WINN-DIXIE PLANS TO EXIT 326 LOCATIONS IN CUTBACK

Jon Springer

JACKSONVILLE, Fla. -- Winn-Dixie Stores here last week said it would close or sell 326 stores, three distribution centers and eight manufacturing facilities, in a move company officials said provides a smaller and more productive store base from which it will seek to exit federal bankruptcy protection.

The plan calls for the sale or closure of all Winn-Dixie store locations in Virginia, North Carolina, South Carolina and Tennessee, as well as exits from northern and eastern Georgia, northern Alabama, northern and western Mississippi and northern and western Louisiana. The company will continue to operate in Florida and parts of Georgia, Alabama, Mississippi, Louisiana and the Bahamas, although it will close 93 of its stores within that footprint.

"We're shrinking this company to grow it in the future," said Peter Lynch, chief executive officer of Winn-Dixie, in a press conference last week.

In addition to store closures, the company said it would close or sell distribution centers in Atlanta, Charlotte, N.C., and Greenville, S.C., while the dry grocery portion of its Montgomery, Ala., facility will be closed.

The company also said it has put up for sale six dairies, a pizza plant in Montgomery, Ala., and the Chek Beverage plant in Fitzgerald, Ga. If buyers for those facilities are not found, the company said it would continue to operate dairies in Hammond, La., and Plant City, Fla., while operating the Chek plant with reduced capacity.

Around 22,000 employees will be affected by the changes, Winn-Dixie said. Lynch said an accompanying reduction in its headquarters staff to match the company's divestitures -- around 37%, or 500 jobs -- would be announced in August.

Stores are already being marketed and are expected to begin to close or change hands as soon as this week. The group represents approximately 35% of Winn-Dixie's current store base and around 25% of its sales revenues. Winn-Dixie's remaining 587 stores generate around $7.5 billion in annual sales, Lynch said.

The company declined to say whether the remaining store base is profitable now, but Lynch said the closings would offer a "substantial improvement" in addressing ongoing operating losses. "The new footprint drives a much better picture for the company," he said.

The remaining stores average around $12.8 million in annual sales, while stores slated for sale or closure generated $7.7 million in annual revenues on average, based on figures provided by Winn-Dixie. These stores will be the focus of improved efforts in marketing, service and merchandising that Lynch said can revitalize a "tarnished brand" that led to Winn-Dixie's financial troubles.

"The brand got tarnished because we had out-of-stocks, quality wasn't great, service might have been poor, and the stores might not have been clean. We've started to address all of that at Winn-Dixie," said Lynch, who was installed as CEO just months before the company filed for Chapter 11 earlier this year. To aid new marketing programs focused on meat and produce, Lynch said the organization will change, assigning field staff to train personnel and effect the changes under way in the stores.

"Quite frankly these are things our associates knew we needed to do, so when we launch them they will be behind us 100%," Lynch added.

Observers told SN that improvement to the continuing Winn-Dixie base remains a large task. Andrew Wolf, analyst, BB&T Capital Markets, Richmond, Va., noted that the average annual store sales of $12.7 million remains well below that of Lakeland, Fla.-based competitor Publix Super Markets. David Livingston, a consultant based in Pewaukee, Wis., told SN that based on sales figures he obtained, he thinks Winn-Dixie should close 300 additional stores. "After closing they will still have about 52% of their stores below $5 per square foot per week. That is a lot of low-volume stores," he said.

PREVIOUS CLOSURES

The round of closures comes a little more than a year after Winn-Dixie, under previous CEO Frank Lazaran, announced a retreat from Kentucky, Ohio and Indiana among 156 stores slated for sale or closure last year. Last year's asset rationalization plan resulted in around 62 stores, or 40%, being sold, the company said.

In 2000 and 2001, Winn-Dixie exited Texas and Oklahoma in a rationalization plan resulting in less than 40% of the former locations being sold, an analyst told SN last year.

Under federal bankruptcy laws, Winn-Dixie may choose to reject store leases until Sept. 19, significantly reducing the financial risk of this round of closures. Analysts told SN they expect sales of stores to be "asset-quality driven," with certain locations garnering interest.

"From what I've seen early in the game, there's a lot of interest in a lot of different stores," Lynch said. "Many stores have multiple bidders."

Wolf of BB&T Capital Markets told SN he felt there would be little interest in the 93 stores within the continuing market areas where stores are slated for closure, but select locations outside would generate bidding from supermarket competitors. "The operators know which stores make money and which don't, and they'll buy those that do," he said. The newer and larger Winn-Dixie Marketplace stores set for closure would be better positioned for sale generally, while the discount Save-Rite models, located mainly in the Atlanta area, would be less attractive, he added.

Salisbury, N.C.-based Food Lion purchased 12 former Winn-Dixie locations in North Carolina and Virginia during the last rationalization round. While not commenting on specific sites, Jeff Lowrance, a spokesman for Food Lion, told SN, "We're always looking for opportunities to increase our market share," adding that the retailer would most likely be interested in select locations rather than a block of stores.

Observers listed Food Lion; Kroger, Cincinnati; Harris-Teeter, Matthews, N.C.; Lowe's Foods, Hickory, N.C.; and Bi-Lo, Greenville, S.C. among those likely to have interest in the sites for sale.

Keene, N.H.-based C&S Wholesale Grocers, which earlier this year purchased former Bi-Lo and Bruno's stores to be operated under its newly created Southern Family Markets division, may also be player, Mark Gross, president of Southern Family, suggested in an interview with SN last month. Gross said the 104-store Bi-Lo purchase would provide a platform for growing retail customers in the Southeast states.

According to Wolf, Wal-Mart is a "wild card" in that it could use former Winn-Dixie stores to accelerate rollout of its Neighborhood Market retail stores. "They're the only company with 100% overlap in the areas Winn-Dixie is leaving," he said.

Kroger last year acquired eight former Thriftway stores in Cincinnati shed during Winn-Dixie's last round of closures and would be a strong candidate to pick up stores in its current operating regions in the Carolinas and Atlanta, Chuck Cerankosky, an analyst for KeyBanc Capital Markets, Cleveland, told SN.

"Kroger has seen outstanding returns when they have been able to buy select stores where they have a strong presence already," Cerankosky said. "So I would expect them and others to explore this as a good opportunity.

"That said, I don't see this as a situation where Winn-Dixie gets proceeds based on multiples of [store earnings]. I think we'll see onesies and twosies or distressed real estate divestitures."

A Kroger spokesman declined comment on potential acquisitions, as did Alex Lee, the parent of Lowe's. Joyce Smart, a spokeswoman for Bi-Lo, told SN "We are always looking for growth opportunities, but it is our policy not to comment on specific plans until they are finalized."

Winn-Dixie also said last week that it lost $34 million on sales of $755 million during the four-week period that ended June 1. Gross profit as a percent of sales was 23%.

WINN-DIXIE'S RETREAT

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