AWI, White Rose: the Best of Both Worlds

ELLIOT ZWIEBACH

ROBESONIA, Pa. — Associated Wholesalers Inc. here believes in leaving well enough alone.

Since acquiring White Rose Foods, Carteret, N.J., last June, the cooperative has maintained that portion of its business as a voluntary wholesaler, with its own management and its own strategy — a situation that is unlikely to change, Chris Michael, AWI's chief executive officer, told SN.

“White Rose will continue to operate as a voluntary, and AWI will continue to go to market as a cooperative,” Michael explained. “The two companies are completely separate, with Steve Bokser remaining as president of White Rose and Joe Fantozzi continuing as executive vice president.

“The last thing we want to do is hurt the successful operation of either company by consolidating under a single marketing plan. Within our combined geographic area we do $5 billion in retail sales, conservatively speaking, and our goal is to do whatever benefits the customer — and if we tried to consolidate the way we go to market, that would hurt customers.

“We're still looking for operating efficiencies and increased buying power, but from a marketing standpoint, we're not going to change the way we each run our business. We believe each company must be responsive to what its customers want because if we decide we know what they want, then we won't be in business. The only time we will make a change is when a customer asks us for change.”

Michael said he believes the merger of the two companies will make AWI a stronger competitor in the Northeast marketplace. “This has always been a very competitive region where we call on our competitors' customers and they call on ours all the time. By combining the two organizations, I believe it gives us an advantage in terms of geographic concentration, logistical efficiencies and a more diversified assortment of products, and I think we'll have the purchasing scale that will make us a very attractive alternative to other distributors in the marketplace.”

AWI is working to develop synergies between the two companies that can benefit both groups of customers, Michael said. “We're beginning to explore what we can do together to grow the business by pooling our resources to buy better, offer better marketing programs and transfer best practices from one division to the other,” he explained.

“So far things are going well.”

Michael said projects in development include:

AWI was the smaller of the two companies at the time of the merger, with 500 members operating 800 supermarkets and convenience stores in Pennsylvania, Delaware and Maryland, plus a smattering of non-member customers in Virginia, Connecticut and Massachusetts, with annual sales of $1.1 billion.

White Rose, which was the sole operating entity of the DiGiorgio Corp., was, before the merger, the largest independent food wholesaler in the New York metropolitan area, doing $1.25 billion in annual sales from serving 500 customers operating 1,200 stores in New York and New Jersey, plus Puerto Rico and the Dominican Republic. White Rose customers, which tend to be larger than AWI's members, include Foodtown, Woodbridge, N.J.; Kings Super Markets, Parsippany, N.J.; and Gristedes and Associated Foods in New York City.

SEEKING A PARTNER

DiGiorgio, which was once a diversified company with large holdings in agriculture, was operating only White Rose at the time it hired The Food Partners, Washington, D.C., to find a distribution company to partner with, either through an acquisition or a merger, White Rose's Bokser told SN. “We thought a partnership of some kind made sense, and it didn't matter to us if it involved making an acquisition or being acquired.

“Ultimately we ended up doing a reverse merger where the other company came out as the surviving entity. But that was OK with us because we decided a deal with AWI offered a lot of synergies, including the fact they were in the meat, produce and nonfoods business and we were not. And we were both distributors, so there were more similarities than differences, aside from the ownership structure.”

Michael said AWI was interested in acquiring White Rose “not only because it would give us more buying power but also because we were interested in boosting our selling power. So we liked the fit for the economies of scale in buying as well as selling.

“Because our primary operating areas are contiguous — and only about 120 miles apart — we knew we could achieve efficiencies in transportation, warehousing and administration, and we knew there would be opportunities to grow market share for our customers.”

AWI operates two distribution centers — an 850,000-square-foot grocery and perishables facility in Reading, Pa. (including a 150,000-square-foot expansion that's already under way), and a 250,000-square-foot nonfood and repack warehouse in York, Pa. White Rose operates three facilities — a 900,000-square-foot grocery distribution center and a 300,000-square-foot frozen food warehouse in Carteret and a 200,000-square-foot dairy in Woodbridge.

Michael said AWI plans to keep all five distribution centers in operation for the foreseeable future. “We're developing a long-term strategic plan to enable all five facilities to operate at very solid levels, and our intention is to try developing whatever economies we can. Ultimately, we have no plans to keep them all operational, though we're looking at the growth potential we have, and we don't plan any consolidation while we're growing.”

While the combined entity was doing close to $2.3 billion at the time of the merger — $1 billion from AWI and $1.25 billion from White Rose — Michael said he believes volume at each division will grow before the end of the fiscal year in late July.

He said AWI has been growing sales at a rate of about 5% a year except for 2005, when volume rose only about 1% because of escalating gas prices and the aggressive growth of Wal-Mart Supercenters in its operating area.

He's projecting growth this year of 4% “because we think we'll have a good holiday season, and we expect to pick up sales when we're able to begin distributing perishables and nonfoods to White Rose.”

White Rose was growing at a rate of 1% to 2% a year prior to the merger, primarily as a result of store expansion by its customer base, and Michael said he expects that growth to continue.

Asked to define the differences between the go-to-market strategies of the two operations, Michael said the White Rose strategy is aimed at smaller chains “who usually have their own marketing programs, so the wholesaler provides more basic logistical services but not marketing services, whereas the AWI model includes a full-service marketing program that provides most retail members with advertising, store development and other services.

The dual marketing approach gives AWI an advantage over some other wholesalers, Michael said, “because it enables us to offer any potential customers two models — the voluntary model or the cooperative model.

“Obviously, larger chains are not looking for complete service programs — they just want logistics — and in the past it was hard for us to go in two directions because we didn't know how to operate as a logistics-only provider. But now we can provide whichever model a customer prefers.”

EXPANDING OFFERINGS

Starting next month, AWI will begin offering approximately 1,000 Hispanic products to its members through a cross-docking program.

Given the large urban mix of its customers, White Rose carries a broad line of packaged Hispanic products while AWI carries almost none, Michael pointed out. “Until now our members have had only limited varieties of Hispanic products available to them. But the Hispanic customer base in our distribution area is growing rapidly, and now we'll be able to expand our variety to hopefully boost sales among our members.”

AWI will offer the full range of Hispanic products that White Rose distributes, and its members can choose the assortment they want based on a variety of planograms AWI has developed, Michael said.

Hispanic products will comprise about half of the 2,000 SKUs AWI will offer from White Rose, Michael said. Other products include specialty goods, the White Rose private-label line and some packer labels.

Asked what AWI will provide to White Rose customers, Michael said the company will begin offering some of the service programs it has for its members early next year.

“Historically, White Rose has offered logistics services to its customers because many of the chains they serve were not interested in store development, Web services, database marketing or retail pricing systems. The base of marketing data in particular will generate consumer information that will enable them to be better marketers,” Michael said.

The two companies are working on sharing the same retail pricing systems, he added, “and we're in the process of consolidating White Rose's data processing center from Westbury, Long Island, back to Carteret. Once that's done, we'll be able to consolidate financial and distribution systems.”

The companies are also beginning to research best practices in other areas, Michael said.

Besides adding Latino items to AWI's offerings, the two companies are finding other sales opportunities through cross-docking products that each offers to its customers. “For example, White Rose doesn't distribute produce, meat or general merchandise, so we're looking at opportunities to sell those products to their customers,” Michael said.

AWI could begin shipping health and beauty care and other nonfood items to White Rose customers as early as next spring, he acknowledged, but it will take longer to offer meat and produce. “We have to do it customer by customer,” he explained. “Each White Rose customer has a relationship with its perishables suppliers, and it's up to us to earn that business.”

AWI is beginning to take advantage of its combined buying power through a joint procurement program for White Rose and Shur Fine private labels.

“We intend to retain both the White Rose and Shur Fine labels and possibly offer both brands to customers because, although the specs will be identical, there are some areas where the White Rose brand is as recognizable to consumers as the Shur Fine brand,” such as in Pennsylvania.

Michael said AWI is implementing category management at its DC in Reading. “Our members look to us to provide some of the services chain operators usually provide for themselves — even doing merchandising programs at store level where we set the store, as a chain would under a category management plan. Since we control the marketing, it dovetails with the marketing programs we roll out.”