JITNEY-JUNGLE TO FOCUS ON UPGRADES IN SMALL TOWNS

ELLIOT ZWIEBACH

JACKSON, Miss. -- Jitney-Jungle Stores of America here said last week it hopes to spend $45 million to $50 million over the next two years to upgrade its conventional stores, marking a refocusing of the chain's strategy on its small-town roots.

According to Ron Johnson, chairman and chief executive officer, the money will come from the sale of an unspecified number of stores and some noncore assets, which is expected to generate $75 million to $100 million. He said about half the money is earmarked for capital expenditures and half to pay down debt, which currently stands at about $625 million.

Jitney's new strategy signifies a departure from the company's emphasis the past few years on urban-based Jitney Premier stores. "Our business is biscuits and gravy, not bagels," Johnson said.

The new strategy calls for a shift of competitive focus toward independents in the small towns of Mississippi, Louisiana, Arkansas and Alabama rather than major chains like Albertson's, Kroger Co., Wal-Mart supercenters and Winn-Dixie Stores, he explained.

"The big chains are not our No. 1 competition -- the independents are," Johnson said, noting that 121 of Jitney's conventional stores compete with 148 independents across the South. "Our goal will be to take business away from those operators.

"We used to have that business, but we took our eye off the basic business in the last couple of years and devoted most of our efforts to larger stores in urban markets.

"But the conventional stores are our cash cow -- they've supported what we've done in the urban markets over the past five or six years, Now we're going to refocus on that business."

Jitney's conventional stores include 106 supermarkets and 15 discount stores (doing business as Megamarkets and Sack n' Save). It also operates 75 combination stores, including the 23 Premiers, which operate in mostly urban markets here and in Memphis, Tenn.; Little Rock, Ark.; Mobile, Ala.; and along the Gulf Coast of Florida.

Johnson said Jitney's strategic plan includes the following:

Divesting an undisclosed number of stores. Johnson declined to pinpoint how many stores might be sold or where they will be located, "but we want to get it done as quickly as possible beginning in the fourth quarter of this year."

Divesting a 635,000-square-foot warehouse in Hammond, La., which Johnson said should be sold shortly. The facility, which Jitney was using as a transportation hub for switching loads, had been on the market since it was purchased as part of Jitney's acquisition of Delchamps two years ago.

Reducing corporate overhead. Johnson declined to say what kind of cutbacks would be made, although he said he hopes to disclose details within the next couple of months.

Expanding the number of gas stations. Jitney operates gas stations at 55 stores now, and Johnson said the company has identified 41 viable sites for expansion, and hopes to install the first 25 over the next year or so. According to Johnson, gas stations produce "instant cash" -- accounting for 8% of total sales, or $80 million to $90 million a year -- and make a strong contribution to operating cash flow.

Completing the implementation of new information systems. Johnson said the company went live on a new warehouse system about 10 days ago and expects to convert to a new accounting system by October.

Selling the company plane and other noncore assets. The plane was used to visit stores, "but that's an expense we can't afford," Johnson told SN.

Remerchandising the Premier stores by reducing produce varieties from 500 to about 300; concentrating on basic hot foods like fried chicken while limiting the offerings of value-added meals-to-go and sandwiches; and eliminating scratch bakeries in favor of bakeoffs and cutting back on bagels.

According to Johnson, "We were selling $300 a week worth of bagels at a cost of $8,000 to bake them in the stores. But since we've replaced bagels with homemade biscuits and cornbread in the bins, we've been selling the daylights out of them."

Industry analysts expressed varied opinions on Jitney's strategic plan.

John Wlodek, a high-yield analyst with Imperial Capital, Beverly Hills, Calif., told SN Jitney's small-town strategy may be an admission that it cannot compete with the major chains in urban markets. "But focusing on outlying areas gives the company a chance to shore up its operations in areas where chains might be reluctant to go and ultimately present a more formidable barrier to those chains' entry. "And once Jitney convinces the larger chains not to build new stores in smaller towns, it might be hoping that one of those chains will agree to buy Jitney to get into those towns."

According to an analyst who asked not to be identified, "Jitney remains a viable franchise in certain markets, though there are probably several unprofitable stores that could be sold. But the company has to deal with more than independents, because with 30 competitive openings due in the second half of the year Jitney can't afford to ignore the larger chains."

Another analyst, who also asked to remain unidentified, said the company has to sell assets "because it has to remodel stores and provide sufficient liquidity to make vendors comfortable."