Winn-Dixie Does the Expected, Files for Chapter 11
By George Anderson
It was really never a question of if but when Winn-Dixie would seek to reorganize under Chapter 11 bankruptcy protection.
Now that the question has been answered — Winn-Dixie Stores filed yesterday evening in the U.S. Bankruptcy Court for the Southern District of New York — the next question is, what will happen next?
According to a release posted on the Winn-Dixie Web site, the company has not shut any of its 920 currently operating stores in the Southeast and the Bahamas and, as far as shoppers are concerned, it will continue to be business as usual.
The chain has secured $800 million in debtor-in-possession (DIP) financing from Wachovia Bank to help it with its cash flow needs during the reorganization period.
Peter Lynch, president and chief executive officer of Winn-Dixie, said in a released statement: “We intend to use this reorganization process to take the actions necessary to position Winn-Dixie for future success. This includes achieving significant cost reductions, improving the merchandising and customer service in all locations and generating a sense of excitement in the stores. We deeply regret any adverse impact the Chapter 11 filing may have on our associates, vendors, shareholders and business partners.”
Among its immediate plans, Winn-Dixie intends to seek the termination of leases it holds for 150 store locations and two warehouses the chain had previously closed. It also plans to sell-off all non-core assets such as any manufacturing plants it owns.
Mr. Lynch said the company intends to “focus on increasing sales quickly and cost-effectively across the chain by improving the execution of merchandising and sales-focused initiatives, reinvigorating the company’s store associates, and restoring a sales-driven culture across the organization.”
Winn-Dixie intends to achieve this by enhancing its “perishables offerings and other product merchandising, as well as implementing store sales competitions and other initiatives to motivate associates to drive sales,” said Mr. Lynch.
Moderator’s Comment: What will happen with Winn-Dixie now that it has filed for reorganization under Chapter 11? If it were up to you to decide, what
would the Winn-Dixie reorganization and survival plan look like? –
George Anderson – Moderator
For the most part, I have always been a loyal Winn-Dixie shopper. Yes, many of the stores are old. Yes, customer service is not the greatest. (They try but there are just not enough employees in the store to effectively assist customers.) Yes, the quality of their produce needs improvement. But these are all tolerable to the average shopper if not taken to excess. Winn-Dixie still has the greatest meat department of any supermarket I have ever shopped. Winn-Dixie is also a good hometown basic grocery store, and I really like this quality.
However, as I see it, Winn-Dixie has developed one major problem that is completely unacceptable and is the same as standing outside holding up a sign saying, “We don’t want you to shop here.” That problem is the out of stocks! Walk into any Winn-Dixie (at least in the Charlotte Warehouse market which is NC and SC), pick up the current ad and try to buy the items you see featured. The advertised sales are great, but by the time the ad has been out two or three days, out of stocks are the rule rather than the exception. Try to find a product you have purchased there before and you will probably find the price tag with a totally different product stuffed in the space to cover an out of stock.
Find a manager and ask him or her why they are out of a certain product (or products) and the reply will be “We ordered it, but the Warehouse didn’t send it” or “We will have it in a couple of days.” Most customers do not want rain checks, they don’t want to return in a couple of days, and they most certainly don’t care what the warehouse didn’t do. Customers want to buy the advertised product as well as any other needed item and they want to buy it right now!
Winn-Dixie can restructure, remodel, reduce costs, and whatever else they think they need to do. But unless there is an immediate and heavy duty focus on getting the shelves stocked and eliminating the out of stocks (especially, but not limited to, advertised items), this chain hasn’t a chance in the world of regaining a single customer. Zero stock equals zero sales!
Painful to say, but if it were up to me and if it were my money, I’d carefully but deliberately liquidate.
Winn-Dixie stores have looked like a bankrupt company for the past several years. Sales per square foot at most stores has dropped to Kmart-esque levels. The stores have been dummied up with private label soda pop and paper towels. Service departments have been removed. In-store banks pulled out a few years ago. These are 1985-looking stores in 2005. Somewhere along the line, Winn-Dixie fell behind and was not able to keep up. I really don’t see Winn-Dixie surviving. The few stores that are performing adequately are not clustered together. Still, there are some units that are doing ok. Some of these stores are the only supermarket in town. Perhaps a third of the stores can continue operating as supermarkets, but not as Winn Dixie. Rarely do bankrupt supermarket chains survive. Poor morale, high credit terms, scared vendors, and just saying you are bankrupt further scares customers off. Winn-Dixie has had 20 years to try to catch up; being bankrupt will just make it worse. If Winn-Dixie survives, it will be the biggest comeback since Lazarus.
Winn-Dixie is an example of a chain that has been just good enough to survive for a long time. It has rested and relied on its past laurels for about as long as it can, unfortunately. I have been accused of being an eternal optimist but I don’t see a very bright or long future for this chain. I feel sorry for all the loyal employees but the their consumers will at most suffer the inconvenience of driving a little further to shop. Most people will not miss Winn-Dixie or the way it ran its business for so many years.
There was an interesting point raised in the NY Times article on the filing — Sam Walton was a member of the Winn-Dixie Board of Directors for five years in the early 1980s. Shortly after leaving the board, he launched the Wal-Mart Supercenter. Retailing, in general, and Winn-Dixie, specifically, has never been the same.
Winn-Dixie needs a complete overhaul, and even that may not be enough. The company simply hasn’t developed and executed a plan that creates a reason for consumers to continue shopping their stores. Given that their pricing strategy hasn’t worked, the executives need to look at product assortment and customer service for that reason. Unfortunately, they are also losing the product war against the likes of Publix, and customer service has never been a strong suit either. They have some prime real estate, so maybe this is a play by one of the REITs a la Sears-Kmart. Or perhaps a move to a large convenience concept that brings in a bank, dry cleaner, pharmacy, etc. in a small indoor mall.
I think the entire industry thinks very highly of Mr. Lynch — and rightly so. But the inevitable question is whether this is too little too late.
At one time, I would have said that the mere thought of Winn-Dixie shutting its doors was ridiculous. After all, this has been one of the icons of supermarket retailing for decades. However, being an icon is no longer a guarantee of success, as we all know, and little has been done to turn W-D around.
It might be a good buy for someone with capital and patience. Might even be an overseas buyer or two who might be looking for an opportunity in the U.S. Stranger things have happened.
I think Ron hits on the most important point in their future. That is – what is the reason for their existence? Consumers want a compelling reason. Without it, the alternatives are abundant. Their challenge is great in creating a vision for the future, as being just good enough isn’t good enough any more. Wal-Mart is just good enough in all the other measurable areas, but they have price. Publix creates reason by environment, service, experience, and their price is fair enough for the value of all other areas to compel the consumer to make their choice.
About this same time last year, another regional in their area faced the same point, that was Kash n’ Karry. They announced a new direction, and that was ‘Sweetbay.’ At least in their case, it was an attempt to create differentiation (got to find a new word for that) and a reason. In Winn-Dixie’s announcement, there is little more than “will try and do better.” That unfortunately is not a reason. Its the same with Kmart, who yet has to come up with a vision or a reason, and continues to struggle. I don’t know what happened with the ‘Sweetbay’ concept or Kash n’ Karry, since I haven’t been down in those parts recently or heard anything. But it would be interesting follow up.
All of this is, of course, not as complicated as it is complex. Turning a ship the size of Winn-Dixie is slow and costly. That is, of course, if you attempt to turn it by conventional means. It may be time for a retailer to try the unconventional. I would consider that some of the 80,000 resources at their call could hold the solution. The sum of imagination there is limitless. It’s certainly more broad and closer to the necessary change than an isolated group dealing with things from a narrow view and constrained by their own environment. I’d suggest that they call upon and inspire the army that they have standing on the front lines. They, of course, have the most to lose.
There is never a dull time in retailing. There is much to learn and its more dynamic today than ever. It makes for as many questions as it does answers. For example, if so many saw this coming, why didn’t they? And if they did, why did it happen? Inside of those questions may be some of the answers to their future and again, those closer to the consumer may hold the best solutions. Do you think they’ll have that conversation? It would be a good one and I’d love to listen.
I recently returned from a trip to Florida. While there, I asked the locals and snow birds where they shopped. None ever mentioned shopping at Winn-Dixie. This is simply another example of management being successful many years ago and not changing with the time. Publix has done more damage to Winn-Dixie than Wal-Mart. I predict Winn-Dixie will go the way of Schwegmann’s and others. When you are a chain in a rapidly growing market, and your sales increase does not keep up with either the market growth or inflation, you are in trouble. Winn-Dixie simply saw sales increases and was happy not ever looking outside headquarters. The sad fact is that all the Fleming people that went to Winn-Dixie will lose again.
I think one thing a lot of people might not realize is just how low the volumes are at many of the Winn-Dixies. These stores are not just a little behind Publix or Wal-Mart with regards to sales per square foot. Most Winn-Dixie stores are only operating at about 40% of what a typical Publix or Wal-Mart gets with regards to sales per square foot.
As for Winn-Dixie becoming a REIT, like Kmart — keep in mind the high real estate value on Kmart is only a theory. So far, the only legitimate money came from a handful of sales to Home Depot. The rest came from Sears, which is Kmart, so it was just the right pocket going to the left pocket. Winn-Dixie has no pockets.
I was told today that one large vendor ordered all trucks heading to Winn-Dixie over the weekend to turn around and come home. Another told me they made a special trip to Florida on Saturday to cash checks from Winn-Dixie. How do they expect to continue to operate without the trust of their vendors? With less product in the stores, sales will not get better. They will only get worse. Winn-Dixie needs to start selling off the stores ASAP because they will become worth less as time goes on.