Here We Grow Again

JON SPRINGER

To borrow an analogy from another local institution, Marsh Supermarkets is going from the pit road to the fast lane.

Joe Kelley, Marsh's new chief executive officer, said he intends to drive hard in pursuit of sales after taking the wheel from predecessor Frank Lazaran. Kelley's vision is to reestablish Marsh's growth through renovated stores, new locations and acquisitions, and by recasting Marsh's value proposition to include a pricing element in conjunction with its equity for service and community ties.

“Our opportunity today is to get back focused on the top line,” Kelley said in an exclusive interview with SN earlier this month. “We have to get focused on sales. We have to get focused on driving customer count. We have to get focused on driving customer loyalty, get focused on driving market share, and get focused on reinvesting in stores.”

Established in Indianapolis 80 years ago, Marsh operates 97 stores in Indiana and Ohio, with 70 full-service stores under the Marsh or O'Malia's banner and 27 stores in small towns doing business as Main Street Markets. Annual sales are about $1.2 billion. Kelley, who joined Marsh this spring from Price Chopper Supermarkets, said he inherited a chain with a good reputation but dwindling sales, and already has taken aggressive actions to move the needle, including hotter ad prices and a new program of extended discounts that launched this month.

Kelley in the meantime intends to invest more behind renovations, new stores and acquisitions. Behind the scenes, Kelley has been busy importing new talent so as to rebuild the marketing organization at Marsh and moved to outsource warehousing and distribution functions so he could bring the full attention of the organization to the top-line growth plans.

These efforts have already helped to push identical-store sales at Marsh into positive territory during its most recent fiscal quarter, Kelley said. It marked the first such uptick since 2009, and Marsh's first quarter in which it exceeded its budgeted sales target since 2008.

“I thought this was a great opportunity take something that a lot of work had been done on in the last five years, take that flower, water it, and watch it bloom a little,” Kelley said. “We are in a much better position than we were five years ago from a profitability and sales perspective. Frank came in and did a lot of heavy lifting. They looked at expenses, looked at waste and had to do a lot of trimming to get the company financially stable.

“Fast-forward to today,” he added, “our opportunity is the top line.”

New Perspective

Kelley, who hails from Boston, is bringing a bit of Northeast perspective to the Midwest. He traces his roots in the supermarket industry to his father, a store manager with Purity Supreme for 45 years. Kelley joined that company in 1985 as a deli clerk, and from there became a department manager and later, a store manager.

Soft colors and new lighting have brightened up the Carmel, Ind., location.

After a few years running A&P's stores on Martha's Vineyard, he was hired by Golub Corp. to help the retailer expand its Price Chopper banner to Central and Western Massachusetts. That led to an offer at Price Chopper's Schenectady, N.Y., headquarters where Kelley said he learned the “inside” business, including category management, and was promoted to director of operations for Price Chopper's Connecticut and Massachusetts stores.

Kelley left Price Chopper for a time to operate the Adams Super Food Stores chain for wholesaler Bozzuto's, then returned to Price Chopper in 2005 where he served as vice president of perishables merchandising, vice president of merchandising, and most recently, as executive vice president.

Price Chopper only two years earlier produced another industry CEO, David Hepfinger of Weis Markets. “Opportunities come up because Price Chopper is a terrific company,” Kelley said. “People who work there can have a great career.”

He likened Marsh to his former employers in many respects. Both, he noted, were family owned (Marsh until its founders sold in 2006), and had loyal customers, strong community ties and good real estate locations.

What Marsh lacked was sales momentum. Once a market leader, Marsh in recent years slid to third place behind Kroger Co. and Wal-Mart Stores in the Indianapolis region, according to Metro Market Studies. Kelley said loyalty data shows many Marsh shoppers are visiting stores less often and spending less at Marsh than they once did, although they haven't abandoned Marsh altogether. Combined with a strong real estate portfolio and an experienced team of associates, its given Kelley a foundation on which to build.

“What I've found is that the locations are really good so we have something to work with,” he explained. “Our associate base is one of the strongest I've ever seen in the industry, they are committed and they want to win. And customer loyalty, even with all the changes we've been though, is still there. Marsh's customers are just looking for a reason to come back, and we've got to give it to them.”

Research showed Kelley that Marsh's reputation for pricing was one area badly in need of change. So the chain shortly after his arrival took a decidedly more aggressive promotional stance including a triple-coupon event over Memorial Day weekend that was key to improving sales volume in the quarter. To this Marsh this month debuted what it is calling “Good 'Til” pricing, or extended everyday discounts on thousands of items for a three-month period.

This tactic, if executed properly, will help Marsh shoppers develop a more favorable price impression of Marsh, Kelley said, and combine with other attributes for service and fresh offerings as part of a newly engineered value proposition at Marsh.

“There is no way that Marsh can focus just on price,” Kelley explained. “We're not going to say we have the lowest prices in the marketplace, because we don't. What we're interested in is in developing a value proposition. And price is one element of that.

“If you look at the last four months, you could see we are much more promotional. I'm talking about the ad cover, the ad itself, selling events, double and triple coupons. At the same time, service plays a big role. We still have full-time butchers, we still have floral designers, we still have pharmacists and we still have chefs, and artisan cheese clerks and wine stewards. So service is a huge piece.

“We need to help our customers find a way to connect the dots,” he added. “All of these elements make up the value equation.”

The new lower prices in the first round of Good 'Til will last though Jan. 1. Kelley said Marsh would run the program four times a year, with discounts extending for about three months each. Between 2,500 and 4,500 prices will be lowered in each round, focusing on known value items and seasonal favorites. Marsh and its product suppliers are combining on the price investment with the expectation that volume and margin dollars will improve, Kelley said.

“There are fewer trips to the store these days so we need to find a way to put one more item into the customer's carriage,” Kelley said. “[Suppliers] will sell more boxes. So they have some skin in the game and we have some skin in the game. We're banking on mix — we're going to sell more items that are not just on sale for the week.”

Kelley acknowledged such extended discount programs are common in the Northeast but are new to Indiana. As a result, Marsh is being careful to explain the program in advertisements, and make it highly visible in stores.

“I think the Good 'Til portion of our business could grow to 15% of our total volume if we do it right,” Kelley said. “And 15% of our total volume, on the items that the customer buys most, will resonate with our customer.”

More Store Investment

The new prices are arriving in a store base that will see a significant boost in capital investment over the next three years, Kelley said. Renovations will be focused on enhancing the offerings that can distinguish Marsh from its competitors and leverage the advantage of an experienced and knowledgeable workforce.

At a Marsh the Marketplace store in Carmel, Ind., an upscale suburb of Indianapolis, Kelley showed off a recently completed $2.5 million makeover that he said brightens the 68,000-square-foot store and showcases fresh offerings where competitors have pulled back.

“Customers tell us we have nice stores — and we've probably gotten too much credit for it,” Kelley confessed. “Customers tell us we have the most convenient stores, and they're staffed with the friendliest people who service the heck out of them. In the meantime our stores were tired, dark, and we hadn't invested in them in quite some time at the level that we should from a customer's perspective.”

In Carmel, new service departments are showcased beneath striped awnings in light green and white. A service floral department, and a fresh bakery featuring an array of decadent desserts, specialty cakes and fresh-baked breads are located on either side of the entrance and lead to a wide but low-slung produce department peppered with self-serve salad and Asian food bars. Beyond that is a specialty cheese department, and a wine gallery with a full-time steward. A prepared food counter offering everything from sushi to pizza to meals and sides — Kelley compared the quality to that offered at Wegmans Food Markets — along with a service meat department completes the revamped fresh offering.

Overlooking it all is a large mural depicting a scene from downtown Carmel, painted by a prominent local artist. The painting not only accompanies the brighter look, but also serves as a not-so-subtle reminder of Marsh's community roots and a local perspective.

“We keep seeing where there are a lot of people pulling back in these fresh departments,” Kelley said. “We think that means there's an opportunity to invest in them.”

Five weeks since unveiling the renovations in Carmel, the store was showing sales increases of 28% to 30%, Kelley said. Another 10 or 11 Marsh stores Kelley referred to as “diamonds in the rough” will be getting similar makeovers, including a $3.8 million renovation underway in Zionsville, Ind., that will replicate the Carmel elements “with a few new wrinkles.”

The projects represent the beginnings of $60 million in capital expenditures scheduled for Marsh in the next three years — an increase of more than 50% compared to its budget in recent years.

Kelley said the spending would cover three to five such major remodels per year along with 10 minor remodels. He also said he would search for new sites — as many as five to 10 over the next three years — and acquisitions where possible.

“Our appetite for new stores in the area is back. We have two or three sites that we are considering as we sit here that I'd like to announce shortly,” Kelley said. “Acquisitions are another real opportunity, in Indiana, Ohio or possibly Kentucky. Whether its one store or five stores, we're looking for stores that could fit into the Marsh mold. And if we can do it, we will.”

Kelley said that new stores would be supported in some areas with population growth but noted the supermarket channel in Indiana is strong, with consumers less inclined to shop alternative formats than in other parts of the country.

“Across Indiana there are probably 300 independent stores and only about 35 or 40 that would be interested in selling and we'd be interested in purchasing,” Kelley added. “But I'm not looking at 35 or 40 stores, we're looking for two, three or four. We've been pounding the pavement to come up with some options, and I think we'll [soon] have some conversations with perspective sellers.”

Growth Mode

Kelley said that between new stores and acquisitions, Marsh could realize an additional 1% to 2% annual sales growth. Other initiatives are aiming for at least a 3% increase in the top line.

To get there, pricing initiatives such as those introduced and other programs with the shopper in mind still need to happen, Kelley said. In particular, Kelley has been focused on rebuilding Marsh's marketing department, noting that most of the hires he's made since getting on board have been devoted to that area.

The chain this summer hired a dietitian, Mary Snell, to serve as the chain's director of nutrition and wellness. Snell will help Marsh grow its consumer reputation for wellness and “bird-dogs” ads to make sure Marsh is offering healthy solutions, Kelley said. “It can't always be about chips and soda,” he said.

Earlier this month, Marsh adopted the Guiding Stars nutrition program helping shoppers identify better-for-you foods and a shelf-tagging program known as Easy to Eat Well that helps shoppers identify foods with specific dietary or lifestyle preferences. Marsh also supports Project 18, a nutritional program for kids developed by Indiana's Peyton Manning Children's Hospital. Foods meeting the standards for this program have “Project 18 Approved” tags.

John Kelly, a former marketing executive at Save Mart and Clemens Markets, joined Marsh as its new senior vice president of marketing this spring and has since forged deals for a new integrated web shopping experience with MyWebGrocer; engaged You Technology to revamp its loyalty engine; shopper analytics firm Spire for direct-mail programs; and launched Catalina Marketing coupons at checkouts this summer.

“Our greatest opportunity in this company is to develop a robust marketing department,” Kelley said. “We did not have that previously and we're in the midst of it now.”

He said the company is considering a relaunch of its loyalty card, saying it had not realized the benefits of the program.

“Our data is not very accessible,” Kelley admitted. “And if you don't put resources behind it, you can't make anything of it, you won't know if you're gaining new customers and which ones are spending less with you. You could wake up one morning and realize we'd lost all our customers.”

He said he was confident with better marketing programs and a stronger price impression in place, Marsh would begin growing again. That would please Sun Capital, which more than five years after purchasing the chain from the Marsh family, is still looking to grow it. “The appetite for Sun and for me is to grow this thing to a much a higher sales base, much higher EBITDA,” Kelley said. “There's been some great work done on that in the past but there's still great opportunity ahead of us.”