RANDALLS TAKES THE LOCAL ROUTE

ELLIOT ZWIEBACH

HOUSTON -- Randalls Food Markets here is solidifying its sales base.

Since moving outside its home turf to acquire the Tom Thumb chain in Dallas and a group of stores in Austin over the last four years, it has been focusing on integrating the stores, support functions and division managements with the parent company.

With that done, Randalls now is turning its attention to trying to meet the local needs of each operating unit better, primarily at its Tom Thumb stores in the Dallas-Fort Worth market.

"We've learned over the last few years how to operate a multidivisional company while sustaining a local customer orientation in

each of the Houston neighborhoods we serve," Randall Onstead, president and chief executive officer, told SN in an interview. "Customers need to feel that the company they're doing business with is a local company, with a local feel and a local sensitivity to the product and lifestyle needs in every part of town.

"That's been an ongoing challenge in Houston, and it's something we've had to cope with on a bigger scale with our other two divisions. And we need to continue to get better at customizing our stores outside the Houston market."

Randall Onstead, 39, succeeded his father, Robert Onstead, 64, as CEO in March while retaining the title of president. Robert Onstead continues as chairman.

According to Randall Onstead, Randalls hopes to increase its $2.4 billion volume by $1 billion in the next four years -- "a realistic goal," he said, "given moderate growth in the economy and aggressive expansion in Dallas and Austin."

Randalls should be able to reach its goal in a variety of ways, he said, including the following:

In Dallas, by strengthening the position of Tom Thumb by moving Robert Onstead there to act as liaison with the business community and as an advocate for the parent company. The company denies some reports that Robert Onstead's move means the division is being positioned for a possible sale.

In Austin, by replacing smaller stores with larger units.

In Houston, by continuing to upgrade its store base and to expand the number of upscale and fresh-oriented stores.

Randalls, a privately held chain, operates 122 Texas stores: 53 in the Dallas-Fort Worth metro area, 52 in Houston and 17 in Austin.

The company carved out a sizable niche in the Houston market before entering Dallas (250 miles north of Houston) through its acquisition of Tom Thumb from Cullum Cos. in 1992. Randalls then expanded into the Austin market (150 miles northwest of Houston) via acquisitions in mid-1992 and late 1993.

The Dallas-Fort Worth stores account for about 45% of total company sales, Randall Onstead noted. The Houston stores account for another 45%, and the 17 stores in Austin contribute 10% of total sales, he said.

Dallas has been somewhat of a problematic region for Randalls, according to local observers. But with the move of Robert Onstead there April 1, that's where the company is taking its strongest stand on trying to cater to the community, they say.

"Dad's move to Dallas is designed to help position Tom Thumb better in the Dallas community," Randall Onstead said. "We want to give our stores there a stronger identity as a hometown place to shop -- something we've lost since we consolidated the Tom Thumb operation into Houston. My father will help us re-establish that identity."

Robert Onstead will serve as an "advocate" for the Tom Thumb organization in the Dallas business community, Randall Onstead explained. "He will be able to get things done faster than anyone I can think of," he said. "For example, if he sees that something's missing in the support area, he will make a recommendation that it be added, or he might find we are missing certain local products that we need to add.

"But he's not going to Dallas to run our day-to-day operations -- we have a very strong team in place to run the division. Dad will serve as an interface back to Houston, to help smooth the process of getting things done in Dallas."

At this time, he said, the company isn't sure what moves his father might make in Dallas. "But we expect him to institute changes that are best for our customers and our associates, to make them feel they are part of this organization."

Randall Onstead noted that his father's willingness to relocate to Dallas represents a major personal commitment. "For him to devote his energy to solidifying our presence there at his age and stage of life is a real sacrifice, and I think it will pay great dividends for our company."

According to Robert Onstead, his being on-site in Dallas will give the company valuable market insight.

"Randalls is a family business, and the Tom Thumb organization has a long tradition with the Cullum and Evans families," he said. "But we need to define a separate identity for our stores in the Dallas-Fort Worth metroplex. My being there and working with the people there will give me a better understanding of their problems and their needs and enable the company to give them better support.

"And we want to give Tom Thumb more prominence within the Randalls organization; we don't want our customers or our associates there to look at us as interlopers in Dallas."

According to one local observer, "Bob Onstead is a great groceryman, and the best fertilizer a field can get is the shadow of the farmer. "Randalls can't react in Houston to everything that happens in Dallas, but Bob Onstead can walk those stores and react to whatever is needed." He said Robert Onstead's presence in Dallas will serve two purposes: to raise the profile of Tom Thumb in civic affairs and to raise the morale of store personnel. Randall Onstead denied speculation by some Dallas observers that Tom Thumb is for sale and that his father's move there to improve the division is a prelude to a potential sale. "Dallas is not for sale, nor are any of our divisions," he told SN.

Local observers also said the Tom Thumb stores were experiencing profit declines -- reportedly losing up to $3 million a quarter -- when Randalls acquired them.

According to one observer, sales are good at the Tom Thumb stores -- "perhaps not as good as Randalls would like but not as bad as some of the naysayers are saying," he pointed out. "Business is probably off slightly, but the stores are not slipping." Robert Onstead acknowledged that the division needed some improvements when Randalls acquired it nearly four years ago.

"Tom Thumb was a stand-alone company, with its own buying and accounting functions and its own systems, and we didn't have a clearly defined plan for consolidating those functions in Houston," he said.

"We moved slowly for about a year because most of our attention was devoted to Austin. But once we turned more of our attention to the Dallas-Fort Worth stores, we saw that it made sense to consolidate. So a year ago we started to move accounting, data processing and buying to Houston."

With consolidation and elimination of duplication, the Dallas division now is operating profitably, Randall Onstead said.

Of the 53 metroplex stores, 39 are in Dallas, 12 are in Forth Worth and two are in outlying areas, "and probably 30 of them are in great shape," Robert Onstead said. "Of the other 23, probably six or seven small stores need to be replaced -- although they are good, profitable stores -- and another 10 to 12 need to be remodeled or expanded."

Dallas and Fort Worth will be Randalls' primary expansion area for the next three to four years, with plans for four or five new stores a year there beginning in 1997, he said. Randalls opened one new store in Dallas a month ago and plans two more stores there later in the year.

Randall Onstead said Albertson's has the No. 1 share in the Dallas-Fort Worth area, with Tom Thumb second and Kroger third. But just in Dallas, Tom Thumb leads with a 20% market share vs. about 17% each for Albertson's and Kroger, observers said.

In Houston, Randalls is in the No. 2 spot, with a 26% share, compared with 30% for Kroger and 18% for Fiesta. In Austin, Randalls is second with a 20% share vs. 60% for H.E. Butt and 10% for Albertson's, he said.

"The Houston market has become more competitive the past few years as it's become more fragmented," said Randall Onstead, citing the entries of Food Lion, H-E-B's Pantry Food and, most recently, Albertson's -- "larger chains with fairly deep pockets to carve out market share."

Randalls opened only one new store in Houston last year and plans to open three new units this year. "We don't have the growth opportunities here that we have in Dallas and Austin, so our growth outlook for Houston is not as strong," Randall Onstead explained. "It's not that Houston isn't growing but simply that we pretty well cover the market already."

Of the 52 Houston stores, five operate under the banner of Randalls Flagship, and 12 are "new generation" units -- an internal designation for stores of 62,000 to 72,000 square feet that group perishables on one side "for more of an outdoor-market feeling," Randall Onstead said.

Randalls also operates three "new generation" stores in Dallas and two in Austin. The company does not use a separate name on the perishables-oriented stores "because you can be too confusing to customers," Randall Onstead explained.

"A store needs to take on a format based on the lifestyles of the people it serves, and there's nothing magical in a name. What makes it successful is what goes on inside."

Flagship stores -- 57,000 to 62,000 square feet and some in the 80,000-square-foot range -- offer a wide product assortment in a more upscale format than other Randalls units and are marketed separately from Randalls' other combination stores, although they do not have separate ads, Randall Onstead said.

Randalls has no "magic target" for the number of Flagship units it hopes to operate, he said. "But this is not a format that you want to have an abundance of because part of its marketing mystique is that it's limited to a few locations. It wouldn't remain special if you saw one on every corner."

The Flagship units are similar to the three specialty-oriented Simon David stores Randalls acquired from Tom Thumb -- one in Austin and two in Dallas. "But the Flagships are less of a specialty store and more of an upscale superstore than Simon David, and more comfortable to shop in," Randall Onstead said.

The Simon David in Austin will be replaced with a new Randalls Flagship later this year, and one of the two Simon Davids in Dallas will be converted back to a Tom Thumb this year, he noted. However, the original Simon David, in operation in one location or another for more than 100 years, will remain, he said.

Austin is "a strong growth market," Randall Onstead said. "Customers there are really attuned to what Randalls can deliver. But with only 17 stores and the probability that we will close several smaller stores, we don't look for a dominant market share there."

Randalls' major challenge in Austin is to upgrade its facilities, he noted. "But it's difficult to right ourselves quickly because it's a very fast-growing city with a small infrastructure, so you have to get in line, which makes it hard to expand rapidly."

He said the company is pleased with its 17-store Austin operation. "We have some good locations there, but we need more space to update or remodel existing stores. Where we can get larger pieces of land and replace smaller stores, we would like to do that, but locations in Austin are hard to come by."

Randall Onstead and his father have separated their duties for some time, with the younger Onstead running many of the operating functions of the company.

"Before moving up to Dallas, Dad had been more involved with real estate, store planning, site selection and financial issues than with operations and marketing, which were my areas," Randall Onstead explained.

"As CEO, I will try to move myself away from operations and marketing as we try to build the organization to the point that I don't have to be involved in tactical and strategic work. My intention is to provide overall direction and let others develop executive strategies."

Randall Onstead said his father is more of a hands-on executive than he is, "so it won't be hard for me to give up some of my existing responsibilities because I have confidence in the people working for Randalls, or else I wouldn't be giving up the day-to-day controls."

However, he said he expects to retain the title of president "for some time."