Giant Food Inc., in a major departure from its basic business, has initiated preliminary talks with Supermarkets General Corp. about manufacturing and processing selected food items for the New Jersey company's Pathmark division.
Such an agreement would be the first step in a new diversification scheme that Giant is contemplating as part of a strategy to build new profit centers for the Landover-based food chain, company officials indicated yesterday.
A spokesman for Giant confirmed reports that officials from the local food chain and Supermarkets General had met recently to discuss a proposal for a joint venture, but he emphasized that the talks were only preliminary. No information was available on such issues as what the venture might cost or anticipated profits from it. Food World, a trade publication in Columbia, Md., reported in its December edition that representatives of the two firms had met recently to discuss a possible joint venture.
Discussions of a possible joint venture with Supermarkets General actually began several years ago but were tabled and were only recently renewed, informed sources said yesterday. Although officials said they could not provide details of more recent talks, which were resumed about three weeks ago, a spokesman for Giant said the discussions centered on a proposal in which Giant would adapt its in-house expertise in manufacturing and food processing to fit Pathmark's requirements.
Giant owns and operates Heidi Bakery and a dairy and ice cream plant. Next year, it will add a soft drink plant and an ice plant to its warehouse and frozen-food complex at Jessup. Those are support facilities that make products exclusively for Giant's supermarkets, however. An agreement with Pathmark would almost certainly result in similar arrangements with other supermarket chains that do not own food-processing plants, Giant officials indicated.
"It's a concept that we are exploring, and we are prepared to explore the concept anywhere there is an opportunity with enough volume to support a facility," said a Giant official. A spokesman for Giant said preliminary discussions with Supermarkets General dealt primarily with Giant's bakery, dairy and ice cream facilities and how similar operations might be developed for Pathmark.
"Our people would be managing the plants for Pathmark ," a Giant official said. "We would put up equal equity, and we would share in the profits."
Officials said they are unable to project either the cost of building processing plants outside the Washington area or earnings that Giant would realize from the venture. Giant has a long-standing policy of refusing to disclose earnings from support facilities or its various divisions, and estimating the company's returns from those operations would be difficult.
"If the first venture is a dairy plant, earnings would be substantial," a spokesman said, referring to a possible deal with Pathmark.
Pathmark operates a chain of 132 supermarkets, most of them food-pharmacy combinations, in metropolitan New York and Philadelphia. It also operates 22 free-standing drug stores, and recently opened the third of three deep-discount drug stores in Baltimore. Pathmark reported sales of $3.3 billion for the fiscal year that ended in January. Supermarkets General's other divisions include Hochschild-Kohn department stores, Rickel home improvement centers and Howland-Steinbach, a department store chain operating primarily in New York and Connecticut. The company's is based in Woodbridge, N.J.