Customer Royalty

MARK HAMSTRA

It's one thing to operate a store that offers exceptional customer service, but it's quite another to do so for 80 years and across more than 1,000 locations, and through one of the worst economic recessions in history.

But that's exactly what Lakeland, Fla.-based Publix Super Markets has achieved, earning it SN's 2010 Retail Excellence Award.

“Our culture is about serving customers like kings and queens,” said Todd Jones, president of the employee-owned chain, during an interview last month at a store near the company's headquarters. “Mr. George [the late company founder George Jenkins] always said, if a king or queen was in your home, how would you treat them?

“It's also about making sure our employees are treated as our most valuable asset, and treating our suppliers as business partners. That's the way it's been for 80 years now, and today our people are passing on that culture that Mr. George envisioned for this company 80 years ago.”

George Jenkins — or Mr. George, as he is widely known within Publix — launched his service-oriented supermarket banner in 1930 and soon embarked upon an expansion effort that has yet to abate.

Now, with 1,023 stores in five states and more than 142,000 employees, Publix is the largest employee-owned supermarket in the country and the fourth-largest operator of traditional supermarkets overall, behind Kroger Co., Supervalu and Safeway. Its 2009 sales volume of more than $24.3 billion was up 1.6% over year-ago levels, despite a rare decline in comparable-store sales, although comps are on the rise again in 2010 thanks to a revamped price-value message.

Neil Stern, senior partner with consulting firm McMillan Doolittle, Chicago, credited Publix's strong legacy of embracing a culture of service as a key to the company's success over the long term.

“It begins with the company culture, from George Jenkins on down, in providing outstanding customer service,” he said. “While that sounds almost trite, it is remarkable that over a very long period of time, they have been able to deliver with consistency and without any major hiccups.

“A testament to that is they treat their customers very well and they treat their employees very well,” he said, citing Publix's appearance every year on the Fortune magazine list of 100 Best Companies to Work For.

Publix ranked 86th on the list this year and is one of only 13 companies to have appeared on the list every year since 1998. It is also one of the largest companies on the list.

“It is never easy to make that list, but it is a lot harder to do it when you are trying to maintain that across 1,000 stores than when you are trying to do it across 10 or 100,” Stern pointed out.

The end result is that as Publix takes care of its employees, they take care of the customers. That is reflected in other accolades the chain has received — 2010 marked the 16th consecutive year that Publix has been selected by customers as the highest-ranking supermarket for customer satisfaction, according to the American Customer Satisfaction Index.

‘Running Good Stores’

Stern noted that one of the most impressive characteristics of Publix is its consistency of store-level execution.

“When you walk into a Publix store, more often than not, it looks like it has been set up for a photo shoot,” he said. “The aisles are clear, there are no obstructions, the shelves are stocked, the front end is working, the employees are busy — when it comes to the nuts and bolts of running good stores, they run very good stores.

“And while they are not the flashiest stores, and not the most innovative stores, what they do commit to doing, they do very, very well.”

For Publix, the culture of serving customers runs deep and wide — it spans from the checkout clerks at the front of the stores all the way back to the offices of the top executives at headquarters, and includes a broad definition of “service” that encompasses anything that impacts the customer experience, from packaging to convenience to pricing.

“I just think we were disciplined enough to do what we have done for the last 80 years, and that is provide customers with signature service,” said Jones of the company's improving sales and profit performance in 2010. “I don't mean just interactive services, which is a very important part of what we do, but I also mean soft service — the subtle services of in-stock positions, of convenience for our customers — and we've stuck to our core strategy for doing that.

“And the other side of that is continuing to train and develop our associates, because in our opinion that's your most valuable asset, and that is going to be the one that is going to help drive sales and profits for our company.”

Jones said the performance of the company's workers during the recession and lingering downturn was reminiscent of how Publix workers responded to a series of hurricanes that hit the region in 2004 and 2005.

“We had these massive hurricanes that impacted our stores, and people just rallied around the cause to help continue to grow our company, to serve our customers and to take care of each other,” he said. “In this economic downturn they've done the exact same thing.

“To me it was an affirmation that they are dedicated to the company, as we are to them.”

Publix has long emphasized the value of its employees in its mission of providing customer service. Just a few years after he opened his first store, Jenkins began offering his employees the opportunity to buy a stake in the company — a strategy that evolved into a full-fledged Employee Stock Ownership Plan, or ESOP — in 1959.

“I think it makes a big difference — they are owners of the company, and they feel that ownership that comes along with that,” said Jones. “It's been a nice return for all of our associates, and it is something that they are vested in.”

Growth Opportunities

In the weak economy — particularly acute in Florida, where unemployment is among the highest in the nation — Publix has capitalized by continuing to hire new workers as it pursues its aggressive expansion and remodeling plans.

“Florida has been one of the worst states in terms of unemployment, but the bright spot, if there is one, is that we have been able to bring some of those people on,” said Jones. “We are still a growth company — we are still expanding, and we are still remodeling stores, and there is a lot of great talent out there that we have been able to get our hands on.”

Those growth plans include a new hybrid store that will combine elements of the company's GreenWise organic and natural format with its traditional format. That store, opening in a gutted Albertsons across from an older Publix, is scheduled to open later this month in Naples, Fla.

In addition, Publix is scheduled to debut in the Dothan, Ala., market this week with two new stores built from the ground up, marking another new-market penetration for the retailer that has steadily expanded outward from its core Florida base to markets in Georgia, Tennessee, South Carolina and Alabama.

Those openings are part of a total schedule of 41 new stores on tap for Publix in 2010, including 19 replacement stores and 22 new locations.

The new-store schedule places Publix among the most aggressive supermarket developers in the country, with many of the largest operators projecting little or no growth and very few entering new markets.

Last year, capital expenditures at Publix — which reports financial results to the Securities and Exchange Commission because of the large amount of employee-owned stock it has issued — came in at just under $700 million, or about 2.8% of total sales. This year, the company is projecting that capital expenditures will total about $555 million, including $224.4 million spent in the first two fiscal quarters.

Publix also is reported to be scouting sites in Charlotte — and some observers said they expect the company to be active in the bidding for Mauldin, S.C.-based Bi-Lo. Publix rival Delhaize, parent of the Food Lion, Hannaford Bros. and Sweetbay chains, had last year bid $425 million to acquire Bi-Lo out of bankruptcy.

The Bi-Lo chain, with some 214 stores in the Carolinas, Tennessee and Georgia, could present Publix with a large swath of new operating territory if purchased in part or whole, observers pointed out.

Publix declined to comment on the reports of its potential expansion into Charlotte, which would bring it into North Carolina for the first time.

“While we are always open to new locations, we have plenty of room to grow in our current operating areas,” said Maria Brous, director of media and community relations, who was also interviewed at the Publix store in Lakeland along with Jones.

Publix has a long history of acquisitions, beginning in 1944 with Jenkins' purchase of 19 small stores that the company converted to full-size supermarkets.

In 2008, Publix paid $550 million for 49 Albertsons stores in Florida, bolstering its base in its home state, where it now operates 731 of its locations.

Growth has been so dependable over the course of Publix's 80-year history that the company has never laid off a single employee, Brous noted.

Instead, during the downturn, Publix called upon another hallmark of its culture to help bolster returns for its employee-owners — the knack for keeping costs to a minimum behind the scenes without diminishing the in-store experience.

“While most companies are looking to downsize or roll back, we haven't,” said Brous. “We were very clear from the outset that while we were looking for internal areas for improvement, the customer would never suffer for that.

“In a tight economy, we are still looking to open stores and spend money, so we don't sacrifice the experience for our customers. We want to have clean stores, functional stores, and that can't stop.”

Brous said the company has implemented some corporate expense reductions, although she declined to disclose specifics. In the second quarter, operating and administrative expenses totaled 21.4% of sales, vs. 21.9% in the second quarter of a year ago.

“Mr. George always believed that the money should be spent in ways that are customer-facing,” Brous noted, pointing out that even when the company relocated to its current headquarters several years ago, management was cognizant of the fact that Jenkins might not have approved of the expenditure.

In fact, one element of the company's mission statement is to be “intolerant of waste.”

That philosophy is reflected in the company's aggressive efforts in recycling and sustainability, an area where Brous noted Publix has been “well out in front” of the industry.

“We have taken sustainability to the heart of the company,” she said. “We ask, how do we reduce shrink internally, and really wring out waste?

“The good news for us is that we started that process a decade early, when we started taking a look at shrink, and we were really mindful of the lessons we learned.”

Value in Service

In touring a Publix store with executives, it is clear that the company views helping shoppers save money as a service that is as important as recommending a cut of beef or carrying grocery bags out to a customer's car.

Shelf tags proclaim that customers both “Love to Shop Here” and “Love to Save Here,” while large green-and-black signs encourage customers to “BOGO For It,” a reference to the chain's signature buy-one, get-one-free deals. Coupon display boards allow customers to browse for deals while they are in the store, in case they have not checked the company's website for the downloadable version.

“As a company, we have worked very hard during these economic times with our supplier community to make sure we continue to bring that best value to customers,” said Brous. “We know there are customers who are more price sensitive, and we also know our core customers know we are going to do everything we can to save them money, every time they are in the store.”

The company promotes about 40 BOGO deals a week, and the number has increased over time, she said.

“They are items customers really do use, not obscure items,” Brous pointed out. “They are everyday items, like cereals and juices. We are a family company — we want to provide things that bring families to the table.”

Jones noted that the average price per item sold at Publix has declined slightly in the economic downturn, in part due to commodity deflation but also due to customers' product selections. Coupons, Jones pointed out, “have become almost mainstream.”

“We do everything we can for them, from the Web page to the ad insert — we try to add value to what they find in the store,” he said.

Publix has been aggressive in its private-label promotions as well, with endcaps promoting a BOGO variation called a “Brand Challenge” in which customers are encouraged to buy a branded item, and get the private-label version of the product for free.

“This is something we started doing a while back, to show the value and quality that we have in our private-label products,” said Jones. “It has really worked out well — it helps promote our private brand, and it gets their product out in front of the customer as well. It helps both of us do a better job of getting the right quality spec out there for the customer.”

Publix promotes about one such Brand Challenge per quarter, he said.

“I think, like a lot of retailers, they were taken a little bit by surprise in the beginning [of the recession], but by doing some things with prices and promotions, they have been able to get business back in what has been an incredibly tough market,” said Stern of McMillan Doolittle.

“Along with having clean stores and all that service comes a perception of higher price, and I think they have had to fight that more aggressively than they have historically.”

Publix has also managed to create a value perception for its customers without the use of a loyalty card.

“We believe that all our customers should benefit from our stellar customer service and quality products at competitive pricing,” Brous explained. “This is how we attract and retain our loyal customers.”

In fact, when Publix has entered new markets outside of Florida, it has used the slogan, “No forms, No cards, No hassles.”

Background in the Back End

Jones might have a better grasp of how Publix can increase efficiencies behind the scenes than many in his position. Although most of his 30-year career at the company — he began in 1980 as a checkout clerk — has been spent running the retail stores, he spent 3½ years as senior vice president of product business development, overseeing procurement and logistics, before being named president in 2008.

“When you come up in retail, you don't understand all that's involved in sourcing product from around the world, and the movement of that product, and the supply chain — what it takes to get from the field to the fork,” Jones told SN.

As president, Jones is the highest-ranking member of the executive team who is not part of the founding family. He reports to Ed Crenshaw, chief executive officer, who is a grandson of founder George Jenkins.

Overall, Publix employs more than 140,000 people, including about 12,000 in corporate, warehousing and distribution.

While the number of workers per store varies with store size — Publix supermarkets range from 27,000 square feet to about 64,000 square feet — Brous said an average store employs about 125 workers.

Stores tally about $24 million in sales per year on average, based on total sales of $24 billion across a little more than 1,000 locations.

The company has eight distribution centers — seven in Florida, where the company employs about 100,000 of its workers, and one in Lawrenceville, Ga. It also has five bakery, dairy and fresh-food manufacturing facilities.

Comprehensive Service

Touring the store with Jones, it is easy to see that he embodies the ideals of high customer service — he doesn't pass a customer without asking how they are doing or if they need help finding anything, which may prompt him to escort the customer across the store in search of a particular item.

A tour of the store also reveals the many facets of customer service that Publix incorporates into its mission, from a wide selection of prepared and partially prepared foods to the clutter-free aisles and well-staffed checkout lanes, where baggers are ready to deliver customers' purchases to their vehicles. The range of prepared and partially prepared foods is particularly apparent from the custom sub shop near the entrance to the checkout area, to the meat departments in back, where 41 SKUs of heat-and-eat entrees, all marinated and prepared in-house, are displayed in oven-ready containers.

“This is one of the things we do to make things more convenient for the customer,” Jones declared, pointing out one of the newest offerings, an apple-walnut pork chop. “This section has really resonated well with consumers, and we do this in every one of our stores.”

Within the meat section is a display of all-natural beef — mostly grass-fed — under the chain's GreenWise logo, segregated from the rest of the meats. Separating the GreenWise products from the rest of the meat offerings “makes it a lot easier for the customer to find that product,” Jones explained.

The cornerstones of the service departments like meat and seafood, Jones is quick to point out, are not the products themselves but the veteran staff.

“We need associates who can suggestive sell those departments,” he said. “People are asking about what to make for dinner that night, and it is extremely important to the customer to have someone who can help them. We are very fortunate to have very knowledgeable associates — tenure really makes a big difference.”

Simple Meal Solutions

One of the more successful service departments Publix has launched has been its Apron's Simple Meals stations — a tasting area located in almost all locations.

The Apron's area, which includes a microwave cooking station and a sink, demonstrates meal solutions based on one to three different recipes per week, according to the volume of the store. The stations are staffed a minimum of about 30 hours per week.

Alongside the sampling area are displays that include printed recipe cards and all the items needed for the meal being demonstrated. The meals are designed to be healthful, and easy to prepare within about 30 minutes.

“It helps bring the family back to the table,” Jones said.

Another example of how Publix seeks to simplify meal preparation is in its extensive wine departments, which can run the entire length of an aisle from the front of the store to the back.

Publix uses a shelf-labeling system it calls “Wine Simplified” that offers a guide to wine selection and food pairings for the casual wine drinker. The department includes a large overhead sign to explain the symbols on the shelf labels, and also offers take-home guides to wine selection.

“It works well for the people who are not the high-end wine customers,” Jones explained, noting that “most of the stores have a ‘very good’ wine selection — and we go up from there.”

Similarly, Jones explained how the bakery combines theater, presentation and product selection to make the department engaging for the customer and provide the kinds of solutions customers are seeking.

The open baking area provides some “animation” for customers, Jones explained, while the selection of store-baked product includes a large variety of breads, as well as a range of desserts, including small “decadent” indulgences for individuals, as well as full-scale desserts and custom cakes.

In the center aisles, Jones pointed out the importance of being in-stock on items, as a woman walked by with eight bottles of a type of sauce that stores usually only sell one or two of per day.

“That's how hard this business is from a supply chain perspective,” he noted. “You have consistencies, and you have inconsistencies, and when inconsistencies happen, you have to be prepared to replenish that quickly.”

Publix prides itself on its in-stock positioning, Jones said.

“At the end of the day, you want to increase your sales, so you make sure that product is on the shelf when the customer gets there,” he said. “That's not as easy as it sounds, when you look at all the things that can happen from getting it from the field to the shelf and into the customer's buggy.”

Minimizing aisle clutter is an important aspect of providing good service, Jones pointed out.

“We believe that is part of keeping a clean store and making shopping convenient,” he said. “If you have too much clutter in the aisles it becomes inconvenient for the shopper, when they have to keep walking around displays in the middle of the aisles.”

Getting customers through the checkout efficiently is also an important part of the customer-service equation.

“My father always told me, ‘Never make anyone wait that wants to give you money,’” Jones quipped. “At Publix, we believe that checkout experience is very important — not only is the store clean and well-stocked, with plenty of service throughout the experience, but it is extremely important for the customer to get out and do the things they want to do, because their time is valuable.”

Growth Story

*2005 includes 53 weeks, vs. 52 weeks for all other years.

Last 4 Quarters

SOURCE: Publix financial filings.

About the Award

SN has named Publix Super Markets the winner of its 2010 Retail Excellence Award. The company was selected based on its performance in the current economy and its legacy of strong customer service.

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 Co. in 2004, Hannaford Bros. in 2005, Hy-Vee in 2006, Safeway in 2007, Kroger again in 2008, and Stop & Shop and Giant-Landover in 2009.

The selection of Publix was made by SN editors after consulting with industry analysts and other observers.

SPONSORED BY KRAFT FOODS