FLEMING FALLOUT DISRUPTS SUPPLY

Mark Hamstra

DALLAS -- The announcement by Fleming Cos. here that it was considering divesting part or all of its remaining business and shuttering three more divisions is having repercussions throughout the independent and wholesale communities.

Customers of the warehouses slated for closure have been scrambling to find new sources for supply, while customers of Fleming's ongoing operations sort out reports about the status of the warehouses they buy from. Many retailers also continue to fret over the status of their Fleming-owned leases and franchise rights.

Rival wholesalers, meanwhile, are adding millions of dollars in new business from former Fleming customers of the three warehouses in Wisconsin, Louisiana and Alabama that Fleming said it would close next month.

Reports from around the country have indicated that some buyers have expressed interest in purchasing some of Fleming's remaining facilities. One source told SN that four Fleming facilities have attracted the interest of buyers, including one that remains in operation in La Crosse, Wis.

Several former customers of Fleming's Superior, Wis., warehouse are transitioning their business to Supervalu and Nash Finch, both based in Minneapolis, retailers in the region told SN. Miner's, the 20-store chain based in Hermantown, Minn., is taking an estimated $130 million in business from Fleming to three Supervalu warehouses in the area.

"It really was a decision that we feel was somewhat forced upon us," said Barbara Swenson, marketing director, Miner's. She said that as Fleming's service levels dropped dramatically in the wake of its Chapter 11 bankruptcy filing on April 1, the wholesaler sought to change the terms of its supply agreement with Miner's.

"It was a change of terms that was unacceptable," she said, although she declined to provide details about the terms.

Miner's stores will be supplied from Supervalu warehouses in Green Bay, Wis.; Hopkins, Minn.; and Fargo, N.D. Miner's continues to operate its own warehouse in the Duluth, Minn., area for direct deliveries from vendors.

Other independent supermarkets that had been primary customers of Fleming's Superior facility and have signed up with Supervalu include Ogle's Family Foods, Grand Rapids, Minn. Bruce Ogle, president, said it appeared Supervalu was having some "growing pains" adjusting to the added volume, but the service was much better than the 50% out-of-stock rate he experienced with Fleming before he switched.

Other wins claimed by Supervalu include the grocery-distribution business for 31 SuperTarget stores in Texas, Oklahoma and Louisiana that previously had been supplied by Fleming. Supervalu will supply grocery, meat, deli, frozen, dairy, bakery, produce and Archer Farms private-label products to these stores, giving the wholesaler the supply business for all 102 SuperTarget locations. The added volume will total $150 million to $170 million, according to reports.

A spokeswoman for Supervalu declined to comment on additional activity related to former Fleming customers.

Albertsons, Boise, Idaho, continued to have its stores in Oklahoma and Nebraska supplied by Fleming, a spokeswoman told SN last week. However, the supermarket chain has filed motions with the bankruptcy court concerning its contract with Fleming. Details of the motion were sealed, and the spokeswoman declined to comment, citing company policy on legal matters.

Tim Metcalf, owner of four Sentry supermarkets in Wisconsin, said his service levels from Fleming's Waukesha and LaCrosse, Wis., warehouses have improved significantly in the last few weeks, although he remains concerned about the fate of the Sentry franchise, which is owned by Fleming.

"Our biggest concern is that they would sell us off to someone who isn't interested in running a franchise business," he said. Fleming also holds leases for many of the approximately 53 Sentry stores in Wisconsin, he added.

Metcalf said his fulfillment rate from Fleming is up to "the high 80s," although Fleming continues to be short on many second-tier brands. He is supplementing his orders with product from Fresh Brands, Sheboygan, Wis.

Nash Finch has secured the wholesale business of many of the independents in the northern Minnesota and Wisconsin area that had been served by the Superior DC, according to Tom Polaski, president, Andy's IGA, Bayfield, Wis., which is among the supermarket operators that have signed on with Nash Finch.

"This may be temporary," he said, noting that his freight costs have tripled because of the extra distance. "If someone buys that warehouse [in Superior], I'd go back there in a heartbeat."

Polaski also said he was concerned about having to change his private-label line, a prospect that worried many of the retailers SN spoke with last week. He said Nash Finch would not be able to supply his stores with the IGA brand.

Phil Quillin, president, Quillin's, an eight-store chain based in La Crosse, said "it's a blessing" that his stores have been able to keep their IGA private label. His company has a secondary supply agreement with Roundy's, Pewaukee, Wis., to supplement the 50% service levels from Fleming's La Crosse warehouse. He also said he's gone to a direct delivery system for many products that he previously obtained from Fleming.

In the South, where Fleming said it would close warehouses in Geneva, Ala., and Lafayette, La., some customers have joined local wholesale co-ops, including Associated Grocers of the South, Birmingham, Ala.; Associated Grocers of Baton Rouge, La.; and Affiliated Foods Southwest, Little Rock, Ark.

Mitchell Grocery Corp., Albertville, Ala., also has picked up some former Fleming customers.

"Service levels had gotten so low, and we could just see it coming," said John Curtis, president, Big Star of Many, La., whose four stores last week joined AG of Baton Rouge. He said the inability to offer IGA private labels to his customers will be "one of the hardest things" to adjust to after 29 years.

"Associated has a great program, a full program," he said. "It's just a matter of getting customers familiar with a different private label."

He said he planned to conduct some in-store samplings to introduce customers to Associated's SureFine and SureFresh brands.

Jerry W. Davis, chairman, president and chief executive officer, Affiliated Foods Southwest, said his company expects to add $130 million to $150 million in annual volume from former Fleming customers, an increase of about 15% to 20% over last year's sales of $755 million.

Much of the new volume is from Piggly Wiggly operators in the Southeast, he said.