RETAIL VIEW: Unified Grocer Acquisition Creates Significant Growth

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RETAIL VIEW: Unified Grocer acquisition creates significant growth

September 24, 2007

With the shareholders of Seattle-based grocery wholesaler Associated Grocers Inc. approving the sale of the company to Unified Western Grocers in Los Angeles, Unified has now moved into being one of the top-five retailer wholesalers in the country. And the close to 3,000 retailers it serves, in aggregate, create buying power that could be among the top 10 retail operations in the country.

Unified Grocers, as it is now called while it goes through the process of effecting a legal name change, serves more than 2,500 stores, primarily in California and Oregon. Associated Grocers served close to 400 stores primarily in Washington but also in other Northwest states and Alaska. Unified spokesperson Tom Schaffner said that once the deal closes, which is expected by the end of September, Unified will be a $4 billion company. Its independent and small chain members, who typically buy 50-70 percent of their products in house, own the company, he said.

Like the supermarket industry itself, wholesale grocery distributors built their industry largely on center-store items. But mirroring supermarkets, growth has been in the perimeter of the store, hence Unified has made a concerted effort in perishables over the past several years. "Our company put a new emphasis on all the perishable departments, including produce, four years ago," Mr. Schaffner said. "We added product line and expanded our offerings. Since then, we have doubled the size of our company [in terms of sales]. We have added a few stores in that period but mostly it has been due to the growth in perishables."

In the past year, Unified Grocers opened a new produce warehouse in Southern California. It also has a produce warehouse in Portland, OR. Mr. Schaffner said that the wholesaler carries a full line of produce items, and though the number of SKUs and the nature of those SKUs changes depending upon the regions that are served by the specific distribution centers. "In Southern California, we have

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lots of Hispanic stores and so we carry lots of Hispanic produce items. In central California, we have a different demographic, and in Northern California, many of our stores tend to serve an upscale clientele, so our product list reflects that."

He said that in total, Unified offers its members about 70,000 SKUs. "Our philosophy is, if our members want it, we stock it."

In agreeing to sell the company, AG shareholders also voted to dissolve the company effective with closing of the transaction. What that means operationally, Mr. Schaffner said, is that the day after the close of the deal, AG will cease to exist and Unified Grocers will replace it for all AG's members. Mr. Schaffner said that during this transition period, AG has, by law, given notice to all its employees, with virtually all of them given new job offers by Unified Grocers.

"It will takes us a little bit more time to merge best practices, but we do not expect many layoffs. Associated Grocers already ran a pretty tight operation. We know they were doing some things well that we'd like to adopt company wide, and we know that we had some best practices that we look forward to instituting within these new operations."

Mr. Schaffner said that for the nearly 3,000 retail members that will now be served by Unified Grocers, this acquisition means increased buying power that will enhance the competitiveness of independent grocers throughout the western United States. Prior to the acquisition, Unified Western Grocers was one of the top 10 wholesalers in the United States and one of the top 40 food companies when ranked by sales, he said, adding that the combined company will move up the ladder significantly in both arenas.

In a press release in mid-September shortly after the vote by AG shareholders, Unified President and Chief Executive Officer Alfred A. Plamann said, "We are very pleased with the outcome of this vote. It is a very important milestone in this process. With the closing of the transaction nearing, we are anxious to blend the expertise and strength of our retail members in both companies to create the strongest independent retail grocery organization in the West."