WEGMANS DETAILS HOW IT WON CATEGORY AWARD

AL HELLER

ROCHESTER, N.Y. -- Upstate New Yorkers endure tough weather, can't boast about many sports championships, and their travel routes to other states are difficult.

But they have the stunning Adirondacks, proximity to many natural wonders -- and a supermarket chain that has an overriding desire to create stores the way people want to shop them.

As reported, Wegmans Food Markets here, operator of 58 combination stores, was the winning chain in the first Category Masters of the Year Awards, sponsored by Brand Marketing and SN, both publications of Fairchild Publications, New York. The award, which honors companies demonstrating the best category management practices, was presented at the fourth annual ACNielsen Category Masters Conference in Boca Raton, Fla. Dave D'Arezzo, Wegmans' director of grocery, dairy, frozen and bulk foods, accepted the award for the chain. The winning manufacturer was General Mills, Minneapolis.

At Wegmans titles mean little. Staffers often rotate among jobs so they can better understand their co-workers' challenges and figure out better ways to benefit the total store. Interdepartmental turf battles, which plague many chains and prevent their execution of premier category management plans, were largely eradicated by a top-down edict from chairman Robert Wegman back in 1991.

"Danny Wegman [the company's president] really pushed our senior management to be focused on this back in the early '90s," recalls D'Arezzo, to whom 15 category managers report. "That gave us all the permission we needed to do what we do today. Commitment means more than words. It's resources, empowerment, changes in support and systems. Danny and Bob [Robert Wegman] are very unified in their approach."

Category management, he says, has helped the chain focus on rewarding its most productive customers -- rather than every customer; to understand their needs better; and to be proactive in launching new products and services. "We almost hope that category management is transparent to our customers. We always want to deliver exciting food retailing, and have them be amazed at the changes they see."

One result is a strong sense of community that's hard for any competitor to penetrate. D'Arezzo describes large volumes of letters, phone calls and e-mails that Wegmans pays attention to and converts into business opportunities.

Take Nature's Marketplace, for instance, a 5,000-square-foot department housing 20,000 stockkeeping units that is tailored by store. "It's transparent to consumers that this boutique comprises dairy, frozen, health and beauty care, general merchandise, organic produce and more. They don't realize the work we did to break down silos and determine how to merchandise. As they walk through the department, they're just excited to see it," D'Arezzo explains.

Indeed, the department offers more than 1,500 foods that are free of artificial colors, flavors, preservatives and sweeteners; foods that meet special dietary challenges such as lactose and gluten intolerance; supplements, vitamins, homeopathic and herbal remedies. It is category management embodied on the selling floor.

As for the assortment tailoring, Bob Maybee, group manager for grocery, says that at one time 2% of store customers accounted for 50% of the section's sales. "The information we gather from our market-basket database helps us do a better job. And we reward them with more than price discounts. We give depth and variety, and offerings so compelling they won't want to go anywhere else. Imagine being able to buy the finest quality, fresh European crusty breads on the same trip you're filling in on your household cleaning needs."

Each Wegmans store opened during the past three years has a wood-burning oven that cooks these breads at 400 degree temperatures. Hand-crafted in Spanish brick, the showpiece impresses shoppers with the extent of the chain's effort.

Moreover, the chain sells dry-aged tenderloin beef because "it delivers an unheard-of quality," says D'Arezzo.

And Wegmans sources authentic products from Italy for its Italian Classics line of pastas, pestoes and sauces in grocery; frozen tiramisu in frozen; biscotti and Marco Polo bread in bakery. "It's a store program, not a department program. We bring in Italian meats and teach customers how to cook. We do demos in-store and create customized recipes," notes D'Arezzo.

It's part of the international influence fostered by Danny Wegman.

"He challenges us to scour the globe for the finest merchants around the world. We're looking at great cheese merchants in Great Britain, how people handle fresh product in Italy, how experts present seafood in the Orient. We're not afraid to borrow ideas from around the globe. They inspire us," D'Arezzo says.

"I preach to everyone in my department that I've never made a good decision at my desk. We go out one day a week to our stores, often in groups, which makes for a great learning environment," he says.

The multidisciplinary group often includes a store manager, a department head, a division manager, a director and a category merchant, to foster improved cooperation and category management.

It's easy to understand the loyalty Wegmans fosters by listening to customers.

"We don't look at ourselves as a supplier of food. We want to deliver meals to people and make their lives easier. Our job is to help them. Teach them, say, how to cook sea bass, and what goes with it. Customers can pick up a business card at the counter and gain access to one of our food-handling experts," says D'Arezzo.

To that end, Wegmans delivers on the concept of speed-scratch, selling partially prepared meals that are ready-to-heat. The meals are restaurant quality, plated with two or three accompaniments, and with heating and serving directions.

Why do this? Simple, says Maybee. "We're not waiting until customers ask questions. We know that many young people aren't trained in how to cook, and they don't even know the right questions to ask."

Says D'Arezzo: "Danny sends us a very consistent message, that we have no desire to be the biggest, just the best. Because we're not the biggest, we have to partner differently. Suppliers such as Procter & Gamble test and pilot with us fairly regularly. They appreciate they can try something in our stores, measure it and get empirical data they can't get anywhere else."

Despite that closeness, Wegmans is less reliant on manufacturer data than it's ever been.

"We've got terabytes of consumer transaction data that are cleaner, timelier and more usable than anything suppliers can give us," says D'Arezzo, who notes that he uses syndicated data "to understand market share."

Wegmans has 14 people in its merchandising department whose sole responsibility is to analyze and deliver market-basket analysis data. This resource helps Wegmans avert supermarkets' historic inability to capitalize on their own data, and enables it to merchandise more effectively.

"We understand our consumer dynamics like no other company," boasts D'Arezzo. "We capture to the transaction level, every purchase by every customer, what they bought, when and the basket."

Speaking of his staffer who coordinates merchandising and information technology, D'Arezzo says, "You can't over-estimate the value of having someone here five days a week experiencing everything in real time."

To strengthen the chain's category management team, Wegmans rotates people through grocery, dairy and frozens because "these manufacturers are more mature in category management. We now have people working in meat and produce who used to work in grocery, and they're pushing the cause there. Skills seem to be completely transferrable from one department to another," says D'Arezzo.

Unlike the massive turnover that often accompanies a chain's entry into category management, D'Arezzo recalls that when Wegmans first practiced the discipline, "95% of our people were doing something at the company. We identified core competencies through human resources and deployed everyone." Today the chain's category management staff is about 25% larger than it was three years ago.

Through the decade, Danny Wegman has remained a singular driving voice for category management, according to D'Arezzo.

"He is the biggest change agent we have. He constantly challenges us to think of different ways to run our business," he says. "Categories that were previously loss-leaders, he wants us to think about whether we need that much variety or space, so we can get back to what core consumers want. In high-cube, low-margin paper goods, we had every SKU known to man -- and we were losing money on it. We've culled variety and gave up share because we were chasing bad volume. That became clear with our ABC [activity-based costing] scorecard."

Moves like that keep profit in the business without damaging customer loyalty. "We hear from a lot of people about 'my Wegmans,' " says D'Arezzo with some pride, noting the wegmans.com site is "an excellent way to extend our relationships with customers.

"But the rubber meets the highway at the store. If we didn't get the buy-in, understanding and cooperation from our store operations people, the best category management plans would be failures," he adds. "We've worked very hard to establish relationships with divisional managers, store managers and individual department heads to clarify our roles and do what we do best. We have great trust between merchandising and operations. They give us good feedback, we listen to it and incorporate it into the design of new plans. It's so valuable that Jack DePeters, whom I replaced in this spot, is now vice president of store operations for the entire chain. He really understands what category management is all about."