NEW REIGN AT RALEY'S

ELLIOT ZWIEBACH

WEST SACRAMENTO, Calif. -- With the founder's grandson leading the way, Raley's Supermarkets & Drug Centers here intends to remain private and be a buyer rather than a seller in the consolidation game.

"The last five years have been focused on setting up management succession at all levels of the company," Michael Teel, president and newly appointed chief executive officer of the 116-unit chain, told SN.

"We've reorganized the company into geographic districts, with a lot of decision-making pushed down to that level, which prepares the people making those decisions for future leadership at the corporate level.

"And with the acquisition of Bel Air Markets -- and now Nob Hill -- we've acquired not just companies but a lot of strong people with a lot of skills, and they have become part of the Raley's family and strengthen our team."

Teel said the company will remain family-owned.

"There are no plans to take the chain public," he said. Nor are there any plans to sell to somebody else. "We have been approached, but we're not for sale, absolutely not," Teel declared.

'Now that our leadership preparation for the next decade is about complete, we can begin to address other longterm issues, including refining our culture and setting standards that will allow us to fulfill our goals and meet the challenges ahead."

According to Teel, those challenges include the following:

To complete the integration of Nob Hill Foods, which it acquired in December.

To achieve sales of $3 billion by 2000, through acquisitions and new-store growth. * To improve its advertising exposure in the Bay Area by initiating a dual-logo program with Nob Hill.

To improve communications with its customers using new technologies.

To maintain private ownership and capitalize on the personalized corporate culture that goes with it.

Raley's operates 116 stores in northern California and northern Nevada, including 68 Raley's combination stores, 17 Bel Air superstores, four Food Source warehouse stores and 27 upscale Nob Hill stores that Raley's acquired in December.

Teel succeeded Chuck Collings, who spent 42 years at Raley's -- 35 working with founder Thomas P. Raley, who died in 1991, and the past five years working with Teel, grooming him to take over. Collings, 72, gave up the title of president to Teel a year ago and, when he retired June 30, he passed the CEO title to Teel as well.

Raley's sales totaled $2.4 billion following the acquisition of Nob Hill, a $400 million company based in Gilroy, Calif., and Teel said he is confident Raley's will achieve its $3 billion sales goal in the next year and a half, "either through new store growth or acquisitions.

"We expect 20% of our growth to come from new stores and 80% from acquisitions," he added. To move closer to achieving its goal, Raley's is becoming more aggressive on overall store openings, with plans this year for 10 new stores, eight major remodelings (at a cost of $1 million-plus each) and seven minor ones ($300,000 to $1 million each), compared with only two new-store openings, 10 major remodelings and 20 minor upgrades last year.

Teel declined to pinpoint the chain's capital budget.

Part of the spurt in new-store activity is a matter of timing, Teel said, "but putting up new stores is one sure way to reach our goal."

The other is acquisitions. Raley's has two major acquisitions under its belt: cross-town rival Bel Air Markets, added in 1992, and Nob Hill -- an upscale chain in search of deeper pockets.

Although Raley's had its eye on Nob Hill for some time, it was Nob Hill's owner, Michael Bonfante, who approached Raley's about a possible transaction, Teel said.

"Nob Hill was ready to build its business, but the owner had another vision, and the two demands were competing for resources. Under Raley's ownership, the stores have the players, the resources, the guidance and the leadership to press forward, and we want to get them integrated quickly to get on with the business." Raley's is already seven months into an 18-month plan that began in January to integrate Nob Hill -- a much more efficient timeline than the four years it took to integrate Bel Air, Teel said, "because of our own inexperience with the integration process."

He said Raley's has taken an inventory of all job functions at Nob Hill to see where it could lend support, reduce costs or provide additional value. "Each function -- distribution, operations, information services, advertising and marketing, human resources and maintenance -- made a presentation to the Nob Hill management team, and they said yes or no," Teel explained.

According to Teel, Raley's took over distribution (from Nob Hill's former supplier, Certified Grocers of California, Los Angeles), information services, human resources and part of the advertising function, while Nob Hill will manage operations and some buying functions; maintenance will be handled by an integrated team in a new segment encompassing both companies, he said.

"Nob Hill is a good company with a strong franchise and a good niche, and it makes a good fit with our stores because it's close to our geographic marketing area but without any real overlap," Teel said.

At store level, Raley's hopes to build on what Nob Hill already does well, Teel said. "There's no need to improve customer service -- that's Nob Hill's No. 1 trademark -- although we will try to incentivize and empower employees to make more decisions. "Nob Hill is also noted for the variety and quality of its merchandise, and that will remain the same or improve.

"From the customer's standpoint, we hope they see some improvements. For example, with our own perishables distribution center serving Nob Hill, we anticipate more turnover, which will mean fresher produce on the shelves, of a quality equal to or better than what Nob Hill previously carried.

"But we intend to be very cautious about remerchandising. As we did with Bel Air, we want to defend the success of the organization and enhance it with additional expertise that we can supply.

"Keeping Raley's at bay empowers the Nob Hill and Bel Air organizations to continue the programs that made them successful while challenging us on how we rethink those programs."

Teel said he expects Raley's to pick up some programs from Nob Hill. One of the first items it will add is Coleman all-natural beef, "which is a good item at Nob Hill that fits well with Raley's natural-foods program," he said.

Coincidentally, one of the first items Raley's picked up from Bel Air six years ago was also a meat item -- Angus beef, which Teel said is still very successful for Raley's. Teel said he expects the Nob Hill stores to help strengthen Raley's marketing position in the Bay Area, 100 miles west of here. "We've suffered somewhat in the Bay Area because we only have 15 Raley's stores there," Teel said. "But with the addition of 27 Nob Hills, both companies will benefit, because we'll be able to go to a dual-logo advertising program and spend more than they could have and more than we would have in an area where our stores have been underexposed."

Although the newer Nob Hill stores are approximately 50,000 square feet, the chain averages 35,000 square feet -- significantly smaller than the 62,000-square-foot average at Raley's and the 55,000-square-foot average at Bel Air. "But some of the Nob Hills are expandable," Teel said, "and right now we're trying to determine which ones could benefit most from expansion. We think we'll be under way with an expansion program within a year."

Raley's plans to build additional, larger Nob Hill units, Teel said, including one in San Ramone, Calif., later this year that will be 53,000 square feet.

Teel said Raley's made a list five years ago "of 20 potential acquisitions within our geographical area, plus some independent locations we thought we'd be interested in. Most of the independent locations proved not to be suitable, and we've looked at five of the 20 chains, so the list is now down to 15."

Nob Hill was the No. 1 name on the original list, Teel said. Raley's is interested in additional acquisitions, he said, though it will not be looking aggressively until the end of 1999, when the Nob Hill integration is scheduled for completion.

"However, we can't control the future, so if we're offered something before then, we will certainly entertain the possibility," Teel said.

He said Raley's would consider acquisitions both contiguous and non-contiguous. "We're willing to go where the opportunity is. We can build a case for either one."

Raley's has historically tried to stay very close to its customer base, Teel said, as it's competed over the years with Albertson's, Lucky and Safeway.

It's generally relied on consumer surveys "to scorecard our marketing decisions," Teel said. "We build a marketing plan and implement it, then we get quarterly readings from consumer surveys and tweak the plan throughout the year."

The company is continuing to focus on better ways to communicate with customers and how to get their feedback in an effort to be able to respond more quickly, he said. According to Teel, Raley's is attempting to harness technology to understand customers better, using an intranet that it is developing to keep consumers informed and enable them to communicate back to the company.

"It goes beyond a loyalty card," Teel said, "and we're not sure if we'll even get into a loyalty-card program. But if we do, it will be something different from what the industry has seen, a program with significant points of differentiation."

He declined to pinpoint what those differences might be.

Corporate culture plays an important part in Raley's success, Teel said. "Our uniqueness is defined by our culture and the values we have held for so many years -- values that create an atmosphere for working together to achieve our goals, the values we place in our team and the values of individual employees who made us what we are and what we will be."

That uniqueness is due in large part to Raley's privately held status, Teel explained.

"We're not driven by the whims of the marketplace or of stockholders but by goals financial as well as cultural," he said.

"If we need to close a store, for example, we think not only about the financial implications but we also try to figure out how to mitigate the impact on individual employees.