WHITE SULPHUR SPRINGS, W.Va. -- Manufacturers risk more than just depriving themselves of near-term sales when they make new items unaffordable for smaller chain retailers, a regional retailer said during a panel session at the Grocery Manufacturers Association's Executive Conference here.
Ric Jurgens, president and chief executive of Hy-Vee, Des Moines, Iowa, warned they could push local or regional operators to adopt strategies unfavorable to national brands.
"When manufacturers create policies or rules or stipulations that restrict distribution of products, or create dramatically different price advantages, it's a slippery slope," he said.
The more that smaller chains are priced out, "the more they're forced to go to private label and other things to try to compete," Jurgens said.
"The way we go to market, we need those brands," he said. "Don't restrict the kind of people who are carrying your product."
Jurgens acknowledged that the autonomous nature of his stores can be a challenge for suppliers. There's no centralized category management system. Rather, store operators in his 221-unit chain decide which products to sell, where to sell them, and at what price.
"If we tie people's hands to a certain way of setting things, we restrict the innovation that creates exciting new things," he said.
Suppliers who understand the system and embrace it do well, though. Jurgens said that despite competition from other regional chains, supercenters and other nontraditional food retailers, comparable sales at Hy-Vee grew 5.4% to $4.6 billion in 2004, while annual Center Store sales growth has topped 3% for the past several years.
Mark Baum, GMA's executive vice president and moderator of the panel, stressed that manufacturers can reap the benefits of independents like Hy-Vee that take risks and aren't afraid of trying new things. A significant percentage of packaged goods are sold by regionals and independents, he said.
"Even in an era of consolidation and concentration, regional chains are vital to the success of food manufacturers," he said. "Remember that size alone does not always create economies of scale and efficiencies."
Jurgens and the other panelist, Ron Dennis, president and chief operating officer of Farm Fresh, with 38 stores in Virginia, said supplier partnerships, upscale assortments and cross merchandising have helped their chains thrive amid competition.
Dennis said that despite Farm Fresh's strong attention to perishables, it hasn't given up on any dry-goods category. He cited dramatic gains the company made in minor categories like dye and shoe care just by improving their visibility.
Jurgens said supplier relations have improved in recent years, but called on his trading partners to do more to provide retailers with information.
"The more we know about a product, the best practices for selling it, best placement on the shelves, consumer insights -- that's what we need," he said. "That's what all our manufacturers can do best."
