NEW VIEW

David Merrefield

A little more than a year ago, an incoming executive, Tony Gioia, took the helm at Southwest Supermarkets, Phoenix, after a career on the food-service and vendor sides of the industry. Southwest? By most standards, Southwest isn't a powerhouse of a company. It operates 33 stores. They average about 25,000 square feet in size. Together they generate some $250 million in annual sales. Nonetheless, it's always instructive to find out what viewpoint someone new to retailing responsibilities brings; such a viewpoint is often worth the attention of much larger operators. It was in that spirit that Southwest is featured on the front page of this week's SN.

As Tony Gioia points out in the interview conducted by SN reporter Elliot Zwiebach, it might be time to learn a thing or two from outside the industry. After all -- and this a well-known tale -- business has been draining from conventional supermarkets for a generation or so. Supermarkets at one time commanded nearly three-quarters of all food sales. That proportion has declined to about half of sales, less if Supercenter sales are debited from the total.

Why is that? "The restaurant industry has been able to leverage the value equation in a powerful way," Tony Gioia told SN. "It offers tens of thousands of convenient locations, dramatically improved quality and variety, the customer experience is often very positive and the cost of restaurant food is down on a per-dollar basis, adjusted for inflation, compared to 20 years ago." And, he charges, supermarket executives have been too insulated from a broad view of what was going on to react properly to the threat from restaurants, or, it might be added, to the alternate-format challenge.

Regrettably, the opinion about the rising strength of restaurants is just about on the mark, although it fails to mention that in more recent years other factors contributed to supermarkets' sales declines, such as the rising tide of prosperity, the ascension of two-earner families and the general loss in society of the ability to cook.

So what ideas are percolating at Southwest to help build sales there? The solution being proposed at Southwest is as simple on its face as it is difficult to execute. Let's take a look at the formula:

Brand equity: Leverage the strength of a store name by increasing promotional and community-outreach activities.

Shopping experience: Make sure stores are up to date; remodel those that aren't.

Variety and quality: Strengthen contacts with vendors to ensure that price, quality and variety are right.

Convenient location: In the instance of Southwest, that means increasing the operating area.

It's a simple enough formula, and one, which if properly executed, could make a big difference to any supermarket operator.

On another note, in last week's column I wrote that Whole Food's stock is trading at about $30. I mistakenly picked up its 52 week low. It was trading at a range in excess of $46 at week's end.