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Any time that change occurs in the food industry, particularly on the wholesale side, the rumor mill begins to churn -- and last month's decision by Roundy's to divest several key independent accounts has many other storeowners concerned.

Is a sale of the Milwaukee-based wholesaler to Kroger eminent by year’s end? Is Roundy's ownership, led by chairman and c.e.o. Robert Mariano, selling the company off piece by piece? The latter is a scenario predicted by some industry execs, given that earlier this year the company struck a deal with Nash Finch to take over its Lima, Ohio and Westville, Ind. divisions.

Still other observers speculate that Roundy's will remain a key player in the supermarket business, but narrow its focus to concentrate on operating successful corporate-owned stores while supplying only those independents that fly the company's popular Pick 'N Save banner.

Whichever scenario turns out to be accurate, the Roundy's/Supervalu transaction in July had real impacts on a number of independents in the greater Wisconsin market, including Hansen's, Quality Foods, IGA, and Village Markets, and has left many in the industry doubting Roundy's long-term commitment to family-owned supermarkets.

Sound business

"When Roundy's was acquired in 2002 by the Chicago-based private investment firm Willis Stein and Partners, many in our industry felt from day one that the company was being bought only to be later sold," says Brandon Scholz, president of the 1,500-member Wisconsin Grocers Association. "The company has in recent months bought out some independents and converted the operations into corporate-owned stores, but my sense overall is that last month's deal with Supervalu is simply a reflection of the business plan of both companies: Roundy's is firming up its efforts at retail, focusing on the Pick 'N Save, Copp's, and Rainbow formats, whereas Supervalu is looking to do more distribution business."

He adds: "Supervalu wasn't the only wholesaler hoping to gain additional revenues from Roundy's independents. Others, including Nash Finch, Associated Grocers, and Certco, a Wisconsin-based co-op, were likewise negotiating."

Regarding Supervalu's winning bid, Scholz notes: "There was truly very little fanfare when the deal was announced, and it was pretty straightforward. While Roundy's continues to improve its corporate-owned stores, it has allowed many independents who are not contractually obligated to the company to become free agents."

Among those free agents is second-generation grocer Phil Quillen, who, along with his family, operates eight supermarkets in Wisconsin, Iowa, and Minnesota. The Lacrosse, Wis.-based company, which until recently flew the IGA banner, now operates simply as Quillen's.

"We've experienced our share of wholesaler changes over the years," says Quillen, whose father started the family business in 1945. "We were originally with Gateway, which in 1989 was purchased by Scrivner. Then, during the mid-'90s, Scrivner was purchased by Fleming.

"When Fleming began eliminating in its warehouse many of our IGA private label items and raising prices on those that were available, we saw the handwriting on the wall," recounts Quillen. "We made the switch to Copp's, which was willing and able to supply our stores with the products that our customers demanded.

"Then, of course, Copp's was purchased by Roundy's," continues Quillen. "Once again, the handwriting was on the wall. When it became apparent to us that Roundy's was interested in supplying only corporate-owned stores, we knew it was time to start negotiating with other suppliers."

Enter Nash Finch. "After carefully evaluating a number of wholesaler programs, we awarded the business to Nash, which now supplies six of our eight stores," observes Quillen. "The transition has gone very well, thanks mainly to Ron Rude, who heads up Nash's Cedar Rapids division. He lined up 40-plus team members to retag our shelves and assist with technology changes. The company also houses an outstanding printing department, which has assisted with a number of our marketing and advertising efforts during the transition."

Period of adjustment

Pleased with the early progress of his new arrangement, Quillen, a sevcn-year member of the FMI board of directors, admits nonetheless that the latest wholesaler change has presented numerous challenges.

"Certainly we've had to absorb both financial and people costs during the changeover," he explains. "Many hours have been required to reset the stores, and we've gained and lost some labels. Plus we've had to adjust some of our work schedules to accommodate new delivery schedules. And while the technology switch has been very difficult and we've had to invest in some new computers in order to participate in 'Nash Net,' our headquarters systems are fortunately compatible."

On a personal level, Quillen adds: "This most recent wholesaler change has been toughest on me because for over 40 years we proudly flew the IGA banner. Sure, I would've rather stayed with IGA, but market changes forced us to take another route. The change has been easier on our younger people because they aren't advocates of the IGA system like I've been during my entire career. Our priority now is to promote the Quillen's label, and Nash Finch has assisted us with this effort every step of the way."

Questions about change

This past July's Roundy's/Supervalu transaction affected more than 50 independently owned supermarkets. Due to contractual obligations such as supply agreements, financing arrangements, or lease guarantees, several former Roundy's independent accounts will be serviced automatically by Supervalu.

Conversely, those considered free agents are likely to be evaluating their wholesaler options, based on the answers they can get to a long list of important questions:

What costs are involved in switching the store over to another wholesaler, and what financial support will the wholesaler provide toward these expenses?

How will the wholesaler change potentially affect my customers by the products that are currently available to them, or programs no longer supported by the new wholesaler?

How will a wholesaler change affect my employees?

How will a change in wholesalers affect my overall gross profit and, more important, the pricing of product at the store level?

How does the wholesaler bill for product, and how do I ensure that it will offer my business the lowest possible cost of goods?

What other fees will apply to my account?

How long will it take for us to be up and running at 100 percent with the new wholesaler, and what transition issues must we foresee?

What services will and won't be provided by the new wholesaler, as opposed to the services provided by the old wholesaler?

Who will manage my loyalty card program, and how much will it cost my business?

Will top-line sales suffer at all during the transition?

How is the new wholesaler's technological infrastructure different from that of the incumbent wholesaler, and what investment is necessary on behalf of my company to allow for compatibility?

What POS systems does the new wholesaler support, and how does that affect my retail pricing strategy?

How will my delivery schedule change as a result of new warehouse distribution, and what flexibility exists within that schedule?

How will my DSD/back-door receiving programs be affected by the change?

How will any support services (advertising, accounting, financing, marketing, etc.) currently provided by the incumbent wholesaler be affected by the transaction?

What programs or marketing tools does the new wholesaler offer to create possible points of difference (other than price) to assist in competition with national mass merchants (i.e., Wal-Mart, since it's nearly impossible to compete with the company on price)?

What tools does the new wholesaler have that I can apply to store-level expenses (production standards, labor scheduling, waste reduction, shrink initiatives, supply chain management, etc.) to increase my ability to compete?

What programs has the new wholesaler developed to eliminate waste in the supply chain?

What is the wholesaler's annual investment in technology spending, and how much of that spend filters down to the retailer or retailer-related programs?

What training programs does the wholesaler offer that would help me improve customer service and/or operations?

What would oblige me to stay with my current wholesaler (i.e., lease assignments, notes, financing and/or supply agreements)?

If I'm not interested in working with the new wholesaler, how flexible is the new wholesaler in negotiating out of existing agreements?

Which of my competitors does the new wholesaler currently supply, and how does it plan to handle any conflicts between us and them?

We have some expansion plans coming up. How will the new wholesaler support those plans (store financing, equipment leasing, store design, working with banks, etc.)?

Are there weekly purchase requirements that must be met with the new wholesaler?

"I'm sure all independent retailers who were not contractually obligated to Roundy's have been contacted by a number of companies that want to do business with them," concludes Scholz. "They know the drill: Check out the offer, the company; check their references; and evaluate their track record. If it's a good fit, sign on the dotted line."

Independent Retailing Editor Jane Olszeski Tortola can be reached at [email protected].
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