License to Thrive

ELLIOT ZWIEBACH

How independent is an independent operator who chooses to license his store name and format from either Save-A-Lot or IGA?

According to some of those licensed operators, there is sufficient flexibility in both to make sure their sense of entrepreneurship doesn't suffer.

“Being part of IGA is like being in business for myself but not by myself,” Bob Buonomano, owner of Bob's Windham IGA, Willimantic, Conn., told SN. “I couldn't do what I do alone, and I wouldn't want to.”

Given his extensive background in meat, Buonomano said he's able to operate an IGA store that's similar to other IGA stores while still focusing on meat, which accounts for 45% of his sales.

For Tim Freeman, president of Freeman Family Enterprises, Gaylord, Mich., which has 12 Save-A-Lot stores in northern Michigan, operating as a licensee strengthens his ability to succeed as an independent. “To be successful in today's economic environment, we need a partner like Save-A-Lot that will use its resources to help us operate a successful, profitable business,” he told SN.

“We realize there is a license agreement, but we operate our stores as if we were an independent retailer, and we look at Save-A-Lot as a partner working with us, not as a ‘big brother’ who's simply making sure we don't make a mistake.

“We have a good understanding of the framework of the license agreement, and we don't feel like any of the licensing regulations get in the way of operating our business the way we want to.”

David Kirby, who has converted four of his five stores in the Pacific Northwest to the Market Fresh IGA banner over the last 18 months, said he's able to operate as independently as ever. “To be independent means being tied to the local community in a more intimate way than a Safeway or Fred Meyer could ever be, and that hasn't changed for us,” he told SN.

Participating in IGA's four promotional events during the year involves “picking up pieces of their promotions while adding our own personality to them,” Kirby said. “And the rest of the time, we have the freedom to do our own thing.”

For John Dyer, operator of Dyer's IGA in Wamego, Kan., the IGA program is flexible enough “that there's no loss of autonomy. After all, it's an independent grocers' alliance, and none of us loses his independence. Each of us can run his store as he sees fit, with the advantage of a better identity through the IGA name.”

Houchens Industries, Bowling Green, Ky., licenses both banners, with 230 Save-A-Lots in 15 states and 45 IGAs in Kentucky and Tennessee, with 43 more IGAs due through store conversions over the next three years.

According to Jimmie Gipson, chairman and chief executive officer, what makes Save-A-Lot worth licensing “is that it's a format outside our comfort zone, with a lot of structure that's easy to roll out. And there's still a lot of autonomy possible within the limits of the Save-A-Lot guidelines under which the stores operate.”

While Save-A-Lot has become more flexible over the years, Gipson said, the IGA license agreement involves fewer restrictions. “As long as you carry the IGA private-label line, participate in their four major promotional events a year and maintain store standards, you have complete autonomy, with more flexibility and more opportunities to be an entrepreneur,” he pointed out.

The retailers told SN they see more advantages than disadvantages to the license agreements.

“Save-A-Lot's motto is ‘great food, great prices and great people,’ and they bring all three to the table,” said Larry Noe, president of Saver Group, a 37-store Save-A-Lot operator based in Campbellsville, Ky.

“Save-A-Lot helps with store design; it provides great food at a great price; and its buying power and efficient delivery system give licensees an advantage in delivering savings to customers of approximately 30% on their grocery expenses,” he said.

For Freeman, the biggest advantage of a Save-A-Lot licensee is “being able to sell high-quality, exclusive brands at a price that gives us a competitive edge with larger retailers. Save-A-Lot provides us with national recognition, a proven limited-assortment model, along with other resources that we would never have as a small independent store.”

Buonomano said he thinks of IGA as a kind of “mastermind” group “that shares its knowledge with the world, and the knowledge of the group is greater than that of any one individual. So it's a big advantage to have the ability to talk with other IGA retailers and tweak their ideas to fit my operation, which is easier than trying to figure everything out for myself, which would be like reinventing the wheel.”

Kirby said he's looking forward to availing himself of IGA's training programs. “We've just gotten past the grand openings on three of our four IGA stores, and now we will start focusing on some of the training aids IGA has for everyone from box boys to store managers,” he said.

“Plus, through IGA, we have the ability to go to market collectively with other retailers — to go through IGA to deal with companies on a national level and through Unified [Grocers, its Los Angeles-based supplier] on a regional level. And as Unified adds more IGA retailers on the West Coast, there may be some synergies we can get in terms of dealing with vendors for special prices on a holiday ad, for example, and offer something different than other West Coast retailers have.”

According to Dyer, the biggest advantage to being an IGA operator is “the well-known brand identity it gives you, plus the strong marketing events IGA brings to the table. And the online training programs available to us through the Coca-Cola Institute have helped enhance the job our associates do.”

There's also an online feedback program where customers can share their opinions at the national level about individual stores with IGA corporate executives, who share the information with the retailer within a day, Dyer noted. “Most of the comments we've seen about us have been positive, but when there's a problem, this program enables me to contact the customer directly, and that's one more way of tying ourselves to the community.”

Gipson said he believes the recognition that accompanies the IGA name is an advantage in itself.

“The IGA name has been known for years, and when people see the name, they know what the stores stand for. And with the private-label program carrying such a strong quality image, operating a store with the IGA name on the front reinforces the positive qualities of that brand.”

Gipson said one advantage Houchens has gained from licensing Save-A-Lots is learning new ways to control labor costs. “It takes a really dedicated labor effort to maintain the low prices and still make a profit. By operating the Save-A-Lots, we've learned ways to control labor better at our conventional stores and to operate those units more efficiently — though it takes awhile to put those practices into effect and another couple of years to realize the benefits.”

Asked if there was a downside to being a Save-A-Lot licensee, Gipson said there were some issues early on that frustrated Houchens, though Save-A-Lot has become easier to work with over the years, he noted.

“But years ago there was only one way to do things, and that was Save-A-Lot's way,” he said, citing as an example a policy which required customers to do their own bagging on a table that was provided at the end of the check-stand.

In the South in particular at that time, Gipson said Houchens thought it was better for clerks to scan the items and put them right into a bag. Over time, the company began installing new equipment that included a carousel allowing checkers to scan an item and put it into a bag in a single motion, and Save-A-Lot now allows operators to do that in states south of the Mason-Dixon Line.

While Save-A-Lot was in a growth mode and opening more distribution centers, Houchens encountered some issues where warehouse operations did not always mesh smoothly with store needs, Gipson said, and though most of those problems have been resolved, “there are still one or two facilities that could operate a little better,” he noted.

Noe said he agreed that Save-A-Lot has become more flexible. “They have always been willing to listen, but in the last few years they've become more customer-oriented, and communications between us and them have gotten better,” he told SN.

“There were times in the past when they wanted us to implement a program that we didn't like and they turned out to be right, and there were times they allowed us to move ahead on something and it worked out for us. For example, while most stores use a single wide-island coffin case for frozen foods, they allowed us to install two, and that has been successful for us.”

Retailers said they appreciate the inspections IGA and Save-A-Lot conduct on a regular basis.

“It's like getting a report card,” Buonomano said, “because IGA looks at the store through a customer's eyes, which provides a good way of knowing what I'm doing right.”

According to Kirby, IGA's four inspections a year “will keep us on our toes, which is a good thing.”

Freeman said his stores have had no problems keeping pace with Save-A-Lot's standards “because we operate with pretty high standards of our own. There have been some decor upgrades over the years, and Save-A-Lot is always looking at making adjustments in the format, but nothing is jammed down your throat because you are a licensee.

“They work with us as a partner to make sure we have a good understanding of why they're making whatever changes they make to the program.”

Noe also said the inspections are a positive aspect of the licensing agreement because it helps keep stores in good physical condition. “This is an area we like to think puts us on the cutting edge,” he said.

Of the group's original 29 stores — prior to the acquisition of eight stores in September — Noe's Saver Group had upgraded or relocated about a third of its stores since 2003. Reinvesting in the business with improved facilities and energy-efficient equipment “has given us very good returns on our investment, and relocating stores into modern facilities has been a great investment for us,” Noe told SN.

Save-A-Lot Ramps Up Growth

Save-A-Lot, founded in 1977 and based in St. Louis, has operated as a division of Minneapolis-based Supervalu since 1992.

It encompasses 1,177 extreme-value stores — ranging in size from 14,000 to 16,000 square feet — operating in 39 states; of the total, 859, or three-quarters, are owned and operated by licensed retailers, with the balance being corporate-owned.

Taken in total, the stores account for estimated volume of $5.9 billion, with corporate stores accounting for about $1.6 billion and licensed stores for approximately $4.3 billion.

Save-A-Lot is dramatically ramping up its growth plans, Rick Meyer , vice president, market development, told SN — from opening 50 stores a year over the last three years to opening 100 new stores a year beginning next year.

Save-A-Lot operates 15 distribution centers in 15 states — facilities averaging 250,000 to 300,000 square feet. The company expects to open its 16th facility in early 2011 at an undisclosed location in North Carolina.

Save-A-Lot has touted the “It's our time” theme for the past two years, executives told SN.

“The value equation we offer is what people today are looking for,” said Tom Lenkevich, senior vice president, retail operations. “It's all about getting back to basics.”

Licensing the banner provides a way for Save-A-Lot to approve of the operators that run the stores, Meyer said. “Essentially, when retailers become Save-A-Lot licensees, they are buying into a program, and our revenue comes from selling products to the independent grocers who are part of our program.”

Save-A-Lot is a model designed to help retailers succeed in a very competitive business environment, Lenkevich said. “By following the model, they get the strength of a large chain — in terms of procurement, size and scope — while retaining opportunities as entrepreneurs because, though they need to carry certain products, they still have the flexibility to serve their customers.

“So they have great leverage in buying as part of a chain environment, along with the ability to customize their store as needed. We have a merchandising plan, but within that plan are nuances we can offer so a licensee can adapt to the local environment.”

Save-A-Lot officials said the company, which already has the flexibility to allow individual retailers to meet the needs of local consumers, will become even more flexible going forward.

In comments last week, Craig Herkert, chairman and chief executive officer of Supervalu, said the parent company expects to lower the licensees' capital investment by 15%-30% by redesigning Save-A-Lot store layouts; reducing the leasehold and fixturing requirements; and utilizing more used equipment.

He also said Save-A-Lot will modify the operating model by putting fewer restrictions on pricing, product assortment and service departments.

Save-A-Lot prefers licensing agreements over franchising because of the flexibility it gives the retailer, a spokeswoman told SN. “We believe a license gives the operator more freedom to serve customers based on local needs and a greater feeling of running his own business,” she explained, “whereas a franchise arrangement would involve a stricter, more structured program.”

Unlike IGA, which allows licensees to have their own names on the stores, Save-A-Lot requires retailers to use its banner as is, with no ability to personalize it, Meyer said.

Save-A-Lot also likes keeping some stores corporate-owned, Meyer explained, “so we can try different ideas or different product lines in a kind of laboratory and take risks for the licensed operators.”

Save-A-Lot carries what Meyer called “an edited assortment of products priced as good values.”

Nearly all of the 1,200 items carried are private brands. Save-A-Lot has reduced more than 100 different private labels down to about 50, “and that's a number with which we're comfortable,” Lenkevich said. The stores also carry some national brands on an in-and-out basis. One exception is Coca-Cola or Pepsi-Cola — one or the other, but never both, is carried at all stores, Lenkevich pointed out.

“Our mission is to offer value to the customer, and if we can add value by carrying a national brand to support that value equation, we will carry it,” he explained. “If a CPG company comes out with a new item that is not easily duplicated, we may carry that; or if there's a local brand that's popular in a particular market, we may offer that as well,” he said.

IGA Seeks Community Connection

Chicago-based IGA licenses 1,220 stores in 44 states, with sales of approximately $7.5 billion.

Most stores range from 20,000 to 25,000 square feet, though some run as high as 50,000 square feet and a handful up to 80,000, Walz said. The stores are serviced by 13 wholesalers in the U.S.

Based on what shoppers said in a study commissioned by IGA, “Our customers believe they are getting the service they want from people they like,” Jim Walz, vice president, marketing, branding and business development, told SN.

Business has improved during the recession, he noted, “because IGA retailers are involved with what's going on in the community and they've done what they've needed to do to stay relevant and service-oriented, and that has played out favorably for our stores.”

In addition, since IGA separated its international and U.S. businesses several years ago, the U.S. business has flourished, with more focus domestically, Walz noted, “with more executives available to respond to feedback from the stores more quickly than we did in the past.”

IGA prefers licensing to franchising, Walz said, “because we think it's an approach that is very well aligned with serving independents.

“Rather than having a set of specific requirements and strict oversight of day-to-day operations, as franchisees do, IGA offers independents a recognized brand they can promote while retaining the equity they have built into their business.”

The only requirements to be an IGA licensee, Walz said, are the need to maintain specific standards in merchandising, appearance, cleanliness and maintenance; to have the IGA logo on the store exterior; and to carry the IGA line of private-label goods.

Beyond that, a licensee can operate as independently as he likes, he pointed out. “We offer four marketing events each year, and a retailer can use what's in the ‘box’ for each marketing event or not.

“We encourage him to use that material as a starting place and to customize each program for his store or community. And then we showcase what some stores do individually as a way of sharing ideas with other retailers.”

Unlike Save-A-Lot, which requires retailers to remove their personal identities from the stores, IGA recommends its licensees keep their names or some other local identity on the business, Walz said.

“Our programs are designed to amplify the retailer's role in the community and help the independent improve his business and differentiate his offerings from others, and to make him as competitive as possible. So we prefer that the name on the store anchor it to the community — by taking advantage of the equity an established retailer has invested in his business over the years or over several generations and to supplement everything that's gone before.”

Walz declined to be specific about the cost of obtaining an IGA license, “but it is a very modest monthly fee, like dues,” he said.

The fee is based on a store's format, not on its size or volume, and it changes with the Consumer Price Index, he pointed out.

ONLINE EXCLUSIVE!

Supermarket News profiles individual Save-A-Lot and IGA operators. See details at supermarketnews.com