A FAMILY AFFAIR 2004-01-12 (1)

DAVID GHITELMAN

NALASKA, Wis. -- Dave Skogen has taken the concept of family business to a new level.

Not just because his nine supermarkets -- seven Festival Foods stores, averaging 30,000 square feet, and two smaller IGAs, all in Wisconsin -- are a family-owned business.

Not just because the business was started by his father as a single grocery store connected to the Skogen family house and now is headed by Skogen as president with his 34-year-old son and heir apparent, Mark Skogen, as general manager.

No, Skogen hasn't merely involved his own family in his business. He's brought the families of his employees into the act as well.

He does it at orientation meetings for new employees. "Anybody who is living at home, whether they are college students or non-students, they need to bring their parents with them," Skogen said. "I show them the building where it all started, with the house and the store connected.

"I explain to them what happens to a $100 order. It costs us $79. Then, there's rent and advertising and all these things and at the end of the day there's $3 left out of that hundred. After that, Uncle Sam takes his $1.20.

"That's when I talk about theft in the supermarket and how we lose 1% of sales to theft. I bring out a dummied-up $10,000 in cash. I say, 'Here, in this one store in Onalaska we do a $1 million worth of business in a week. One percent of that is $10,000. This is what we lose.'

"Sometimes, I'll pass the dummied-up money around to the kids. Let them smell it and touch it."

Skogen said he tells them that one-third of that stolen $10,000 is covered by the vendors. Another third of the cost is passed on to the customers. And the final third comes out of employee wages. "Thirty-three hundred dollars is stolen from our employees weekly in one store," he said he informs the gathering. "We really drum home theft and its consequences."

The parents are impressed, Skogen said. He sounded impressed as well. "Keeping honest people honest," he said. "The biggest problem I have in the supermarket today is not finding good people and training good people and keeping good people. It's keeping honest people honest."

His efforts to build retail esprit de corps do not stop with new employees. Twice annually, for the past few years, Skogen's has brought together non-management workers who have five or more years of continuous employment with the company -- Skogen calls them "culture keepers" -- for a day of meetings. "We bring them together to enhance the culture and make it thrive," he explained. "We talk about these things in management meetings, but these people have been with us for five, 10, 15, 20 years.

"We look at them and say, 'You're the culture keepers. You're the ones who keep your eyes and ears open. You're the ones who give us good ideas."'

Skogen's success at turning good people into great employees is widely admired. Tim Metcalf, president of Metcalf Markets, Madison, Wis., which operates two Sentry supermarkets in Madison and two in Milwaukee, told SN, "He has this emotional attachment to his employees. The people who work for him will do anything for him."

David Livingston, a Pewaukee, Wis.-based retail consultant, offered a similar assessment. "He has very high employee morale," he said. "I've been in all of his stores, and the morale is through the roof. His employees just love working for him."

But more than simply being liked, or well-liked by the folks who work in his stores, Skogen is a strong, hands-on merchant. "We all know true good independents, and Dave is the prototype independent," Metcalf observed. "What makes him successful is his attention to detail.

"You walk into a guy's store, and you think, 'I could buy that fixture, and I could paint my walls the same color, and I could buy signage that looks like his.'

"But it's so much more than that. It's attention to detail, from how he merchandises the products he selects to how he interacts with his customers and employees."

Skogen's focus on building customer relationships is built around "the boomerang theory," a phrase he learned from Fergal Quinn, chairman of the Irish food retailer Superquinn.

"We have practiced the boomerang theory," Skogen said, "and every business decision we make is based on the question, 'Will it bring the customer back."'

To keep that idea constantly in mind, Skogen has become a boomerang collector. Each one of his stores sports a boomerang on its exterior.

Industry sources estimate that Skogen's nine stores had about $215 million in net sales during 2003, down a little from the previous year because of several Wal-Mart supercenter openings in his market areas.

Livingston noted that Skogen's Festival stores are the only conventional supermarkets that have succeeded in fending off competition from Wisconsin's most powerful food retailer, Milwaukee-based Roundy's.

"Everywhere Skogen goes against Roundy's Copps stores, which are also run very well, he dominates and beats them," he said.

"In Marshfield [Wis.], the Copps is actually relocating away from him, to be nearer to downtown Marshfield rather than be out near Skogen's."

APPLYING SCIENCE AND INSTINCT

Skogen attributed his company's successful growth -- its most recent opening occurred last October, a Festival Foods store in Eau Claire -- to a combination of science and instinct. "Obviously, you do a survey when you go into a new community," he said. "But also, you're riding this hunch..."

It was just such a combination, he noted, that led to the company's entrance and expansion in the Green Bay market. He said Skogen's started there in 1994 by acquiring a store that its distributor at the time, Fleming, had just taken over.

"We got in there on a shoestring," he recalled. "We turned that thing from a $300,000-a-week store to a store doing over $700,000 a week almost overnight. My son called me up and said, 'Dad, we've got to get a store on the east side of Green Bay. This thing is working."'

Three years later Skogen opened a store there and then another unit in De Pere, a town just south of Green Bay. "We've become the market leader in Green Bay with those three stores," he said.

Skogen learned the supermarket business from his father. One of the lessons was customer service. "The store and the house were connected," he recalled. "It was closed on Sunday, closed at 6 o'clock at night. I can remember people calling the house and saying, 'Paul, the gizzards weren't in my turkey,' or, 'I forgot a pound of butter.' He'd say, 'Just honk when you get to the front of the house, and I'll come out and let you in."'

Another was community involvement. "My father would let people charge groceries when there would be a strike at the auto plant," Skogen said. "It came back home tenfold.

"People never forgot how generous and gracious he was. He was a little tough on the sales reps, but he made it up on the customer."

Skogen knew from an early age he was going to follow his father's lead. However, his son's decision to join him in the business came as a surprise.

Mark was a star guard on the basketball team at Viterbo University, La Crosse, Wis., Skogen said, and he and his wife Barbara were sitting in the stands watching a game when he noticed an interview with the athlete in the program.

"One of the interview questions was what are you planning on doing when you're out of college," Skogen continued, "and Mark says, 'You know what? I think I kind of enjoy what my Dad does. I think I could be a pretty good grocer myself.'

"Barbara and I just looked at each other. We hadn't taken the time to ask him, and he'd never said anything, and here he was telling us in a program that he wants to be a grocer.

"Now, he's general manager of a company with nine stores. I think back to when I was 34. I was just leaving the meat department, and looking for a site for our second store, trying to convince my father that we needed to grow.

"I was managing maybe 20 people. He's managing 2,000 people. There's no comparison."

Skogen said he isn't sure whether he and his son will be managing more than 2,000 people five or 10 years from now. If the company grows, it will have to be "controlled growth," he noted. "If we can't move our culture to a location and feel good about having the right people there, we're just not going to do it. We're not on some big ego trip trying to catch up with anybody."

ASSESSING THE FUTURE

However, he does sound confident that Skogen's Festival Foods will be around for several more decades, despite the perpetually endangered status of the independent grocer. "I've been asked a lot about the future of independent retailers," he said. "They better keep their eye on the ball, and I don't mean the golf ball.

"When I started in this business, there was a lot of mediocrity, and there isn't a lot of it today. You better be damn well good or you're going to get lost."

Skogen noted the fate of some of his fellow Wisconsin independents. "Some of them have been bought out, a couple of them by Roundy's," he said. "Some of them just went out of business.

"What happened? They were undercapitalized. They didn't pay attention to business. They got soft, and they golfed and fished and vacationed.

"The rules have changed for us independent guys. We have to keep our eye on the ball better than we ever had, or we won't stay in business."

Large companies can also be hurt by failing to take care of their core business, Skogen observed. He cited his former wholesaler, Dallas-based Fleming, as an example. That company entered a Chapter 11 bankruptcy reorganization in April and sold off its grocery distribution business in August.

The Wisconsin independent was at one time one of the distributor's largest fans. In 1997, he declared at the annual Fleming shareholders' meeting: "We've had three wholesalers in the last seven years. We have never been happier than working with Fleming. They're good people. They know what they're doing."

Skogen observed that he doesn't think he was wrong back then, but that the company changed. "I meant that at that time," he said. "But they took their eye off the ball. They were too corporate. They forgot about the independent retailer. I think they were too worried about Wall Street."

He added that he had been an admirer of Mark Hansen, Fleming's chairman and chief executive officer from 1998 until last March. "I had a lot of respect for Mark," Skogen said. "He's been to our store. He's talked to our teammates. I thought this guy was really, really going to do it. I was shocked at the company's demise. It's disappointing."

CHANGING RELATIONSHIPS

Today, the retailer noted that he feels as positively about his new distributor, Minneapolis-based Supervalu, as he felt about Fleming back in 1997, despite having faced off against one of Supervalu's regional store chains, Cub Foods, for many years. "Supervalu was always the enemy," Skogen said. "We always competed with Cub. But we've had just a six-month courtship like you wouldn't believe. We exchanged vows here Sept. 1. We love the leadership. We love their sell plan. They're going to be good for us."

Along with developing strong relationships with their customers and employees, Skogen advised that independents also focus on forming a partnership with their distributor.

"It's all about relationships with them, too," he said. "There are so many retailers, it's always 'we- and-they' with the wholesalers.

"Maybe that's one of the things I learned from Dad. That wasn't one of his strengths. He wasn't always pleased with the wholesaler. He would always grumble about what might be going on down there.

"I just always felt that we've got to build a relationship with people. It's got to be a win-win, and we can do it if we just try to understand them and their issues. That's what's worked for us."

AT A GLANCE

Skogen's/Festival Foods:

HEADQUARTERS:

Onalaska, Wis.

FOUNDED:

1946 by Paul and Jane Skogen.

CURRENT LEADERSHIP:

Dave Skogen, president (son of Paul and Jane); Mark Skogen, general manager (son of Dave).

STORES (ALL IN WISCONSIN):

Seven Festival Foods in Onalaska, Marshfield, De Pere, Oshkosh, Green Bay (two) and Eau Claire. Two IGAs in Onalaska and Holmen.

ESTIMATED ANNUAL VOLUME:

$215 million.

MOST RECENT OPENING:

Eau Claire, Wis., October 2003.