CERTIFIED OF CALIFORNIA SETS RETAIL STRATEGY

ESTHER HUI

LOS ANGELES -- Certified Grocers of California will continue to roll out its Apple Markets format and launch a pilot program to increase meat sales in an effort to help its retail members compete with self-supplied chains, officials said at the company's annual meeting here.

The company, now in its 76th year, is California's largest wholesaler. However, last year it lost two of its large retail customers to consolidation. Hughes Family Markets, Irwindale, Calif., a Certified member since 1955, was acquired by Quality Food Centers, Bellevue, Wash. Both companies were subsequently swallowed up by Fred Meyer Inc., Portland, Ore.

The other customer, Gilroy, Calif.-based Nob Hill Foods, a Certified member since 1981, with 27 stores, was acquired by Raley's Supermarkets & Drug Centers, West Sacramento, Calif., at the end of 1997.

Both chains are to be supplied by their parent companies.

Certified officials said sales dropped slightly in 1997, to $1.93 billion compared with $1.95 billion in the prior year. However, the company said it managed to offset some of the lost business by reducing operating costs, mostly through technology upgrades in its distribution centers. Certified said the net result of reduced operating costs and maintaining overall sales produced increases in prepatronage dividends. Although Certified conceded it has a substantial challenge competing with the large chains on price, officials said independent retailers can use customer service and their ties to the community to win food sales.

"Our flexibility is one key advantage," said Louis Amen, chairman. "We are able to provide our customers with exceptional customer service and specialized programs that the large companies cannot."

Amen said independents can use their small scale to their advantage by being able to react quickly to changes in the marketplace.

He said independents will benefit from a projected boom in population -- an influx of some 17 million over the next 25 years -- the majority of which will be in the Latino population, to which Certified already caters with a variety of ethnic groceries and produce.

Certified's successful Apple Markets format, which debuted in 1996, gives independents a "large-store feel." Certified said it is going forward with Apple Markets and is mulling other niche formats to help independents develop an identity.

"Independents' profit margins are being squeezed by ever-growing retail chains and non-traditional food retailers," said Al Plamann, president and chief executive officer. "Because of the difficulty of competing on price alone, independents must now differentiate themselves from the competition in some way or another, not just to be successful, but in order to survive."

Officials also said Certified will conduct a pilot program in its meat division to become the sole source for meat products to members.