THE COMEBACK KID 2001-11-12 (1)

MARTIN SCHNEIDER

VIRGINIA BEACH, Va. -- Less than three years after taking the job as president and chief operating officer of Farm Fresh here, Ron Dennis has turned a company in the midst of bankruptcy into a top competitor.

Dennis told SN he is relying on his leadership team's skills and the support of parent company, Supervalu, Minneapolis, to keep Farm Fresh's sales at its stores on a steady upswing.

In its Tidewater, Va., operating area (which includes Norfolk and Hampton Roads), the 38-store company currently enjoys a 20% market share where the market leader, Food Lion, Salisbury, N.C., has 90 stores and a 28% market share.

Farm Fresh also said it is prepared to battle such potentially killer competitors as Wal-Mart, Bentonville, Ark.

Andrew Wolfe, retail analyst with BB&T Capital Markets, Richmond, Va., said Farm Fresh's comeback strategy is one that fits the success story mold.

"Tidewater is a tough, heavily stored market, and Farm Fresh is fortunately the hometown player with several decent locations," he told SN. "It's a little like a Pathmark situation here. When you place capital into a decently entrenched franchise like Farm Fresh, you will generally see good returns. And being folded into a larger company like Supervalu, they can achieve cost savings in procurement and other areas."

Five-Point Strategy

When Dennis came to Farm Fresh in October 1997, he found a cash-poor company with low employee morale. "We had our work cut out for us," he recalled. "Employee morale was a bigger hurdle than emerging from Chapter 11. Plus, we had several operating formats as well as a crumbling infrastructure."

The company was about to be acquired by Richfood, Richmond, and would in turn be acquired by Supervalu a little over a year later, which provided some desperately needed cash to get the turnaround started, according to Dennis.

He said his main priorities were to aggressively renovate stores, create a strong infrastructure and return employee morale to optimum levels.

To meet these tasks, Dennis and his management team created a five-point operations strategy that still guides the company. It includes having clean stores, quality products, a wide selection, excellent customer service and low prices.

Clean stores for Farm Fresh meant new stores, according to Dennis. "There are some stores here that have been around for 25 years, and they looked it," he explained. "To date we have either rebuilt, or completely remodeled, every store except one, and that will be remodeled by the end of the year."

Mike Griffith, vice president of store development, oversaw the job of getting 38 stores up to date in less than three years.

"We really weren't doing much during the Chapter 11 proceedings, but when Ron came aboard we really hit the ground running and developed a strategy on the fly, but it has been an amazing team effort, so it wasn't as difficult a task as it might have been," Griffith said.

He pointed out that through cost-cutting measures devised by Dennis, the company can build a remodel at a cost well below industry averages.

"We can build a new store at under $75 per square foot, which includes everything -- engineering, design and decor," he said. "Everything from the first shovel in the ground to the grand opening."

Dennis noted that the savings on construction has been put back into the company, which he says will help ensure future sales growth.

In addition to renovating the stores, Dennis said it is imperative that Farm Fresh operate stores that are "hospital sanitary."

"It's not good enough to just have the center of the store bright and clean," Dennis said. "We took our food-handling safety program to the Virginia Board of Health, and they said it far exceeded the state's regulations.

"And we have ongoing classes to educate our associates further. Plus, we designed all our stores so that all food preparation areas, even produce, are out in the open where customers can see them.

"I will give you $100 if you walk into one of our stores and find an associate handling food items without a hair net -- that's how confident we are that we're doing things right."

An emphasis on quality products is another important part of the strategy. Dennis said that the company promotes only branded items in its service and specialty departments.

"Even with produce, we will only sell branded products like Chiquita bananas or Mott's apples whenever possible," he said. "In deli, we are exclusive sellers of Boar's Head brand meats. In the meat department, we are the only supermarket in the area that sells only USDA choice beef or higher, and we sell mostly certified Angus beef.

"While we feel strongly about the Richfood private label as a strong sales driver, and of course offer other brands than the national leader, putting an emphasis on key national brands has been a critical part of our success."

While Farm Fresh relies on exclusive brands as a sales driver, it also places a strong emphasis on variety, according to Dennis.

"Instead of trying to rationalize the SKU count as many retailers have done, we still think it's important to offer the widest variety possible," he said. "We have earned a reputation where people say, 'If you can't find it at Farm Fresh, don't bother looking."'

Dick Bergman, senior vice president of merchandising and operations, cited the company's Wine Depot pilot program as an example of Farm Fresh's dedication to selection. The program, in which a section of a store stocks a wide variety of wines at near-wholesale prices, has been a major success, he said.

"The Wine Depot is in three stores now, and we're amazed at how well it has taken off," Bergman said. "It is another way that we can show our dedication to meeting the customers' tastes by offering a huge selection at more-than-competitive prices."

Floral is also a big contributor to sales, according to Dennis. "We are the 23rd largest FTD florist in the world. We have a central floral facility where we import our own flowers from all over. We have 30 vans delivering flowers to the region all the time, and keep a master floral designer on staff at every store."

However, according to Dennis, the single biggest factor in the company's turnaround is the move to provide excellent customer service on a consistent basis.

"There are a lot of simple things that set us apart," he said. "We ensure that all register lanes will be open from 4 to 6 p.m. Our cashiers personally bag produce, and our policy of rewrapping meat at the counter to avoid any cross contamination lets customers know we care about their business."

Dennis also noted that the stores also have associates walking the aisles with the sole job of helping customers find products.

"People think they can't afford service like that, but when you have satisfied customers buying all the items they need, the ticket prices keep going up," Dennis said.

Farm Fresh also offers customers the opportunity to shop via the Internet, and dedicates a register at its service island to picking up orders. In addition, during busy hours, the stores have a mobile register that can be rolled onto the sales floor to speed customers through checkout.

To keep service at its highest level, Dennis said he instituted yearlong incentives and rewards for associates who perform at an optimum level, and the company listens and responds to every customer complaint or suggestion.

Susan Mayo, vice president of consumer affairs, told SN that the company receives 200 inquiries a week, and treats each one equally.

"The president reads every comment, and we have the elasticity because of our size to change store policy or the way we merchandise quicker than most operators," she said. "There's not a lot of bureaucracy here. Also, we try to identify trends, to stay ahead of the pack when it comes to meeting the changing wants of the customers, and Ron Dennis empowers managers to get this job done."

Dennis admitted that a retailer pushing branded products and providing top-notch customer service does not usually get pegged as a low-price competitor. But he said Farm Fresh is dedicated to creating a low-price image along with providing customers with a great shopping experience.

To maintain this price image, Farm Fresh runs advertisements in local newspapers seven days a week, all year long, according to Jim Jansen, vice president of marketing and advertising.

"People who are really interested in price look to the newspaper circulars. We have been able to create a positive price image through our daily ads we run in local papers," he said.

According to Jansen, altogether, Farm Fresh runs an average of 600 unique advertisements a year. The company airs television and radio spots as well. "Advertising is pretty easy when you've got a good story to tell," he said.

A Team of Leaders

Some Farm Fresh associates said that Dennis' leadership and assembling a strong management team were the prime drivers of the turnaround.

Bergman said, "When the company was headed downward, every decision at management level brought the company further down. But when Ron came in, things took an upturn, and now we have people here that can make decisions that consistently keep things on an upswing."

Mayo told SN she had left the company for a short time, and that she was "rolling the dice" in coming back to work under Dennis.

"He really challenged me, and the rest of the team. I was struck by his vision and wanted to work with him in rebuilding this organization," she said.

Dennis declined to take credit for the turnaround, instead assigning the honors to all the Farm Fresh employees and the work they have contributed to revitalizing the organization. He specifically included the team members he brought to the company himself.

The Supervalu Advantage

Shortly after Dennis took command at Farm Fresh, the company was acquired by Richfood Holdings. It was not long before Richfood was, in turn, acquired by Supervalu.

According to Dennis, only good things have come from having a parent company like Supervalu.

"Supervalu really took us to the next level regarding the rebuilding of the company," he said. "They maintain great relationships with their retail operators. I have been lucky to have a great relationship with Jeff Noodle [now Supervalu chief executive officer], and he was excited from the beginning about what we planned to do with Farm Fresh. Our vision really matched with his, and where he wants to see Supervalu going in the long run. He has always been a great supporter of retail, especially Farm Fresh."

Dennis added that Supervalu has been supportive of Farm Fresh's commitment to product selection and upscale services.

"While Supervalu has been placing emphasis on price impact stores like Cub Foods, our performance proves that there is room for an upscale operator like us to thrive in a large organization like Supervalu," he said. "We've carved out a valuable niche in this market, and we hope to continue playing a major role in the growth and future of Supervalu."

Mike Jackson, executive vice president at Supervalu, and president and CEO for distribution at the company, said, "Farm Fresh is an integral part of Supervalu's retail operations. It is a world-class organization that is dedicated to customer service. Farm Fresh consistently delivers outstanding perishables and competitive pricing to the marketplace."

Future Growth

Though Dennis said he plans to be a part of Supervalu's future growth, he is a little less specific when it comes to Farm Fresh's physical growth.

Dennis did say, however, that Farm Fresh is looking to grow significantly over the next five years, and that the company is constantly looking for new locations to build stores, as well as eyeing possible small-scale acquisitions.

"There are a number of active locations we are considering, but again, it's a case-by-case basis whether or not those become actual Farm Fresh locations," Dennis said.

What Dennis will talk openly about is his dedication to keeping the existing store base as up-to-date as possible.

"In addition to the constant renovation schedule we have been on, we are also dedicated to the continuous growth of new facilities and unique formats," Dennis said.

Store additions like the Wine Depot and expanding perishables offerings are among the projects Dennis said Farm Fresh has been tackling over the past year. "While most people are getting out of things like salad bars, we are adding to ours, which has proven to be a good sales driver. We have also added a sushi department to our stores, where it's made fresh daily in our Willow Oaks store and sent out to our other stores."

The company's next major addition will be fuel centers, Dennis said, with the first units being installed sometime in 2002 wherever the company can get zoning permits. Farm Fresh plans to run tie-ins with the fuel centers, he added, offering a few cents off each gallon of gas with the purchase of a certain number of goods.

These services, Dennis observed, are successfully helping Farm Fresh compete with Wal-Mart. He noted that the Farm Fresh location in Suffolk, Va., which operates across the street from a Wal-Mart supercenter, is experiencing comp-store sales gains in the high single digits. He added that another Farm Fresh store that operates in the same shopping center as a Wal-Mart supercenter and a Sam's Club is enjoying similar sales gains.

Dennis explained the strategy simply, "We just play on Wal-Mart's weaknesses by running a better quality store with lots of variety, which also has low prices. When you take away price from Wal-Mart, what's left?"

At A Glance

farm fresh

Headquarters: Virginia Beach, Va.

President: Ron Dennis

No. of Stores: 38

Market Share: 20%

Farm Fresh relies on a strategy of new stores, a large variety of quality products, low prices and optimum service to stay successful in a highly competitive market. Full-service meat, deli and bakery departments, eat-in cafes, well-staffed checkout lanes, Internet shopping, price guarantees and courtesy clerks dedicated to helping customers find products are just a few of the things that set Farm Fresh apart from the competition in the Tidewater market. These efforts have resulted in continuous comp-store sales gains for the past three years. The company has said it will add fuel centers to many of its stores in the next year.