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Smart & Final learns from mistake

The wholesaler stumbled in its first attempt to expand in Florida. Its chief executive is ready to try again.

By MARK ALBRIGHT

© St. Petersburg Times, published April 21, 2001


When Ross Roeder stops by the Smart & Final store in St. Petersburg, he's not just another shopper looking to stock up on salad dressing by the gallon and industrial-strength cleaning supplies.

Roeder, who lives in a condo complex a few miles from the Fourth Street N store, is chief executive of Smart & Final Inc. The 130-year-old chain operates a food wholesaling business as well as 221 outlets in eight states that serve as convenience stores for restaurants, caterers and home cooks who save money buying in bulk.

Smart & Final ran aground on an ill-planned expansion into Florida. In 1998, the company pulled out of Daytona Beach and Fort Myers and froze new store growth in the state.

Since taking over in 1999, however, Roeder, a 63-year-old turnaround expert, shaped up the Los Angeles company well enough to begin growing it again.

Roeder plans to open 15 new stores this year, four of them in Florida. The chain's Tampa Bay area presence will grow beyond the single outlets it now has in St. Petersburg and Clearwater.

"We're looking to open another location in Pinellas or Hillsborough County this year, and we should have two or three more stores there within two years," Roeder said. "Long term, we see this as an eight- to 10-store market."

A director of Smart & Final since 1977, when he was a top executive with the Denny's restaurant chain, Roeder was named Smart & Final chairman and CEO in a rescue mission. He commutes to the Los Angeles headquarters but says he's on the road so much anyway that the bicoastal schedule is not much of a hassle.

He directed an overhaul of stores throughout the chain and its once-troubled wholesale food service business in Florida.

So far, the restructuring is paying off. In fiscal year 2000, sales in stores open more than a year increased a robust 5.5 percent, the company's best performance in five years. The comparable store sales gain was twice as big in Florida.

Smart & Final's stock recovered after the company posted its best performance in five years. The price has doubled from a low of $5.50 in early 2000 to a recent high of $11. The stock closed Friday at $10.50, down 25 cents.

"They've had a dramatic improvement in Florida," said Charles Lemos, a securities analyst with Deutsche Bank Alex. Brown. "They're a niche player in recovery mode that's finally growing again."

Roeder's board colleagues have rewarded his achievement. Last year, he was paid $1.3-million, thanks to a performance bonus that doubled his base salary.

Smart & Final's offbeat history begins with the answer to a great trivia question: Yes, there actually were two guys named Smart and Final.

Jim Smart and H.D. Final bought and renamed what had been a California food wholesaler in 1914. The company was among the pioneers of the modern supermarket, creating the self-service Thriftmart chain in 1923. (Thriftmart was liquidated in 1984.)

Since then, Smart & Final has catered to restaurants and institutional food services such as schools and cruise ship lines through its bulk-delivered food business and through the small stores in eight states that sell food only in large economy sizes.

About half the store customers are restaurants, caterers and businesses that buy janitorial supplies. But the other half are consumers drawn by food prices comparable to membership warehouse clubs such as Sam's Club without the hassle of a membership fee.

But Smart & Final's march into Florida proved a disaster. With 10 stores spread across seven markets from Miami to Daytona Beach and virtually no marketing budget, the company was spread too thin.

Its purchase of Henry Lee Co., a Miami food wholesaler, was complicated by the fact that the food distributor had no experience supplying food stores. Worst of all, Smart & Final's California brass stocked their big Hispanic foods selection for Mexican rather than Caribbean tastes -- even for a store in Miami's Little Havana.

"We had to remerchandise to reflect the needs of the Cuban community in South Florida," Roeder said.

The chain began advertising on cable TV and through the mail. Small meat and produce departments were added.

It wasn't Roeder's first role as turnaround specialist. That's what brought him to St. Petersburg in 1984, first as chief executive of Fotomat Corp., an ill-fated chain of 2,400 photo processing kiosks, and later as CEO of Federal Construction Co. In both cases, Roeder prepared troubled companies for a subsequent sale. With Smart & Final, he has salvaged a company controlled by Casino USA, a French food retailer.

"It's good to be back in retail," said Roeder, who also is a director of the Fort Myers-based Chico's apparel chain and of the parent of St. Petersburg-based Mercantile Bank.

The Smart & Final stores are spartan, with bare concrete floors. Located in shopping centers abandoned by grocery stores, they carry 10,000 items, about three times the selection of a Sam's Club in one-fifth the space.

The emphasis is on food, cleaning supplies, paper goods and restaurant equipment.

But Roeder learned customers buy for their own needs while shopping for their companies. Customer complaints, for example, forced him to put pet food back on the shelves after a brief hiatus. And he expects a $799 stainless steel barbecue grill will end up in more restaurant owners' back yards than their kitchens.

About 20 percent of the goods are store brands. But prices are not always cheaper. This week, for instance, a 2.5-gallon container of Zephyrhills water was 30 cents cheaper at Smart & Final than Publix. But a case of store brand cola was priced only 2 cents below Publix, and a two-liter bottle of Coke actually cost a dime more at Smart & Final.

Alley Cat cat food cost 40 cents less than at Publix. But that was the only brand and flavor. Publix offered 24 cat food choices.

"They're competitively priced with the food service company that provides most of our supplies," said Debbie Rogers, dining room manager for Red Mesa, a St. Petersburg restaurant, "and when we need something quick, they are super convenient."

- Mark Albright can be reached at albright@sptimes.com or (727) 893-8252.

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