BELLINGHAM, Wash. -- As Brown & Cole Stores here moves to polish its collection of acquisitions, the company believes it has a sustainable advantage over its national chain competition.
That advantage is a closeness to the customers and the communities it serves, Craig Cole, chairman, president and chief executive officer of the 35-store company, told SN -- a closeness the chains cannot hope to duplicate, he pointed out.
"It's not hard understanding consumers on an individual level and catering to their desires," Cole explained. "Certainly a company of our size can do that.
"Customizing a store is an achievable proposition if you operate 35 or 50 or even 100 stores," he said. "But for chains with a couple of thousand locations, tailoring stores tends to be more chaotic, and it would basically undermine a chain's business system that's based on achieving efficiencies and large economies of scale through standardization, not customization."
As Brown & Cole works to tailor its individual stores to the customers it serves, the company also is unifying the banners of the stores it acquired in the last decade.
Brown & Cole is a privately held company founded in 1909 by George Cole -- Craig Cole's grandfather -- and Linden Brown, who left their jobs at a department store to open a grocery store. Brown sold his interest in the business in 1916, but the Cole family has retained the company's original name.
It was operating only four stores when it started making acquisitions in the late 1980s. By 1995 it had 13 stores, and in 1997 it more than doubled its size when it acquired Thrifty Foods, a 16-store operator.
In the process, it expanded beyond its base in western and central Washington into the northwest part of the state, with single stores in northern Oregon and western Montana. Sales at its 35 stores are approaching $400 million, Cole said.
"We spent the first half of the 1990s acquiring facilities that were in great locations but that were in need of a great deal of reinvestment, and that's what we plan to do over the next four to five years," he said.
As the company begins its long-range redevelopment effort, it is focussed on establishing a stronger image in the region, Cole said, including the following:
To convert up to 25 of its stores to a single banner -- Food Pavilion.
To select a separate banner for the balance of smaller, neighborhood stores.
To invest $5 million a year upgrading and remodeling its existing store base over the next three years while keeping an eye out for potential acquisitions.
To increase its buying concentration from its supplier, Associated Grocers of Seattle, which took a 25% equity position in the company earlier this year. (See story on Page 17.)
"For the last decade, we've been a regional consolidator, scooping up stores," Cole told SN. As a result, the 35 Brown & Cole stores operate under nine separate banners: 11 Food Pavilions; nine Cost Cutter stores, including one in Oregon; four $ave-On Food$; three Food Depot stores, including one in Montana; three Thrifty stores; two Market Place units; and single units of Red Apple, Ennens and Super 1.
The company is in the process of winnowing those banners down to two -- Food Pavilion, a superstore format averaging 43,000 square feet with strong perishables departments, natural living sections and pharmacies; and a neighborhood format ranging from 25,000-35,000 square feet whose name has yet to be selected.
The name could come from the company's existing group of store names, Cole said, though Brown & Cole is researching other names and expects to select one within a year. "Those stores won't be able to accommodate all the expanded departments found at a Food Pavilion," he said, "but they will be well-positioned to serve the needs of smaller communities."
With financing from Associated Grocers, Brown & Cole has begun remodeling and reformatting stores and consolidating banners during the last couple of years, with Food Pavilion emerging as the company's primary banner. Cole said he expects that name will end up on 22 to 25 stores within the next three or four years.
"We believe the Food Pavilion name has strong appeal to consumers," Cole said. "From the market research we've conducted, we believe the name has positive connotations of freshness, variety and excitement, and it's also a name that gives us a lot of flexibility in tailoring our offerings to consumers."
The customization of individual stores is an in-depth process, Cole said.
The company strives to customize its stores "by getting beyond the obvious demographic data and understanding our customer base community by community, store by store," he explained.
By doing so, Brown & Cole has learned it can sell fine wines and organic foods to shoppers at a store in a blue-collar area; meet the special needs of Russian immigrants at a handful of stores; and cater to large Hispanic clienteles at other stores by putting more emphasis on fresh foods and less on meal solutions.
The chains can talk about doing such customization, Cole added, "but it goes against the standardization they strive for, whereas we're able to take the idea of tailoring our offerings to each store's needs quite a bit farther because we're able to manage it better."
Customizing stores means that, while each unit has most of the same basic core elements, anywhere between 25% and 33% of the merchandise assortment could be geared to meeting the needs of the customer mix at that store, Cole pointed out. "We start with a series of core elements, including an emphasis on perishables, and then add local customization as we remodel.
"The goal is to achieve the optimum market fit," he said.
To illustrate the degree to which Brown & Cole tries to cater to a community's specific needs, Cole discussed a store near its offices here that was acquired from Albertsons. As it prepares to remodel that store for a grand opening in the first quarter of 2003, Brown & Cole personnel are talking with consumers to see what kind of offerings and decor they would prefer, he said.
"We're starting with an open slate and a flexible sketch pad to understand what they want to see," he explained.
Based on more than 1,000 surveys so far, one thing consumers would like to see, Cole said, is more attention paid to aesthetic concerns. "In the blank where we asked them for any suggestions of their own, several area residents indicated they want to see trees planted around the store."
One thing they clearly don't want is self-checkouts, he added. "That's one of the things we're looking at as we update technology, but consumers at that location have made it clear they're not interested in having us include that," Cole said.
Brown & Cole competes with the four largest chains in the country -- Wal-Mart, Kroger, Albertsons and Safeway -- plus WinCo., an Idaho-based regional player ("and a tough price competitor," Cole noted) and Costco Wholesale Corp. Also based in Washington.
The Pacific Northwest has heated up the past year as Wal-Mart has begun converting some of its discount stores to supercenters, Cole said. But going up against supercenters is nothing new for retailers in the region, where Fred Meyer, Portland, Ore. -- now a Kroger subsidiary -- has been a major factor for years, "so we're not shocked by the novelty of Wal-Mart and that kind of low pricing," Cole told SN.
"But anytime you introduce a new competitor, you've got to step up to do battle, so although the addition of Wal-Mart supercenters doesn't add a new dimension, it does add another layer and heats things up.
"But we're not trying to out-Wal-Mart Wal-Mart. We offer a different kind of shopping experience tailored to the specific needs of the communities we serve, and so far, we're holding up well because we offer a different value proposition."
That proposition involves medium-sized stores with upscale merchandise at competitive prices, Cole said. "We try to provide a high degree of quality, variety and food fashion to help consumers avoid the drudgery of everyday shopping and to give them what they want without surrendering anything in terms of quality while allowing them to do it on a budget," he explained.
As it redevelops its store base, Brown & Cole is starting with a collection of locations that do not have homogeneous formats, Cole explained. "When we acquired the stores, we were trying to create a regional enterprise of a certain mass, and now we're trying to harmonize our offerings and then add a layer of customization to achieve an optimum market fit.
"We're not starting with a standard format and dropping that format into every town. Instead, we're starting with a group of core elements and then building on those to accommodate the needs of each local community. We don't change 100% of what we do, but we do change a significant amount of product and offer a different decor package."
Although the name on the front of the store and the merchandise mix may be similar from store to store, pricing may be different, depending on the localized competition, Cole said. Ads, even for stores with the same banner, will also have different elements on a localized basis, he explained.
As it seeks to tailor its product offerings, Brown & Cole is less focussed on standardized category sets than it is on making sure it's responsive to the unique requirements of each store's customers, Cole said. "That approach might not make sense if we were operating all over the U.S., but operating as close to our customers as we do, we're able to detect unique segments within the communities we serve and respond to them, which would be hard to do with 1,000 stores.
"So where we have a large population of Russian immigrants, we carry a significant section of Russian products," encompassing canned goods, candies, wines and special cuts of meat, he explained, "and in communities where there are high concentrations of Hispanic shoppers, we adapt the store to respond to their needs in terms of the product mix, including the addition of tortillerias and homemade salsa in the delis or sourcing products differently.
"In addition, we concentrate more on food preparation at home instead of meal solutions at those stores, which means we put less emphasis on takeout than we would at a suburban store where more customers might want to grab something quick on their way home."
In another example of customization, Cole said the company determined that customers at one store in a blue-collar area did not fit the expected blue-collar profile. "We've found that customers there like organic foods, nutritional supplements and fine wines -- things you wouldn't perceive simply by looking at demographic statistics. But from doing on-the-ground research and talking directly with consumers in that area, we've been able to drill into their thinking and understand what they really want to buy," Cole said.
At the same time it's merchandising its stores to stay in touch with customer preferences, Brown & Cole is also upgrading the physical facilities, he said. "We spent a lot of money acquiring facilities that were in great locations but that were in need of a great deal of reinvestment, and that's what we plan to do over the next four to five years," Cole said.
Roughly two-thirds of its 35 stores will be fully updated "to meet the needs of the markets they serve," he said, "then we'll whittle away at the rest in the next cycle."
He said the company expects to invest $5 million a year for the next three years, similar to the investment it made in 2001. "The store facilities are sound and very modern but they need updating to freshen them up," Cole explained.
Among the changes planned are the addition of espresso shops, dollar sections and, where appropriate, tortillerias; the expansion of wine and natural living sections (encompassing nutritional supplements and organic products); and the addition of service centers with a variety of features, including vehicle licensing, dry cleaning, photo processing and money orders.
