The flagging grocer said it will stick to its core market in the Deep South and try to reconfigure itself to stop its slide.
By MARK ALBRIGHT
Published May 1, 2004
Retrenching for the third time in four years, Winn-Dixie Stores Inc. said Friday it will abandon 16 of 52 metro markets across the Southeast, though not in Florida, in a move that will cost up to 10,000 employees their jobs.
The chain will close 45 unprofitable stores soon and seek buyers for 111 more in six states where it is whittling down its presence. If no buyers surface, the unsold stores will be closed within a year.
By pulling out of Ohio and Indiana and parts of four other states, Winn-Dixie chief executive Frank Lazaran is redrawing a perimeter around Winn-Dixie's traditional Deep South stronghold in such states as Louisiana, Georgia, Alabama, Mississippi and Florida.
Almost half of Winn-Dixie's 922 remaining stores are in its hometown Sunshine State. That's where it has been losing market share to a store-building binge by Publix, Wal-Mart Supercenters, Sam's Clubs and Wal-Mart's new Neighborhood Markets, which are the discount giant's version of a conventional grocery store.
"This was a difficult but necessary decision to restore Winn-Dixie," said Lazaran, whose company will surrender $1-billion in annual sales from the eliminated stores. "We have to make fundamental changes throughout the company. We think can compete win in our core markets."
While still scrambling to nail down a winning formula to compete effectively with Publix and Wal-Mart, the Jacksonville-based supermarket chain will be experimenting this summer with a revised perishables selection, continuing to remodel stores and testing a new advertising image as the friendly neighborhood alternative with competitive prices.
"We already have the traffic in our stores, they just aren't filling their baskets," Lazaran said. "People are shopping us because we are close by and they can get some discounts. But they are doing their major shopping at other stores."
By consolidating its presence, the nation's 13th largest grocer will shrink to about $10-billion in annual revenue. That's down from $13.7-billion in 1999. Winn-Dixie also is closing three food plants that make store brand products, two dairies and the company's Sarasota distribution center that supplies the southwest part of Florida.
In the Tampa Bay market, Wal-Mart edged past Winn-Dixie into third place among grocers last year, according to Marketscope/Trade Dimensions.
Since 1998, market-leading Publix Super Markets Inc., a Lakeland-based chain that has been on a defensive store-building spree of its own, was the only major supermarket not to lose market share. Second place Kash n' Karry Foods Stores Inc. is retrenching, too. It's about to try not only a new look and selection, but a new name this fall with the debut of Sweetbay Supermarkets.
Winn-Dixie, a Florida institution controlled by the Davis family for 79 years, chose to focus efforts in markets where it is one of the top three chains.
The decision to pull back didn't surprise analysts, who see a bankruptcy in a few years.
"Everyone is picking on the carrion of Winn-Dixie," said Gary Giblen, a securities analyst with C.L. King & Associates told Bloomberg News. "Everyone in retailing knows they are history. Closing stores is a prelude to bankruptcy."
Winn-Dixie shares closed Friday at $7.62, up 15 cents.
Once the biggest supermarket chain in the country, Winn-Dixie's sales were treading water and its earnings deteriorating even before Wal-Mart had enough food stores to pose much of a threat. But adding to its challenge was that its corporate footprint also positioned it to have the most exposure to the rise of Wal-Mart Supercenters.
The worst performer among the S&P 500 in 2003, Winn-Dixie has long been bedeviled by industry rumors that it was for sale. Those rumors were rekindled this winter after Winn-Dixie suspended its dividend, which used to be so dependable that it held the Wall Street record for increasing 58 consecutive years.
After five consecutive years of decreasing earnings, the last family member to be chief executive stepped aside in 2000 and brought in outsiders.
Lazaran arrived last year from a regional Texas chain owned by Safeway Inc. as Winn-Dixie's third chief executive in five years to try engineering a turnaround.
Judging from the third-quarter results Winn-Dixie reported Friday, he has a ways to go.
Sales slumped 5.5 percent to $2.7-billion in the quarter that ended March 31. Sales in comparable stores open more than a year, a measure of a retailers hold on current customers, declined 6.4 percent.
The company reported earnings of $610,000, or 0.005 cent a share, down from $50.6-million, or 36 cents a share, in the same quarter of 2003.
The company expects the retreat announced Friday to lead to charges against earnings of $275-million to $400-million through the rest of this year. Winn-Dixie also has identified $100-million in annual savings from additional cost-cutting and efficiencies that will be phased in during the coming year.
"The store closings will hold them for a while, but more important is what are they going to do with what's left," said Chuck Gilmer, editor of the Shelby Report of the Southeast. "They need to make real changes and show the customer they offer something different."
Winn-Dixie has been spending about $2.3-million per store remodeling 292 stores to a new look that includes new produce bins, paint, lighting and signs. That work will continue to roll through the remaining stores.
But after sales in a test at 60 remodeled stores rose only 2 percent in the most recent quarter, Lazaran recognized that Winn-Dixie has to do more to bolster its performance. So he promises a new advertising strategy, a new image and punched-up selections of deli-bakery, produce and other perishables that will be tested in one unidentified metro market this summer. The new strategy casts Winn-Dixie as the more convenient neighborhood store with "attractive" prices. He also is working on a customer service initiative.
Grocery chains open and close all the time to stay current, but Winn-Dixie has been shrinking in recent years. Some highlights:
1999: Peaks with about 1,200 stores in 14 states and the Bahamas. Revenues reach $13.7-billion.
2000: Closes 114 stores and its Tampa distribution center. About 11,000 people lose their jobs. Acquires 72 stores in Mississippi from Jitney Jungle.
2002: Closes 76 stores, pulling out of Texas and Oklahoma.
2003: Opens its first new stores in three years.
2004: Closes 45 stores and puts 111 up for sale by pulling out of Ohio, Indiana and most of Virginia and Tennessee. Six larger facilities, including food plants, dairies and a distribution center in Sarasota, also are closed. About 10,000 people will lose their jobs. Revenues for the remaining 922 stores in the chain, nearly half of which are in Florida, will be about $10-billion.
