THINK BIG 2000

MARYELLEN LO BOSCO

OKLAHOMA CITY -- One way Fleming Cos. here helps independent retailers stay competitive in Center Store is by teaching them to think like the big chains.

Fleming has implemented a number of strategies over the last year or two to make both itself and its customers stronger, more resilient, and more able to face the retailing challenges ahead. Currently, the company has 33 distribution centers across the country that service 41 states. Of those centers, 25 are for food, six are for general merchandise and specialty food, and two are for convenience items. In addition to servicing 3,000 supermarkets and thousands more supercenters, drug, convenience and other retail formats, the wholesaler runs 213 of its own retail stores.

"We've had to rethink [our position] as a wholesaler, insofar as how we go to market," said Roy Fossum, vice president of nonperishables procurement. "We've had to change our thinking in how we help the independent retailer compete with big chains. What we've had to do is think and act more like a national chain as opposed to a wholesaler providing goods. We've helped independent retailers develop marketing plans and negotiate with more clout. We're getting them to be intradependents."

Fossum explained that Fleming has gotten a variety of retailers to sit down and talk about promotions that may be available from a supplier. The group then agrees to guarantee a manufacturer that all the stores will put up displays, agree upon price point, etc. In turn, the supplier will make available to the independents allowances for Center Store products that formerly had not been within their reach.

"We refer to it as our consortium," explained Fossum, "and we've been doing it for a little over a year. There are 33 members and several hundred stores, and it's growing and growing. We've said to both the retailers and the suppliers that if they see a value in what Fleming is doing, they'll want to be a bigger part of it. As a result, we've been able to negotiate some deals that the retailers haven't seen before."

Another benefit Fleming is bringing to all its customers is more display-ready pallets in Center Store. The wholesaler began making these available in Food 4 Less stores, but as Fleming received more deals and offerings from vendors, it expanded the display pallets to more stores with more conventional formats. Conventional stores are realizing that items available through a pallet program are those that every retailer sells and promotes, Fossum said, so they too are jumping on the bandwagon.

Fleming is generally doing more promotion across the board, Fossum said. "There has been quite a bit in the past year," he said. "The majority of our customers are high-low operators. As the competition gets more fierce, we try to find more promotions, and we have had increases in one-day sales, percent-off sales, category sales, coupon offers, and so forth."

Promotion of its own private-label brand is a key Fleming strategy, and the company has done more of that in the last year, according to Fossum. "This year we had an internal goal of 20% penetration in company stores, meaning 20% of our grocery sales should be private label," he said. Fossum noted that in order to reach that goal, retailers must devote 20% of their shelf space, in-store merchandising efforts and promotions to private label. "We've been doing that since the fourth quarter of last year, and that has been a real growth area for us."

Fleming is also working on revamping its assortment with an efficient assortment process that has been brought down to the local level. The wholesaler has been visiting the issue market by market, which has clear implications for its customers, in terms of shelf sets, facings, footage and items to discontinue.

"The project started last year. We researched and collected numbers in each of our divisions," Fossum said. Fleming is halfway through the project and is currently involved in actually implementing its research findings in each of the product supply centers. Fossum expects the work to be completed in the fall.

Specialty foods are now sold out of the company's six general-merchandise divisions, and this business has grown. "Sales are up substantially in that area," said Fossum. "We are looking at more upscale and health-food stores as customers and are soliciting their business."

In addition, some of Fleming's more progressive retailers are doing more in the way of solution selling, although most of them still stick to an island or an endcap to display "meals in minutes," usually with one or more promotional items. But Fleming is encouraging retailers to do more in this area.

One place where solution selling has been successful is in the pet aisle, where many Fleming customers are opting for pet care centers. The introduction of the Iams brand to the grocery trade has helped augment pet care sections.

Fleming's private-label business is booming, in both corporate and noncorporate stores. A few years ago Fleming made the decision to phase out most of its private-label banners and get behind the Best Yet, IGA and Piggly Wiggly brands. All three labels have been repositioned as first-quality, national-brand equivalents.

With regard to Best Yet, repositioning also meant, in addition to new packaging and promotion, a fresh look at every item and a re-evaluation of every manufacturer.

"What you don't see is that we've rewritten every spec and re-evaluated every manufacturer we use. We've gone with the best we can find and eliminated a lot of products from the line," said Wayne Altschul, group vice president for Fleming Brands. Fleming has been pulling, upgrading and adding items, and many new stockkeeping units were added beginning last winter. The Best Yet line currently has about 2,000 items in grocery, frozen and dairy. More than 200 items were added last year, and Altschul said the company is continuing to add products this year. Not surprisingly, the biggest-selling items are staples like canned vegetables, sugar and oil, and cheese, which is growing at a rapid pace. Also growing are value-added items like pizza, which competes with the likes of Tombstone, Freschetta and DiGiorno.

Fleming has also increased the number of items in its "Living Well" frozen-food line, which is positioned to compete against brands like Healthy Choice. There are now 21 SKUs in the line, and Fleming will soon be taking a closer look at the brand, which is doing well.

"We had two rounds of line extensions after the initial launch," Altschul said. "It's a tough category, frozen food, because it changes every week, and you are going up against the big guys. It's very competitive."

In addition to improving the quality of private label, Fleming changed the logo when Best Yet was first relaunched, and the company has continued to develop a "look" for each category.

"We've designed the brand to have a large umbrella so we could dress it up or dress it down and so we can sell the brand across the store," explained Altschul. Thus, the brand has a visual presence throughout the store because of the strong logo design, even though each category may look a little different.

The payoff for all this work, both behind the scenes and up front on the label, has been much more brand recognition. Fleming does a yearly tracking study of its private label, which measures such factors as trustworthiness and intent to purchase, and the numbers have gone up over the last three years. Year-to-date volume is up 74% for Best Yet products in company-owned stores, Altschul said.

Fleming stands behind the Best Yet line with a number of strong promotions throughout the year, including a recently established anniversary sale. According to Altschul, the company saw the highest penetrations for last October's anniversary promotion, which will be repeated this year, with giveaways in every store, point-of-sale materials and birthday balloons. In July, the retailer will run a "treasure-aisle" promotion, designed to help consumers find different types of private-label products in the store. Altschul explained that this kind of promotion helps retailers grow sales in categories where people are less likely to buy store-brand products. Customers must go through the store and answer questions, which helps to focus their awareness of Best Yet. Their answers are then dropped in a ballot box, from which prize winners will eventually be drawn.

What's also helping to make Fleming's private-label brand more competitive is the wholesaler's strategy of moving toward centralized procurement and management.

"That's having a beneficial effect on store brands. It creates an opportunity to leverage manufacturers and, we hope, deliver better and sharper pricing to our retailers because of it," said Altschul.

Another new direction for Fleming as a company is that the wholesaler is selling to a wider range of customers.

"We sell to drug stores, mass merchandisers like Kmart, and chains, as well as independents, and we are doing more business with convenience stores," said Steve Davis, executive vice president and president, wholesale.

"Our greatest challenge, as a wholesaler, is keeping the independent competitive and healthy," continued Davis. "It's a bigger issue because the independent's market share is declining, and this is a major concern of ours."

Other challenges for the wholesaler have been a decline in deal opportunities and broker coverage. Davis explained that vendors are reallocating their promotional funds, which may translate into fewer deals from manufacturers.

As Fleming works to stay competitive, it has also made some changes in its warehousing operations. These include the use of more flow-through distribution, in which products spent less time housed as inventory and flow in one door and out the other very quickly, said Davis.

"We are working hard on a low-cost pursuit program, which is taking non-value-added costs out of the system. If we don't need something, we get rid of it, in terms of unnecessary activities in the warehousing operations," said Davis. Part of the new program is a centralized procurement operation in Dallas, which is helping Fleming lower the costs of goods. About 60% of products come through central procurement.

"The program was instituted a little after the first of the year. We are trying to centralize as many activities as we possibly can," said Davis. "What we are leaving alone are those activities that touch the customers."