Retailers around the country said they see sales opportunities this year emanating from the public's growing interest in healthier eating.
Natural and organic foods, nutrition centers and wellness centers are what consumers want -- and what supermarkets plan to deliver, several retailers told SN in a survey on growth initiatives.
Other retailers enumerated other growth initiatives they are pursuing, including efforts to reduce energy costs, to increase center-store sales by lowering prices, and to find ways to differentiate themselves from competitors, while wholesalers are seeking to increase sales by providing special retail assistance to customers and offering price incentives to boost order sizes.
According to Ron Cox, vice president, marketing, for D&W Food Centers, Grand Rapids, Mich., "We've been getting a lot of customer requests for natural and organic foods, which is a trend we've seen all over the country."
He said D&W plans to integrate 1,500 to 2,000 stockkeeping units of organic and natural products into its center-store merchandising over the next four months.
Any economic slowdown is unlikely to affect demand for the category, Cox added, "because natural and organic products are more a lifestyle issue than an economic one."
Roundy's, Pewaukee, Wis., has developed a format for nutrition centers for its corporate stores and retail customers, Gerald Lestina, president and chief executive officer, told SN. "We do the research and development with our corporate stores, then offer these sections to our entire customer base," he pointed out.
Roundy's concept includes a service pharmacy with an adjacent nutrition center boutique and an in-line assortment of organic and natural foods, which may be integrated with or segregated from more traditional product lines, Lestina said.
"Sales seem to be better where the organic or natural items are integrated," he explained, "because when consumers are looking for an item like cereal, they prefer to make a decision based on a comparison with the traditional item right there, and our future direction will be to move more toward integration."
Stater Bros. Markets, Colton, Calif., has installed its first nutrition center with an on-staff nutritionist to assist customers, "which we think is the way to go," Jack Brown, chairman, president and chief executive officer, told SN.
But Stater has more immediate problems, Brown noted -- dealing with the energy crisis in California, which could be a harbinger of things to come in other parts of the country.
"We can't get away from the power issue," Brown said, "[and] with some power companies indicating rates will be up 100% by the summer, these are very significant numbers, and they require a lot of energy to develop alternatives to offset as much of those increases as possible through better utilization of power."
According to Brown, Stater has already managed to reduce kilowatt hours by 10.2% over the year-ago period -- by reducing store lighting during business and re-stocking hours -- "and, going forward, we plan to examine all we can and to look at new technology that may become available."
Ron Pearson, chairman, president and CEO of Hy-Vee, West Des Moines, Iowa, said his company is trying to increase sales by pricing more competitively on center-store merchandise. Although Hy-Vee is a conventionally priced chain, it is using everyday low pricing on several price-sensitive grocery categories to stem the flow of sales to discount stores that compete with about half its 215 stores, Pearson explained.
"We started using EDLP pricing on center-store products a year ago," he said, "and customer surveys show it's been effective for us in attracting business to the center of the store."
Hy-Vee is also stepping up the pace of expanding service perishables at its stores, Pearson said. "We think [service perishables] serves as one more element for us to offer more variety to customers, and it gives us a lot of opportunities to introduce more value-added products that fit the improving economy. We're watching the economy as it starts to turn to see if we should continue."
Other food executives listed a variety of initiatives their companies are pursuing to generate growth, including the following:
Mark Hansen, chairman and CEO of Fleming, Dallas, said his company is trying to help its retail customers improve sales and profits by providing them with Retail Account Executives -- intensely trained specialists assigned to individual companies to help them improve their operations.
"The RAEs serve as strategic partners for the independent retailers, providing solutions to business challenges and driving sales to consumers," Hansen explained. "They act as confidantes for the retailer, with access to profit-and-loss statements, staff meetings and all aspects of the business as they look for ways to help solve problems."
Fleming is also focusing on lowering its cost structure by consolidating buying through a single location -- its Dallas offices -- Hansen said, "and [that's] been one of the reasons Fleming is gaining so much business, by generating growth among existing customers as well as adding new business."
Russell T. Lund 3rd, president and CEO of Lund's, Edina, Minn., said his company is densing up to sell more merchandise in less space. The company is adding multideck cases in produce and meat, and is about to undergo a major redesign of its deli sections by moving items that have been traditionally merchandised there -- including the popular line of Byerly's frozen soups, along with frozen bagels and pies -- back to the expanded frozens sections to make room for olive bars and antipasto bars, Lund said.
Joseph V. Fisher, president and CEO of Penn Traffic Co., Syracuse, N.Y., said his company plans to roll its Wild Card loyalty program out to three of its divisions -- P&C Foods, Quality Foods and Bi-Lo Markets -- following a successful test last year at its Big Bear division. Penn Traffic also plans to expand its private-label perishables offerings to the bakery and service deli areas this year "to differentiate our stores from supercenters, which are generally weak in their perishables area," he said.
J.H. Campbell Jr., president and CEO of Associated Grocers, Baton Rouge, La., said the cooperative is also trying to help differentiate its members' stores from the competition. "We're continuing our quest to be different in the marketplace and to offer alternative programs, services and products to what others offer, in order to grow our market share by offering opportunities to stabilize sales in a very competitive market," Campbell noted.
Chuck Pilliter, executive vice president, sales and marketing, for Unified Western Grocers, Los Angeles, said the cooperative is trying to help its members buy more efficiently by offering impact-based programs "that incentivize retailers to use cost-effective and cost-efficient supply chain practices to buy across all divisions and then rewarding them with the lowest charges for the services we provide."
The program isn't based on how much a customer buys but how he buys it, Pilliter explained, so that even single-store operators can benefit by ordering in truckload quantities for all their needs to maximize their orders and the prices they are charged. Unified is currently expanding the program to encompass His panic merchandise, Pilliter added.
John Catsimatidis, chairman and CEO for Red Apple Food Group, New York, said his company is seeking to grow sales by adding new locations. But because of high real estate costs, the company has been looking at acquisitions rather than building new stores, Catsimatidis explained.
We are in the process of rolling out natural, organic and specialty foods beginning in early May, and we expect to be fully implemented by the fall.
D&W is known for specialty foods, and we're already purveyors of a wide variety of these products. But we've been getting a lot of customer requests for natural and organic foods, which is a trend we've seen all over the country as people get more involved with those categories for cooking or to use as additives.
We've identified 1,500 to 2,000 SKUs of center-store products, although we're not yet sure how many fresh organic products we may add. The items will be fully integrated throughout the store, in every department where there's an application. The space will come from good category management, and we don't think we'll have to drop many products.
Any downturn in the economy is not a concern in this area because natural and organic products are more a lifestyle issue than an economic one. Some people will move in and out of these categories for economic reasons, but most buy these items as part of a lifestyle and they're pretty true to them.
In California we can't get away from the power issue, which is harder than any other issue we must deal with because energy rates are going to continue to increase, with some power companies indicating rates will be up 100% by the summer. These are very significant numbers and they require a lot of energy to develop alternatives to offset as much of those increases as possible through better utilization of power.
We've already managed a 10.2% reduction in kilowatt hours from a year ago by reducing store lighting to every other row of ceiling lights from 7 a.m. to 4 p.m., by turning off all back-room lights unless someone is working in that area; by shutting off exterior parking lot lights 30 minutes after a store closes instead of one hour, and by reducing interior lighting for stocking hours from one-half power to one-third. But I have indicated that under no circumstances will we reduce power to the point of affecting the safety of the products we sell, our customers or our employees. Going forward, we plan to examine all we can and look at new technology that may become available.
In terms of marketing, we've had the 43 former Albertson's stores for one year, and we've really done well with new departments we've added, including floral, leased pharmacies at five locations and our first nutrition centers with an on-staff nutritionist to assist customers, which we think is the way to go. In addition, we've extended our produce offerings with triple-deck cases and added fresh fish wherever we can, including live lobster tanks.
One of our initiatives is developing a nutrition center concept, including a wellness center, that combines nutrition, pharmacy, and natural and organic foods. We do the research and development with our corporate stores, then offer these sections to our entire customer base, with each section proportionate to store sizes, which range from 35,000 to 100,000 square feet.
The concept includes a service pharmacy with an adjacent nutrition center boutique plus an in-line assortment of organic and natural foods that is segregated from traditional product lines at some stores and fully integrated at others. Sales seem to be better where the organic or natural items are integrated because when consumers are looking for an item like cereal, they prefer to make a decision based on a comparison with the traditional item right there, rather than having to find it in a department by itself, and our future direction will be to move more toward integration.
The majority of the stores with nutrition centers already had pharmacies, and it seemed natural to locate the wellness center adjacent to that department to display vitamins, herbal supplements and the like, and it's been extremely successful. Anything that works in our corporate stores gets a positive response from our independent customers.
Another area of initiatives is private label, where we're continually adding SKUs and giving it more prominence in store sets as we see the downward trend in the economy. We have 2,600 Roundy's SKUs now, and we continue to look at all categories for additional items, including nonfood, and then determining where it makes sense to get the greatest velocity. One category where we're finding unbelievable success for private label is produce, particularly in the areas of precut salads and potatoes, where private label is soaring.
We're spending a lot of energy on center store, with more promotional displays and promotional items available at everyday low prices. We're not an EDLP company, but we've introduced EDLP on several price-sensitive categories to be as competitive as anyone in our market area, including Wal-Mart and Target, which are competitors at about 50% of our stores. We started using EDLP pricing on center-store products a year ago, and customer surveys show it's been effective for us in attracting business to the center of the store.
We're also continuing to expand service perishables, particularly service meat, and that's been very successful for us. After two years of moving slowly, we're stepping up the pace, and service perishables are now at about nearly 80 of our 215 stores. We think it serves as one more element for us to offer more variety for customers to select from, and in certain markets customers want those kinds of specialty items. And it gives us a lot of opportunities to introduce more value-added products that fit the improving economy. We're watching the economy as it starts to turn to see if we should continue.
In addition, we continue to expand pharmacy -- moving local pharmacists into our stores at some locations -- as well as expanding our general merchandise mix. We have pharmacies at 155 stores, including 30 that represent acquired businesses where we hired the local pharmacist and some of his staff because they are familiar to consumers.
In the area of general merchandise, we're moving into lawn and garden and more household items like plastics, kitchenware, hardware and automotive as we build larger stores and have more space to fill. At stores where we have less space, we're putting in more displays of these products.
Fleming has enjoyed meaningful distribution growth recently, and the success of our independent retail customers is an important key to continuing that growth. To that end, we have several areas of focus this year designed to help our customers succeed. Two prominent examples are the Retail Account Executive program and our continued emphasis on lowering our cost structure.
The Retail Account Executive program, which was initiated earlier this year, features a team of intensely trained associates focused on helping independent retailers build their business and gain sales. The RAE position is new for Fleming and unique in our industry. The RAEs serve as strategic partners for the independent retailers, providing solutions to business challenges and driving sales to consumers. They act as confidantes for the retailer, with access to P&L statements and to staff meetings, looking for ways to help solve problems by going to Fleming or a DSD vendor or whoever. We have over 100 RAEs working with different customers now, all of whom are specially trained for that job. And their compensation is tied directly to the retailer's success, not Fleming's sales. Many customers tell us they view the RAE as part of their team.
The action we've taken over the last two years to lower our cost structure has been one of the reasons Fleming is gaining so much business through the growth of existing customers and from adding new business from other retailers. That's why we believe the Kmart business we're adding will be profitable -- because we've gotten the cost structure reduced by consolidating buying. This year you will see Fleming continue to drive productivity and efficiencies while we look for additional opportunities to cut product costs and remove administrative expenses.
We are densing up on merchandise to sell more in less space. Last year we repositioned eight produce departments by adding four-deck cases to replace our wall cases. And while produce sales are up, the change has had a halo effect on the rest of those stores as well. This year, we're replacing three-deck self-service meat cases with five-deck cases, which will add 94 lineal feet.
We're also beginning to reposition eight deli departments by densing up -- adding significantly to our specialty product lines and preparing the department for major remodelings that will move Byerly's soups, which have traditionally been featured in the delis, to the frozen foods section, along with frozen bagels and pies that are also moving to frozens, so we can make room for olive bars and antipasto bars. At the same time, we're replacing older frozen cases with door cases to pick up more space.
One of our major strategies in 2001 will be a rollout of our Wild Card loyalty card to P&C, Quality Foods and Bi-Lo following a successful test at 70 Big Bear stores last year. We believe the card allows us to provide additional value to our customers, especially the most loyal ones, and offers unlimited opportunities for stealth marketing -- programs that fall below the radar screens of our competitors.
We also plan to introduce a private-label line of bakery and service deli items this year, following the introduction of Gold Label beef and Garden Fresh produce over the past two years. I believe these kinds of branded perishable offerings give us an opportunity to differentiate our stores from supercenters, which are generally weak in the perishables area. And we're taking our time introducing these lines. I'm normally very impatient to make improvements or to introduce new programs, but I realize we had to focus on meat first to get into this area the way we wanted, then to expand into produce before we moved into additional categories.
We're also expanding our use of business-to-business opportunities using a third party to reduce our costs of doing business. We've had good success with what we've done so far using the outside B-to-B company for bidding on goods and services, and we expect there will be additional applications this year that will allow us to compete better.
We are continuing to focus on differentiating our customers from the competition, either through service offerings or product offerings. We're continuing our quest to be different in the marketplace and to offer alternative programs, services and products to what others offer, in order to grow our market share and to make opportunities available to stabilize sales in a very competitive market.
What we try to do is roll out unique or different offerings to our member stores, including specific offerings or creative ideas that could encompass private-label items, or new or different services like assisting retailers in getting shoe repair, dry cleaning or floral operations in their stores, depending on what's available and what's different from what competitors are offering, or ATMs and variable credit card offerings -- things that don't make our members' stores "me-too" operations.
We've had mixed results so far. A lot depends on what competition is already doing. And even if something our members offer is completely unique, it will only be different for a certain period of time, so our goal is to be first as often as possible.
At Unified, we're taking care of the basics with our members by providing them with the most competitive marketing programs we can, using impact-based programs that incentivize retailers to use cost-effective and cost-efficient supply chain practices to buy across all divisions and then rewarding them with the lowest charges for the services we provide.
The program is not based on the total amount a customer buys but on how he buys it and if he uses the most cost-effective practices on order sizes, frequency of orders, plus terms and conditions. So if the customer places an order for 300 cases, we ship it, but if he orders 1,300 cases, then our costs of dealing with that order are different and that's reflected in the price the customer pays.
Single-store operators can benefit by maximizing their orders, since each one-stop delivery determines his price. So, by ordering one truckload a week, that's the most efficient order, and he gets the same price incentives as a larger customer because he qualifies on a store-by-store basis.
We've been doing that for several years with our general grocery lines, and now we're testing the viability of taking it to our Hispanic program. We've just starting a test with one significant customer, who eliminated a secondary supplier he was using so he could buy all products for his Hispanic section with us -- and as he participates across several divisions, we reward him with lower charges because we can purchase in larger quantities that are more efficient to handle.
In addition, with our acquisitions of various specialty companies, we've now positioned our Grocers Specialty Co. division to make a more significant offering to member retailers as well as to companies outside our membership, which positions us to grow not only with our members but also with outside retailers to supply chains or other retailers with a wider range of product lines. About 65% of our specialty business is done with members and 35% with nonmembers.
We're looking for growth opportunities through acquisition. With the cost of building stores one by one so prohibitive right now in the New York area, we're looking for acquisition possibilities until the real-estate market comes down, which I think will be in the next six months to a year. Until then, we're looking for a major acquisition. We're looking at a few possibilities -- nothing I'd care to comment on specifically. As to whether what we're looking at is in the same area in which we already operate, I have no comment.