Two Ahold chains in America have roared back in the weak economy with a strong price message
With nearly 170 years of combined history between them, Stop & Shop and Giant-Landover have a long legacy of leadership in the U.S. supermarket industry. But when their parent company, Amsterdam-based Ahold, plunged into a financial fiasco in 2003, admitting that it overstated profits by about $1 billion, it appeared that legacy could be tarnished. Capital resources dried up, and the fate of the banners was in limbo as Ahold rapidly sold off huge chunks of assets.
Even as the performance at the two chains deteriorated, however, they put in place a plan to revitalize their operations — the Value Improvement Program — a plan that has proven itself during the current economic downturn and placed the banners back in a leadership position.
The chains have outpaced many of their peers in sales gains this year, and profitability — although not what it was before the financial implosion — has been improving. Same-store sales gains of 4.2%, excluding gas, through the first half of 2009 at Stop & Shop and of 3.5% at Giant-Landover attest to the success of the company's improved positioning. Profits improved at an even faster clip, with double-digit percentage gains in operating income in both the first and second quarters.
“Stop & Shop and Giant are mounting one of the great comebacks of this decade,” said Burt Flickinger III, managing director, Strategic Resource Group, New York.
In recognition of its performance this year and its potential for ongoing success, SN has named Stop & Shop and Giant-Landover the winners of the 2009 Retail Excellence Award.
In an interview with SN, Carl Schlicker, president and chief executive officer of both Quincy, Mass.-based Stop & Shop and Landover, Md.-based Giant, spoke about the banners being on a “journey” to reassert their identity in the market and offer a leading value position.
“Internally we talk about being on a journey,” he said. “The journey in many ways started with VIP, but we know the destination we would like to get to, and we have a path we plan on taking. We know there will be detours along the way, but we know that we are far from finished.
“We have tremendous competitors in the markets where we do business, and we have new competitors coming in all the time,” he said. “So our whole strategy is, how do we become better at being Stop & Shop and Giant-Landover? We can't become who our competitors are — all we can do is become better at being who we are, and I think all these things are part of this journey we have embarked on.”
The two chains launched VIP — which mirrored an effort at Ahold's Albert Heijn chain in the Netherlands — in 2006. It included a broad base of cost-cutting initiatives and a department-by-department shelf-price restructuring, bringing the two chains closer to an EDLP presentation on thousands of commonly purchased items — what some analysts refer to as “everyday fair pricing.”
The initiative also included SKU reductions in each department — as much as 25% to 30% of SKUs were slashed in some departments — and an enhancement of the chains' private-label offerings. In addition, the chains continued to fine-tune their service offerings, expanding the availability of self-scanning and handheld scanners and refreshing the stores with new logos and new employee uniforms. New marketing programs put customers front and center talking about their personal reasons for choosing to shop at Stop & Shop and Giant.
The timing could not have been better. The companies were just rolling out the last phases of the price reductions when the economy took a severe nosedive last fall.
“They were lucky they had their problems three years ago, because it forced them to come to grips that their value proposition was not strong,” said John Rand, director of retail insight-grocery at Cambridge, Mass.-based Management Ventures Inc. “They ended up inoculating themselves to some extent against the recession.”
Rand counts Ahold — along with Cincinnati-based Kroger Co. — among those companies that were fortuitous in the timing of their pricing adjustments.
“We analyzed the differentiation operators — those who have a consumer value operation that was not price oriented vs. the ones who had been more aggressive about installing price in their brand — and there is a huge difference in their recession performance, and our studies show that is probably going to have a lasting effect for at least a couple more years,” Rand said.
Ahold abandoned its reliance on high-low pricing at a time when the concept might be quickly fading, he noted.
“I think we have reached the point where the American consumer realizes the difference between a hot deal that is only temporary, and a retailer that offers reliable, stable, fair pricing,” he said.
Patrick Roquas, an analyst with Rabo Securities, Amsterdam, agreed that the timing of VIP worked out well for Stop & Shop and Giant-Landover.
“If you could say there was any advantage from the recession, it was probably that VIP had perfect timing,” he said. “They started to lower prices and began more aggressive marketing, comparing prices and so forth [before the recession].”
The chains' aggressive efforts to drive top-line sales have helped bolster their profitability, although Roquas noted that he believes there is still room to improve margins at the chains.
After spending all of 2007 and 2008 rolling out the VIP initiative, Stop & Shop and Giant-Landover last month took another step that seeks to further clarify the pricing message.
The chains revamped their shelf tags to make it clear which items were on sale on a temporary basis, which are longer-term price reductions — the “Real Deals” — and which items can be purchased at an even deeper discount using the chains' newly relaunched loyalty cards. Stop & Shop and Giant-Landover doubled the number of items that could be purchased using the new cards, which are also being used as part of a broader effort to communicate value.
The new value initiative “was really designed to communicate our pricing message to the consumer without radically changing our business,” said Jeff Martin, executive vice president of merchandising and supply chain at Stop & Shop, in an interview with SN.
“We refined the communication that we did both in circulars and in the store, so we made our price messaging more clear to the consumer. She could bring the circular to the store and be able to correlate the two and make her shopping experience much better in the store.”
The new initiative “all centers around the new card,” Martin said.
The new cards are being mailed to “more than 5 million” customers — the company declined to say exactly how many of its customers are registered for the loyalty program — by early this month. They include the new four-color logo that the chains introduced last year.
“We use that as the centerpiece in the communication with the consumer because it gives us a relative point of contact in the customer's mind,” Martin said. “Things that we do always come back to the card because it is a one-dimensional perspective. It's a single point of contact with the consumer.
“Too many cards are too complicated these days, so what we are trying to do is keep it simple.”
Schlicker, who joined Stop & Shop and Giant-Landover last year after leading a strong run of sales gains at the two chain's EDLP sister banner, Giant of Carlisle, Pa., noted that the use of the card was one of the main differences between the two divisions.
“For all intents and purposes, the card is the deliverer of the savings,” he said. “We think the card is the vehicle to deliver value to the customer, and value is more than just how you get a price reduction.”
The executives declined to be more specific about the features of the new card, although some clues have begun to appear on the chains' websites. For example, there's an advisory to save the wallet card that has the magnetic stripe on it rather than just the keychain fob, because it can be used to garner additional savings.
“There was some internal discussion about wanting the card to be the deliverer of different things going forward, plus we had the new brand and we still had the old brand logo on the card,” Schlicker explained. “[Relaunching the cards was] a pretty significant event — it's an enabler, from our perspective.”
The card was recently used to offer discounts on flu shots, Martin said, as an example of how the cards can be used for more than just cents off of shelf prices.
The refined value messages, tied more thoroughly to the new cards, have made customer communication clearer than ever, Martin said.
“We've heard that back from our customers on the customer response lines,” he said. “It's early, but so far so good.”
Robin Michel, executive vice president and general manager of Giant-Landover, agreed that consumers seem to be latching on to the continuity of the value messaging.
“I think what's most impressive about what we've done is that what people see at home on TV or hear on the radio, or what they see in the ads, is what they see in the store,” she told SN. “And the word ‘see’ is very important — the message marries up with what they see in the store. It is color-coordinated, so they can see whether it is an A-Plus promotion [to benefit local schools], a Weekly Special or a longer promotion.”
As part of the communication revamp, the chains even enlarged the font on some of the in-store signage to make the message even clearer.
Michel said she's heard from employees that customers have noticed how easy it is to find sale items, “even on the bottom shelf.”
Refining the price message was important, Roquas of Rabo Securities explained, because the company had taken such a piecemeal approach to its VIP price reductions.
When he last visited the stores while VIP was being rolled out department by department, the stores lacked a uniform pricing message.
“When the chains went from high-low to an everyday-fair-pricing strategy, that probably caused some confusion among customers,” he said. “What I saw were so many pricing messages in the stores — some aisles were everyday fair pricing, some were not — there were very much mixed messages.
“Now that they have completed the process, they are benefiting from a more unified message to the consumer.”
The shift to a lower pricing structure has been complicated by several factors, including last year's high rate of food-cost inflation and recent fluctuations in commodity prices.
“We're not getting as much credit as we should, but we are not surprised about that,” Schlicker said. “From the world from which both companies came, a world that was very much high-low, we know that the customers are not going to be fooled. We know it's going to take awhile. We'd like it to be a little quicker, but we certainly understand the time that it is taking.”
Martin has seen some improvement in its image in the minds of consumers, “but we would like to see a bigger move, quite frankly, with what we've done.
“All the ups and downs of the commodity markets have also confused the customer. It's a difficult time to do these types of things, but the key for us is that we have a strategy, we are staying on message with that strategy, and hopefully over time our customers will continue to believe what we say and will reflect that in their belief in what we are doing in the stores.”
Schlicker said the company is constantly working to balance knowledge gleaned from the store level with the data analysis that determines which products to offer in which stores. This has been especially true as the company streamlined its offering and eliminated many SKUs through the VIP process.
“There is a real desire when you hear the message to respond to it,” he said. “The risk companies face when they grow is that they think technology will answer all their questions. Technology doesn't answer everything. You still need to listen to the people, and if you correlate those things with your technology, you usually come out with a great answer. It helps you decide what to keep and what not to keep.
“Boston is not Connecticut, Connecticut is not Long Island, Long Island is not New Jersey, and New Jersey is not Baltimore, and Baltimore is not necessarily Washington, and we all work hard on trying to remember that,” Schlicker said. “It's a big business, but it is made up of a lot of much smaller parts.”
Martin noted that the company sometimes went too far in its SKU rationalization, and had to go back into the stores and add product that had been taken off the shelves, to meet the needs of local customers.
“We cut pretty hard, and in some cases we cut too deep,” he said. “And I think what we found is that as we went back into the local markets and paid attention, that we put products back into these stores that are relevant to these market areas.
“The good side of cutting a little too deep was that it brought it into focus, because we heard it from customers and we heard it from associates, so that helped us decide what we needed to bring back and put an even more relevant assortment back into the stores.”
Michel said store-level feedback has been essential to getting both the product and service mix right at Giant-Landover.
“What's the No. 1 or No. 2 or No. 3 product is probably the same across the entire banner, but then thereafter, you have a much different message from Vienna, Va., than you have from Fairfax, Va. It's really called on our associates to say, ‘Here's what we need in our store.’”
Michel said one of the key characteristics of Stop & Shop and Giant-Landover is that the chains keep the channels of communication open among employees, customers and headquarters.
“Not only do our customers want to be heard, our associates want to be heard, and there is a place and a forum to be heard,” she said.
She cited a couple of examples in which products had been localized for individual markets. In one case, a pie program was customized for Giant-Landover to use a sweeter taste profile than the manufacturer produced for the rest of the country, and a sausage vendor provided a similar customized program, she said.
“It provides a huge opportunity to provide value to consumers,” Michel explained. “We continue to bring to the organization information that allows us to be unique and a reason for customers to shop only at Giant.”
Customer and employee feedback has also been important in Project Refresh, the comprehensive Giant-Landover remodeling program that began last year.
“I think what has had the most impact is that we were able to talk to our associates about what we were going to do and invite input early on when we went in and touched a store,” she said. “We talk a lot about what the store is going to look like early on so customers know what to expect. When you engage with your customers beforehand, in 100% of the cases, we are adding significantly more to the store.”
She said the store remodels — which in many cases include self-scanning options for the first time, and emphasize service meat and seafood departments — “have been perceived very positively” by customers.
WORK TO BE DONE
Earlier this year, Larry Benjamin, chief operating officer of Ahold USA, told SN that Stop & Shop and Giant-Landover were working on what he called the “four pillars” of the two chains: good prices, high-quality food, the in-store experience and reliability.
“We look at the four pillars as being the next layer in the foundation of where we are headed as a business,” Schlicker told SN. “We think the pillars are how we continue to grow the business, and what we need to do to compete in some very diverse markets against some very strong and good competitors.”
He said he believes the two chains have achieved some success in the “low price” pillar, and have a strong history of reliability, but the food-quality pillar still needs some work.
“Do we have great food? Not so much. It is an aspirational pillar,” he said. “I think we have good food, but I think our perspective of great food is to take ourselves to a much higher place.”
He said the company is “making good progress” in food quality, however.
“We are looking at quality aspects of what we do, we are looking at supply chain improvements, we are looking at different avenues for us to take in terms of selection of products we have in the store, where we source them and how quickly we can get them to the consumer. We are not where we'd like to be, but we are making good progress.”
The company is also working at improving the in-store experience, he said, and it is “something we are getting better at.”
“Some of the stores are tired, and we need to get them refreshed,” he said. “We need to get them ready for the next 10 years, and I think it's something that we recognize as an opportunity for us, and I think it is something we are moving towards.”
Martin noted that aspiring to improve the “four pillars” also provides a common language for internal communication at the business.
“That direction helps us implement strategies that support these four pillars,” he said. “When I speak with the folks who work with me directly, they understand the language around the way that we go to market in these areas.”
Recently Ahold executives have been discussing opportunities for growth using smaller-format stores, especially at Stop & Shop, where markets are saturated and large sites are difficult to come by.
“We already have what we would deem to be a number of small stores,” Schlicker said, citing Stop & Shop locations that range anywhere from just over 14,000 square feet to 80,000-square-foot superstores.
“We think — based on the geographies that we are in and based on the barriers to entry in those markets — our ability to enter a market using a smaller footprint will open up a lot of opportunities for us,” he said. “We are clearly working toward that. It is part of our strategy. We are working on it from a supply chain point of view, we are working on it from the perspective of what are the most essential elements by market, so that when those opportunities arise, or as we go out to seek those opportunities, we are going to do it with a clearly defined strategy about how to make it more relevant.”
Schlicker noted that although sister chain Giant of Carlisle is experimenting with a convenience store format, Stop & Shop and Giant-Landover have no plans to pursue that avenue. He said he has been “working on some things” with regard to the small format with Giant-Carlisle, however, and has, along with Martin, visited with Albert Heijn in the Netherlands to discuss that chain's experience.
“Our efforts are more on smaller-sized supermarkets,” Schlicker said. “But we are also going to build some larger supermarkets, and we think there are locations where a larger-than-typical Stop & Shop or Giant-Landover store will make sense. We are looking at all the options. The real estate environment is rapidly changing, and we are planning for growth in a number of ways, but most certainly with stores that are smaller than typical Stop & Shop and Giant-Landover.”
He said the two chains do see opportunities for growth starting to present themselves in the market.
“There are some places that we hadn't thought we could get into are starting to open up [because of the economy],” he said. “We think, especially with a smaller format, that there's a huge opportunity for us going forward for organic growth.”
In addition, the company's strong balance sheet makes it a good partner for developers.
“As always, we will look at the in-market opportunities that come up. We will evaluate them quickly and we will respond to those that make sense,” he said. “Ahold certainly encourages us to do all of those things.”
Schlicker said he believes Ahold is in a great position to take advantage of acquisition opportunities as well — something that is encouraging to the organization.
“We've had a lot of divestitures, so the concept of acquisitions going forward, wherever they may be, is certainly something that energizes the folks here.
“When I go to the stores, I see that people are excited about the business and are great at execution,” he said. “It always comes back to people and what people have enabled us to do, and it is the confidence that we have in those people that enables us to go forward on this journey.”
About the Award
Supermarket News has named Stop & Shop and Giant of Landover, Md., the winner of SN's 2009 Retail Excellence Award. The chains were selected based on their performance in the current economy and their industry leadership in marketing, health and wellness, and other areas.
SN's annual Retail Excellence Award recognizes a retailer who demonstrates innovative strategies that set it apart from the competition, a deep understanding of its customer base, and has had a positive impact on the food industry in developing new solutions to grow its business.
Past winners were H.E. Butt Grocery Co. in 2003, Kroger in 2004, Hannaford Bros. in 2005, Hy-Vee in 2006, Safeway in 2007 and Kroger again in 2008.
The selection of Stop & Shop and Giant-Landover was made by SN editors after consulting with industry analysts and other observers.
Sponsored by KRAFT FOODS