BENTONVILLE, Ark. -- Sam's Club here, a Wal-Mart subsidiary, will manage most of its own produce departments under a new agreement with one of its distributors, Fresh America.
Under the five-year agreement, which takes effect Dec. 1, Sam's Club will assume ownership and complete operational authority within the produce departments of the majority of its clubs, according to Fresh America, which is based in Houston.
Fresh America is now completely responsible for the produce departments in 190 Sam's Clubs. The new contract will nearly double the number of club stores that Fresh America supplies, bringing the total to 372, while eliminating the supplier's operational responsibilities within Sam's.
About 60 remaining stores that Fresh America does not supply under the new contract will continue to be supplied by other vendors, said Marc Rieke, vice president and chief financial officer for Fresh America.
Fresh America's distribution territory will expand to cover over 50% of the United States and 80% of the population. The company plans to open two new distribution centers in the Midwest. Rieke would not comment on the location of the two new centers. The new agreement also gives Sam's Club the option to reduce the number of clubs within Fresh America's territory by approximately 10% per year, and to discontinue service for the clubs in
"The relationship between our company and Sam's Club is strong, and this agreement provides a mutually beneficial and expanding working arrangement for both companies," said David I. Sheinfeld, chairman and chief executive officer of Fresh America, in a statement.
One industry observer said the new agreement is a shrewd one for Sam's. "Obviously, Sam's Club got into and out of this agreement for all the right reasons," said Gene Wright, an associate partner with Andersen Consulting, Chicago.
"When Sam's Club first entered into the agreement [in 1989], they didn't have the food expertise," he said. "Now, they have the expertise, and they need to get more profit per square foot.
"Fresh America did a pretty decent job with the produce departments," he continued. "Business grew, and customers were satisfied."
Wal-Mart's supercenter format, which features a supermarket along with the traditional discount store, gave the company more confidence in handling perishables, Wright told SN, as well as providing natural synergies between Wal-Mart's and Sam's perishables departments.
The stores that are not included in the agreement are probably located in more rural settings where it would not be feasible for Fresh America to supply them, Wright suggested.