Winn-Dixie Offers Plan to Get Out of Bankruptcy

From the Associated Press:

Supermarket chain Winn-Dixie said Tuesday it will cease operations in four Southern states, close 326 of its 913 stores and cut 22,000 jobs under its proposed bankruptcy reorganization plan.

The company said it will stop operating in Tennessee, Virginia, and the Carolinas, and trim operations in its five remaining states, Florida, Georgia, Alabama, Mississippi, and Louisiana. The cuts amount to 35 percent of its current work force of 78,000.

The analysis here is simple. Winn-Dixie can't compete against Wall Mart.

The grocery business is cutthroat. Your profit margin is perhaps a couple of pennies per food item with thousands of items to stock on the shelves. Your profit is going to come from selected food items that everyone needs, or specialty items such as deli or bakery. So the grocery stores have to streamline their operations for maximum efficiency--especially in supply chain and distribution. Wall Mart has one of the most efficient distribution operations of any retail company. But one of the biggest costs for a grocery store is labor costs--wages. Here in California, the big supermarket chains such as Safeway and Albertsons have unionized workforces, which pay higher salaries and benefits. I'm not sure if Winn-Dixie stores have unionized labor. Wall Mart has vehemently resisted all attempts to unionizing its workforce, thus pays lower wages and salaries for its non-union workers over that of its competition and their unionized workforce. Wall Mart has also started merging its big boxed retail department stores with a full service grocery stores to provide consumers with a shopping behemoth--a single store providing all shopping needs. The interesting thing about this is that Wall Mart can use its retail department stores to subsidize the construction of these giant retail/grocery stores as it worms its way into the grocery business.

There is only so much streamlining and cost-cutting that Winn-Dixie can do. But when you're competing against the world's largest retailer, who is planning to break into the grocery industry, in the south, it is no wonder that Winn-Dixie is having problems. I'm not saying that Wall Mart is to blame for Winn-Dixies woes. Whatever problems Winn-Dixie may have had, they have been exacerbated by Wall Mart's competition. With Winn-Dixie pulling out of the grocery business in four states, and trimming operations in five states, you can bet that Wall Mart will be picking up some choice store locations to increase its operations and market share within those states. This is only going to increase the pressure of Winn-Dixie to compete more efficiently than Wall Mart. Somehow, I doubt that would happen.

Winn-Dixie will go down, just as KMart has gone down.