TAKE ADVANTAGE OF NEW DC: ASSOCIATED FOODS

CATHY ZAVODNI

SALT LAKE CITY -- Independents' ability to compete effectively against grocery and mass merchandise chains depends upon them "optimizing their uniqueness," and taking advantage of the economies of scale of their warehouse, said Rich Parkinson, president and chief operating officer of Associated Food Stores here.

With its recently opened 1 million-square-foot warehouse in Farr West, Utah, 60 miles north of here, Associated is operating a "state-of-the-art" facility designed to provide the "right product, at the right time, in the right condition," said Parkinson, speaking at the company's annual meeting.

After a two-week grocery and general merchandise test involving about 20 stores, Associated "went live" April 20 with grocery, general merchandise, frozens and perishables for all of the some 400 stores served by the Salt Lake Division, Parkinson told SN.

The transition to a new warehouse was initially characterized by anticipated delivery delays and inaccurate orders, but stores are now beginning to see more timeliness, along with the "benefits of improved accuracy and overall better load presentation," Parkinson said.

The Farr West facility was purchased last year from Rite-Aid, Camp Hill, Pa. Before moving in, Associated modernized the warehouse and expanded it by 300,000 square feet. The redesigned facility features an integrated dock area, with 18 leading doors centered between the dry and low temperature areas of the warehouse.

Integrated loads will result in cost savings on miles driven and wear-and-tear on transport equipment, Parkinson noted. With its new selection system and new warehouse and yard management systems, Associated is projecting a 25% decrease in labor costs, Parkinson told SN.

Associated set up a $2.6 million reserve to provide for severance packages and duplication of inventory during the transition to the new warehouse. Formerly operating out of four warehouses, the Salt Lake Division has sold three of these and is expecting to sell the fourth by the end of June.

According to Parkinson, about 70% of Associated's sales are through the Salt Lake Division. The company also operates distribution centers in Boise, Idaho, and Helena, Mont.

Associated serves about 580 member and non-member stores, including 21 corporate-owned stores, located in Arizona, Utah, Idaho, Nevada, Wyoming, Colorado, Montana and Oregon. Corporate stores, most of which are former member stores, include the nine-store Macey's chain, Sandy, Utah; the five-store Lin's Foodstores chain, St. George, Utah; the six-store Dan's chain here; and a single Madison Foods store in Ennis, Mont.

With its acquisition of corporate stores over the past few years, Associated's total payments to members, including cash rebates and Class C stock, declined in fiscal 2001, ended March 31, 15% to $25.6 million.

Warehouse sales in fiscal 2001 rose 2% to $1 billion. With the acquisition last year of Dan's, retail sales jumped 92% to $378.8 million.

Jack Shaum, Associated's chairman and president, Stop & Shop, Ogden, Utah, told the meeting that along with strong emphasis on customer service and fresh produce, a key to increased sales lies in independents "continuing to reinvent themselves and not getting trapped by complacency."

Associated stores seem to be responding to this idea, said Parkinson, especially in light of the continued competitive openings of supercenters. Parkinson reported Associated's eight-state market area has seen more than 20 such stores, especially Wal-Marts, open over the past year. By 2002, there are expected to be about six Wal-Marts in Associated's market, he said.

Over the past year, Associated stores have had four new constructions (three member, one corporate), 18 remodels (17 member, one corporate) and eight expansions (seven member, one corporate).