Fleming Moves to Intensify Implementation of Its Growth Strategies:
Accelerating Value Retailing, Leveraging Distribution Efficiencies

Through a Low-Cost Supply Chain and Solidifying the Company's Balance Sheet

Fleming (NYSE:FLM) announced today that it has completed the strategic evaluation of its company-owned conventional retail stores which was announced in April.

The purpose of the strategic evaluation was to focus Fleming's financial and management resources on its growth areas. The evaluation of the strategic alternatives to Fleming's conventional supermarket chains was completed with the assistance of Morgan Stanley Dean Witter. This evaluation encompassed the 161 conventional retail operations, including:
  • Rainbow Foods, with 43 supermarkets in the Minneapolis/St. Paul area.

  • Baker's Supermarkets, with 16 stores in the Omaha, Nebraska, area.

  • Sentry Foods, with 34 supermarkets, two drug stores and one liquor store in Wisconsin (Note: 40 additional Sentry stores in Wisconsin are owned by independent operators and should not be confused with the Fleming-owned Sentry stores).

  • ABCO Desert Market, with 56 stores in the Phoenix/Tucson areas.

  • Thompson's Food Basket, which had 13 stores in the Peoria, Illinois, area.
The strategic evaluation results in a plan that will enable Fleming to intensify growth in value retailing through store conversions; further improve distribution operations by retaining significant wholesale volume and gaining further efficiencies through additional consolidations; while solidifying the company's balance sheet.

"We believe these strategies maximize our return on assets and focus the company's resources on our very best growth prospects while improving our cost structure," said Mark Hansen, Chairman and CEO. "The conventional supermarket segment is a better growth vehicle for the national retail consolidators or the strong independent retailers with in-depth local market expertise. In the middle ground, operating conventional retail stores does not meet our aggressive growth strategy."

This strategic direction is being aggressively implemented to quickly return the benefits to all stakeholders of the company. 1) The further consolidation of distribution centers into super-regional centers and the investments in distribution flow-through technology will enable Fleming to strengthen its value proposition and service to independent retailers, chain retailers, e-tailers and other distribution customers. 2) This plan also allows the company the opportunity to accelerate the growth of value retailing with the conversion of a number of the conventional operations to the value retail format. 3) It allows the strengthening of the company's capital structure by using the proceeds from the sale of stores to pay down debt and position it to achieve projected positive free cash flow from operations for 2001.

The growth of the value retail operations is expected to be accelerated by converting a number of the conventional retail stores to the successful value retail format, including Food 4 Less. "This differentiated retail concept has exceptional competitive advantages in an estimated $100 billion value retail market," said Hansen. The conversion of approximately 15 conventional stores in 2001 will significantly increase the growth momentum into key markets. It is anticipated that approximately ten Sentry Foods stores, three ABCO Desert Markets and two Rainbow Foods stores could be successfully converted to the value retail format. This would increase the number of company-owned value retail stores from the existing 26 Food 4 Less stores to 41 value retail stores, and would retain all their retail cash flow.

Fleming will continue to operate 38 of the 43 Rainbow Foods stores. Two stores will be converted to the value retail format and three stores are expected to be sold, retaining the distribution volume for all but one store. The continuing improvement in performance at Rainbow is currently delivering positive same-store-sales gains in a very competitive market. "The physical plants are in great shape and we expect to remain a strong competitor in this market," said Hansen. "There are additional plans to gain efficiencies in distribution and strengthen market effectiveness with the addition of value retail enhancements." The Minneapolis distribution division will now be dedicated to supplying the Rainbow operation, significantly improving productivity and profitability with the higher throughput of reduced SKUs and advanced distribution techniques. Additionally, the consolidation of Minneapolis-supplied independent retailers into the LaCrosse and Superior divisions will bring even greater efficiencies of size to those operations and benefits for those retailers. "This strategy, unlike our competitors, focuses on the growth of our independent retailer customers," said Hansen.

The company is continuing to explore the strategic alternatives for the 16 Baker's Supermarkets. Fleming is also in discussions to sell the 55 ABCO stores to other retailers. It is expected that there will be several buyers of multi-store groups of ABCO locations. Steps are also being taken to sell the remaining 24 Sentry stores to existing and new distribution customers, as we stay committed to building a strong Sentry franchise brand in Southeast Wisconsin through excellent local operators. Fleming expects to retain a substantial level of the supply service for many of these operations. Fleming recently announced reaching an agreement to sell six Thompson's Food Basket stores to Sullivan's Food. Six of the remaining stores have been closed and one was retained.

"The strong, local market knowledge of our independent retailers makes many of our conventional retail stores very attractive growth vehicles for them," said Hansen. "We expect several customers to acquire many of our conventional stores, helping them become more successful niche players, particularly with our distribution expertise to support their growth."

The company expects that the total number of conventional retail stores it operates will be reduced from 267 in 1998 to approximately 50 stores after the implementation of this plan. The proceeds from the sale of stores will be used to pay down debt, and the transactions are not expected to impact prior earnings guidance. Fleming projects positive free cash flow from operations for 2001, since the conversion of the 15 stores to the Food 4 Less type format will be accomplished within existing capital expenditure plans.

Fleming is a $15 billion company and industry leader in distribution and has a growing presence in value retailing and business-to-business e-commerce. Fleming's primary business is buying and selling merchandise. The company serves approximately 3,000 supermarkets, 3,000 convenience stores and nearly 1,000 supercenters, discount, limited assortment, drug, specialty, e-tailers and other businesses across the country.

This release includes statements that (a) predict or forecast future events or results, (b) depend on future events for their accuracy, or (c) embody projections and assumptions which may prove to have been inaccurate, including expectations for years 2000 and beyond. These projections, forward-looking statements and the company's business and prospects are subject to a number of factors which could cause actual results to differ materially, including: adverse effects of the changing industry environment and increased competition, sales declines and loss of customers, exposure to litigation and other contingent losses, failure to implement strategic initiatives according to plan or to achieve the expected results of such plan, failure of the company to achieve necessary cost savings, and negative effects of the company's substantial indebtedness and the limitations imposed by restrictive covenants contained in the company's debt instruments. These and other factors are described in the company's periodic reports available from the Securities and Exchange Commission.