GROWING UP IN ST. LOUIS 2004-04-05 (1)

MARK HAMSTRA

CHESTERFIELD, Mo. -- Here in the suburbs of St. Louis, which served as a launching point for thousands of adventurers who set out to seek their fortunes in the vast expanse of the American West, Dierbergs Markets has tried to remain true to its small-town beginnings.

The Dierberg family, which owns and operates the 21-unit chain, traces its retailing roots back 150 years to a country store called "The 14-Mile House" in Creve Coeur, Mo., where local farmers and settlers who were headed west could tie their horses out front while stocking up on provisions.

The store came into the Dierberg family when Creve Coeur native William F. Dierberg Sr. acquired the store from H.M. Koch in 1914. Although the store expanded and relocated within Creve Coeur, it remained a one-unit operation until 1967.

Bob Dierberg, chairman, president and chief executive officer and the grandson of William Dierberg, joined the company in 1954, making this his 50th year in the business. He recalls unpacking groceries as a child for a penny per case when the company had just 10 employees.

"In the early days we were more of a rural community, and the suburbs over the years have grown up around us," he said in an interview with SN at the company's headquarters here. "So, we had a lot of the rural values that you would have in a small town, trying to serve customers as well as we could, trying to be practical, managing expenses. Those are the values that I learned growing up in the grocery business."

While the national supermarket chains have come and gone in St Louis, and Dierbergs' hometown rival, Schnuck Markets, has expanded through acquisitions to become a regional powerhouse, Dierbergs has stuck to a deliberate pace of growth that has allowed it to maintain a high level of service, a strong focus on high-quality perishables and prepared foods, and a close connection with its local customers.

Of the three major chains in the market -- the other two are Schnucks and Shop n' Save, a banner owned by Supervalu, Minneapolis -- Dierbergs is the most upscale in its merchandising. Its stores measure about 70,000 square feet, and are known for their expansive produce displays and wide selection of prepared foods made in the company's 95,000-square-foot central kitchen and bakery.

Its 21 stores generate an estimated $600 million in annual sales, putting its sales per unit in the $30 million range, well above the average for the industry. Each week, the company said, in excess of 350,000 customers do their weekly grocery shopping at Dierbergs.

Although the company said it sees increasing competition from alternative formats, including drug stores and club stores, it hasn't faced too much competition yet from the supercenters of Wal-Mart Stores, Bentonville, Ark.

Roger Dierberg, Bob Dierberg's cousin and now a semi-retired vice chairman of the company, said Dierbergs has always been a leader in the market.

"I feel that what we did was to raise the overall level of the shopping experience in St. Louis because our competitors had to start building stores like ours to remain competitive," he said. "I think Dierbergs really brought the whole level of supermarket shopping up in St. Louis."

While Bob Dierberg considered the company to have been a pioneer in many of the things it has done -- offering in-store banks and on-site cooking classes, for example -- there are some things Dierbergs has never tried. One is closing a store. Although some stores have been relocated and replaced with larger facilities, the company has never completely abandoned an area once it has built a store there.

"We spend a lot of time researching where to build, and we try to build in areas that are growing, so that as the area grows it will impact the growth of the store," he explained.

Another thing Dierbergs has never done is acquire a store. Unlike Schnucks, which bought some of the Kroger stores when the Cincinnati-based chain left the market and has made other scattered acquisitions throughout the years, Dierbergs has plotted each store opening carefully and built every one of its stores from the ground up, mostly in the fast-growing suburban communities around St. Louis.

Dierbergs only recently opened its first store in Illinois, just across the Mississippi River from St. Louis, and has yet to open a store inside the city of St. Louis itself.

"The layout of our stores is very important to us, and how the perishables blend in with the rest of the store is important to our customers," said Dierberg. "If you take over a building, it could have unworkable dimensions. With a new facility, you can do it just the way you want it."

Dierberg himself is closely involved in the design process, helping draft store layouts in his office using the AutoCad software favored by professional architects. It generally takes about 2 1/2 years from the time a site is selected until a new store is completed.

Big Store Evolution

Since the company expanded to a two-store operation in 1967, it has gradually added, on average, about one store every two years. Meanwhile, it has increased the size of its stores by leaps and bounds.

Roger Dierberg said that as the chain wanted to add more services to its stores and offer more variety, it needed to keep expanding its prototype footprint.

"In 1976, back when a big store was in the 22,000 to 25,000-square-foot range, we opened a 35,000-square-foot store, and as soon as we opened it, we knew it wasn't going to be big enough," he said in a telephone interview with SN. "So, the next store we opened, in 1978 in Manchester, was 50,000 square feet, with a floral department and a cooking school. That was the first large, upscale store in the St. Louis area."

He said the company quickly realized that even 50,000 square feet of space was not enough to provide all the services and product variety it wanted to offer, so in 1980 it replaced its original store in Creve Coeur with a 75,000-square-foot model, "and ever since then, we've been building them in the 70,000-square-foot-plus range," he said.

Roger Dierberg said it was a visit to Byerly's in Minneapolis by Bob Dierberg and his wife en route from a vacation that helped spur Dierbergs to evolve into an operator of the expanded format.

"That really changed our whole perspective on the grocery business," he said. "Bob came back and said, 'You wouldn't believe what I saw in Minneapolis.' That visit was a major factor in Dierbergs being the first in St. Louis to build large, upscale stores."

Although Byerly's provided inspiration for the Dierbergs, the company didn't want to be considered an exclusive destination for the wealthy.

"Overall, we had the large variety and the upscale feel that Byerly's had, but we really didn't want to go as far as Byerly's did because we wanted to do something that had a broader demographic appeal," he said. "We were just thinking in terms of providing a grocery shopping experience that was clearly better than what everyone else was offering."

One of the ways the company has been able to succeed at doing that, he explained, is through its use of home economists, or food specialists, who help give the chain its image as the local food expert through their on-site cooking classes and recipes. The chain also sponsors a cooking show called "Everybody Cooks" that airs on the local CBS affiliate four times per year during prime time. The program is often rated No. 1 or No. 2, Bob Dierberg said.

Making It Fresh

The chain's emphasis on perishables and prepared foods is overwhelmingly evident in its stores. Creative displays in the produce department are designed to have a strong visual impact and create an open-air market ambiance as soon as customers enter the store.

In one location toured by SN, for example, several varieties of apples were displayed in small baskets along a long shelf, alternating by color, almost like a display one might expect to find for lipsticks in a high-end cosmetics boutique. The result was a striking change from the typical stacks of apples found in many supermarket produce departments.

Individual produce managers are given flexibility to be creative in their displays, an example of Dierbergs' pervasive approach to employee empowerment that the company said has been one of the cornerstones of its success.

Other features of the perishables departments include olive bars, where Dierbergs creates colorful cross-merchandising displays with wines, olives and gourmet cheeses.

Also in the produce area, it merchandises salad dressings made by local restaurants, a feature the company said has been very popular with customers and helps distinguish Dierbergs in the market.

The vast delicatessen area, however, is where Dierbergs' culinary expertise is on full display. A wide variety of salads, sauces, sandwiches and entrees bearing the "Dierbergs Kitchens" label fills four-sided, reach-in coolers positioned directly in front of the deli area where the meals can be heated on the spot or orders can be custom-made.

The company produces more than 300 products from scratch in its central kitchen facility.

Meal components that can be combined for quick, at-home preparation are labeled with the "Meals in Minutes" logo.

The company takes so much pride in its recipes that it has even aired TV commercials promoting its made-from-scratch marinara sauce.

The theme of helping customers prepare their own high-quality meals also extends to the bakery, where, in addition to a large selection of fresh-baked breads, bagels, pies, cakes and pastries, the company features "Just Bake It" bread loaves that are supplied by a local vendor.

"More and more people want to buy meal solutions, and we make it easy for them to find everything they need to make a good-quality meal quickly and easily at home," said Greg Dierberg, executive vice president and Bob Dierberg's son.

A recent addition at one of the company's stores is a classically trained European pastry chef, whose on-premise facility supplies gourmet confections for four of the company's supermarkets.

Dierbergs places a lot of emphasis on providing solutions for at-home entertaining, offering an extensive catering menu and employing a party center manager who merchandises the wine and beer departments, and helps coordinate customers' party-related deli and bakery needs.

Dierbergs also considers its other service departments very important. Its Dierbergs Florist & Gifts departments have long been a significant component of Dierbergs' offerings, and the company has consistently been among the top 10 FTD florists in the country. Dierbergs also was an early adopter of video rental, although new stores are no longer being built with video departments because of the waning popularity of the service.

Pharmacies are offered at all but three stores, and the company has invested to make sure it stays on the cutting edge in that area. At one of the company's newest stores, for example, it has installed a remote drive-through pharmacy that uses video cameras to allow customers to consult face-to-face -- via video screen -- with pharmacists from their cars. Pneumatic tubes shuttle prescriptions back and forth under the parking lot between the pharmacy and the drive-up kiosk.

Positioned for Broad Appeal

Despite Dierbergs' extensive array of services and gourmet food offerings, the company has always taken pains to appeal to the broadest possible demographic.

"Our intention is to serve 100% of the population base," said Bob Dierberg. "Our corporate policy is to try to appeal to everyone."

Roger Dierberg said that has always been one of the company's biggest challenges.

"We try to offer our customers as many good values as we can," he said. "That's an ongoing battle that will never end."

Dierbergs buys most of its groceries from Supervalu, Minneapolis, and uses several other local and specialty suppliers. The company encourages department managers to tour rival stores in the market to help establish prices that keep Dierbergs competitive.

In addition to focusing on competitive pricing, Dierbergs also tries to stay on top of consumer trends that are affecting product selection. A few years ago, the company began adding "Whole Life" aisles to its stores, featuring organic and natural products. The amount of space dedicated to the sections varies by store, with up to two aisles of space devoted to the products. Some stores have the products integrated with their traditional offerings.

That component of the business has become increasingly important since the recent entry of Whole Foods Market, the fast-growing Austin, Texas, natural-foods retailer.

Dierbergs credits much of its reputation for service and innovation to its store-level employees.

"We spend a lot of time trying to meet or exceed customer expectations," said Greg Dierberg. "Customers notice the little things, and our associates do those little things. We have customers who will wait in line to see a particular associate because they want to talk to that associate. Many of our associates have 20 to 30 years of service, and they develop relationships with these customers."

Greg Dierberg's sister, Laura Dierberg Padousis, vice president, corporate development, said the company often acts on ideas from its store-level workers.

"We rely on the feedback of every single associate," she said. "If one of them sees something in a store while they are traveling with their family that they think is a good idea and something that will benefit our company, then we will go ahead and try and implement it. We like to experiment with new ideas, and we appreciate the creativity of our employees."

Andy Pauk, senior vice president and the most senior non-family member of the executive team, said the company takes its employees' development and empowerment very seriously. He said individual store managers are charged with making sure their employees grow and learn if they want to advance with the company.

"We try to utilize store managers so they are more of a coach, so they can get individuals at an early age and recognize that they have a future, guide them, and coach them a little bit," he said.

"We have programs for career development, so they can build their strengths," he said. "We have an in-house library, so if a department manager wants to work on their leadership style, they can.

"Those kinds of programs allow us to keep turnover down. It's important to have strong managers at store level."

The company works hard, he said, to maintain the same close connection to its employees -- and through them, its customers -- that it had when it was a single-store operator employing less than a dozen people in Creve Coeur.

Dierbergs' culinary expertise is spotlighted at the deli with an array of fresh items.

Family Business At Dierbergs

CHESTERFIELD, Mo. -- The fourth generation of Dierbergs has been groomed to take over the family business of Dierbergs Markets here.

Greg Dierberg, executive vice president, and his sister, Laura Dierberg Padousis, vice president, corporate development -- the great-grandchildren of the man who took over the company 90 years ago -- have been working at Dierbergs since high school and are actively involved in a wide range of activities at the 21-store supermarket chain.

"I feel like the fourth generation, my son and daughter, are very grounded in trying to serve the customer, but at the same time being practical about controlling expenses," said Bob Dierberg, chairman, president and chief executive officer. "We have not forgotten our company's core values, and at the same time, we are constantly looking for ways to improve the overall customer experience."

The younger Dierbergs also spent time working outside the company after completing college to gain experience in another corporate culture. Another brother chose not to work for the company.

Greg Dierberg went to work for Supervalu, the Minneapolis-based wholesaler that has been Dierbergs' primary supplier since 1981. He worked in Supervalu's Hopkins, Minn., distribution center, learning first-hand how the company fulfills orders for independents.

"Both Dad and I thought it would be good to work for another company before I came to Dierbergs," he told SN. "I thought it would give me the perspective of working for a similar business before coming into the family business."

Upon his return to Dierbergs, he spent six weeks working in each department at the store level before joining his father in the corporate offices. In high school, he had worked in the produce department and has always been drawn to that segment of the business, he said.

Laura Dierberg Padousis, meanwhile, worked for a public relations firm before going through the same training her brother did. During high school, she had worked in the chain's video department.

"I see the passion my dad has in running this company, and I think, 'How could I not want to be a part of it?' How often do you have the opportunity to have a job that you know you're going to love right out of college? I wouldn't second-guess my decision for a minute."

The company looked quite different when their father joined the business, back when Dierbergs was still a single-store operation. His cousin, Roger Dierberg, vice chairman, joined the company in 1969 after a 12-year engineering career at McDonnell Douglas Aircraft Corp. By that time, the company had two stores, and he and Bob Dierberg simply divided the responsibilities.

Roger Dierberg, who is now semi-retired, said he and his cousin have shared the overall management of the company as it grew.

"Bob had a great interest in merchandising and store design, and he was a great innovator, and I ended up working more on the business side of things," he said. "We never had formal, well-defined roles. We just kind of worked together."