CONSOLIDATION'S NET EFFECT

WASHINGTON -- Consolidation -- the force that's seemingly driving business as the 1990s conclude -- will continue as a potent dynamic in food retailing for another year or so, according to Tim Hammonds.And, he said, "big moves" involving big companies should be anticipated.Hammonds, president and chief executive officer of the Food Marketing Institute here, was interviewed by SN prior to this week's

WASHINGTON -- Consolidation -- the force that's seemingly driving business as the 1990s conclude -- will continue as a potent dynamic in food retailing for another year or so, according to Tim Hammonds.

And, he said, "big moves" involving big companies should be anticipated.

Hammonds, president and chief executive officer of the Food Marketing Institute here, was interviewed by SN prior to this week's FMI Midwinter Executive conference. During the interview, he talked about several consequential industry issues, as well as developments concerning the FMI itself.

This year's edition of the annual Executive Conference -- the meeting that draws top-level food-industry executives -- got under way at the weekend at the Disney Yacht and Beach Club in Lake Buena Vista, Fla. Hammonds said that in future years, the venue will alternate between Phoenix and Boca Raton, Fla.

Speaking to critical industry developments of recent months, notably the megamergers of food retailers, Hammonds pointed out that the drive to acquire was far from unique to the food industry, and that food has actually been late to the game.

"Every industry is going through this and the industry of every country is going through this," he said. "This is not unique to the food business, in fact the food business has been late to the party. A lot of other industry groups started this earlier. So I'm convinced this is a trend that's here to stay, and obviously there is more to come.

"I think we have another 12 months of watching some big moves unfold. We think there are some large retailing companies that will be involved in surprising deals, just as some of the recent deals have been surprises."

And, when the consolidation string runs out for big mergers, American retailers may seek growth elsewhere, as is generally the case when market saturation is achieved: "Clearly, we'll reach the point where American companies will start to look overseas for acquisitions. Maybe that won't happen this year, but it could in 2000. They will do so because targets of opportunity that have been so rich here will decrease, so at some point Americans will need to look overseas. It will become more of a global world."

Asked what might be the effect on retailing as big companies consolidate and get bigger, Hammonds said supermarket retailers that escape the acquisition fray would find they could survive best by moving toward niche retailing of some sort.

The application of new strategies to small-scale food retailing is especially critical now, he pointed out, because, unlike mergers of the 1980s, current-day mergers tend to produce larger operators that are more efficient, placing smaller companies at a further disadvantage.

"Despite all that's happened, I still think this is an industry that has room for all kinds of operators," he said, "but obviously it's going to be necessary for family-owned companies, particularly single-store operators, to become more focused on a very specific strategy. They need to discover what niche they should occupy.

"Given the efficiencies of some of the larger companies, probably it is true that smaller companies need to go in either of two directions. One is to become a high-service store with gourmet product and whole-health solutions; the other is to become very disciplined, featuring low service and low prices.

"I suspect we'll see operators that develop a strategy on either one end or the other being successful survivors, and fewer of them in the middle of the market," he said.

Strategic retailer moves such as these must be undertaken with a new spirit of retailer-wholesaler cooperation, Hammonds added.

"Obviously, retailers' relationships with their wholesalers have become just critical. There are discussions between retailers and wholesalers going on now about how they can begin to act more like chains and capture the efficiency of a chain perhaps better than before. Those are very healthy discussions."

Consolidation also presents a new world to the FMI, Hammonds said. That's because there are fewer companies of a size that will bring in 25 or so attendees, reducing the volume of attendees of shows -- not at this week's show, but at the FMI's big exposition, set for Chicago May 2 to 4.

In response to changing conditions, he said, the Chicago show is being repositioned as an event that will draw increasing numbers of international visitors. "The strategy we started several years ago was to make the annual May convention not just a domestic show, but a big-time international show as well. The international audience on the floor does keep the traffic volume up, and provides to manufacturers something they don't see at other food shows.

"It's kind of a race for us. Clearly, the domestic numbers are beginning to go down because part of the magic of the consolidation has been to reduce the overhead and duplication at headquarters staff. So there are fewer people managing the very large companies being formed. That is the shrinking piece of it. The race on the other side is how fast some of the developing areas, such as China, come along. Right now Asia is in a slowdown and Latin America is in a slowdown. But they will work through that and begin to pick up, so that side will begin to grow.

"So the good news for FMI is that our membership continues to grow. The bad news is that when one of the really big member companies acquires another, a company is lost as a dues payer. We have a ceiling on dues, so the dues base shrinks even as the number of members grows," he said.

Industry changes also mandate changes in the form of the Chicago convention, Hammonds said: "What we need to do, as we have started to do, is to change the nature of the show so it is less about people coming for a good time and free samples, and more of a business opportunity. It needs to be a place where people make appointments and sit down to talk business."

Asked if that implies that booth shows -- the staple of the trade-association circuit -- may become obsolete in the course of time, Hammonds said exhibit shows still have some life left.

"We don't think booth shows will fade yet. We've talked to several of our exhibitors about whether they would rather have conversations in a business suite instead of on a convention floor. Their answer, so far, has been, 'No, the convention still serves us well, especially if we have a way to have conversations where we have our product set up, in the booth.' This means that, so far, booths with private-meeting areas seem to work well."

Nonetheless, plans call for the FMI to temporarily convert one of its booth shows to a non-exhibition format, namely the FMI Meal Solutions show. That show had its most recent incarnation last October in Tampa, Fla. The show floor attracted fairly little traffic. "Meal Solutions won't be a booth show this year," Hammonds said. "That's because we found that the show had put the topic on the table and succeeded in getting the industry focused on it. But then, over the period of a couple of years, the industry divided into three camps: The first group is those who had decided not to do it, or to pull back because the investment was unsupportable. The second group is those who had been at it a while and are doing very well. They don't want to talk about educating their competitors about what they're doing. That leaves a third group as our show audience. That's the group that's still figuring out where to go.

"Given that reality, we talked to our board advisory committee this fall and they said 'Let's reinvent that show so meal solutions is a piece of it, but we probably need to call it something like "Solution Selling." '

"So we intend to do an educational event [workshops] alone this year. Then in future years we'll add exhibits concerning meal solutions and probably some whole-health solutions and natural-food products. So each year we can say it's the show about new ways to grow the top line, and we'll add whatever is hot and new about growing the top line to ongoing components. That will give us a viable exhibit show. So we think we'll resume exhibits in 2000 and have a concept the renews itself each year."

The revamped -- and perhaps renamed -- Meal Solutions show is to be Sept. 26 to 28 in St. Louis.

Meanwhile, plans call for the FMI to partner with a show operator in Asia. The FMI plans to be involved in the China Retail Conference and Expo, Sept. 26 to 28 in the ITEX Convention Center in Shanghai. The FMI is working with another show organizer, a Shanghai group called Keylong Exhibitions, which recently attracted investment from a European company, Royal Dutch Jaarbeurs. The FMI's part will be to develop a seminar program for show attendees.

In other recent changes at the FMI, Hammonds said, the governmental relations side of the organization has been revamped under the guidance of John Motley 3rd, senior vice president for public affairs.

"The objective of the reorganization is to focus on being more proactive on the Hill -- to do more than lobby individual bills that come our way; to be out front on issues."

Issues of concern include the estate tax and inspection procedures of imported meat, he said.

The FMI also intends to "develop a much more forceful and active state government-relations program," Hammonds said. As an example, the FMI recently helped defeat a ballot initiative that would have barred the construction of food-irradiation facilities in Hawaii.