Is Roundy’s Getting Out of Wholesale Biz
By George Anderson
With the sale of two distribution centers in Lima, Ohio, and Westville, Ind. to Nash Finch, Roundy’s has come closer to putting itself out of the wholesale grocery business.
“It almost completes it,” consultant and RetailWire BrainTrust member David Livingston told the Milwaukee Journal Sentinel. “The only wholesale that they’ve got left is
in Wisconsin.”
Robert Mariano, chairman and chief executive officer of Roundy’s, said in a released statement that the sale of the two distribution centers was “consistent with our strategy
of focusing on and growing our retail operations, and to concentrate on our independent distribution business in the upper Midwest.”
With the sale, Roundy’s will now focus on distributing products to its own stores operating under the Pick ‘n Save, Copps and Rainbow Foods’ banners. It will also continue to
serve independent retailers in the Upper Midwest.
“Our remaining Wisconsin based distribution centers, including our new 1.1 million square foot facility in Oconomowoc will efficiently service our company-owned stores and independent
customers located primarily in Wisconsin, Minnesota and Illinois where we continue to expand our presence,” said Mr. Mariano.
Moderator’s Comment: Is Roundy’s headed in the right direction? What does this sale say about the state of grocery wholesaling in the U.S.?
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George Anderson – Moderator
I wouldn’t read too much into this other than that Roundy’s is managing their business well and focusing on areas and regions where they can be profitable. To write off the grocery industry distribution to independents, or to think it says much more than a good business decision is speculation that may be misguided.
Based upon the goals of the “new” Roundy’s, they are heading in the right direction. Much of their retail is in a non-union, non Wal-Mart Supercenter environment, with no meaningful competition, except Minneapolis. Most of the wholesale customers cannot say this. With Nash Finch willing to pay a huge premium to replace its dying wholesale base, how could Roundy’s refuse?
A recent report shows that Milwaukee grocery prices have risen 5.2% versus 3.8% nationally. With a 60%+ market share and growing with several more stores opening, this presents a great opportunity for Roundy’s. For the time being, they get to have their cake and eat it too.
In some rural areas where Roundy’s competes with Wal-Mart Supercenters, they have been very effective in using Wal-Mart as muscle to drive out other competitors.
To the best of my knowledge, Roundy’s has benefited from some good luck. Some of the good luck they created themselves through smart business practices:
1. Fleming filed for bankruptcy, destroying several independents with them.
2. A&P, just being themselves, destroyed the Kohl’s chain.
3. Roundy’s was able to buy the Fleming Rainbow and Kohl’s stores for pennies on the dollar, only taking the best locations.
4. Many acquired stores are non-union, mostly with the blessing of the union.
5. Roundy’s has effectively used Wal-Mart in rural areas to bring weaker competitors such as Fresh Brands to its knees.
6. Lack of competition has allowed Roundy’s to have better profit margins in its high volume Milwaukee area stores.
7. Roundy’s relocated its corporate headquarters and was able to eliminate higher cost, older employees who were not willing to move or make the long commute.
8. Safeway, just being themselves, is destroying Dominick’s, allowing for another quality “pennies on the dollar” acquisition opportunity.
9. With so few independents remaining, Roundy’s can grant them a friendly divorce without adversely affecting the company.
10. My guess is Roundy’s will probably make offers to buy any independents remaining as long as they have sales volumes of at least $300-400k per week, or the opportunity to get there.
With no meaningful competition in Milwaukee, Roundy’s is definitely heading in the right direction.
As Mariano stated, this move is taking them right where he wants to go – more into Corporate Retail where they can manage the categories and the stores, and away from the wholesale business.
In a market where you are the leader, you can do a lot to differentiate yourself and not just rely on price – it’s a great way to be prepared for when Wal-Mart moves into the metro areas.
Now it begs the question… is a Dominick’s purchase the next move to make with the money he is getting from Nash?
Grocery wholesalers have been a dying breed for quite some time and I believe this trend will continue. It so hard for them to remain relevant and not be considered just an expendable part of the overhead. Their claim to fame is the independent retailer who has been declining for years and generally has no choice but to buy from a wholesaler. When Fleming can’t make it, it raises questions for the whole category. And I would add food brokers to this list for similar reasons.
It appears the acquisition plan of Dominick’s may be occurring.
The wholesale business is a highly competitive, low-margin business that is, at best, fickle. Add to that, manufacturers who may be examining self-distribution; I think the move is wise for Roundy’s. Focusing on their increasingly strong retail business and the potential addition of Dominick’s make this a sleeping giant of retail. It doesn’t surprise me nor do I feel it an ill-advised move for them.