Nash Finch to Revamp Distribution

MINNEAPOLIS Nash Finch here last week said it is reorganizing its wholesaling operations and scaling back on retail under the auspices of the company's new chief executive officer. In a conference call discussing third-quarter results, Alec Covington, the new CEO, said the company planned to divide its wholesaling operations into three divisions produce, meat and Center Store to allow each to focus

MINNEAPOLIS — Nash Finch here last week said it is reorganizing its wholesaling operations and scaling back on retail under the auspices of the company's new chief executive officer.

In a conference call discussing third-quarter results, Alec Covington, the new CEO, said the company planned to divide its wholesaling operations into three divisions — produce, meat and Center Store — to allow each to focus on their distinct priorities. Each will have its own independent management structure and branding, and will be able to pursue customers independently of the other silos.

“It will clearly raise the bar on our ability to distribute properly and satisfy the consumer at store level,” Covington said.

In addition, citing a desire to move away from capital-intensive business of retailing, Covington said the company will seek to convert its company-owned stores to specific niche formats such as upscale, urban or everyday low price, and eventually license them to independent operators. Nash Finch plans to retain some limited retail ownership, however. It currently operates about 67 stores under various formats in the upper Midwest.

“Ultimately, while I believe we will always own some element of corporate retail because we have to have the [research and development] in order to keep the formats fresh, but our intentions with our stores will be to offer the format under a license agreement to our retailers.” Covington said. “We're going to focus on format management — who owns the store is secondary to that.”

He cited some promising signs within the company's retail holdings, including its two remaining Avanza stores in Denver, which he said are profitable, and a test of converted urban store in Omaha, Neb., which he said has had a “dramatic increase in sales” and is also turning a profit.

The biggest changes, however, are planned for the company's wholesaling division, where Covington said he plans to realign Nash Finch's resources to enhance the core attributes of each of the company's lines of business. The changes will restructure its retail distribution arm in a manner similar to the way its military distribution is structured, he said. Produce, for example, will be shipped to stores as quickly as possible to maintain maximum freshness instead of being made to conform to the logistical efficiencies of grocery products. Center Store items, including frozens, dairy and HBC, will be geared toward maximum cost efficiency to enable price competitiveness with Wal-Mart, and meat wholesaling will focus on creating destination departments for independent customers.

To better manage the new alignment, Covington said he could place “somebody along the lines of a president and [chief operating officer]” at the head of each of the core product divisions, rather than a department director.

“It will clearly raise the bar on our ability to distribute properly and satisfy the consumer at store level, which by the way is our fundamental goal,” he said.

The new plan also could involve changes in how the company's 17 distribution centers are used, he said, noting that he believes the company could be more efficient if it shipped produce from a smaller number for distribution centers.

He said he expects to have the strategy in place by the end of next year. The company has no plans to look outside its current geographic reach for new growth for the next few years, he noted.

For the 16 weeks ended Oct. 7, Nash Finch posted a loss of $4.6 million, vs. $11 million in net income in the year-ago period, after a series of charges in the recent quarter totaling $11.2 million. Sales were down about 2.6%, to $1.43 billion. Through 40 weeks, net income was $3.4 million, vs. $27.8 million a year ago, on a sales increase of 2.9%, to $3.53 billion.

In the company's distribution business, third-quarter profit slid 16.3% to $22.7 million, and sales fell 2.8% to $861.2 million.

Retail segment profits slid 12.4% in the third quarter, to $5.6 million, and sales were down 10.7% to $200.8 million.

Same-store retail sales were down 1.8% for the quarter and 2.1% year-to-date.

3RD-QUARTER RESULTS
Qtr Ended 10/7/06 10/8/05
Sales $1.43 billion $1.46 billion
Change -2.6%
Comp-store -1.8%
Net income ($4.6 million) $11 million
Change N/A
Inc/Share (34 cents) 83 cents
Year 2006 2005
Sales $3.53 billion $3.43 billion
Change +2.9%
Comp-store +2.1%
Net Income $3.37 million $27.8 million
Change -88%
Inc/share 25 cents $2.12