FLEMING TO RETAILERS: NO MORE FREE LUNCH

CHRIS O'LEARY

SAN ANTONIO -- Fleming Cos. will no longer routinely subsidize retailers who fail to invest in their own technology plans and store expansion initiatives, said Gerald Austin, executive vice president of operations.

"We don't intend to finance nongrowth partners just to save sales volume," Austin said at the National-American Wholesale Grocers' Association Retail Development and Engineering Conference here last week. "Volume was the almighty god. But if a retailer does not have a 'new generation' attitude, then saving their business will not be enough of a criteria" for continued support.

Austin said the Oklahoma City-based wholesaler defines "new generation" retailers as those who accept change and recognize the importance of upgrading technology. But even those retailers committed to expansion may have to pay for a larger share of the costs.

In the past, Fleming's subsidies to retailers amounted to millions of dollars. "It was a loss that had to be made up through gross margins in the operations. That will no longer be the case," he said. "We will curtail all unnecessary activity."

Some retailers had even come to expect Fleming to foot the technological bill while investing in their own profit-making ventures, he added. "Retailers expect us to support them with funds while they go into other entrepreneurial [activities]," he said.

Austin said retailers have to make upgrades in a much more cost-efficient manner. "Retailers are going to pay for retail services in a way they've never paid before," he said. "If it took 12

drawings of the same plan to get it just right, [Fleming is] not going to want to pay for that many now. Retailers need to decide in advance what they want."

Retailers, in turn, deserve a high degree of quality from Fleming, Austin said. "In exchange, we must provide world-class service. [We need] stronger research and more accurate planning if we put this on a 'pay-for' basis."

Fleming's effort to revamp its retail service program is part of a company-wide re-engineering effort begun earlier this year. Called Fast Forward, the project encompasses several organizational changes as well as the integration of newly acquired Scrivner Inc.

"Our company can only grow and prosper as the retailers we service grow and prosper," Austin said. "We believe in the importance of technology. We believe in change. We believe in championing the cause of the new-generation retailers."

"Retail development is the lifeblood of our industry," he added. "Not only to grow, but to survive, you have got to have more expansions, more square footage and new departments that appeal to today's consumers.

"It's no secret we're in a slow-growth industry. Survival depends on our ability to cannibalize on [retailers like] restaurants and superstores," Austin said. "Our challenge is to move our retailers quickly to bigger and more aggressive formats or risk losing them altogether."

Large retailers face a similar situation, he said. Austin cited several retailers currently in bankruptcy proceedings or selling off their stores. "All traditional outlets are under attack and many will not survive into the next century," he warned.

As an example of how a major retailer underestimated the importance of expansion, Austin described the failure of Food Lion, Salisbury, N.C., to successfully enter the Texas and Oklahoma markets. Food Lion tried to compete with its traditional 25,000-square-foot stores in a market dominated by 50,000- to 60,000-square-foot megastores and soon was overwhelmed, he said.