EXTREME FOOD RETAILING

ELLIOT ZWIEBACH

ALBANY, Calif. -- Andronico's has always been passionate about food -- and it shows.

For three generations, the Andronico family's fervor has delivered the "best quality" to customers of the 11-store chain, now celebrating its 75th year in business.

"My grandfather, my dad and I have each had a passion for the industry and for food -- anything pertaining to food," Bill Andronico, president and chief executive officer, told SN. "We've each been immersed in merchandising, sourcing and cooking food.

"To deliver the message of what a company stands for, you need an extremist, someone who is zealous about what he does and who believes ardently in what he's talking about, and that's what each of us has done in his time," he added.

A passion for quality has been an Andronico's trademark throughout its history. Its stores offer consumers a mix of basic groceries, gourmet specialty items, expanded produce selections, food to-go prepared on-site, service wine shops, Prime and American Kobe beef, and expanded housewares -- all merchandised in stores that vary in size and cater to the specific demographic base that surrounds them.

The company's founder, Frank Andronicos, came to the United States from Greece in 1906 at age 15 and eventually became a produce buyer before opening his own supermarket in 1929. "He was always quality-oriented and believed passionately in delivering the best quality to his customers," Bill Andronico, his grandson, recalled.

He said his father, John Andronico, also believed in quality "and the whole notion of good food. He loved to buy and sell quality produce, and he also liked eating good food.

"And I myself am a foodie. I like dining out, preparing meals at home, discovering items in the marketplace, finding new items from growers -- I'm immersed in that world -- along with reading about food, watching out for new developments, and seeing and talking with people in the industry."

That same sense of passion is evident at store level, Andronico said.

"Customers want the meat guy, for example, to know what goes into delivering the best quality. They want him to be an expert in his field. They want him to be choosy about the specifications he follows and who he buys from.

"And if that buyer can communicate his passion to his employees, then a lot of it will stick.

You need people out there on the edge. Those are the kinds of people we look for."

Most supermarket chains lack passion, Andronico said. "The passion has been dissipated in the chains because that's not what drives their business. You don't find true merchants or purists out there very much. Those are lost arts. The chains find people who rely on systems and efficiencies to deliver a strong bottom line.

"At Andronico's, we still deliver the numbers, but we do it with a passion to source unusual, high-quality items and bring them to market. And it's my job to find people with expertise in perishables and groceries who can make Andronico's an ingredients store or a cooks' store."

The 11 Andronico's stores in Northern California serve a mostly upscale clientele in a market area that radiates out from San Francisco Bay 15 miles north to San Anselmo, 35 miles east to Walnut Creek and Danville and 45 miles south to Los Altos.

Store Growth and Size

The company opened its first store in Berkeley in 1929 under the name Park and Shop. It didn't open its second store until 27 years later, in 1956. After opening a third store in 1959 and putting the family name on the stores in 1986, the company experienced a major growth spurt beginning in 1989 that saw it open eight new stores in 13 years.

Bill Andronico, 46-year-old grandson of the founder, has run the company since 1999. He declined to pinpoint the company's volume, though industry estimates put revenues at approximately $250 million annually.

Store sizes range from 25,000 square feet to 41,000 square feet, with sales areas of 12,000 to 29,000 square feet.

The ideal store size, Andronico told SN, would be 20,000 to 22,000 square feet. "The larger the store, the harder it is to create merchandising excitement because of the sight lines and the greater sense of space," he explained. "Larger stores dilute merchandising energy."

Andronico said he prefers a store where customers make a new discovery with nearly every step. "That's what creates excitement and helps us connect with customers," he said.

While each of the company's stores shares a basic merchandise mix, each makes its own connection with customers, Andronico said.

"We try to create a unique and exciting shopping experience across the entire store by displaying merchandise in innovative and dramatic ways," Andronico explained. "It's all about not being satisfied with the status quo and raising the bar to create a more exciting sales environment."

In its effort to create an exciting shopping environment and to better utilize limited space at some smaller stores, Andronico's installed triple-deck shelving in its refrigerated produce cases in 1984 -- the first in the United States to do so, Andronico told SN.

He said the chain was also the first to substitute Metro shelving -- metal grocery shelves -- for standard gondolas more than 20 years ago "because we liked the aesthetic look," he explained. "It was certainly more labor-intensive to set up, but it enabled us to increase facings by 15% across the store and also allowed us to vary the depth of shelving from one section to another."

The company's oldest store -- the original store in downtown Berkeley -- is 25,000 square feet, with only 12,000 square feet of sales area, including a 3,000-square-foot alcove for triple-deck produce, dairy and frozen foods, with the bulk of the store "densed up," with merchandise literally overflowing from every nook and cranny.

Walnut Creek Prototype

In contrast, the 28,000-square-foot Andronico's in suburban Walnut Creek, the chain's newest store, features a large farmer's market-style produce section up front -- a prototype that may be expanded to other locations, Andronico said -- plus expanded food-service offerings, an extensive housewares department and a wine "cellar" in the midst of the selling floor.

The Walnut Creek store utilizes handwritten signs "that suggests spontaneity and a no-frills feel that we may take to other stores," Andronico said. The store also carries 2,000 stockkeeping units of wine, with many labels usually sold exclusively to restaurants "that we're able to carry because of our relationships with the wine makers," he noted.

Walnut Creek also houses Andronico's largest Kitchen Store, which offers a wide range of upscale tabletop items and cooking tools, including Vietre handmade ceramic plates, La Crueset cookware, Rosle cooking tools, Emile Henry stoneware, and All-Clad and Viking pots, plus candles, cookbooks and linens.

With no salespeople on the floor, only about 10% of customers buy a housewares item, Andronico said, "but when someone is there hand-selling, up to six or seven out of 10 people buy," he noted.

Having established a quality image throughout its 75-year history, Andronico's has gone back to its roots in the advertising campaign it launched three years ago, Andronico said.

From 1996 through 2001, Andronico's presented itself in print ads and in-store signs as "shopping the way it used to be -- shopping the way it should be."

"But we began asking ourselves whether that approach was relevant to take us into the next decade," Andronico said. "What we found was what our customers talked about was Andronico's quality, and we decided that was something we should focus on.

"At the same time, we decided to back off on some pricing. We've always had competitive pricing on basic items in our ads, but we decided to talk about other things while bringing our margins up. We've always been promotional and competitive with the conventional chains on ad items, but we decided we were throwing more groceries [in the ads] and burning up more gross than we needed to.

"So we started telling stories in our ads, talking about our suppliers and integrating what they have to offer into the ad copy, which is what makes us who we are, with the tagline, 'Andronico's quality. Every day. Every time."'

Andronico said he sees the competitive battle in the Bay Area as a fight for share-of-stomach, "and that brings more companies into the mix." Besides the area's two largest chains, Safeway and Albertsons, competitors include Knob Hill (a division of Raley's) and Draeger's, an area independent, along with restaurants, category killers and alternate formats like Trader Joe's, Costco and Whole Foods, he said.

Andronico estimated that 10% of his company's potential meat business goes to Costco "because they have a consistent USDA Choice beef program that is priced very competitively. Also, because they sell larger-sized packages, purchasing for larger groups seems more practical to some consumers -- although when people are shopping for an event that calls for a substantial amount of meat, they very often seek us out as a destination" because of the USDA Prime and American Kobe beef Andronico's offers.

When it comes to competing on the basis of perishables and quality, "we pay more attention to Whole Foods," Andronico said.

Andronico's has been competing with Whole Foods for about 10 years, he noted, "and we believe their Northern California operations are more consistent than anywhere else. As a result, we don't get as much credit as we should for our natural and organic offerings, which is our fault, and we plan to focus on those sections to try to get more credit for what we offer.

"We won't get the Whole Foods shopper on basics, but if they come into our stores once, maybe we can get some credit for our natural and organic foods. We're working on making that happen over the next several quarters through marketing, in-store signage and merchandising, public relations and above all, employee education."

Offering the Best Building up its image on natural foods is part of an overall effort to differentiate Andronico's as a place where consumers can get the best, Andronico said. "We've identified several areas where we want to be the best -- the best place to shop, the best place for customers to find unique products, the best place for creative programs, the best place to find the freshest and highest-quality products and the best place to work, and we're developing programs to support those efforts through marketing, merchandising and, again, employee education," he explained.

Some initiatives are targeted at increasing the company's average transaction size, while others are designed to increase customer counts, he said.

Andronico declined to pinpoint the size of the company's average transaction "because it's so competitive in this area that someone who thinks we're doing less than we actually are might realize we're doing too much business and they'll be motivated to come in and focus more on the areas where we operate."

One initiative involves taking in-store demos "to a higher level," he said, "by bringing in people to do hand-selling and floor work. We think that kind of program ties in several parts of the store more effectively and will drive average transactions" -- as the company has found in the Kitchen Stores.

Some initiatives are already under way, he said, "and they will make a difference in how we are perceived by customers -- and it should also make a difference in our sales performance."

Andronico acknowledged that the company's eight-store growth spurt between 1989 and 2002 was prompted in part by a booming economy. But in the last few years, costs have spiraled and sales have stagnated, he said.

"The San Francisco Bay area has been one of the hardest-hit regions in the country from the economic downturn, with the population declining as job losses mounted, and the costs of workers' comp and health care have also dampened the recovery, so our business has been a bit ragged lately," he pointed out.

"We're seeing some revival of late, but it's just the beginning of what will probably be a slow rise in the area's economy."

Andronico said the company is focusing on cost controls, and with negotiations with the retail clerks due this spring in the Bay Area, he said he anticipates ending up with a more favorable labor package that will enable the company to lower its health and welfare costs.

It's been nearly two years since Andronico's opened its last new store, but until the economic recovery is stronger, store expansion will remain on a back burner, Andronico said.

"We're pleased with our size right now, and we plan to let ourselves become more efficient and increase average transactions while we let the economy play itself out," Andronico explained.

"We're not ignoring expansion, but we're focused on growing sales right now, and we'd prefer picking the low-hanging fruit on the sales line first. But if an opportunity arises that we can't pass up, we'll figure out a way to address that."

He said it will probably be one or two more years "before there's much momentum behind any initiatives to add stores."

Asked whether Andronico's might be an acquisition candidate, he said the company always receives buyout offers, either from chains with a presence in the market or from financial or operating groups with a desire to build a presence in the Bay Area. "We're a little giant -- a small player overall but the largest independent other than Raley's in our area. We listen to all the offers, but none so far has seemed like it would make a good marriage.

"Besides, I don't want to get out of the business."

Asked if Andronico's is interested in growing through acquisitions, Andronico replied, "That could be part of our strategy in the future."

Acquisitions would not be limited to companies with similar operating philosophies, he added. "It could be any type of operation if the fit was conducive. We're not limiting ourselves to appealing to a certain type of customer.

"But we like to operate in areas that are used to independents. We'd prefer an independent operation or an upscale operation, but that would not be a requirement."