SALT LAKE CITY -- American Stores Co. here is scheduled to hold a meeting with major manufacturers April 19 to explain the national procurement and logistics program it is beginning to implement, industry observers told SN last week. The national buying strategy will transform what has been a holding company here into the procurement arm for American's 818 supermarkets and 679 freestanding drug stores, including Acme Markets, Malvern, Pa.; Jewel Food Stores, Melrose Park, Ill.; Lucky Stores, Dublin, Calif.; Jewel-Osco, Albuquerque, N.M., and American Drug Stores (Osco and Sav-On), Oak Brook, Ill. American Stores executives declined to comment. However, observers told SN that national procurement already has begun, with liquor and tobacco being purchased centrally through Salt Lake City.
Dry groceries are scheduled to follow this summer, and perishables are expected to be added next year, observers said. Health and beauty care items and general merchandise are slated to be procured centrally out of the company's American Drug Stores division starting next year. Logistically, American is consolidating backstage administrative tasks -- including accounting and management information services -- in Salt Lake City to streamline its interface with vendors, observers said.
Ed Comeau, a securities analyst with Donaldson, Lufkin & Jenrette, New York, said American's goal in its new procurement program is to strike national deals with some major vendors "the way Wal-Mart does" while retaining merchandising and promotional coordinators at the local level. "But central procurement could result in American's divisions losing touch with their local markets in terms of consumer preferences and what other operators in those markets are doing," Comeau explained. "With most suppliers pricing and promoting on a regional basis, there's a tendency for them to gravitate to the chains that can make decisions quickly, and that could mean American's divisions could be left out of deals or have less access to deals." Gary Giblen, managing director of Smith Barney, New York, expressed similar concerns. "Although American intends to do some buying at the local level, it could end up with a situation similar to what happened to Hannaford Bros. [Scarborough, Maine] when it began buying for Wilson's Supermarkets [Wilmington, N.C.] in the Southeast based on consumer preferences in the Northeast and stopped buying pork rinds," he told SN. "It was a slow learning process for Hannaford when customers complained, and the trade-off for American is that, while it is likely to reduce its costs, it could also lose some of its local merchandising knowledge." American Stores disclosed the national procurement plan in mid-1993. A company buying executive told SN then that it would not be a central buying program but a move to enhance and coordinate branded and private-label strategies and logistics.