Spartan Stores continues supply chain optimisation strategy

As part of its ongoing distribution network optimization efforts, Spartan Stores, Inc., announced that it plans to operate all supply chain activities from its Grand Rapids, Michigan distribution centre.

Grand Rapids, Michigan-based Spartan Stores, Inc., is the nation's eleventh largest grocery distributor with warehouse facilities in Grand Rapids and Plymouth, Michigan. The Company distributes more than 40,000 private-label and national brand products to approximately 350 independent grocery stores in Michigan, Indiana and Ohio. Spartan Stores also owns and operates 97 retail supermarkets in Michigan, including Family Fare Supermarkets, Glen's Markets, D&W Fresh Markets, Felpausch Food Centers and VG's Food and Pharmacy.

Part of the optimisation strategy includes the potential closure of the Company's 38,555 m2 Plymouth, Michigan dry grocery warehouse by the end of its fiscal 2010 fourth quarter. The Plymouth warehouse operating lease is set to expire in October 2010 and the Company's current collective bargaining agreement with employees at the facility will expire in April 2010. The Company intends to promptly engage in negotiations with the Teamsters Local 337, which represents the approximately 140 Plymouth, Michigan facility bargaining unit employees, prior to making a final decision on closing the Plymouth facility.

As part of the negotiations, the Company expects to offer employment opportunities for Plymouth Teamster employees at its Grand Rapids, Michigan distribution centre. In conjunction with the warehouse optimisation, the Company will implement an administrative cost reduction initiative.

These initiatives are expected to improve the distribution segment's operational efficiency by increasing inventory turns, warehouse thru-put and capacity utilisation, while reducing administrative expenses and inventory investment requirements. If the closing and optimisation of the warehouse facility are implemented, along with the administrative cost reduction initiative, the Company expects to incur a fiscal 2010 fourth-quarter net after tax charge of approximately US$1.5 to US$2.0 million for severance, warehouse and asset impairment costs. The Company also expects to incur a fiscal 2011 first-quarter net after tax benefit of approximately US$0.2 to US$0.6 million for a favourable LIFO benefit due to inventory reductions net of lease termination and additional distribution centre closing costs that are anticipated to occur during the quarter. Excluding the previously mentioned charges, annualised after tax cost savings from these initiatives are expected to range from approximately US$2.0 million to US$3.0 million.

During the past several years, the retailer has prudently invested capital to upgrade its distribution system technology, expand produce ripening operations, upgrade the entire fleet of trucks, and has just recently completed a major warehouse re-racking project at the Grand Rapids grocery distribution facility that significantly increased warehouse capacity and improved space utilisation. These investments have significantly improved the retailer's dock scheduling, traffic management, inbound freight and transportation routing system.

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