ASSOCIATED TO BUILD NEW WAREHOUSE

SALT LAKE CITY (FNS) -- Associated Food Stores here has unveiled plans to build a 750,000-square-foot warehouse to jump-start its distribution efforts.Rich Parkinson, president and chief executive officer, told the cooperative's annual meeting here that the new facility will provide a needed modernization at a time when competition is intensifying.Associated will spend $60 million on the warehouse,

SALT LAKE CITY (FNS) -- Associated Food Stores here has unveiled plans to build a 750,000-square-foot warehouse to jump-start its distribution efforts.

Rich Parkinson, president and chief executive officer, told the cooperative's annual meeting here that the new facility will provide a needed modernization at a time when competition is intensifying.

Associated will spend $60 million on the warehouse, which will service its Salt Lake City division.

The 630-member co-op also revealed a fiscal 1998 sales decrease of 2.3%. Sales declined $21 million from $933.7 in fiscal 1997 to $912.4 in fiscal 1998, ended March 28, 1998.

Total funds paid to members, including cash rebates and interest on member holdings, rose in the sales loss by $300,000, to $47.1 million, from $46.8 million in fiscal 1997.

Associated member stores range from "mom and pop" to 68,000 square feet. Located in Utah, Idaho, Nevada, Wyoming, Colorado, Montana, Oregon and Arizona, the stores are serviced by full-line distribution centers in Boise, Idaho, and in Billings and Helena, Mont., as well as from headquarters facilities here.

The new warehouse will contain groceries, produce, frozens and meat "under one roof," and 60- by 100-foot docks will allow "substantially more room than we've ever had before," for central staging of integrated loads, Parkinson told SN.

Although a site has not yet been officially chosen, the new facility is projected to open in 2000 and will probably be located within five miles of the current main warehouse location, which houses groceries and produce in one building, frozens in a separate building across the street from groceries and produce, and meat and deli in another building about one mile away from the other facilities.

The current Salt Lake City warehouse grouping contains about the same square footage as the projected facility, but some of the buildings are more than 50 years old, are low cube and inefficient, said Dave Jonckowski, vice president of operations.

Like the current warehouse, the new facility will be close to freeways and is expected to retain the present labor force, Parkinson told SN after the meeting.

It will not be automated and will use a hand-select process, said Parkinson, explaining that the wide diversity in sizes of stores serviced by Associated makes hand-processing more practical.

The Salt Lake City division accounts for 70% to 75% of company sales. The division will continue to provide dairy products through a "captive dairy" arrangement with a local manufacturer. In addition, general merchandise will continue to be provided by Associated's Payson, Utah, warehouse, which not only supplies the Salt Lake City region, but the whole company as well. Payson is located about 60 miles south of Salt Lake City.

Parkinson said the new warehouse will serve to "move the company into the future," and its modern features will help Associated to successfully deliver the "Perfect Order -- the Right Product, at the Right Time, at the Right Price, in the Right Condition."

The enlarged staging area, which in the current grocery/produce warehouse is only 20 by 40 feet, will allow cross docking, in addition to integrated order loading, Parkinson told SN. There will be much more space and the resources to load orders quickly, thereby ensuring that perishables are put into refrigerated trucks before there is any possibility for spoilage, he said. "This capability to get orders out fast will contribute greatly to Associated's ability to provide retailers with those perfect orders." he explained.

The Perfect Order concept was first mentioned in last year's annual report and has been an objective of Associated's concerted efforts over the past several years to enhance retailer competitiveness and profitability, Parkinson reiterated to members.

He also reminded retailers about the recent acquisition activities of their chain competitors, such as Albertson's, Boise, Idaho, and Fred Meyer Inc., Portland, Ore. He noted that alternative format stores, like Wal-Mart and Super Target, have successfully entered members' market areas because they see them as regions of great potential. Supercenters and discount stores have been especially succesful at eroding supermarkets' grocery sales, he said.

"If we want to be in the race, we have to prepare for the future," Jack Schaum, chairman of the board and president of Stop & Ship, Ogden, Utah, told retailers. "We must be willing to capitalize ourselves," he told them. "We have to realize that it's necessary to borrow money to buy the technology to improve ourselves and our warehouse," he continued.

"In today's world there's no way to save enough money to buy new technology or to remodel or build without a loan," said Parkinson. With the costs of successfully doing business today, retailers can no longer count on rebates to put them into the black or to be the sole source of a down payment on financing expansion, he told SN.

"It's essential for retailers to be profitable on their own -- from an operational standpoint," he emphasized.

Retailers are beginning to see some of the benefits of the re-engineering strategy, he reported at the meeting. He pointed to increased gross margins, which, in spite of the 1998 sales drop, rose 3.35% in the 1998 fiscal year, as a good indication that positive results are starting to be felt.

"We are hoping that these encouraging figures will turn some of the initial retailer skepticism about re-engineering to belief in its effectiveness," said Parkinson.

While increasing gross margins and returns to members are promising, Parkinson assured retailers the company is "concerned" about the $21 million dip in volume. He attributed part of the decline to a decrease of about $6 million in store development and equipment sales, dropping from $17 million in 1997 to $11 million in 1998.

"Store development seems to be cyclical," he said, explaining that although the total number of stores being remodeled or built was about the same in fiscal years 1997 and 1998, the stores involved were larger in 1997 than they were in 1998, thus the greater sales in 1997.

An additional $7 million was lost because of store closings or stores being acquired by large chains. "In Idaho, we lost several stores to Albertson's," Parkinson acknowledged. The CEO attributed the remaining decline to a dropoff in sales to stores that use Associated as a secondary supplier.

There seems to be less consumer interest in the grocery department to begin with, he said, but some of it can be gained back through more aggressive category management, he told SN.

Another way to increase sales is to build non-member business. Associated's annual non-member sales include about $23 million in general-merchandise volume to Buttrey Food & Drug Stores Co., Great Falls, Mont.; $20 million in cash and carry to independent convenience stores; and another $6 million to $7 million to small retail outlets.

Parkinson acknowledged that the five-year cost plus servicing agreement with Buttrey has about one and one-half years left on it. However, he said the Buttrey volume will most likely be lost when that chain is absorbed by Albertson's in a merger that is pending.