This new year may be the one during which the much talked-about move to switch focus back on the "consumer" aspect of the Efficient Consumer Response equation takes place, industry executives told SN.
Now that systems are in place -- and they are working to make retailers and wholesalers more efficient -- the time may be right for the focus of ECR to shift to the consumer, several executives pointed out.
The observations about ECR are among several made in response to SN queries of top-level executives, all of whom were asked to identify opportunities or challenges that might characterize 1997.
Executives also said the new year may be marked by labor concerns, struggles for sales and ongoing industry consolidation.
"The challenge in 1997 is to take what we've learned from ECR and re-invest with the customer," Randall Onstead, president and chief executive officer of Randalls Food Markets, Houston, said.
"The benefits are out there to be had, and we must find ways of making them part of the way we do business. Instead of regarding ECR as a list of initiatives to embark upon, we have to find ways to incorporate them into how we conduct our business every day." According to Onstead, Randalls expects to bring consumers into the ECR loop through implementation of its frequent-shopper program, which it introduced chainwide in October.
"Our challenge is to differentiate ourselves from the competition in nonprice ways, and we see tremendous information coming from the frequent-shopper program."
"How we manage that database for our own and our customers' benefit will be the big issue."
Bob Stauth, chairman and CEO of Fleming Cos., Oklahoma City, also voiced concerns about the consumer aspect of ECR.
"The No. 1 opportunity for 1997 is to continue to try to understand the changing habits of consumers and adopt individual strategies in areas we've targeted for our success."
"The industry needs to re-establish the sense of urgency in gathering the benefits of ECR, and we must continue to drive costs out of the system without losing our focus on consumers, which is what this is all about in the first place."
For Fleming, the process starts with re-engineering, which Stauth said gives independents "the necessary tools to win."
He said the distributor plans to install improved systems during 1997 at its 17 divisions that already have been re-engineered, then begin a rollout of re-engineering benefits to its other 18 divisions in 1998.
At Associated Wholesale Grocers, Kansas City, Kan., the biggest challenge for 1997 will be to provide systems that support independent retailers in their efforts to compete better, Michael De Fabis, president and CEO, told SN.
"The challenge is to have the proper systems in place to run our business more productively, which is an ongoing issue that will always be there, no matter how much we achieve."
With systems like category management, shelf management and efficient assortment in place, De Fabis said, independent supermarkets should be able to provide more competitive environments for serving consumers than the growing number of nontraditional retailers can offer.
"We've seen a decline in bits and pieces in traditional dry-grocery categories -- first to warehouse clubs, then to PetsMart, Toys 'R' Us and service stations -- and now everyone with a retail-store license is selling 'stuff,' and there's no such thing as a traditional supermarket mix anymore.
"We're working with our supermarket customers to make sure they are on an even playing field in obtaining product and aggressively promoting those items to customers -- certainly in terms of greater variety, since the category killers carry only a handful of any given line, while we have hundreds.
"So we want our [retail] customers to stress variety, to constantly promote and to work with manufacturers to let them know our concerns."
Labor was on the minds of several executives queried by SN, although each approached the issue from a different perspective.
At AWG, De Fabis decried the shrinking labor pool available to wholesalers, as well as retailers.
"With the economy the way it is, at full employment, it's become hard to find good entry-level people."
To cope with the situation, he said AWG has become more aggressive "in reaching out further than we've had to in the past to recruit, instead of waiting for people to come to us, and letting people know about the quality of the jobs and the rates of pay."
Fleming's Stauth said he is concerned about retraining the industry's labor pool "to upgrade the skills of managers in the next generation of business activity.
"With the spread of change, many people who have been in particular positions for a long time will find their skills obsolete, and the issue is to recognize the situation and do something about it."
Fleming is currently urging employees to take more computer courses to become more comfortable accessing information, and marketing courses to understand customers better," Stauth said.
At Pueblo Xtra International, Pompano Beach, Fla., Jeffrey P. Freimark, executive vice president of finance, cited labor costs as a major concern, "especially in light of the increase in the minimum wage. Labor is a big-ticket item and a major expense for us, and the industry must look for ways to absorb those increased costs without having the capability of passing them along."
In Canada, Allister P. Graham, chairman and CEO of Oshawa Group, Etobicoke, Ontario, said a 10% unemployment rate resulting from ongoing downsizing has led to consumer uncertainty and an unwillingness to buy large amounts at the supermarket.
"To deal with the problem, we're trying to gain more top-line business by expanding our store base, adding space to existing stores and acquiring additional businesses."
Freimark said Pueblo is trying to increase sales by adding video outlets, in-store banking, fast-food operations and mini post offices, "all with the objective of maximizing the efficiency and productivity of our existing square footage."
Industry consolidation was on the minds of two California executives contacted by SN. Charles Collings, CEO of Raley's Supermarkets, West Sacramento, Calif., said continuing consolidation, such as the pending acquisition of Vons Cos., Arcadia, Calif., by Safeway, Pleasanton, Calif.; and of Hughes Family Markets, Irwindale, Calif., by Quality Food Centers, Bellevue, Wash., makes competitive positioning uncertain for companies like Raley's.
"We don't know what advantage the larger companies will have or how much tougher it will be to compete in obtaining merchandise at competitive prices."
Jack Brown, chairman, president and CEO of Stater Bros. Markets, Colton, Calif., said he anticipates ongoing consolidation will result in additional store closings by competitors and a greater emphasis on cost reductions.
He said Stater Bros., a company with sales estimated at $1.75 billion, plans to remain private and independent and to seek out acquisitions.
But, he said, acquisition won't be the biggest concern and would occur only "if it's the right fit for us. But our primary concern is securing our sales base, and we're looking at $2 billion in sales before the 21st century."
Following are the comments of the executives interviewed:
president and CEO
Randalls Food Markets
For Randalls, the challenge is to differentiate from the competition in nonprice ways. We're looking for areas of opportunity to give us a competitive advantage, which is an ongoing quest.
Our feeling is, there's a movement in the industry away from everyday low pricing. The EDLP operators seem to have begun to add a lot of services and advertising, and they're looking for more ways to compete than on price. As they do that, high/low operators, like Randalls, must continue to differentiate ourselves away from price.
Toward that end, we launched a frequent-shopper program chainwide in October, after testing it since August, and we want to get better at managing the data.
One of the things that's likely to change in the future is advertising. We've already seen a departure from double- and triple-coupon events. As people get away from that, they must shift their dollars to other promotional programs, and we see tremendous information coming from our frequent-shopper program [called Reward Card in Dallas and Remarkable Card in Houston, to take advantage of Randalls' use of the word "remarkable" in its advertising]. How we manage that database for our own and our customers' benefit will be the big issue.
For the industry, the challenge in 1997 is to take what we've learned from ECR and re-invest with the customer. The benefits are out there to be had, and we must find ways of making them part of the way we do business. Instead of just regarding ECR as a list of initiatives to embark upon, we have to find ways to incorporate them into how we conduct our business every day.
Michael De Fabis
Kansas City, Kan.
One challenge for 1997 is to stop the decline in sales due to category killers that we've been seeing in traditional dry-grocery categories. We've seen a decline in bits and pieces over the last several years -- first to warehouse clubs, then to PetsMart, Toys 'R' Us and service stations -- and now everyone with a retail-store license is selling a traditional supermarket mix so that there's no such thing as a traditional mix anymore. People just sell "stuff."
We're working with our supermarket customers to make sure they are on an even playing field in obtaining products in each category and aggressively promoting those items to customers -- certainly in terms of greater variety, since the category killers carry only a handful of any given line, while we have hundreds. So we want our customers to stress variety, to constantly promote and to work with manufacturers to let them know our concerns.
For AWG, the biggest challenge is making sure we've got systems to support our efforts to increase productivity and to support our retailers in category management, shelf management and efficient assortment. The challenge is to have the proper systems in place to run our business more productively, which is an ongoing issue, and one that will always be there, no matter how much we achieve. So we will make continuously heavier investments in support systems.
Another challenge is the availability of people in the warehouse. That's become a problem for us, and it's a retail problem as well. With the economy the way it is, at full employment, it's become hard to find good entry-level people. We've become more aggressive in reaching out further than we've had to in the past to recruit, instead of waiting for people to come to us.
We've had to become more high-profile to get people to apply by letting them know we're here and about the quality of the jobs we offer and the rates of pay. This is probably a bigger problem today than it has been in the last five years, and we're just continuing to battle it out.
On an industry basis, the No. 1 opportunity for 1997 is to continue to try to understand the changing habits of consumers and adopt individual strategies in areas we've targeted for our success. We've sought to understand those habits through a variety of means -- from focus groups, to studying data from frequent-shopper programs -- and then gearing more initiatives to consumers on a more targeted basis.
The industry also needs to re-establish the sense of urgency in gathering the benefits of ECR, and we must continue to drive costs out of the system by using mutual information without losing our focus on consumers, which is what this is all about in the first place. Finally, we need to really begin assessing management strength at all levels to prepare our companies for the 21st century. With the spread of change, many people who have been in their companies and in particular positions for a long time will find their skills obsolete, and the issue is to recognize the situation and do something about it -- everything from urging them to take more computer courses to make people more comfortable with accessing information, to taking marketing courses to better understand consumers, all geared to upgrading the skills of managers in the next generation of business activity.
Fleming has a retail university in Oklahoma City that we hope to put more people through, and we will bring in guest lecturers if we need to [in order] to upgrade our staff. Or we could send people to courses at various universities. But we need to continue to promote that knowledge because we will depend on different people in three or four years from the people who are doing those jobs now, and that will require certain skills that must be developed so we can all move forward.
At Fleming, the No. 1 opportunity for 1997 is to continue to develop the necessary tools for independent retailers to win. We will continue with our re-engineering efforts by going back to the 17 divisions that have re-engineering and putting in all the enhanced improvements created during 1996; then, by the end of 1997, we will be ready to begin a rollout of our re-engineering efforts in the 18 divisions not yet involved in re-engineering.
Secondly, we want to make significant improvements in our earnings in 1997 over 1996 -- through productivity increases, the refinements in our re-engineering programs, improvements in company-owned retail operating results and disposing of nonproductive