WHOLESALERS ARE REDEFINING THEIR MISSION

ELLIOT ZWIEBACH

Tradition is no longer guiding most wholesalers in their operating decisions.

As wholesalers gather in Bermuda this week for the Midyear Executive Conference of Food Distributors International, Falls Church, Va., their concerns continue to move beyond their historical role as middlemen.

Executives are concentrating on becoming a more vital link in the food supply chain, according to a preconvention survey of top distribution executives.

Among the issues wholesalers are grappling with are the following:

Placing more emphasis on serving consumers rather than merely catering to retailers.

Exploring opportunities to become secondary suppliers to self-distributing chains.

Working more intimately with customers on strategies and services.

Determining whether to be in the retail business with corporate stores.

A major focus, several executives told SN, is to give more attention to serving the needs of the ultimate consumer. "We think the idea of understanding consumer needs drives all business in the supermarket industry, including wholesaling, which represents a change from being just a middleman, as we've been for 80 years," said Robert E. Stauth, chairman and chief executive officer of Fleming Cos., Oklahoma City. "At Fleming we're taking a very market-driven focus that's geared to meeting the needs of consumers, and we've even changed our mission statement in the past year to include the word 'consumers,' " he added. Al Plamann, president and chief executive officer of Certified Grocers of California, Los Angeles, expressed similar sentiments. "In the past we used to stop our thinking at the point of determining what the retailer needed, but we are now moving beyond the retailer to the consumer, because the consumer does have an impact on what we offer," he said. "Often the retailer operates within a box and relies on approaches that have worked in the past. But as consumer habits and buying patterns change, we think it makes sense to provide some outside-the-box thinking that allows us to bring some alternative ideas to the retail table -- to tailor the entire value chain to meeting the needs of consumers rather than ignoring those needs." According to Michael DeFabis, president and CEO of Associated Wholesale Grocers, Kansas City, Kan., "We're doing more micromanaging at the customer level to find out what consumers want in a grocery store and then coping with that to sell more goods." Wholesalers are closely tracking chain decisions regarding self-distribution. James Meyer, president and CEO of Spartan Stores, Grand Rapids, Mich., said he sees a move by some chains to get out of self-distribution altogether and shift that business to the wholesale level. "What once was viewed as a sufficient level of critical mass for self-distribution may have increased with industry consolidation, and there's a movement afoot by some retailers to determine whether they are in the retail or distribution business," he said. "As a result, many retailers are refocusing on their core retail business and letting someone else take care of the distribution component, and we think that number will grow," he said. John E. Stokely, president and CEO of Richfood, Mechanicsville, Va., said he agreed. "As people focus on the retail experience, we anticipate we will see more outsourcing by companies that have historically done their own distribution because retail expansion is so expensive and competition is so intense. "That, plus the economics of buying and holding merchandise for long periods, is not the same as it once was, and that favors a move to wholesale companies that have a low cost of distribution." Plamann said Certified has been serving as a secondary supplier for chains for several years, including supplying "a significant portion" of Lucky Stores' service delis and, in the past, supplying general merchandise to Food 4 Less before its merger with Ralphs Grocery Co. Certified is currently supplying its Springfield line of private-label goods to Carr Gottstein Foods, based in Anchorage, Alaska, Plamann said, "and we're looking for more opportunities to provide service, where it's appropriate, on a for-profit basis to the chains." However, Mike Schmidt, corporate vice president for sales and development at Roundy's, Pewaukee, Wis., said his company takes a different view of supplying nonmembers, especially supercenters. "Unlike some competition, we refuse to look at becoming a secondary supplier to supercenters. We won't do that kind of business," he declared. "We are committed to making sure the independent retailer gets the maximum support from us, because we believe you should not feed the animal that's going after your business." Meyer said he sees no conflict for cooperatives like Spartan in seeking nonmember customers. "As we look for new means of growth, the definition of a customer is constantly evolving, and areas that may once have been viewed as off-limits may no longer be off-limits. Our retail sights have always been aimed only at independents, but perhaps we can go after other customers and provide services to them without hurting our core business. "Cooperatives once regarded as heresy the idea of serving customers who were not members, but it's now a question of what kind of additional volume we can run through the distribution center to spread out our costs and let shareholders benefit, without worrying who those additional customers are." Plamann said he agreed. "It's not heresy when you look at serving for-profit customers as a way of maximizing the wealth of a cooperative's owners and providing them with the lowest cost of service. Shareholders want value for their investments, and if you can provide value through additional income, why not do it as a way to increase a shareholder's earnings stream?" DeFabis said AWG is looking at the possibility of supplying nontraditional supermarket customers as a means of shoring up its sales base. "We're still trying to stop the erosion of sales from category killers, but we have to accept the fact there are no traditional competitors anymore -- that all other stores are competitors, which requires changing one's mind-set," he said. One example of AWG's changing mind-set, DeFabis said, is its belief that its competition is not other wholesalers. "We consider our competition to be the companies that compete with our retailers," he said. Several executives talked about the importance of partnering with their retail customers, either through face-to-face meetings or through the use of technology. According to Stokely, "At Richfood we really do listen to the needs of our customers and jointly plan our business and theirs through strategic meetings that deal not so much with problem resolution as with finding ways to grow each of our businesses -- a process that gives each of us intimate knowledge of the other's business. "Historically, there's always been a little suspicion of motives on both sides, but what we've been able to do with these meetings is to create an atmosphere where customers truly believe all parties can benefit from growing our respective businesses." Fleming is attempting to give its customers a greater say in how they do business with their wholesaler by allowing them to pay for only those retail services they need, Stauth said. "We provide customers with a menu of retail services, which is now up to about 200, and they can choose only those they really want, which takes all subsidies out of the cost of goods." Schmidt said Roundy's prefers to take a more traditional approach to retail services and pricing. "We believe there are things that we as a wholesaler can control that are better left to us, including the cost of goods -- we don't push that responsibility onto customers," he said. "There are traditional methods that we can control better at the wholesale level, like cash discounts or deal periods, that vendors often want to present to retailers. But we won't give up any areas where we have leverage with vendors to maintain the lowest cost of goods, which is always our main interest." Unlike some larger wholesalers, who pass the cost of goods directly to the retailer, Schmidt said, "Roundy's won't say that whatever the cost is, it is, and then pass that on to the retailer with a huge markup without concern for the costs. We'll always strive for the best cost of goods for our customers." Wholesale executives offered different opinions on whether wholesalers should operate corporate stores. Although Roundy's has 10 corporate stores, "we think what the retailer does best is operate his stores better than anyone else, and we don't interfere with that," Schmidt said. Stokely said Richfood "is first and foremost a distribution and logistics company, and although we do have corporate stores, those Metro stores came to us through our acquisition of Super Rite. But we would not have gone out and developed a retail format." Richfood said last week it reached an agreement in principle to acquire a second retail chain -- Farm Fresh, Norfolk, Va. -- "to add volume to our wholesale network and preserve our market share in the Tidewater region." Stauth said Fleming's focus on the consumer is part of its reason for operating several corporate chains. "We're striving to help retailers on the business side by being more involved on the marketing side instead of being change form being just a middleman, as we've been for 80 years," said Robert E. Stauth, chairman and chief executive officer of Fleming Cos., Oklahoma City.

"At Fleming we're taking a very market-driven focus that's geared to meeting the needs of consumers, and we've even changed our mission statement in the past year to include the

word 'consumers,' " he added.

Al Plamann, president and chief executive officer of Certified Gorcers of California, Los Angeles, expressed similar sentiments.

"In the past we used to stop our thinking at the point of determining what the retailer needed, but we are now moving beyound the retailer to the consumer, because the consumer does have an impact on what we offer," he said.

"Often the retailer operates within a box and relies on approaches that have worked in the past. But as consumer habits and buying patterns change, we think it makes sense to provide some outside-the-box thinking that allows us to bring some alternative ideas to the retail table -- to tailor the entire value chain to meeting the needs of consumers rather than ignoring those needs."

According to Michael De Fabis, president and CEO of Associated Wholesale Grocers, Kansas city, Kan., "We're doing more micro-managing at the customer level to find out what consumers want in a grocery store and then coping with that to sell more goods."

Wholesalers are closely tracking chain decisions regarding self-distribution. James Meyer, president and CEO of Spartan Stores, Grand Rapids, Mich., said he sees a move by some chains to get out of self-distribution altogether and shift that business to the wholesale level. "What once was viewed as a sufficient level of critical mass for self-distribution may have increased with industry consolidation, and there's a movement afoot by some retailers to determine whether they are in the retail or distribution business," he said.

"As a result, many retailers are refocusing on their core retail business and letting someone else take care of the distribution component, and we think that number will grow," he said.

John E. Stokely, president and CEO of Richfood, Mechanicsville, Va., said he agreed. "As people focus on the retail experience, we anticipate we will see more outsourcing by companies that have historically done their own distribution because retail expansion is so expensive and competition is so intense.

"That, plus the economics of buying and holding merchandise for long periods, is not the same as it once was, and that favors a move to wholesale companies that have a low cost of distribution.

Plamann said Certified has been serving as a secondary supplier for chains for several years, including supplying "a significant portion" of Lucky Stores' service delis and, in the past, supplying general merchandise to Food 4 Less before its merger with Ralphs Grocery Co.

Certified is currently supplying its Springfield line of private-label goods to Carr Gottstein Foods, based in Anchorage, Alaska, Plamann said. "and we're looking for more opportunities to provide service, where it's appropriate, on a for-profit basis to the chains."

However, Mike Schmidt, corporate vice-president for sales and development at Roundy's, Peewaukee, Wis., said his company takes a different view of supplying nonmembers, especially supercenters. "Unlike some competition, we refuse to look at becoming a secondary supplier to supercenter. We won't do that kind of business," he decleared.

"We are committed to making sure the independent retailer gets the maximum support from us, because we believe you should not feed the animal that's going after your business."

Meyer said he sees no conflit for cooperative like Spartan in seeking nonmember customers. "As we look for new means of growth, the definition of a customer is constantly evolving, and areas that may once haver been viewed as off limits may no longer be off-limits. Our retail sights have always been aimed only at independents, but perhaps we can go after other customers and provide services to them without hurting our core business.

"Cooperatives once regarded as heresy the idea of serving customers who were not members, but it's now a question of what kind of additional volume we can run through the distribution center to spread out our costs and let shareholders beneift, without worrying who those additional customers are."

Plamann said he agreed. "It's not heresy when you look at serving for-profit customers as a way of maximizing the wealth of a cooperative's owners and providing them with the lowest cost of service. Shareholders want value for their investments, and if you can provide value through additional income, why not do it as a way to increase a shareholder's earnings stream?"

DeFabris said AWG is looking at the possibility of supplying nontraditional supermarket customers as a means of shoring up its sales base. "We're still trying to stop the erosion of sales from category killers, but we have to accept the fact there are no traditional competitors anymore -- that all other stores are competitors, which require chaining one's mind-set," he said.

One example of AWG's changing mind-set, DeFabis said, is its belief that its competition is not other wholesalers.

"We consider our competion to be the companies that compete with our retailers," he said.

Several executives talked about the importance or partnering with their retail customers, either through face-to-face meetings or through the use of technology.

According to Stokely, "At Richfood we really do listen to the needs of our customers and jointly plan our business and theirs through strategic meetings that deal not so much with problem resolution as with finding ways to grow each of our businessess -- a process that give each of us intimate knowledge of the other's business.

Historically, there's always been a little suspicion of motives on both side, but what we've been able to do with these meetings is to create an atmosphere where customers truly believe all parties can benefit from growing our respective businessess."

Fleming is attempting to give its customers a greater say in how they do business with their wholesaler by allowing them to pay for only those retail services they need, Stauth said.

"We provide customers with a menu of retail services, which is no up to about 200, and they can choose only those they really want, which takes all subsidies out of the cost of goods."

Schmidt said Round'ys prefers to take a more traditional approach to retail services and pricing. "We believe there are things that we as a wholesaler can control that are better left to us, including the cost of goods -- we don't push that responsibility onto customers," he said

"There are traditional methods that we can control better at the wholesale level, like cash discounts or deal periods, that vendors often want to present to retailers. But we won't give up any areas where we have leverage with vendors to maintain the lowest cost of goods, which is always our main interest."

Unlike some larger wholesalers, who pass the cost of goods directly to the retailer, Schmidt said, "Roundy's won't say that whatever the cost is, it is, and then pass that on to the retailer with a huge markup without concern for the costs.

We'll always strive for the best cost of goods for our customers.

Wholesale executives offered different opinions on whether wholesalers should operate corporate stores. Although Roundy's has 10 corporate stores, "we don't interfere with that," Schmidt said.

Stokley said Richfood "is first and foremost a distribution and logistis company, and although we do have corporate stores, those Metro stores came to us through our acquisition of Super Rite. But we would not have gone out and developed a retail format."

Richfood said last week it reached an agreement in principle to acquire a second retail chain --Farm Fresh, Norfolk, Va. -- "to add volume to our wholesale network and preserve our market share in the Tidewater region."

Stauth said Fleming's focus on the consumer is part of its reason for operating several corporate chains. "We're striving to help retailers on the business side by being more involved on the marketing side instead of being just a wholesaler, and that's one reason we own corporate retail chains -- to help retailers make decisions on what consumers want instead of just being led by manufacturer deals."

Stokely said Richfood is trying to help smaller operators get more involved in technology. "Larger operators are able to seek out their own systems, but we've got to be able to package technology for the one- and two-store operator in such a way that the individual entrepreneur can understand it," he explained.

"The guy whose time is spent ordering merchandise and serving customers has no time to understand complicated technology. That's the role we fill, by buying the product to keep it affordable and practical while trying to simplify the process of how to use it."

Meyer said one of Spartan's primary challenges is "the need to more efficiently harness the collective volume of our customers, to capture information the way chains do and to keep the cost of goods down.

"We want to move from a push situation to a pull, and the starting point for us is to capture sales data and accumulate it into one cohesive piece that we can present to the vendor community. We've not yet been able to get better prices, but that's the goal toward which we're working."

Stauth said Fleming intends to use private label to drive its business "and give retailers a broader scope, better margins and more promotional opportunities."

He said through acquisitions Fleming has ended up with 23 separate private-label names, but that is being whittled down to five, with Bestyet, a former Scrivner brand, emerging as the primary label. Fleming also plans to expand the IGA and Piggly Wiggly labels.