SUPERVALU PROMOTING LOGISTICS SUBSIDIARY

Michael Garry

MINNEAPOLIS -- With an eye toward expanding beyond its traditional wholesaling and retailing businesses, Supervalu is stepping up its efforts to market its third-party logistics company, the logistics company's president told SN.

The company, Advantage Logistics, a wholly owned subsidiary of Supervalu that shares its headquarters with Supervalu here, aims to provide a range of third-party logistics services, including warehouse and transportation management, as well as supply chain integration and technology services, to both retailers and manufacturers.

To date, Advantage Logistics has been focused on managing distribution centers for a major food-retailing company for several years, as well as managing logistics for traditional Supervalu customers, including 67 SuperTarget stores.

Advantage Logistics executives declined to identify the company for which it's managing DCs, but, according to news articles previously published in SN, it is Kroger Co., Cincinnati.

To spearhead the more aggressive approach to building and marketing Advantage Logistics, last October Supervalu brought in Canadian Rick Finkbeiner as president of the subsidiary. A third-party logistics veteran, Finkbeiner has worked for such companies as TNT Logistics, Livingston, VersaCold and Control Systems International.

"For the last several years Supervalu has been working on redesigning its supply chain network," said Finkbeiner in an interview with SN. "In doing so, Supervalu saw that it has a strong competency in logistics and supply chain, and also that there was a vacuum in the food industry. So we developed this third-party logistics offering."

As proof of its logistics competency, Advantage Logistics "has consistently delivered improved results year-on-year," both in cost reduction and quality of service, Finkbeiner said. "We have delivered similar results in our own network, all of which come from network redesign and introduction of industry best practices."

Finkbeiner said Advantage Logistics has stepped up the marketing of the company to retailers and manufacturers in the past 30 days through personal contacts, and has begun to plan an advertising campaign. "We have a number of opportunities nearing completion with manufacturers and retailers," he said.

Finkbeiner said he was not aware of any other established wholesaler or retailer in the food industry developing a substantial third-party logistics subsidiary, though it has occurred in other industries like automotive and telecommunications. SN has reported on some outsourcing efforts by Fleming, such as when it began handling distribution duties for Albertsons stores in Oklahoma and Nebraska after Fleming sold a DC in Oklahoma last year.

Yolanda Scharton, vice president, industrial relations and corporate communications for Supervalu, acknowledged that, given the attrition rate of 2% to 4% in its traditional business, Supervalu has embarked on a drive to acquire new business in both traditional spheres and "new initiatives" like Advantage Logistics.

Analysts have told SN that a possible revenue stream for wholesalers facing a declining customer base is to become a third-party logistics provider, picking up business where there is not a dense enough store base for a chain to build a DC. They said wholesalers could lend management expertise and distribution infrastructure support to any business that manages a delivery fleet. But they said it might be difficult to provide distribution services to otherwise self-distributing chains.

Finkbeiner said that Advantage Logistics plans to continue offering "tactical" services like warehouse and transportation management but will also branch out into more "strategic" areas. The latter could include integrating independent retailer and manufacturer supply chain networks into a more "streamlined" network that would "take advantage of critical mass and synergies" to lower costs, he said. An integrated network could be used to improve backhauling and buying power, he noted. Advantage will also offer technology services to its clients, including a warehouse management system that could be leveraged on a relatively low-cost application service provider (ASP) basis. Advantage will also market Supervalu's buying system, which is integrated with its WMS and transportation system, said Finkbeiner. But he sees the technology offerings coming after "critical mass" is achieved following the first full year of operations

Advantage Logistics has been, and will continue to be, focused on retail customers, both the "giants of the industry" and mid-range retailers, Finkbeiner said. Indeed, because mid-range retailers may have fewer facilities than larger retailers, "our synergies would be more powerful to them."

He also stressed that the logistics company would pursue a range of manufacturer clients as well. He added that it would be possible for Advantage Logistics to deliver products for manufacturers to Supervalu's competitors, such as Fleming.

Finkbeiner pointed out that Supervalu's experience with delivery of products to retailers' stores and purchasing products from manufacturers gives its offshoot Advantage Logistics an understanding of both types of companies. This "differentiates us from traditional third-party logistics companies," he said. "Our game plan is to tie it all together, providing an end-to-end supply chain." In addition, Advantage plans to branch beyond food companies into other sectors such as pharmaceuticals, he noted.

Finkbeiner said Advantage Logistics has "branded" its business approach as "Q4," consisting of four parts: people, systems, methodology and results-oriented management. In regard to people, Advantage will be able to tap the logistics resources of Supervalu, opening up new career paths for some people. "If we start a facility in Los Angeles or Dallas, the first place we'll look for someone to operate it is Supervalu management people," he said.