C&S Wholesale Grocers is at the bottom of the food chain -- and likes it that way. The company is the second-largest wholesale grocery distributor in the US (after SUPERVALU), supplying goods to some 3,900 independent and major supermarkets (including A&P and Safeway), mass marketers, and wholesale clubs. C&S Wholesale, which serves about 10 states, distributes more than 95,000 food and nonfood items from more than 50 facilities. C&S is selling its Southern Family Markets (SFM) division, which operates 57 grocery stores under the Piggly Wiggly, Bruno's, Food World, and Southern Family Markets banners. Its ES3 logistics unit provides warehousing and supply-chain management services.
The pending sale of its SFM retail division, announced in February 2012, will further the grocery distributor's aim of exiting the retail business. (SFM's retail network spans Mississippi, Alabama, Georgia, and Florida.) C&S is also shopping about 25 Grand Union Markets it owns in the Northeast. Previously, the company sold 10 SFM liquor outlets. Following the sale of the SFM stores to Belle Foods, C&S will continue to supply them through its logistics unit.
C&S Wholesale is a giant in wholesale grocery distribution, an industry known for moving high volumes of products and having narrow profit margins. Adding to that, price competition has heated up in recent years as smaller regional distributors have fought to stay competitive with industry leaders amid the recession and lingering tough economic times in the US. C&S Wholesale has taken its leading position by offering logistics services to retail chains (such as A&P, Safeway) and food manufacturers (Unilever), in addition to distribution. This diversification strategy not only offers a lucrative stream of revenue, but it has also helped to protect the company from bankruptcies in the retail grocery industry.
Whether C&S's strategy will protect it from the bankruptcy of its second-largest customer, A&P, remains to be seen. A&P, which owns about half a dozen grocery chains including Pathmark (acquired in 2007), filed for Chapter 11 in late 2010. A&P's bankruptcy filing was precipitated by a looming $13 million interest payment due to C&S, which had been unwilling to make concessions for the supermarket operator. C&S supplies about 70% of A&P's inventory. Though C&S is among the leaders in its industry, the company is not benefitted by its substantial customer concentration, because the distress or loss of one or more clients could batter its operating results.
Before its troubles with A&P arose, the grocery distributor had been adding to its customer base. In early 2010 the company became the primary supplier for Giant-Carlisle's chain of about 25 Ukrop's stores in Virginia, and sister company Giant Food transferred its dry grocery warehouse functions to Jessup Logistics, a unit of C&S.
C&S has also been bolstering its ES3 logistics division. In 2009 the company expanded its warehousing and distribution center in York, Pennsylvania, adding a 705,000-sq.-ft. tower. The cost of the project was estimated to be $200 million, and the state of Pennsylvania also kicked in a $3 million investment that includes job-creation tax credits and job training help. Some 650 jobs were added to the facility following the tower's completion.
Israel Cohen started the family-owned company with Abraham Siegel in 1918.