Marsh spending remodeling, renaming 105 stores

July 2, 2007

Customers and employees of Marsh Supermarkets Inc. endured a fair share of uncertainty last year when new private-equity owners began exploring ways to revive their struggling local grocer.

Florida-based Sun Capital Partners didn't allay those concerns when it launched its turnaround effort by closing 12 stores, laying off 10 percent of the 420-person headquarters staff, and selling a big chunk of the chain's real estate.

But now, the mood seems upbeat again at Marsh, thanks to a chain-wide effort to upgrade stores and win back loyalty from customers and employees. CEO Frank Lazaran said the chain has launched a campaign to remodel 70 percent of its grocery stores within a year and rebrand every one of them.

About 65 of the chain's stores, including all former LoBill locations, will be called Marsh Hometown Markets. Roughly 40 full-service, larger stores will be branded Marsh the Marketplace.

The chain has spent $5 million already and plans to spend more than $5 million more on the renovation and rebranding effort, which includes brightening stores and tweaking the product mix and presentation. Many of the stores were in dire need of investment.

"It's been a long time in this chain since we've had the ability to do that," Lazaran said during an interview with IBJ at the remodeled Marsh Hometown Market in Irvington. "Our customers are excited that we're here to stay, and equally important, our associates are very happy we're spending money in the stores."

To help fund investments in the core grocery business, Marsh has spun off other businesses that were added over the years by its former management. Most recently, Marsh sold its McNamara Florist division to a partnership led by that company's president, Toomie Farris, at an undisclosed price. Convenience store chain Village Pantry now reports directly to Sun Capital, as a separate entity. And Crystal Catering also eventually will operate independently from Marsh, reporting directly to Sun.

The private equity firm--which also owns brands such as Bruegger's Bagels, Fazoli's and Edwin Watts Golf--paid $88 million in cash and assumed $237 million in debt when it purchased Marsh in October 2006. After closing on the deal, Sun appointed Lazaran, a 30-year grocery veteran who began his career at 17 as a bagger at Ralph's Grocery in California. Lazaran, 50, most recently had served as CEO of Florida-based Winn-Dixie Stores Inc.

The CEO selection was a harbinger of the new, grocery-focused strategy for Marsh Supermarkets, said Neil Stern, a senior partner with Chicago-based retail consulting firm McMillan-Doolittle LLP.

Before Sun, Marsh was a company with too many "moving parts and pieces" for a small, regional grocery, Stern said.

"Clearly, Marsh had problems the way it was constituted," he said. "The strategy they've chosen is, 'Let's focus back on the core supermarket chain and invest to make them better stores.'"

Marsh's investment in individual stores will range from about $200,000 to more than $2 million, Lazaran said. In some stores, the changes will include scaled-back meat counters, although custom cuts still will be an option for those who ask.

The Irvington store received $300,000 of work, including new lighting, a more open format and more prominent placement for fresh produce. It also got a new name: Marsh Neighborhood Market.

The idea is to more fully capitalize on the Marsh name while differentiating between stores designed for busy shoppers looking for "Marsh quality at an affordable price" and "Marketplace" stores that have a wider selection of specialty meats and natural and organic products.

So far, all the stores that have been remodeled have experienced a jump in sales, Lazaran said.

In its last fiscal year as a public company, Marsh reported a loss of $40.2 million. Lazaran would not provide specifics about the profitability of Marsh, but said the company is "improving its financial position."

"We're not prepared to declare victory, but we are moving the needle hair, and it's very encouraging," Lazaran said. "Our associates have faced the reality, as all of us in management have, that this was a turnaround scenario."

Among the most expensive of the projects is a revamp of the downtown O'Malia's that will give the store a whole new look, along with an expanded wine section and more floral selections, still provided by McNamara. The $2 million project should begin in the next few months, Lazaran said.

The chain also is reviewing whether to change the downtown store's name to Marsh. All the LoBill stores will change, but the six O'Malia's are being reviewed on a case-by-case basis, in part by gauging customer preference and loyalty to the O'Malia name.

The renovations could be vital for Marsh to maintain its market share, as competitors also are moving to upgrade their offerings. Kroger has four significant remodeling projects in its pipeline, including stores in Southport, Greencastle and Greenwood, said John Elliott, a public affairs manager for the Cincinnati-based chain.

Marsh's renovation efforts will span 12 to 15 months and have already led to improved morale among employees, Lazaran said.

Former Marsh executive Danny O'Malia can vouch for that.

"There's a sense that things are moving in the right direction," said O'Malia, who's now an executive with the locally based sales-training firm Trust-Pointe Inc. but keeps in touch with many of his former colleagues.

"The morale was going downhill for about two years. Then, when the new guys came in, there was a, 'What is happening now?' thing. Now, they're more optimistic about the future than at any time since [the company] announced the sale."

Lazaran said it's always possible that more stores could close, but he said the time for large-scale closures has passed. The strategy for Sun now is to grow the business, and that includes hunting for new Marsh locations. He would not say where officials are looking.

Typically, private-equity companies such as Sun don't keep an acquired company more than five years. Lazaran said there's no end game yet for Sun, only marching orders to grow the business.

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