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DALLAS -- Buoyed by its acquisition of two convenience store distributors in April and its desire not to get involved in fuel retailing, Fleming Cos. Inc. yesterday said it would sell its retail units and focus on growing its core distribution business into a national powerhouse.
The retailing unit, which consists of 127 Food 4 Less and Rainbow Foods stores, has been a drag on Fleming's profitability due to its declining sales amid fierce competition from the likes of Wal-Mart Stores Inc. and Albertsons Inc. The unit's sale is expected to yield more than $450 million, which will be used to pare down debt, Fleming said in a statement.
Fleming's decision -- the result of a strategic review initiated subsequent to the Core-Mark and Head Distributing acquisitions -- was based on a number of factors, including: the advantages of focusing resources and investments completely on Fleming's growing supply chain distribution network; the greater return on opportunities that exist in the wholesale distribution business and the unique advantage that Fleming could gain from not competing with its distribution customers in the retail markets.
"Following the completion of our Core-Mark and Head Distributing transactions, we initiated a strategic review of our retail business to ensure that it was still appropriately complementing our core distribution business. The conclusion of the review was that, based on the greater growth opportunities and the higher relative returns on invested capital generated by our distribution supply chain business, the divestiture of our price-impact retail business was in the best interest of the company," said Fleming CEO Mark Hansen.
"We concluded that by exiting the retail business, and not competing with the very customers with whom we are cultivating strong relationships, we would be in a unique position insofar as we would be the only independent, distributing company with a national footprint that covers all key retailing segments -- convenience stores, chain stores, supercenters, discount stores and independent supermarkets. This perspective was underscored by the fact that being in retail requires fuel centers today and we simply don't want to compete with our new and valuable convenience store customer base."
Fleming has already initiated conversations with a number of potential buyers for these retail operations. Discussions and due diligence are in process with both self-distributing chains and regional and independent supermarket operators. The company declined to identify any of the companies involved in the talks.
The company did say it anticipated selling the units in to multiple buyers, beginning in the fourth quarter of 2002 and wrapping up in 2003. It is also likely that following the sale of the stores, Fleming will retain a significant portion of the distribution volume for these stores, the company said.