Corporate Case Study: Fleming flies in the face of fallout from big client's strife

As Kmart's sole grocery supplier, Fleming suffered from the effects of the retailer's filing for bankruptcy. Sherri Deatherage Green looks at how Fleming balanced its interests with those of its largest client.

As Kmart's sole grocery supplier, Fleming suffered from the effects of the retailer's filing for bankruptcy. Sherri Deatherage Green looks at how Fleming balanced its interests with those of its largest client.

Remember when corporate communications people worried mainly about their own companies' crises? Now many are learning the hard way that reputation threats can be contagious. High on the list of companies recently affected by other businesses' bad news is Fleming, the sole grocery supplier for Kmart. As the discount retailer slid into bankruptcy, Fleming carefully balanced its own interests against the risk of alienating its largest client. Fleming's Kmart communication strategy is spelled out in the last bullet point on laminated crisis-tip cards that warehouse managers tuck into plastic covers behind their employee badges: "Remember: Respect for affected individuals outweighs anyone's need to know." Putting those cards - and the discretion to deal with reporters - in the hands of local leaders reflects the view that communication is a company-wide function, and not something reserved for a few people at headquarters. It's also a necessity in a company that undertook an austere cost-cutting program to cure its own ills. What would become Fortune's 16th-ranked public company began in 1915 in Topeka, KS as a grocery wholesaler serving independent supermarkets and regional chains. Over the years, Fleming acquired a hodgepodge of stores, chains, and brands itself. "Historically, there has been a tendency for this industry to bail out customers by buying them, and Fleming had a very bad habit of doing that, explains Lehman Brothers analyst Meredith Adler. By the early 1990s, Fleming had become "a shrinking company in a shrinking industry, with razor-thin profit margins, says communications VP Shane Boyd. Value clubs, convenience stores, drug stores, and other nontraditional retailers slowly sucked market share away from Fleming's customer base, and large chains like Albertsons turned to self-distribution. Fleming's warehouse network was too decentralized, and the company found itself embroiled in contract litigation with customers. Management recognized the need to restructure as early as 1993, but internal resistance blocked significant change. Boyd joined Fleming as communications manager in 1995, anticipating a makeover that didn't happen until three years later, when the board ousted CEO Robert Stauth and replaced him with former Sam's Club CEO Mark Hansen. People who worked on Fleming's PR team in the pre-Hansen era describe management as traditional and top-down, and communication as a need-to-know proposition. Comms changes in the Hansen era Hansen brought with him a Wal-Mart-like frugality and an employee-focused communications philosophy. Under his leadership, Fleming streamlined its distribution system, and sold or closed most traditional grocery stores in favor of low-price formats, such as Food 4 Less and Yes!Less. Company headquarters moved from its posh Oklahoma City digs with mahogany paneling and fireplaces, to a nondescript business park in suburban Dallas with putty-colored walls and modular furniture. When Boyd explains that no VP offices have windows, it sounds almost like he's bragging. Hansen also brought in Wal-Mart exec Scott Northcutt, who as HR EVP took over communications, which previously reported to the CEO. Boyd is the only PR employ whose tenure predates Hansen, and the internal PR staff shrank from 10 to four. Fleming ended its relationship with Burson-Marsteller, and now uses outside help sparingly, and on a project basis. Boyd seems to favor using agencies to establish templates that can be replicated in various markets, such as a store-opening plan devised by Cummings McGlone (now part of Dallas' Michael A. Burns & Associates) and a community relations project Carmichael Lynch Spong is developing in Minneapolis. All this change necessitated a shift in corporate culture. "Today our philosophy is to leave no associate behind, Boyd says. "We probably get accused of over-communicating, if anything. Fleming's key to success in convincing employees to embrace a culture of thrift is keeping the message consistent and celebrating cost savings, sometimes with monetary rewards. Boyd describes Fleming's communications staff as a SWAT team whose primary mission is to support the business. "I think they've gotten a lot more results-oriented and hands-on, says Brian Cummings, VP and management supervisor at Michael A. Burns. Those who cover the company describe the PR staff as reasonably responsive. "If you put a call into Fleming's communications department under the most difficult of circumstances, you would get a call back within 24 hours, says Len Lewis, a freelance trade journalist. "I wouldn't say that they are the most helpful company, (but) I wouldn't say they're the worst, says Lehman's Adler. Although IR has improved in recent years, Adler says she senses that few on Wall Street understand Fleming's complex business model. "We never get to do as much as we like, Boyd admits. "If we're not driving the results, I have to ask if that's an interview we need to do." Responding to the Kmart crisis The Kmart situation put Boyd's small SWAT team on full alert. To effect its financial turnaround, Fleming expanded its customer base beyond grocery stores. The company acquired a number of convenience-store distributors, for example, to establish a national network to serve that segment. "We're format neutral, Boyd explains. "Where people shop, that's where we want to be. Kmart became the hallmark of this strategy when Fleming negotiated a 10-year, $4.5 billion contract to become the chain's sole provider of consumables (later estimates put the deal at $3.6 billion). In July, Fleming negotiated an expanded contract with Target that it says will be worth $300 million annually. As Kmart's debt ratings sank in the weeks before the January bankruptcy, Fleming clarified its own position without speculating about Kmart. "I think they were in a much more difficult position than people realize," Adler says. "They couldn't express an opinion about what was going to happen." When Kmart missed a $76 million payment, Fleming immediately announced that it was stopping shipments. Kmart filed for bankruptcy the next day, and Fleming resumed shipments before the end of the week. The communications staff combated speculation that problems with Kmart, which at the time accounted for about 20% of its sales, would be ruinous for Fleming. "We'll actually do more business with them this year than we did last year, Boyd summarizes. Most confusion came from mainstream journalists who didn't know as much about Fleming as the trade press. Lewis and Adler agree that given the delicate situation, Fleming probably couldn't have done much more than it did to prevent adverse prognostication. Those who surmised Fleming's decision to stop shipments may have caused Kmart's Chapter 11 filing didn't have a good understanding of how bankruptcies work, Adler opines. Fleming's public comments about Kmart were never critical, and have been supportive since the bankruptcy. "We applaud the move by Kmart to quickly address store closures, Hansen said in an IR release. "By closing the least productive stores, both Kmart and Fleming are in a better position to help move the remaining business forward." Hansen may have taken Fleming from a troubled Midwestern grocery wholesaler to the nation's leading distributor of consumables to retailers, and the Kmart situation put Fleming on the mainstream press' radar. But the company isn't resting on the progress it's made since leaving Oklahoma. "When you start out deep in your own end zone, you've got a long way to go, Boyd says. "We've still got some yardage to cover." --------------------- Fleming Communications VP Shane Boyd (reports to HR EVP Scott Northcutt) Internal communications manager Joe Poorman External communications manager Randy Hatcher IR VP Meredith Anderson (reports to EVP and CFO Neal Rider) Firms involved in project work include Michael A. Burns & Associates (Dallas), and Carmichael Lynch Spong (Minneapolis)

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