PRESERVING EAGLE

ELLIOT ZWIEBACH

MILAN, Ill. -- Eagle Food Centers here has learned a lesson about cutting expenses too fast and is going back to basics as it tries to stem a four-year-long sales decline.

For Pat Petitti, 64, president and chief executive officer, who returned to the chain in April after a two-year retirement, getting Eagle back on track is simply a matter of executing the fundamentals better than everyone else and making bigger investments in the stores. The 102-unit chain already has taken a number of steps aimed at addressing that

challenge. These fall into four categories:

Advertising. Eagle is gearing a major advertising and promotional campaign for launch Sept. 5 that is intended to reposition the stores in consumers' minds and spark the beginning of a major upswing in sales.

Pricing. It has revamped its pricing structure to allow more flexibility against the growing number of competitors.

Service. It is adding hours in customer service areas and hiking spending on employee training.

Quality. It has been renewing its focus on product selection, merchandising and presentation, and has been beefing up several areas, including use of signs.

Petitti, whose titles were chairman and CEO when he retired two years ago, succeeded Gerald Barber as president and CEO in April after Barber resigned.

Petitti said that when he returned to the company where he spent 35 years, he found a lack of attention to meeting the needs of consumers at the point of sale. "While I'm not going to point fingers at anybody because I've been away for two years, the fact is that, as sales dropped, Eagle cut expenses too much and hurt its store-level service, and that's been like a snowball rolling downhill.

"Now we have to step back and bite the bullet and make some investments in the stores.

"That's our biggest challenge -- to reinvest a little bit more than we have in the basics, which means not just offering good prices but prices that are better than someone else's, and better customer service, and better quality and more consistent advertising and better trained personnel who treat customers better."

For Eagle, which operates stores in northern and central Illinois, eastern Iowa and northwestern Indiana, the past few years have been very challenging.

The company went public in 1990 in the midst of a major economic recession in the Midwest, and just as Cub Foods, Dominick's, Hy-Vee, Jewel and Kroger were all moving aggressively within Eagle's territory.

Sales slipped from $1.1 billion in 1990 to $1.06 billion last year. At the same time, same-store sales, which were flat in 1990, have been negative since, moving from minus 4% in 1991 to minus 5.2% in 1992 and minus 3.4% last year.

The company posted a net loss of $10 million last year following charges of $17 million for store closings and $4 million for early retirement of debt. "When I retired two years ago, Eagle's sales were flat and showing declines, and they have continued to go down," Petitti pointed out.

"If we can turn those numbers around and build sales from there, then we will have the opportunity and ability to take back some of the business that we've lost to competitors."

Eagle has recast itself at store level over the last few years, converting and opening 68 stores under the Eagle Country Market banner -- an upscale format in an old-fashioned country-store motif -- and, more recently, four stores under the Eagle Country Warehouse banner.

It also operates 29 conventional stores and has converted a small unit in Princeton, Ill., to a buy-one-get-one-free format called BOGO's Food and Deals.

Eagle closed nine stores last year and disclosed plans to close 10 more this year -- "to get rid of stores that are contributing to our declining sales base," Petitti said.

"We took a $10.5 million write-off to close 10 stores this year, and we've already closed three, and there are probably four or five more that we'll close for sure."

The company has identified another 10 to 12 locations that will require cash infusions so they can be expanded, Petitti said, "and we hope we can turn some of those around so we can start to slow down the number of store closings."

Eagle plans to open four new stores this year, "and if we can open another 10 next year, that should enable us to build some good sales," Petitti explained.

Based on the sales and profitability of its single BOGO's unit, "we would probably expand to a couple of other locations if we can refine the concept and get it the way we want it," Petitti said.

Even as he charts store expansion plans, Petitti is placing an urgency on his in-store improvement program, which he considers a first line of attack. In an effort to build sales, Eagle has taken a more analytical approach to pricing to meet competition, Petitti said.

Eagle has increased the number of price zones from seven to 15 to give it more pricing flexibility.

"With more Cub stores in our area than ever before and the opening of five Super Kmarts, the task of being priced properly is tougher and more difficult than it's ever been," he explained.

"So we've been reanalyzing each of our competitors' pricing levels to make sure our everyday pricing is correct, and we're doing more price checks.

"Today I'm confident that we're priced right against all the operators in our marketplace that we've identified as competitors."

To make sure consumers are aware of Eagle's pricing levels, the chain has gone back to featuring price banners in its front windows, Petitti said. Store signs also make it clear to customers what items are being featured at what sale prices, he added.

Eagle also has been using a frequent-shopper program, Eagle Saver Club, to improve consumers' price perception of the chain. "Once a competitive store opening cycles through, we have to ask ourselves how can we regain any lost sales," Petitti said. "The answer is to do the basics right and invite customers back in with programs like the Saver Club."

Eagle has run a couple of tests during the summer -- aimed at customers who had shopped with Eagle and then stopped or who shop with Eagle only occasionally -- "and the results have been pretty positive," Petitti said.

"In some cases the redemption rates on the coupons we mailed out have been three times higher than we expected or than we got back on any other coupon redemptions," he said.

In focusing on improving quality of presentations, Petitti said Eagle's merchandising staff has been making subtle changes in product presentation since late June.These alterations include improved signs and shelf talkers for ad items that stick out from the gondolas.

To build sales through improved service levels, Eagle is adding hours in customer service areas, especially in meat, bakery and deli, "to make sure we have the best variety, freshness and presentation at the peak selling times," he said.

The chain's effort to invest more heavily in training already would have been under way if the company hadn't had to deal with a $5 million buyout of slightly more than 500 employees following last winter's contract negotiations with the retail clerks of the United Food and Commercial Workers union. The buyout caused an employee shortage and took the company's attention off training.

"The basic concept [of a buyout] has merit," Petitti said. "But the problem is to replace people at some stores. But we're in good shape now, so we can begin our companywide training program."

Training will be done on a district-by-district basis, he explained, beginning with baggers and cashiers and moving up through the ranks. Petitti wasn't sure how long it would take to put all personnel through the training.

The changes in Eagle's ad presentation were made to correct what Petitti sees as an inconsistent approach in the recent past.

"Your advertising has to sell consumers on who you are and what you stand for," Petitti said. However, Eagle had been confusing customers, he noted, by running multipage newspaper inserts that didn't maintain consistent policies on couponing and scattering store departments in different locations throughout the ad.

Some of what Eagle is doing has begun to pay off, Petitti said, citing the positive sales trends during the last five weeks of the second quarter ended July 30. "But we've had positive trends for two to four weeks in the past and then sales have fallen off again," Petitti pointed out. "So while we think what we're seeing right now is very positive, it's too early to make any claims."

Securities analysts noted that results for this year's second quarter are going up against weak results a year ago, when sales among Midwest operators were affected by severe flooding in some areas.

Because it has been concentrating on efforts to shore up sales, Eagle has postponed plans to expand its private-label program, Petitti said. "We have a lot of other things to do, and we don't want to cloud the issue by introducing a new private-label program," he explained.

Eagle joined the Topco buying cooperative in August 1993 and had begun to introduce a line of upscale private-label items under the ECM (Eagle Country Market) label.

Items already introduced include ice cream, chocolate milk, carrot cake, bacon and ham. But further introductions will have to wait a while, Petitti said. Despite Petiti's moves to improve in-store performance, some observers wonder if much of Eagle's problem isn't even more basic: poor store locations or outdated units.

Howard Goldberg, a high-yield securities analyst with Goldman, Sachs & Co., New York, said Eagle's inability to improve sales has not come from a lack of investment in new stores and remodels. "The company has invested $30 million a year, which is 3% of sales, to capital expenditures, yet it doesn't have much to show for it," he said.

"Besides the obvious problems of tough competition and relatively high unemployment in the area, it seems to me Eagle has a less than terrific store base, with many stores in secondary locations."

Another analyst expressed similar sentiments. "Eagle still has a lot of stores that are too small, outdated and not properly merchandised," he told SN.

"Gerald Barber did a good job rejuvenating the stores, yet the company still hasn't been able to recover.

"If you remodel and try different programs and still can't get sales moving, then it's not an easy problem to resolve."

Petitti did not agree that the stores themselves are the problem, although he noted that part of Eagle's challenge is to eliminate underperforming locations.

He stressed that the company will strive to improve sales trends by reinvesting in the stores through his new improvement programs.

"That's what we're hoping to achieve the rest of this year, and the new promotion will hopefully start to build up our sales base."