BEARING UP

ELLIOT ZWIEBACH

MODESTO, Calif. -- Save Mart Supermarkets here isn't going to try to outrun the bear.

The bear is Wal-Mart, which is poised to enter California with supercenters for the first time over the next four to six years.

But Bob Piccinini, chairman and chief executive officer of Save Mart, said he's less concerned with escaping the clutches of Wal-Mart and more concerned with differentiating his company from the other supermarket retailers in the central and northern California areas in which he operates.

In an interview with SN, Piccinini said the "bear" metaphor comes from a joke he's been thinking about lately -- the one about two men who encounter a bear in the woods. "One guy says to the other, we better start running or that bear will catch us, and the other guy says, I don't have to outrun the bear, I only have to outrun you.

"So my feeling is, we don't need to outrun Wal-Mart -- we only need to outrun the other supermarket guys. It will be a matter of survival of the fittest, and we think we'll still be standing after all the dust settles."

Save Mart has been outrunning one bear or another for 50 years. Reflecting on his company's long-term survival, Piccinini said, "We've seen a lot of competition come and go, and in all that time I've never known this business to be a piece of cake. It has always been a difficult business, and I don't see that changing.

"But through the years, successful companies have been those who work hard, take advantage of opportunities, reinvest and take care of their employees and customers, and if we do all those things, then bring 'em on. Sure, it might be a battle, but so be it. If it were easy, anyone could do it.

"We have a heritage that says we can do it better than the guy down the street, and I don't see that changing."

When the guy down the street is Wal-Mart, Save Mart knows what it can and cannot do, Piccinini said.

"We know that Wal-Mart's forte is cheap, and we understand that we can't be cheaper, or even as cheap, as they are on the food side. Wal-Mart uses food as a football, and we won't try to compete with that. But we can do a lot of little things better in terms of product categories and services, and we're striving to strengthen our programs in those areas."

According to one Northern California observer contacted by SN, "After 50 years, Save Mart has become an institution in that part of the state. It operates a modern store base, and it's doing all right.

"But it may be more vulnerable to Wal-Mart than some competitors because it doesn't have the geographic penetration that a Safeway or Albertsons does, and its stores tend to be in areas with a lot of buildable real estate, so it might have more exposure to supercenters."

But Piccinini told SN he isn't panicking. "We keep hearing rumors that Wal-Mart is looking at this site or trying to get zoning for that site, but we can't worry about those kinds of reports. My feeling is, whatever happens happens.

"And while we don't want to downplay the fact Wal-Mart is coming and that it will certainly impact the industry, I believe my job is to accentuate the positive, to make sure customers know what we can do better than Wal-Mart and the other guys."

Secret of Survival

Asked about the secret to surviving in the food business for 50 years, Piccinini didn't hesitate in replying. "All companies that survive for any duration do so by taking care of customers and making the right decisions at the right times," he said.

Save Mart takes care of customers the old-fashioned way, Piccinini acknowledged -- by stressing friendliness and courtesy. "Our people take customers to products they ask about, and we give them treatment when they want treatment," he explained.

To ensure customers are treated right, Save Mart has developed a program called Customer Connection -- a three-year-old effort that offers financial incentives to employees to encourage them to take better care of customers, Piccinini said.

Treating customers right has been part of Save Mart's culture throughout its history, Piccinini pointed out. "But at times we've gotten so busy we haven't been as good as we could be. Customer Connection has brought us back to where we need to be."

The program utilizes mystery shoppers to grade store personnel on specific criteria, he explained, "and anyone who doesn't meet those criteria loses points for their store. Then, at the end of every quarter, employees at stores whose totals have met the criteria get a cash bonus."

The stores take the ratings seriously, he said, citing one instance of a store manager "who told me his store had missed the bonus by one hello. That may seem corny," Piccinini told SN, "but if one more clerk had said hello to the mystery shopper, the whole store would have gotten a reward.

"So we think Customer Connection raises awareness among employees and puts peer pressure on anyone not meeting the criteria."

Asked about "making the right decisions at the right time," Piccinini cited one instance from the early 1980s, when Save Mart was deciding whether to get into the dairy business. "Some people were hesitant, while others said they were for it. We decided to go for it, and the dairy facility we opened has been very profitable for us and a big part of our success over the last 20 years," he pointed out.

Reaching decisions by consensus is part of Save Mart's basic teamwork philosophy, Piccinini said.

The company was originally founded by a two-man "team"; Piccinini got the bulk of his management training as the junior member of a three-man team, and although he now has the final say, he is committed to soliciting opinions and input from his family of employees before making a decision, Piccinini told SN.

"One thing I preach constantly is the idea that if we can maintain two things -- communication and discipline -- then we will be successful. A lot of baseball teams hire the best players, but if they don't function together as a team, they don't win. Teamwork comes from communication and discipline.

"That concept of teamwork goes back to Day One."

The Founders

Day One for Save Mart was Jan. 17, 1952, when Piccinini's father and uncle opened their first store here -- a 6,000-square-foot unit in this agricultural community, located in the heart of the San Joaquin Valley approximately 75 miles east of Oakland, Calif.

"My father and uncle founded the company and they worked as a team, though my uncle was the guy really driving the business. When he got sick, my dad took a more active role. Then he died, and Bill Johnson became general manager and I was a trainee. Then Bill retired and I took over.

"If a company is built and structured properly, it doesn't succeed or fail based on what one person does. It's the organization that keeps it going. Sure, there are bumps in the road, but it survives."

Save Mart operates 97 stores in central and northern California, extending north almost to Sacramento; south to Bakersfield; west to San Francisco and San Jose, and east to the foothills of the Sierra Nevada Mountains.

Fifteen of the stores operate under the Food Maxx banner -- a price-impact format spread across its operating area, and eight operate under the S-Mart banner.

S-Mart stores, located in Stockton and Lodi, are so named because another company called Save Mart had claim to that name in those cities before Piccinini's company did, "and when a potential problem developed 40 years ago, the two companies agreed that they could use the name in Stockton and Lodi and we could use it in Modesto, and everyplace else was fair game to whoever got there first."

Annual sales are running around $1.65 billion, Piccinini said -- up from $1 billion in 1991, when it actually operated more stores than it has now.

"We had a store count at one point of 104," he explained. "But the stores we built or acquired during the 1970s and 1980s were in the 23,000- to 28,000-square-foot range, and although they were all state-of-the-art at the time they opened, those stores are dinosaurs now.

"So as their leases come up, we're getting rid of them or tearing them down and building new, expanded units. As a result our sales have gone up while our store count has gone down."

Save Mart still operates some of those 23,000-square-foot "dinosaurs," many of which are still profitable, Piccinini said. But generally its prototype today is stores of 45,000 to 55,000 square feet.

Save Mart opens at least one or two new stores a year and does three to four remodelings annually.

Piccinini has been sole owner of the company since 1985, when he bought out other family members.

Asked if he'd considered selling, Piccinini said, "Not a day goes by that I don't think about selling the company vs. making plans for continuity of some sort. I've been approached about selling numerous times by all the big guys, though not recently, and my answer has always been consistent. What I've told all of them is, when I'm ready, I'll call them."

He said he doesn't expect to be ready anytime soon. "At this point I don't see myself retiring because I'm enjoying the hell out of what I'm doing," he told SN.

Piccinini, 60, acknowledged that the company does not have a succession plan. "My two older children have no interest in the business, and my two younger children are too young to think about it. So if I die, the executors of my estate will have to figure out what to do, and that could mean the company gets auctioned off."

Save Mart's managers and employees are aware of Piccinini's plans, or lack of plans, he told SN, yet few have used the potential uncertainty to leave, he added.

Piccinini said he's interested in growing the company "by any means possible, including acquisitions. But the problem with acquisitions is, most of the stores people want to sell are dinosaurs. That's why they're for sale."

About 25% of Save Mart's growth over the years has come through acquisitions, though many acquired stores have subsequently been replaced or closed, he said.

The chain's biggest single acquisition came in 1989 when it acquired 27 Fry's Markets from Kroger Co. in San Jose and the East San Francisco Bay area. "Most of them were older, smaller stores, even by 1989 standards, but we probably still operate 15 of the original units," Piccinini said.

"If you measure the Fry's acquisition by the success of the individual stores, then it was probably not a successful deal. But the volume, which was $300 million at the time, gave us critical mass in those areas and helped get us into self-distribution of groceries, so it was hugely successful on that score."

Self Distribution

Save Mart began distributing its own groceries in 1991 in a partnership with Raley's and Bel Air Markets, both based in Sacramento. The partnership originated in 1980, when the three companies opened a dairy together.

"We felt the need to do our own dairy distribution, so we formed the partnership and bought an old plant that had been manufacturing yogurt and retrofitted it to produce milk under the Sunnyside Farms label," Piccinini said.

A week after that company, named Mid-Valley Dairy Co., opened, the facility burned to the ground, and the new 75,000-square-foot plant -- in Fairfield, Calif. -- took two years to build. Six years later the partnership built a second dairy facility -- a 125,000-square-foot operation called Sunnyside Farms Dairy, in Turlock, Calif. -- to produce ice cream, yogurt, cottage cheese and other byproducts.

In 1991 the partnership got into distribution of dry groceries and frozen foods by forming WestPac Distribution, based in Lathrop, Calif. Originally 600,000 square feet, that warehouse has been expanded to 840,000 square feet.

With the opening of the grocery warehouse, the partnership was consolidated as Super Store Industries. (Raley's acquired Bel Air in 1992.)

Asked how two companies that compete with each other can operate a distribution business together, Piccinini said, "I'm asked about that all the time, but we are able to work together very harmoniously.

"Merchandisers from the two companies get together once a month to determine what products we want to bring into the warehouse. For the sake of efficiency, we've decided that each company can stock a certain number of products the other company doesn't want in what we call discretionary slots. Beyond those slots, both companies must agree on what we will stock in the warehouse."

Distinctive Look

In designing its stores, Save Mart tries to give each location a distinctive look, Piccinini said.

"We've gotten away from one-size-fits-all, and we try to build each store to fit the neighborhood it will serve. The chains say that's what they do, but we don't think they do it as well as we do because we know the neighborhoods better, and we don't have a huge ego -- our goal is to design a store that serves the customers best, not one that offers all the bells and whistles at every store just because we have them all available to us."

The prototype store Save Mart is opening has a distinctive look, Piccinini pointed out, beginning with the black-and-purple color scheme -- black refrigerated cases, purple wall decor and purple aisle markers -- plus colored concrete floors. In addition to the distinctive black cases in the perishables departments, island displays are constructed on faux wood fixtures that resemble packing crates.

"We're going for eyeball appeal, and we feel we get that with the combination of colors and textures," Piccinini explained.

Stores also feature end displays that utilize several shelves featuring a variety of items, rather than traditional endtables with a single item stacked high and priced low -- primarily to keep the floors free of displays that interfere with customer shopping, Piccinini explained.

"We like to limit the number of floor displays because if you let stores use them with no rules, there's no room for customers to push their baskets. For years, we tried to get stores to cut back on floor displays, and we even threatened to cut out displays completely. The result was the development of this end-display program with shelving that features a plethora of different items on each end."

Distinctive features at one of Save Mart's newest stores include the following:

A sushi bar that allows customers to select the ingredients they want so the sushi chef can customize their order.

A service meat department "where people can talk to a butcher about what to serve on special occasions," Piccinini said. "We put it in as a test, and so far it's been successful because it's something special. People may not use it on every trip, but we think they like the idea of an old-fashioned butcher shop in the store."

Exposed ceilings that enable the store to use the skylights to cut down on the energy expense. "The lights have sensors that turn them on and off, depending on the sunlight," Piccinini explained.

Building a Family Culture

MODESTO, Calif. -- Save Mart Supermarkets was founded here 50 years ago when Mike Piccinini and his brother-in-law, Nick Tocco, went into business together with a 6,000-square-foot store.

Piccinini had been running a small grocery store with his two siblings, and Tocco had been involved in the wholesale produce business when they decided to go into business together, Bob Piccinini, Mike's son and the company's chairman and chief executive officer, told SN.

Tocco took the title of president and managed the business, while Mike Piccinini became vice president. However, when Tocco became disabled following a stroke in 1965, Piccinini took over day-to-day operations, his son told SN.

Of Mike's two children and Nick's two children, Bob Piccinini was the only one who was interested in going into the business, he said, "because it was a job with a paycheck," he recalled with a laugh.

Bob Piccinini began working for the family business in 1965 and was working on developing shopping centers in 1971 when his father died suddenly of a heart attack.

At age 28, Bob Piccinini became a vice president of Save Mart as part of a three-man team running the company that also included Bill Johnson as general manager and Bob Olson as chief financial officer. Piccinini told SN his job was to represent the family's interests while he learned the business.

When Johnson retired in 1980, Piccinini took over as president. Five years later he was the main player in a leveraged buyout of Save Mart that transferred 95% of the equity from the Piccinini and Tocco families to himself, with the balance going to some employees and ex-employees. At the same time, he became chairman and chief executive officer.

Although it is no longer as a family-owned operation, it still operates that way, Piccinini told SN.

"We have a culture of family at Save Mart," he said. "If you look at the longevity of our buyers, no one has less than 25 years. We've got good people, and we rarely have anyone leave."

Piccinini said he regards the chain's employees as "one big family. A lot of companies in the industry refer to their employees as a family, but not all of them really follow it through."

Save Mart follows through in a variety of ways, including management's annual holiday tour, when Piccinini and other top executives visit every store at the end of every year to personally wish each employee a happy holiday season. Last year the executives racked up 3,500 miles between Thanksgiving and Christmas, Piccinini told SN.

The company also sends birthday cards to each of its 7,500 employees, personally signed by Piccinini. "It's quite a bit of work signing all those cards, but you can't believe how much it means to our people," he said.

Asked how he defines "family" in the corporate sense, Piccinini said, "Family implies a sense of belonging and togetherness that increases productivity. How often have you seen a company come up with a great idea and then realize it can't be implemented because it can't get its people to make it work because they won't buy into the program?

"That doesn't happen here. Everyone is involved in the decisions we make. I may have the final word, but we strive to involve people in the decision-making process. As a result, whenever we do something of any magnitude, everyone gets to put his 2 cents in, so that when we begin executing the program, everyone is pumped up and anxious to be part of it."

One of the primary "family projects" at Save Mart, Piccinini said, is its annual sponsorship of the NASCAR Winston Cup race. "We've sponsored that race for 11 years, and it's an effort the whole company gets excited about. We promote it for six weeks prior to the event, with in-store displays and all clerks wearing 'race' shirts, and everyone in the company is excited."