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    COVER STORY: Life After Fleming: Picking up the pieces

    The independent sector is regrouping in the wake of Fleming's collapse, and there's no shortage of opinions on how it happened.

    Fleming Cos., which started the year as the second-biggest grocery wholesaler in the country, officially sold itself out of the industry in August. But some of the independent retailers who dealt with the company for decades say it won't be missed--the Fleming that won their business and respect died some years ago.

    Many trace the beginning of the end to 1993, when Robert Stauth succeeded E. Dean Werries as c.e.o. and began a reengineering of the wholesaler that traded a business model built on relationships for one driven by corporate imperatives. Things got worse in 1998, they say, when Mark Hansen took over from Stauth and began an aggressive expansion of the business that culminated in the ill-fated 2001 deal to be Kmart's exclusive grocery supplier. In an effort to meet the demands of that contract, worth $4.5 billion a year to Fleming, the wholesaler neglected the retailers on which it had built its business over 80-plus years, they say, and when Kmart went bankrupt the following year, Fleming had few friends left in the rest of the retail community.

    After Fleming announced earlier this year that it would sell what was left of its grocery wholesaling business to C&S Wholesale Grocers of Brattleboro, Vt., many independents that wanted to jump ship were locked in by leases or other agreements and saw service levels continue to deteriorate as they waited for the sale to be completed.

    "We've left a lot of money on the table," one retailer complained while he was still dealing with Fleming. "Forced to use a secondary supplier to get merchandise on the shelves, we've missed out on deal allowances, which has had a negative impact on our gross profits. Because out-of-stocks have tripled, sales are down by over 2 percent. We just need to have this thing over and done with."

    Another longtime Fleming retailer was annoyed to learn that some Fleming customers had been getting 30 days to pay while he was wiring money to the wholesaler every seven days. "The extra cash flow would have been good for my business," he said.

    While the demise of the Lewisville, Texas-based wholesaler has broad implications for the grocery industry, it has also hit close to home for many people. Here are some of their stories:

    Kishman's IGA Minerva, Ohio

    IGA retailers Tom and Jan Kishman were Fleming customers for 49 years. Recognized nationwide for their Hometown Proud spirit, the Kishmans never dreamed they'd one day be in search of a new wholesaler.

    "Three years ago," says Tom Kishman, "I began to notice that supply levels during the holiday season were dropping, and sales began to suffer. At that time, Oklahoma City had begun to centralize Fleming's operations, which I believe was the beginning of the end.

    "The folks at our Massillon division of Fleming always did a good job, but their hands were tied," he says. "When higher-ups like [c.e.o. Mark] Hansen and [wholesale division president Steve] Davis began taking away leadership and authority from the local divisions, it became apparent that they had more faith in the Kmarts than the Kishmans."

    For the IGA International Retailer of the Year, who had no written supply agreement or lease restrictions that forced him to buy from Fleming, the last straw came in March. "When service levels reached 50 and 60 percent, I had to make the decision that was best for my family," he says. "I interviewed different suppliers and ended up choosing one that I felt best understood our business, Laurel Grocery in Independence, Ky."

    He adds: "I wanted to get back to a grassroots organization, and Laurel, like us, is independently owned. They think like independent grocers and don't have to answer to Wall Street."

    What might Fleming have done differently? "They should've strengthened the power at the divisional level rather than diminished it," Kishman says. "And at headquarters, Hansen and Davis should've kept words like 'customer service' in the company's vocabulary and eliminated words like 'hack it.'"

    Store manager Kishman's IGA

    Changing wholesalers is a difficult task, even when you're one of IGA's International Store Managers of the Year. But according to Darcy Scharver, manager of Kishman's IGA, it's much easier when you maintain a positive attitude.

    "When we chose Laurel as our new supplier, my goal was to make the change as seamless as possible for our customers. With the help of our Laurel store consultant, Terry Turner, who was on site every day, we accomplished that goal," Scharver says.

    Was it easy? "Certainly not," says the veteran manager. "Probably the biggest challenge we faced was getting as many IGA-branded products as possible into the Laurel warehouse. Each week, we continue to submit lists of customer requests, and Laurel goes to bat for us to get those products slotted."

    The new wholesaler had a lot to do with helping to keep store-level attitudes positive. "When Laurel's president spent time in our store during the conversion, I knew we made the right decision," Scharver says.

    Comanche, Texas

    Asked what he'd like to say to former Fleming c.e.o. Mark Hansen, Steve Fleming, son of the company's founder, replies, "It's not printable."

    The grocer turned Texas rancher, who once managed Fleming's San Antonio warehouse and the company's real estate department, has strong opinions as to what went wrong at the business that bears his family's name.

    "What happened at Fleming should not have happened," he says. "In my opinion, the board of directors should never have hired people like [former c.e.o. Robert] Stauth, Hansen, and Davis to lead the company. They should've had faith in veterans like Jerry Austin, Mark Batenic, and others who built the company over the years. But egos got in the way of smart decision-making."

    He continues: "Fleming had been around for 80-some years prior to these guys coming in, and they tried to fix what wasn't broken. In my opinion, Stauth took the company down at a rapid rate when he launched his re-engineering program. Then Hansen came in and finished the job. The company began losing retailers that ended up paying more for goods and services after the re-engineering than they did prior to it. Then it was decided that closing warehouses was a good idea.

    "It's a shame that the board decided to back these guys as they drove the company under one day at a time," adds Fleming. "Both Stauth and Hansen made giant incomes for themselves and in the end broke a lot of top execs who devoted their lives to the company. A lot of these folks lost thousands in retirement dollars while those do-nothings flew around the country in private jets."

    Does the outspoken 64-year-old rancher still own Fleming stock? "You bet," Fleming chuckles. "I kept 250 shares just so they couldn't get out of sending me a copy of the annual report."

    Pennington, N.J.

    Through the years, Larry Rothwell was proud to be a Fleming associate, shareholder, and customer. But the FMI board member and president of Pennington Supermarket says that all changed under the leadership of Fleming's most recent regime.

    "I worked for Fleming's Philadelphia Division for 31 years prior to becoming a retailer 22 years ago," Rothwell says, "and my retailer experience with Fleming was great—up until the last four years."

    "Our store, which operates as part of the 39-store Thriftway Shop n Bag ad group, was supplied by the Philadelphia Division, which later became the Northeast Division located in Maryland," he says. "While the local Fleming management team was very cooperative and helpful, their hands became tied in recent years due to changing corporate policy.

    "When Fleming's most recent corporate senior managers began neglecting the company's core business—independent retailers—and they began to make very poor management decisions, my search for a new wholesaler began," Rothwell says. "At one point, when Fleming began supplying Kmart, our service levels dropped to 50 percent. As a result, we found it necessary to work with a secondary supplier, Bozzuto's. We had to protect our sales."

    This spring, when Fleming's bankruptcy proceedings began, Rothwell and his East Coast counterparts aligned themselves with a new wholesaler, White Rose, in Carteret, N.J. "As you can imagine, during the transition we've faced many challenges, such as converting to a new private label, experiencing out-of-stocks until the new wholesaler was able to secure the many items we requested, overtime for associates as we adjusted to new delivery schedules, and a drop in gross profit due to the fact that for the first 12 weeks we were unable to write a strong ad," Rothwell says.

    Asked how Fleming might have remained in business, the industry veteran replies, "I sincerely believe that the board of directors waited too long to relieve top management—Mr. Hansen and Mr. Davis—of their duties. The Kmart fiasco should've told them something. Management should have never entered into the Kmart agreement without having the appropriate facilities. Yet they did so, and that put a tremendous burden on the existing warehouses. This caused numerous out-of-stock conditions. In the end, they should've been more truthful to their customers and the entire food trade."

    Reflecting on his positive Fleming experiences over the years, Rothwell says, "As a shareholder, I was extremely pleased with the company under the leadership of men such as Ned Fleming, Dick Harrison, Dick Katzenbach, Dean Werries, and Jerry Austin. These were men of great character, integrity, and knowledge of the food business. Under their leadership, the company kept growing because they had respect for every customer and, likewise, for every supplier."

    Wilmington, Del.

    Bill Erhart has been practicing law in Wilmington for more than 22 years. A center for corporate reorganizations, the city is home to the U.S. Bankruptcy Court that recently resolved a $50 million claim filed against Fleming by more than 100 produce suppliers and growers.

    "The claim was filed under PACA, the Perishable Agricultural Commodity Act," says Erhart, who represents 40 of the claimants. "Passed in 1930 and amended in 1984 to include a trust statute, PACA provides a powerful legal remedy for suppliers of perishable agricultural commodities seeking to collect monies owed by third parties. Because the agricultural products sold to Fleming were perishable, it would be impossible to reclaim them. Unlike canned goods, for example, perishable products have no long-term shelf life."

    Noting that under the law bankruptcy doesn't eliminate debt obligations to perishables suppliers, Erhart says the judge made Fleming set aside money for protected companies.

    "At first," he says, "Fleming's legal team balked at this order and fought us quite vigorously. But the $50 million owed actually belonged to a trust and couldn't be used to pay other obligations. As a result, companies like Dole, for instance, which was owed nearly $6 million, and Sunkist, whose receivables totaled approximately $3 million, were able to collect.

    "During the claims resolution process, my clients also have the right to seek remedy for legal fees and lost earnings on their money," Erhart says. "That litigation is under way."

    Laurel Grocery Co. Independence, Ky.

    When Fleming filed for bankruptcy in the spring, Jim Buchanan realized there would be numerous growth opportunities for competing wholesalers. But the 56-year-old Buchanan, who once was a group operating president for Fleming and has served as the president and c.o.o. of family-owned Laurel Grocery since 1999, was careful to manage his company's growth—and the promises made to future customers.

    "As we prepared to bring new retailers on board, I reminded my staff not to overpromise and to always be honest," he says. "But that's the way we've always operated at Laurel, so my words of wisdom were nothing new."

    He continues: "Fleming had so many great retailers—some of the finest people I've ever known. They're down-to-earth folks who truly care about their communities and employees. We certainly feel fortunate to have earned their business—and their trust."

    As Laurel began enlisting new customers, as many as six per week during the past three months, Buchanan reminded his staff, "Being a wholesaler is really not that tough. We just need to give retailers more of what they want and less of what they don't want."

    What do independents want today? According to Laurel's top gun, they appreciate a hands-on, retailer-friendly wholesaler who can make timely decisions for customers without having to establish a quorum. "They also appreciate a wholesale partner who provides quality and value in such areas as education and training, perishables programs, retailer trips and incentives, store development, and succession planning," says Buchanan.

    "Furthermore, while the long-term effects of Fleming's bankruptcy continue to unfold, one thing is certain: Competing wholesalers, large and small, are stepping to the plate to take advantage of what may be just short-term opportunities."

    Laurel, which serves 450 customers in Tennessee, Indiana, West Virginia, Ohio, Georgia, and Kentucky, is among those enjoying remarkable growth. "Our volume has more than doubled during the past three years," Buchanan says. "and we attribute our growth to our own retailers who have 'sold us' to other retailers. They like the fact that we do things the old-fashioned way: We believe in relationships."

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