HOMEGROWN ACHIEVEMENT

GREG GATTUSO

PEWAUKEE, Wis. -- At a time when large wholesalers are broadening their reach across the country -- and even across the Atlantic -- Roundy's has found success as a regional operator.

The company, which is celebrating its 125th anniversary, is closing or selling off unprofitable corporate stores outside of its home state of Wisconsin, and consolidating facilities and administrative functions to better serve its retail customers.

While the strategy has cost the company sales at the retail and wholesale levels, Roundy's still managed record sales of $2.58 billion in 1996, and the improved efficiencies have led to record earnings and enabled Roundy's here to thrive in the shadow of competitors like Supervalu and Nash Finch Co., both based in Minneapolis.

"I think one of the pluses [about Roundy's] is the fact that we're contained regionally," said Gerald F. Lestina, president and chief executive officer. "We basically are operating in a contained area. We're not spread quite as broadly as the other competitors. And, as a result, we're able to turn corners.

"We can react to fluctuations and competitive pressures. We can make fast decisions with regards to acquisitions."

While it may not be expanding geographically, Roundy's is working to maximize sales to its retail customers and Midwestern food shoppers through a burgeoning private-label program, front-end technology, a frequent-shopper program, new prototype departments at corporate stores and a selection of natural food.

Currently, Roundy's owns 27 corporate stores, including eight Pick 'n Save units in Wisconsin. It serves a total of 917 retail stores, including 72 Pick 'n Save units, through its 10 divisions located in five states: Illinois, Indiana, Michigan, Ohio and Wisconsin.

The company, amidst its 125th anniversary celebration, has been commemorating the milestone with proclamations, a museum exhibit, a plaque at Roundy's original Milwaukee location, charitable donations and, naturally, in-store promotions.

Strengthening its ties to the area, Roundy's continues to offer financial assistance to qualified retailers for equipment purchases, store remodeling or debt consolidation, and can make a decision on financing within a week, Lestina said.

In 1988, Roundy's transformed its internal advertising and promotion department into Super Marketing Productions, an in-house ad agency to serve the needs of Roundy's member stores and other local customers.

"We don't have an ivory-tower mentality," he added.

Roundy's private-label program, which made its debut in 1922 with a single item -- salt -- has ballooned to include 2,106 items in grocery, frozens, dairy, meat, produce and bread departments, and accounts for 16% of sales. Private-label sales exceeded $179 million in 1996, a 7.4% increase over the previous year. In fiscal 1997, the company is rolling out 143 new store-branded items in grocery, frozen food and dairy. "The Wisconsin consumer perceives us as a Wisconsin company, however, the Roundy label is perceived as a national brand," Lestina said.

The brand name got additional recognition in Illinois, Indiana and Ohio when Roundy's phased out its Scot Lad Foods label -- a brand it acquired along with wholesaler Scot Lad Foods in 1984 -- in favor of the Roundy's label about 18 months ago.

The private label will be a key component in the company's anniversary plans, Lestina said. Most notably, the current label design will be replaced for a limited time with "retro labels," which evoke the past.

Lestina said the idea of private label representing 25% to 30% of total sales is "not out of the realm of reality." However, he said the highest growth would probably come from store-branded nonfood, such as over-the-counter medications and produce.

"The really tremendous area of untapped growth is in the perishables arena," he said. "We will have more and more items rolled out in that area throughout 1998." Included in that rollout will be a variety of salad mixes, salad dressings and dips.

In addition to the time-honored private-label strategy, Roundy's is helping its customers stay ahead of the technology curve with targeted-marketing and frequent-shopper programs and modern front-end systems. Customer loyalty is attributed to the mass acceptance of the Roundy's Advantage Plus Savers Club Card, the vehicle that drives the Pick 'n Save loyalty programs. More than 800,000 shoppers, or 90% of the customer base, have Advantage cards, Lestina said.

The majority of those cardholders live in Roundy's home state of Wisconsin, where the Roundy's-supplied stores have a 25% market share. The market share jumps to 50% in the Milwaukee metropolitan market.

Advantage Card members swipe their cards at a kiosk upon entering the store -- and then again at checkout -- to receive targeted promotions based on their individual buying patterns. In addition, card members can also learn about the weekly value-plus item -- such as a 5-pound bag of flour or a 2-pound bag of sugar -- which they get free with a $20 purchase.

The card is promoted in TV ads and circulars, and those ads are reinforced at the store level.

The company is also experimenting with new departments at its corporate stores, which are often used for research and development, Lestina said.

A newly remodeled corporate store, in Oshkosh, Wis., for example, offers Beans and Bagel Coffee Shop, fresh Amore pizza, a Two Sicily's European Crusty Hot Bread department and a new home-meal replacement department -- Pick 'n Save Kitchen Express -- which carries three types of meal solutions: ready-to-cook, ready-to-heat and ready-to-eat.

Lestina said the HMR effort is a continuing experiment designed to win back food dollars from take-out restaurants like Boston Market, which he said, "has evolved to become bigger and more impactful."

"I think the school is out as to what is the proper mix of home-meal replacement," Lestina said. "We, too, are working our way through it with regards to finding out exactly which is the most efficient way and the best way to present that to our consumer base. We're constantly looking at different formats and different concepts. Some of it is supplied by the food-service industry, some of it is prepared on premises.

"The key is to find their proper mix and be able to manage labor to the point where you can deliver true value to the consumer, and still maintain the ultimate in quality. That is a very elusive issue right now for the entire industry."

The Oshkosh store is also pursuing baby boomers with an emphasis on organically grown produce, natural grains, health food and vitamins. Full-time natural-food employees staff the department to take the guesswork out of natural-food shopping.

"I am a very big believer that [the natural-food] segment is going to continue to grow," Lestina said. "You have a lot of your freestanding natural-food competitors, but from the standpoint of one-stop shopping, we are a food purveyor -- and natural food is going to continue to grow and grow. The baby boomer generation, which is maturing, is very health conscious."

With record sales in each of the last two fiscal years, Roundy's has held a place among the nation's 10 largest wholesalers -- although the state of mergers makes it tricky to pinpoint the exact ranking.

On a more local level, the company's 1996 sales of $2.58 billion made Roundy's Wisconsin's largest food corporation, and the state's third-largest privately held company.

"Judson Roundy, co-founder of Roundy's Foods, always had a 'JCPenney approach' to business: The customer is always right," said Lestina. "If you pick up some of the materials that were written in the late 1800s, you can see that they reinforce that philosophy consistently.

"The chain has not been broken. Today, even though we've evolved into a much larger company and we're multidivisional, we still try to maintain that philosophy.

"Our No. 1 strategy is that our company is retail-driven," Lestina told SN, "and that philosophy permeates throughout the entire company. We're firm believers that if you're not successful at retail, you're not going have anybody to sell to."

Roundy's record 1996 sales represented a 3.6% increase over the previous year's record total of $2.49 billion.

Lestina said both 1995 and 1996 were characterized by low food inflation and intensified competition from supercenters, pet centers and other category killers; take-out restaurants; and other supermarkets, such as Fleming-supplied Century Foods and Super Saver, Kohl's A&P stores, and a number of Piggly Wiggly units.

The company also lost volume when it decided to sell off or close unprofitable stores in Michigan and Ohio.

However, Roundy's net earnings grew 13.8%, from $9.02 million in 1995 to a record $10.27 million in 1996. That gain has come through a strategic effort to consolidate nearby facilities and eliminate redundant administrative functions.

A year and a half ago, Roundy's closed its Columbus, Ohio, facility, and merged that business into its Lima, Ohio, facility, which streamlined operations considerably, Lestina said. Roundy's transferred 145 stores and more than $14 million in inventory to Lima, re-racked the Lima warehouse and constructed new offices there.

In addition, the company built a 61,800-square-foot freezer to accommodate 2,800 slots and service the frozen-food needs of its retail customers.

Administratively, the company consolidated its South Bend, Ind., frozens facility into Westville, Ind., and also consolidated administrative functions from Muskegon, Mich., into Westville.

"Overall, when you consolidate facilities and/or functions, you reduce headcount, which is a big item. And secondly, you enhance efficiencies," he said. "It's the product of cost containment and consolidation that has enabled us to drive the record earnings."

In a few cases, the consolidation meant some stores in outlying areas could no longer be serviced by Roundy's. But Lestina said those stores accounted for a relatively small volume and the improved efficiency was worth it.

Looking ahead to the future, Lestina said Roundy's has budgeted $29 million in capital expenditures. The company will also implement another stage of its category management program to provide retailers with additional market data to help them meet customer demands.