Fleming Companies, Inc. announced that it will sell its 110 price impact stores that operate under the Food 4 Less and Rainbow Foods banners.
The company expects that proceeds from the sale will generate in excess of $450 million net of taxes, which will allow Fleming to continue to reduce its debt.
Fleming said that it already has started negotiating with possible buyers for the retail units, and is speaking to self-distributing chains, regional chains, and independent operators. It is expected that there will be a series of sales to various companies, not the sale of all the units to one buyer; these sales could start in the fourth quarter of this year, and conclude next year.
The wholesaler hopes to maintain the distribution business for at least some of the stores, though probably not for any units sold to a self-distributing chain.
The decision comes after a strategic review of its retailing businesses meant to determine the opportunities that existed for the company there, the competitive environment, and the advantages that the company might be able to gain from not competing with its retail customers.
Fleming CEO Mark Hansen said in a prepared statement, “Following the completion of our Core-Mark and Head Distributing transactions, which accelerated the transformation of Fleming's multi-tiered supply chain network and the diversification of our customer base, 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 our shareholders, distribution customers and the company.
“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 among our peers insofar as we would be the only independent, pure-play wholesale distributing company with a national footprint that covers all key retailing segments -- independent supermarkets, convenience stores, chain stores, supercenters, discount stores, and other retail outlets. 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.”
The company expects that proceeds from the sale will generate in excess of $450 million net of taxes, which will allow Fleming to continue to reduce its debt.
Fleming said that it already has started negotiating with possible buyers for the retail units, and is speaking to self-distributing chains, regional chains, and independent operators. It is expected that there will be a series of sales to various companies, not the sale of all the units to one buyer; these sales could start in the fourth quarter of this year, and conclude next year.
The wholesaler hopes to maintain the distribution business for at least some of the stores, though probably not for any units sold to a self-distributing chain.
The decision comes after a strategic review of its retailing businesses meant to determine the opportunities that existed for the company there, the competitive environment, and the advantages that the company might be able to gain from not competing with its retail customers.
Fleming CEO Mark Hansen said in a prepared statement, “Following the completion of our Core-Mark and Head Distributing transactions, which accelerated the transformation of Fleming's multi-tiered supply chain network and the diversification of our customer base, 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 our shareholders, distribution customers and the company.
“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 among our peers insofar as we would be the only independent, pure-play wholesale distributing company with a national footprint that covers all key retailing segments -- independent supermarkets, convenience stores, chain stores, supercenters, discount stores, and other retail outlets. 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.”
- KC's View:
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Considering the tumult that has been overtaking Fleming in recent weeks, you could see this decision coming. After all, the company’s stock has been at three-decade lows, and investors were certainly looking for some signal that Fleming was getting its financial house in order.
That said, still expect a bunch of layoffs to be announced by the company soon. This is a work in progress, not a finished product. Fleming still has a lot of work to do.
