URM Stores Inc., the Spokane-based grocery distribution cooperative, says its considering a big expansion of its warehouse and distribution center to handle strong growth and to meet increasing demand for frozen and perishable goods.


The cooperative expects to post revenue of roughly $920 million in its fiscal year ending July 31, up from $860 million in the previous year, says President and CEO Dean Sonnenberg. It has budgeted for 5 percent revenue growth for its 2008 fiscal year, Sonnenberg says.


URM last expanded its 675,000-square-foot warehouse and distribution facility, at 7511 N. Freya, 15 years ago, he says. In recent years it has become crimped for perishable and frozen food storage space, and the expansion would involve adding about 150,000 square feet of space to house such products, he says.


The co-op has hired a team of designers and engineers, including Spokane-based ALSC Architects PS, to design the proposed project, Sonnenberg says. Preliminary plans call for either adding 75,000 square feet of space to both the south and north sides of the facility or building 150,000 square feet onto the north side, where the perishable and frozen food storage area is located.


An estimated cost for the project, which likely would take about seven months to complete, isnt ready to be released yet, he says. Constructing frozen and perishable storage facilities typically is more expensive than building dry storage facilities because of the giant freezers, coolers, and other equipment required to keep temperatures in those facilities as low as 20 degrees below zero, he says.


URM plans to decide whether to proceed with the expansion in December after it receives construction bids, Sonnenberg says. If it decides against moving forward with the project, it will look at how to operate within its current space more efficiently, and might consider teaming up with a cross-docking operation here that could help handle its frozen and perishable loads, he says. Generally, cross-docking operations unload and load items, but dont store them.


We dont want to operate two separate facilities, he says. If we dont do the expansion, we can stay in our existing space longer, but it will require sacrifices for us and our customers in terms of product selection.


URM is owned by independent grocers who buy much of their inventory from the co-op. Workers at URM pull roughly 90,000 cases a day from its warehouse for distribution, and if the co-op built the expansion, the new space would fill up with inventory within 30 days, he says.


URMs growing volumes of frozen and perishable products are driven by its customers, who, in the face of heightening competition, are looking to stand out by focusing on the variety and quality of their frozen and perishable foods, he says.


Our customers are needing a wider array of frozen and deli products, Sonnenberg says. Todays consumers are pretty fickle, so were constantly monitoring whats selling and whats not selling and pulling the products that arent selling.


In response to consumers growing demands for natural and organic products, URM recently started introducing a new line of 250 natural items, he says. It expects to have the full line of products available to customers by September.


URM employs about 2,900 people, and expects to hire more in the coming year, mainly at its distribution center rather than in its administrative offices, Sonnenberg says. In particular, it struggles to find truck drivers and warehouse workers, he says.


The co-op added 100 employees recently when it opened a Rosauers store in Bozeman, Mont. URM owns the Rosauers chain, Huckleberrys Natural Market, and four Super 1 Foods stores. It and its stockholders together operate 155 stores under the Rosauers, Super 1 Foods, Yokes Fresh Market, Family Foods, and Harvest Foods banners, among others, as well as Bonner Foods Inc., which acquired three Tidymans LLC grocery stores in the Spokane area in 2006 and renamed them Trading Co. Stores Food & Drug. URM and its customers stores are spread across Eastern Washington, North Idaho, Montana, and northeast Oregon. Its nonmember customers include 1,200 hotels, restaurants, and schools, as well as 180 convenience stores.


With the opening of its Rosauers store in Bozeman, URM expanded its target market to a 400-mile radius, which includes the Puget Sound region, as well as Portland, Ore., and Boise, Idaho, Sonnenberg says. It doesnt plan to open Rosauers stores in those markets anytime soon, but it is performing market analyses of those areas and likely will expand there in the future, he says.


Our current market area has become saturated, so we have to reach out and look at new sites, he says.


Sonnenberg attributes URMs growth to the work of its staff and the growth of its stockholders stores. URM primarily focuses on strengthening business with its current customers, rather than looking for new ones, and that strategy has really paid off for us, he says. It also promotes the cooperative business model heavily to independent grocers, he says.


You have to be constantly focused on finding your niche, being well-defined in it, and executing what you say youre going to do, Sonnenberg says. We focus on competitive pricing and customer service.


URM also benefited when Supervalu Inc., its biggest local competitor, closed its facility here about a year ago, he says.


The co-ops biggest concern right now is rising energy costs, especially since its part of an industry known for paper-thin margins, Sonnenberg says. Its employees drive a total of about 75,000 miles a week and its expenditures on diesel fuel have tripled, to more than $60,000 per week, within the past four years, he says. URM hasnt increased its freight fee rates in 15 years, but plans to evaluate those rates this fall and likely will have to raise them, he says. It also will need to work with its customers on consolidating loads and changing delivery patterns to minimize the mileage its trucks are driving.


Its a scary situation, he says of the skyrocketing energy costs.


Other hurdles to growth include rising health-care costs, escalating food prices, and food safety issues, such as the recent tomato recall, which was very expensive for everyone in the industry, he says. URM also is working with the National Grocers Association to lobby Congress to level the playing field in terms of the fees that credit-card companies charge independent grocery stores to perform debit and credit-card transactions. Those rates differ among merchants, including between independent grocers and big supermarket chains.


Competition also represents a continuing challenge for URM and its customers. Wal-Mart recently opened a store in Airway Heights and has disclosed plans to open stores in Spokane Valley, Post Falls, and Pullman. Meanwhile, Boise-based WinCo Foods Inc. has said it plans to enter the Spokane market soon with two stores.


This market is one of the strongest for independent retail grocers, but its also heavily competitive, Sonnenberg says. There are no weak operators left anymore.


He adds, With rising food and energy costs and the economic uncertainty that comes with an election year, you need to be tough on expenses at all levels. Fortunately, our market hasnt been hit as hard as others, and were continuing to see some growth.


URM was founded here in 1921 by a group of Spokane-area grocers as United Retail Merchants. In addition to selling groceries and general merchandise, it offers its members planning, design, financial, marketing, insurance, technology, and real estate services.


Contact Emily Proffitt at (509) 344-1265 or via e-mail at emilyp@spokanejournal.com.