FLEMING COS. REALIGNS TO REDUCE OVERHEAD

Michael Harrison

MICHAEL HARRISON OKLAHOMA CITY -- Fleming Cos. here is streamlining its wholesale and retail operations in a move the company said last week it needs to make to cut overhead costs.

The plan -- which calls for establishing eight operating groups for its wholesale operations and six retail groups -- follows closely on the heels of an earlier announcement that Fleming eliminated more than 220 positions. The job cuts affected 12% of Fleming's corporate staff.

Fleming also said Tom Zaricki, senior vice president for retail operations, has left the company and that the presidents of the new retail groups will report to Bill Dowd, president and chief operating officer, until a successor is named.

The reorganization, which the company said shrinks the number of wholesale and retail "decision units, by 35 and eight, respectively," is the latest step in Fleming's stated quest to "streamline" its corporate structure as a vehicle to dramatically reduce overhead costs. Fleming said that during the next 12 to 24 months, it will turn 43 wholesale divisions into eight groups and 14 retail chains into six groups.

As previously reported in SN, seven of the company's wholesale facilities will be closed and their business merged into eight larger operations. Fleming also said last week its Hyde Park chain will be sold.

Nancy Del Regno, a Fleming spokeswoman, told SN "We're on track to complete the process by mid-1999" and "Our retail customers have responded well, based on the benefits they see to their business of being serviced by larger, more efficient operations."

The retail groups Fleming created last week are: Baker's, Rainbow Foods, Sentry Foods/SuperSaver, Price Impact, Abco Foods and a group it defined as "Other Retail." This latest move, the company told SN, represents a "streamlined management decision-making structure" that "offers a number of benefits," including an expected $20 million reduction in annual costs. The corporate staff reduction will translate into an anticipated savings of $10 million, the company said.

In addition, Del Regno said, the company believes the savings will be realized through "reduced complexity, better cost controls, simpler decision-making in the field and support functions, improved responsiveness to customers and more concentrated volume purchasing."

As reported by SN, Mark Hansen, Fleming's chairman and chief executive officer, mapped out late last year a new strategic plan to bolster the company's sluggish sales growth and mitigate other fundamental problems, such as insufficient marketing schemes.

Of the positions that were eliminated, 110 are at the Oklahoma City headquarters and 60 more are scattered among 20 other field locations. Fifty positions are being cut through attrition.

According to Hansen, "While these decisions are difficult, they have been carefully and thoughtfully considered. This action is essential for the long-term health of the company, for our customers and our shareholders.

"We intend to move forward aggressively but thoughtfully to achieve our overall goals for reducing corporate overhead expense companywide."

Overall, Hansen said, "These are time-tested, market-proven strategies." He added, "We're not asking retailers to change. Fleming is changing to better meet their needs and support their success. We are reorganizing Fleming's retail operations and seeking new leadership to improve results in this key area of our business. Tremendous potential exists within our top chains and we are moving forward aggressively to capitalize on them."

Bill Dowd, the company's president and chief operating officer, said, "We intend to exploit fully the marketing, procurement and distribution advantages of our new operational structure. Our independent, retail customers, company-owned chains and wholesale operations will all benefit from a simpler, more responsive organization."

After detailing its new scaled-down corporate structure, Fleming said last week that "certain other wholesale and retail operations" are being evaluated "to determine their long-term performance potential" and Del Regno told SN "We will announce any decisions at the appropriate time."

As far as generating new retail business and the possibility of divesting noncore retailers, Del Regno said the company believes "Our strategic plan includes an aggressive new business development program and we're actively pursuing it both with current and potential customers. Our focus is on growing business with our customers by improving our service to them."

Gary Giblen, managing director at FAC Equities, New York, said Fleming's plan is "certainly a good move."

However, Giblen qualified his assessment somewhat, saying, "It's baby steps in the right direction. They need to traverse a few football fields before they get there. It's a real long process to turn a company around and move in the right direction. They're not yet ready for prime time. The proof will be in the EBITDA, not in the pudding."