COVER STORY: Life After Fleming: A Fleming-less future
The post-Fleming world of grocery distribution may turn out to be a good place for creative regional wholesalers and for many independent supermarkets that struggled to compete while they were being supplied by an increasingly unreliable Fleming.
It's too early to be sure, but industry observers see a number of signs that the death of the nation's second-largest grocery wholesaler will turn out to be less than tragic for the business as a whole, although they lament the hardships imposed on longtime Fleming executives and associates.
The competitive situation remains clouded in the wake of Lewisville, Texas-based Fleming's sale of its grocery wholesaling assets to C&S Wholesale Grocers of Brattleboro, Vt. in late August. C&S, which rose from small regional player to third-ranked U.S. wholesaler in less than a decade, immediately sold off some of the acquired properties to several regional distributors, while keeping Fleming's assets in California and Hawaii. Last month, C&S and No. 1 wholesaler Supervalu agreed to trade Eden Prairie, Minn.-based Supervalu's New England operations for the remainder of the Fleming assets C&S bought in the Midwest.
"There's going to be a real renaissance for regional wholesale," predicts Burt P. Flickinger III, managing director of Strategic Resource Group, a New York consultancy, who cites such companies as Grocers Supply, Merchants Distributors, Laurel Grocery, Associated Grocers of Seattle, Associated Wholesale Grocers of Kansas, Roundy's, White Rose, and Krasdale. "They will prove themselves to be competently competitive with Supervalu and, from what I'm hearing from the retailers, far better supporters of independent retailers and small chains than some of the chain-oriented wholesalers—Fleming before, C&S now—with the exception of Supervalu," Flickinger says.
Effective competitors
John R. Block, e.v.p. of the Food Marketing Institute and head of its wholesale division, says regional wholesalers are ready. "I think that they have found a way to compete rather effectively in their own regions, where they're not trying to be everything to everybody across the whole nation," Block says. "If you just look at the food retail business out there, I think the companies that are doing better are some of these that are working regionally."
"This industry is almost like nature; it cannot tolerate a vacuum," adds FMI s.v.p. Michael Sansolo, chief of the independent operators unit. "What happens is if there's a level of service or there's a need within the industry that isn't being met, somebody recognizes it. We're just such a competitive and creative industry, and someone will see that as opportunity," he says. "It could be that five years down the road we're going to have a very different mix of wholesale companies finding a way to win in this environment."
For the present, though, Sansolo says, "I think there's a lot of anxiety among the independent retailers."
Gary Giblen, director of research at CL King Associates in New York, cautions that Fleming's disappearance leaves many independents with fewer choices of suppliers. Supervalu, which provides high service levels and charges more because of it, doesn't want some of Fleming's former customers, he notes, and low-cost wholesalers C&S and Nash Finch of Minneapolis are the only options for some. "It might accelerate the demise or retirement of some of the marginal 25 percent of Fleming's customer base, the really unprogressive mom & pops," Giblen says. Some in remote areas who order in small quantities may have to seek unconventional sources of supply, he says.
Among independents that should benefit, Giblen lists the Festival Foods and Sentry franchisees, whose banners are now being served by Supervalu rather than Fleming. "Anybody who affiliates with Supervalu is a lot better off," he says. "Fleming's service levels have been abominable, yet people were locked into contracts."
Loss for CPG firms
The loss of Fleming could pinch consumer packaged goods companies a bit, worries Mark Baum, e.v.p. of the Grocery Manufacturers of America. "From a supplier standpoint, we do see it as a net loss for the industry," Baum says. "I don't think from the supplier community, either as a sales agency or a manufacturer, we want to see the industry consolidate to the point where you only have one or two major players to call on."
He notes that many wholesalers have rushed to fill the gap left by Fleming, and that service levels to retailers who had suffered because of out-of-stocks are going back up. "But any time there's a void that large, you don't recapture 100 percent of that volume."
Two larger wholesalers considered likely to sustain much of the fallout from the growth of C&S and the disappearance of Fleming are Nash Finch and Grand Rapids, Mich.-based Spartan Stores.
Flickinger says Nash Finch tied much of its future to financially shaky Kmart by becoming the grocery supplier for more than two dozen of the discounter's supercenters and has another significant piece of business riding on the success of Fresh Encounter, which operates supermarkets in Ohio and Indiana.
While he sees hopeful signs in Spartan's hiring of former A&P exec Craig Sturken as c.e.o. in March, Flickinger notes that the company has high debt, declining retail sales, and stiffening wholesaler competition.
Giblen says the best retail customers are signing on with Supervalu, leaving the less desirable ones to Nash Finch and Spartan. In areas where C&S has a presence, he adds, it is likely to beat out Nash Finch and Spartan. "I just think C&S is an unstoppable force wherever it competes," says Giblen. The situation may not be immediately understood, he says. "It took Wall Street six months to wake up and realize that the problems at Fleming were good, not bad, for Supervalu, and it's going to take six months for Wall Street to realize that what's good for Supervalu doesn't work out for Nash Finch or Spartan."
Flickinger reckons C&S won't be a major influence on the independent sector. "I think C&S is probably going to be the odd company out in independent wholesaling going forward because of their tendency to be chain-dominant," he says. The Vermont firm grew large by selling its services to self-distributing chains, a business approach that was unique in the industry.
Change is the constant
The current upheaval may claim more victims, and it's almost certain to cause wholesalers that don't want to be among them to sharpen their focus. While many regionals are thriving, Block anticipates continued consolidation among marginal distributors. "This industry does not stay the same; it changes," he says.
"I think it demonstrates for us again that this business is not built on what you did yesterday," Sansolo says. "You've always got to find a way to be better tomorrow."
To Baum, the lesson for wholesalers is to ensure that they're making their core customers as competitive as possible. "I think you're going to find wholesalers working more in concert with their indirect buying customers on the supply side to think and act more like chains so that they maximize those efficiencies and productivities while retaining enough of their independence and individualism in the marketplace to distinguish themselves from those same chains," he says.
Block, who has headed the nation's biggest wholesaler trade group for years, says he's sad to see Fleming gone. "There's a disappointment in what has happened, and a greater disappointment and a sorrow for the executives and employees that have found a lot of their retirement money and their benefits—and their jobs in many cases—gone out the window," he says. "That's a sad thing. At the same time, you've just got to go on to the future. That's what they have to do, and that's what the industry is doing."
It's too early to be sure, but industry observers see a number of signs that the death of the nation's second-largest grocery wholesaler will turn out to be less than tragic for the business as a whole, although they lament the hardships imposed on longtime Fleming executives and associates.
The competitive situation remains clouded in the wake of Lewisville, Texas-based Fleming's sale of its grocery wholesaling assets to C&S Wholesale Grocers of Brattleboro, Vt. in late August. C&S, which rose from small regional player to third-ranked U.S. wholesaler in less than a decade, immediately sold off some of the acquired properties to several regional distributors, while keeping Fleming's assets in California and Hawaii. Last month, C&S and No. 1 wholesaler Supervalu agreed to trade Eden Prairie, Minn.-based Supervalu's New England operations for the remainder of the Fleming assets C&S bought in the Midwest.
"There's going to be a real renaissance for regional wholesale," predicts Burt P. Flickinger III, managing director of Strategic Resource Group, a New York consultancy, who cites such companies as Grocers Supply, Merchants Distributors, Laurel Grocery, Associated Grocers of Seattle, Associated Wholesale Grocers of Kansas, Roundy's, White Rose, and Krasdale. "They will prove themselves to be competently competitive with Supervalu and, from what I'm hearing from the retailers, far better supporters of independent retailers and small chains than some of the chain-oriented wholesalers—Fleming before, C&S now—with the exception of Supervalu," Flickinger says.
Effective competitors
John R. Block, e.v.p. of the Food Marketing Institute and head of its wholesale division, says regional wholesalers are ready. "I think that they have found a way to compete rather effectively in their own regions, where they're not trying to be everything to everybody across the whole nation," Block says. "If you just look at the food retail business out there, I think the companies that are doing better are some of these that are working regionally."
"This industry is almost like nature; it cannot tolerate a vacuum," adds FMI s.v.p. Michael Sansolo, chief of the independent operators unit. "What happens is if there's a level of service or there's a need within the industry that isn't being met, somebody recognizes it. We're just such a competitive and creative industry, and someone will see that as opportunity," he says. "It could be that five years down the road we're going to have a very different mix of wholesale companies finding a way to win in this environment."
For the present, though, Sansolo says, "I think there's a lot of anxiety among the independent retailers."
Gary Giblen, director of research at CL King Associates in New York, cautions that Fleming's disappearance leaves many independents with fewer choices of suppliers. Supervalu, which provides high service levels and charges more because of it, doesn't want some of Fleming's former customers, he notes, and low-cost wholesalers C&S and Nash Finch of Minneapolis are the only options for some. "It might accelerate the demise or retirement of some of the marginal 25 percent of Fleming's customer base, the really unprogressive mom & pops," Giblen says. Some in remote areas who order in small quantities may have to seek unconventional sources of supply, he says.
Among independents that should benefit, Giblen lists the Festival Foods and Sentry franchisees, whose banners are now being served by Supervalu rather than Fleming. "Anybody who affiliates with Supervalu is a lot better off," he says. "Fleming's service levels have been abominable, yet people were locked into contracts."
Loss for CPG firms
The loss of Fleming could pinch consumer packaged goods companies a bit, worries Mark Baum, e.v.p. of the Grocery Manufacturers of America. "From a supplier standpoint, we do see it as a net loss for the industry," Baum says. "I don't think from the supplier community, either as a sales agency or a manufacturer, we want to see the industry consolidate to the point where you only have one or two major players to call on."
He notes that many wholesalers have rushed to fill the gap left by Fleming, and that service levels to retailers who had suffered because of out-of-stocks are going back up. "But any time there's a void that large, you don't recapture 100 percent of that volume."
Two larger wholesalers considered likely to sustain much of the fallout from the growth of C&S and the disappearance of Fleming are Nash Finch and Grand Rapids, Mich.-based Spartan Stores.
Flickinger says Nash Finch tied much of its future to financially shaky Kmart by becoming the grocery supplier for more than two dozen of the discounter's supercenters and has another significant piece of business riding on the success of Fresh Encounter, which operates supermarkets in Ohio and Indiana.
While he sees hopeful signs in Spartan's hiring of former A&P exec Craig Sturken as c.e.o. in March, Flickinger notes that the company has high debt, declining retail sales, and stiffening wholesaler competition.
Giblen says the best retail customers are signing on with Supervalu, leaving the less desirable ones to Nash Finch and Spartan. In areas where C&S has a presence, he adds, it is likely to beat out Nash Finch and Spartan. "I just think C&S is an unstoppable force wherever it competes," says Giblen. The situation may not be immediately understood, he says. "It took Wall Street six months to wake up and realize that the problems at Fleming were good, not bad, for Supervalu, and it's going to take six months for Wall Street to realize that what's good for Supervalu doesn't work out for Nash Finch or Spartan."
Flickinger reckons C&S won't be a major influence on the independent sector. "I think C&S is probably going to be the odd company out in independent wholesaling going forward because of their tendency to be chain-dominant," he says. The Vermont firm grew large by selling its services to self-distributing chains, a business approach that was unique in the industry.
Change is the constant
The current upheaval may claim more victims, and it's almost certain to cause wholesalers that don't want to be among them to sharpen their focus. While many regionals are thriving, Block anticipates continued consolidation among marginal distributors. "This industry does not stay the same; it changes," he says.
"I think it demonstrates for us again that this business is not built on what you did yesterday," Sansolo says. "You've always got to find a way to be better tomorrow."
To Baum, the lesson for wholesalers is to ensure that they're making their core customers as competitive as possible. "I think you're going to find wholesalers working more in concert with their indirect buying customers on the supply side to think and act more like chains so that they maximize those efficiencies and productivities while retaining enough of their independence and individualism in the marketplace to distinguish themselves from those same chains," he says.
Block, who has headed the nation's biggest wholesaler trade group for years, says he's sad to see Fleming gone. "There's a disappointment in what has happened, and a greater disappointment and a sorrow for the executives and employees that have found a lot of their retirement money and their benefits—and their jobs in many cases—gone out the window," he says. "That's a sad thing. At the same time, you've just got to go on to the future. That's what they have to do, and that's what the industry is doing."