Suppose you headed a very successful midsized supermarket company that for many years enjoyed the reputation -- whether apocryphal or not -- of being the most profitable chain in the land.
Many in the industry might have wondered whether your success derived from your stores' relative geographical isolation, from your unparalleled operating skill or a combination of such factors, but in any case you held financial results strong year after year.
Now suppose the core economic base of your market started to decline and, on top of that, well-heeled operators from outside your core market stalked the territory, sprinkling it with numerous upmarket stores.
Given that, there could be no doubt that quick and well-directed action was in order. But what should that action be?
That, in short form, is the problem Weis Markets, Sunbury, Pa., has faced in recent years. More specifically, Weis was for years a highly profitable and cash-heavy company, but during the past several years the industrial base of central Pennsylvania has been on the wane while emerging competition has salted the region with big, multidepartment supermarkets. On the front page of this issue of Supermarket News are results of the first interview Weis executives have had with any nationally circulated publication, to my knowledge, in recent memory. In it they talked about how they attacked their changing market and their competitive challenges by diversifying their retailing base, expanding to new geography and, in so doing, protecting sales volume and propping up profitability. It's a great story about success in the face of change. But before we get to that, let's review those legendary Weis numbers. In 1985, Weis' operating margin was 8.6%, increasing to 9.2% by 1987. In 1990 it retreated to 7.6%, then continued to fade by the year: 6.76% (1991), 5.85% (1992), 5.50% 1993 and 5.2% (1994). To give a little more context, the 1994 top line was about $1.6 billion (a record high) produced by some 150 retail stores and related activities. Weis is about the nation's 50th largest chain.
Weis' margin production, even now, would place it well above the industry average, although many food retailers do better. By comparison, some of the margin producers that outstripped Weis in 1994 include Albertson's with a 6.17% operating margin, Quality Food Centers with 6.81%, Stop & Shop with 5.98% and many others. Those with less productive margins, to select a few, include Winn-Dixie Stores with 3.25%, Vons with 3.18%, Kroger with 3.26% and many others.
The front-page news feature about Weis makes it plain, though, that without many of its internally financed activities (which sop up margin), Weis might be in hot water today. Here's a sampler of what Weis executives told SN they did to enlarge the business:
· The chain opened nine stores and remodeled nine more this year and plans 12 to 15 new Weis units and as many as a dozen remodels next year. Perhaps as important, over the years Weis has come to rely less on its core market by operating Weis-banner stores in New Jersey, New York, Maryland, Virginia and West Virginia.
And last month Weis opened a 50,500-square-foot prototype in Lewisburg, Pa., which is expected to form the basis for future rollouts.
· In the past couple of years Weis has also grown by acquisition, adding three new supermarket banners: Mr. Z's, King's and Scott's. · Weis took a big step in terms of geography and retailing style by acquiring a pet superstore business, Superpetz, Dayton, Ohio, and swiftly growing that business in just two years in locations as far-flung as Georgia. Building on that nucleus, Weis now has 30 such stores in a seven-state region.
In addition to this retailing core, Weis is vertically integrated by means of its manufacturing capabilities and its food-service branch.
All this goes to show that a supermarket company, like an airplane, must keep moving forward to avoid a rapid downward transition. Fortunately for Weis, it had the wherewithal to do just that: "In this business you have to keep changing, and you've got to have the capital to do it," Robert F. Weis, chairman, told SN. "Unfortunately, a lot of people aren't going to make it because they don't have the money to keep up their stores."
Nor might they have the money to build, remodel and acquire. But at least the Weis model clearly shows what kind of strategic direction is worth pursuing, when possible.
