1885-1995: A NASH FINCH RETROSPECTIVE 1995-12-11 (2)

ELLIOT ZWIEBACH

MINNEAPOLIS -- Nash Finch Co. here is disproving the maxim that you can't teach an old dog new tricks. After 110 years in operation, the distributor is reassessing its traditional ways of doing business, and it isn't hesitating to alter long-held procedures. "We see the need to change because the industry is changing," Al Flaten, president and chief executive officer, told SN. "With Efficient Consumer Response initiatives, changes in the way manufacturers go to market and new attitudes among employees, we realize we must adapt and move in the direction the entire industry is moving, and we're willing to do that." Flaten said the company's ECR efforts will include warehouse consolidations, regionalized buying programs and a logistics project. "ECR has brought into focus the fact you can't hope to stay in business in the future doing things the same way you did in the past," he said. "Cost-plus won't hold up forever as a way of selling because not all products have the same cost of handling, so we have to change the way we operate in terms of what it costs to handle certain items and what we charge for certain services. "The wholesale side of the business used to cover losses through increases in the cost of goods. But that's changed because the manufacturer is trying to eliminate or reduce his promotional funding through off-case allowances, and there are fewer opportunities for forward buying or diverting to recoup gross profits to cover increased expenses. "Besides, those approaches were counter-productive and added costs, but that's the way business was done." Among the changes Nash Finch is undertaking:

Converting its distribution operations from a decentralized to a centralized basis, with more buying concentrated in its headquarters here and eventually in a second regional facility in the Southeast.

Converting its corporate retail stores from a centralized to a decentralized approach to enable more operating decisions to be made at store level.

Taking a new look at the purpose of distribution centers in relation to retail stores and opting to build fewer new facilities and to consolidate what it already has.

Selling off its convenience store wholesale business, a process that began toward the end of the year. Distribution assets were to be sold to H.T. Hackney Co., Knoxville, Tenn. Nash Finch is the nation's fourth-largest wholesaler, with annual volume of $2.8 billion. Although its sales are relatively close to Wakefern's $3.7 billion, they are far distant from No. 1 Fleming Cos.' $19.1 billion or No. 2 Supervalu's $16.6 billion. Flaten apparently likes it that way, viewing Nash Finch as a medium-sized wholesaler serving small- and medium-sized customers in smaller U.S. cities. He said Nash Finch intends to build additional corporate stores in such medium-sized cities as Fargo, N.D., Cedar Rapids, Iowa, and Sioux Falls, S.D. -- the very places the company was founded and in which it prospered in its earliest years. "Cities of 120,000 to 130,000 people are nice markets for us," Flaten said. He does not anticipate any change in that approach. "It's the small and medium-sized wholesalers, whose customers operate within the same marketplace, that will survive," Flaten said. "Not all business is going to be done by giant wholesalers, nor are they the ones who will make all the money." Asked how Nash Finch has avoided being an acquisition candidate over the past 110 years, Flaten replied, "We're too complicated a company for anyone to acquire. "We've always been very fragmented. Rather than being one large company, we've always been lots of different types of companies involved in retailing, wholesaling and produce marketing in places like the Midwest, California, Mexico, Chile and Hungary." That fragmentation, and the willingness to expand since its earliest years beyond its Midwest boundaries, have been key to Nash Finch's growth over the years. So has the willingness to try something different, Flaten said. That penchant to change became apparent almost immediately after Flaten was named chairman and chief executive officer in November 1994, following the death of Harold (Shorty) Finch Jr. in a car accident. One of Flaten's first moves after his elevation was to eliminate the chairman's title. "It's my belief that we should have a more participative board of directors, and having the same person as chairman of the board and chief executive officer representing management to the board creates a conflict that I wanted to eliminate," he explained. Instead, one director has been designated "board chair" to facilitate board meetings, and the title of chairman has been dropped. One of Flaten's next moves was to separate the company's wholesale and retail divisions, "because I thought it would enable people to be more focused on what they're doing, to accomplish and bring forth better results," Flaten told SN. "It's very difficult to be involved in distribution and corporate retail at the same time, because they're two different animals." Dave Bell, who was already with Nash Finch after years with Jewel Tea and Stop & Shop Cos., was named senior vice president of retail sales and operations; and Bill Bishop, who had been president and chief operating officer of Scrivner Inc. before it was sold to Fleming, was hired last December as senior vice president of sales and logistics. What the split has done, Flaten noted, is flip-flop centralization and decentralization at Nash Finch. "Historically the company has been very decentralized in marketing and merchandising in the wholesale division and very centralized in wholesale and retail operations, and now we've reversed that situation" -- a reversal that reflects the fact that manufacturers no longer call on retail stores and work with those stores, he noted. "As manufacturers have reduced their work forces, their people are calling on corporate headquarters more, so we've had to refocus our attention and shift responsibility for overall marketing into our Minneapolis office, even though merchandising decisions remain decentralized." On the other hand, Nash Finch has always been very centralized in operating its wholesale business and corporate retail stores, "but we're now reversing operations to be more decentralized, so decisions can be made in the field, close to the customers, with responsibility and accountability to the department managers and store managers at retail and to the warehouse at wholesale. "We want to react more quickly for the sake of our customers, and we want people to be accountable for the actions they take instead of allowing all decisions to bubble up to the Minneapolis office." Ten months after making the split, "we're seeing ongoing improvements in the area of responsibility and accountability, and the warehouses are treating our corporate stores the same way they treat our independent customers, which represents a big and very positive change," Flaten said. According to Flaten, Nash Finch is beginning to abandon other long-held beliefs about its retail and wholesale operations. "In the past we built stores to support warehouses,

but in the last year or so we've realized that we should be building retail stores to achieve market mass, which helps to support retailers, not a warehouse," he said. "If we build a store to support a warehouse, then maybe we don't need that warehouse. We should build retail stores to create value at the retail level, not to create value for a warehouse. "So we expect to build fewer warehouses over the next several years, and the stores we build will be in markets where we want to build a market base, rather than where we need stores simply to support a distribution center." Two-thirds of Nash Finch's volume comes from wholesaling, although with retail store purchases in the past few years -- Easter Foods in Iowa and Illinois in 1993 and Food Folks in North Carolina in 1994 -- that percentage is changing, Flaten said. "This year we will probably see a drop in corporate store volume, because we've sold six to eight individual stores to independents, but those sales will revert to the wholesale side. "We always intend to be selling and buying stores, because anything that helps our overall business grow helps independents, which is our primary goal." Nash Finch operates 115 corporate stores and 18 warehouses, including 15 grocery warehouses in the Midwest and Southeast; two military wholesale warehouses in the Southeast, and one health and beauty care warehouse in the Midwest. The company is in the process of selling two other facilities: a grocery warehouse and an HBC warehouse in North Carolina, both of which service convenience stores. "The convenience store business has added value to Nash Finch since we got into it -- in fact, we've doubled the business over the past nine years -- but we decided we want to focus more on our basic business and not on convenience stores," Flaten said. Flaten said Nash Finch anticipates refocusing its efforts in different directions over the next five to 10 years, "including the likelihood we will rid ourselves of unproductive assets and put our efforts into areas in which we think we can excel," he said. He said unproductive assets might include corporate stores or warehouses that are not adding value, "which could be closed or consolidated to create efficiencies and lower costs." Areas in which Nash Finch excels, he said, could include distribution centers or a variety of store formats that have proven successful. Last June Nash Finch closed a 140,000-square-foot grocery warehouse in Sioux Falls, S.D., and redistributed that volume to five other surrounding facilities. The Sioux Falls warehouse was subsequently converted into a variety warehouse -- what some companies call a slow-mover warehouse, Flaten said. "We will be able to supply six to eight other warehouses from there, which will reduce inventory and free up space at those other facilities." Flaten declined to say whether other warehouse consolidations will occur. "We will do future consolidations if they make sense in terms of adding value to the company and improving service to customers," he said. "We don't want to force anything down our retailers' throats -- consolidations have to work for the benefit of retailers. We have to work it backward from what the ultimate consumer wants to what the retail store needs and then try to satisfy the needs of the distribution center." Nash Finch initiated a centralized buying program in late 1994, in which it began buying for five of its 15 grocery warehouses through its headquarters here. Those facilities are in Appleton, Wis.; St. Cloud, Minn.; Fargo and Minot, N.D., and Sioux Falls. It will add a warehouse in Cedar Rapids to the regional buying program in the next few months, and possibly others at a later date, Flaten said. "We originally anticipated the need for three regional buying offices, including one here in Minneapolis, but given the hardware and software programs we're using, we now believe we may need just two, with the other one likely to open in the Southeast sometime next year," Flaten said. Regarding logistics, Flaten said Nash Finch is in the midst of implementing the Millennium Project, a logistics program aimed at moving more goods more efficiently through cross-docking and just-in-time deliveries. According to Flaten, "It's a program completely driven by demand that enables us to sell customers what they want, rather than what we want to sell. Once the program is in place, we will become facilitators in the handling of goods, and the cheaper we can handle them, the more profitable we and our customers will be." Nash Finch has been working on the Millennium Project "for some time," Flaten said, "and it's a very intense, driven program run by technology. We know of no one who has the software we're working with, which we've had to create." He said the company is making "a lot of headway" on the Millennium Project, "and we'll probably be ready to implement it sometime in 1996." Besides its wholesaling and corporate retail operations, Nash Finch also has an investment in a Hungarian wholesaler, plus produce marketing businesses in California, Mexico and Chile. How did Nash Finch get involved in Hungary? "Three years ago Shorty Finch took a trip there and became aware of Alfa, one of the largest wholesalers in Hungary with several privatized warehouses. "We thought we could bring some expertise there in terms of distribution and that we could help them by supplying capital," Flaten said. "We recognized that Hungary had been under a socialist form of government that was changing, and we looked at our investment there as a way of finding out more about the European market for ourselves because we recognize that the food industry will become a global market and we should be involved." Nash Finch brought some of Alfa's managers back to the United States "to show them what we do here so they could become more competitive and create ways within their organization to help their operation." Flaten also said he believes the Hungarians can teach people at Nash Finch a thing or two, "because a lot of what they do is as good as or better than what we do in the U.S. "For example, they are ahead of us in merchandising ready-to-eat and heat-and-serve types of foods. And we see better packaging there on a number of products, including the way they handle fresh beef packed in case-ready form." Nash Finch also has a produce marketing subsidiary in California's San Joaquin Valley called Nash DeCamp. Besides operating its own growing field, the company has partnerships with growers in other countries. "We have three packing plants in California where we pack fruit for independent growers," Flaten explained. "Besides our own holdings, we have agreements with local growers in California, Mexico and Chile to provide financing and other cultivation needs, including the services of agronomy experts, to help them grow better product."