The year just about to end was a good one for several companies in transition, even though 2001 was also the year the U.S. economy plunged into recession.
Albertson's, Boise, Idaho; Fleming, Dallas; and A&P, Montvale, N.J., saw their respective turnaround efforts start to pay off.
However, the good tidings were not universal. Other companies -- notably Big V, Florida, N.Y., and Homeland Stores, Oklahoma City -- began the arduous task of emerging from bankruptcy.
In January, Albertson's said it would immediately begin operating as 19 separate divisions.
At the time, Jonathan Ziegler, a San Francisco-based managing director for Deutsche Banc Alex. Brown, New York, told SN, "I think this is a dynamic change in how they're going to market. They've always said they were a neighborhood store -- this is the muscle behind that. I think they're trying to localize their business and get sales up. It's a step in the right direction because the sales just weren't there."
Albertson's Makes Tough Decisions
In April, Albertson's announced the appointment of Larry Johnston as chairman and chief executive officer, who began the process of redirecting the company for aggressive growth.
Johnston, who came to Albertson's from General Electric, immediately outlined five imperatives the company needed for a turnaround: implementing cost-cutting measures; maximizing return on invested capital by evaluating every asset in the company; reinvesting the money saved back into the marketplace; launching a companywide focus on technology; and improving the motivation of employees.
Johnston declared, "There will be no sacred cows, and once the [evaluation] process is completed, we will move rapidly to make the tough decisions and eliminate assets that are not adding value."
The company said it expected to cut out $250 million in costs by the end of 2002.
In July, the company announced it would close 165 underperforming stores within 12 months to keep momentum going and lower operations costs. Johnston said, "They did not create value and they diverted management's attention, and closing them will make us stronger in the long run."
By November, the company started rolling out a loyalty card program on a grander scale, beginning in Dallas, and later in the month began its previously announced rollout of food-and-drug combo units, which the company said would be a core source for increased sales.
By December, the company announced it was gaining momentum as a result of its five imperatives, and recorded sales increases and earnings that were on target with forecasts.
Fleming Develops Kmart Distribution
Down in Dallas, Fleming spent much of the year working out the logistics of its $3 billion annual contract with Kmart Corp., Troy, Mich.
Signed in February, the deal required Fleming to create a national distribution network by the end of June, when it would become the exclusive provider of most consumables to Kmart. (Previously, Fleming had supplied roughly one-third of Kmart's groceries, with Supervalu, Minneapolis, handling the rest.) Fleming announced it would add three distribution centers, including two it would acquire from Supervalu.
However, in April, Fleming pulled out of the deal for the Supervalu distribution centers, and the next month Fleming said it would open a new distribution facility in South Brunswick, N.J.
The company said it was still working out "kinks" in the supply chain in August, but Kmart said it was looking to expand its food offerings that month, and Fleming was looking forward to even more business with the discounter.
On the corporate retail end, Fleming made the move in 2001 to concentrate solely on its two price-impact store formats -- Food 4 Less and Yes!Less!
In April, Fleming acquired seven Food 4 Less stores in California from Whitco Foods, Fresno, Calif., increasing its Food 4 Less store base to 38. It also sold off 26 of its Phoenix-based Abco Markets units that month, and converted 10 Sentry Stores in Milwaukee to Rainbow stores.
In 2001, Fleming also began increasing its convenience-store business. Mark Hansen, Fleming's chairman, said c-stores would be a major source of new business for the company.
"That could be a $45 billion market for us. Our national footprint enables us to become the second largest supplier nationally," he said of the potential in servicing convenience stores. The company added convenience-store business steadily during the summer, and in September acquired a c-store warehouse in Lietchfield, Ky., from Lancaster, Pa.-based Miller and Hartman for the reported price of $4 million.
In the fall, Fleming completed the purchase of 36 stores from Furrs, Albuquerque, N.M. The company immediately sold the stores to its retail partners, in turn adding to its distribution business and continuing its successful turnaround efforts first started when Hansen became chairman in 1998. To streamline operations on the procurement level, Fleming completed a move to centralized procurement in June.
A&P Pursues Renewal
Another company that saw some of its renewal plans start to bear fruit was A&P, Montvale, N.J. Because of heavy competition, A&P at the year's start was disappointed with the results of its ongoing Great Renewal II initiative, with earnings and sales both declining.
Christian Haub, A&P's president and chief executive officer, said in January, "It is imperative that we generate more profitable sales and reduce expenses, particularly with executive overhead. We'll also look at labor, advertising and supplies."
In May, an A&P shareholder moved for a shareholders vote on whether the company should seek extreme measures in creating value for the shareholders, including a possible sale of the company. A&P responded saying its board "believes that the long-term potential of the company is greater than the current market price." At the company's annual meeting, shareholders voted to reject the sale of the company.
In July, the company began a "remedial program" for its weaker stores to determine whether they should be fixed, sold or closed. Beth Culligan, executive vice president and chief operating officer, said, "There is no longer any business as usual -- seeking out improvements is a never-ending process."
Ultimately, the company decided to close 39 stores in various markets after the review. Jack Murphy, equity analyst at Credit Suisse First Boston, New York, said the company's "unburdening themselves of underperforming stores" was a positive move, one of the elements that convinced CSFB to upgrade A&P stock to "Buy" from "Hold." In October, A&P announced that it was beginning to see positive results of its renewal efforts.
Haub said, "We've begun to achieve traction on our [supply and business process] initiatives, but we must still work hard to achieve our goals. Without a significant downturn in consumer spending, we expect to reach a break-even point on earnings this year."
To further streamline its operations and cut additional costs, A&P said in November it would begin testing a price impact-store format that had been successful at two New Jersey locations.
Richard DeSanta, A&P vice president of corporate affairs, told SN, "We'd like this to succeed, but [before we go further] we'll go to school on these two locations and make decisions from there." While some companies in transition were growing stronger, others were struggling to remain in business.
Big V Attempts to Cut Wakefern Ties
Big V, which began the year in Chapter 11, appears now to be close to emerging from bankruptcy protection.
The company's first exit strategy, which centered on ending its contract with cooperative supplier Wakefern Food Corp., Elizabeth, N.J., led a court battle over the summer.
Big V said that it could achieve better synergies by aligning with a new supplier and thus remain in business, but Wakefern claimed Big V could not leave the cooperative, using its shareholder agreement as a binding contract. Wakefern did say, however, that Big V could exit, but would have to pay several million dollars as part of a "withdrawal fee."
The ensuing court battle ended with a judge saying Big V could exit the cooperative, but would have to pay some sort of fee.
In September, Pathmark, Carteret, N.J., said it was looking into a possible purchase of the company, but the sale never materialized.
Ultimately, in November, Big V and Wakefern said that they had entered into a preliminary agreement that would have Wakefern purchase Big V's 38 stores.
Homeland Sheds Stores in CHAPTER 11
Meanwhile, Homeland Stores was working on a Chapter 11 exit strategy of its own. Late in the year, the company said it would sell or close up to 26 stores as part of its bankruptcy reorganization. The plan, according to David Clark, president and chief executive officer, was to slim down and focus on its core markets in Oklahoma.
"As we have indicated previously, our objective has been to emerge from reorganization in a financial position that allows us to reinvest in our operations, employees and customers. The divestiture of these stores represents a planned action aimed at strengthening our financial position by generating income, producing both short- and long-term savings, and improving the overall efficiency of our operations," Clark said.
Observers noted that a more focused Homeland could compete against Albertson's, which holds the No. 2 market share in Oklahoma City, but also agreed that Homeland would have trouble battling Wal-Mart.