SCHWEGMANN IS ACQUIRED BY KOHLBERG; CEO RETIRES

ELLIOT ZWIEBACH

NEW ORLEANS -- In a move that will pump $14 million of funding into a cash-poor company, Schwegmann Giant Super Markets here has been acquired by Kohlberg & Co., Mount Kisco, N.Y., for an undisclosed sum.

Kohlberg's acquisition of 26 of the company's 28 stores, and the accompanying retirement of John F. Schwegmann as chief executive officer, ended family ownership of the 128-year-old company.

However, Schwegmann, grandson of the company's founder, will continue to own the real estate at 18 of the 26 stores and lease it to the new owners. Kohlberg named Mark S. Sellers as the new president, CEO and chief financial officer -- succeeding Sam Levy as president, Schwegmann as CEO and David Erath as chief financial officer. Sellers is a turnaround specialist who was chief financial and administrative officer at Homeland Stores, Oklahoma City, from 1992 to 1995 and then president and CEO of Kohlberg-owned Bay Area Foods, Danville, Calif.

Sellers said Schwegmann has several fundamental strengths, "including a terrific brand identity, the size and location of its stores and a variety of specialized services.

"But despite those strengths, the reality is that the company has been struggling under a heavy debt burden for many months" as a result of its acquisition in June 1995 of 28 National Tea stores here for approximately $150 million. National Tea was the St. Louis-based retail division of Loblaw Cos., Toronto.

"This weakened financial position and the increasingly competitive market conditions prompted the sale of the company to revitalize retail operations," Sellers pointed out.

In a letter to employees announcing the sale, John F. Schwegmann said, "We feel that it makes economic sense at this time to sell the Schwegmann retail operation. This sale will result in a stronger company that is better able to grow and provide not only job growth opportunities but also long-term job security."

Sellers said once store conditions have stabilized, the new owners plan to seek opportunities to expand the chain through new-store growth or acquisitions.

He said Kohlberg has developed "a detailed plan for the revitalization of Schwegmann [that will] build on all the solid fundamentals already in place," including the following:

Hiring a completely new top management team.

Investing money to upgrade the stores, make major improvements in merchandising, introduce more aggressive marketing programs and revamp and restock store shelves.

Restructuring the corporate headquarters staff by phasing out approximately 220 of 350 positions over the next 60 to 90 days while retaining all 4,000 store-level jobs.

Leasing the company's 268,000-square-foot grocery and frozens distribution center to Supervalu, Minneapolis, which has agreed to supply the Schwegmann stores -- a move that will result in a reduction in the number of warehouse employees.

Besides its new involvement in Schwegmann, Kohlberg & Co. is the major investor in Southwest Supermarkets, Phoenix, which operates 38 stores in Arizona and Texas.

It also owns Bay Area Foods, acquired in early 1995 from Provigo Corp., Montreal; however, Kohlberg has determined growth of BAF was limited, an observer said, and it has subsequently sold off BAF's wholesale division, Market Wholesale Grocery Co., San Rafael, Calif., and all but three of its Petrini retail stores, which remain up for sale, along with 10 New Deal Markets.

The Schwegmann stores account for annual sales of $400 million and a local market share of 22%, compared with 35% for Winn-Dixie and 6% for Sav-A-Center, the local A&P operation. The 26 locations Kohlberg acquired include 22 super-combination stores of 65,000 to 75,000 square feet that operate under the Schwegmann name; two 90,000-square-foot units called The Real Superstore that carry more apparel than the Schwegmann stores; and two 35,000-square-foot conventional stores called Canal Villere.

All three banners will be retained, Sellers said.

Of the two stores that Kohlberg is not acquiring, one is a former National Tea unit that Schwegmann was under orders to sell by the Federal Trade Commission; and the other, in Abbeville, La., is a low-volume store called That Stanley that will be sold to an independent operator, Sellers said.

Sellers told SN he expects Schwegmann to return to profitability within a year.

He said Kohlberg's efforts to upgrade store operations will take place over the next two years. "Changes will be gradual, but by the summer, shoppers will see a new look," he said. The most obvious change, he told SN last week, will be in stock levels. "Instead of the shelves being half-empty, as they have been as the previous owners ran out of money, we're restocking and remerchandising. And within 30 to 60 days, we will start remodeling and resetting stores."

He said the stores' shelves have been depleted for at least eight months -- since vendors put credit limits on Schwegmann because of the debt load from its National Tea acquisition. "With those credit limits, the company was cut off after buying a certain amount, so the pipeline just dried up," Sellers told SN.

He said the problem had become more severe in the last few weeks, "although sales were down only a little because the Schwegmann franchise has an incredibly strong following and customers continued to come in, even when the shelves were sparsely filled."

Despite the problems that followed the National Tea acquisition, Sellers said the decision by previous management to acquire the 28 stores "was strategically on target." However, the $500 million sales boost Schwegmann had anticipated did not materialize after the FTC ordered the company to sell 11 of the 28 stores and subsequently to close seven other units.

Sellers said the sale of the company will not result in any job layoffs at store level, which includes approximately 4,000 positions.

One of Kohlberg's priorities, he noted, "is to evaluate ways in which we can improve the workplace environment for employees at our stores -- creating not only more efficiency but also more economic incentive and opportunity for our people as we move forward." Accordingly, he said the company is considering the introduction of "a highly professional and specialized training program for store employees. We also will review compensation and benefits policies to determine what positive changes can be made as we move forward to provide additional incentives and opportunities for our people."

While store-level staffing will not be affected, most of the chain's existing corporate staff will be laid off to save store-level jobs, Sellers said in a letter to employees.

"The corporate headquarters had been built up to manage a larger operation, one that formerly included over 40 stores and the distribution center.

Therefore . . . we will have to phase out approximately 220 positions from our current corporate staff of roughly 350," Sellers said in the letter.

He said the layoffs will exclude about 35 headquarters employees currently working at the stores.

Sellers told SN Kohlberg decided to lease out the warehouse facilities "because from an economic point-of-view, the Supervalu deal made it more attractive than operating them ourselves."

He said Kohlberg had talked with several companies before signing a deal with Supervalu. Sellers said the warehouse operations "will be restructured and streamlined to strengthen the business, and that process will result in a net reduction in employment at the center."

Change Brings Changes

NEW ORLEANS -- The switch in ownership at Schwegmann Giant Super Markets here has resulted in a complete overhaul of top management.

In outlining the changes, Mark S. Sellers, the new president, chief executive officer and chief financial officer, said the changes reach into areas ranging from customer service to fresh foods to nonfood.

The new team includes the following:

Mark Pelletier, chief operating officer, who succeeds Rick Mazer, an industry consultant who had been chief operating officer at Schwegmann on a contract basis since last year. Pelletier, formerly vice president of Bay Area Foods, reports to Sellers.

Wayne Bertsch, chief merchandising officer, a new position. Bertsch, formerly vice president of retail operations for Smitty's, Phoenix, reports to Sellers.

Rodney Boshard, vice president of nonfood, who succeeds Jorge San Roman. Boshard, formerly director of hard lines for Smitty's and, before that, for Vons Cos., Arcadia, Calif., reports to both Pelletier and Bertsch.

Roger Britt, director of meat, bakery and deli, who succeeds Donald Ortego. Britt, formerly employed by Montfort, Phoenix, has also held positions at Smitty's and Smith's Food & Drug Centers, Salt Lake City, and reports to Bertsch.

John Simrell, controller and chief accounting officer, a new position. Simrell, formerly controller with Michael's, a Dallas-based arts and crafts retail chain, reports to Sellers.

Phil Seetin, vice president of corporate administration, a new position that includes oversight of human resources, risk management, security and insurance. Seetin, formerly director of loss prevention at Michael's and director of security and loss prevention for Homeland Stores, Oklahoma City, reports to Sellers.

Scott Patton, director of loss prevention, a new position. Patton, formerly a regional investigator for Michael's and before that for Homeland, reports to Seetin.

Patricia Dean, director of training and customer service, a new position. Dean, formerly a store director for Michael's, reports to Pelletier.