BUTCHER, BAKER, PROFIT-MAKER 2004-05-03 (2)

KELLY GATES

Retailers have increasingly relied on their fresh foods to create varied levels of customer service that differentiate their stores from competitors.

In the deli/fresh meals, meat, seafood and bakery categories, retailers employ personnel with a higher level of knowledge than found in other areas of the store. Traditionally trained in production, they were the store's artisans and resident experts.

Today, that tradition of making an item from scratch has given way to a demand for more customer interaction -- a transition that has not always been easy. Nevertheless, reducing labor costs has become the universal goal in the consolidated supermarket industry. The highly specialized, and often unionized, service associates have not been spared management's goals.

"There's no question that retailers have to find the flexibility to reduce their costs because there is no successful strategy that eliminates them," said Bill Bishop, president of Willard Bishop Consulting, a retail consulting firm based in Barrington, Ill. "A lot has to do with how much each supermarket looks to people to add value to their stores vs. looking to the system to add value."

The cost of payroll as a percentage of total net company sales averages 12.2% among supermarkets, according to "Speaks 2003," the annual report published by the Food Marketing Institute, Washington. Industry experts see a continuing drive to punch the number down.

With a long-existing focus on low prices, Wal-Mart Stores, Bentonville, Ark., has been a leader in reducing labor costs in service departments. The supermarket industry took notice in early 2000 when the retailer announced it was implementing a case-ready meat program while 10 meat cutters at a Jacksonville, Texas, supercenter were voting to join the United Food and Commercial Workers Union. To a varying degree, most other chains followed suit.

As profit pressures remain a constant, making it more imperative that retailers cut their labor costs, Bishop anticipates that executives could soon be moving from the more common targets like meat, deli and bakery to other service departments throughout the store.

"One logical department is produce. It's a relatively high-cost labor department, and that high cost is a direct result of the way product is handled today," said Bishop. "The key question that we're helping people answer is: Where can you improve or, at minimum, hold the consumer value while taking labor cost out of the product?"

Like earlier innovations such as self-checkout, ATMs and self-service gas, new self-service options in supermarkets are garnering favorable reactions from shoppers. However, it will take creativity and careful trial-and-error testing to find the right formulas, said Bishop.

SN examined what three retailers are doing to modernize their use of labor in today's competitive marketplace.

FRESH ENCOUNTER

Findlay, Ohio-based Fresh Encounter, a 33-store chain with locations in western Ohio and eastern Indiana, is proactively re-evaluating its service departments in an attempt to develop a more efficient labor force strategy.

"We're taking a look at labor scheduling from an activity-based perspective, analyzing what's driving work in the departments, when those activities occur, and how we staff based on that. [This] is a more scientific way to look at it," said Todd Perry, internal business consultant for Fresh Encounter. "We're not in a position to have to cut hours tomorrow, but we realize that if we don't focus on this issue, we'll be foregoing the opportunity to head off a potential problem."

With stores ranging from 8,000 square feet to 40,000 square feet in size, there's no feasible way for Fresh Encounter to put together a general labor scheduling formula that will work for all locations. Two, three or even four formulas wouldn't work for that matter, said Perry.

Instead, the supermarket has committed to analyzing everything from its chainwide customer service strategy to the sales records of each service department in each store as well as the exact job responsibilities that are required of every employee within the departments.

"Going through this process, we've found some stores that require a reduction in labor during certain times, but some actually require more hours of manpower," said Perry. "We might see a labor increase of 5% in some stores, a decrease of 10% in others, but overall, we will have more effectively deployed hours, which will create tremendous efficiencies for us."

According to Perry, Fresh Encounter has looked at the "cashier to bagger to carryout" ratio for each day of the week in each store in each market. It's also honed in on individual sales, considering the smaller, one-bag or two-bag shoppers vs. shoppers who are spending $100 or more during a single visit.

Based on such activity-based measurements, each of the chain's stores will now be better staffed to handle the high or low volume of shoppers on any given day, said Perry.

"We've looked very closely at our meat, bakery and deli departments. Depending on the volume of each store, we plan to staff accordingly," said Perry. "The most-skilled person in our stores is in the meat department as our primary cutter and salesperson, a person who needs to have the product knowledge and the ability to communicate with the customers regarding where the product comes from and how to cook it."

Most of the chain's stores only require one experienced, high-paid cutter. Yet many of the Fresh Encounter locations are now staffed with a second, "semi-trained" employee who is capable of performing grinds and other departmental tasks. Low-skilled workers are scheduled to fill in the gaps, based on the volume of each store's meat department.

"Our goal is to have the best mix of people in our stores at the right time," said Eric Anderson, senior vice president of marketing for Fresh Encounter. "While we have our main cutter, we're trying to fill in with people who may not have the production skills that warrant higher pay, but that have good sales skills, which is one of the most important aspects of tending to customers."

When considering the price difference between meat products at full-service and self-service stores, Perry insisted that Fresh Encounter's meat prices "aren't drastically different than Wal-Mart's, even though they've cut out their meat-cutters."

Anderson added, "Our customer base expects hand-cut, fresh grind on a daily basis, and we've built a reputation on having full-service meat counters that do all of the cutting on-site, including special cuts that they can't get at self-service stores."

Creating efficiencies in the bakery department is another vital part of Fresh Encounter's agenda, according to Anderson.

"We bake fresh products in some stores which we've determined by the markets they're in and the volume of business in those markets, and we move the fresh products to other facilities daily," he said. "We've been pleased with the results we've seen so far, reducing some of the labor at the recipient stores and offering scratch bakery items that have been well-received by our customers. They're still made in our stores daily, which our shoppers appreciate."

Fresh Encounter's arduous labor evaluation has been ongoing for nearly five months now, and will continue over the next six months to a year, said Perry.

STATER BROS. MARKETS

With 155 locations in Southern California, Stater Bros. Markets, Colton, Calif., has seen tremendous growth in its service departments over the past five years.

According to Dennis McIntyre, senior vice president of marketing, the company's service departments have "been growing at a faster rate than any other section of the store, including Center Store. With the growth of these departments, we've been able to offer more variety."

Customers frequent State Bros.' service departments so often that deli-prepared fried chicken is currently the top-selling item throughout the chain. Offering such unique, store-made items results in loyalty from customers who visit a supermarket in search of foods they can't get at other stores, said McIntyre.

"We have a wide variety of foods that are unique to our stores, like our signature salad program with crab salad and other special recipes that enable us to offer a lot of items that other stores don't carry, particularly the self-service stores," he said. "There's also the element of interaction with the person behind the counter that provides the opportunity for incremental sales and a higher level of customer service."

In the deli/bakery department, Stater Bros. has developed a logical strategy for keeping labor costs in check. Instead of having a set pay scale for each position, the operator pays according to skill level, compelling workers like cake decorators to earn more money by being more productive or acquiring additional skills that make them more valuable to the department.

"Turnover in service deli/bakery is so much greater than in any other department, partially because of contractual pay agreements with unions in terms of how they're classified," said McIntyre. "You can never pay less, but you can pay more if they can show that the performance is there."

As meat cutters are the highest-paid employees in most supermarkets, Stater Bros. invests a lot of time and money into training its meat department employees. It offers a two-year training program that includes an apprentice meat class and a variety of additional sessions that instill a wealth of product knowledge and the general "how-to's" of operating a meat department.

Employees who complete the program graduate with the precise skills and experience that Stater Bros. expects of its meat department workers. Because they have the training, these employees are more likely to be confident when working with customers and loyal to the company, said McIntyre.

"We put a lot of emphasis on training because the meat cutter is so highly valued by customers who don't know how to cook certain meats. For us, the more helpful they can be, the more comfortable the customer will be with buying more meats, which amounts to increased sales," he said. "Plus, having points of contact throughout the store in places other than the register differentiates our stores from competitors' and will keep customers coming back again and again."

An additional point of contact within the company's stores is produce, where associates offer samples of fruits and vegetables during the times when stores are most likely to be brimming with shoppers.

"We generally relegate the busier times of the week like Fridays, Saturdays and Sundays to have people designated to key in on and showcase produce," said McIntyre. "But we try to only sample each type of fruit or vegetable when it's in season and tastes best."

With a strong focus on maintaining its service departments, Stater Bros. fared well during the recent labor strikes in California that drove shoppers away from the picketed national chains and into Stater Bros. locations throughout the state.

McIntyre reported that Stater Bros. "gained more volume and more business, and we continue to do more business than prior to the strikes. Service has been -- and will continue to be -- the main point of differentiation for our company going forward."

WILD OATS

Boulder, Colo.-based Wild Oats takes pride in its high level of customer service. With fully trained butchers, seafood experts and deli workers, customers have come to rely on Wild Oats to provide special cuts and made-to-order meals that are prepared on-site.

While having excellent customer service is a strong differentiator for the chain, it also recognized the need for customers to have the option of selecting prepackaged foods.

"We have a selection of grab-and-go items in our meat, seafood and deli departments that are prepared at the store and wrapped to provide customers with a quick solution for convenience," said Sonja Tuitele, spokeswoman for Wild Oats.

As a time-saving tool for its 101 stores, Wild Oats has a small portion of its seafood items filleted or readied by seafood distributors, with most seafood products prepared by in-store specialists, she stated. The supermarket company has taken in-store baking to a new level: Many of the retailer's baked goods are so sought after that local bakeries showcase Wild Oats-branded delectables.

"We bake some of the items in-house. We also have commissary kitchens that prepare dough that is frozen, sent to our stores, and baked on-site," Tuitele said. "We also support many local bakeries sourcing freshly baked products from our stores." Wild Oats' commissary kitchens also prepare some of the salads for its delis, she added.

To better staff its service departments, the chain is currently revamping its existing labor scheduling program. "In 2004, we are rolling out a labor scheduling technology that will better enable us to ensure our service departments are staffed at the appropriate times based on that store's particular customer traffic patterns," said Tuitele. "Previously, this was done manually, and we found we weren't as efficient with our labor dollars as a result. We will continue to put a high amount of emphasis on customer service in our stores, and believe that this will continue to help differentiate Wild Oats from other stores that are going in the opposite direction."

Wild Oats' new labor scheduling strategy will be fully implemented by the second half of 2004, according to Tuitele.