LOS ANGELES -- Unified Western Grocers here is busy putting the pieces together.
Formed less than six months ago through the merger of Certified Grocers of California here and United Grocers, Portland, Ore., the company is on target to achieve its first-year goals, Alfred A. Plamann, president and chief executive officer, told SN.
"We had anticipated $20 million to $22 million in annual savings at the end of our first three years, and we're on track toward that goal, with $3 million to $5 million in savings likely this first year," Plamann said.
The savings are the result of consolidating three northern California distribution centers into one, which has already been done, and of combining procurement and administrative functions, which will occur over the next few months, Plamann said.
"Next year we expect larger benefits as we achieve operating efficiencies from better routing, transportation and utilization of technology, and in the third year we will put more heft into the procurement area," he explained.
That heft will come by implementing some of the improved technologies that are already in place in southern California warehouses and transportation systems into Unified's Portland and northern California operations, he explained, including automated routing and the use of radio frequency in order-picking and forklift utilization.
The steps toward integrating Certified and UG include the following, Plamann said:
Combining warehouse operations in northern California.
Developing a single sell program for northern California, where Certified and UG used to compete.
Streamlining the organization by realigning personnel and eliminating duplicate positions.
Determining how to combine Certified's well-established Springfield private-label line with UG's Western Family label.
Exploring joint ventures with other Western cooperatives -- a process that could lead to additional merger activity.
The merger of Certified and UG into Unified Western Grocers created the largest retailer-owned cooperative in the Western United States, with annual sales of approximately $3.1 billion derived from 725 retail members operating 3,700 stores in California, Oregon, Washington, Nevada, Arizona and Hawaii.
"The objective of the merger was to create an entity that can be more responsive to retailer needs," Plamann explained, "and clearly larger wholesalers can do that better."
Following the merger at the end of September, Plamann, who had been president and CEO of Certified, was named president and CEO of the combined operation, and Terry W. Olsen, UG's president and CEO, became executive vice president and chief operating officer. The company will be based here.
Unified will operate with three divisions: southern California, where Certified is the dominant wholesaler; Portland, where UG is a major supplier; and northern California, where the two cooperatives have been competitors for nearly 15 years.
One of the new company's first tasks has been to unify operations in northern California.
The company has opted to close two of UG's warehouses there -- a 160,000-square-foot refrigerated warehouse in Tracy and a 275,000-square-foot full-service facility in Modesto, Calif. -- and shift that volume to Certified's 700,000-square-foot full-service distribution center in Stockton, which had been operating at less than 50% of capacity, Plamann said. "The two UG facilities were even more under-utilized than ours," he added.
The Tracy warehouse was closed in early February, and the one in Modesto was shut down in the middle of the month, about two months ahead of schedule, Plamann pointed out. Both facilities, which were leased, are being sublet, he added.
Most of the warehouse integration has involved eliminating duplicate items, Plamann said. "Probably the only ones we needed to add at Stockton were UG's Western Family line," he said.
Unified relocated "as many people as we could" to the Stockton warehouse, he indicated, though he declined to say how many positions were eliminated in the process.
Besides Stockton, Unified operates another northern California warehouse -- a 200,000-square-foot facility in Hayward, Calif., that was obtained last year as part of Certified's acquisition of Gourmet Specialties. That facility is used for specialty foods and slow movers "and gives us additional flexibility in the area," Plamann said.
The company will maintain UG's full-service distribution center in Portland and a cross-docking facility in Medford, Ore., along with Certified's facilities in southern California, which include three warehouses (a full-service distribution center in Commerce, perishables in Santa Fe Springs and nonfood in Fresno); a fluid milk plant; and a bakery. Unified member stores in northern California get baked goods from the local division of Earthgrains Manna, St. Louis. Northern California and Portland members buy dairy products from local suppliers in each area.
During the next four months, Plamann said, Unified plans to develop a single sell program for northern California, with implementation expected in the new fiscal year that starts next February. The northern California plan will reflect the best of Certified's and UG's existing programs, he said.
"It might reflect minor modifications in either UG's plan or Certified's plan -- we're not sure at this time," Plamann said. "But we have a team of people working on how best to make the changes as seamless as possible so they don't have too dramatic an impact at retail.
"The goal is to make the impact moderate while getting the efficiencies we need."
After the new plan is put in place, Unified will study the implications "to see if it makes any sense to make modifications in our systems in southern California or Portland," Plamann said.
According to Plamann, Unified will retain the UG name in Portland and the Certified name in southern California for the next few months, "but we'll move to the Unified name in northern California more quickly because of the existing overlap there."
Although the Unified name will begin showing up on office signage sometime this year, Plamann said, it probably won't be until the spring of 2001 that delivery trucks in northern California will carry the new logo, "and we'll make the change in southern California and Portland within six months of that," he added.
While neither the old names nor the new one have any particular meaning for consumers, they do mean something to the cooperative's retail members, Plamann said, "so it's desirable to change the name because the members tell us they need the recognition, and Unified has positive recognition."
Under its new structure Unified will maintain sales and marketing offices in all three divisions, "with some small amount of procurement activity at each so we can stay close to and understand the differences in each marketplace," Plamann said. "We plan to centralize distribution and logistics, however, with all plant managers reporting to a senior vice president in Los Angeles."
A major area of ongoing discussion involves private label -- Certified's Springfield line and UG's Western Family label. "We will maintain our strong involvement with Western Family in Portland and with Springfield in southern California, with retailers in northern California able to choose whichever one they want," Plamann said. "Over time, however, we may try to reduce our offerings there to one brand or the other, depending on which one consumers prefer."
In comparisons of quality specifications over the last few months, Unified has found many similarities between the two brands, Plamann noted, "and they were close enough on most large-volume items that we're not too concerned about which one we'll offer because we think consumer reaction will be positive either way."
He said Unified expected to begin disclosing personnel cutbacks last week -- decisions that Plamann said are likely to be met with different reactions at different levels of the operation.
"The people at the plants and warehouses want to get the consolidation done, despite the cutbacks that will result, because they see it will make this a better company. But as you move up the management chain, people are feeling more insecure and more skeptical," he said.
The integration and consolidation have not had any negative effect on morale, he added. "People are pretty savvy, and they realize what happens when you merge companies and blend managements. They know that we don't need two of everything and that we're trying to be fair as we fit the best, most talented people into key jobs."
For Unified's retail members, "they are anxious to see synergies and flow-through, and they're more interested in results than in personalities. So the management changes won't have a dramatic effect on our customer base."
That customer base has the potential to grow significantly as Unified discusses joint ventures and other alliances -- including the possibility of additional mergers -- with other Western cooperatives, including Associated Grocers, Seattle, Wash.; URM, Spokane, Wash.; Associated Food Stores, Salt Lake City; and Affiliated Foods, Amarillo, Texas, all of whom are co-owners of the Western Family label.
Plamann was guarded in discussing longterm merger possibilities. "We're not closing the door [on future mergers], but we want to make sure that this merger is up and running efficiently before we try to bite off another piece," he said.
"We're better off proceeding cautiously on anything we do while looking for ways to work with the other co-ops to streamline our businesses.
"We are talking casually with three or four of the Western co-ops about joint ventures, but there's nothing actively under discussion at the moment."
However, he said, Unified is exploring possibilities with another co-op -- which he declined to name -- to supply its members with grocery, health and beauty care products and specialty items, "and that could happen within the next six months," Plamann said.