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BRISTOL FARMS' PRESIDENT LEARNS EXPANSION LESSON

LOS ANGELES -- A niche retailer must define its goals and stay within those parameters as it expands, Kevin Davis, chairman, president and chief executive officer of Bristol Farms, told an audience of corporate development executives here.

That's a lesson the company learned a couple of years ago, Davis recalled, when it tried to lower prices to make its stores more attractive to a broader customer base.

"We found we could charge less and increase sales by reaching the masses, but we also found, after playing with that approach, that it wasn't prudent because we weren't delivering the margins we needed. That's when we realized it's probably better to do less business the right way than to drive topline sales at the expense of margins."

With 67% of sales coming from fresh products, many of them with value added, margins at Bristol Farms exceed 45%, Davis noted.

Bristol Farms, an 11-store chain of upscale specialty stores based in Carson, Calif., does annual volume of $13.8 million, or $265,000 per week per store, Davis said -- "compared with an average supermarket with 50% more space doing $200,000 a week," he added. Bristol Farms stores average 14,000 square feet, he said, with newer stores ranging up to 19,000 to 20,000 square feet.

Speaking to the local chapter of the Association for Corporate Growth, Davis enumerated a series of maxims for specialty retailers to follow, including the following:

Properly define your niche and accept it. "Don't try to be what you're not," he said. "You've got to understand what drives you and let consumers go elsewhere if they want for diapers or dog food."

Right-size the corporate structure and eliminate unnecessary risks.

"You need to grow with the business, not ahead of it," he explained -- a lesson Bristol Farms learned a few years ago after it accepted a couple of B locations.

"They were closed chain stores, and we were offered them rent-free for a few years, which sounded like a good deal," he recalled. "But the stores had weaknesses in terms of size, parking and accessibility, so while the demographics were right, the locations were not. Our problem was that we were focusing on growth rather than building a basic foundation for making each store an A store."

A related problem involved keeping what he termed "old-school managers" for too long "rather than becoming a modern, efficient company trying to grow the business," Davis said.

Focus the entire organization on attaining sales and margin objectives -- a goal Bristol Farms is achieving by paying quarterly bonuses to department managers who meet their objectives. "It pays to involve your people in the process all the time," Davis said.

Expand only when the money is available. Bristol Farms made the mistake of trying to expand before it had the cash flow available, he said. However, the company achieved a turnaround and moved into positive cash flow two years ago and subsequently opened two new stores last year.

Its goal is to open two or three new stores a year, Davis said, noting there are sufficient sites for extensive growth in Southern California before the company would consider expanding into any new marketing areas.

It is looking for growth through acquisition of existing supermarkets, conversions of non-grocery stores, and greenfield development.

Its top-volume store was a non-grocery location -- the site of the former Chasen's restaurant in Beverly Hills, Davis said. After less than a year in operation, that store's annual volume is $20 million, he noted, despite being located directly across the street from a Ralphs Fresh Faire.

"I'm often asked how we can be doing $20 million a year at that store when Ralphs says it's losing only $20,000 worth of business to us. But the reason is, we sell different things.