GROWING WEIS

GLEN A. BERES

SUNBURY, Pa. -- Spurred by economic conditions and competition -- and fueled by success -- Weis Markets here is in the midst of the most dramatic growth period in its 83-year history.

Company executives told SN in an interview that during this year alone, Weis is putting finishing touches on nine new Weis-banner stores and is rounding out nine remodels.

Moreover, in a bid to upgrade its offerings and expand the variety, the chain last month opened a new-format store that will help determine the merchandising directions the next flight of expansion will take. (See related story on Page 10.) Upcoming for Weis' 1996 plans are 12 to 15 new Weis

units and as many as a dozen remodels. But building and remodeling are far from Weis' sole growth strategy. In the past couple of years Weis has also grown by acquisition and has added three new supermarket banners: Weis, Mr. Z's, King's and Scott's. The company also took a huge step in terms of operating geography and style by acquiring a majority stake in Superpetz, a pet superstore business based in Dayton, Ohio. Weis swiftly expanded that business in the course of just two years and now has locations as far-flung as Georgia. Today, the operation consists of no fewer than 30 stores in a seven-state region.

To many observers, the magnitude of growth Weis has layered on comes as something of a surprise since the chain has historically been known more for its ability to turn big profit than for an aggressive growth stance. Indeed, for years Weis was considered to be without peer in the supermarket trade in its ability to generate top-flight operating margins.

And in that respect -- and thanks to its growth outlook -- that ability has been largely retained, even in the face of declining economic conditions in central Pennsylvania. While the company still posts strong margins, it is no longer the industry standard bearer. Here's how Weis' operating margins have run from 1990 to 1994, its most recent full fiscal year: 7.6% (1990), 6.76% (1991), 5.85% (1992), 5.50% (1993) and 5.2% (1994).

By comparison, some companies turn more in the way of operating margin, some less. A look at 1994 shows Albertson's with a 6.17% operating margin, Quality Food Centers with 6.81% and Stop & Shop with 5.98%. Those on the downside of Weis include Winn-Dixie Stores with 3.25%, Vons with 3.18% and Kroger with 3.26%.

Weis executives confirmed that the lower margins resulted from accelerating the program of remodels and new units and devoting more internally generated funds to the effort, all geared to heading off increased competition.

Nonetheless, there's no doubt the ambitious growth strategy has been paying off for Weis. Last year Weis had record sales of $1.55 billion, an 8% increase. Earnings rose 4.5% to $76.2 million. The company has had six consecutive quarters of sales and earnings increases, including the third quarter ended Sept. 30, which saw sales rise 7.3% to $404.6 million and earnings rise 5% to $56.6 million.

To many observers, if Weis hadn't taken well-reasoned steps to grow, those numbers just wouldn't be there.

"In this business you have to keep changing, and you've got to have the capital to do it," Robert F. Weis, chairman, told SN. "Unfortunately, a lot of people aren't going to make it because they don't have the money to keep up their stores."

On the expansion front, the company has two store openings scheduled for the remainder of this year: in State College and Lewistown, Pa.

Next year Weis is to open stores in Laurel and Havre de Grace, Md., and Lebanon, Mechanicsburg, Wellsboro, Gap, Altoona and East Stroudsburg, Pa. Plans for another four to six undisclosed new locations and eight to 12 expansions are also under way.

According to Robert Weis, the company has chosen this particular time to expand because of increased competition in most of its markets and because "the response we've gotten in certain areas where we've enlarged stores and added services has given us encouragement."

One of those encouraging markets is New Jersey, where Weis opened one store in Newton two years ago and is looking at numerous sites for future growth, said Norman S. Rich, president.

"But we have quite a few stores in Maryland [16], which has been a very good area for us, and there are still areas in Pennsylvania we're considering," he said. "In fact, there are places [in Pennsylvania] where people have come up and asked us to build a store there."

Leading the chain's expansion plans are two executives who rose to higher positions in the company last year. Rich, formerly executive vice president, was named president in August 1994. At the same time Robert Weis was named a co-chairman, along with his cousin Sigfried Weis, who died in June 1995. At that time Robert Weis became the sole chairman.

These executives said the company is primarily interested in growth contiguous to existing markets, but would consider new states or regions if the right acquisition opportunity cropped up.

The company sees itself as market leader in central Pennsylvania -- its core region -- and says it is either first or second in many of its other markets. Giant Food Stores, Carlisle, Pa., is its biggest competitor in the core region, and Harrisburg, Pa., is its most competitive market because it is overstored with several large operators, Rich said.

One of the chain's strengths is that it has been able to finance its growth internally and remain debt-free in the process. Weis does lease locations in shopping centers, but said it owns nearly half of its store sites.

"We've always tried to modernize and enlarge our stores," Robert Weis said. "It just so happens that we've been able, in the last couple of years, to find more locations for our new stores. The problem isn't building the stores; it's getting approvals."

When it comes to growth, Weis stores are the core of the operator's retail store base; 123 of its 150 stores are Weis units. Most are in Pennsylvania, although the company also has Weis stores in New York, Virginia and West Virginia, as well as Maryland and New Jersey.

The Weis stores range in size from older, 15,000- to 20,000-square-foot units to newer models in the 50,000- to 60,000-square-foot range -- like the 50,500-square-foot prototype in Lewisburg, Pa., which SN toured when it opened late last month. The company calls the Lewisburg unit "the next generation of design for Weis Markets stores," with its expanded perishables section, complete with an upgraded delicatessen and food court area; its increased prepared foods offering; a state-of-the-art bakery with a fresh bagel kitchen, and a greater selection of gourmet, health and organic products. The produce section alone has been expanded in the Lewisburg model to 3,700 square feet from about 2,500 square feet in the older unit it replaced, according to the company.

Rich said he believes the "perishables and services arenas [are] where the battle will be won" for supermarket operators vying for future market share, because that's what consumers are demanding.

"It isn't just about mortar and bricks -- anyone can do that and a lot of people have," he said. "It's about paying attention to what the customer wants. That's the bottom line."

Weis obtained 14 Mr. Z's stores (IGA units at the time) in the Pocono/Scranton region of Pennsylvania in December 1993 and has since added five more, including a former King's store that was converted to the Mr. Z's banner. The units range from about 35,000 square feet to the 50,000-square-foot facility in Stroudsburg, Pa., that the company opened in September. The units run autonomously but use the parent company's distribution center, Rich said.

The King's stores were acquired in August 1994. They range from 30,000 to 52,000 square feet. When the company obtained the chain last year, there were six stores in the Allentown/Lehigh Valley region. One of those has since been converted to a Mr. Z's. In May Weis opened a King's replacement store in Schnecksville, Pa., outside Allentown, the largest in the chain at 52,000 square feet.

Weis also has three Scott's warehouse stores, which average about 45,000 square feet. The company characterized the stores as a test format with a different configuration and less service than its traditional retail stores. Expansion of the format will be evaluated on an as-needed basis, according to the company.

As for Superpetz, that operation consisted of two Ohio-based stores when Weis bought an 80% stake in the business two years ago. Under Weis ownership the pet superstore format has flourished, growing to 30 stores. The company expects to double its Superpetz units by 1997.

In addition to all the facets of retailing Weis has undertaken, it is a widely diversified company that owns and operates a manufacturing facility here. It processes meat, milk, juice, water, cheese, ice cream, ice cubes, soups and salads for Weis stores.

Weis also owns Weis Food Service here, a food distributor for institutions such as hospitals, colleges, hotels and restaurants.

The ambitious growth strategy, coupled with the company's move to upgrade its perishables presentation, made expansion of the distribution facility a necessity, Robert Weis said. "We're pretty much at full capacity," he said. "We're adding produce space, dairy space, delicatessen space and freezer space."

An important element of the company's success has been its strong private-label program. According to Rich, who was instrumental in starting the program when he joined Weis in 1964, the company has about 2,000 stockkeeping units and is continually refining the inventory mix. Private-label sales make up nearly 25% of its total volume, he said.

The operator has a premium brand (Weis Choice), a label equivalent to national brand quality (Weis Quality) and an economy brand (Big Top). It also uses several secondary private labels, including Dutch Valley for some cookies and meat items, Carnival for ice cream and The Way It Was for some health and beauty care items. Soda, baked goods and cereals are the biggest sellers under the Weis Choice label.

Weis has made the private-label program a cornerstone of its merchandising program, and the chain ensures continued quality through a separate staff overseeing the products (led by Vice President Walter Bruce) and a state-of-the-art quality-control lab.

"One of the first things I did [in setting up the quality-control lab in 1964] was to establish specifications," Rich said. "We don't let the packer establish them. Walter [Bruce] coined a phrase in a recent ad, 'If you can't tell the difference, why pay the difference?' That's the most important thing -- the best quality for the best value."

The company is also looking toward new technologies to increase efficiencies. According to Rich, Weis has completed installation of a direct-store-delivery system in all but four stores. The system means that 25% to 30% of all grocery products will be delivered directly to individual units, which is expected to generate significant labor savings, he said.

Weis attributes much of its success to its policy of promoting from within. Although the company in August brought in an outsider, Les Knox, from Abco Foods, Phoenix, as vice president of merchandising, it prides itself on the numerous young executives on staff who have worked their way up through the ranks of the company.

"Our young core of executive brings a lot to the table," Rich said. "They are energetic and forceful and have a lot of store operations experience. They have really matured and stepped up to the plate. As we expand, we have a lot of confidence that they can run these stores well." With the June death of Sigfried Weis, chairman emeritus, whose father and uncle founded the business in 1912, the company lost a leader and one of its driving forces for nearly 60 years. But the company said it will retain Sigfried's philosophy of emphasizing quality and value going forward.

"When you talk about Sig, you've also got to talk about Bob [Weis, Sigfried Weis' cousin] and Mike [Rheam]," a 40-year Weis veteran and former vice president and secretary who semiretired in 1992 and is currently special projects coordinator, Rich said.

"The three of them had a dream and they always worked closely together. But Sig was the ultimate merchant, and he was very influential in starting the private-label program."