Retail Excellence Award: A Family of Families

MARK HAMSTRA

In business, entrepreneurship often recedes as companies grow too big for the hands-on management that made them viable in the first place.

Not so with ShopRite and the Wakefern Food Corp., whose powerful business model leverages both the spirit of the independent operator and the collective power of a cooperatively owned wholesaler.

The “entrepreneurial magic” of ShopRite, as one operator described it, has driven the organization to unprecedented levels of growth and success. It has seen the chain through waves of new competition, through the current prolonged economic downturn, and it has prepared it to capitalize on the opportunities in its Northeast markets. Harnessed to the power of the Wakefern co-op, ShopRite also remains focused on positioning itself for the future with a sharp focus on digital communications, health and wellness, and other initiatives.

About the award, which is sponsored by KRAFT FOODS

Those qualities have earned Wakefern/ShopRite the 2011 SN Retail Excellence Award.

“Wakefern truly is a family of families,” said Joseph Colalillo, chairman and chief executive officer of Wakefern, referring to the 47 independent owners that form the cooperative.

“When you own your own business, you work for yourself, and it’s about survival,” he said. “When new competition comes into the market, you fight for survival. That mentality is what makes us compete in the economy we have today; that’s what keeps us focused no matter what the economy is.”

Wakefern leadership: President Dean Janeway, Chairman and CEO Joseph Colalillo, and EVP and president-designate Joe Sheridan

The company’s 285 stores — including 30 op erated by ShopRite Supermarkets, a wholly owned subsidiary of Wakefern — generated sales of $11.8 billion in 2010. With 15 new stores added in 2011, that number was expected to continue growing (Wakefern’s 2011 fiscal year ended last week, and financial figures were not yet available).

“It’s been an interesting year, because there are so many dynamics that are in play,” said Joe Sheridan, the longtime executive vice president of Wakefern who is slated to succeed Dean Janeway as president in 2012. “We have a recession that is coming back and not relenting, the change in economic indicators that is affecting consumer confidence, and the economic stress on some traditional competitors, including A&P and others.”

Add to that the expansion of other nontraditional competitors, such as Target and Wal-Mart, he pointed out.

“Given all of those factors, we are having a good year,” Sheridan said. “We are ahead of budget, and ahead of our goal.”

One of the characteristics that has helped Wakefern thrive, however, is that it does not rest on its laurels, Sheridan explained.

“We don’t get too caught up in ourselves,” he said. “If we have a good year, we don’t really talk about it. We are constantly going back to see what the next level of entrepreneurial threat is — entrepreneurs have a healthy sense of paranoia. And culturally, that gives us an edge.”

Service departments and high-quality perishables complement the strong price positioning ShopRite seeks to achieve in the marketplace. Bakery offerings include custom cakes.

That edge helps Wakefern/ShopRite in myriad ways, and it is one of the reasons the company is growing and getting stronger as its longtime rival, A&P, struggles through bankruptcy.

The bankruptcy of Montvale, N.J.-based A&P — which for decades had been ShopRite’s biggest rival in New Jersey and a significant competitor throughout its operating region — allowed ShopRite to accelerate its growth even more. A&P has sold or shuttered more than 60 locations in 2011, including some that were picked up by ShopRite operators.

“It’s obvious what A&P’s going through, and we don’t wish that on anyone, because it hurts people,” Colalillo said. “And obviously, as they are closing stores in our markets, the customers are going to come to us, because they see the value. “

Some of those people have been loyal A&P shoppers or loyal Pathmark shoppers, and some of those people might have never set foot in a ShopRite.

“But I think that because our members have invested in their stores, and they have invested in their associates, and in quality, that new customer sees the value we offer and the experience we offer when they see our ad and they step into our stores.

“That’s why as A&P closes stores in our marketplace, we are going to benefit.”

In addition to picking up former A&P customers, ShopRite has also been able to augment its nascent expansion south into Maryland through the acquisition of two former SuperFresh stores there that had been operated by A&P.

Springfield, N.J.-based Village Super Markets, the second largest ShopRite member, acquired stores in Timonium and White Oak. Those stores reopened under the ShopRite banner in July.

“We had been looking at Maryland for four or five years now, as a natural extension of our operations in New Jersey,” said Bill Sumas, vice chairman of Village, who said the company could never find locations that were quite the right fit — they were either too small, or had inadequate parking, or did not have the right traffic patterns.

Then after A&P filed bankruptcy last December, Village took another look at what was available.

“We handicapped eight stores that we thought would fit,” Sumas explained. “It came down to three that we liked, and we were able to buy two.”

ShopRite had entered Maryland in 2009 when Forest Hill, Md.-based Klein’s Family Markets joined the cooperative and switched to the ShopRite banner at its seven stores in the Baltimore area. Since then, Collins Family Markets, a Wakefern member based in Philadelphia, has also opened in the state.

Similarly, ShopRite expanded its presence in Connecticut last year through the purchase of 11 Shaw’s stores from Minneapolis-based Supervalu.

Those expansion efforts are part of a broader effort to expand in contiguous markets through acquisition and new-store development.

ShopRite Supermarkets, Wakefern’s wholly owned retail operating division, meanwhile, is expanding as well. The division, which has 30 locations, was scheduled to open its first store in the Albany, N.Y., market — the home base of Price Chopper Supermarkets — on Oct. 2.

Wakefern already operated about 30 miles outside the Albany market in Kingston, N.Y. The ShopRite banner had been in the market several years ago under the auspices of former Wakefern member Big V.

“We don’t think they were there with the right facilities,” Colalillo said, noting that plans call for additional locations in the area.

Wakefern’s strategy is to look for growth opportunities in both existing and adjacent markets.

“It’s smart growth — we are being opportunistic,” Colalillo said. “When store opportunities open up, we take a look. In Connecticut, when Shaw’s wanted to get out, we only bought the locations we wanted.”

Wakefern also is careful to choose the right partners to expand with. When it acquired the Shaw’s stores in Connecticut, many of the members who took over the stores are longtime Wakefern veterans who had worked either for the company or for individual members.

“First and foremost we want good operators,” Colalillo explained. “We’re selective. We’re not going to bring in someone who can’t handle the volume. That circular creates an expectation, and we need to deliver on that.”

Sheridan indicated the company stands ready to capitalize should more of its competitors’ locations become available.

“There may be opportunities that arise over the next 12 to 18 months because of the economic realities of some of our competitors,” he said, without naming names. “Everyone is studying the situation, so we have to make sure we are an organization that has the ability to grow quickly in a short period of time. When you are family-owned businesses, you never overlook the current for the sake of the future, but you learn how to manage for the future while continuing to make the current stronger.”

Digital Growth

As Sheridan explained, expansion at Wakefern entails much more than opening new units.

In fact, one of the major initiatives under way at Wakefern this year involves an expansion of the digital offering. Although the company has not yet revealed details of the effort, Sheridan explained the company’s philosophy on the importance of digital communication with customers.

“In a ‘do nothing’ scenario, five years from now I believe there will be categories that will just disappear from the store,” Sheridan said. “Look at the post office as an example, or the book industry, or music, or the way digital photography took over.

“There is a block of consumers 25 and younger that in five years are going to be the power buyers. They are going to have families and have babies. How they procure and make their choices is yet to be defined, but we are going to make sure that our online capability in that environment, in terms of strategy, budget and resources, is one that allows us to compete in a virtual world. That is going to be a very big part of us.

“We want to make sure that as society changes and as technologies change, we have a place in that digital world, so that five years from now, when we are building stores, those stores represent the new brick and mortar as complemented by the new digital.”

Dean Janeway

He described the growth in digital as a “time wave that every retailer in the United States is surfing.”

“We are taking it very seriously,” Sheridan said. “We are going to understand where the consumers are going, and what the trends are. We are going to understand what categories are vulnerable, and what categories are potentially susceptible to growth.”

Wakefern is examining the growth in digital from a variety of angles, he explained.

That encompasses a fresh look at logistics, at technology capabilities, and at nontraditional alignments within the organization, he said.

“I think that’s the way it is going to have to be in the new world order in the digital space,” he explained. “We have our place in the community in the brick-and-mortar world, and we are going to need a place in the community that is going to be defined by store and digital.”

One component of the online service the company uses today, ShopRite From Home, was launched in 2002 and is one of the company’s fastest-growing areas, Sheridan said. The ecommerce service is available in 84 ShopRites across all six states where ShopRite operates. Customers can place orders from their computer or mobile device and have their groceries delivered, or customers can pick up their orders themselves at the participating stores.

Online customers have the largest average order sizes, Sheridan noted, and these customers also have other favorable attributes.

“The digital consumer is one of our most loyal consumer — and that consumer gives us a lot of feedback in real time on how to make it better,” he explained.

Wakefern currently has “some of its best people” monitoring the digital feedback the company receives in real time, Sheridan said.

Colalillo noted that at his three-store ShopRite business, online ordering now makes up about 4% to 5% of store volume.

“We’re not satisfied right now with the way consumer can shop online, not satisfied that we are meeting the need of today’s consumer, or the consumer that will be online five years from now. We are going to work hard on that this year.

“There are consumers out there in our marketplace who don’t even shop our stores but are going online for health and beauty aids, they are going online for diapers — they are going online for all these items that we sell, so we can’t just give up that customer. We need to find a way to capture that business.”

ShopRite has been active in this arena with such promotions as its “Pot Luck” blog that it has used to promote its private-label lines, and with a host of other interactive features through Facebook and the use of mobile-technology applications.

Its ShopRite.com website tallies more than half a million unique visitors a month, according to Compete.com.

Communication Initiative

In addition to expanding its online and ecommerce capabilities, Wakefern also is focusing on its communication capabilities overall, both internal and external.

“As you grow, you become more complex,” Sheridan explained. “So how do you maintain the clarity of your message in an ever more complex world with an ever larger organization?”

He said Wakefern is “making a big investment” in improving communications within the organization and with the consumer.

He declined to go into detail about the strategy, but did offer some clues as to the direction it was headed.

“We are looking at communicating with any device, anywhere,” he said.

He also said video conferencing offers promise for communication between the wholesaler and the independent ShopRite operators.

“If our produce division is able to talk to 285 produce managers about what items are out there, or what’s seasonal this week, that’s a real-time competitive advantage,” he said. “If we are able to have a discussion either by topic or geography — it could be on shrink or merchandising, or sharing best practices, these are the ways you use tech to keep clarity in your messaging that allows our culture within Wakefern to stay real and human.

“An organization that can communicate with simplicity and maintain its values,” he concluded, “will have a real-time competitive advantage.”

Health and Wellness

As innovative as ShopRite seeks to be in the digital and communications arenas, it also is seeking to be proactive in health and wellness.

“I think health and wellness is a force of nature,” Sheridan explained.

An opportunity exists in this space for retailers, he explained, because someone needs to interpret the plethora of information that consumers are receiving on this topic and help them make the right choices for themselves and their families.

“Health and wellness needs to be a cultural standard, both in the training of associates and in the way you communicate with customers,” Sheridan said.

“For us, that’s part of our cultural capability. Health and wellness, and sustainability — whether you have a ‘biggest loser’ contest in your store, or whether you have a culinary class, it is a mosaic of many things done with clarity and simplicity.

“This is very important to our customers, though they don’t necessarily know how to say it yet. If you go on heart medicine and need to change your diet, who do you talk to?

“If we can provide that, we think it’s not just a tiebreaker — we think it’s an investment in the future of our culture and in the changing relationship with the consumer. It will come down to, ‘Who do you trust?’”

Part of the company’s leadership in health and wellness involves its Live Right franchise, which encompasses store brands and communications materials, and is increasingly twinned with the company’s pharmacy operations.

“Live Right with ShopRite is really taking off,” said Colalillo.

In addition, the in-store dietitian program, which was started by some individual members, has grown in the last five years to include 30 dietitians serving 34 ShopRite locations.

“I think eventually you will see that in all of the stores,” Colalillo said.

The dietitian and Live Right programs dovetail with the chain’s pharmacy offering as well, he pointed out, especially as they offer health screenings and as dietitians give tours for people with dietary restrictions.

Service and Price

ShopRite’s emphasis on providing services such as nutrition counseling are an extension of an operating philosophy that has evolved over time to go beyond sharp pricing and innovative promotions, like its famous can-can sales.

Janeway, reflecting on his 35 years at the company, said he has seen a marked change in that regard.

“During my tenure, the industry changed, and we changed with it,” he told SN. “We became a much more customer-focused organization at Wakefern, and the customer is the ShopRite store.

“But then the ShopRites themselves had to become more customer-focused, and ShopRite has transitioned from a traditional supermarket that was basically price-based — our strength was off of our low-price image — to one that is still price-based but offers all the other amenities that you need to offer today, whether that’s friendly associates, or well-trained associates, or clean stores, or fresh produce. That’s what we’ve become.”

As an example, all stores have service seafood departments where customers can have their orders cooked for them in the stores. Its deli, bakery and meat departments also offer high levels of service, such as custom cutting of all meat orders in the stores.

ShopRite retains its competitive pricing in the market, however, leveraging its Price Plus Club rewards card to offer “Price Break” specials that supplement the Always for Less messaging throughout its stores.

Its private-label offerings, which encompass the ShopRite brand in addition to specialty offerings under the Authentico label and in kosher, organic and health and wellness under the Live Right label, also help the company’s low-price image.

ShopRite stores combine quality, variety and a strong price message.

Private label accounted for 14.1% of sales last year at Village Super Markets, the only ShopRite operator that is publicly owned and reports its financial results.

The 26-store Wakefern member generated 38.5% of its overall sales in dry grocery products, 17.1% in dairy and frozen, 11.7% in produce and 10% in meat.

ShopRite’s promotions and sharp pricing, achieved through its sheer scale and strong relationships with vendors, help ShopRite generate some of the highest volumes in the traditional supermarket industry.

At Village, for example, sales per store were $48.5 million in fiscal 2010, and sales per square foot of selling space were just over $1,000.

Supporting these volumes is the backbone of the company, the Wakefern distribution network, which encompasses warehouses and distribution facilities in Elizabeth, Keasbey, Dayton, Edison and Jamesburg, N.J., and Gouldsboro and Breinigsville, Pa.

Wakefern also recently broke ground on a new warehouse in Newark, N.J., that will specialize in produce, and it is building a new Elizabeth warehouse for grocery products.

Joe Sheridan

In addition, individual Wakefern members have relationships with local farmers and purveyors that help augment the chain’s local offerings, a spokeswoman for Wakefern pointed out.

Wakefern members play an active role in running the cooperative by sitting on various committees — alongside Wakefern personnel — that govern purchasing, merchandising and other areas.

In addition, individual members frequently support each other by sharing best practices.

“We often have members who train other members’ families, just to see things differently, and see what they can learn,” Colalillo explained. “That’s one of the things that’s unique about us. If we have a member totally focused on HR, for example, and they do it best, you will see other members go visit them, or if you get a member who is totally focused on CGO — computer-generated ordering — other members will go see them, and if we have someone who is great at produce, we will go visit that member and see what they are doing.

“We’ve got this tremendous resource, which is all these independent operators, and then we’ve got this monster of Wakefern behind us and supporting us in everything we do, step by step.”

Dave Figurelli, president of the ShopRite Supermarkets division, said his group also leverages the organization’s unique dynamic.

“I think I have the best of both worlds,” he told SN. “I am able to interact with all the professionals at Wakefern, but in addition to that, I am able to be in touch with all those member entrepreneurs and exchange best practices and drive sales.

“We all exchange ideas with one another. They don’t hesitate to call and discuss an idea on something, and I don’t hesitate to call them.”

Sumas of Village Super Markets echoed that sentiment, citing the flexibility that independent ownership affords.

“There are no mandates — if a produce aisle needs to be 35 feet instead of 25 feet, we can do that,” he explained.

“We can all go in and do our entrepreneurial magic.”

Community Involvement

ShopRite’s entrepreneurial structure also helps it remain close to the needs of its individual communities, and its Partners in Caring charitable efforts help give those initiatives structure.

How the Wakefern/ShopRite dynamic plays out in individual communities was on full display during Hurricane Irene, which caused widespread flooding and power outages throughout the Northeast and Mid-Atlantic this summer.

“We had 90 stores that were impacted by the storm, but if we had a store that had an empty dairy department, we got a delivery there and were back in business that night,” Colalillo explained.

Sheridan credited the employees of Wakefern with giving an “outstanding effort in keeping stores supplied during the storm.

“It is in that kind of environment that a family-owned business or a locally owned business really becomes more important to the community than ever,” he said. “The supermarket is almost the last place the family goes before they go home to hunker down, and then they want us to be ready when they are ready to shop again.

“That’s a dynamic that’s not expected of other businesses. Because we are a family-owned business, we make sure we are ready before the storm, and we are ready after the storm.”

Janeway said he’s witnessed exceptional growth and performance at Wakefern during his tenure.

“During my time here, as a co-op we have been able to continue to grow our business steadily, even when traditional supermarkets around us have struggled to survive, and at a time when co-ops around the country have not been overly successful.

“One of the things that I am most proud of that we accomplished is that we have had unprecedented growth.”

He also said he’s had an active part of recruiting new members to join the co-op during his time with Wakefern, and has played an important role in transitioning ShopRite to a more service-oriented banner.

Janeway said the fact that Wakefern invests heavily in training and personnel development gives him confidence that the organization will remain on the right track after he retires.

“We spent a lot of time developing people and supporting people, and giving people the authority to make the appropriate decisions and move forward with those decisions,” he explained. “And we spend a lot of time on succession planning, moving people up in the organization and identifying those people.”

The company in the past few years has seen some high-level executives leave, including its former chief financial officer and its vice president of consumer affairs.

“In all of those cases, because of the professional management planning we had in place — just like when I walk out the door, and Joe Sheridan will replace me — people won’t even realize that there’s a difference in the organization.”

He said both he and Sheridan, who has been the executive vice president for 15 of the 16 years that Janeway has been president, came up through the buying and merchandising side of the company.

Sheridan has been Wakefern’s primary liaison with vendors for the past 10 to 12 years, Janeway explained, adding that Sheridan has a “great reputation” in the vendor community.

“Joe is a very bright guy, and a very articulate guy. He understands what the issues are ahead of him,” Janeway said. “He, like the rest of the staff at Wakefern, is a real competitor, and does not like to lose, and will be a driving force behind us continuing to grow and add new members in the co-op.”

Colalillo said he expects the transition to be seamless.

“I think Joe will do a fabulous job building on what Dean has done,” he said. “He has big shoes to fill with Dean leaving, but nobody is concerned.

“I think good things are ahead for us — leadership change can spur growth if done right.”

Sheridan said he feels well-prepared for the challenges ahead.

“I’ve been with Wakefern for 35 years, and in that time I have only had unbelievable mentors and associates to work with. When you work with family businesses, you work with very real people, because the issues are real. You learn that there is a tremendous responsibility either supporting a family business or supporting the people who support a family business.”

About the Award

SN has named ShopRite and the Wakefern Food Corp. cooperative as the winner of its 2011 Retail Excellence Award, based on its sales and unit expansion and its leading efforts in areas such as digital and health and wellness.

The award recognizes a retailer that 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 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, Stop & Shop and Giant-Landover in 2009, and Publix Super Markets in 2010.

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

Sponsored by KRAFT FOODS