A CHANGE IN PLANS 1994-12-26 (3)

DAVID ORGEL

Supermarket wholesalers played "Let's Make a Deal" in 1994, but some swung open the wrong door and walked away with the boobie prize.

The deals involved mergers and major acquisitions, all fueled by the rush to consolidate and create larger, higher-volume companies. But some players, particularly wholesale cooperatives, failed to consummate proposed arrangements.

Perhaps the catalyst for merger-mania was Minneapolis-based Supervalu's great success with integrating Wetterau into its organization. That integration followed Supervalu's 1992 merger with Hazelwood, Mo.-based Wetterau. The combination clearly signaled that size would be a chief industry goal as firms looked for economies of scale and cost-cutting.

Supervalu got the ball rolling in 1994 by entering the year fresh from its December announcement of a deal to acquire Sweet Life Foods, Suffield, Conn. The acquisition, which closed in March of this year, gave Supervalu a stronger presence in the New England area.

The Sweet Life deal created the need for Supervalu to speed up its ongoing consolidation of overlapping facilities. In particular, the transaction created redundancy of facilities in the New England area. In October Supervalu made a consolidation move, transferring wholesale grocery business from a Sweet Life facility in Northboro, Mass., to a Supervalu distribution facility in Andover, Mass.

In a May interview, Michael Wright, chairman, president and chief executive officer of Supervalu, stressed the importance of corporate size. "It used to be that if a wholesaler was doing $300 million or $400 million, it was probably OK," he said. "But today, even in the billions it gets tough" to accomplish goals. It was midway through 1994 when the year's biggest wholesaler merger news surfaced: Fleming Cos., Oklahoma City, would acquire its cross-town rival Scrivner in a deal worth more than $1 billion. The transaction, completed in July, created a giant firm with annual sales of about $19 billion, displacing Supervalu as the largest food wholesaler. The arrangement boosted Fleming's purchasing power, doubled its corporate retail business and increased opportunities for cost-cutting. The move also led to the inevitable consolidations of facilities, which Robert Stauth, chairman, president and chief executive officer, said would include eight locations. By year's end Fleming was shutting facilities in Texas, Alabama and Minnesota. Just about the time Fleming and Scrivner were closing their deal, two Nebraska cooperatives announced they were exploring a merger. Affiliated Foods, Norfolk, and United-A.G. Cooperative, Omaha, were negotiating to create a company with sales of about $700 million. The move would enable longtime rivals to eliminate duplications in similar markets, said Terry Olsen, president of United-A.G. The two companies even envisioned bringing other wholesalers into the fold if the merger were successful.

But success would elude them. By December the two sides called off their talks, and Virgil Froelich, Affiliated's president and general manager, cited "specific structural and operating differences." However, he indicated that the last chapter may not have been written. "This was a situation that didn't gel, but maybe it will and maybe it won't in the future," he said.

Nebraska wasn't to be the site of the biggest deal to fail this year. That dubious honor would go to two locations: Pewaukee, Wis., and Grand Rapids, Mich., the respective homes of Roundy's and Spartan Stores, whose bid to create the nation's third largest wholesaler -- with sales of $4.7 billion -- never made it.

The two privately held cooperatives announced their proposed deal in October. The combination would have given them more buying power in key Midwestern markets and produced synergies in technology and distribution.

But seven weeks after it was proposed, this deal was history, with neither company explaining exactly what had gone wrong. However, one observer pointed to the difficulties inherent in attempting to combine cooperatives, including conflicts among members about the future leadership structure and the board organization.

There were some winning transactions that appeared to be accomplished quickly and seamlessly in 1994. One of those was at

Richfood, which was thinking about frozens during the August heat wave when it agreed to acquire Philadelphia-area frozens distributor Rotelle. The deal, which closed the next month, added more than 25% to Richmond, Va.-based Richfood's annual sales volume of $1.3 billion. By year's end, co-ops were back in the news. Associated Wholesale Grocers, Kansas City, Kan., found a somewhat novel way to boost revenues without having to merge with a rival. In December it agreed to buy 29 stores and a warehouse facility from Homeland Stores, the Oklahoma City-based chain. Homeland in turn would become a member of the AWG co-op with its remaining 82 units. The net effect is that AWG would be the supplier for 111 additional stores, lifting the firm's volume and making it the fourth largest U.S. wholesaler. AWG would pay Homeland $45 million plus the value of inventory in the warehouse and the 29 stores. The transaction is scheduled to close about next May, a prospect that might lead to nail biting at some other wholesaler companies after this year's now-you-see-it, now-you-don't pace of dealmaking.