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Kmart Corp., the discount retailer struggling to emerge from bankruptcy protection, and Fleming Cos., the food wholesaler, have dissolved the supply contract that they signed in 2001 and that should have run through 2011.

Kmart is Fleming's biggest customer, and accounted for roughly 20 percent of its revenue last year. Fleming expected Kmart to generate about $4.5 billion in revenue in 2002, but reports are that the actual amount was closer to $3.3 billion…a number that was expected to drop to $2.5 billion this year.

The companies announced that that the deal was no longer in either of their best interests. They will continue working through issues of transition and the resolution of outstanding claims.

Kmart President and CEO Julian Day said, “We have determined that given the change in our store base, among other things, the Fleming supply arrangement no longer meets our needs and the rejection of the contract at this time is appropriate.” Kmart is in the process of closing more than 300 stores and laying off more than 35,000 employees; the company has declared its intention to emerge from bankruptcy by the end of April.

Fleming Chairman and CEO Mark Hansen said, “The basis on which the parties entered into the agreement have substantially changed, warranting an end to the relationship." Hansen said Fleming had tried to negotiate better terms with Kmart, but had been unsuccessful.
KC's View:
You could see this one coming a mile away, and the real question now is which of the companies is going to be affected more by this development.

Fleming loses a big customer, and being in the process of divesting its retail division, suddenly looks like a smaller company.

Kmart loses its main supplier of grocery products, and will have to find a new one…though it seems to be moving away from the grocery business to a certain extent.

Being in business together may have been counter-productive…but we’re not sure that either company is in better shape for being apart.

Gee, Wal-Mart has been thinking about getting into the wholesaling business. We joked a couple of weeks ago that it might want to buy Fleming…and were promptly razzed by MNB users who didn’t understand that we were kidding around.

But if Wal-Mart indeed gets into the wholesaling biz, you think it would be interested in supplying Kmart…?