BIG TIME 2005

Mark Hamstra

When Dick Herbert had an idea about how to improve the presentation of his wholesaler's weekly ad circular, he just walked right into the company's recent advertising meeting and spoke his mind.

This week, the changes he suggested have been incorporated.

"They respected my opinion, and they made the changes," said the owner of Brookville IGA in Brookville, Ind. "That's the kind of thing that wouldn't happen at a big corporate wholesaler."

The wholesaler who listened to Herbert's suggestions is Laurel Grocery, based in London, Ky. The company specializes in serving small, independent food retailers in the Midwest.

"They are the best thing since apple pie for the independent retailer," Herbert gushed. "This is a wonderful independent wholesaler, top to bottom."

Herbert isn't alone in singing the praises of Laurel, which has generated considerable buzz in the industry as a company that operates with the same friendly, know-thy-customer approach that its retailers use in serving their customers.

"We're pretty retailer-friendly, the way we do business," said Jim Buchanan, president, Laurel Grocery, in an interview with SN. "Probably the single greatest thing that's helped us in our growth is that our current retailers are satisfied and happy with the job we're doing, and they're telling other retailers that they ought to take a look at Laurel Grocery, and consequently we've been able to pick up a lot of customers."

The wholesaler has doubled in size in the last four years, to about $350 million in annual volume, and it continues to add new business, Buchanan said.

From its lone warehouse in London, about 75 miles south of Lexington, Ky., Laurel Grocery serves 428 retailers in seven states: Kentucky, Ohio, Indiana, Virginia, West Virginia, Tennessee and Georgia. About 200 of the stores the company serves are either convenience stores or very small, mom-and-pop grocery outlets. Most of the company's recent growth, however, has come from traditional supermarkets, Buchanan said.

The privately owned company was founded in 1922 as a distribution center for goods dropped off at the end of a rail line in London. Two third-generation members of the founding family, Bruce Chesnut and Winston Griffin, remain active in the management of Laurel. Chesnut is chairman and chief executive officer, and Griffin is vice chairman and general counsel.

Although Fleming's 2003 bankruptcy filing proved to be a boon for Laurel, the company had already begun accelerating its growth through the acquisition of new customers by the time Fleming began to disintegrate.

At first, however, Fleming's failure resulted in too much new business for Laurel to handle.

"We had to put a moratorium on new business because we were afraid we wouldn't be able to serve our customers properly," Buchanan said. "We didn't have an adequate facility for the volume we were doing at the time."

Since then, the company has completed a 50,000-square-foot expansion to its freezer and cooler store unit, doubling the wholesaler's perishables capacity.

"We're positioned now that we can bring on quite a bit more business and handle it quite effectively with the facility that we currently have," Buchanan pointed out.

Eventually, Laurel was able to add $100 million in business from former Fleming customers.

The company now operates 450,000 square feet of warehouse space in London, including 100,000 in a separate building located near the main warehouse. The wholesaler carries about 23,000 stockkeeping units in total.

For produce, Laurel has a relationship with Caito Foods, a produce distributor based in Indianapolis that supplies some Laurel customers through the Caito warehouses in Indianapolis and in Newcomerstown, Ohio, and others through a cross-docking arrangement at the main Laurel warehouse.

Even Laurel's competitors have praised the company.

"I think Laurel does a fine job," said Ron Marshall, CEO, Nash Finch, Minneapolis, in a recent conversation with SN. Nash Finch last month completed the acquisition of two warehouses in Laurel's trade area from Roundy's, Milwaukee (see Page 18).

Tom Jackson, president, Ohio Grocers Association, Columbus, said Laurel has earned a positive reputation in the region by providing the services small grocers need.

"They've become a player in Ohio," he said. "They've been up against some top-notch wholesalers who have had some great, long-term relationships with their customers in this area, and they've been able to grow their business here.

"I had never given them a thought in Ohio, but they put together an aggressive marketing plan, and they came in here with an approach that they were going to cater to the needs of the small, independent grocers."

Buchanan said the company tries to keep its business as simple as it can. "There are no hidden costs," he said. "Everything is out in the open.

"We don't have another corporate office somewhere," he added. "We can make decisions in minutes, whereas some of the major companies might take weeks or even months because you're always waiting for a quorum of people who've got to sit in on meetings."

Growth With IGA

One of the factors in the company's growth has been its affiliation with IGA, the Chicago-based network of independents. Certified as an IGA wholesaler in 2000, Laurel quickly ramped up its portfolio of IGA-licensed customers by converting existing operators and signing on existing IGA operators as new customers.

Within two years, Laurel was serving 68 IGA retailers, and the company was awarded the IGA President's Cup in 2003 for achieving the greatest IGA growth. Between 2001 and 2002, the company added 14 new IGA stores, increased the number of IGA brands it carried by 29%, and received a four- or five-star IGA operational assessment rating in 48 of 68 stores.

Now Laurel serves 106 IGA operators, and is continuing to add more. The company recently added a five-store group in West Virginia. The stores are slated to be converted to the IGA banner.

"Laurel Grocery is the model of the appropriate interfacing between distribution center and the IGA retailer," Thomas Haggai, chairman and CEO, IGA, told SN. "Jim Buchanan, supported by the two major owning families, has earned a trust so that all of our stores enjoy working in a singular fashion in the core marketing events that create additional sales."

In addition to about 800 items under the IGA Red Oval brand, Laurel carries Shurfine private-label items and about 200 Valu Time deep-discount food items.

"That's a secondary label designed to help our customers compete with [limited-assortment banners] Save-A-Lot and Aldi," Buchanan said. "We're adding to that considerably."

Several of Laurel's customers who were contacted by SN said they appreciate that Laurel does business in a way that is transparent to them.

Tom Kishman of Kishman's IGA in Minerva, Ohio, was among the former Fleming customers who were able to get on board with Laurel shortly before Fleming filed for bankruptcy protection.

"The way we do business is that we like to develop relationships," Kishman told SN. "We're old-fashioned. That's the way Laurel does business -- the old-fashioned way."

Kishman, who operates his store with his wife, Jan, said one of the things he appreciates about Laurel is the easy access he has to the decision-makers.

"I call down there and sometimes Jim Buchanan is the one who picks up the phone," he said.

He also said Laurel has been making an effort to hold its meetings in more centralized locations as it has expanded its business in its northernmost territories in Ohio and Indiana, where it now generates about 35% of its volume. That has made it easier for far-flung operators like him -- he's about six hours from London -- to have an active role in the business.

Kishman also said that although Laurel is a relatively small player, the wholesaler has been able to provide his company with a broad range of services, from planograms to new sources of revenue, such as the fuel center he built on his site through a turnkey program Laurel set up through a third-party vendor.

In addition, he said Laurel has done a good job obtaining competitive prices, and has helped him obtain products unique to his market that the wholesaler previously did not carry. Examples, he said, include regular Gold Medal Flour. South of the Ohio River, where most of Laurel's customers are, customers prefer self-rising flour, he said.

Kishman said Laurel was able to help his store improve its fundamental execution in some categories.

Field Support

Buchanan said Laurel takes pride in its ability to counsel retailers, and help them improve their sales and profitability.

"We've invested in an area where the major wholesalers are cutting back, and that's in the area of field support," Buchanan said. "We have added a significant number of retail counselors to support our customers."

The Laurel field support team includes several full-line retail counselors, a reset specialist, three meat-department counselors, two bakery-deli counselors, and two point-of-sale specialists that help retailers with technology issues.

"We've added a considerable number of people since Fleming went out of business, but we had already developed all those departments prior to Fleming going out. So everything was in place," Buchanan said.

Tim Myers of Roselawn IGA, Roselawn, Ind., is another former Fleming customer who has benefited from the switch to Laurel.

The longtime IGA operator -- who was named one of IGA's operators of the year this year -- switched from Fleming to Laurel in April 2003, the same month Fleming filed for bankruptcy protection. His two-store operation had been served by the Fleming warehouse in LaCrosse, Wis.

"We got hooked up with Laurel before they got flooded with new customers," Myers told SN. "We had heard a lot of things about Jim Buchanan and [executive vice president of operations] Bob Kirch, so we called them. It wasn't long before they came down to visit."

Myers said doing business with Laurel reminds him of when he spent time around his father's store as a child.

"They take things back to the way they used to be," he said. "A handshake still means something.

"It's kind of a refreshing situation. I can pick up the phone and call anyone down there anytime I need anything."

Myers also praised Laurel's support services, noting that they exceed those he received as a Fleming customer.

Like many of Laurel's newer customers, Myers became interested in Laurel through the good reputation the firm had been gaining. The company had been written up in the IGA GrocerGram, a publication serving IGA members, and Myers said he was able to verify the company's reputation by talking to some Laurel customers.

Although Laurel has acquired stores and operated them briefly, the company's mission statement specifically states that it will not -- as many of the largest wholesalers have done -- become a retail operator.

"We just want to supply independent stores," said Buchanan. "We'll buy a store if a retailer wants to return it for whatever reason, and if it's a viable operation, we'll sell it to another independent. But we definitely don't want to compete against our own independent stores."

Herbert, the Brookville, Ind.-based IGA operator, said signing on with Laurel has re-energized his interest in food retailing. Although he had been an IGA operator for 30 years, he had recently sold his store to Kroger, Cincinnati. He opened his current store, about an hour west of Cincinnati and about 240 miles from the London warehouse, in March of last year.

"Ten years ago, I was fed up with wholesalers," he said. "I was ready to get out of the grocery business. Now, I'm excited about growing my business."