In a move that optimizes the efficiency of the supply chain, Kmart Corporation (NYSE:KM) and Fleming Companies, Inc. (NYSE:FLM) today announced they have signed a $4.5 billion supply chain arrangement in which Fleming will provide substantially all of the food and consumable products in all current and future Kmart and Kmart supercenter stores. The agreement follows several months of discussions.

This new supply arrangement includes grocery, meat, produce, frozen foods, dairy, and other grocery items. The agreement will vault Fleming to the industry leadership position in total distribution revenue.

The consolidated procurement volume of this arrangement positions Kmart, as well as all of Fleming’s retail customers, with the economies and buying efficiencies of the combined enterprises. The arrangement utilizes the strength of Fleming’s centralized procurement organization, a major strategic initiative undertaken by the company in the past year.

The strategic alliance may be further expanded to include an agreement on health and beauty products and related categories.

Strategic and Cultural Views Are Aligned

“What makes this alliance so advantageous is that it is a perfect blend of strategies and cultures,” said Charles C. Conaway, chairman of the board and chief executive officer of Kmart. “Kmart has focused strategically on its retail operations. Fleming, on the other hand, has focused strategically on the procurement and logistics component of its business. And, we are both building new, aggressive, innovative, and forward-looking cultures. Our cultures connect and our core competencies fit ‘hand-in-glove’ and will allow us to procure and distribute pantry and supermarket products in the most cost-effective manner. This is a breakthrough for Kmart. Synergies will provide Kmart best-in-class procurement and logistics in food and will establish a new standard for best-in-industry performance. Everybody wins, especially our customers.”

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Opening the way for the discussions was the significant strategic shift made by Fleming over the past two years. During that time, Fleming consolidated its distribution centers, initiated a centralized procurement strategy that generated buying and logistics efficiencies, divested underperforming retail stores, and focused its retail operations on the price-impact food retail model. “Our nationwide network of 22 full-line food distribution centers are well situated to assume the Kmart supply and logistics business,” said Mark Hansen, chairman of the board and chief executive officer of Fleming. “By optimizing productivity in our distribution centers, we effectively increased our capability to partner with Kmart, while better serving our existing independents and other Fleming customers.”

Fleming anticipates that it will add three new distribution facilities in 2001 to assume the added Kmart volume and fill out its distinct national distribution footprint.

Significant Synergies

Key to the partnership are significant synergies and the cost savings these synergies generate, which will benefit the customers of both organizations. With anticipated combined savings in excess of $400 million by the third year, Kmart and Fleming expect to reduce costs and increase efficiency through their closely coordinated activity, consolidated purchasing volumes, lower logistics and transportation costs, and improved service levels and inventory turns.

“An important aspect to this partnership is that we will be consolidating our purchasing power and speaking with one voice to the vendor community,” said Mr. Hansen. “In doing so, we are helping vendors optimize manufacturing and transportation while helping ourselves to improved turns and reduced working capital.”

Shared Strengths

One particularly unique aspect of the alliance is the opportunity for both parties to learn from each other’s strengths. Fleming, who successfully operates price-impact retail stores under the Food 4 Less® banner, will be able to share its expertise in this format with Kmart. The price impact concept resonates well with Kmart’s value-conscious shoppers and certain aspects of it could be incorporated into Kmart’s merchandising programs. Some aspects of Fleming’s distinct price-impact merchandising model include large pallet-ready displays, warehouse racking, and refined assortments of the highest turning stock keeping units.

At the same time, Kmart will offer Fleming access to Kmart’s strengths in general merchandise and seasonal goods, a move that will benefit many of Fleming’s independent retail customers.

Enabling Future Synergies

The alliance anticipates the creation of a supply chain “best practices team” charged with pinpointing further, advanced supply chain opportunities. The team, comprised of members from both Fleming and Kmart, will be based in Kmart’s offices. The team will also take responsibility for uncovering a broad range of synergies, such as a paperless payment process, a fuel supply program, and savings on non-merchandise goods, such as supplies and utilities.

Consolidated Private Label Program

It is planned that Kmart will adopt Fleming’s best-in-class BestYet® private label program in its Kmart and Kmart supercenter stores. The BestYet label, known for its superior quality and value, has received high marks from Fleming’s independent retail customers and provides retailers with an outstanding product that meets or exceeds the comparable national brand.

Kmart Corporation

Kmart Corporation is a near $40 billion company that serves America with more than 2,100 Kmart and Kmart supercenter retail outlets. In addition to serving all 50 states, Kmart operations extend to the Caribbean islands and Asia Pacific. More information about Kmart is available on the World Wide Web under the “About Kmart” section.

Fleming Companies, Inc.

Fleming is a $15 billion company and industry leader in distribution and has a growing presence in value retailing. Fleming’s primary business is buying and selling merchandise. The company serves approximately 3,000 supermarkets, including more than 800 North American stores of global supermarketer IGA, 3,000 convenience stores and nearly 1,000 supercenters, discount, limited assortment, drug, specialty, e-tailers and other businesses across the country. To learn more about Fleming, visit

Safe-Harbor Statement

  • 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 that may prove to have been inaccurate, including expectations for years 2001 and beyond.

These projections, forward-looking statements and the respective company’s business and prospects are subject to a number of factors that could cause actual results to differ materially, including: the ability of the companies to achieve expected synergies and anticipated cost savings; unanticipated transition and start-up costs; the ability of Fleming to obtain required capital or obtain it on acceptable terms; unanticipated problems in the supply chain due to increased volume; the ability to successfully generate new business; adverse effects of the changing industry environment and increased competition, sales declines and loss of customers; exposure to litigation and other contingent losses; and negative effects of indebtedness and the limitations imposed by restrictive covenants contained in debt instruments. These and other factors are described in each company’s periodic reports available from the Securities and Exchange Commission.