Skip navigation
Western Roundup

Western Roundup

Unified Grocers is going places. Having completed the consolidation of retailer-owned wholesaling on the West Coast with the acquisition of Associated Grocers, Seattle, the Commerce, Calif.-based cooperative is eyeing opportunities to extend its distribution to Las Vegas, Phoenix, Albuquerque, N.M., and cities close to the Mexican border, Al Plamann, president and chief executive officer, told SN

Unified Grocers is going places.

Having completed the consolidation of retailer-owned wholesaling on the West Coast with the acquisition of Associated Grocers, Seattle, the Commerce, Calif.-based cooperative is eyeing opportunities to extend its distribution to Las Vegas, Phoenix, Albuquerque, N.M., and cities close to the Mexican border, Al Plamann, president and chief executive officer, told SN — opportunities that encompass organic growth by existing members and recruitment of new members.

With the acquisition of AG's assets — following the acquisition of Portland, Ore.-based United Grocers in 1999 — “the I-5 corridor has, for all intents and purposes, been consolidated,” Plamann said, referring to Interstate 5, the highway that runs from the Mexican border north through California, Oregon and Washington to the Canadian border.

While that corridor's western edge pretty much borders the Pacific Ocean, Unified believes it can mine significant volume up to 300 miles out on the eastern side, Plamann noted.

“And if we stay with that Interstate strategy, then our next opportunities lie along Interstate 15 through the Inland Empire in Southern California leading to Las Vegas, and the Interstate 10 corridor through Phoenix east to Texas.

“Las Vegas and Phoenix are two of the fastest-growing cities today, and many of our members are looking at Las Vegas in particular for real growth opportunities,” Plamann said.

Plamann said he doesn't see Unified moving beyond Albuquerque, though the company does service a single store in El Paso, Texas, south of Albuquerque near the Mexican border, operated by a California-based member, Mike Provenzano, owner of Pro's Ranch Markets.

When Provenzano opens a new store in Albuquerque early next year, Unified will establish a beachhead there, Plamann pointed out.

“We've made some sporadic sales calls in that area already, so we know there's business to be had there,” he said. “It's a marketplace where there aren't many independents, but we see Albuquerque as a market that's ripe for independent growth.”

Unified also does some business in Phoenix, and Plamann said he sees opportunities to recruit new members as far north as Flagstaff, Ariz., as well as along the Mexican border.

“Some of the markets we're targeting for growth are not necessarily markets where there are a lot of established independents,” he said. “But we believe independents are the best solution for areas where there are large ethnic populations.”

Unified does a good job of serving Hispanic customers, Plamann noted, “but we've done a weak job serving Asian retailers, and we intend to spend more time shoring up that segment as the growth of Asians in the West continues to accelerate.”

Additional growth opportunities for Unified members are coming from the sale of some chain locations to independent operators, Plamann noted, “and we're also picking up some non-member chain business through the specialty, ethnic, organic and natural food offerings of our Market Centre subsidiary,” he added.

Plamann said he also sees growth opportunities for existing members within Unified's operating geography — opening member stores along the Mexican border; taking business away from voluntary wholesalers in Northern California; and, in the Pacific Northwest, “providing retailers, especially those in Washington, with financing to grow, which was not previously available but which we're poised to offer.”

“And there are opportunities in Hawaii for us to consolidate the business Unified and AG have been doing separately there,” he added.

Unified is the second-leading wholesaler in Hawaii, and AG was third, so consolidating the operations should make Unified a stronger competitor there, Plamann noted — a combination that could help it challenge the market leader, C&S Wholesale Grocers, Keene, N.H., which began servicing retailers in Hawaii when it acquired Fleming's business there.


Much of Unified's focus over the next couple of years will be directed toward the Pacific Northwest, where it picked up approximately $900 million of retail volume by completing its acquisition of the working capital and supply agreements for approximately 325 AG members.

That deal, for which Unified paid close to $70 million, closed Sept. 30, the first day of Unified's new fiscal year. Unified sales for the year that ended Sept. 29, which have not been released, are expected to total approximately $3.1 billion, Plamann said.

Of Unified's new $4 billion combined volume, the Pacific Northwest will account for the largest portion — 43% — with Washington retailers accounting for 23% of the total, Oregon for 20%, Northern California for 20% and Southern California for 37%.

According to Plamann, Unified's agenda for former AG members includes:

  • Retagging stores and introducing new ordering procedures by March.

  • Completing systems integration by September.

  • Determining over the next year how to distribute long term to its Washington members as the four-year lease on AG's distribution facility in Seattle winds down, then implementing that distribution solution during 2009.

  • Generating synergies of $15 million to $20 million over the next three years.

Prior to the acquisition, Unified had 510 members operating approximately 2,500 stores in California, Oregon, Washington, Arizona, Nevada and Hawaii, plus non-member customers in Colorado, Mexico and several Pacific Rim nations; and AG had 129 members operating approximately 325 stores in Washington, Oregon, Alaska, Hawaii, Guam and the Pacific Rim.

Unified's interest in AG dates back to the late 1990s, Plamann said, when Unified's volume was running around $1.8 billion.

“AG was part of a strategy we developed to integrate retailer-owned wholesalers on the West Coast along the I-5 corridor — United Grocers in Portland and AG in Seattle — at a time the rest of the industry was going through a lot of consolidation on both the retail and vendor sides,” he explained.

Unified decided to approach AG first, “because United Grocers was going though a lot of reorganization at the time, selling off its cash-and-carry business and its insurance operation,” Plamann said.

“In fact, AG and UG had been talking about a possible merger until AG began competing with UG after buying Fleming's business in Oregon, at which point UG lost interest in merging with them. So we opened negotiations instead with UG and made that deal first, in 1999.”

(It was the merger with United Grocers that prompted the acquiring company to change its name from Certified Grocers of California to Unified Western Grocers. It changed its name again, to simply Unified Grocers, just prior to completing the AG acquisition.)

“We didn't make overtures to AG again until 2005, when they announced they were looking for strategic alternatives,” Plamann said. “We engaged in some discussions with them, but then they had a turnover in top management [with John Runyan succeeding Bob Hermanns as president and CEO], and the strategic process was put on hold to give Runyan an opportunity to get a handle on the business,” Plamann said.

“But once Brown & Cole [AG's second-largest member, accounting for close to 13% of total sales] went into bankruptcy about a year ago, things turned upside down there, and that encouraged AG to look more aggressively at the sales process.”

(Brown & Cole is scheduled to emerge from Chapter 11 next month, with 20 of its original 27 stores intact and a new equity owner that plans to invest capital in the operation.)

Although there may have been other domestic bidders for AG besides Unified, industry sources said there was also one foreign bidder: Metcash Trading, an Australia-based company that is one of IGA's licensed distributors. Metcash representatives could not be reached for comment.

Unified and AG reached a definitive agreement on an asset sale last August, with Unified financing the deal through its own lines of credit, Plamann said.

From talking with AG members, “it was clear from the outset there were two requirements that any serious bidder for AG had to satisfy: a secure, competitive source of supply, and the ability of its members to get value back from their investment in the company,” he pointed out.

“Unified is clearly a competitive force with secure long-term prospects. We were already doing some business near Seattle, and AG had members in Portland, so we overlapped, and their members were certainly aware of how competitive and how strong and financially stable we are.

“AG's members also knew us because we've been supplying general merchandise and health and beauty care items to them since 2001, when they sold their nonfoods facility.

“And because we have our own distribution facilities in Portland that can service customers in the Seattle market, we were able to make a bid that didn't require a distribution center, so AG was able to negotiate the sale of its Seattle facility and use that liquidity to pay cash to its members.”

The deal was also structured so that AG could dissolve the assets and liabilities Unified didn't buy and return additional cash to the members, Plamann said.

To accomplish that, a company called AG Post-Closing was set up to help liquidate receivables and more than 80 leases, and oversee distribution of cash to former AG shareholders, Plamann said.

“We thought having a separate dissolution company was the best way for AG to distribute proceeds due to its members, rather than having us buy those assets and take over the allocations. We preferred to acquire the retail base and move with it on a go-forward basis.”

AG sold the 1-million-square-foot warehouse in February to Sabey Corp., Seattle, for $91 million, then leased the facility back for up to four years — leaving it up to the new owners to develop a long-term alternative distribution plan.

Plamann said Unified has already begun studying its options, “and we'd like to get our arms around a solution and present that to our board by next summer,” he told SN.

The biggest challenge involves dealing with the geography of the region, Plamann said.

“Seattle itself has serious traffic issues, and there are a host of transportation issues in almost every region. There are roughly 10 retailers on islands in Puget Sound where delivery trucks have to be ferried across, and other members west of Seattle and up near the Canadian border that are not concentrated in urban areas and where access by highway is limited,” he said.

Among possible solutions, Plamann said, are to operate two distribution facilities in the area: one north of Seattle to service the city, the islands in Puget Sound and the northern part of the state; and another south of Olympia, at the southern tip of Puget Sound, to service southern Washington and northern Oregon.

“But whether that is the solution we end up with, I'm not sure yet,” he said.

Lessons Learned

Plamann said he believes the transition of ownership from AG to Unified has gone smoothly, in large part because of lessons Unified learned when it acquired United Grocers eight years ago.

“From that experience we learned that we needed a transition team in place prior to closing the deal, that included senior staff from different functional areas to help us understand how their business works so we could establish communications to start the planning process for the actual integration,” he said.

“We also learned not to be too hasty in migrating systems and to determine which systems are best first, before implementing those changes.

“In addition, we realized we had to have an easier process for hiring AG employees who would stay with us. To do that, we developed an online application procedure so we could complete all the processing prior to closing the deal.”

Unified ended up hiring 650 of AG's 710 employees, or about 92%, he noted.

With the deal completed, Unified plans to spend the first six months developing an action plan to integrate AG's retailers into its membership — a process Plamann hopes will be completed by March. “That process involves retagging the 325 stores and migrating those retailers to our ordering patterns and sell system,” he explained.

“Once that process is completed, we'll begin determining the best IT solutions and implementing those changes, so that by the end of the first year of operation, all new members should have completed the migration and we can go into fiscal 2009 with a fully integrated membership.”

Plamann said Unified doesn't anticipate making any immediate supply chain changes. “That's another thing we learned from the UG acquisition — that we don't want to jump in too quickly, because we're going into the holiday period, and modifying supply arrangements and sourcing could result in problems.

“So we're not looking for any synergies for the first six months. Instead, we intend to keep things pretty much as they are till the end of the calendar year — though to the extent we can add product from our facilities for Seattle-area retailers, we're doing that.”

Plamann said Unified anticipates synergies from combining administrative activities, distribution and information technology. “We don't have a firm dollar estimate yet, though we believe the synergies will be significant — somewhere in the range of $15 million to $20 million.”

Runyan has agreed to stay on through at least the end of the calendar year and possibly through the first quarter of next year, Plamann said.

Among the projects he's working on are overseeing the dissolution of the parts of AG that Unified did not acquire; utilizing his relationships with AG retailers to help Unified understand how to serve them better; and offering advice and counsel on how best to implement some of Unified's programs, Plamann said.

Physically and financially, AG is in good shape, he noted.

“I give John Runyan a lot of credit. He came in and quickly made decisions that focused the company's attention on its basic business model, and as a result he's turning over a very strong retailer and employee base,” Plamann said.

“And their culture is very much like ours. During the two months prior to the closing, our transition team developed relationships that will pay big dividends down the road in terms of the integration process and merging best practices.”

Although the company has been doing business as Unified Grocers since August, it is still formally Unified Western Grocers until February, when shareholders will vote on the name change — a foregone conclusion, according to Plamann.

“We conducted a survey among members, employees and various industry people and determined that ‘Unified’ was a strong name, but ‘Western’ added a complexity that wasn't necessary,” he explained.

The annual meeting is scheduled to be held in mid-February in Seattle.