THE GOAL IS GROWTH

Reported by GREG GATTUSO, DAVID ORGEL and ELLIOT ZWIEBACH

NEW YORK -- Major industry operators are following a myriad of strategies in 1997, but the pursuit of growth is the common denominator.

Some are hoping to create efficiencies to drive earnings, while others have put consolidations behind them and are poised to expand the top line with merchandising and pricing moves.

Many are tinkering with new formats and expanding perishables components of existing retail facilities.

Top retail and wholesale executives divulged their 1997 strategies earlier this month at the Donaldson, Lufkin & Jenrette Food Retailing Conference held here. Last week SN presented its first installment of coverage of the conference. The second half of the coverage appears below and on some following pages.

Logistical Leverage

Carr Gottstein Foods, Anchorage, Alaska, will leverage its local merchandising knowledge and logistical operations to continue its fight against supercenters and warehouse clubs, as well as other supermarkets, in its Alaskan market territory, said Lawrence H. Hayward, president and chief executive officer.

The company has a total of 42 stores in Anchorage, Fairbanks, Juneau, Kenai and other Alaskan communities, consisting of 15 Carrs Quality Centers, eight Eagle Quality Centers, 16 wine and spirit shops and three tobacco shops, plus wholesale, trucking and institutional food-service divisions.

Last year, Carrs Quality Center comp-store sales were off 0.1% from the previous year. However, the smaller Eagle stores increased comparable-store sales 2.9% in 1996.

"We really see our Eagle division as having tremendous possibilities going forward," Hayward said. "Our formats can work in towns that have populations as low as 2,500 to 3,000. We feel we can compete much better than the independents in these markets."

As the only full-line food and drug wholesaler-distributor in the state (Carr has a 233,000-square-foot warehouse and distribution center in Anchorage), the company can respond more quickly to out-of-stock items than its competitors, who ship from warehouses in the Northwest United States.

"We're the only major retailer with a local merchandising process in our market," Hayward said. "We understand and know Alaska, and we know our customers. We think that's very important vs. our competition trying to merchandise and write ad plans some 3,000 or 4,000 miles away."

Enriching Volume

Richfood Holdings, Richmond, Va., expects to roughly double its sales by 2001 -- to $6.5 billion -- said John E. Stokely, president and chief executive officer.

Speaking at the recent Donaldson, Lufkin & Jenrette Food Retailing Conference in New York, Stokely said the key to expanding the business lies in several areas, including strategic acquisitions, entering the meat business and slashing costs to offer its retail customers low prices.

The wholesaler/distributor will also seek new customers by providing outsourcing opportunities to larger retail chains, Stokely said. Richfood will offer these chains a low-cost alternative to current suppliers.

Richfood is targeting modern, well-run facilities within the Mid-Atlantic region for acquisition, Stokely said, especially family-run businesses where the later generations have lost interest in food retailing. In addition, the company is looking to enter the meat business in Pennsylvania. Stokely said this segment is currently "fragmented" in the state, and presents "a $250 million opportunity."

With this multipronged approach, Richfood "does not have to hit home runs in any single revenue growth path. We can just do well in several key areas," Stokely said.

Richfood's large, efficient distribution facilities all have room to accommodate added business, Stokely said.

Back for the Future

With its restructuring completed, Oklahoma City-based Homeland Stores hopes to expand its operations at the rate of 8% to 10% a year, said James A. Demme, chairman, president and chief executive officer.

That growth rate would require the company to open at least five new stores a year, Demme told investors -- an impractical goal at present, he said, for the 66-store chain, which emerged from prearranged Chapter 11 bankruptcy protection in August.

"All we can manage is two new stores a year right now, and that's just not acceptable," Demme told the annual Food Retailing Conference sponsored by Donaldson, Lufkin & Jenrette here.

"We need to grow strategically, and we will do that -- by concentrating on growing market share by expanding into smaller towns," he said.

Those moves would put some of the 115 independent operators Homeland competes with at a distinct disadvantage, Demme said, "and we anticipate that many independents that are run by second- and third-generation owners will be willing to deal with us."

Some of those retailers operate some of the 29 stores that Homeland sold as a preliminary step to restructuring, Demme pointed out, "and many of them have not done well with the stores," he added.

He said Homeland would like to go back into markets in which it had success in the past, "and since there is not a 'no-compete' clause in the contracts we signed when we sold those stores, there's nothing to stop us from going back into those areas," he said.

According to Demme, Homeland intends "to maximize cost savings from the restructuring by remodeling as many stores as possible and set the stage for more aggressive new-store growth in 1998."

He said Homeland will spend $12 million, or 2.3% of sales, on capital expenditures this year, and $19 million, or 3.5% of sales, in 1998 to open two stores and complete more than 20 remodels in each of the two years.

Demme said Homeland has developed a marketing program that helped it expand sales 1.2% last year to $523.4 million. He said he anticipates sales will grow 0.5% to $526 million this year and 2% to $536.5 million in 1998.

The chain's marketing program includes the following elements, Demme said:

Addition of more perishables departments, including fresh fish, and increased product varieties.

Expansion of home-meal replacement items through Dinner in a Dash, a group of ready-to-heat meals sold through Homeland's meat departments that started with 10 items and is now up to 25.

Distribution of Homeland Savings Cards, a loyalty-card program designed to make secondary shoppers into primary shoppers.

Fresh and Confident

The stores converted by Dominick's Finer Foods, Northlake, Ill., to the Fresh format have produced enough positive results "to make us confident about Fresh going forward," Robert Mariano, president and chief executive officer, said at an investors' conference here.

Speaking at the annual Food Retailing Conference sponsored by Donaldson, Lufkin & Jenrette, he said Fresh stores will be the primary driver of sales and earnings growth for Dominick's during the next few years, with virtually all stores being built or remodeled in the Fresh format, which features expanded perishables departments.

Nine new Fresh units and five more conversions to Fresh are due this year, which will raise the number of Fresh stores from 22 to 36, Mariano said; nine more new stores and two or three more conversions are scheduled for 1998, he added, which will result in Fresh stores accounting for just over 40% of the company's store base.

Reviewing results at the first 14 converted units, Mariano said sales increased 27%, operating cash flow rose 39%, sales per selling square foot increased 26% and operating cash flow margins were up 50 basis points.

Sales at the eight newly built Fresh stores average $500,000 a week, or $26 million annually, Mariano added.

He said the company is slowly moving outward from its geographic base with new stores, "and we're able to expand into some new areas with little cannibalization."

Developing the Core

Riser Foods, Bedford Heights, Ohio, will further develop its two core formats in the coming years through expansions and renovations, said Anthony C. Rego, chairman and chief executive officer.

The company's 37 stores in the Cleveland area fall into two categories -- the large "marketplace" unit, which measures 60,000 square feet to 75,000 square feet, and its scaled-down sibling, the "neighborhood" store, which measures 40,000 square feet to 55,000 square feet.

Rego said that by fiscal 1999, a massive project to have all stores remodeled and/or renovated will be complete, leaving 14 marketplace stores, 22 neighborhood stores and increasing total square footage by 11% over 1995 levels. The company has reduced the number of stores in recent years from 52 to the current 37, and expects to close one more in the coming months, Rego said. Average size of a Riser store is currently 55,000 square feet, he said.

Both formats offer what the company calls "destination departments," such as cards and gifts, one-hour photo, walk-in beer cooler, wine cellar, floral, cheese and books. The company's Foods to Go department offers a variety of meal solutions to eat in or take out, including salad, pizza and chicken, Rego said. Riser's produce departments emphasize freshness, quality and variety. The store adds value in the department by making employees available to juice oranges, core pineapples and answer produce-related questions.

"We work hard to provide our customers with more reasons to shop our stores," Rego said. "We want our [floral] departments to be as good as the local florist. We want our bakery department to be as good as the local bake shop, and so on."

Riser's goal is to increase sales 5% compounded per year in both its retail and wholesale divisions. The company also hopes to increase earnings as a percentage of sales by 0.1% per year. To that end, Riser will continue to collect, analyze and use data from its customer reward program. Riser's wholesaling operation is expected to grow by attracting new customers in states outside Ohio, including Michigan, West Virginia and Pennsylvania, Rego said.

Mission: Initiative

With most of its warehouse integration behind it, Ralphs Grocery Co., Compton, Calif., plans to focus its attention on retail initiatives designed to strengthen sales and operating cash flow, George Golleher, chief executive officer, told investors here.

"We're optimistic we can build on our success and develop a stronger franchise in southern California with positive gains in market share," Golleher told the annual Food Retailing Conference sponsored by Donaldson, Lufkin & Jenrette.

"We feel our leverage points over the next 10 years will be in distribution, manufacturing, retail store locations and the combination of conventional and price-impact formats," Golleher said.

At the distribution level, Golleher said Ralphs expects to reduce costs by 20 to 30 basis points a year beginning in late 1997 through the consolidation of its warehouse operations. He said the chain has already reduced warehouse costs to 3.6% of sales, compared with 4.3% in mid-1995, at the time of the Ralphs-Food 4 Less merger.

At the time of the merger the combined company had six full-line distribution centers and nine frozen-food satellite facilities. Golleher said Ralphs has closed or terminated leases on the nine satellites and terminated leases on four of the six full-line centers.

There are now three facilities in operation, as follows:

A 1 million-square-foot distribution center in Riverside, Calif., which was acquired after the merger with Food 4 Less from Smith's Food & Drug Centers, Salt Lake City. It carries 12,200 grocery, frozen and dairy/deli items and ships 86 million cases per year.

A 270,000-square-foot perishables warehouse in Compton, Calif., that stocks 1,200 items and ships 54 million cases per year.

A 230,000-square-foot full-line facility in Glendale, Calif., that was damaged in the 1994 earthquake. It is scheduled to reopen in March after being retrofitted to reinforce it beyond earthquake code standards. The facility stocks 7,600 groceries, frozen and dairy/deli items and ships 42 million cases per year.

At the retail level, Golleher said Ralphs will continue to pursue an aggressive new-store and remodeling program, which calls for opening 12 new stores and remodeling more than 50 units during 1997, compared with 26 new stores and 20 remodelings last year.

According to Golleher, all Ralphs' conventional stores will incorporate elements of the "signature" program it developed last year, in which the chain puts a stronger focus on perishables with expanded full-service floral departments and additional varieties in all service departments and in home-meal replacement options, including additional offerings of prepared salads and entrees in self-service cases under its Chef on the Run banner.

He said Ralphs has enhanced its consumer image at its conventional stores over the past year with its "First in Southern California" program, which focuses on lower prices combined with quality, selection and customer service. In the process, Ralphs has cut prices to about 0.5% above Lucky Stores and 0.75% below Vons Cos., compared with a 3% gap two years ago, Golleher said.

Returns on Investment

Fred Meyer Inc., Portland, Ore., is positioned to leverage previous investments in its infrastructure to reduce debt and drive earnings, executives of the chain said.

Robert G. Miller, chairman and chief executive officer, said investments in warehousing and systems over the past few years will enable the company to increase its cash flow, "which will allow us to drive sales growth and drive margins for earnings growth."

He spoke at the Food Retailing Conference in New York, sponsored by Donaldson, Lufkin & Jenrette.

Fred Meyer operates 109 department stores, including 101 with both food and general merchandise. Miller said the company plans to add food over the next two years to four of the remaining eight stores that don't stock it.

He said food accounts for 41.1% of sales -- or 54.4% when adjusted to include nutrition centers, pharmacies, health and beauty aids, candy and tobacco, he added. Miller said the company has added service delicatessens, bakeries and fish counters to all food stores "and removed walls to open the stores up for more cross shopping."

With approximately 55% of stores newly built or remodeled in the last five years, "our remodeling costs going forward will be lower," Miller said.

He said improvements in logistics and management information systems have enabled Fred Meyer to reduce inventory while maintaining a selection in stores of 150,000 square feet comparable to what it offered five years ago in stores of 190,000 square feet.

Brand New Tools

Smart & Final, Vernon, Calif., is putting more focus on merchandising and marketing tools to improve volume, according to Roger M. Laverty 3rd, president and chief executive officer.

The company, which operates 174 nonmembership warehouse stores, mostly in the West and in Florida, has successfully revamped its corporate brands and is placing emphasis on a loyalty card and other marketing efforts. The company also operates full-line food-service distributors that supply a wide range of products and services.

"In 1996 we had a complete revamp of our corporate brands with our decision to sell both in stores and through our food-service distribution," Laverty said. He spoke at the Food Retailing Conference sponsored by Donaldson, Lufkin & Jenrette in New York.

"Corporate brands are now 12% of total sales and 34% of gross-margin dollars generated," he said. The Florida market represents one of the newest entries for Smart & Final, which now operates 10 stores in that state.

"There's potential for continued retail growth in Florida, possibly 25 to 30 stores total," Laverty said. "After that, we can expand northward or consider moving into Puerto Rico."