FOOD WHOLESALERS/COOPERATIVES

18

RICK COHEN

Chairman and CEO, C&S Wholesale Grocers

KEY DEVELOPMENTS: Closed several stores in the Southern Family Markets chain.

WHAT'S NEXT: Pending sales and mergers of several large customers.

Rick Cohen, chairman and chief executive officer of C&S Whole Grocers, does not seek the limelight, but he certainly doesn't shy away from turmoil.

The grandson of Israel Cohen, one of the men who founded C&S in 1918, has led his company through a bold series of acquisitions and expansions that have stretched the Keene, N.H.-based wholesaler from New England west to California and Hawaii, and south to Alabama.

The company has been at the epicenter of many of the biggest industry events of the past decade, from the bankruptcies of Grand Union and Fleming Cos. to the break-up of Ahold and the pending merger of A&P and Pathmark.

Midway through 2007, however, much of C&S' $20 billion empire appears to be sitting upon a vast swath of shifting sands.

Two large customers in the Northeast, A&P and Pathmark, have agreed to merge, while two large customers in the Southeast, Bi-Lo and Bruno's, have been split apart by their common owner, with Bi-Lo put up for sale. C&S has been rapidly closing its Southern Family Markets stores, a banner it created to operate 104 former Bruno's locations it acquired in 2005. As of May, reports said C&S was down to about 42 locations and had sold the banner's Birmingham, Ala., headquarters.

The future of Ahold, whose chains have long been supplied to some degree by C&S, is uncertain as it goes through a management change, while Tops, the Buffalo-based chain that Ahold is seeking to sell, recently bought its warehouse back from C&S to increase the banner's appeal to potential buyers. Last year's sale of the Cleveland-area Tops stores to Giant Eagle and others resulted in the closure of C&S' warehouse there.

C&S has also continued to add business, however. The company acquired eight stores from Clemens Family Markets last year when that chain went out of business, and subsequently sold several of the locations to A&P.

Cohen and other C&S executives could not be reached for comment.

Known for its bare-bones efficiency as a low-cost supplier of groceries, C&S specializes in delivering to chains that don't need the added services many small independents traditionally receive from their wholesalers, according to Neil Stern, senior partner, McMillan Doolittle, Chicago.

“They understood — and reacted faster than anybody — to a shift in the marketplace,” he said. “It was not that there isn't a need for wholesaling, but that the types of wholesaling systems and structures that were in place were really designed to serve the needs of the independent mom-and-pop operator. So, not only were you building distribution into your supply system, but also building a lot of services into those systems. That added a lot of complexity.”

C&S recognized, he said, that the industry would see a decline in the number of retailers that need their wholesaler to provide a broad array of service.

“There are small independents out there, who have their own systems, who say, ‘Just give me the lowest price you can, and I'll figure out how to sell it,’” said Stern, calling C&S “the Wal-Mart of wholesaling.”

“They have become the low-cost, no-nonsense provider.”

Cohen's implementation of a “self-managed team” approach in the warehouse was considered ahead of its time when he implanted it nearly 20 years ago, giving the company an edge in efficiency and productivity, while still providing high wages for workers, according to a Harvard study published in 1996.

The company has increased its sales nearly tenfold since then, and now operates 24 distribution facilities in 12 states. According to information on C&S' website, the company has grown at a rate of 23% annually since Cohen joined full-time in 1974.

“He's very determined, he's very articulate and he knows how to read people very well,” said John Dumais, president of the New Hampshire Grocers Association in Manchester.

“He has a great team around him, he knows how to select the right people to work with him, and he just continues to grow. He always seems to have the foresight to know how to grow the business.”
— MARK HAMSTRA

19

JOSEPH S. COLALILLO

Chairman and CEO, Wakefern Food Corp.

KEY DEVELOPMENTS: Seeking non-member wholesale business.

WHAT'S NEXT: Dealing with the impact of a strengthened A&P.

For Wakefern Food Corp, the pending merger of Pathmark into A&P could signal a major shift in the competitive balance in New Jersey that could make life a lot tougher for its ShopRite members across the state.

But Joseph S. Colalillo, chairman and chief executive officer of the member-owned cooperative, based in Elizabeth, N.J., isn't panicking.

“As always, it will be interesting to see what happens,” he told SN.

Given the overlap between A&P and Pathmark in some areas, it's possible A&P may have to sell off some stores, Colalillo noted, “and it's possible some of those stores could go to our members.”

But even if A&P is able to strengthen its operations through the merger, Wakefern does not intend to give up any competitive ground, he declared.

Even before the merger is completed, ShopRite operators have become more aggressive in their marketing programs “in terms of focusing on our operations and on customers, so we've continued to do very well,” Colalillo pointed out.

“And though there may be more competition after the merger — because A&P has to make the deal work economically, so it has to heat things up to do more volume — we'll continue to focus on customers and the communities we serve. We're the low-price leader, and we won't give that up.”

One veteran New Jersey retailer told SN he doubts A&P will dent ShopRite's position in the marketplace. “ShopRite will still be the price predator,” he said.

“If A&P tries to flex its muscles, ShopRite will respond. I don't expect A&P — even with 100 or so more stores — to be any more of a factor than it has been.

“When Stop & Shop came into the market, Wakefern was cutthroat in its pricing. In fact, one of its executives said the company would spend whatever it took to maintain a half-point of market share.”

Just this month, Wakefern said it would buy 10 stores in New York and New Jersey from Stop & Shop as the latter company retreats from what had long been the fringes of its operating area.

Joe Azzolina Sr., chairman and CEO of Food Circus Supermarkets, Middletown, N.J., said he also does not expect the A&P deal to have any impact on ShopRite's operations.

“ShopRite is still the toughest competitor in the marketplace. It created a strong low-price image years ago, and whether or not it is really the cheapest, it's hard to take that image away.”

Besides maintaining Wakefern's strong competitive position in retailing, Colalillo is also leading the cooperative on a hunt for new sources of volume among non-member customers.

After years of being unwilling to aggressively seek out non-member wholesale business, Wakefern is pursuing such opportunities more purposefully, he told SN — a major shift in the company's mind-set, he explained.

“We're still focused 100% on our members and their needs, but if the right opportunity [for outside business] comes along, we won't say no anymore. We'll look at it and see if there are benefits for us.”

Wakefern has added “two or three” wholesale customers this year, Colalillo said, though the only one he would cite by name is Heinen's Fine Foods, a chain of 17 stores based in Cleveland that is buying approximately 185 ShopRite private-label grocery items.

According to Dave Baer, Wakefern's director of wholesale sales, the arrangement with Heinen's represents “an introduction of the ShopRite name to the Midwest, which we believe can only contribute to the growth of our brand.”

Wakefern is also seeking to boost sales on the retail side through new store growth — growth that usually comes slowly, Colalillo pointed out, “because it's a challenge to grow family businesses.”

To make sure the younger generation picks up where the older one left off, Wakefern has initiated a program that involves getting the next generation of members involved on various committees, “and that's as important as anything else we're doing,” Colalillo said.
— ELLIOT ZWIEBACH

20

GARY PHILLIPS

President and CEO Associated Wholesale Grocers

KEY DEVELOPMENTS: Acquired Albertsons' Texas division account, Minyards account.

WHAT'S NEXT: Fine-tune efficiencies, seek opportunities.

Gary Phillips is good at making deals — deals that create big benefits for all involved.

In recent months, he has led Associated Wholesale Grocers into transactions that not only have brought new, big accounts to AWG, but also have resulted in AWG's acquisition of a 1.1 million-square-foot distribution center in Fort Worth, Texas, that will allow the wholesaler to better serve its customers in other parts of Texas.

One of those customers, 60-unit Minyard Food Stores, Coppell, Texas, whose account AWG also acquired this year, will be supplied from that warehouse.

And while it's not something that's in writing, AWG will undoubtedly benefit from Minyard's expertise in marketing to the Latino community.

“It is a symbiotic relationship where we learn from each other's businesses,” said Poul E. Heilmann, senior vice president of strategy and marketing at Minyard.

“Gary Phillips has fostered an open and true partnership between our companies — one that we feel will make both companies stronger.”

The purchase of the ample warehouse in Fort Worth was made possible as part of a deal with Albertsons, Boise, Idaho, in which AWG will begin supplying the Texas division of Albertsons, and four of AWG's other distribution customers will acquire 23 Albertsons stores in Oklahoma.

All the multifaceted transactions across a sweeping span of geography have been made possible, in part, by Phillips' communications skills, according to independent retailers and other industry sources.

“All the accomplishments are a direct reflection of Gary Phillips and his leadership,” said Jeff Reasor, president, chief executive officer and chairman of 13-unit Reasors, Tahlequah, Okla.

“He's someone — on a personal level, and on a business level — that I have no problem picking up the phone and asking him a question, and knowing he'll be a straight shooter and tell me what he thinks,” Reasor said. “But he's diplomatic as well as insightful.”

Phillips served as president and general manager of AWG's Springfield, Mo., division for 14 years before he was promoted to chief financial officer of the organization in 1996, and then CEO in 2000.

From the time he joined AWG in 1974, Phillips' attention has been concentrated on the independent grocer, small and large.

“Gary Phillips has kept AWG very focused on the core needs of serving the independent grocer at a time when many competitors (Spartan, SuperValu) have pursued broader platforms,” said Neil Stern, senior partner at McMillan Doolittle, a Chicago-based marketing and consulting firm.

Retailers themselves are quick to second that.

“Although we're still in transition [from self-distribution to working with AWG] the teamwork and can-do attitude have helped us surmount the many challenges we faced in the process of shifting from self-distribution,” said Heil-mann at Minyard.
— ROSEANNE HARPER