Advertisement

Archive for Wednesday, August 27, 2003

Fleming’s ‘flawed’ plan costly in Topeka

Analysts say company mishandled bankruptcy

August 27, 2003

Advertisement

Bankrupt grocery distributor Fleming Cos., which is being sold piecemeal, made ambitious plans but failed because of tough competition and a flawed strategy, according to industry experts.

The failure cost about 150 employees in Topeka their jobs. According to reports, employees at Fleming's Topeka warehouse were told last week not to come back to work. The warehouse, located at Forbes Field, was the last remnants of the company that was founded in Topeka in 1915. Fleming officials, in a press release, said Associated Wholesale Grocers of Kansas City, Kan., had bought the facility.

But Topeka employees of the plant said they were told Associated Wholesale Grocers were only interested in the warehouse's inventory and equipment. Officials with Fleming and Associated Wholesale Grocers did not return phone calls seeking comment.

The sale, completed Monday, also included all of Fleming's other wholesale grocery warehouses across the country. The transactions left Fleming with only one operating division, which distributes items to convenience stores. Fleming is looking for a buyer for that unit too.

Fleming for years steadily grew as a supplier to independent groceries. That business was shrinking, however, in the 1990s as the grocery industry came to be dominated by national chains and superstores.

Mark Hansen, hired as chief executive in 1998, responded by widening Fleming's base. He won a 2001 contract to supply Kmart Corp. and in 2002 acquired the convenience-store distribution business.

The company became one of the nation's largest wholesale grocery distributors, with about $15 billion in revenue. But the Kmart deal never reached its goal of $4.5 billion in annual sales, and it collapsed after Kmart filed for bankruptcy and closed hundreds of stores.

Fleming, whose own lines of discount supermarkets also were "underperforming," filed for bankruptcy protection in April.

Industry experts said Fleming made the mistake of entering into bankruptcy without a line of credit, which made a successful reorganization difficult. They added that the company should have sold its core business before filing for Chapter 11 protection.

"A distribution company has to be sold while it still has all the confidence of its customers," Bill Brandt, chief executive of Chicago-based restructuring firm Development Specialists Inc., told The Dallas Morning News. "They did it in reverse order. They plowed into the ground and then put up the flaps."

Willmott, the interim chief executive and a former president of FedEx Corp., said the company had very little flexibility with suppliers and lenders.

"There is one thing that I learned. You cannot run a distribution company without cash," Willmott said. Without leniency from lenders, the company was forced to file for bankruptcy, he said.

Once in bankruptcy, Fleming's situation deteriorated rapidly. Suppliers who were angry over what they considered inflated deductions from their invoices severely scaled back deliveries. In June, Willmott confirmed the company was putting its assets up for sale.

"Fleming is the victim of a flawed business strategy that failed to produce the intended results in a very difficult business environment. It also ran out of time," said Bill Bishop, a retail consultant in Barrington, Ill.

Commenting has been disabled for this item.