FRESH BRANDS OUTLINES NEW STRATEGIES

Jon Springer

SHEBOYGAN, Wis. -- Louis Stinebaugh, named president and chief operating officer of Fresh Brands here last week, said he would step up the company's efforts to protect market share against supercenters and win loyalty behind a corporate emphasis on customer value.

Stinebaugh, who joined the company in December as executive vice president after previously serving as the president of Fleming's Sentry division in Milwaukee, was also named to the board of directors. His hiring followed the resignation last year of Elwood Winn, who had been chief executive officer. The president's post had been vacant. The company also said Mike Houser, vice chairman, executive vice president and chief marketing officer, was retiring. In addition, Fresh Brands named Thomas M. Stemlar to its board of directors and said Stemlar would chair the company's audit committee.

"We'll continue to put focus on the programs that enable us to withstand competition whose primary focus is price," Stinebaugh told investors in a conference call last week. "We're refining our program to better serve the budget-minded consumer while still maintaining the high quality of our products and services."

Stinebaugh said Fresh Brands, which operates 101 franchised and corporate supermarkets under the Piggly Wiggly and Dick's Supermarkets banners in Wisconsin and Illinois, will become more competitive in its everyday pricing, reducing the number of items in weekly circulars while placing additional emphasis on featured ad items. "We've been spending promotional dollars heavier than normal in terms of protecting market share against supercenter openings," he said. "We're staying very aggressive in protecting market share."

To further differentiate itself, Fresh Brands will strive to be first-to-market with new items, Stinebaugh said.

"New products are the lifeblood of our business," Stinebaugh said, "and when a new product comes out we want to be the first in our market to have it. Companies that are larger than us and have a little more bureaucracy tend take a little longer to jump on consumer trends and new products."

Sales at Fresh Brands increased 14.8% during the fiscal first quarter ended April 24, but that number was affected by a new accounting procedure -- Fresh Brands adopted FIN 46R, which requires the company include the results of 16 franchised stores along with the results of its corporate stores and wholesaling unit.

The accounting change contributed $16 million of Fresh Brands' $25.8 million sales increase during the quarter. Overall, sales increased 14.8% to $200.6 million due to the accounting change and to the addition of two new stores. Comparable-store sales increased by 3.2%.

Fresh Brands realized a net loss of $1.7 million, or 34 cents a share, for the quarter vs. earnings of $1.9 million in the same period last year. The company took charges of $1.1 million associated with the closure of a franchised store; $500,000 related to uncollectible receivables for franchisees; and $400,000 in professional fees related to compliance with requirements of the Sarbanes-Oxley Act.

Fresh Brands closed five company stores during the quarter and will take a charge of $2.2 million during the second quarter to cover those wind-down costs. However, the company expects no further store closings this year, said John Dahly, Fresh Brands' chief financial officer.

Wholesale sales increased by $1 million, or 0.7%, during the first quarter.

The company added five new stores to its distribution base during the quarter. They are now operating under the Piggy Wiggly banner.

1ST-QUARTER RESULTS

Qtr Ended: 4/24/04; 4/19/03

Sales: $200.6 million; $174.8 million

Change: 14.8%

Comp-store: 3.2%

Net Income: ($1.7 million); $1.9 million

Inc/Share: (34 cents); 38 cents