Beating the odds

Roundy’s has come a long way in the last decade, including opening up a new banner that is the talk of the Chicago area. For its hard work and success with this banner, the company has earned the 2013 Grocery Headquarters Independent Retailer of the Year honor. The odds just seem stacked against Roundy’s, the Milwaukee-based supermarket chain that operates five banners in three upper Midwestern states. Besides intense competition from banners operated by some of the largest chains in the country and an economy that, at best, could be described as stuck in neutral, the chain operates in low-growth states littered with shells of shuttered grocery stores. The odds just seem stacked against Roundy’s, the Milwaukee-based supermarket chain that operates five banners in three upper Midwestern states. Besides intense competition from banners operated by some of the largest chains in the country and an economy that, at best, could be described as stuck in neutral, the chain operates in low-growth states littered with shells of shuttered grocery stores. But its hard to bet against Bob Mariano, the chief executive officer of the chain, who is known fondly as “Chairman Bob” by many at his company and has a well-earned reputation for creating retail formats that attract new customers and confound the competition. Mariano was CEO of Dominick’s before the chain was sold to Safeway in 1998. Mariano and company got involved with Roundy’s in 2002 when they acquired the 141-year-old chain in a leveraged buyout deal. Over the next decade, they changed the chain’s business plan from a mix of retail and wholesale (50% of revenue came from the wholesale business a decade ago) to one that is solely focused on the retail aspect. In 2012, they took the chain public. Today, they operate 161 stores in Roundy’s home state of Wisconsin as well as Minnesota and northern Illinois where the Mariano’s banner (yes, named after the boss) is causing quite a stir among consumers and competitors in the Chicagoland area and apparently serves as a future prototype for the entire chain. Roundy’s operates Pick ’n Save Stores and Copps throughout Wisconsin, Rainbow Foods in the Twin Cities area of Minnesota and a few Metro Market stores in the Milwaukee area. The company does about $4 billion in annual sales. Through three quarters, ended Sept. 29, 2012, the company posted adjusted net income of just over $38 million, but its same-store sales fell by 3.0% over the same period versus the previous year. Clearly, Mariano’s is the jewel of the chain, not to mention the apparent prototype for future growth and a vehicle to increase same-store sales elsewhere. Roundy’s has opened eight Mariano’s in Chicago and its suburbs over the last few years. The 65,000 square feet stores, featuring a number of high-end departments from its much-discussed cheese, bakery and alcoholic beverages sections to a well-designed produce area, plus a gelato bar and a sit-down sushi bar, have captured the fancy of a wide range of consumers in the region. Roundy’s has done such a great job with its Mariano’s banner in just a few years that competitors, ranging from Dominick’s and Jewel/Osco—the two hometown grocers in Chicago—to possibly even Whole Foods and Walmart, are seeking ways to imitate this operation. “These guys came in here and just upset the entire apple cart in about three years,” says one competitor. “Roundy’s is the talk of the town and everyone seems to be reacting. I understand that officials from chains from across the country have visited to see what they are doing right. That is the ultimate compliment.” For these reasons and more, Grocery Headquarters has selected Roundy’s as its 2013 Independent Retailer of the Year. “We knew we could not be the same as our competition and be successful, so we offer consumers a clear choice in grocery shopping,” says Mariano, during an interview at a Mariano’s store in Hoffman Estates, Ill., along with Don Rosanova, executive vice president-operations, and Don Fitzgerald, chief merchandising officer. “We offer a complete shopping experience that is simply wonderful. We have great service, we are affordable and we get the consumer excited about shopping in our stores.” Of course, Roundy’s has its work cut out for it. In this day and age of retailers stressing price—and consumers looking for the best deal without sacrificing quality—the executive team knows that they have to be different from what is out there to be successful. “At the end of the day, the customer’s decision to shop at a store is emotional,” notes Mariano. “They go to a store because they want to shop there. You can’t be the same as everybody else. That is why, philosophically, we run as far away from Walmart as we can.” The company’s ties to the Wisconsin cheese business is one example of what it does to differentiate from its competition. First, the cheese section stands out in a crowd, featuring a broad assortment of products in a wide range of price points. Second, as Mariano points out, the chain has a very intense relationship with many cheese makers in the state. “We invite them into our stores to look at the department and help us sample their products to our customers at the stores,” he says. Fitzgerald adds that senior Roundy’s officials take tours of farms and creameries in the region to ensure the right products make it to the stores. Private Practices Private label also plays a huge role, they say. Private label now makes up about 21% of total store sales. Fitzgerald says the company now has more than 5,000 private label items in stores across nine categories and plans to expand the program dramatically over the next five years. “The chain does such a great job with its service-oriented departments that the word of mouth advertising is enough to get the job done,” says a vice president of marketing for a local manufacturer. “Right now—and I am interested to see if it continues—Mariano’s has such a buzz going that the company does not really need to advertise.” Still, Roundy’s does use traditional (newspaper circulars) and new venues (Facebook and other digital platforms) to keep consumers in the loop. “We want consumers to experience our store just once,” says Rosanova. “It’s quite an experience and we think they will come back, again and again.” Fitzgerald emphasizes that Mariano’s, as well as the entire chain, is not just competing against other supermarkets and mass retailers. By stressing a “meal-based strategy” he says competitors also include fast-food restaurants like McDonald’s and casual dining restaurants such as TGI Friday’s and Chili’s and even traditional restaurants. “We think that consumers are thinking about the next meal or two most of the time,” he says. “We want to get into the consumer’s mindset that when they want to pick up a meal for lunch or dinner, they need to consider us as an option.” Adds Mariano: “Very often, shoppers are not thinking of filling the pantry. They are thinking about the next meal for their families. We want to get into that mix and be the answer. We want consumers to say, ‘hey its lunch time, let’s go to Mariano’s.’ Whether it is a prepared meal or items they need to make their own meals, we have to be ready for them.” There is much more, the executives say. The key to keeping consumers loyal to the operation has to do with developing an emotional tie between shoppers and the store. Mariano says that the store employees—the chain has about 18,000—are crucial to cultivating that relationship and maintaining it. “Our employees are the first line of attack with consumers,” he says. “Through fantastic customer service, they are the ones who develop that relationship with consumers. It is just so important for us.” We all worked at Dominick’s and Mr. D. (former Dominick’s CEO Dominick DiMatteo Jr., who died in 1993) taught us how important it was to learn about our shoppers one consumer at a time. It is in our DNA.” So like many independents and smaller chains, the Roundy’s executive team walks the stores—all of them. “We are simply just another part of the team,” notes Rosanova. “Our philosophy is to show our employees that we lead by example. If they see us paying attention to detail, they get an appreciation of it and will do the same. We also tell them to have fun, but work hard.” Another aspect is that the execs treat Roundy’s like it is a small chain, perhaps  how a chain with 10 or less stores may behave. Mariano says that it is vital that chain officials “respond right away” to all issues. “We keep it personal,” adds Rosanova. “There is too much sameness in our industry and that is not how supermarkets started,” says Mariano. “In years past, the grocery store business was a neighborhood business and that meant catering to the needs of individual consumers within a certain area around each store. The notion that this can be done from a central location is simply ridiculous. You need to serve one store at a time, based on the type of consumer at each location. That is something we learned from our time at Dominick’s.” It is quite clear that Roundy’s executives are using the Mariano’s format as a prototype for any future growth for the company. Though Mariano and his team stress that they have little interest in expanding outside of their current three-state territory right now, they also note that there is plenty of room for growth in their current area. Yet, they do not seem to be in that much of a rush. Perhaps because they have all been around for a while and have seen a lot of retail operations become a victim of their own success, all three of the Roundy’s executives stressed a slow and steady plan to growth. Mariano’s is at the forefront of that plan. They say that they hope to add as many as 25 stores—apparently all under the Mariano’s banner—in Illinois over the next five years. New stores are also coming in Wisconsin and Minnesota. “We will use what we learn here at Mariano’s for [new and remodeled stores] in our other areas,” says Mariano. “In the Twin Cities, for example, we have 31 stores and we will determine what similarities there are in the market and proceed accordingly.” So where will this chain be in five or 10 years? Rosanova says that it will be a major player in the Chicago market and the core group of stores (Wisconsin and Minnesota) will be in a better position for continued growth and development. Mariano says that it will be to continue what the chain has done thus far. “We gauge the consumer’s response to our stores,” he says. “We have so far been able to hit the right notes with our customers and take care of their needs. What I think is important to notice is that there is no single lever that was pulled with this format. It was multi-levered, a combination of extraordinary service, wide assortment, great atmosphere and affordable prices. “In my opinion, we will keep growing thanks to our extraordinary employees and their ability to offer our customers a unique shopping experience.” Taking a bite out of food service To say Mariano’s is a one-stop shop would be a huge understatement. That is, unless the consumer has dinner and a drink on their shopping list. The eight-store chain that makes up Roundy’s presence in Chicagoland—and Illinois, for that matter—prides itself on being a fierce competitor in not only the retail market but foodservice, as well. All-natural smoothies, wood-fired pizza, a coffee bar, authentic gelato, handmade candy, hot soups, a wine bar and a sushi restaurant are just some of the options available to patrons throughout different stores. “People will drive from 50 miles away to sit down with a glass of Chardonnay and some fresh sushi before embarking on their shopping trip,” says Don Fitzgerald, chief merchandising officer. The sushi counter, decorated with trendy blue lighting and marble sit-down counters in the Hoffman Estates, Ill. location, is a big hit among patrons, he adds. “All the stores have in-house certified sushi chefs who create dishes for eat-in or carry-out with fresh items from the seafood department.” Roundy’s officials, including CEO Bob Mariano, stress that the chain views fast food and casual dining restaurants as competitors for business as well as other supermarket chains. In order to compete with Chicago’s eateries, the chain’s executives turned to local restaurants and businesses to develop the store’s in-house foodservice brands and offerings, such as Oki Sushi, Vero Coffee and Vero Gelato, which was a huge hit at the holidays selling for $49.99 a pan. “We didn’t have the skill set internally so we worked with experts to develop the concepts. The gelato, for instance, is made in our commissary in Kenosha, Wis., but we partner with a talented gelatiere here in Chicago,” says Fitzgerald. The management team even teamed up with a local health and nutrition professional to help them create a smoothie bar to help them compete with stores like Jamba Juice. Currently only offered at the Hoffman Estates, Ill. location, the smoothie bar includes fresh squeezed fruit smoothies and vegetable juices. While this merchandising format became a quick hit with Chicago-area shoppers, it also serves as a trial-and-error learning tool for Roundy’s Wisconsin stores. Hits such as the deli-counter, fresh bakery and international offerings have all been considered for the Wisconsin-based stores. “The Mariano’s sweet case, in particular, has been quite a success. We introduced Bella Cupcakes to compete with the cupcake shops, like Crumbs, that are popping up everywhere. They have been a huge hit so we transferred them back to some of the locations in Wisconsin,” notes Fitzgerald.  —Elizabeth Louise Hatt The magic of merchandising Walk into a Mariano’s and it is clear the produce department is the store’s pride and joy. Wood crates stacked high with hundreds of conventional and organic varieties—the conventional and organic variety count is posted daily on a chalkboard in the back of the department—sit front and center under the entrance archway. As customers quickly learn, however, produce is just the beginning. Don Fitzgerald, chief merchandising officer, and his team focus on each department as if it is the star of the show by offering an appealing assortment at affordable prices. Take the seafood counter, for instance; the stores feature fresh Ahi Tuna delivered daily from Hawaii. Fishermen in Hawaii catch it, filet it, ice it and Fed Ex it to O’Hare daily, says Fitzgerald. “It is a wow factor for customers and results in a nice halo affect for the entire seafood counter.” Just a few feet away customers are faced with what Fitzgerald calls the store’s signature—the cheese department. Roundy’s close relationships with Wisconsin creameries and cheesemakers keep it stocked with local brands and varieties that are often hard to find outside Wisconsin. Beyond the assortment, the staff is what makes it stand out, says Fitzgerald. “Our role in retail is to build a stage for the products to excel. Beyond giving them options, we want to educate shoppers on what is unique about the products. The more we teach them and interact with them it becomes more than just a product and price point; it is an experience.” The often over-looked center store stands on its own with an aisle of seasonal bulk options to compete with club stores, and multiple aisles of international products usually found at specialty stores. According to Fitzgerald, the popularity of cooking shows has inspired consumers’ interest in unique ethnic ingredients. The chain is still growing the department and continues to stick its neck out when choosing its offerings. “Some of these are not the biggest moving items but they enhance and fill out the category. It helps build the stage and when people are walking around, they are impressed. We want to slow them down and help them explore,” adds Fitzgerald, whose goal is to have a mini-Epcot in the center of the store. Every element of the store, from customer service to product assortment, is created with the store’s slogan in mind: Shop Well. Eat Well. Live Well. Whether it is offering fresh produce, healthy meal deals, herbal supplements or a consultation with a pharmacist—the pharmacy stands front and center instead of being tucked away in a corner—it is all in the consumer’s best interest. “One way or another, we are going to help you,” says Fitzgerald. — Elizabeth Louise Hatt