Stater Bros. Makes a Gigantic Investment in Its Future

In a dramatic move that should reduce complexity and improve efficiency, Stater Bros., the operator of 163 stores in California's Inland Empire, will soon consolidate distribution operations into a new 2.1 million-square-foot distribution center in San Bernardino, Calif.

As is described in the front-page feature in this week's SN, written by reporter Elliot Zwiebach, Stater's distribution has long been a far-flung affair. The chain now ships from 11 buildings in seven locations spanning four cities. The locations are all within 10 miles of one another. Combined, the current facilities total 1.6 million square feet. Not only will the new facility have much more square footage, the total cube will also increase to 6.7 million cubic feet from 2 million cubic feet, owing to ceilings that will be 48 feet high as compared to the current 20 feet. The number of loading docks will go to 256, from the current 160.

The plan is to orchestrate the complex move from the multiple facilities to the single large depot incrementally. The new office is to be occupied first, by the middle of next month. That will move Stater's headquarters from Colton, where it has been for 71 years, to San Bernardino. Grocery distribution will start from the new facility in February and shipments of refrigerated product in June.

What payoff is anticipated by Stater in exchange for the investment of $300 million, and countless hours of effort, put into the new facility? Jack Brown, Stater's chairman and chief executive, told SN the idea is to achieve efficiencies that will total some $20 million in calendar 2009 alone, the first full year the facility will be in operation.

Those savings will come from several directions: elimination of product handling from backup warehouses, lowered fuel costs and better fulfillment rates. At the present time, if orders come up short, they are shipped to stores short since product can't be immediately pulled from backup depots.

Beyond the obvious advantages of such efficiencies, savings should allow Stater to increase its price competitiveness as savings are put into price. Moreover, if all goes according to plan, retail price points may be maintained for longer periods between increases since the plan is to use some of the space gained for the proceeds of forward buying. Indeed, the top two pallet levels in the new warehouse are to be devoted to forward buys. (That a new warehouse would be designed with capacity specifically intended for forward buying demonstrates as well as anything how intractable some industry practices that yield negative total-system efficiencies can be.)

Perhaps the most important aspect of the new distribution center is that it will facilitate growth for many years to come. At the moment, Stater is demonstrating impressive growth. Sales were $3.5 billion a year ago. A boost of about 7%, to $3.75 billion, may be realized for the fiscal year that ends next month. That growth rate may accelerate if Stater is able to acquire a dozen or so Albertsons stores in its market, should they become available.

Finally, it has to be encouraging to many in the industry to see an investment as bold as the one represented by Stater's new distribution center undertaken by a locally owned and operated supermarket chain.