FLEMING FALLOUT IMPACTS GROWING LIST OF COMPANIES

David Orgel

Now that the wider impact of the Fleming saga is becoming evident, the resulting industry transformation is reaching mind-boggling proportions. A major chunk of business is up for grabs, and more companies are being pulled into the drama. Some operators are benefiting, while others are scrambling to stay in business.

Last week's news about C&S Wholesale Grocers was the latest major development as Fleming seeks to unload assets. The Brattleboro, Vt.-based wholesaler is in exclusive negotiations to acquire Fleming's wholesaling business. But that deal isn't a sure thing; even if C&S is successful, it may put assets back on the selling block.

All of the twists in the Fleming situation have produced winners and losers, with the most obvious loser being Fleming itself, the huge wholesaler that has been operating under Chapter 11 bankruptcy proceedings since April 1. The most immediate hit was felt by Fleming's associates and customers, including independents and some chains.

Let's focus first on those independent customers. Fleming's problems have put at risk the business of hundreds of retailers. Many desperately fled to other wholesalers in the past few months as Fleming's service levels began to plummet. Those who did not are now at the mercy of events.

For instance, as an SN story on Page 18 points out, independent retailers who operate Sentry and Piggly Wiggly franchise stores, which are licensed by Fleming, are anxiously waiting to learn who will ultimately own those wholesaling assets. Every day brings different rumors. The lack of certainty is a drain on morale for retailers.

News of the C&S arrangement didn't seem to mollify some Fleming customers in the Midwest who weren't familiar with the wholesaler and who were aware that C&S could, in turn, resell assets.

All of this is hardly the kind of reward that loyal Fleming customers deserve, but it's reality in a business undergoing upheaval. The only bright spot is that, ultimately, many independents will find supply situations that are more sustainable.

That brings us to companies that stand to benefit from recent events by adding new business. The most obvious choice here is C&S because of its recent agreement. But even if it acquires and keeps assets, C&S will face new kinds of challenges, including a different kind of customer base than the chain now primarily serves.

C&S is far from the only beneficiary. A story about the second-half industry outlook on Page 1 points out that portions of Fleming's business have shifted to companies that include wholesalers Affiliated Foods Southwest and Unified Western Grocers and retailer Save Mart. Many other wholesalers have added customers or are in a position to gain from the dislocations, such as Supervalu, Nash Finch, Roundy's and Associated Food Stores of Salt Lake City. The full list is too lengthy to publish here.

There are many lessons from the Fleming saga. One of the most important is that companies should regularly assess the health of their key business partners and mull contingency plans before they are needed. This point particularly applies to independents engaged in decades-old wholesaling arrangements. But the flip side is that many independents are limited in flexibility because they are closely tied to their wholesalers through leasing and other arrangements.