SAVE MART EXPANDS FOOD MAXX TERRITORY 2004-02-09 (1)

Elliot Zwiebach

MODESTO, Calif. -- Save Mart Supermarkets here had a good year in 2003, with sales climbing 35% and store count rising 28%.

The vehicle for its growth spurt was 25 Food 4 Less stores that Save Mart acquired from Fleming and converted to the Food Maxx banner.

"We've pretty much saturated the central San Joaquin Valley area in which our conventional stores operate, and the Food 4 Less stores were mostly in areas where we were not operating," said Bob Spengler, president of the 123-store chain. "And with Wal-Mart and Winco coming in, we felt it made good business sense to expand our marketing area to give us more strength.

"Going forward, my instructions are to find more locations that make sense and to buy them. We're always looking for opportunities."

Save Mart acquired 19 of the Food 4 Less stores last February, including two under construction, and six more in July. Its application for three other units was rejected by the Federal Trade Commission.

All 25 had been converted to the Food Maxx banner by the end of August, Spengler said.

Save Mart financed the acquisition from internally generated funds. Spengler declined to pinpoint the price, "but it was a fair price," he said.

The acquisition enabled Save Mart to boost the size of its price-impact division from 15 to 40 stores; to boost overall sales from $1.6 billion in 2002 to $2.2 billion last year; and to expand its geography by hundreds of miles in all directions -- 300 miles north to Redding, Calif.; 280 miles south to Santa Maria, on the central California coast; 25 miles east to Orrville in the foothills of the Sierra Nevada Mountains; and 90 miles west to the San Francisco Bay Area.

It also enabled the chain to move into two major markets -- Sacramento and San Jose -- and a handful of smaller ones for the first time, Spengler said.

The individual stores, which once did close to $14 million a week, were down to around $9 million when Save Mart acquired them, he noted. Although he declined to pinpoint their volume today, Spengler said Save Mart has achieved double-digit increases, "and volume is continuing to grow. And the turnaround came much quicker than we had projected."

Save Mart took its time fine-tuning the stores' operations, Spengler said. "For the first six months, we didn't change anything in terms of schematics or product mix. Then we started studying the stores one by one and analyzing movement, and we made some changes in assortment at our existing stores, and now all stores are using the same database and item count."

Save Mart achieved sales increases at the former Food 4 Less stores by going back to basics, Spengler said. "Those stores had totally lost their focus. A price-impact store cannot be all things to all people, but what Fleming was doing, in my opinion, was using them as a way to move inventory through the warehouse and trying to push product it wanted to sell rather than what consumers wanted to buy.

"So we remerchandised the stores, substituting our own Sunny Select private label for Fleming's Best Yet line, converting the dairy departments to feature products we manufacture, and eliminating a lot of direct-store-delivery items by supplying products from our own warehouse."

Save Mart also remodeled the interior decor and the exterior look of the stores, and it retained 90% of the employees, including the field management staff, "to help familiarize us with some of the new markets we were entering," Spengler said.

It also sought to reenergize store personnel, "who were distraught and feeling like orphans [during Fleming's ownership] because they were never brought into the loop on how or why things were being done. We are a family-oriented company and we believe people are our most valuable asset, so we talked with them about why we were doing things and held Q-and-A sessions with all employees to ask what they thought we needed to do to get back to what Food 4 Less was originally all about."

One of the employees' recommendations was to change the name on the stores, Spengler recalled. "We hadn't planned to change the name because the Food 4 Less brand had a strong presence in California and we thought we could build on it."

Save Mart had also planned to stay with Fleming's private-label line, "but when Fleming's finances went into the tank and they couldn't supply us, we switched to our own label," he pointed out.

As part of the deal to acquire the stores, Save Mart signed a five-year supply agreement with Fleming for the 25 stores. When C&S Wholesale Grocers, Brattleboro, Vt., took over most of Fleming's contracts, it became the stores' supplier for dry groceries, meat, produce, and health and beauty care -- everything except dairy, frozen foods and private label, Spengler noted.

"It was not a smooth transition, but by mid-January [2004] we had completed our conversion to C&S, and we feel they have a good working relationship with us, and we're convinced they are doing all they can to develop a long-lasting partnership with us."