Food wholesalers are looking for "creative solutions" to solve the imminent business challenges of the second half of 1998.
or nonexistent food inflation. In addition, they are losing customers to the trend toward consolidation that is sweeping the industry.
To overcome these obstacles, wholesalers are investing in technology, capital expenditures and acquisitions, and are seeking new types of customers, including supermarket chains that are currently self-supplying. Below is a roundup of how some large wholesale companies plan to enhance profits for themselves -- and help their retail customers compete more effectively in the second half.
ASSOCIATED WHOLESALE GROCERS
Doug Carolan, president and chief executive officer of Associated Wholesale Grocers, Kansas City, Kan., said the biggest challenge to wholesalers "remains the same" -- how to help member retailers cope with the competitive challenge posed by mass merchandisers and specialized retailers.
"The challenge is still how we can continue to help our retailers improve their market share by developing merchandising plans to help them compete with supercenters like Wal-Mart and Super Target and the Pantry sections of Kmart," he said.
According to Carolan, AWG began introducing a data-based marketing program (frequent-shopper card) to its membership in January, "and while it's too soon to say how well it will do, we view it as a positive," he said.
The distributor is also concentrating more on its core grocery business "to gain back the business that we've lost to alternative channels of distribution."
The first core area addressed was pet care products. Carolan said AWG has developed a new pet care center concept "which we piloted last year with some retailers and which we're now ready to take to the membership." He said AWG is also working on new concepts for "a selected number" of other core categories, though he declined to be specific.
Carolan said AWG will be in compliance with year-2000 requirements by the second quarter of this year, "and we will continue testing through the balance of the year and be fully implemented by next January."
The wholesaler is also helping its retail customers identify and address year-2000 issues and helping them find resources to bring them into compliance, he said. "We're always ready to help," he added.
Carolan said he expects the cost of goods to remain stable during the balance of the year, with low inflation resulting in good values in beef, poultry and pork prices.
Following a mild winter that kept energy costs low, Carolan said he expects energy costs to remain favorable through the year, "which should help keep our operating costs stable."
Pewaukee, Wis., will continue to seek ways of reducing operating costs, while bracing for competitive openings in its 11-state operating area.
The wholesaler is coming off three successive years of record earnings, despite low or no food price inflation, which the company attributes to stringent cost controls.
"Through consolidation and automation, we've been putting a lot of emphasis on the expense side of the ledger," Gerald F. Lestina, president and CEO, told SN.
He said the company currently has more than 80% of its vendors using electronic data interchange technology, and hopes to have 90% of its vendors on-line by year-end.
"I think the key is to get critical mass," he said. "We've got to get every vendor that we can to host us, so that it will take costs out of the system."
Lestina said Roundy's will also continue to roll out new private-label items, both in food and nonfood categories. Annual growth of private-label sales has been about 8%, he said. This year the company is focusing on year-2000 compliance, and is aiming to have wholesale operations compliant by the first quarter of 1999.
The company's retail services group is also working with independent retailers to make sure they are covered as well. The company has also launched a "proactive advertising campaign" to retain its 50% market share in Milwaukee against incoming Jewel Osco, which recently took over four Cub Food stores in the market. Roundy's is also bracing for supercenter entries from Wal-Mart and Meijer Inc., Lestina said.
Robert E. Stauth, chairman and CEO of Fleming Cos., Oklahoma City, said Fleming's primary goal this year is to focus more resources in higher-margin areas and to strengthen its strategic position for continued growth in profitability.
Writing in the company's annual report, Stauth said growth and improved profitability are still possible for supermarket retailers and distributors "who provide consumers greater value than they get from competing supermarkets or alternative food outlets."
To increase sales, Stauth said, Fleming must do "an excellent job" meeting the needs of consumers who shop with Fleming's retail customers. Accordingly, it has introduced "Supermarketing Solutions at Work," a series of initiatives that are visible to consumers, including store remodels, event marketing, new meal solutions and food-service concepts, high-quality produce and meat, enhanced store-brand selection and frequent-shopper programs, Stauth said.
Fleming has also introduced a series of backstage initiatives to improve service to its retail customers, including a new customer satisfaction measurement program that began testing late last year in its Oklahoma City division.
Stauth said the company plans to introduce network and vendor versions of its Visionet system this year, which will allow customers and suppliers who do not have Fleming's retail operating systems linkage to use the Internet to access promotional information.
In addition, Fleming is introducing a new retail customer technology architecture that offers an integrated systems approach, with a single data base for store- and companywide operations, Stauth said.
Following a recapitalization last year, Stauth said, Fleming has increased its cash capital investment budget for 1998 to $230 million, representing an increase of more than $100 million.
CERTIFIED GROCERS OF CALIFORNIA
Los Angeles-based Certified Grocers of California is seeking to move beyond leveling the playing field to slanting the field to its own advantage, according to Al Plamann, president and CEO of the Los Angeles-based member-owned cooperative.
"Profit margins are being squeezed by ever-growing retail chains and nontraditional food retailers; the 'wiggle room' we once enjoyed from vendor deals has almost evaporated as deals have become more aligned with performance, and independents must now differentiate themselves from the competition in some way other than price because of the difficulty of competing on price alone," Plamann told shareholders at last month's annual meeting.
One creative solution involves forming alliances and partnerships within the industry, Plamann said.
Supervalu, Minneapolis, intends to grow wholesale volume from both the independent sector and through supermarket chains, according to officials who appeared at an investors meeting earlier this year.
Jeff Noddle, executive vice president and chief operating officer for wholesale food companies, said the company will continue to develop new services and strategies for its customer base of independent operators and win new independents currently serviced by other wholesalers.
In addition, Supervalu intends to secure chain business by offering lower costs and improved logistics.
Supervalu's new chain customers include Schwegmann Giant Super Markets in New Orleans and Jewel in Chicago and Milwaukee.