IGA

ELLIOT ZWIEBACH

CHICAGO -- IGA here anticipates that 1999 will be a record sales year, despite operating fewer stores and facing increased competiton from megachains.

"Nineteen ninety-nine should be the culmination of 15 years of sweat and tears," Thomas S. Haggai, chairman and chief executive officer of the 3,600-store global supermarket alliance, told SN. "That's how long it's taken us to position ourselves to be where we want to be."

Where IGA wants to be, he explained, is on a level with its chain competition.

IGA's store count has been reduced over the past two years as a result of more stringent operating standards for licensees. However, Haggai expects the boost in volume will come from increasing sales at existing stores, adding new licensees and converting existing stores to the IGA banner.

"As we tighten up our standards, we're eliminating stores that don't benefit from the IGA banner and that don't benefit us, but overall sales and square footage are still going to go up," he said.

According to Haggai, the reduction in store numbers -- approximately 450 units, or 24% of the U.S. store base -- is likely to be offset later this summer at a one-time-only IGA event called Homecoming, scheduled for Atlanta Aug. 12 to 15.

At that time, he said, IGA expects to announce the addition of 175 to 200 new domestic licensees, including about 150 store conversions. Adding to his optimism is the anticipated conversion of approximately 700 stores in Australia to the IGA banner by the end of the year, Haggai told SN.

However, he said, he is reluctant to pinpoint the anticipated sales increase for the year "because we don't want to jinx ourselves. But the records show that stores converted to IGA see sales increases from a low of 10% up to 20% or more."

Duane Martin, IGA's senior vice president, said he expects IGA to add at least 36 new licensees in the United States in the next few months.

In an interview with SN, Haggai and Martin pinpointed several other factors fueling IGA's expectations for a record sales year, including the following:

Continued refinements in store standards, including full scanning by Jan. 1.

New initiatives to attract customers in the 35-and-under demographic, including an appeal to kids designed to bring their parents into the stores.

Ongoing expansion overseas, particularly in Brazil, El Salvador and South Africa.

IGA is a global alliance of independent supermarkets that includes 1,866 stores in the United States and 1,729 in foreign countries, including 765 in Canada. The stores are supplied by 19 distributors: nine in the United States, two in Canada and eight overseas.

IGA sales in 1998 rose 5.6% to $19.6 billion, including $10.8 billion from the United States -- enough to make IGA the ninth largest retail operator in the country -- plus $4.9 billion overseas and $3.9 billion from Canada.

Haggai, 68, has been IGA chairman since 1977 and chairman and CEO since 1984. Martin, 32, joined IGA in January 1997 and became the company's No. 2 executive when Larry Willis left his post as president last August.

"Titles are cumbersome," Haggai said in explaining why IGA did not name a new president. "Duane is a third-generation retailer who operated stores for Wetterau and then Supervalu, and he brings to the table the best retail expertise we've ever had."

Next month's Homecoming will be a once-only event that will replace IGA's Merchandising, Advertising and Promotions conference, which is being discontinued in favor of more regional meetings with a broader base of local IGA people, Haggai noted. "At Homecoming we expect Supervalu to announce the largest single signing of stores at one time in the U.S., including a host of stores in the Deep South, where we've never had a strong presence," Haggai said. "And both Fleming Cos. and Nash Finch will also announce aggressive additions to the IGA family."

Several conversions have already been disclosed, Haggai said, including the switch of 20 Food Folks stores in North Carolina by Nash Finch Co., Minneapolis, and the changeover by Oklahoma City-based Fleming of 21 Super Thrift stores in Oklahoma and 15 Piggly Wigglys in Kansas and Missouri to IGA, plus the sale to IGA licensees of 10 units of Fleming-owned Consumers Food & Drug, Springfield, Mo.

Supervalu, Minneapolis, is making similar conversions of stores in Alabama, Louisiana, Mississippi and the Caribbean, Haggai added, as are Bozzuto's, Cheshire, Conn.; W. Lee Flowers & Co. Scranton, S.C.; and Copps Corp., Stevens Point, Wis., within their own marketing areas.

Besides boosting sales through store conversions, IGA has made a major effort to improve operations of its existing licensees by setting up a five-star assessment program, under Martin's direction, consisting of specific requirements for volume based on size, plus cleanliness, friendliness and store safety.

According to Martin, IGA requires a minimum of two out of five stars, equivalent to 65%, to pass. Anything below that, he said, requires the retailer's license to be reassessed.

"If a store doesn't pass the first assessment, the inspectors come back in 90 days or wait for a store remodeling to be completed." Haggai said. "Most of the stores we lost didn't want us to assess them, and there are still a few more stores we need to weed out."

Haggai said approval by IGA's directors of the store-assessment program "was one of the gutsiest things we've ever done. But we couldn't allow a family in one town to invest money in their IGA store and have an IGA operator in the next town do absolutely nothing."

IGA launched the assessment program in July 1997 when Fresh Check, Minneapolis, was hired to conduct the third-party inspections, Haggai recalled. This month IGA switched responsibility for assessments to ASI, St. Louis -- a company more oriented to total store inspections, Haggai said, and less to food safety lab work, which is Fresh Check's specialty.

In general, he said, minimal standards are as follows: for stores in small and rural communities, 10,000 square feet and weekly sales of $50,000; for stores in medium-sized communities, 15,000 square feet and $75,000 in weekly sales; and for stores in large communities, 20,000 square feet and $100,000 in weekly sales.

There are some exceptions, however, he pointed out. "For example, 8,000 square feet may be ample for stores in some rural communities, but 10,000 square feet is too much, so we try not to get hung up on size and sales," he said.

Jan. 1 a new requirement will take effect for IGA stores -- scanning. Haggai said 85% of the stores already have scanning, compared with 72% before the program started.

The assessment program was necessary, Haggai said, despite IGA's apparent success over the years. "We did very well in spite of ourselves," he explained.

"We've always enjoyed good visibility and, by most measures, we were successful, but we were actually unprepared because we weren't addressing the things that needed changing to keep customers satisfied as their needs changed. "We were reaching people of retirement age who had money to spend but were limited in their purchases because they had no children, but we were missing the young adults, who are sophisticated about nutrition and who know what they want.

"But the biggest cultural change for us was the problem of entitlement. Many IGA operators felt they were entitled to the customers' business because they had been in the towns they serve for so many years. But I still tell our retailers that, even if they are the only store in town, there's still no such thing as entitlement marketing. You've got to earn the customers' respect."

The encroachment of major chains into traditional IGA marketplaces also required a change of attitude on the retailers' parts, Haggai said. "We knew for years that Wal-Mart was going into small communities, but then so were Kroger and Albertson's as they ran out of larger places to market, and they had the most up-to-date, most sophisticated, most competitive stores, and we had to join in."

That encroachment has only intensified the last few years with industry consolidation, Haggai pointed out. However, he told SN, IGA does not see consolidation as a negative for its independent licensees.

"We take the position that consolidation has enabled us to define ourselves and to be more defined with the public," he said. "After all, our retailers have competed with Kroger in 38% of the markets in which IGA operates. So what does it matter if it's up to 68% now?"

Such a statement is not a matter of "laughing through our tears, nor is it sour grapes," Haggai explained. "We really have no concerns about the multiple megamergers because we think they're wonderful for the chains and because they benefit us by identifying IGA as an alternative.

"We feel that, as the larger companies merge, it identifies us more clearly as a locally owned supermarket group. Our niche in the community is different than their niche, and the mergers simply contrast our role."

In an effort to make IGA stores more attractive to a younger demographic, IGA is adding several new wrinkles to its advertising programs, the two executives told SN.

Haggai acknowledged that IGA has had problems attracting younger shoppers. "Studies indicate we're not as effective with the demographic below 30 or 35 years old, so to correct that, we're shooting for parents of pre-schoolers and elementary school students by trying to reach them through their kids."

Martin said IGA is scheduled to launch its first annual Kidfest today, which includes larger media buys on TV and a combination of products, point-of-purchase materials and prizes tied to in-store events, all aimed at kids. "We're taking some baby steps in this area, and then next year, we'll branch out to advertise on The Cartoon Network," he explained.

According to David Pruitt, IGA's director of promotions, Kidfest is designed "to let consumers know this isn't the old IGA. We want to let them know we are community-based stores that serve young moms, the same as the large chains and alternative formats."

One of the store-level activities involves a color-coded game card that encourages kids to seek out specific products on a store's shelves while their parents are shopping.

Each youngster receives a small gift just for participating but also becomes eligible for bigger prizes.

Kidfest will reach a climax the weekend of Aug. 7 and 8 when all 1,800-plus IGA stores in the United States will feature face painting, clowns, magic shows, moonwalks and other kid-oriented activities, Pruitt said, "to promote an atmosphere of a community-based, socially-oriented store and to demonstrate IGA stores are more than just a place to shop and then go home."

As Kidfest moves toward next year, Pruitt said, advertising on The Cartoon Network is a natural extension. "Network personnel think it's a perfect matchup to send a message to young adult parents and their kids all over the world, since The Cartoon Network is seen in Japan, South Africa, Brazil and Poland," he said.

An additional advantage to doing business with The Cartoon Network, Pruitt said, is the right to use certain characters like the Jetsons or the Flintstones in point-of-purchase displays.

Advertising on The Cartoon Network would be an extension of IGA's relationship with Turner Broadcasting, which started in 1992 when IGA began running television spots on Turner-owned cable stations TNT, TBS, CNN and Headline News.The purpose of those ads, Martin said, was to build IGA as a brand name in quarterly spots geared to Easter, summer, Thanksgiving and Christmas.

That approach is being modified this year, Martin said, as IGA expands the scope of its TV initiative while focusing more on a single message each quarter.

"We plan to change how we do TV," Martin explained. "In the past we had four or five things going on each quarter. Now our major thrust will be to tie together TV and other media, plus point-of-purchase programs and in-store giveaways, to deliver a stronger message, along with building the IGA brand."

In addition, IGA will continue to be involved with regional events, like the annual Country Jam USA in Eau Claire, Wis., which took place in mid-July. The country-Western jamboree is in its 10th year, and although IGA retailers have participated in the past, IGA took over sole ownership of the event this year.

According to Martin, this year's event included a combined promotional effort by 251 stores served by five distribution centers from three of IGA's wholesale companies (Fleming, Copps, and Fairway Foods, Bloomington, Minn.).

"An extra plus for IGA was that all the POP in the stores had the image of Reba McIntyre, Brooks & Dunn and Randy Travis -- the kind of people we could never afford to use in our ads if we didn't own the event," Pruitt added.

According to Haggai, IGA's standing in the vendor community has been improving since the company signed on in 1994 with A.C. Nielsen Co., Schaumburg, Ill., to track its sales performance.

"The knock on IGA for nearly 30 years was the inability to pinpoint the combined volume of its store base," Haggai explained.

"In the past we had to rely on the distributors to figure out what our licensees were doing, based on how much product was sold to each IGA operator."

But since hiring Nielsen, "we've found out not only what our movement is but also that we had been underestimating it," he said, "and that has helped us work more closely with manufacturers and has facilitated our relationship with them. Now we can measure sales as well as any chain."

IGA's international operation "also helps manufacturers that are global companies increase their markets overseas, which helps make us a more significant entity in their sight," Haggai said.

Turning his attention to IGA's overseas operations, Haggai said the company expects to license more than 50 stores in El Salvador, 50 in Brazil and 20 additional units in South Africa before the end of the year.

Looking individually at various countries, Haggai said:

In Australia, IGA has approximately 500 stores (including nearly 250 recent conversions) and expects to convert another 700 for a total of 1,200 by year's end, "which gives us a density like nowhere else, with those stores serving a population the size of New York City." IGA is No. 3 in the Australian market, behind Woolworth's and Coles Meyer, he noted.

In El Salvador, IGA expects to grant an IGA license to a Salvadoran retailer with more than 50 stores by the fourth quarter of the year, Haggai said. The stores are to be supplied out of the Atlanta division of Supervalu.

In Brazil, IGA has seven stores. However, it has signed 15 distribution companies as wholesale sponsors, "and we expect to have 50 stores there by the end of the year, with a goal of 100 per year for the next three years -- and we think we may exceed that because of the need there."

Haggai said IGA has had inquiries from other South American countries, "but we want to get Brazil going first."

In Africa IGA has 80 stores in the Republic of South Africa that are supplied by Metro, a South Africa-based wholesaler, with requests for stores in nine other African nations.

"We could grow a lot faster there if the very high interest rates come down," Haggai said.

In Singapore, IGA has 65 stores and a 65% market share. At the request of Steven Green, the U.S. ambassador to Singapore, and the U.S. Department of Agriculture, NTUC Fairprice opened Liberty IGA in the island nation in March.

Liberty IGA is a more Americanized market designed to serve the country's 17,000 U.S. citizens living there -- an approach Haggai said could be tried in other foreign countries with large American populations.

He said 80% of Liberty IGA's products come from companies headquartered in the United States, primarily as a means of selling crops and other fresh products "to serve as a new style of diplomacy and a way to get more exposure for American products."

A second Liberty IGA is due to open in Singapore later this year, he noted.

In Japan, IGA operates 200 stores, "and sales are growing as we're adding bigger and better stores."

In China, where retailers operate 25 IGA stores -- all in Guangdong Province, in South China -- operators are eliminating stores of 5,000 to 6,000 square feet to concentrate on stores of 20,000 to 30,000 square feet -- "a very large size for China," Haggai noted.

Indonesia, IGA developed the Hero Group of stores, Haggai said. However, when Dairy Farm, a Chinese retailer, bought into Hero, "we pulled away and switched to licensing Mata Hari," a six-store group there.

In Thailand, IGA has agreed to license its banner to Villa Markets, a chain of six upscale stores.

In Europe IGA is working with The McLane Group, Temple, Texas, which has already committed to supplying seven stores in Poland. In addition, McLane will provide logistics to three distribution companies in the Czech Republic that will supply IGA stores, and it will supply a group of proposed IGA retailers in Spain beginning next year.

In addition, Haggai said IGA is looking at opportunities in the Philippines and Saudi Arabia.

"We never try to enter a country on our own -- we always wait until they ask," Haggai explained. After moving aggressively forward for the past 11 years, "we need to catch our breath and do well where we are before expanding further," he said.

While bringing American supermarket expertise to foreign nations -- but without Americanizing the stores in each country, Haggai said -- IGA is picking up some pointers that might find their way into the U.S. supermarket industry, he said.

"Working with foreign companies has helped us develop better training methods, and there's a constant tradeoff of ideas. And although more ideas come from us because the international operation is still in its infancy, it will balance out in the long run."

On the retail side, Haggai said, Davids Ltd., the Sydney, Australia-based distributor, has developed a store format that is exportable -- a "convenient" store called Everyday IGA that carries limited stockkeeping units of groceries, produce and meat, with a mix of IGA branded items plus national brands.