Michael J. Teel may have to push hard to implement change at Raley's Supermarkets, industry observers told SN. Teel, the grandson of the chain's founder and son of its co-chairs, was named chairman and chief executive officer of the 135-store Sacramento, Calif.-based company in early January, eight years after he left the same posts to pursue outside interests.
Teel's challenge, observers agreed, is to steer Raley's out of the middle of the pack to drive market-share gains.
“He has his hands full, and it's not going to be an easy game,” George Whalin, principal at Retail Management Consultants, Carlsbad, Calif., told SN. “Anytime a top executive wants to make a bold step in a new direction at a family-owned company, there's always somebody pushing against him, and it's hard for that executive to push back.”
To get Raley's moving in the right direction, Teel has to figure out how to move the company out of its middle-market position to make a stronger impact on a broader range of customers, sources told SN.
“Teel has got to do something different,” said Bob Reynolds, principal at Reynolds Economics, Moraga, Calif. “He can't just sit by, keep things the way they are and wish things were better.
“Raley's has been losing market share at the low end following the entry of companies like Wal-Mart and WinCo and at the high end to Whole Foods and Nugget Markets, and it needs to make significant change because, with so many new competitors at the extremes, market share is not going in Raley's favor.”
Raley's may also have to rethink the kind of stores it wants to operate, Reynolds said. “For example, is Raley's willing to give up some of the high-end service departments it's relied on for its image, like sushi bars and Chinese food counters, that take up space but are productive only four or five hours a day?”
Many of the areas in which Raley's stores are located are aging, he added, “and the chain no longer appeals to many of the customers living in those areas, yet it continues to run stores geared to a higher-end shopper. So Raley's may have to rethink its operations and adapt to serving a customer who's more interested in a Wal-Mart or WinCo.”
Teel told SN in an interview last month it might be several months before he makes long-term decisions on how to proceed, though he's ready to implement short-range programs immediately, including investing margin to drive sales.
“We're not afraid to spend margin to increase traffic and customer share for the short term while building a longer-term plan,” Teel explained. “We will get better at selling the right items at the right price, and we won't let conventional competitors outsell us.”
According to one industry observer, that could present a challenge for a chain proud of its high-end legacy. He also said the competitive challenge may be more complex than Teel is willing to acknowledge.
“Teel said he won't let conventional competitors outsell him, but that's exactly the kind of thinking that got Raley's in trouble,” the observer noted.
Reynolds of Reynolds Economics said he's not sure whether the owners are willing to invest in the banner.
“It appears the company has been capital-constrained for several years, and it's not clear if the family will be willing to allocate capital that's needed,” he pointed out. “And even if it has the money to move forward, it's not clear how it needs to spend it to get market-share moving in the right direction.”
Teel told SN in the interview that the company has not lacked for capital spending.
One observer, who asked not to be identified, said he questions whether Teel actually brings anything new to Raley's. “He's been in and around the company for years, even though he left eight years ago, so he owns part of the past, and it isn't clear how much ‘new thinking’ he brings to the job.”
The observer also said he wonders what kind of lasting impact Teel's abrupt departure in 2002 has had “on the confidence his employees must feel now.”
Observers said one possible course of action for Teel might involve Raley's doing more to differentiate its offerings based on store banner and size.
“Right now, it operates under the Raley's, Bel Air and Nob Hill banners, without any real distinction among them,” Reynolds pointed out. “Nob Hill, whose stores are located south of Sacramento along the Central Coast, has a long history of operating smaller stores, while Raley's and the crosstown rival it acquired years ago, Bel Air, operate many stores almost side-by-side. And while Bel Air was originally run by operators who emphasized perishables, a lot of the business those stores once had has shifted along with generational changes.”
For Whalin, the solution to Teel's challenges may involve finding a new niche for Raley's to make it a more viable shopping destination.
“He's got to find a way to distinguish Raley's from the major competition, particularly Wal-Mart, which has found a strong niche in Northern California, and Costco, which continues to be a major player in the food business. If Raley's looks like all the other supermarkets, then customers will go where they can get the most bang for the buck.
“So Teel has to decide what Raley's greatest strengths and capabilities are and how to use those assets to their best advantage.”
Another challenge, Whalin said, is Raley's size. With 135 stores, “it's just not big enough,” he said. “Supermarket companies today need to be big — they can't make it with just a few stores.
“So it will be up to shareholders, which means the family, to either make an acquisition or sell. Since the family doesn't appear to be interested in selling, then an acquisition of a company of similar size, possibly in Southern California, would make a lot of sense.”