LAZARAN HAS CHALLENGES AT MARSH

ELLIOT ZWIEBACH / Additional reporting: Mark Hamstra

INDIANAPOLIS - Sun Capital Partners, Boca Raton, Fla., last week completed the acquisition of Marsh Supermarkets here and named industry veteran Frank Lazaran as the new chief executive officer.

He succeeds Don Marsh, who is leaving the company that his father, Ermal Marsh, founded 75 years ago.

Lazaran was the president and CEO of Winn-Dixie Stores, Jacksonville, Fla., for a brief time before that company filed for bankruptcy two years ago. Prior to that, he was president of Randalls Food Markets, the Houston-based division of Safeway, Pleasanton, Calif. He previously had been an executive at Ralphs Grocery Co., Compton, Calif.

The challenge for Lazaran at Marsh, which operates 166 supermarkets under different banners, is to restore the fundamentals of the business and devise a strategy to deal with Wal-Mart, according to one longtime retail observer in Indianapolis who asked that his name not be used.

What Marsh has to do, he said, is "adopt the mentality of a company in Chapter 11 but without court oversight. The problem is that it owns most of its real estate, so it can't reject any leases as it could in Chapter 11."

He suggested the company needs to sell off its 154 Village Pantry convenience stores, plus its floral and catering businesses.

"Then, it needs to identify the losers and bite the bullet and shut those stores down and then get back to delivering on the fundamentals," the observer said.

"The Marsh family never thought of the business as a public company. They ran it more like a family business, for their own aggrandizement, without thinking of the stockholders. They had a good organization and some good stores, but they lost sight of the fundamentals of the business in terms of formats, locations and store-level delivery."

Marsh executives, including Lazaran, could not be reached for comment.

Marsh has been noted within the Indianapolis market for donating heavily to many civic groups and causes, the observer pointed out, "but I think they overdid it with their philanthropy, given their profit levels, and my guess is that the new owners are not going to be able to be as philanthropic because the margins are just not there."

One of the problems facing Lazaran is that Indianapolis is very much an over-stored market, said Joseph Lackey, president of the Indiana Grocery & Convenience Store Association. "We have too many stores for the population, and there are more coming in all the time," he said. "Supervalu opened its first Sunflower Market here, and there's a second one due to open, plus you have Kroger, Meijer, Wal-Mart, Trader Joe's, Costco, Target and Kmart. Having so many choices is good for consumers, but it makes it tough for operators to run a store here."

Lackey said Marsh was sold "because of the same competitive challenges everyone in the industry is facing, but the problem was that Don Marsh didn't want to officiate over the dismantling of the company."

The Marsh name is very powerful in Indiana, Lackey added. "The company's public image is very good. They are extremely popular stores, and the possibility the company would be sold to someone else raised a pretty loud outcry from consumers saying they can't not have Marsh. A lot of shoppers depend on it."

Chuck Cerankosky, an analyst with FTN Midwest, Cleveland, said Lazaran faces three challenges: Forming a new management team, motivating employees and dealing with competition.

Given his background moving around the country and the possible availability of Albertsons people, Lazaran "probably knows who to call" to form a management team, Cerankosky said.

Motivating employees will be a bigger challenge, he pointed out. "Those people have gone through this period during the sale where they were perhaps less focussed on customers. Lazaran will have to look to key leaders within the organization and make sure they are motivated through incentive bonuses or salary increases.

"But the biggest hurdle may be letting everyone in the company know there will be stability from this point forward."

In terms of its competitive positioning, "Kroger is certainly a tough competitor among conventional supermarket chains, while Meijer and Wal-Mart each represents different types of supercenters with a price message," Cerankosky said, "so Marsh may want to focus on a small number of formats and emphasize through advertising what the Marsh brand stands for."

Jose Tamez, managing partner at Austin-Michael Executive Search, San Antonio, said Lazaran has a strong marketing background and has a knack for breeding enthusiasm in the people around him, which make him a "good fit" for Marsh's situation.

"I think he's going to be very good for Marsh," he said. "At Winn-Dixie, things may have already been too far gone for him to make a difference, but I think at Marsh, his confidence and enthusiasm will work well in that smaller, confined area, and he should be able to make a real difference."

Marsh said 72.4% of its Class A shares were voted in favor of the merger along with 84% of its Class B shares. Sun Capital paid about $88 million for the stock and assumed Marsh's debt.