BATON ROUGE, La. -- Perception is everything to Associated Grocers here.
As it marks its 50th anniversary this month, the retailer-owned wholesaler is spending a lot of time trying to develop a more positive image for its 230 member stores.
" We want to beat off the image that independent supermarkets can't compete with chain operations," Jay Campbell Jr., president and chief executive officer, told SN.
The perception that chain stores are superior to independent operations persists in the supermarket business, he noted, although it does not exist in other retail businesses.
"When you come to New Orleans and select a restaurant for dinner, you're more likely to pick an independently owned local restaurant than a chain," Campbell pointed out. "All of them have the same access to food, yet the chain-operated restaurant is viewed as being inferior to the locally owned guy.
"But when it comes to the grocery business, independents have always suffered from the perception of being weak and inadequate compared with chain stores, supercenters or clubs -- a perception that is like an albatross around the independents' neck and something we must constantly fight as we try to enhance his image in the eye of the consumer."
That image problem is similar to what independents faced 50 years ago, at the time of AG's founding, Campbell acknowledged, although the issues are different today.
"It was really a matter of survival 50 years ago, when vendors wouldn't sell to independents individually. Many of those original members were mom-and-pop grocery stores that were having tough times competing with the chains -- until they determined that, instead of competing with each other, they should work together, which is how AG was formed.
"The issue today is no longer procurement -- it's more the ability of the independent operator to market and promote his store. At AG we have more sales and marketing efforts than ever before committed to retail because of the changing environment of the marketplace, with brokers and manufacturers no longer developing sell plans to promote their goods but paying retailers to develop their own marketing and promotional plans."
To improve its members' image and make them more competitive, AG has developed an advertising program -- used by about half its members -- that uses the Associated Food Stores banner to give independents a stronger image.
And, although the program is just over a decade old, there's a new push on for stores to join AG's Apple Corps "and help to overcome the mistaken impression that bigger is better when it comes to shopping for perishables and groceries," according to an AG brochure.
According to Campbell, the goal of the Apple Corps program is to maximize the competitiveness and viability of every Associated Food Store member. "Helping member stores remain profitable is the key to survival for AG and for each of its independently owned members," he said. "The Apple Corps program is designed to reward stores that become more competitive without penalizing those not participating in the program."
The independents' image problem is complicated by class-of-trade concerns, Campbell said. "We want to be sure we have full exposure to every opportunity vendors offer, and if we qualify, we want the opportunity to secure the five P's -- product, pricing, promotions, packaging and payment terms -- on a level playing field with other types of retail operations.
"So we need full disclosure of information that an item is available, regardless of the five P's. It's no longer a defensible argument for vendors to attempt to distinguish between classes of trade. In the restaurant industry, for example, vendors don't sell hamburger meat only to McDonald's, and it's no different with a 12-pack of toilet paper or paper towels.
"The vendors can package their products any way they want, but, when an item is available only to club stores or mass merchandisers, that funnels the consumer away from us to those competitors.
"Many vendors are beginning to realize they are forcing consumers to go to certain outlets for certain items, and all we're asking is that they offer us what's available and let our members decide what they want.
"It all goes back to store image. By levelling the playing field, you can build an image based on what you provide the consumer. But if an independent operator is prohibited from selling certain items, that tarnishes his image."
As AG enters its second half-century, its plans include the following, Campbell said:
To look for expansion in new and existing markets, which could ultimately result in opening a second distribution center.
To pursue alliances with other retailer-owned companies in order to become more competitive in providing member services.
To consider the purchase of its first corporate store, which would serve as a training facility for its members.
To seek potential acquisitions.
AG -- founded in May 1950 -- is a for-profit retailer-owned wholesaler with annual sales of $450 million. It operates out of a 530,000-square-foot distribution center here that serves 200 members operating 230 stores in a four-state area encompassing Louisiana, Mississippi, eastern Texas and, with one customer added late last year, Alabama.
The distribution facility, which was enlarged in 1992 and again in 1996, is operating at 75% of capacity, Campbell said, "and we can get more flow and handle more volume if we do some maneuvering of the racking and the merchandise, but at some point we will have to expand again."
The next expansion is to add 35,000 square feet of freezer space, with construction expected to begin in about a year, Campbell said.
The warehouse expansions have been possible, in large measure, because of AG's decision in 1990 to become a for-profit company -- a change in corporate philosophy largely engineered by Campbell, who was AG's chief financial officer at the time.
"We wanted to grow the financial power of the company so we could rely less on member money and more on borrowings from capital markets for growth," Campbell explained. "That change created a new level of excitement for our members because they saw that, when the company made money, their investment dollars grew, and we've been in a growth mode for the last 10 years.
"So as we've done each of the warehouse expansions, we've been able to borrow money on the open market on an unsecured basis because lenders see AG as a favorable risk," he said.
AG is proceeding cautiously on spending money for growth in the next few years, Campbell told SN.
As it seeks to expand its customer base, AG will look in markets "that make distribution sense, where we have the ability to serve customers. We want to be able to achieve the level of excellence we demand," he said.
The company is prospecting for customers within 300 miles of its distribution center. It will consider adding a second facility "if the opportunity seems right and it makes economic sense," Campbell said, "and that could happen at any time."
Adding another facility would not necessarily mean building one, Campbell pointed out, noting it's possible AG could opt to make an acquisition or enter an alliance, partnership or joint venture with another distributor.
AG is already part of several alliances with other retailer-owned companies around the country, including the Dallas-based Retailer-Owned Research Co., which markets proprietary hardware and software for its nine warehouse members, and Birmingham, Ala.-based Retailer-Owned Food Distributors & Associates, which oversees buying of equipment and supplies for 18 member companies.
"We all must look at alliances like these because of the size and scope of the competition," Campbell said. "We're always looking at every product we buy and every service we provide to see if we can't find ways of doing it better, and it would be foolhardy not to consider aligning ourselves with someone who's already doing something better."
While AG prospects for additional volume, it has chosen not to sell merchandise to any chain operators. "We've been approached to sell some perishables, slow movers and shorts, and the reality is, we could make money selling to outsiders," Campbell said. "But we've chosen a philosophy of not doing that but rather of directing our resources and energies to helping our members grow."
Campbell said that policy could change. "We would evaluate it as time goes on and possibly decide that it may be prudent to reconsider," he told SN.
However, he said, any re-evaluation is unlikely for the foreseeable future.
Asked about potential consolidation between AG and another distributor, Campbell said, "There have been no offers to buy us, but we're considering acquiring other companies. We must evaluate each opportunity that arises and determine if it's complementary or supplemental to what we want to accomplish.
"There have been some opportunities that made some geographic sense, but not economic sense -- even if it's a good opportunity, it must make economic sense. We won't make a decision to move on an opportunity that doesn't have prospects for a good return-on-investment."
The number of members has remained static at about 200 for several years, Campbell said, "though as we lose some small customers, we're gaining larger ones."
He said AG's volume is well dispersed among the membership, with the top 150 customers doing about 86% of the company's volume.
With AG's largest member, Rouse Supermarkets, Thibodaux, La., operating only 12 stores, there's little threat of any members opting for self-distribution, Campbell added.
He said local expansion prospects for AG members are bright, with the availability of former chain locations from New Orleans-based Schwegmann Giant Super Markets, which has liquidated; National Tea, the St. Louis-based company that sold its stores to Schwegmann a few years ago, although several of them were never reopened; Winn-Dixie Stores, Jacksonville, Fla., which is in the process of selling some underperforming units; and Jitney-Jungle Stores of America, Jackson, Miss., which is selling stores as part of a financial restructuring.
AG does not operate any corporate stores, "though we've thought about it," Campbell said, "and we will evaluate it as opportunities arise.
"Ideally, we would love to have one local store as a hands-on training cente, even if it just broke even. We could hire personnel on a one-week basis, train them and then send them back to their stores."
