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Retail
Saving Winn-Dixie
Company executives say they can make the chain a going concern. Others think the problems may be too deep.
Many across the region shared similar emotions. Though all of Winn-Dixie's 920 stores in eight states and the Bahamas remain open, it's as if a favorite uncle has fallen gravely ill. Winn-Dixie -- Jacksonville's Fortune 500 bellwether and the first industrial corporation in the state to be listed on the New York Stock Exchange -- is on life support.
While local business leaders and Wall Street analysts speculate the company will have to dramatically downsize to survive, CEO Peter Lynch optimistically insists Winn-Dixie will pursue a growth strategy built on store upgrades and improvements in customer service.
"We intend to use this reorganization process ... to position Winn-Dixie for future success," Lynch says. "We will focus on increasing sales quickly ... and restoring a sales-driven culture across the organization."
The troubling reality, however, is that Winn-Dixie's fate will be determined in court-mediated negotiations between the store and creditors owed hundreds of millions of dollars.
Winn-Dixie's descent into bankruptcy has been a painful ride for company executives and investors alike. Founded by William Milton Davis and his four sons in Miami in the late 1920s, Winn-Dixie grew into the fourth-largest supermarket chain in the U.S. by 1993, eventually topping $14.1 billion in sales. The company also became a Wall Street favorite, where it held the record for the longest string of uninterrupted dividend payments -- 39 years. In 1998, its stock price peaked at $55.88.
The first public sign that Winn-Dixie was foundering came in 2002, when company executives announced they were selling stores in Texas and Oklahoma to concentrate on its "core market" in the Southeast. But the sales decline that continues to plague the company can be traced to 1999, when analysts say discount competitors like Wal-Mart and upscale alternatives like Publix began to erode Winn-Dixie's customer base.
By the fall of 2003, CEO Frank Lazaran (only the second person outside the Davis family to run Winn-Dixie) was saying the company could no longer accurately forecast future earnings. The company announced a $100-million loss in fiscal year 2004, and Lazaran was fired. Then, in January, came the coup de grace: A $399-million loss in the second quarter of fiscal 2005.
According to Winn-Dixie CFO Bennett Nussbaum, the news prompted vendors to ask for shorter payment terms and the company to seek bankruptcy protection. Its stock was quickly delisted from the NYSE.
Dual personality
For the moment, the Winn-Dixie chain has something of a split personality -- a dichotomy that's on vivid display in St. Johns County. Prosperous Ponte Vedra Beach is home to a "new" Winn-Dixie store: A clean, spacious, recently renovated space that compares favorably to a nearby Publix and Harris Teeter. Company executives cite the Ponte Vedra store as a model of what they hope every Winn-Dixie will eventually become.
To date, the company's upgrade plans only address about 90 of its 920 stores. And for every example of Winn-Dixie's future, however, there are dozens of reminders of its past. Like many of the chain's northeast Florida branches, the Winn-Dixie in north St. Augustine is in one of the region's poorer neighborhoods. (Winn-Dixie is the only supermarket in downtown Jacksonville.) The store doesn't have the space, polish or selection of the Ponte Vedra branch -- to say nothing of the features in a sprawling new Publix a few miles away. And with rumors that developers are eyeing neighboring land for a new Super Wal-Mart, the St. Augustine Winn-Dixie faced long odds even in the pre-Chapter 11 environment.
According to Bankruptcy Creditors' Service Inc., Winn-Dixie's latest consolidated balance sheet listed $1.8 billion in liabilities, including $300 million in long-term debt and $250 million in lease liability for stores that are no longer open (so-called "dark stores"). The company's largest unsecured creditors include note holders Wilmington Trust Co. ($300 million) and Capital Research and Management Co. ($45 million), along with vendors Kraft ($15 million), Pepsico ($14.5 million), and Mayport-based Safe Harbor Seafood ($1.2 million).
Waiting game
While Winn-Dixie's bankruptcy won't dampen northeast Florida's increasingly diversified economy, the news gave pause to longtime residents.
"We're all watching and waiting to see what will happen," says Jill Dame, interim CEO of the Nonprofit Center of Northeast Florida. "Jacksonville has lost so many major corporations over the last 10 years -- Barnett Bank, Independent Life. Everyone knew there were problems. We just hope for the best."
Author and historian James B. Crooks says Winn-Dixie's "lower prices and relatively unsophisticated stores" were emblematic of the city's "blue-collar mentality."
Members of the politically conservative Davis family were for decades among the city's most influential business leaders. Still, for all its money and power, Crooks says the Winn-Dixie corporation never played the social and charitable role many hoped.
"The generosity of the Davis family has been largely individual, not corporate," says Crooks. "That is something that always troubled folks."
If I Were CEO
All regional supermarket chains, including Winn-Dixie, need to take this marketing warfare phrase to heart: "Differentiate or die."
Sharp differentiation comes from addressing two fundamental strategic
questions:
What minimally contested customers are we committed to winning over, and which are we willing to lose?
What value criteria are we willing to invest in so that our competitors' performance pales by comparison and shoppers have a clear preference?
For instance, a former Winn-Dixie conventional supermarket was sold to a local entrepreneur who transformed it into the Atlanta Farmer Market, a multiethnic combo store -- Asian and Mexican. No other supermarket in the area targets this market segment. In addition, since Asians value fresh fish, the seafood department is filled with live fish in tanks (resembling an aquarium) as well as fresh-caught fish on ice. Conventional supermarkets don't measure up to that standard.
The entire Winn-Dixie chain must decide to target customers whose needs are compromised in shopping at Publix, Albertsons or Wal-Mart. They also need to practice mass customization and develop clusters of stores that receive different product assortments based on their region's unique shopper demographics.
If I Were CEO
Winn-Dixie's CEO must develop a conceptual business culture with a commitment to a basic principle of retailing that the chain has been missing: Customer loyalty.
Customer loyalty derives from the consumer's ability to depend upon the store always having in stock basic items in the same package size, brand and quality in repeat shoppings.
Winn-Dixie hasn't had a reliable assortment of merchandise and therefore has discouraged sales and irritated shoppers. The CEO at Winn-Dixie must dedicate conviction and energy to solving this fundamental weakness. No investment in environmental improvement, no matter how necessary, will satisfy unavailability of products.
A mechanism to refine inventory management, in all aspects, from purchase ordering through sales, is needed to overcome the unreliable assortment and frequent item outages.
As CEO of Winn-Dixie, I would have to acknowledge the hands-on mission of converting random, reluctant shoppers to satisfied patrons whose experience commands customer loyalty.
If I Were CEO
Winn-Dixie should borrow from the Swiss playbook. Faced with overwhelming German power during World War II, the Swiss realized they couldn't protect their whole country. They developed a plan to concentrate their forces on the most defensible portion of their territory without wasting what resources they had on the non-defensible. Winn-Dixie should do the same. It could defend small geographic areas outside large cities, selling or closing its other stores and remodeling or relocating every store in the defended areas. Or, it could defend a position serving lower- to lower-middle income customers, selling its stores that are in higher-income suburban areas. Winn-Dixie's strategy should be to focus financial and human resources to achieve a clear, executable and defensible position with customers.
If I Were CEO
Winn-Dixie may be paying $100-plus million per year to "bankruptcy" professionals who appear to have low to no successful experience turning around bankrupt food retailers.
To date the bondholders, stockholders and other "vested" parties have refused to bring in anyone with extensive, in-depth operating and turnaround experience.
The bankruptcy "professionals" will live off their very fat fees for a year without establishing critical meaningful momentum for Winn-Dixie.
Winn-Dixie seems headed toward a tragic liquidation -- like Jitney Jungle, Delchamps, Schweggmann's, Harvest, Furrs and so many other leading Southern food retailers in recent years.
Until the bondholders, creditors, the company and the Davis family bring in experienced top turnaround people with in-depth buying, merchandising, store operations, consumer and competitive analytical experience (as well as extensive knowledge in real estate, manufacturing and distribution), Winn-Dixie will quickly wilt in this summer's high heat as Wal-Mart, Publix and many other well-capitalized competitors open a record number of new stores vs. Winn-Dixie.
Winn-Dixie can still be saved but not until Jay Skelton, the chairman, A. Dano Davis and the other Davises, management, bondholders and creditors bring in a true "dream team" to provide a proven, successful turnaround strategy with in-depth tactical implementation before the current crop of bankruptcy "professionals" completely cripples a very badly wounded company.
