HAWAII MAY INVESTIGATE FLEMING

JON SPRINGER

HONOLULU -- Hawaii Governor Benjamin Cayetano last week asked state attorneys here to investigate a report that Fleming Cos. overcharged Hawaii grocers between 1994 and 1999.

A report in the Honolulu Advertiser newspaper said Fleming's shipping and billing practices resulted in overcharges to retailers, which unknowingly passed on the costs to consumers. Dallas-based Fleming, which supplies more than 60% of the groceries sold in Hawaii, told SN last week the newspaper reports were factually inaccurate.

Kim Murakowa, press secretary to Governor Cayetano, told SN that the governor spoke to officials in the state's attorney general's office about the report. But she stressed that did not necessarily mean there would be legal action taken.

"The governor did ask the attorney general to look into the matter but, in fairness to Fleming, all we have right now are allegations," Murakowa said.

Andy Mirikitani, a Honolulu city councilman, also introduced a resolution calling for an investigation last week. City attorneys are looking into the matter, reports said.

Kris Sundberg, a Fleming spokeswoman, told SN last week the company would cooperate with any investigation. "If getting the AG office involved helps get the facts correct and gets consumers to better understand our business, we're all for it," she said.

The newspaper based its report on a study of business records provided by Atlantic Pacific International, a former freight forwarding company that at one time managed up to half of Fleming's shipments to Hawaii. The paper noted that API went out of business last year, partially as a result of Fleming dropping it as its primary freight company.

According to the report, Fleming directed API to create invoices that often reflected a higher price for shipping goods than Fleming actually paid, and that Fleming disguised information about a type of shipping savings known as freight allowances. The report further alleged that Fleming was able to obscure from grocers the costs of shipping, because Fleming was billed by API and not the ocean carrier lines that API hired to send the products to grocers.

The report made no specific mention of how much money Fleming allegedly overcharged retailers but said its practices cost grocers "millions of dollars." Fleming does approximately $240 million in annual sales in Hawaii.

"We're disappointed, because the article contained a number of factual errors and baseless innuendo, demonstrating a fundamental misunderstanding of our business," Sundberg said. "The reporter relied on a source [API president Wayne Berry] that provided a lot of misinformation, and causes us to question the motivations of that person." SN was unable to contact Berry for comment.

Accusations of overcharging its grocers have dogged Fleming for years. The wholesaler has faced several lawsuits stemming from disagreements over disclosing true product acquisition costs for retailers receiving goods on a cost-plus basis.

David's Supermarkets, a small operator in Texas, first brought suit over such claims in 1993. It won a judgement of $211 million, but that was later vacated when the judge acknowledged he had financial dealings with the plaintiff. After a protracted appeals process, the case was settled out of court in 1997 with Fleming paying 10 cents on the dollar of that judgement.

Subsequent suits were filed by a number of different retailers, many represented by the same firm that brought the David's case. Though Fleming has continually denied any wrongdoing, the company has paid more than $29.5 million to grocers and terminated supply contracts worth about $1 billion in annual sales, reports said.

Fleming currently is facing a class-action suit from a group of independent retailers in six Western states.