WHOLESALER'S DEMISE IS PROVING TO BE RETAILER'S OPPORTUNITY

Tom Zind

CHANDLER, Ariz. -- Caught in a bind when wholesale grocer Fleming Cos. ceased operations, some independent grocers have found an unlikely ally in filling a sudden fresh-produce supply gap: large independent grocers, who in some cases compete with them for customers.

Bashas' Supermarkets here, the dominant independent retailer around Phoenix, is supplying produce to about a half-dozen IGA stores, according to its vice president and produce director, Bill Romley.

Romley told SN the produce supply relationship with the stores is "probably a long-term" one that will serve the needs of both the independents and Bashas'.

"After Fleming closed [in late August], we started supplying some of their dry groceries, and then we followed that up with a produce program," Romley said, noting that a number of IGA stores originally contemplating the move ultimately elected not to sign on to the supply deal. "It's not something we really pushed, but rather entered into as a favor to the stores. But we think it may help our interests by hopefully keeping another big wholesaler out of the Phoenix market."

Romley said adding a handful of independents to the chain's produce procurement and distribution business hasn't been a major challenge. "We have pretty complicated logistics as it is servicing three different banners that have different produce specs," he said. "These new independents are constantly in and out of the stockkeeping units we're usually running."

Operators are picking up business in other markets, too. In Fort Worth, Texas, the 73-store Minyard Food Stores chain has begun supplying produce to Level's Food Centers, a seven-store, IGA-affiliated chain. Company President Sonny Williams was quoted in local reports as saying Minyard decided the time was finally right to go into the distribution business, but not just because of Fleming's exit.

The real reason, according to some supermarket industry observers, is that selectively helping independents may be in the long-term interest of chains facing increasing pressure from the distribution and retailing prowess of discounters like Wal-Mart Stores.

Ted Zittell, a supermarket industry expert who consults for Chicago-based McMillan-Doolittle, said chains see Wal-Mart as most vulnerable in the area of fresh produce. As a bulwark against Wal-Mart dominance, he said, some chains may see a rationale in helping selected independents boost their produce profile so they can compete more effectively with a common enemy.

"It's an unusual approach, but it does speak to the vision of a grocery retailer that sees itself as a distributor, and not just a company in the real-estate and procurement business, and which can look at the benefits that could be derived from such an arrangement, as opposed to just saying, 'We're not going to help them because they compete with us,"' Zittell said.

The move by companies whose primary business has been grocery retailing, rather than grocery wholesaling, is indicative of a notable shift in strategy. Wholesalers have historically acquired retailers. Now retailers have turned the tables, and are filling the void left when a wholesaler abandons a market. However, while there are emerging opportunities in that area, Zittell noted it's not right for every retailer.

"I doubt whether it's worth building the capacity to handle this type of business," he said. "It's much easier for those who have the infrastructure already in place."