ROOM FOR GROWTH

MARYELLEN LO BOSCO

The scarcity of refrigerated space is leading many retailers to choose between using a third-party warehouse or expanding their facilities.

Some chains, including Ralphs Grocery Co., Compton, Calif., and Roundy's, Pewaukee, Wis., have opted to use a third party at times, while Sobeys, Stellarton, Nova Scotia, and Copps Corp., Stevens Point, Wis., have chosen to expand. Scolari's Food & Drug, Sparks, Nev., also may increase the capacity of its warehouse.

Albertson's, Boise, Idaho, uses public storage during seasonal peaks. During the Thanksgiving holiday season, when warehouse space becomes smaller, Albertson's contracts with a variety of companies.

"On rare occasions, we do use public storage," said Jenny Enochson, spokeswoman for the chain. "We own and operate 11 distribution centers and two processing plants. All stores are supplied from our distribution centers."

The company has its own warehouses in Arizona, California, Colorado, Florida, Idaho, Oklahoma, Oregon, Texas and Utah.

About 76% of all product is supplied from the warehouses, while about 24% is direct-store-delivery, according to Enochson.

"There have been occasions where we use specialty distribution for items we don't normally carry or that are area-specific," Enochson said. "It depends on customer demand in various locations."

Ralphs uses significantly more public storage than Albertson's. About 30% of frozen inventory is in public warehouses, according to Scott Gendreau, assistant manager of inventory.

"We use [third-party warehouses] for overflow storage. We don't have the capacity to handle our volume," he explained. Overflow products tend to be those with slower turns.

Ralphs, which merged with Food 4 Less, Los Angeles, to become a chain of about 400 stores, has two of its own warehouse facilities -- one in Compton and one in Riverside, Calif.

"Frozens inventory is down, and pallets are down," said Jim Behrens, vice president of warehousing. "In the last six or eight months, we've done better buying, which has increased our turns and allowed for fewer reserve pallets and outside storage."

There's been a moderate increase in assortment, according to Behrens, which follows customer demand for variety, as well as "increases in product-line stratification."

The advantage of a third-party warehouse, Behrens said, is that currently it is more cost-effective to use an outside provider than build more space. But it's still costly, and there's less product availability.

"Our facilities are open seven days per week, 24 hours per day," explained Behrens. "One of our third-party warehouses is open five days per week, and the other one is open for six."

Roundy's uses the third-party warehousing of Total Logistics Control, Zeeland, Mich., to help supply its customers, according to Raymond Wheaton, senior vice president for TLC.

"We warehouse for the vendors, but also for Roundy's on specific commodities," Wheaton explained. "We feed product into their order-pick line on a just-in-time basis."

Wheaton said third-party warehousers allow the supermarket to have a large variety of stockkeeping units on hand, without having to build expensive freezer space.

"Freezer space is expensive and limiting for many supermarkets. [With third-party warehousing], they can order smaller quantities and don't have to tie up a lot of money in inventory," said Wheaton.

TLC also runs a freight-consolidation program, which provides regular shipments to each of the supermarket's distribution centers on a frequent cycle. This program generally includes the vendors of various items as a third partner.

"Everybody saves," said Wheaton. "The manufacturers have no further transportation costs. They move it to us from their production line, as opposed to moving it to an interim warehouse."

In the last five years, Wheaton said, business with supermarkets has increased. "They don't have the freezer space and they don't want to spend the capital to build it. Third parties can do it more economically," he said.

Another cooperative wholesaler, Affiliated Foods, in Elwood, Kan., also uses third-party warehousing, but not extensively. About 10% of frozen inventory is in public warehouses, according to Mike Dewey, frozens buyer. Extra storage becomes necessary during the holiday season, when a large buy must be made very far in advance, said Dewey.

Commercial Cold Storage, which supplies supermarkets in Atlanta and the Southeast, is increasing its direct involvement with the retail chains. It uses electronic data interchange with all of its customers.

"Retailers have been doing more business with us over the last five years," said Doug Martin, executive vice president.

Much more of the business is with vendors, who use companies like Commercial to store their products that will eventually be transported to supermarkets.

Commercial handles about 50% of the frozens inventory for one retailer, according to Martin, but that is uncommon. The company also takes care of transportation, as well as inventory control and consolidation for its retail customers.

Michael Black, vice president of sales and marketing at Texas Cold Storage, which ships throughout the Southwest, said his company works with about 125 supermarket retail distribution centers. For the most part, though, it holds inventory for the vendor, not the retailer.

"I've certainly read the articles that say [third-party warehousing] is a trend, but it doesn't seem to bear out in the Dallas/Fort Worth area," Black said.

Meanwhile, some stores are building their own warehouses, and prefer to keep everything within their own EDI system.

For example, Sobeys expanded its 67,000-square-foot distribution center in Debert, Nova Scotia, by an additional 50,000 square feet, according to Buzz MacCullum, director of distribution services for Sobeys' retail operation.

The one exception to keeping its operation in the family is in the province of Ontario, where Sobeys uses a public warehouse.

"We are using a third party for perishables and frozens in Ontario because the volume wasn't sufficient to warrant building our own warehouse," MacCullum said.

Lumsden Bros., Brantford, Ontario, a wholesaler that supplies Sobeys' Ontario stores, did not want pay for the cost of an expansion, so it shares the cost of warehousing for 13 stores with its parent, Sobeys.

Smaller chains often find that they have sufficient warehouse capability for their needs, without relying on public storage. One such chain is Ingles Markets, which has its headquarters and a 900,000-square-foot facility both in Black Mountain, N.C. The warehouse services stores in Alabama, Georgia, North Carolina, South Carolina, Tennessee and Virginia, according to John Franklin, perishables director.

"I see the benefit for seasonal business," said Franklin, who added that Ingles may contract some business out during Thanksgiving or Christmas.

Similarly, Tim Tveitnes, vice president of distribution for Copps Corp., said that his company relies on its own warehousing facility. He too finds a need for public refrigeration only during the busy holiday season.

"We did do an addition to our perishables facility two years ago," he noted. "We increased the frozen-food storage at that time to 135,000 square feet."

The increased space allows for more variety and an increase in picking slots, Tveitnes said. Scolari's Food & Drugs also uses its own 45,000-square-foot facility for storage and distribution. Only within the last two years has the chain used a local company to store turkeys during the Thanksgiving season.

However, Scolari's may increase its own warehouse capacity. "There are some thoughts of expanding the whole distribution center, and they're talking about a 50% increase in storage space," said Chuck Jones, senior buyer at Scolari's.

The buyer noted that the increase in -- and demand for -- frozen convenience items was one driving factor.

"Macaroni-and-cheese and pot pies just don't cut it anymore," he noted. "Consumers are much more choosy."