ASSOCIATED FOOD GIRDING FOR WAL-MART

CATHY GRADT

SALT LAKE CITY -- Associated Food Stores here warned its members last week of a heightened threat from operators of alternate formats, particularly Wal-Mart.

Speaking at the cooperative's annual meeting, Richard Parkinson, president and chief executive officer, said plans by Wal-Mart Stores, Bentonville, Ark., to build an 860,000-square-foot food-distribution center in Brigham City, Utah, indicate a new level of competition for area retailers.

During the past several years, mass merchandisers such as Target and Wal-Mart have moved into Associated's retailing areas, with stores in both rural and metropolitan locations. Now the stakes are being raised as Wal-Mart's plans indicate new supercenters will be added to the region serviced by Associated. The new facility will supply supercenters and other Wal-Mart stores in Utah, Arizona, Colorado, Idaho, Nevada and Wyoming. Wal-Mart said the facility is scheduled to open in the summer of 2000. Associated serves member stores in states including Utah, Idaho, Nevada, Wyoming, Colorado and Montana.

"We see an 18- to 24-month window of opportunity for independents to review their operations to make sure they are as highly efficient as they can possibly be," Parkinson said. This strategy against large competitors is "proactive," enabling retailers to avoid having to react later.

The SuperTargets, Wal-Mart Supercenters and large chains "all want our customer base," said Jack Schaum, chairman of the board and president of Stop & Shop, Ogden, Utah, who also spoke at the meeting. Instead of looking at the would-be marauders from a place of fear and despair, "we need to look inward to unlock our retail potential," he urged members.

To be prepared psychologically and technologically for the next several years, Parkinson urged members to demonstrate a "progressive" attitude by making an alliance with Associated "to face the future with a sense of urgency" about setting goals and accomplishing them as quickly as possible.

To this end, Associated will be launching a retail training program focusing on what it considers to be independents' strengths. These areas include customer service, perimeter departments and private label.

For example, the "big chains, Wal-Marts and SuperTargets may have someone greet customers at the door with an ad and a basket, but this greeter doesn't know customers' names or what their needs are the way an independent can," Parkinson explained to SN.

The training sessions will stress all the ways to provide front-end service. Training will also focus on perimeter departments, which are key profit areas, and so require the very best in merchandising, said Parkinson. Financial analysis and personnel issues will also be addressed at the training sessions.

Also designed to strengthen Associated retailers is Store Link, an Internet-based information-exchange system that is now being rolled out. It has the capability to essentially eliminate most paper communication, including invoices and load documents, as well as being an open forum for the information exchange within the company, Parkinson said.

In light of the increased aggressive competition its members will face, Associated has given itself the goal of being a regional, fully integrated warehouse operation by 2005. It is making progress in achieving its aims, said Parkinson, noting that June 15 Associated is scheduled to begin centralized purchasing of grocery and nonfood. Buying has previously been done by each warehouse but "we'll realize greater efficiency by doing it centrally," Parkinson told SN, adding the co-op plans to centralize other administrative functions, as well.

Addressing the 490-member co-op's meeting, Parkinson likened the retailers to David and characterized the chains and mass merchandisers as Goliaths ready to use weapons, such as their merger-enhanced procurement power, to forge market share.

Associated member stores range from "mom and pops" to 72,000 square feet. The stores are serviced by full-line distribution centers in Boise, Idaho, and in Billings and Helena, Mont., as well as from headquarters here.

Parkinson reported a fiscal 1999 sales increase of 3.1%, an improvement over the previous year's 2.3% decline. Sales increased from $912.4 million to $941 million in fiscal 1999, ended March 27, 1999.

Associated suffered a decline in sales of about $20 million over the course of the year due primarily to the absorption of the Buttrey Food & Drug Stores Co., Great Falls, Mont., general-merchandise account by Albertson's, which bought the Montana chain. In addition, Associated also lost some secondary supply business.

However, this loss was more than offset through the acquisition of some accounts previously held by other wholesalers, Parkinson later told SN. Total funds paid to members, including cash rebates, interest on member holdings, and promotional funding, rose on the sales gain by $2.9 million, or 6.1%, to $50 million, from $47.1 million in fiscal 1998.

Parkinson told retailers that warehouse gross margins in fiscal 1999 rose from 3.3% in 1998 to 3.56%, primarily because of better procurement practices and keeping a lid on costs.

A dramatic change for Associated has been its acquisition earlier this year of four-store Lin's Marketplace, St. George, Utah. Later this year, it will buy eight-store Macey's, Salt Lake City. Throughout its 59-year-history, Associated has never operated corporate stores until now.

Purchased by Associated primarily as a defensive measure to keep competitors from buying these retailers, the corporate stores will provide the co-op with the opportunity to learn first hand what retailers need and how to serve them better, Parkinson told SN.

Schaum acknowledged that not all of Associated's initiatives will necessarily immediately improve retailer's profits. To improve retailer's efficiency and profits is always Associated's goal, he said, but "sometimes results will be more long range than immediate."

Schaum noted that the Dallas warehouse system installed recently in the grocery warehouse has been removed because the warehouse's old-style construction compromised the Dallas system and made it inefficient.

"This is an example of learning now to make better profits in the future," he said, noting that the Dallas system works well in Associated's more modern general-merchandise, frozens and produce facilities.

Associated is in the process of completing a site for a new more Dallas-friendly grocery warehouse, which it hopes to complete during 2001, Parkinson told SN.

Parkinson characterized store development in fiscal 1999 as "continuing to be strong." Last year, Associated members built 10 new stores, acquired 15, and expanded seven for a total of 698,000 square feet. Twenty-one smaller stores, totaling 283,000 square feet, were closed.