FURR'S TO ACQUIRE FLEMING'S EL PASO DEPOT

ELLIOT ZWIEBACH

ALBUQUERQUE, N.M. -- Furr's Supermarkets here moved closer to achieving its goal of self-distribution last week -- eight months after an out-of-court settlement gave it the right to end its supply contract with Fleming Cos., Oklahoma City.

Furr's said it will acquire Fleming's 460,000-square-foot distribution center in El Paso, Texas, which has supplied most of its needs since 1991.

Ironically, the El Paso facility was originally owned by Furr's predecessor company, Furr's Inc., which was based in Lubbock, Texas. When the company's German investors opted to remove their money in 1991 to reinvest in their country, the chain was sold to members of management, who purchased only a portion of the original stores, while the warehouse in El Paso was sold to Fleming.

The acquisition is expected to close within 120 days.

According to Fleming, Furr's would pay $35 million to $45 million, depending on inventory levels and other, unspecified factors; Furr's would also be required to pay all open account receivables to Fleming, the distributor said.

Fleming has a 30% equity position in Furr's.

Furr's operates 68 stores in New Mexico and west Texas, with 1997 sales of approximately $950 million. It has been Fleming's largest customer at the El Paso facility. The sequence of events that led to last week's warehouse sale accord began in March 1997, when Furr's sued Fleming, contending it was not getting a competitive cost of goods. That suit was settled out of court last October, with Fleming agreeing to pay Furr's $800,000 a month for the life of its supply agreement -- payments that would end when the warehouse sale is completed, Furr's said.

According to Fleming, the possibility of Furr's buying the warehouse was part of the settlement agreement.

Throughout the dispute and since the settlement, Fleming has continued to service the Furr's account. Fleming said last week it will continue to supply Furr's and provide designated support services during the transition period before the warehouse sale is completed.

Buz Doyle, president and chief operating officer of Furr's, said his company has considered becoming self-distributing for about two years. "Supermarket chains of our size can improve their costs and autonomy by self-distributing, thus creating a win-win situation for us, our vendors and, most of all, our customers," he said.

Doyle said the El Paso facility supplies groceries and perishables to 56 of Furr's 68 stores; the other 12, all in Texas, get meat and produce from a Fleming distribution center in Lubbock.

That volume would be moved to the El Paso warehouse when Furr's assumes ownership, Doyle said.

He said Fleming El Paso provides all of Furr's needs except health and beauty care and general merchandise, which come from Fleming's Dallas distribution center. Furr's is reviewing its options in the two nonfood categories, Doyle told SN.

Besides Furr's, Fleming also supplies 47 other retail locations in west Texas and New Mexico from the El Paso facility. Fleming said last week it would continue to support those businesses from other, unspecified facilities and is reviewing operational and staffing requirements "to seamlessly continue high-quality service levels for all customers." Once Furr's takes over in El Paso, it would be responsible for all purchasing and inventory control, while Pinnacle Logistics would take over the warehouse lease, set up and staff the operation for Furr's and provide all warehouse equipment and transportation services.

Pinnacle, formerly a Delaware corporation, would be based in El Paso; it is a division of Tibbett & Britten Group plc, London, an international logistics specialist operating in 22 countries, with North American headquarters in Toronto.