Raley’s close connection with its customers helps the chain satisfy shoppers’ changing needs
Raley's is always looking for new ways to connect with its customers.
“We're a high-touch operation,” Bill Coyne, president and chief executive officer of the 132-store chain, based in West Sacramento, Calif., told SN.
“One thing that makes Raley's so cool is our ability to listen to customers and respond quickly,” he said. “We're getting better at listening and understanding what's important to customers, and like the rest of the world, we're adapting at a quicker pace.”
For Raley's, connecting with customers includes finding new ways to communicate its value proposition in a weaker economy and other initiatives to help it remain competitive.
To improve its competitive position in the current economic slowdown, Raley's launched a new program in mid-September built around its value proposition.
“When the economy was humming along, we felt we were firing well on all cylinders,” Coyne explained. “But as the economy started to change and anxiety levels among consumers became heightened — especially in areas of California that were particularly hard-hit by rising unemployment and the high number of housing foreclosures — we became aware that our customers wanted to be sure they were getting a good value offering for their families.”
The result is “Your Ticket to Savings,” a multifaceted program encompassing shelf-talkers that call shoppers' attention to sale items, temporary price reductions, private brands, top sellers in each category and new items — combined with “Did You Know?” messages highlighting a rotating series of more than 500 points of differentiation between Raley's and its competitors in the areas of sustainability, food safety, private brands and community involvement.
The program is geared to stressing values, not reducing prices, Coyne pointed out. “We have engaged for a long time in a companywide effort to reduce operating expenses, buy better and be more efficient in distribution so we can lower prices and be more aggressive in making shoppers aware of our price points,” he explained.
He said Raley's expects customers to respond to the new program in a positive way, “because they are extraordinarily loyal, and our research tells us they love to shop with us because they feel the stores are the cleanest and most aesthetically pleasing, with the greatest variety and quality.
“So adding the message that they can also get good values makes it a winning proposition that incorporates the whole package of the in-store experience.”
Value has become a more highly prized motive for shoppers in today's economy, according to Mary Brett Whitfield, senior vice president of TNS Retail Forward, Columbus, Ohio, and director of its Retail Forward Intelligence System.
“Shoppers are not always looking just for products and retailers that offer the absolute lowest prices, but products that also are relevant to their specific needs and retailers that offer a differentiated experience,” she told SN. “The key to being the product or retailer that shoppers choose in this environment is to balance price and benefits in a way that makes shoppers feel like they are getting more — more quality, more consistency and more benefits — for less.”
Raley's new initiative follows by three years the “everyday value pricing” program it unveiled in May 2005, when it lowered thousands of prices, Coyne said. “That was part of an effort to be more moderate in our pricing by flattening the difference between promotional prices and end-display prices,” he explained.
Local sources told SN the earlier effort “simply didn't work, given Raley's reputation as a full-service retailer with high prices.”
Coyne told SN the program “worked great in certain categories and not as well in others, so we've modified it to get the optimal pricing on every product on any given day.”
Raley's used heavy TV advertising to promote the earlier program, and it continued to use TV for institutional advertising — built around its slogan, “Celebrate Food. Celebrate Life,” which remains part of its message, Coyne said.
However, early this past summer Raley's eliminated television advertising in favor of more radio and print, and it has plans later this year to add more interactive elements on its website, “because we feel those are more effective ways to communicate with customers,” Coyne explained.
“In this economy, we believe radio and print give us a better opportunity to communicate more of a price-and-item message,” he said.
Raley's is already using the Internet to offer online shopping through “ecart,” which allows customers to select items and then set up a pickup time at any of the 12 stores in the program.
Orders are downloaded at the stores by “personal shoppers,” who select the items based on customers' specifications.
“It's a high-tech approach to shopping, but it still involves high-touch, because the personal shoppers picking the orders get to know what repeat customers like, so they can often suggest substitutes by calling the customer,” Coyne said.
Customers can pick up their orders at the stores, with orders submitted before 2 p.m. available for pickup the same day. Specially marked parking spaces with call boxes allow orders to be brought out to customers without leaving their cars.
The program attracts two basic kinds of customers, Coyne said: people who commute to work, and mothers with small children.
“We selected the 12 stores by region, to make them convenient to where customers live or locations they may pass on their way home from work,” he noted.
There's usually a service fee of $4.95 on all orders, though Raley's is waiving the charge through November on orders over $150.
Coyne estimated that 60% of products available on the stores' shelves are available online, “and we're loading items into the system as fast as we can,” he added. He said the list of offerings — which will ultimately include about 70% of what's carried in the stores — should be completed by year's end.
Raley's offers the program in partnership with MyWebGrocer.com, which helps manage the website.
The chain has offered the ecart program since 2003. Coyne declined to say how many more stores might add an ecart option, though usage is rising every month, he noted, “and we think it's something a growing number of customers will want to use.”
Raley's operates its 132 stores under four banners — Raley's (at 83 locations), Nob Hill Foods (23 locations), Bel Air (21 locations) and Food Source (five locations). Sales for the year ended June 28 were approximately $3.4 billion, unchanged from the prior year.
Locations extend from the state capital north to Yreka, near the California-Oregon border; south to Turlock, near Fresno, in the central part of California; west to San Francisco Bay; and east to Winnemucca and Elko, in northern Nevada.
Raley's expanded its operations into southern Nevada in 1999, when it acquired 19 stores in Las Vegas, but sold them in 2002 after deciding they were too small to enable the chain to offer customers the full Raley's experience, Coyne said.
The chain also moved into New Mexico — primarily in Albuquerque — in 1999 with 10 acquired stores and remained there until August 2007, when it decided it would be better off focusing its energies within its core market rather than trying to increase its No. 4 market share there, Coyne explained.
Asked if the chain aspires to expand outside its current core, Coyne replied, “There are millions of people to serve and still plenty of room for expansion within that area.”
He said Raley's would consider going farther afield “for the right opportunity. But for now, the opportunities in our own backyard are very compelling.”
Raley's acquired crosstown rival Bel Air in 1992 and Nob Hill, a regional player operating largely south of San Francisco, in 1998 — both of which had similar cultures to Raley's, Coyne noted — “and if an opportunity similar to those presented itself, we would take a look. So far, though, we haven't found the right opportunity at the right price.
“But since it is known that we're very interested in looking at intriguing acquisition opportunities, we do get contacted every so often by companies that want to partner with us or sell stores to us, but recently we've done only some one-store deals.”
Asked if Raley's itself could be an acquisition candidate, Coyne told SN, “We're one of only a few remaining family-owned, privately held companies with a sizable market share, so we are attractive to many prospective buyers. But we get fewer calls today than we used to, because everyone knows the answer is, ‘No, we are not for sale.’
“But it goes through cycles where outside interest picks up and we have to say no over and over; then the calls stop for a while, and then they pick up again.”
Raley's is owned by Joyce Raley Teel, the daughter of the chain's late founder, Tom Raley, and she and her husband, Jim Teel, serve as co-chairs.
“We like being a private, family-owned company,” Coyne told SN. “It allows us to run our business and develop our strategies and deploy capital without any concerns about how Wall Street views us, and we can take a long view of success rather than being judged quarter-to-quarter.
“It also means we can react instantaneously to market conditions and consumer trends,” he added. “Further, it gives us a great deal of credibility with customers, because it lets them know we are not some giant corporation coming into some faraway city, but a company whose owners live here and who are involved in the communities we serve.
“The owners have an emotional and physical connection to the business, and they are very concerned about the quality of the company and what we offer our customers and our colleagues. When Joyce visits the stores, it's a real event, because people love to interact with her.
“And being family-owned makes for a great working environment within the company.”
The Teels have five adult children. Son Michael Teel once presided over Raley's as president and CEO but resigned in 2002 — when he was succeeded by Coyne — to pursue other interests.
Neither Michael Teel nor his four siblings are involved in day-to-day management of the company, though several are involved at the board level, Coyne said.
The chain's seven-member board consists of three family members and four outside directors, including Bill Bishop, chairman of consulting firm Willard Bishop, Barrington, Ill.; and James Baska, retired president and CEO of Associated Wholesale Grocers, Kansas City, Kan.
The board sets corporate strategy and oversees management, “so they play a fairly active role,” Coyne pointed out.
In response to a question, Coyne said Raley's has a succession plan in place. “The family has devoted substantial focus to ensure there is a smooth transition,” he noted, though he declined to be specific.
Raley's-banner stores overlap Bel Air in Sacramento and Nob Hill in the Bay Area and some communities south of San Francisco.
Nearly half of the Raley's-banner stores operate in the Greater Sacramento area, where they have a market-leading share of 30%, nearly double Safeway's 16%, according to Tucson, Ariz.-based Metro Market Studies.
Asked whether Raley's might consider rationalizing the number of banners, Coyne replied, “That bell was rung years ago, and we have no plan to change.
“Stores are neighborhood-specific, and sometimes the developer has a preference that determines which banner we open at a particular location,” Coyne said. “But we made a deliberate decision years ago to maintain the brand equity of each banner, and that has served us well.
“Our go-to-market strategy in terms of the customer experience at all three banners is identical, but we've kept the different branding more for the legacy value, because many customers tend to be loyal to what they've grown up with.”
The typical prototype for a Raley's store is 53,000 square feet, though stores run from 40,000 square feet up to 65,000 square feet, Coyne said.
“On average, the Bel Airs and Nob Hills were generally smaller than the Raley's stores, but over the years some newer Bel Air and Nob Hill stores have gotten bigger and some Raley's have gotten smaller, so there's no longer much size difference among them,” he explained.
Raley's launched Food Source as a warehouse store when it acquired Bel Air. “They had opened a new store across from one of our stores just before the acquisition, and rather than close it, we developed a warehouse-style format for that location,” Coyne explained.
Since then, Raley's has added four more Food Source locations — one by acquisition and three by construction. The last new unit opened in May 2005.
Coyne said he does not anticipate further expansion of the format. “The opportunities are greater for our conventional banners,” he explained.
Raley's is growing its store base slowly, at a rate of two or three new stores per year. It opened three this year: a Raley's in Oakdale, Calif., in June; one in Sparks, Nev., that was scheduled to open last week; and a Nob Hill in San Jose, Calif., in August. It contemplates two new Raley's-banner openings next year: in Petaluma, Calif., and Tracy, Calif.
The chain is very focused on remodels, averaging 12-15 major remodels annually. “It's really important to maintain the quality of our store base to keep up the quality of the shopping experience for customers,” Coyne said. “Our goal is to give each store a major remodel every 10 years and to do minor remodels more often, based on store conditions.”
Raley's has several distribution centers, all in Northern California: a perishables warehouse and a central-fill pharmacy in Sacramento; a central bakery in West Sacramento; an HBC facility in Stockton; plus facilities in partnership with Modesto, Calif.-based Save Mart Supermarkets, encompassing a dry grocery and frozen food warehouse in Lathrop, a fluid milk plant in Fairfield, and an ice cream and by-products plant in Turlock.
Raley's and Save Mart — and originally Bel Air, when it was an independent company — have been buying together under the umbrella of SuperStore Industries since 1989.
“SSI is a separate legal entity, with separate buyers and separate management from either chain, and it has policies in place so that one partner is not disadvantaged by the other,” Coyne explained. “It started with a jointly owned dairy in 1988, and that worked so well that we expanded it a year later and formed SSI. Having an efficient supply chain is so important today, and having the partnership agreement allows us to have that.”
Coyne said he sees the entry next year of Tesco's Fresh & Easy Neighborhood Market into Northern California as a positive development.
“We like it better when there's change in the marketplace, because change means opportunity,” he said. “If everything is stable, it's hard for anyone to break through and achieve success. But when the market is dynamic and things are changing and getting tougher, that's a time of opportunity for a company like ours.”
Raley's executives are watching what Fresh & Easy is doing in Southern California, southern Nevada and Arizona, “and we're taking a wait-and-see attitude,” Coyne said. “We're monitoring the situation, and so far the data suggests they haven't had much impact.”
Industry observers told SN they do not expect Fresh & Easy to have much more impact on retail operations in Northern California than it has had elsewhere.
“They will probably have a bit of a head start over previous market entries, because the ramp-up time will probably be quicker,” one consultant noted. “But beyond that, I don't see anything that would lead me to believe they will exceed the impact they've had in the Southwest.”