MINNEAPOLIS -- Nash Finch here said it would close 18 stores and put another three up for sale, signaling the end for both the Hispanic-themed Avanza chain and the limited-assortment Buy n' Save concept.
Nash Finch will close two Avanza stores in Chicago and one in Pueblo, Colo., while seeking a buyer for three Denver-area Avanza stores that will stay open for the time being, a company spokesman told SN. In addition, nine EconoFoods locations, all five Buy n' Save stores, and one Sun Mart store will close by June 19, the end of Nash Finch's second quarter, a company spokesman said.
The closures come after more than a year of steep same-store sales declines for Nash Finch, the grocery wholesaler that has long struggled to be a supermarket retailer as well. The closures and potential sale of the three Avanza units would reduce Nash Finch's store count to 85. The 21 stores represent 15% of Nash Finch's annual retail sales.
Nash Finch has attributed struggles in its retail unit to supercenter competition and marketing. Yet some observers see the store closures as a symptom of larger troubles looming.
"It looks like a bad year is getting worse, unfortunately," Burt Flickinger III, managing director of New York-based consulting firm Strategic Resource Group, told SN. "Nash had a five-year plan to build a strong financial foundation on corporate retail, but corporate retail is crumbling and their wholesale customers are under just as much pressure from Wal-Mart as the corporate stores are."
Flickinger added that Nash Finch's remaining corporate stores are also in the path of supercenter expansion, and its profitability will be challenged as Nash Finch bears the cost of this round of closures. "It's hard to make money closing stores," he said.
Nash Finch said it would take a $42 million charge during the second quarter to cover asset impairment costs and future lease obligations related to the closings, but that it expects earnings before interest, taxes, depreciation and amortization to improve by $6 million annually as a result.
Nash Finch's stock was up around 5% on the news late last week.
"They're eliminating stores that had been a drain on EBITDA, and they're eliminating a concept they've touted. That may disappoint some investors, but I like the fact they're narrowing their concept base, which will make it easier on management for a company that does not have a lot of scale," a financial analyst who asked not to be identified told SN. "As long as they don't get out of retail completely, it's good for them. I think it's helpful for a wholesaler to have a retail base to distribute to."
Avanza, often described as a "pet project" of Ron Marshall, Nash Finch's chief executive officer, debuted a little more than two years ago in Denver. The brightly colored stores targeting the growing Hispanic demographic were to be a competitive edge for Nash Finch against alternative formats, and were potentially "a concept that could extend throughout our existing trade areas and even beyond," Marshall told SN last year. However, Avanza's performance has been disappointing, particularly in the two stores that opened last year in Chicago, which not only suffered poor sales, but drew the ire of labor unions.
Observers told SN they admired the Avanza concept, but had numerous theories as to why it failed, citing difficult competitive environments away from Nash Finch's Upper Midwest base and that the Hispanic concept may have excluded potential shoppers in its trade areas. Others felt Nash Finch simply failed to execute the concept authentically enough to attract the customer they sought.
"Avanza was a nice, well-thought-out concept," Bill Bishop, president of Barrington, Ill.-based Willard Bishop Consulting, told SN. "The problem was, there were other strong independent competitors already established in Chicago that were doing as well or better. There were no more seats on the bus."
A spokesman for Nash Finch told SN last week he was not immediately aware of potential buyers for the Denver Avanza stores, which Marshall has said have performed better than those slated for closure.
"When you look at what Nash Finch was trying to accomplish with Avanza, it was dead-on with consumer trends and demographics. The Hispanic market is a sizable, growing and underserved market," said Neil Stern, senior partner with Chicago-based consultant McMillan-Doolittle. "The problem for Nash Finch was once you designate a Hispanic concept, you're narrowing your customer base and possibly excluding others.
"There's a lot of debate still as to whether that was the right approach or whether you'd be better off with an approach that Food 4 Less is taking, where you have a general concept that appeals to all price-conscious consumers, but you tailor it to individual neighborhoods," Stern said.
David Livingston, a Pewaukee, Wis.-based supermarket consultant, said he recently visited the Pueblo, Colo., Avanza store, only to find it lacking in authentic Hispanic products. "It was an Anglo store dressed up as a Hispanic store," he told SN. "I think the Hispanic community viewed it as an authentic Hispanic store as they would view Chi-Chi's as an authentic Mexican restaurant."
In a prepared statement, Nash Finch said the closures would lower operating costs, improve its balance sheet, and allow the company to "focus investment on core areas of its business that offer a better return to shareholders." A company spokesman told SN these areas are wholesaling and military sales. Sales in those divisions of Nash Finch grew by 11% and 2.8%, respectively, during the first quarter ended March 27.
In a recent conference call, Marshall said the company was evaluating 40 company-owned stores that were not No. 1 or 2 in market share. Same-store sales for Nash Finch in its fiscal first quarter fell by 10.9%.
"It's difficult for a company like Nash Finch operating stores in small rural markets because Wal-Mart tends to have so much bigger of an impact there," Sheila McNeely, analyst for Fitch Ratings, Chicago, told SN.
Buy n' Save is a limited-assortment concept launched in 2000 with five stores in Minnesota. EconoFoods locations set for closure include six in Iowa, two in Minnesota, and one in South Dakota. The Sun Mart store closing is in Nebraska.
"Most of the major wholesalers have grappled with the issue of whether they can be a wholesaler and a retailer," Stern noted. "Supervalu has been pretty successful, but Fleming had not been terribly successful, Spartan Stores has had issues going into retail, and now we're seeing Nash Finch have issues. It's tough to be wholesaler and it's tough to be a retailer, and it's tough to be both."