With sharp pricing and an emphasis on execution, Giant and Stop & Stop are roaring back in a tough economy
In a 30-minute conversation with Larry Benjamin, the chief operating officer of Ahold's U.S. operations, the phrase comes up again and again.
The operator of Giant-Landover and Stop & Shop, according to Benjamin, is “pounding away” at improving perishables quality at the venerable East Coast brands and is “pounding away” at shortening waits at checkout lines. It's “pounding away” at price perception, particularly at Stop & Shop, which Benjamin said still isn't getting full credit for the investments in price and more aggressive promotional stance the chain has taken in recent years. Finally, it's “pounding away” at meeting store standards more consistently.
“There is nothing glamorous going on here. In fact, it's just been an unrelenting focus on the basic drivers of consumer interest in our stores,” Benjamin said. “And we keep pounding away at it.”
Yet for all the hammering going on at Giant and Stop & Shop, the respective chains seem to be almost elegantly reborn under Benjamin and Ahold. The stores have a new look and a new focus on value. They're shrinking in size and in the number of items they carry. Same-store sales that were flat or negative every quarter dating back to 2004 have turned positive again and are only a part of a dramatic reversal in fortune.
While it's uncertain whether the chains are capable of making up all the ground they lost over the last five years, there is no doubt that work on the basics has put them in a position to benefit from current economic trends and pick themselves off the ground. And while competitors like Shaw's, Acme and Pathmark struggle to find their way, Giant and Stop & Shop have momentum and once again are being considered potential consolidators.
First-quarter financial results announced by Ahold earlier this month told the story of the turnaround, with sales figures — and more — coming out just the way officials had hoped on a store- and chainwide basis.
“What we liked about the first quarter was that we liked all of the numbers,” Benjamin explained. “They were all good. We had the ID sales that were good, the dollar supermarket share was positive, unit share was positive, identical trips were positive, and identical-unit trips continued to move positive. Private-label penetration was positive. It was a quarter where everything lined up for Giant and Stop & Shop.”
While enthusiastic about the success at the chains, Benjamin at the same time is careful to temper his remarks with a sense of what he cheerfully terms “paranoia.” He worries about further deterioration of the economy and its potential effects. He doesn't presume to underestimate competitors. And he frets over complacency — a condition he believes got Stop & Shop and Giant into trouble in the first place — and that reminder keeps Ahold pounding away.
“We're a humble group,” he said, when asked how financial results met his expectations. “We try to keep our expectations reasonable.”
Behind the Numbers
A regimen of lower everyday prices on staple items and improved relevancy and impact on promotions at the chains known as the Value Improvement Program, or VIP, is at the heart of Ahold's strategy for Giant and Stop & Shop.
But their performance also speaks to an ability to recognize delicate quirks in the economy, and having the touch to benefit from them, Benjamin noted. While people are tending to shop at the places where they can be assured they are getting good value, the chains are also seeing some benefit from the way the stores are shopped, he said. The combination of falling gas prices and tighter budgets, Benjamin suspects, is resulting in less stocking up and more overall shopping trips.
“As gas prices came down last year, we began to see a steady rise in the number of trips,” Benjamin said. “It will be interesting to see if, when gas prices go up again, whether that trend will continue.”
In a related trend, Benjamin said Ahold is detecting some indications that consumers are making a greater effort to conserve what they do buy. Although the trend was most prevalent at Ahold's Giant of Carlisle, Pa., division, an increase in sales of food storage products suggests that is the case.
“People are eating out less, but we're also getting indications that people are throwing away less at home,” Benjamin said. “That might be connected to what we're seeing with more trips, people buying fresher, but buying only what they need. They're not stocking up. Shrink at home is going down. That's interesting. It shows that although eating out is down, we're not automatically getting a windfall.”
Benjamin rejects the notion the chains are benefiting solely from an economy that's tearing holes in the upmarket competitors who gained at their expense in recent years. “We've responded well,” he said. “This is not just something that fell into our lap.”
Launched in the fall of 2006, while Stop & Shop and Giant were at the depths of their respective downward spirals, VIP involved renegotiating with suppliers to reprice and remerchandise Stop & Shop and Giant stores category by category. The program got suppliers to agree to extended discounts in exchange for reductions or elimination of competitors' items. About 15% of the SKUs at the stores would eventually go away.
Some observers at the time when Ahold launched the plan were skeptical, predicting that in Northeast markets used to competitors “one-upping” one another, an everyday-low-pricing strategy would be easily overlooked. But as the pricing program extended to entire categories at a pace of one every few weeks, competitors found it increasingly difficult to counter, sources said. And layering what Benjamin termed a sharper ad circular and a new branding effort onto the pricing program in the last year brought it all together.
“While we've completed the initial phases of VIP, the work is never done,” Benjamin said. “VIP was never a move to total everyday low prices, it was a balance of promoted and non-promoted prices. And I think we're getting sharper and better at that balance.”
Benjamin said the circulars at Stop & Shop and Giant have evolved over the last two years to be more relevant, attention-getting and effective, though he declined to elaborate for competitive reasons. “We're getting smarter about the cover and which items to focus on, and getting better about tying in-store with what the customer sees in the ads,” he said. And in another quirk of the economy — easing product price inflation — Ahold is fighting to gain its share of promotion deals from its suppliers.
“With inflation easing a bit, suppliers tend to favor price promotions first,” Benjamin said. “So we've been making sure we get our fair share of the items out there.”
The pricing programs have helped improve price perception at Stop & Stop and Giant, although reputations — particularly bad ones — die slowly. That's especially true at Stop & Shop, Benjamin said, which is still chipping away at a stubborn reputation for high prices in its high-low heyday.
“We are delighted with our progress but we still have to continue to drive the perception of the overall value of our offering,” Benjamin said. “We've learned a lot about reality vs. perception, and perception moves slowly. There are competitors out there whose prices are higher than ours but who still get credit on the legacy of perceived lower prices.”
But the emphasis at Giant and Stop & Shop today is as much on the non-price elements as the new pricing stance — communicating value via “pounding away” at the basics of the store experience, as Benjamin likes to say.
Low prices, he said, are just one of four “pillars” of the Stop & Shop and Giant brands. Great food, engaging experience and reliability are the others. These four elements — represented by the four colored semicircles in the new logo — comprise the new brand image at the stores, officially launched last summer.
Officials consider “reliability” to be a core strength of Giant and Stop & Shop, as a result of their long history, leading share in their markets and employee base. This is communicated through a new customer pledge and an advertising campaign where shoppers testify the store “works for me.”
The chains have also integrated television advertising and in-store signs to reinforce a pricing message — for example, making “Real Deal” advertised pricing specials easy to find in the store.
“Their ad copy, creative and consumer advertising — outdoor, on-air, in-store and online — is converting a lot of consumers,” Burt P. Flickinger III, managing director of Strategic Resource Group, New York, told SN.
The two chains have been highlighting food quality, particularly in perishable departments, through the introduction of signature prepared foods, revamped service departments, a prestige private natural and organics label, Nature's Promise, and by highlighting better-for-you items by tagging them with a special Healthy Ideas logo.
The “engaging experience” pillar comprises the EasyShop technology allowing shoppers to scan their own items as they shop or place deli orders on the go. The chain is holding store managers accountable to maintain standards regarding elements such as checkout times, Benjamin said.
Employees have been a major part of making the changes effective, Benjamin added, saying store conditions are better than those at competitors.
“One of the trademarks of the Giant and Stop & Shop organizations is that if the team knows what they're after, nobody executes better,” Benjamin said. “And we prove that every day. If you walk through the stores and look at the sanitation and out-of-stocks, you'll see we're as good or better than anyone in the market.
“When we put our minds to something, we've proven over and over that we can deliver,” he added. “It's just a matter of consistent execution around the basics.”
Together, these elements of the brand make for what Benjamin calls “quality” identical-sales gains.
“We want to continue to improve the quality of our ID sales — sales that have a strong unit-volume component,” he said. “And we have to look behind the IDs. Are we getting more households? Are we getting more trips? Are people buying what we want them to buy? So the quantity and the quality of the sales is what we look at. I think some competitors out there are getting the quantity ID sales we are but not the quality. We have learned you need good-quality ID sales in order to have sustainable ID quantity.”
What the Future Holds
When asked what could interfere with the progress at Giant and Stop & Shop, Benjamin mentions the economy — and the chains themselves. Paying particular attention to local conditions is a defense in either case.
“If unemployment continues to grow, then we're at double digits nationally — that's going to be bad for everybody including the supermarket industry,” he said.
Although Stop & Shop and Giant operate in combined markets comprising 56 million people — Carl Schlicker, president and chief executive officer of Stop & Shop and Giant-Landover, called it “a target-rich environment” — a few communities and counties in that operating area are at or near those unemployment levels now.
The company hopes to learn from operating in those markets should the economy continue to deteriorate, Benjamin said.
“The other thing we worry about is getting distracted,” he added. “It's the biggest mistake a company can make. So we run the business daily and we run the business locally. That's what the survivors are going to do.”
Asked the same question, Flickinger pointed to competitors including Target — “they do very well against the same customers and have targeted New England for expansion,” he said — and drug chain CVS, which has developed an effective vehicle to wrest Center Store sales through a shopper-loyalty program.
Benjamin described the future of Stop & Shop and Giant as one in which more attention to local preferences drives the business. The 78,000-square-foot cookie-cutters that served the chain well for decades are giving way to smaller stores built according to local real estate availability and needs.
Benjamin said the chain has not ruled out trying a different format altogether as its sister chain, Giant of Carlisle, did with a newly built convenience store and fuel-station offering in Pennsylvania.
He also wouldn't rule out growth by acquisition, saying the company has continued to pursue one-off deals in its market. Larger acquisitions, he predicted, may have to wait until the market is ready.
“The overall [merger and acquisition] market in the U.S. is very tentative right now, and not just among supermarkets,” he said. “I think people are trying to decide if they buy now they are buying at the absolute bottom of the market. It's like buying real estate.”
However, Ahold CEO John Rishton, in remarks at the retailer's recent conference call, suggested that the difficult economy is serving to add strength to the strong retailers and weaken the weaker, “and we consider ourselves among the strong.”
Benjamin may agree, but he maintains a humble posture — and keeps pounding away. “We underestimate no one, and we've learned that the hard way,” he said with a laugh. “We're big fans of Andy Grove from Intel who wrote the book ‘Only the Paranoid Survive.' I believe in that very strongly. You just never know.”
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