INDEPENDENTS, WHOLESALERS STAY THE EFFICIENCY COURSE

DAVID ORGEL

WHITE SULPHUR SPRINGS, W.Va. -- The independent retailer-wholesaler community is managing to keep the momentum going in the drive to create efficiencies.

Executives who gathered for the Midyear Executive Conference of the National-American Wholesale Grocers' Association here last week heard testimonials on retailer and wholesaler efforts that are helping independents close the efficiency gaps with chains and alternative formats.

Among the points made:

Fleming Cos., Oklahoma City, in its continuing drive to boost members' competitiveness, has now re-engineered 11 of its facilities. Four more will be accomplished during the balance of this year and the remaining 20 in 1996 and 1997. (See related story on Page 6 and photos of the NAWGA reception on Page 63.)

Associated Wholesale Grocers, Kansas City, Kan., is arming customers against some formidable competitors through the use of an extensive list of programs in technology, category management

and other areas.

Independents such as the one-unit Paw Paw Shopping Center operation in Paw Paw, Mich., are allying with their wholesalers to make technology and marketing gains that would have been unthinkable just a few years ago.

"In some circles in our industry there was the belief that the independent retailers and their wholesalers were doomed," said Al Flaten, president and chief executive officer of Nash Finch Co., Minneapolis. Flaten moderated a session on how Efficient Consumer Response is changing wholesaler-retailer relationships.

"Successful partnerships is one of the most underlying ECR principles," he said. "It's more difficult for us to move as fast as chains. We are driven by our customers, but the word gets out."

Doug Carolan, executive vice president of AWG, posed the question of whether independents can act like chains, and described gains and initiatives that represent forward momentum for AWG's members.

"On ordering cycles, 42% of our business is on same-day deliveries now, which wasn't true a few years ago," he said in a presentation during the ECR session.

To create front-end efficiencies, the wholesaler is moving in the direction of using two-way satellites, Carolan said. "The use of two-way satellites yields instant cost savings," he said. "It allows seven-second credit card approvals, compared to 20 seconds on the old system. That will help front-end operations."

AWG is also providing a six-level system of shelf management support to retailers that ranges from basic planogram assistance for a category to multiple category analysis for multistore operators.

But Carolan explained that the wholesaler-retailer partnership today goes far beyond creating efficiencies. He stressed the importance of looking at independents as unique entities to determine what each needs within its marketplace.

This question is extremely important to the $3 billion wholesaler because its customers face a growing roster of strong competitors. Those include 95 supercenters, all but two of them Wal-Marts. In addition, many customers face super combination stores operated by Albertson's, Hy-Vee Food Stores and Schnuck Markets.

"We try to take a view of the market first, and then look at the [independent] store as a product," he said. "We ask ourselves, where is the retailer in the marketplace?"

AWG puts heavy focus on format development to develop the best concept for each market, whether it's a super warehouse store, a neighborhood high-service store or some other vehicle, Carolan said. Moreover, AWG has placed a premium on assisting stores in the development of food-service concepts "to help them in areas that take more expertise but for which margins are higher."

Carolan also urged independents to mull how to gain the best advantages from private-label merchandise as many national-brand items become commodities and lose margin value.

"Our challenge is to create value added in distribution channel that provides real benefits to consumers so retailers can win in the marketplace," he concluded.

Representing the independent sector, Marv Imus, owner of Paw Paw, said a close alliance with wholesaler Spartan Stores, Grand Rapids, Mich., has improved his operation on many levels. Imus faces sharply priced competitors, including Meijer and Sav-a-Lot, and has occasionally wondered about his operation's durability.

"Can I survive in the year 2000 as a single-store operator?" he asked in a presentation at the ECR session. "I don't know the answer yet, but partnerships and alliances with my wholesaler are a rope to hang on to.

"Wholesalers and retailers have always been adversarial," he said. "But the challenge of ECR is partnership. We must link ourselves for stronger alliances."

Paw Paw has been able to lower the cost of goods and cut delivery charges by working with Spartan. But the price of this success is sharing data with the wholesaler. Paw Paw was one of five retail operations that helped to develop early Spartan programs in efficiencies that were later used for all of Spartan's customer base.

"We give up a little of our independence in working with Spartan closely," he conceded. But the alliance with Spartan "helps our manufacturers see us more like they would a chain," he said.

One area of benefit has been scan data analysis, which has enabled the retailer to identify its best customers. Paw Paw is "building a data warehouse through Spartan, so both wholesaler and retailer can understand what they need," Imus said.

Imus urged retailers to use the principles developed by the Wholesaler/Independent Retailer Task Force for ECR, of which he is a member. That group created an analysis titled " A Road Map for Independent Retailers and Wholesalers," which indicated a potential 11% to 12% reduction in operating costs for both independents and wholesalers.

In a general session focusing on dealing with sweeping changes, Marc Gerstein, a visiting scholar at Massachusetts Institute of Technology's Sloan School of Management, said the grocery business is at a crossroads.

"The industry [grocery and food service] has an extraordinary opportunity to change the way the world works, to redesign things at the industry level," he said. Using an "architectural model" for organizational change, Gerstein discussed "the art of shaping organizational space to meet people's needs." However, for many firms the problem is the lack of recognition that change is needed and the wrong tools of analysis, he stressed.

"Conventional margin accounting is not a good way to see if Efficient Consumer Response and Efficient Foodservice Response are good investments," he said. "Such analysis would make you wait a long time before you invest. You should hope your competitors use those methods of analysis."