STAUTH OUTLINES CHALLENGES AHEAD

DAVID ORGEL

HONOLULU -- The supermarket industry is encountering waves of new trends that will irrevocably alter the roles of operators and require executives to learn new rules fast, according to Robert Stauth, chairman, president and chief executive officer of Fleming Cos., Oklahoma City.

The primary challenges, which range from new technologies to new formats, will lead to a permanent shift in the lineup of top food retailers, Stauth said last week in a keynote address at the Western Association of Food Chains' annual convention here.

"The role of the traditional supermarket will be severely challenged by home delivery and the use of computer technology, but it will continue to be the best alternative," Stauth said. "Traditional supermarkets will not, however, dominate the business as they once did. Supercenters are to the supermarket industry what the Japanese automakers are to our auto industry. Traditional formats will bounce back but will never be as strong as they once were. The message for us is to create uniqueness, focus on it and become world-class in implementing it."

Change will create winners and losers, and the stakes are particularly high when it comes to Efficient Consumer Response and technology, Stauth stressed.

"ECR will not only work, it will separate the real players in retailing and distribution from the local niche marketers," he began. "In effect, it is the counterpart of Newt Gingrich's Contract

With America. ECR could be thought of as our industry's 'Contract With the Winners in the Food Industry.'

"The use of technology will further separate the haves from the have-nots. It takes money to play, and the weak can't afford to play in the new order of business. Strategic partnership alliances will play a key role for many companies."

Operators need to look at technology as part of their capital expenditures budget -- in the same league as store expansions, Stauth observed.

"It's the speed of change with technology that most CEOs find the most difficult to deal with," he said.

Retailers that thrive will understand the role of technology as the 1990s unfold, Stauth noted. In the 1970s data processing supported business and in the 1980s in-store systems helped manage the business, but in the 1990s information technology is allowing access to information that changes how firms operate, and soon it will enable operators to empower their employees far more than before, Stauth said.

"The key from my vantage point is to understand that what technology creates is 'as if,' " he said. "Video teleconferencing, for example, creates the environment 'as if' you were there. We have this available now in seven or eight product supply centers, and we'll have up to 14 product supply centers in our network by the end of this year. It should greatly reduce travel in the future as it becomes a powerful training tool." Moreover, he said, Fleming has been working on a new technology called Visionet, a two-way interactive communications network that links the retail stores with the Oklahoma City corporate office, supply centers and marketing offices. Stores and manufacturers can gain access to Fleming's marketing structure through designated channels, six of which are already set.

"Ideally at Fleming, we would like to have technology that actually helps workers make decisions in an environment that encourages them to do so," he said.

Technology is also a critical aspect of re-engineering efforts, like the ongoing one at Fleming, Stauth pointed out. "[Re-engineering] requires an additional investment in technology to develop futuristic systems. In Fleming's case, this is a $10 million to $15 million per year financial obligation on top of a $75 million to $85 million commitment already in place."

Also vital for re-engineering efforts is the need for top executives to maintain morale throughout the corporate ranks, Stauth said. This is a difficult task when roles are being transformed.

At Fleming, a remaking of how the company services retail segments led to the naming of 12 group presidents, who replaced the old structure of 52 division presidents and five regional vice presidents, Stauth said.

"It was very tough to tell 52 division presidents that their positions would be eliminated in the new structure," he noted. "Each former division president will have a very critical role in creating the 'new Fleming,' but with an entirely new position."

Stauth said it is critical to avoid a situation where employees cannot handle the pace of change. Fleming has tried to alleviate the situation with a full-time director of change management, who works to help employees adopt a more positive outlook on their future. The company also tries to instill a sense of control in employees, which means telling employees the truth as early as possible -- even if that means letting them know there isn't a place for them.

"The minute you tell them that, they are back in control and can begin to seek employment elsewhere," Stauth said.

Fleming's re-engineering continues to move ahead. The company is remaking its organizational structure with a focus on customer management, retail services, product supply and category marketing, all backed by support services. Stauth foresees otherdistribution shifts, including one involving the practices of regional chains and some national chains.

"They will see the advantages of moving the expense and investment associated with warehousing and transportation to professional food distributors," he said. "As forward buying and diverting diminish, the warehouse becomes a cost center vs. continuing as a profit center as it has been for the past 10 years. This is an economic issue of spreading fixed costs over many stores vs. only your chain's total number of stores."