A bigger company requires bigger logistics
SpartanNash is a global distributor of groceries, including U.S. military clients.
When Michigan’s Spartan Stores Inc. merged with Nash Finch Co. of Edina, Minn., in 2013, it created one of the nation’s largest combined retailer/wholesalers of groceries, with a logistics network serving stores in more than 40 states plus the District of Columbia, Europe, Cuba, Puerto Rico, the Azores, Bahrain and Egypt.
At least 250 of the stores it delivers to are actually commissaries and post exchanges on U.S. military bases around the globe.
With corporate headquarters in Byron Center, SpartanNash (Nasdaq: SPTN) has a total of 16,000 employees in the U.S., 8,000 of them in Michigan and from 750 to 800 in the Byron Center office complex, plus another 700 or more in the Byron Center distribution complex.
SpartanNash has 21 distribution centers around the U.S., of which eight are its MDV Distribution Centers serving the U.S. military domestically and abroad. The distribution centers are in Michigan, Ohio, Indiana, Virginia, Maryland, Florida, Georgia, North Carolina, Texas, Kansas, Oklahoma, North and South Dakota, Nebraska and Minnesota.
It has more than 800 truck drivers hauling groceries with 500 semi-tractors and 1,600 trailers, traveling more than 58 million miles a year — 12 million in Michigan.
The company owns and operates 165 stores, which in lower Michigan includes Family Fare Supermarkets and D&W Fresh Markets, and in the multi-state region surrounding Minnesota includes Family Fresh, No Frills, Bag ‘n Save, Sun Mart and Econofoods.
SpartanNash also supplies 1,900 independent grocery stores, according to Derek Jones, executive vice president of food distribution.
The whole shebang is an $8 billion business, according to Meredith Gremel, vice president of corporate affairs and communications. She said about 40 percent of the revenue comes from wholesale food distribution to independent stores, 30 percent from its military business and 30 percent from its own retail operations.
“SpartanNash is the largest food distributor to U.S. (military) commissaries and (post) exchanges in the world,” said Gremel, through its MDV division, based in Norfolk, Va.
MDV, which was part of Nash Finch prior to the merger, serves commissaries and exchanges both inside and outside the continental United States.
“We’re a pretty big player now,” said Gremel, noting that food logistics “is changing so much.”
Jones said the largest cost associated with running a distribution center — about 60 to 70 percent — is labor and employee benefits. Some SpartanNash distribution centers are unionized, but not all. The Teamsters represent Grand Rapids-area workers.
“Overall, we have a good working relationship with both our union and non-union associates,” said Jones.
The single biggest impact on employee cost for SpartanNash is health care insurance, which Jones noted “continues to skyrocket” at virtually all U.S. industries. He said that increasing cost is particularly challenging for a food business, in which the margin of profit is very low, typically from 1 to 3 percent.
Jones said the grocery industry is usually able to ride an inflation rate of 1 to 3 percent, enabling them to reach that minimal profit margin. However, in the last two or three years, the inflation rate on red meat prices has been in the double digits, ranging from 12 to 14 percent. In dairy products, particularly cheese and eggs, the inflation rate has been 7 to 9 percent.
“None of us can remember a time when we have seen protein (inflation) so high,” said Jones. “You don’t want hyper-inflation because it changes the consumers’ buying habits.”
In this case, it is holding down purchases of red meat as many shoppers turn to the “store center” — the canned, dry and frozen foods sections — for protein.
“Store center” is where the bulk of grocery store spending takes place, but the problem now is there has been virtually no inflation — sometimes even deflation — on “store center” products. That puts stress on the already-low margin of profit, which needs to keep up with inflation in general to help it amount to much, said Jones.
One way SpartanNash works to keep costs down is by using “voice technology” in its distribution centers. Employees wear headsets that provide a constant flow of information on what needs to be moved where in the warehouse.
“That helps with productivity but really helps with the accuracy or quality” of their work, said Jones, by minimizing the misplacement of products.
Voice technology has “reduced by about three-fourths the errors in our facilities, which is always a good thing. That improves our customer service” by helping get products shipped out on time.
In its Grand Rapids area distribution facilities, SpartanNash is also using AGVs — automated guided vehicles, the latest in warehousing high-tech. AGVs are unmanned forklifts controlled by computers for placing products in specific locations on the warehouse racks. Jones said SpartanNash can use AGVs efficiently in Grand Rapids “because our volume is so large, it pays for itself pretty quickly.”
Gremel noted errors in the distribution centers are particularly serious in the case of food orders destined for military commissaries and post exchanges, commonly called PXs. That food is all U.S. national brands and priced as much as 30 percent lower than in grocery stores back home. It is intended to provide “a slice of home” to troops and their families stationed overseas.
“If somebody messed up the order, that’s really a bad thing,” said Gremel.
MDV controls more than 50 percent of the market supplying U.S. military stores, and compared to the distribution system in the domestic market, the military distribution works the opposite way.
“Our customer is not the Department of Defense,” said Jones, even though the DoD owns the commissaries and PXs. In this case, the customers SpartanNash is working for are the vendors, the companies that make the grocery products — the national brands, as noted above. The vendors negotiate their own contracts with the military and then decide what distributor to hire to get it there.
One of the largest vendors that has selected SpartanNash/MDV to supply the military bases is Proctor & Gamble.
“We are their only distributor,” noted Jones.
In fact, almost 40 nationally known vendors have chosen SpartanNash/MDV to be their exclusive distributor to the military.
Both Jones and Gremel noted the low prices in the military stores, even the ones on the U.S. bases, are a major benefit to active duty military families and retirees.
U.S. military spending is shrinking as the country withdraws from the conflicts in Afghanistan and Iraq. However, the biggest monetary impact felt by MDV was from the “sequestration” in 2013, the automatic government spending cuts put in place when Congress could not agree on a budget. Jones noted the military commissaries and PX stores were temporarily closed one day a week — and some for at least a week straight — so military personnel on U.S. bases had to turn to competing civilian stores in those areas.
“Unfortunately, a lot of the volume (at the MDV stores) never came back after sequestration,” said Jones.
However, the low prices at commissaries and PX stores still often result in long lines at the checkout counters. “We’re talking about lines wrapped halfway around the store,” said Jones.
When it comes to comparing SpartanNash to its competition, Jones said the company is unique in that it is both a retailer and a wholesaler. In the wholesale business, its nearest competitor is SuperValu, headquartered in Minneapolis. However, SuperValu also owns Save-A-Lot stores, which compete with some SpartanNash stores.
On the retail side, SpartanNash in Michigan competes with Meijer and Walmart on the west side of the state and with Kroger on the east side.
SpartanNash stock was trading for $26.49 Jan. 12, compared to $23.24 Jan. 13, 2014. The high for the year was $26.89. The stock paid a 12-cent dividend each quarter.