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    Fleming's Vendors Dispute Charges

    LEWISVILLE, Texas - Some of Fleming's vendors have complained that the grocery distributor is taking what they say are exaggerated deductions from their bills, spotlighting the tug-of-war that goes on in the low-margin businesses of manufacturing, distributing and selling grocery products to independent supermarkets.

    LEWISVILLE, Texas - Some of Fleming's vendors have complained that the grocery distributor is taking what they say are exaggerated deductions from their bills, spotlighting the tug-of-war that goes on in the low-margin businesses of manufacturing, distributing and selling grocery products to independent supermarkets.

    In May 2001, for example, Unilever PLC received a $6.8 million bill for what Fleming called Kmart "transition and introduction" costs. Fleming had expected suppliers to help it defray costs it incurred in taking on the Kmart distribution business, such as two new warehouses, because the contract meant extra business for suppliers. Unilever rejected the demand and says it remains unresolved. Another supplier, Pennexx Foods, was charged more than $50,000. Cat litter supplier Oil-Dri, Solo Cup Company and Kellogg have also complained about excessive charges related to the Kmart deal and other Fleming initiatives, including a Preferred Vendor program in which suppliers pay $75,000 to join and receive quick resolution on financial matters. Most suppliers objected.

    Deducting a little from a bill, usually for reasons such as incomplete or damaged orders, is a traditional practice among wholesalers and retailers. But dozens of suppliers and ex-employees of Fleming say the company has pushed the practice to extremes. Some suppliers temporarily stopped shipping to the distributor this year until deduction disputes were resolved. In other cases, when companies complained, Fleming threatened to halt or reduce its purchases from them.

    "They deduct and deduct until a vendor cuts them off, then they pay. Then, they start deducting again," says Richard Kochersperger, a food industry consultant who has worked for both Fleming and a competitor. Many of Fleming's suppliers can gain access to independent and smaller grocers only through the distributor. And grocers rely on their distributor for most of their merchandise, putting Fleming in a powerful gatekeeper position.

    Fleming denies it has ratcheted up its deductions or takes more of them than competitors. It says its deductions may simply appear to have grown lately because it has been putting them all on one bill.
    "The fees look different because they're all aggregated," says Fleming CEO Mark Hansen.

    Fleming has other problems. Its big customer Kmart has been closing stores since filing for bankruptcy protection early this year. In addition, the independent grocers Fleming serves are dwindling. Fleming also carries a large debt load, and its cash from operations deteriorated in the quarter ended in mid-July to negative $82 million. Yesterday's stock tumble to $8, came amidst rumors of possible debt downgrade.

    --Compiled from the Wall Street Journal

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