FLEMING CONTINUES FORAY INTO RETAIL MARKETS

DON YAEGER

OKLAHOMA CITY (FNS) -- Fleming Cos. here plans to further beef-up development of corporate retail stores this year -- earmarking $130 million for 21 new stores and 40 remodels.

The outlay is the major part of a corporate capital program of $230 million. "Well-managed, well-located, and well-designed supermarkets are profitable businesses," shareholders were told in the wholesaler's annual report. "By increasing our position as a supermarket owner and operator, we are bringing more of these profits our way -- and learning how to help our retail customers improve their own results."

In addition to increasing openings of Fleming-owned stores by 50% and doubling the number of remodelings, "we will also continue to pursue strategic retail acquisitions," the report said.

The Fleming Retail Group has grown to encompass 227 supermarkets managed as 14 regional chains. Currently, corporate-owned stores account for 23% of Fleming's total sales. That figure is expected to increase to 25% by the year 2000.

Fleming-owned stores provide a stable sales base for the firm's food-distribution business -- an entity that has been saddled with declining sales the last few years.

Same-store sales in the corporate retail segment last year dropped by 3.4%, shareholders were told. The decrease was attributable in part to new stores opened by competitors in some markets and aggressive marketing by some competitors.

Several factors that negatively affected corporate earnings in 1997 are likely to continue for the near term, according to the report.

The company believes that these factors include lower sales- operating losses in certain company-owned stores. In addition, payments to Furr's Supermarkets as part of a legal settlement "will negatively impact earnings compared with 1997," the report said. In October 1997, Fleming began paying Furr's $800,000 a month as part of the settlement. Such payments may continue for up to 19 months.

The number of store-brand items that Fleming offers will increase by 30% over the next five years, the report pointed out. A line of eight frozen entrees under the Living Well label was offered on a limited basis in 1997 and will be "heavily promoted" in 1998 with demos, coupons and local advertising. The line, focused on nutrition, produced "excellent results" in last year's introduction, Fleming said.

Fleming said that in health and beauty care and in general merchandise it intends to increase 1998 sales "substantially." The company also said that in HBC and GM it intends to achieve double-digit annualized sales growth by 2000. Currently featuring 460 different items, the Marquee line will increase by 150 stockkeeping units this year. Included is an expanded line of store-brand vitamins.

Fleming General Merchandise Distribution operates from six regional distribution centers, but 80% of the firm's general merchandise is now centrally-procured.

Stockholders were told that Fleming is on the leading edge of home meal replacement -- with five concepts available for licensing to retailers.

"More than 130 units are now providing delicious, attractively priced meals to time-strapped consumers," the report continued. Additional concepts are being developed.

The company also is continuing efforts to attract nontraditional consumers. Sales to the military increased by 16% last year.

"Our goal is to continue to expand these sales as one of the largest food suppliers to military commissaries in the United States," shareholders were told.

Credit-loss expense, a serious concern several years ago, decreased by about $3 million last year to $24 million. Fleming believes its stricter credit policies have resulted in decreased sales.

This year's annual meeting will be held May 14 at the National Cowboy Hall of Fame, here.