WHOLESALE STRATEGIES IN AN ERA OF CHANGE

David Merrefield

The fundamental question about what wholesaling must do to adapt to market changes is one that doubtless is on the minds of many of those gathered now in Orlando, Fla., for the Food Distributors International's annual Business Conference & Partners Program.

You'll see a couple of reports in this week's issue of SN intended to mark the conference and to spur some thought about the question of what wholesaling should be about in the current marketplace. Take a look at the news feature about Spartan Stores on Page 1 and the interview with John Block, FDI president and chief executive officer, on Page 24.

Let's consider the question of what wholesaling should be at the present time by reflecting on what the conventional wisdom of recent years held. Wisdom held that the surest way for the wholesaler to prosper in the long run was to add a stable of corporately owned supermarkets to hedge against any decline of the core business, namely the supply of independently owned supermarkets.

Now we see that currents are running in either direction away from that middle-ground concept.

Some wholesalers are taking steps to divest retail stores in favor of the basics of pumping out a high volume of product at the lowest cost possible. To greater or lesser degrees, Fleming and Supervalu are headed in that direction since both are reducing their reliance on corporately owned conventional supermarket retailing.

The logic behind returning to the basics seems to be that if trade channels are blurring with every format from supermarket to drug to discount selling food, why not reposition the organization so it is able to supply all formats? One way to find resources within an organization to do that is to shake off sluggish corporately owned supermarkets in favor of working with higher-volume formats.

Since the largest wholesalers in the land are moving in this direction, attention must be paid.

Other wholesalers, though, are embracing the old conventional wisdom even more fully. They are continuing in the direction of reducing their reliance on selling product for resale by independently owned supermarkets alone by moving with increasing speed toward owning retail stores. That brings us to this week's news feature about Spartan Stores. "We're not looking at retail as a way to support our distribution business," Spartan's Jim Meyer told SN. "We're looking at how we can be successful as a retailer."

At the current time, some 38% of Spartan's sales volume comes from corporately owned retailing, a proportion equal to that obtained by supplying independents. The balance comes from supplying convenience stores. This is quite a change, given that prior to 1999 Spartan had virtually no corporately owned retailing contributing to its sales. Store acquisitions by Spartan made the difference.

Why did Spartan do this? Spartan is a wholesaler of relatively modest size with limited prospects for doing much more than supplying small-scale retailing. But that's not the place to be in this time of trade-channel blurring and the related phenomenon, consolidation. Spartan faced the prospect of the independent stores it supplied consolidating one with the other, being acquired by chain operators or fading away. In any of those events, Spartan would have been nosed out as a supplier.

So Spartan seized upon the alternative of acquiring independent supermarkets in a bid to eliminate a source of volume erosion over which it had no control. Now, it's in a position to control its own fate, assuming it can shore up the acquired supermarkets enough to fend off competitive challenges. On balance, it's the best position for Spartan in this era of change.