LOS ANGELES -- Unified Western Grocers here said it elected three outside directors to its board for the first time at its annual shareholders meeting, to help the company deal with a more complex competitive environment.
The outside directors are Dieter Huckestein, president, owned and managed hotel operations for Hilton Hotel Corp.; John D. Lang, president and chief executive officer for Epson America; and Thomas S. Sayles, vice president, governmental and community affairs for Sempra Energy.
According to Al Plamann, president and chief executive officer, "Given the tighter and more closely regulated business environment that we now find ourselves in, the decision to add these directors will go a long way toward enhancing our company's ability to navigate through an increasingly challenging business climate."
To accommodate the three outside directors, Unified reduced the size of the board from 18 members to 16.
Bill Cote, controller, said Unified is running ahead of plan three years after the merger of Certified Grocers of California with United Grocers, Portland, to form Unified. He said the company has achieved synergy savings of $45.7 million -- 6.5% ahead of the projected savings of $42.9 million.
Most of the savings occurred in the first year after the merger, while savings in the second and third years were pretty much on plan, he acknowledged.
According to Cote, savings achieved this year included $6 million from operational efficiency initiatives in warehousing and transportation, including a 7% improvement in throughput; $11 million in inventory reductions; and a workforce reduction of 341 employees.
Cote said Unified's sales, excluding its discontinued 12-unit retail division, rose 0.7% to $2.79 billion for the year, and patronage dividends increased 12% to $16.7 million.
In his prepared remarks, Plamann said he sees "some very ominous trends are hanging over our industry like dark clouds," including increased government scrutiny of the industry's financial dealings and disclosures, accounting procedures, executive compensation policies, corporate governance and trade practices, "with numerous probes into whether vendor allowances are being properly accounted for by companies within the retail grocery supply channel."
He noted that Unified has reviewed its policies "and we are in full compliance, but the broader issue of concern is the change in policies, procedures and regulations that are imposed on the rest of the industry once these matters are resolved.
"Compliance with new policies and procedures is not only time-consuming, but it can also be extremely costly to retailers and wholesalers who are accustomed to doing things 'the old way."'
One such challenge, Plamann said, will be the U.S. Department of Agriculture's new Country of Origin labeling program, which will place the burden for accuracy on retailers when it takes effect Sept. 30, 2004. "If this law is not changed or rewritten, the burden it will place on retailers in terms of new procedures and non-compliance penalties will be substantial," he declared.
Despite the economic and competitive challenges facing the industry, Plamann said the independent sector in the Western U.S. has been growing and gaining market share due to its ability to differentiate its offerings from the chains. "Because independents have more freedom to make changes in their overall product selection, service offerings or overall format, many have successfully pulled market share from cookie-cutter chain stores -- stores that are essentially the same wherever you go," he explained.
One area that some independents need to change is their unwillingness to get into natural or organic foods, Plamann said. Citing the success of Whole Foods Market and Wild Oats, Plamann said natural and organic products are among the fastest growing categories in the industry, "yet many traditional retailers have been slow to respond to this clear shift in consumer preferences. In this case, inaction is equivalent to losing market share."