AWG GROWS SPECIALTY PROGRAM

Lucia Moses

KANSAS CITY, Mo. -- Associated Wholesale Grocers said it plans to add about 35% to its specialty foods assortment this year, building on the growth of its 2-year-old specialty program.

Associated is on track to sell $50 million to $75 million in specialty foods this year, more than double what it sold in 2004, said Jerry Garland, executive vice president.

The nation's third-biggest wholesaler got into the specialty foods business in 2003 after buying several of bankrupt Fleming's warehouses, which included a specialty foods operation. AWG added the specialty operation to Valu Merchandisers Co., its 10-year-old GM/HBC subsidiary based here. The division today sources 7,000 specialty stockkeeping units through 50 vendors.

Today, about 750 of AWG's roughly 1,500 owned or supplied stores -- mainly in its core states of Missouri, Kansas, Arkansas and Nebraska -- are taking advantage of Valu Merchandisers' specialty foods program.

Combining specialty food delivery with that of regular grocery orders enables Valu Merchandisers to save retailers 10% to 15%, vs. their cost using third-party distributors, said Ken Nemeth, president.

"The reasons our membership likes it are because it's consistent supply, and they order it and stock it," Garland said. "It's just another opportunity for the retailer to improve its gross margin mix, and it increases sales per customer."

Matt Montgomery, director of retail operations at eight-store Woods Supermarkets, Bolliver, Mo., said Woods cut its costs by 5% to 10% by switching to Valu from its former supplier, Kehe Food Distributors, Romeoville, Ill. Montgomery said he hoped that passing the savings on to shoppers would lead to category sales growth.

He said Valu's temporary price reduction program for specialty foods more closely reflects demand in his markets, where shoppers have strong interest in organic and Hispanic products, but not, say, kosher.

"In the past, most of us used an outside company to supply our specialty needs," Montgomery said. With Valu Merchandisers, "we can order it when we order all the other merchandise we use. We have more control over it, and it's substantially reduced costs."

Specialty has been one of a few fast-growth categories for retailers in recent years. Sales of specialty food grew 17.9% to $17.8 billion from 2002 to 2004, vs. 7.7% for all foods. Sales in the supermarket channel grew 15% in the same period, according to data compiled by the National Association for the Specialty Food Trade.

Montgomery saw offering specialty foods, both through the store and special orders, as critical to his stores' ability to compete with big-box retailers. "It's extremely important because, honestly, that's the one thing we can and do do for our customers. It really differentiates ourselves in that regard. Also, it gives us another point of contact with the consumers."

Nemeth said AWG's specialty program is more advanced than that of most wholesalers in the following ways: Valu Merchandisers piece-picks the items from its Memphis, Tenn., warehouse, so retailers can order as little or as much as they want. It also provides specialty planograms it creates using Apollo software. The specialty planograms are updated quarterly, as often as it updates its GM and HBC planograms. About 250 retailers are using those planograms, Garland said.

"Because of the change in products coming into the sections, you want the newest and best," Nemeth stated. "We're pretty impressed by the number of new items that are introduced on a regular basis."

Valu Merchandisers planned to focus in the coming months on expanding selection in fast-growing categories, particularly Hispanic and Asian products, based on feedback from retailer members, Nemeth said. "They're looking for wider assortments, planograms and latest trends."