HURRICANE RECOVERY CONTINUES

NEW ORLEANS -- Retailers along the Gulf Coast here and in Mississippi were continuing to cope with the challenges of operating in a post-Katrina environment last week even as Hurricane Rita moved toward Texas.

Given the impact Katrina had three weeks ago, residents along the Texas coast were stocking up on water, non-perishable foods, batteries and flashlights before stores in the areas slated for evacuation were shut down.

H.E. Butt Grocery Co., San Antonio, told SN at midweek it was preparing to close 20 stores, including 13 in the Houston market and seven in the Corpus Christi area. "We're monitoring the storm on an hourly basis and doing as much as possible to have products available that people need before we shut down," said Holly Montalbano, a spokeswoman for the chain's Houston division.

Wal-Mart Stores, Bentonville, Ark., last Thursday said it planned to shut down 64 stores in Houston and Galveston that day. Christi Gallagher, a Wal-Mart spokeswoman, said the company had already shipped 150 trailers of water -- about 605,000 gallons -- to facilities along the Texas coast early last week and had generators and dry ice ready to be deployed.

Safeway-owned Randalls Supermarkets said it was shutting down 50 locations in the Houston market.

While Texas operators were preparing for the worst, retailers here told SN that business was generally brisk, although some shortages were reported.

"Our business is double what we would normally do," said Donald Rouse, president of Rouse Enterprises, Thibodaux, La.

Rouse has 15 stores in the New Orleans area, of which 13 were operating last week, with a 14th due to reopen this week, he said. However, the remaining store -- a 40,000-square-foot unit in Metairie, La. -- is months away from reopening, he noted.

"That store was looted and then torn up by a bunch of thugs," Rouse said, noting the looters did more damage than the storm. Rouse said he estimates his product loss at $3 million. Because the Rouse family owns its stores, it did not carry flood or product-damage insurance, he noted, "whereas companies that are financed would have had to carry that insurance."

Rouse said his stores are short on products grown and manufactured in Louisiana, and while he's been able to get most of the supplies he needs, "sometimes that's difficult because FEMA [the Federal Emergency Management Agency] is commandeering some of the products we've ordered."

Rouse, a member of Associated Grocers, Baton Rouge, La., said AG "has had some trouble filling the pipeline because of the surge in business it's been experiencing." But shoppers have been understanding, he said. "We've had lines from the front to the back of the stores. We're the only ones in the area with fresh meat."

Staffing the stores has also been a problem, Rouse said, because a lot of employees have been displaced by the hurricane. Two of his stores had only 18 of 250 regular employees available to return to work, he noted, "so we've had to bus some people in from other stores."

SUPPLY CHALLENGES

Jay Campbell, president and chief executive officer of AG, said a combination of unusual challenges is making supplying stores difficult.

He confirmed that FEMA is buying some orders at the supplier level already staged for delivery. "In addition, we haven't been able to get supplies from New Orleans-based processors, including Zatarain spices and Folgers coffee, which is produced in New Orleans and which reopened last week.

"Another challenge for suppliers," Campbell said, "is to get all the trucks they need for deliveries to us because FEMA is using a lot of the transportation that's available for its recovery and relief work.

Despite all the problems, however, Campbell said AG's volume is up 40% over an average week because of extra demand from retailers trying to serve increased numbers of evacuees.

Like Rouse, Barry Breaux, president of Breaux Mart Supermarkets, Metairie, La., a four-store operator prior to the hurricane, said his stores are coping with the realities of post-Katrina business. With a large number of Winn-Dixies, A&P Sav-A-Centers and Wal-Mart supercenters still out of commission in his trade area, "we don't need a lot of customers to be overwhelmed because we're taking care of other operators' customers right now," he pointed out. In fact, when he reopened two of his stores, they did as much business as his four stores did before Katrina hit, he said.

Another of his stores has also reopened, for a total of three, he said. However, the fourth store, in Orleans Parish, is a total loss following damage from the hurricane and from looters.

There has also been a shortage of employees, with about one-third of his regular staff having relocated and unable to return because of standing water.

LIVING IN TENTS

The situation has been more difficult for Jerry Lee, owner of Jerry Lee's, Gautier, Miss -- an area where many people have been unable to return to their homes or resume a normal life, Lee pointed out.

"People are living in tents or tree houses, so they have no means of refrigeration or cooking, and as a result, our sales of deli items and prepared foods have been good," he said. But because the store isn't selling any produce or meat, business overall is "poor," he noted.

Two of his stores endured severe water damage and damage to the roofs, "and we lost half the inventory at those locations," he said, while a third store lost only its perishables.

All three reopened last week, but the fourth store -- in Moss Point Miss. -- is still a question, Lee said. "It was damaged by the wind and water, and because the insurance adjusters haven't looked at it yet, it's too soon to make a decision," he said.

"But we've been in business 48 years, and I expect we'll be in business another 48 years, so we expect to make it back," Lee declared.

David LeBoeuf, president and CEO of Frank's Supervalu, Larose, La., about 60 miles southwest of here, said all five of his stores have been up and running since the weekend after the hurricane, "and sales are brisk -- about 30% above normal over the last two weeks -- because of all the extra funds the public is receiving from FEMA" and because population shifts out of New Orleans have moved more people into his areas.

His primary complaint was that he lost his local meat and poultry suppliers, "which eliminated my leverage on pricing," LeBoeuf said. He is now getting those products from the Supervalu distribution center in Indianola, Miss., he noted.

Winn-Dixie Stores, Jacksonville, Fla., last week said volumes in the New Orleans region are within 1% of sales levels in the five-week period immediately preceding Hurricane Katrina, with volume increases in stores that are open "substantially compensating" for lost sales.

Winn-Dixie said 102 of its 125 Gulf Coast stores are open, with eight of the remaining 23 stores likely to reopen within six weeks and three others likely to reopen within four months; however, the company said it has not been able to establish a time line for reopening the remaining 12 stores, located in Orleans and St. Bernard's parishes, because it has not been able to fully assess the storm's impact there.

The Gulf Coast stores are being supplied out of the chain's Hammond, La., distribution center, which is also serving as a shelter for some employees.

Winn-Dixie said insurance is expected to fully cover losses in excess of $10 million windstorm and $5 million flood insurance deductibles, while property and inventory losses may exceed $100 million. The losses are not expected to have an adverse impact on earnings due to insurance recoveries.

A&P said it opened three more Sav-A-Center locations last week, for a total of 12 stores in operation and 16 still closed. "There are still areas we just can't get into," said Glenn Dickson, president.

Wal-Mart said 12 of its Gulf Coast stores remained closed last week.