ANNUAL MEETING

SALT LAKE CITY -- Associated Food Stores said its decision to operate corporate-owned stores is "best for member retailers as a whole" even though some of those members are opposed to the move, Rich Parkinson, Associated president and chief executive officer, told the company's annual meeting here.The acquisition of 14 stores during the past year -- Associated's first venture into store ownership

SALT LAKE CITY -- Associated Food Stores said its decision to operate corporate-owned stores is "best for member retailers as a whole" even though some of those members are opposed to the move, Rich Parkinson, Associated president and chief executive officer, told the company's annual meeting here.

The acquisition of 14 stores during the past year -- Associated's first venture into store ownership -- was done to "preserve volume" and offer an opportunity for the company to learn first hand what is needed to "create a seamless conduit between the wholesale and retail levels," Parkinson told SN after the meeting.

Parkinson also said some retail members of the 60-year-old cooperative are having a hard time adjusting to Associated's recently updated business practices.

He said particular areas of concern have been Associated's centralized buying and category management, as well as the co-op's previously announced move next year to a consolidated distribution facility in Far West, Utah.

Jack Shaum, Associated chairman, said these changes are all designed to enhance the wholesale/retail relationship in order to "improve members' volume and profits."

He added they should equip members better to survive the "onslaught of deep-pocket chains and mass merchandisers" that are in the midst of aggressive expansion plans in Associated's markets.

"We must step up our commitment to our business," said Schaum. Retailers must commit to "doing even better what they have done successfully in the past."

Associated services approximately 420 member stores, ranging in size from small "mom and pop" operations to 72,000-square-foot supermarkets.

Located in Arizona, Colorado, Montana, Nevada, Oregon, Utah and Wyoming, the stores are supplied by full-line distribution centers in Boise, Idaho, and Helena, Mont., as well as from a headquarters distribution center here.

Corporate stores include the eight-store Macey's chain, Sandy, Utah; five-store Lin's Foodstores, St. George, Utah, and a single Madison Foods, Ennis, Mont.

Parkinson told SN Associated is nearing completion of its purchase of the 6-store Dan's Food Stores here. Associated originally announced plans to acquire Dan's last fall, but negotiations have taken longer than anticipated, he said.

The acquisition of Dan's would boost corporate retail sales about $100 million, Parkinson said. With the addition of Dan's to the Macey's and Lin's chains, corporate stores would account for 20% of Associated's total sales, he said.

Parkinson said warehouse sales in fiscal 2000, ended March 25, were up about 5% to $987 million. He said retail sales were $98 million.

The co-op's total payment to members -- including cash rebates, interest and cost equalization -- fell 8.5% to $37.6 million, reflecting the corporate stores' non-member status.

In March, Associated announced plans to buy a 650,000-square-foot distribution center in Far West, Utah, about 60 miles north of here, from Rite Aid Corp., Camp Hill, Pa. Associated said it plans to expand the warehouse by about 300,000 square feet before it moves into the facility in 2001.

The co-op's current 800,000-square-foot distribution center here is operating at about 120% capacity while supplying about 70% of the co-op's total warehouse volume, Parkinson told retailers.

"But the real difference between the two facilities will be in cube space, number of doors and overall efficiency," explained Neal Berube, Associated senior executive vice president and chief financial officer.

As a result of upgrades, the purchase of the Rite Aid facility and the acquisition of stores, Associated's long-term debt increased 480% to $120 million in fiscal 2000.

Associated also said it increased retained earnings 17% in the fiscal year. "This has allowed us to increase the capitalization of our company on our own, rather than having to rely on members' contributions," commented Parkinson.