FORMER FLEMING CUSTOMERS GET BACK ON TRACK

MARK HAMSTRA

More than a year after Fleming filed for bankruptcy and began shuttering its warehouses, many of the independent supermarkets that had been its customers have only recently begun to realize a return to normality in their operations.

Many of those who signed on with new suppliers as Fleming was going out of business have since changed suppliers again after finding that the wholesaler they chose in the chaos of Fleming's implosion was not the right option for their business in the long run.

The transition to a new wholesaler often has required investments in new computer systems and marketing programs to promote new private-label brands, and in many cases these small retailers have had to spend thousands of dollars in court to get out from under contractual agreements that they had with Fleming.

"It's been a long year," said Phil Quillin, president, Quillin's, an eight-store retailer based in LaCrosse, Wis., where Fleming closed one of its warehouses last year. "There have been a lot of negotiations over the past few months. There were a lot of legal fees."

Just a few weeks ago, Quillin resolved a legal dispute with Supervalu, Minneapolis, concerning the leases on three of his stores that had been owned by Fleming and acquired by Supervalu. Because Quillin's selected Roundy's, Milwaukee, to replace Fleming as its supplier, Quillin had to negotiate with Supervalu to get out of the supply contract that accompanied the leases. The retailer is being supplied by Roundy's without a contract.

Quillin said he worked out an arrangement allowing Supervalu to hold the lease and supply contract for one store in Waukon, Iowa, while Quillin's gained control of the other two leases. The lease at the Waukon store, which is in a separate market about 60 miles away from the company's other stores, ends in 42 months, "and after that we no longer have any agreements with any wholesalers," Quillin said.

Roundy's was not interested in getting involved in the legal disputes, he said. The wholesaler is supplying the stores from its Stevens Point, Wis., warehouse that was part of its 2001 acquisition of Copps Corp.

In addition to fighting for control of the leases, he said, Quillin's also had to invest in new ordering systems to communicate with Roundy's, at a price tag of about $1,200 per store, and had to invest another $40,000 for a central computer to receive price information from Roundy's.

Although some retailers have had to make widespread changes in their private-label programs, Quillin's had a relatively easy time because it was able to retain the IGA brand. The company had been having problems sourcing IGA-brand product as Fleming was failing, and it was actually able to improve its position in that brand by switching to Roundy's. It has added Roundy's private-label brands, Old Time and Roundy's.

In the Waukon store that is supplied by Supervalu, however, the company has added Supervalu's Flavorite brand. It is promoting it with a new campaign called "Q-Buys," calling attention to the low price points of the products.

"We resigned the whole store and created a new marketing program," Quillin said, adding that he's encouraged by the performance of the store as a Supervalu customer. "Instead of taking it as a negative, we're treating it as a positive," he said. "Supervalu worked with us a lot on that store, and that's helped a lot."

David Hegenbarth, a five-store operator based in Galesville, Wis., also switched to Roundy's as Fleming closed its LaCrosse facility, but his company recently decided to switch wholesalers again -- to Sheboygan, Wis.-based Fresh Brands -- and convert four of its stores to the Piggly Wiggly banner.

Like Quillin, Hegenbarth had to go to court to fight for the right to go with the wholesaler of his choosing because of the contracts he had with Fleming.

"We won and were able to go wherever we wanted to go," he said, noting that he had to travel to bankruptcy court in Wilmington, Del., to testify in order to get out from under the Fleming contracts, called facility standby agreements, or FSAs.

Hegenbarth said his company began using Roundy's as a secondary supplier when Fleming's supply began to falter -- orders were 40% complete or less in many cases -- but he said the marketing opportunities as a Piggly Wiggly franchisee convinced him to switch wholesalers.

"[Roundy's] does a fine job," he said. "It's just that we felt we needed to be something other than the same IGA stores that everyone else was in this part of the state of Wisconsin."

He said the turnkey customer-loyalty card program offered by Fresh Brands was an important factor in making the switch.

"We had been looking at something like that for years, but we didn't think we were big enough to execute it properly," he said.

This week marks the end of the stores' month-long grand re-opening as Piggly Wiggly. A fifth store Hegenbarth owns in Tama, Iowa, is supplied by Supervalu.

Like Quillin's, Hegenbarth also had to invest in new technology to communicate with its new wholesaler, although he said the systems Fresh Brands uses represent a time savings because they are able to transmit pricing changes directly to the Piggly Wiggly front-end systems.

Giving up the IGA private-label brand was difficult, however, Hegenbarth said.

"The IGA brand was important to us for a long time, and that was a tough decision to make," he said.

Although he said some customers have complained about the loss of the IGA brand, he's satisfied that the quality of Fresh Brands' Food Club private-label program will eventually win his customers over. His stores have been promoting the brand with demonstrations, price comparisons and other activities.

Leo Hansen, owner of Hansen's IGA in Bangor, Wis., originally tapped Nash Finch, Minneapolis, as a secondary supplier last year when Fleming's troubles began. After a difficult internal debate at his company, however, it has since switched all of its business to Roundy's.

"We didn't go with Roundy's right away because of the cost," he said, pointing out that his company might have been able to save money with Nash Finch. However, he said he lost confidence in Nash Finch's ability to support his stores as that company's own corporate-store performance deteriorated.

After a year, he said his company is finally settling in with its new wholesaler.

"We're slowly but surely resetting all our stores," he said. "It's been difficult. Overall, it's just been real ugly."

Retailers said many of the wholesalers have been so overwhelmed with new business that they went through a lot of growing pains themselves in the transition.

"Fleming was so big and so many retailers were affected, that it was difficult for the other wholesalers to do everything at once," said Quillin.

Dean Petersen, president of Salt Lake City-based Harmon's, which left Fleming to join Associated Food Stores, also based in Salt Lake City, a few months before Fleming filed for bankruptcy protection, agreed.

"It came as a surprise that it all came apart so quickly and that it all came to such a dramatic end," he recalled. "We knew there were problems at Fleming of course, but we just didn't know to what extent there were problems.

"We were ahead of the curve," he added. "Then all of a sudden Fleming closed, and it became an emergency [for other Fleming customers], but ours wasn't an emergency. Ours was planned."

Although he said Harmon's still had to wrestle with some technology issues to coordinate with its new supplier and had to change its shelf sets to accommodate a new private label, its transition was relatively smooth compared to that of other independents that had to find new supply sources.