THE NEW-GENERATION INDEPENDENT

MARK TOSH

TOPEKA, Kan. -- The grocery business has changed substantially since Jim Bauersfeld held his first job rebagging 100-pound sacks of potatoes at his father's store some 30 years ago.

Bauersfeld, who nine years ago founded the four-unit J.M. Bauersfeld's operation here, has seen the industry move through periods of intensive government regulation and rapid consolidation. And Bauersfeld, like the rest of the independent sector, is now challenged by increasing pressure from alternative formats and the growth of chain competitors.

Through all the changes, the independent retail segment (those businesses with fewer than 10 stores) has seen its market share drop from about 30% in 1980 to slightly more than 21% of all grocery sales today, according to an Andersen Consulting study published last year.

As the industry continues its evolution in the 1990s, a new generation of independent operators like J.M. Bauersfeld's are thinking differently about the business and adopting new operating strategies to stem that shrinking share. No longer are customer service and a local identity enough to guarantee their survival.

Some of the changes Bauersfeld's is making include:

Learning more about new technologies and relying on them to enhance operations.

Taking products directly from the manufacturer if it means the products get to the shelf more efficiently.

Opening larger stores.

Adjusting the format and marketing approach to offset competitors and meet the demands of the intended consumer.

Achieving financial stability.

Delegating more responsibility to store directors and department heads and participating in industry share groups to learn more about developments in other areas.

"I think you constantly have to evaluate everything that you do and everything that you have and ask yourself if it is good for the customer and good for us," Bauersfeld, who is president of his operation, told SN in an interview. "We as independents have to take time to work on our business. Sometimes we get so involved in checking the customer out and with the day-to-day things that go on, we can't step back and really see what's going on."

When Bauersfeld steps back to look at the Topeka market, what he sees is a steady increase in competition. Dillon's Food Stores, a division of Kroger Co., operates about five stores in the market, including a full-service superstore that opened within the past year.

The market also has several price-impact operators, such as Food 4 Less stores, a number of Falley's, a Sam's Club and Wal-Mart's Hypermart USA unit, which features a full-line grocery.

Bauersfeld first worked in the grocery business for his father, who opened a store near Wichita, Kan., in the mid-1960s and later sold the operation. His grandfather also operated small grocery stores that sold to farmers prior to the Depression.

He left his general manager's job with another Topeka independent to open the first of four stores here about nine years ago. He declined to provide the annual volume for the stores, which are supplied by Fleming Cos., Oklahoma City.

Bauersfeld said his four stores, by "scratching and clawing," have bettered the annual 3% sales gains of the average supermarket operator through the recent slow-growth economy. He has managed to stay ahead of the industry curve by making necessary operational changes and working with new technology. For example, Bauersfeld's managers and department heads use computers to produce weekly sales reports, labor schedules and pricing models.

Yesterday's independent had to have "a gut instinct, a feel for what was going on," Bauersfeld said, whereas today's independents use computer programs to back up their instincts.

"I think one of the things that has helped us survive is the computer programs that help us run our business and make better decisions," he said. "Ten years ago we didn't have these."

Marketing studies, another tool of the new-generation independent, helped Bauersfeld's improve a bakery department. After a consumer survey found the bakery lacking, a decision was made to upgrade both the staffing and bakery products. The conversion to a scratch bakery has resulted in "real growth in our bakery departments," Bauersfeld said.

Another aspect of the business that is changing for the independent is the size of the stores they operate. Bauersfeld said he could see the industry trend toward larger stores back in the early 1980s.

"You could see that the larger stores were coming in and they offered one-stop shopping," he said "They were squeezing out the smaller stores. I saw the choice as either you had to have the facilities to compete with the chains and other retailers or you probably were not going to be in business very long."

In addition to the initial 50,000-square-foot store he opened, Bauersfeld's now operates two other similar-sized units, one under the Checkers banner, which he calls a "second-generation box store." With a price-impact format, the Checkers unit is similar to the local Food 4 Less operation.

Bauersfeld's also has plans to replace a 24,000-square-foot store with a 55,000-square-foot unit later this year. Although the smaller store has been successful, Bauersfeld said a two-year study showed the larger unit could produce a better return on investment.

"When we look at locations and we look to grow, one of the things we look at is whether this growth is good for us," Bauersfeld said. "Do we think we can make a reasonable return on investment in that location? We have such a slim return, you can't make a lot of errors."

The new store will feature a larger back room to accommodate more direct shipments from manufacturers. With some grocery and frozen items, Bauersfeld said it's more efficient and profitable to bypass the wholesaler.

"There is a cost savings involved," he said. "What we have to do is make the decision as to what are the items that consumers want and what can we turn? Because having that inventory here over two to three weeks starts costing us money. All the decisions have to be balanced."

At store level, Bauersfeld has turned over more responsibility to store directors and department heads. The department heads -- there are from 12 to 16 per store -- are involved in the planning process, sales meetings and promotions. The store director's job is to make sure department heads are successful.

"We work a lot on giving people responsibilities and then allowing them to do their jobs," Bauersfeld said. "I think one of the strengths of the independent is the ability to make quicker decisions."

Bauersfeld said if a store director sees a problem developing in the weekly reports, the director does not have to wait until the end of the quarter to fix it. "We can visit with the department head and find out where the problems are and make a plan to fix them, whether it's weak sales or maybe their gross is a little weak or their labor [expense] isn't in line," he said.

"That's where the age of computerization has really helped. We have a weekly printout on a departmental basis showing sales, inventories, gross margins."

Bauersfeld's also participates in a share group with other leading independents such as Byerly's, Edina, Minn., and Gooding's Super Markets, Altamonte Springs, Fla. Randall's Food Markets, Houston, was in the group until it acquired the Tom Thumb business more than a year ago.

Through the share group, Bauersfeld said he is able to stay ahead of the learning curve and on top of industry changes.

At the same time, however, the new-generation independent cannot lose focus on the customer and the special services that are the keystone of the independents' operation.

In addition to bakery, deli and a club-pack aisle, Bauersfeld's stores offer a variety of special services, including floral, video, banking and, in one store, a post office. Coffee in the bakery is offered free.

Bauersfeld's store also has a drive-up lane outside the store where customers can drive up and have their groceries loaded. (Two former carry-out boys have returned to the business after attending college and are now store directors.)

In addition to the traditional customer-service touches, Bauersfeld's operation has shown a willingness to embrace change and seek operational improvements.

Those qualities -- and the desire to grow rather than being content with a certain level of profitability -- characterize the new generation of independent retailers, according to Robert Stauth, president and chief executive officer of Fleming Cos.

Stauth told SN in an interview the new-generation independent will have "a passion for what he does" and will use the strengths of the wholesaler to carry out that business plan. Independents who develop a business plan and a marketing approach that differentiates them from competitors will prosper in the 1990s, he said.

"If there is an opportunity, [the new-generation independent] wants to be involved," Stauth said. "He's always on the front edge of whatever is going on. He wants to develop an organization and a group of stores that would be formidable competitors in any market. That's the idea."