SOUTHWEST WEIGHS EXPANSION, CONSIDERS MOVE INTO EL PASO

ELLIOT ZWIEBACH

PHOENIX -- Southwest Supermarkets here, which operates all 25 of its stores in Arizona, is contemplating major unit expansion for next year that may include a move into El Paso, Texas, according to Jim Pack, president and chief executive officer. The company is considering opening at least 10 more stores next year, Pack said. Any expansion into El Paso would probably come through acquisition, although Pack wouldn't identify likely acquisition candidates.

Given Southwest's heavy orientation to serving Hispanic consumers, such a move would make sense, Pack said, since more than two-thirds of El Paso's population is Hispanic and another 60% of the city's volume comes from Mexican consumers crossing the border into the United States.

"And we feel it's a market where no one else is truly catering to the Hispanic shopper," Pack added. Operators in El Paso include Albertson's, Boise, Idaho; Furr's, Albuquerque, N.M.; Smith's Food & Drug Centers, Salt Lake City; and Big 8 Food Stores, El Paso, a local independent.

He said Southwest also contemplates additional expansion in both the Phoenix and Tucson markets, "either through acquisition or by building stores from the ground up." Money for expansion will come from Southwest's parent company, Kohlberg & Co., Mount Kisco, N.Y., an investment company that acquired the 14-year-old chain last July for an undisclosed sum. Kohlberg's principals are Jerome Kohlberg, one of the founders of Kohlberg Kravis Roberts & Co., New York, and his son, James Kohlberg, who is managing partner of the company. Kohlberg & Co. also owns Bay Area Foods, San Rafael, Calif., the former Provigo subsidiary in northern California, which it acquired nearly a year ago. According to Pack, "Kohlberg has increased Southwest's financial resources and put us in a position to grow faster or to acquire other stores more rapidly than we could have in the past." Pack said Southwest contemplates opening at least 10 more stores next year, including one -- and possibly two -- here that will be built from the ground up. Assuming the company leases the 10 properties, Pack said, Southwest would require a capital budget of $8 million to $10 million in 1996. He said Kohlberg is committed to helping Southwest expand its sales base, although there is no specific dollar commitment. "Kohlberg is capable of supplying whatever financial backing we need," Pack explained. "The amount would depend on different scenarios, such as whether we acquire or build additional stores." Southwest was founded here in 1981 by Michael Peterson, who remains as chairman since the company's purchase by Kohlberg. All 25 stores have been acquired from independent operators. Chain volume runs about $200 million a year, Pack said. In 1995 the new ownership enabled Southwest to acquire three independent units -- two stores in Tucson and one here, Pack said.

Of the 25 Southwest stores, 16 are in Phoenix, seven in Tucson, one in Yuma and one in Casa Grande. Stores range from 16,000 to 45,000 square feet, with an average size of 32,000 square feet, Pack said. He said the company prefers stores in the 42,000- to 44,000-square-foot range, which will be the approximate size of the store Southwest plans to build here next year, Pack said. The stores are supplied by the locally based division of Fleming Cos., Oklahoma City. Pack joined Southwest last March. Before that, he had been vice president of marketing for Bay Area Foods after serving as senior vice president of merchandising, marketing and procurement at Smitty's Super Valu here.

As Southwest has firmed up its administrative staff, it has hired three other former employees of Smitty's:

Mike Geele, formerly vice president of finance at Smitty's, is vice president and chief financial officer at Southwest, reporting to Pack.

Gary Kroupa, the former director of management information services at Smitty's, is director of MIS at Southwest, reporting to Geele.

Kathleen Anderson, formerly the director of risk management at Smitty's, is director of risk management at Southwest, reporting to Geele.