BATTLE READY

ELLIOT ZWIEBACH

SCHENECTADY, N.Y. -- Price Chopper Supermarkets here expects to be a survivor.

Despite the consolidation whirling around it in the Northeast, Price Chopper believes its quality approach to retailing will enable it to compete alongside all comers, domestic or foreign, regardless of size.

"The mantra around here is, bigger is not better -- better is better," Neil Golub, the chain's president and new chief executive officer, told SN. "Our goal is to get better in each individual area of the store."

Lew Golub, Price Chopper chairman and the immediate past CEO, echoed that sentiment, telling SN, "Big is not necessarily superior. "It's certainly important for a company like Wal-Mart, which is superior in size, in capital spending and in its ability to grow. But at Price Chopper we need only to be big enough to sustain sales at a healthy level and to do a better job at what we do best -- offering better perishables, better store operations and better variety.

"In a few years there may be just four or five major operators worldwide. But regional chains like Price Chopper and Wegmans will survive and survive well -- as long as we meet the requirements of the public by offering something different in a particular niche."

Price Chopper sees differentiation as the key to its long-term success, Neil Golub said. "In some marketing areas, where we compete with Wegmans, it's more difficult to set ourselves apart because the difference is closer. But in many ways, we think New York State has two great retailers, and we believe we have to remain one of them because most of the competition we face is so much larger than we are."

The two executives agreed that Neil Golub's elevation to CEO is unlikely to result in any significant changes at Price Chopper.

"I have no set goals in advance," Neil Golub told SN. "Right now I'm working to make sure the transition is as seamless as possible. We've been working on this for well over a year, to make sure everything is smooth. But Price Chopper's goals and directions have already been set -- to continue to grow as a strong regional player."

According to Lew Golub, "We don't expect to make any visible changes in the company's values or structures or the way we do business. But there will be a lot of changes, not because of the change in CEO but because we're on a compressed timetable for change. "We're in the midst of the most serious compression of change that society has ever seen, including opportunities in the area of e-commerce, and that probably will mean that what made us successful yesterday may not make us successful tomorrow."

One observer told SN that Price Chopper would be a strong asset for Ahold, Albertson's or Safeway to acquire, "but the company has held out to remain independent," he said.

Asked if Price Chopper might become an acquisition candidate, Lew Golub said it's unlikely for the foreseeable future. "We receive inquiries all the time asking us if we've changed our mind [about selling]. But we tell them the answer is still no -- and it will remain no as long as we can continue to be successful and viable in today's world.

"Could that change? Yes, it could. But we do everything the competition does reasonably well, and as long as we can continue to do that, we will continue to be viable."

As Price Chopper contemplates its long-term viability, its plans include the following, according to the two executives:

Maintaining its status as a regional independent operator with a strong commitment to local communities.

Expanding its store base by 8 to 10 units a year.

Using perishables as a point of differentiation and constantly raising the bar on its performance.

Contemplating expansion into western New York State, possibly with an alternative marketing format.

Keeping top-level succession within the Golub family. (See story, page 12.)

Price Chopper has been serving consumers in upstate New York and surrounding areas since 1932. The company operates 97 stores, including 62 in New York, 15 in Massachusetts, 12 in Vermont, six in Pennsylvania, and one each in New Hampshire and Connecticut -- all within 250 miles of the chain's headquarters here, northwest of Albany, N.Y.

"We would consider expanding beyond that 250-mile range, but only under certain circumstances," Lew Golub said. "We prefer servicing our stores from our existing facilities and we like to turn our tractors around in one day, so we don't want to operate a remote warehouse. But we would consider using a wholesaler if necessary -- "

" -- although that would not be an economical cost structure," Neil Golub added.

One industry observer likened Price Chopper to Publix and H.E. Butt Grocery Co. -- two other privately held chains, based in Lakeland, Fla., and San Antonio, Texas, respectively -- in terms of management excellence, cost controls, community marketing, financial leverage, merchandising and loyalty marketing initiatives.

Price Chopper competes with a wide variety of retailers, including Wegmans; P&C Foods (a Penn Traffic division); Tops Markets and Stop & Shop Co. (both Ahold units); Shaw's (a Sainsbury operation); Hannaford Bros. (owned by Delhaize America); Demoulas Supermarkets; Grand Union; Big Y Supermarkets; Big V; Aldi and Save-A-Lot limited assortment stores, and Target and Wal-Mart supercenters.

While the two executives were reluctant to pinpoint precise volume figures, Neil Golub indicated sales are running "at more than $2 billion a year and growing at a rate of 10.5% annually."

Price Chopper stores operate as far west as Syracuse, N.Y., where the company bumps heads with Wegmans, a similar family-run, quality-oriented, privately held regional chain based in Rochester, N.Y. However, Price Chopper stores do not extend farther west into Rochester and Buffalo, where Wegmans dominates.

Without being asked about it, Lew Golub told SN Price Chopper would consider expanding into the western part of New York "if it made sense. But we're so similar to Wegmans, it's not likely we'd expand there with the same kind of operation. It would have to be on an entirely different basis, with some kind of alternate format."

However, Golub declined to comment on specific plans for a new format or for an entry into western New York.

He said Price Chopper is committed to opening 8 to 10 new stores a year and seeking acquisitions

One opportunity arose earlier this month when C&S Wholesale Grocers, Brattleboro, Vt., agreed to acquire most of the Grand Union stores and then spin them off to other operators. Price Chopper said it is in discussions to acquire some of those units.

During the early 1990s, Price Chopper acquired 25 stores in Vermont and Massachusetts through acquisition, Golub noted. "But in today's world, there are a lot of companies with visions of grandeur, and that attitude makes it difficult for us to find acquisitions," he said.

"It used to be that selling prices were based on a fair return on investment, not on how much you can get per square foot. But today, when a property becomes available, the larger companies get involved, forcing the price up because they are willing to spend up to 110% of volume to acquire a good company.

"So that limits our ability to approach other companies about acquisitions. A few years ago, we bought one group of stores that was in trouble, but the next four or five companies we were interested in had foreign companies bidding for them and it made the situation much more difficult. But we will continue to approach others, though our success may be limited."

Its plans for its core stores involve sticking with its proven approach to retailing -- encompassing perishables, store operations and variety -- the executives told SN. According to Neil Golub, "In perishables, we want to make sure we have differentiation from our competitors, so the quality of the produce, meat, seafood, cheese, florals and bagels we carry is very high -- and because we do perishables so well, people regard our offerings as premium rather than everyday offerings.

"As a result, we've developed a reputation for several specific items that make us unique. For example, a lot of companies have rotisserie chicken, but customers tell is they think ours is superior to Boston Chicken. Or bagels -- we carry about 50 varieties, and people tell us we have terrific bagels.

"In florals, we've earned our position as the third largest FTD distributor on the East Coast, with 250 floral designers in the company. And sushi is very popular among younger consumers, and we're expanding it at every opportunity."

Despite what it considers its strength in perishables, Price Chopper contemplates raising the bar even higher, Golub added. "We've decided we have to get substantially better in each department so the difference is even more clearly recognizable to customers.

"We've already done that with bagels -- bagels draw customers to our stores. And whether you're looking at our food service, our produce, our Choice beef or our sushi, we take the extra step to bring in the highest quality of product, most of which is not available at the competition.

"So as we establish longer range plans, we expect to push the ladder up for ourselves, which is the only way to hang on to customers as Wal-Mart and other competitors continue to get larger. But their size is a plus for us, because we want the people walking into our stores to feel at home and comfortable, something they can't get in a Wal-Mart that's just too big."

In the area of store operations, Price Chopper is heavily involved in kosher merchandising, Golub said. "We've established six kosher stores for groceries, dairy and deli, and we ship kosher meat that's handled separately to those stores. During Passover this year, several stores carried 1,000 kosher items in all categories, so it's become a major offering. And we have a kosher store-within-a-store in Colonie, N.Y."

The company is also attempting to cater to the growing Hispanic community north of New York City with expanded offerings at a dozen stores, Golub said.

Price Chopper also prides itself on its variety, Lew Golub noted, including items aimed at specific demographic groups -- singles, smaller families, older couples, ethnics -- "and items that many people want but that the down-and-dirty price operators have eliminated."

To accommodate the depth and breadth of its offerings, Price Chopper stores are getting bigger, with the chain's locations averaging 55,000 to 60,000 square feet -- with some stores as large as 85,000 square feet -- compared with an average of 48,000 to 52,000 square feet a few years ago, Neil Golub said.

Of the company's new stores, most are replacement units, Golub noted. "Most of our assets are touched every four to five years, with major remodels every seven or eight years, and as a result of constantly upgrading, we have very few old facilities left," he said.

Price Chopper operates four distribution centers: its main facility in Rotterdam, N.Y. -- an 800,000-square-foot warehouse that's undergoing an expansion that will boost grocery space by 125,000 square feet and perishables by 60,000 to 65,000 square feet by 2001; a 130,000-square-foot frozen food warehouse in Colonie; a 60,000-square-foot frozens facility in Waterford, N.Y.; and a 120,000-square-foot general merchandise warehouse in Vorheesville, N.Y.

Asked about retail pricing, Neil Golub told SN, "Our pricing is competitive. We consider ourselves a strong promotional operator, and we're priced right on key items. I think we would be considered the toughest competitor against anyone who's not an everyday-low-price operator."

Burt Flickinger, president of Reach Marketing, Westport, Conn., said he agreed. "Price Chopper is always the price leader in its marketing areas while still delivering good service. It's priced very aggressively -- using a promotional EDLP approach -- with appeal to a broad range of consumers, from blue-collar to high-end."

"But we're not going to win the price wars with Wal-Mart," Neil Golub acknowledged. "If Wal-Mart is close to the lowest price in town, we won't beat them at that game. But they won't beat us on perishables, service and variety -- and if they tried, it would require them to hire additional labor, and then they would enter our arena on price."

But because Price Chopper competes with EDLP players like Wal-Mart and Hannaford, "we have to be priced right on the right items, which is why we consider ourselves a promotional operator," Lew Golub said. "And we're priced better than we were 10 or 20 years ago as our gross margins have come down."

According to Lew Golub, Price Chopper is particularly aggressive in promoting its private-label brand. "Right now we're pushing 22.5% to 23% of sales in private label, and it's going up about 10% a year," he said.

Private-label growth is coming in such categories as salad dressings, "where we used to have four or five items, but with all the new types coming out, we could have 15 or 20 items in that category alone," Golub said; and soup, "which came and went in popularity and is now growing again."

Price Chopper has a long history of community involvement.

"We're in a differentiated niche, not only in the area of merchandising but also in community involvement," Lew Golub said. "That's a heritage we acquired from family tradition, and we've honed it to a fine edge.

"Price Chopper is viewed as probably one of the most active community players anywhere in the U.S., and there are few causes we turn away."

He estimated Price Chopper gives back to the community about 10% of what it grosses each year.

The company has had a policy for the past 20 years that all employees, from department managers through top executives, must be involved in at least one civic activity each year to retain their jobs, Golub said. In response to an SN question, he said all executives have met that goal and no one has ever been demoted for a lack of civic involvement.

According to Flickinger, the chain is very good at cause marketing -- adopting causes like United Way, cancer research or literacy. "In the area of cause marketing, Price Chopper is possibly the equal of Target, which is regarded as the best cause-marketing retailer in the world," he said.

Its civic involvement also helps the company in its real-estate dealings, Flickinger added. "Price Chopper often has an edge over other operators, even the larger ones, when it comes to getting zoning changes or tax abatements in site selection," he said. "And its ability to attract foot traffic also helps from a real-estate standpoint because other key retailers in the area are anxious to have a Price Chopper adjacency in malls and shopping centers."

Despite all of its strengths, Price Chopper is still just a big frog in a small pond as far as vendors are concerned, which has led to frustrations on the chain's part.

According to Neil Golub, "The whole regional structure of product distribution from the manufacturer to the retailer has changed, as consolidation has led to the elimination of food brokers and store service personnel, and that has resulted in a total breakdown in the kind of service manufacturers used to provide.

"Wal-Mart says it doesn't want any service people in its stores, so a lot of manufacturers have decided that's a cheaper way to do business, and they've dramatically changed the way they go to market, and that hurts companies like Price Chopper in a smaller market like Albany, because we have constant difficulties getting experienced people to call on us.

"And once we develop relationships with good vendor reps, they're promoted to bigger markets and we get the rookies again."

"And it's going to get worse," Lew Golub added. "We really need those folks."