C&S WORKS THROUGH 'GROWING PAINS' OF FLEMING ACQUISITION 2004-03-01 (1)

MARK HAMSTRA

BRATTLEBORO, Vt. -- Six months after C&S Wholesale Grocers here completed its acquisition of the retail wholesaling assets of Fleming Cos. and became bi-coastal, retailers said the company has struggled to get its California customers up to speed on a technology platform for interacting with the wholesaler on such matters as price-and-cost data.

In New England, where C&S acquired the retail distribution assets of Supervalu, Minneapolis, in an asset swap that was part of the Fleming acquisition, retailers said the transition has been much smoother, although some operators there have experienced difficulties, too.

C&S reportedly attempted to outsource some of its technology services in California, but was unsuccessful. It has since been developing other solutions, which it is preparing to roll out, according to some of its independent retail customers there.

"They stumbled once coming out of the gate trying to adapt a more off-the-shelf program that was unsuccessful," said Bob Parriott, general manager, Deluxe Foods of Aptos, Calif., a customer of C&S. "What they are realizing they need to do is get a proprietary product put together, and get it in use and tested, and support us with that as the product develops. They are not there yet, but they are very close to it."

C&S could not be reached for comment.

Overall, however, Parriott said C&S has been a welcome change from the inferior service many independents experienced during Fleming's plunge into bankruptcy last year, when retailers were scrambling to get product on their shelves. As vendors restricted their terms with the wholesaler, some retailers were reporting delivery shortages of 40% and more.

"C&S has brought its financial muscle in, and has helped clear up most of the supply issues," he said. "The vendors were used to working with them and were aware of their financial integrity, so they stepped up to the plate to rectify the terrible service issues."

However, another California retailer, who asked not to be identified, said the service levels with C&S have also been poor on some products, on top of the technology problems.

"They genuinely want to do a good job," he said, "but the technology problems are huge."

In response, he said, many C&S customers have turned to Unified Western Grocers, Los Angeles, as a secondary supplier through that company's "Neighborhood Markets" program, which allows independents to receive grocery deliveries at a markup, based on volume, without joining the co-op.

A spokesman for UWG said the co-op has added about two dozen new members operating 35 stores in the past year in Northern California, most of whom were former Fleming customers picked up before the C&S acquisition. Many others have become UWG customers through Neighborhood Markets for both their primary and secondary supply needs.

Parriott estimated Fleming's volume at the Sacramento warehouse where his groceries come from as "around $13 million" per week. "It was a very high-volume, profitable division for them," he said.

Among the former Supervalu customers in New England, some said they signed on with Bozzuto's, Cheshire, Conn., as a secondary supplier. Bozzuto's recently said it has added several new customers in recent months.

Ed Roche, president and chief operating officer, Roche Brothers Supermarkets, Wellesley, Mass., said he decided to procure frozen and dairy product from Bozzuto's and dry groceries from C&S.

"We made the decision right off the bat, and it's worked out well," he said.

He said C&S did have some technology problems related to the transition, but overall, he's been satisfied.

Although one New England retailer who asked not to be identified said he has struggled to obtain service from C&S, several others who had been served by Supervalu and have stayed with C&S agreed with Roche that there have been few issues.

"Every transition has its growing pains, but it's been going well," said John DeJesus, president and owner, Foodmaster Super Markets, Chelsea, Mass. "C&S has been doing a lot of listening. They've been flexible with the things they can do. It takes them a few tries sometimes, but all in all, we're pretty pleased."

In some ways, he said, working with C&S has been easier because of his easy access to C&S's executives in nearby Vermont.

"The best thing is that I can talk to [C&S Chairman] Rick Cohen," DeJesus said. "He's the No. 1 owner, and the buck stops with him. As an independent operator myself, I like to deal with people who can make decisions."

Some attributed the smooth transition to the fact that C&S retained many of the key personnel from Supervalu.

This week, several customers that had been supplied out of Supervalu's former warehouses in Andover, Mass., and Cranston, R.I., were slated to begin receiving product from C&S facilities in Connecticut as C&S prepared to consolidate its distribution centers.

Bill Bishop, president, Willard Bishop Consulting, Barrington, Ill., said problems like those reported by C&S customers in California are to be expected amid such a major transition.

"In general, it's a big change," he said. "It's very safe to expect that, going from one [information technology] department to another, there are going to be a few problems."