more in the Midwest." As for other aspects of Nash Finch's core business -- supplying independents -- Flaten said the company is uniquely suited because its expertise is in getting goods to sparsely populated areas. "The stores we supply are very spread out. In some instances they are several hundred miles apart. "That's what is so unique in the Midwest where we operate. The bulk of our business is in rural areas, and over the years the slumping farm economy and the continued depopulation of the farm, which impacts the small towns where we have stores -- towns that once had three stores -- are now down to one store. "Our intent is to be the remaining supplier into those marketplaces. We think we can do it better than our competitors."
Flaten pointed out that Nash Finch recently converted a conventional warehouse in Liberal, Kan., to become a satellite warehouse for slow movers. The conversion is intended to prepare the company to better supply rural areas.
He also predicts business in rural areas will pick up as direct-store-delivery purveyors find it too expensive to do continue in thinly populated regions. That may provide an opening for Nash Finch to pick up distribution of lines such as beverages, snacks, bread, milk and the like. Finally, in keeping with Flaten's outlook on simplifying markets and decentralizing management, he has made several topside executive changes at Nash Finch in recent weeks. Among them, William T. Bishop, former president and chief executive officer of Scrivner Inc., Oklahoma City, was brought on as senior vice president of sales and logistics. And David W. Bell was named senior vice president of retail sales and operations to head a number of functions, including corporate stores and a newly centralized marketing department. Bell was vice president of corporate retail.
