PORTLAND, Ore. -- Fred Meyer Inc. here said it expects to achieve $45 million in annual benefits beginning in 1999 as a result of its merger last week with Smith's Food & Drug Centers, Salt Lake City.
The merger, which was approved by shareholders of both companies last Monday, creates a new holding company called Fred Meyer Inc. that includes a total of 420 stores in 19 states -- 112 Fred Meyer stores, 152 Smith's stores, 151 jewelry stores and five specialty stores -- with a combined volume of nearly $7 billion this year. Of the total, 259 stores in 11 Western states, including 107 Fred Meyers, carry food.
Smith's operates 124 Smith's Food & Drug stores -- a combination format -- in seven states: Utah, Idaho, New Mexico, Arizona, Nevada, Wyoming and Texas. The company also operates 23 Smitty's Supermarkets in Arizona and five Price Rite Grocery Warehouses in Nevada.
"It's a terrific fit, both operationally and geographically," Robert G. Miller, chairman and chief executive officer, told a special meeting of Fred Meyer shareholders last week.
"We are excited about our merger with Smith's and see more opportunities now than we expected when the merger was announced last May," Miller said.
High on the new company's list of major projects, he said, is remerchandising 18 Smitty's stores in Phoenix and converting four other Smitty's there to Smith's combination stores over the next two years, at a cost of $88 million.
"Fred Meyer's expertise with general-merchandise products is perfect to help Smith's with the remodeling and remerchandising of the Smitty's stores," Miller said.
Miller said the company hopes to save $35 million in 1998 and $45 million each year thereafter. In addition to the remodeling plans, Miller outlined other ways the company hopes to achieve those synergies:
"Fred Meyer can stop using outside sources to stock its Utah [and Idaho] stores with goods by tapping into the Smith's distribution network and the excess manufacturing capacity of its commercial dairy and bakery plants, while Smith's can stop using outside sources for much of its information systems needs by tapping into Fred Meyer's new MIS capabilities -- all of which will help reduce general and administrative expenses."
Miller said Fred Meyer also expects further savings to accrue from participation in a Best Practices purchasing program that already includes Smith's; Ralphs Grocery Co., Compton, Calif.; and Dominick's Finer Foods, Northlake, Ill. -- all owned in part by Yucaipa Cos., a Los Angeles-based investment firm that became Fred Meyer's largest single shareholder as a result of last week's merger.
In a separate, premerger development, Fred Meyer said it had increased sales and earnings for the second quarter and first half ended Aug. 16, including same-store sales increases in food of 4.7% for the quarter and 5.4% for the half.
In a phone conversation with securities analysts, Miller said the $88 million being committed to Smitty's will be used to remerchandise 18 stores of 110,000-square-feet each, with two scheduled for completion by November, 10 more next year and the balance of six early in 1999. Those stores will be renamed Smitty's Marketplace, a Fred Meyer spokesman told SN. Four other Smitty's will be converted to Smith's combination stores sometime next year, and another Smitty's is expected to be replaced with a new unit under the Smith's name, the spokesman said.
Asked whether Fred Meyer plans to add more Smitty's units, Miller told the analysts, "We like the program we're developing for Smitty's, but when a real-estate opportunity came up in Phoenix, we decided to go with a Smith's store -- though we still could expand the new Smitty's concept.
"We know that a supercenter format helps drive sales by being strong in a lot of different categories, but we like the 60,000-square-foot Smith's combination stores, and it pleases customers too. So that, plus the new Smitty's concept, give us additional formats we can use, depending on market conditions and locations."
Miller said the first two Marketplace stores will serve as a test of the new Smitty's concept "as winter visitors come back to Phoenix.
"We will spend a lot of money to make the Smitty's into first-class stores," he added. "We feel our planned investment in Smitty's will revitalize the Arizona division and will provide an excellent return on investment for shareholders."
According to Miller, the changes that will be implemented at Smitty's include replacing restaurants with indoor and outdoor garden sections; adding a selection of patio furniture, and expanding the number of stockkeeping units of household products.