INDEPENDENT ADVANTAGE

CHRISTINA VEIDERS

RESTON, Va. - In times when large, publicly held companies have decided to call it quits due to marketplace pressures and profitability challenges, independents may be tempted to say, "We told you so."

However, Tom Zaucha, president and chief executive officer of the National Grocers Association here, views the sale of Albertsons last week as a continuum of past mergers and acquisitions in which the independent grocery retailers have learned how to survive. They also have learned how to beat the onslaught of Wal-Mart Stores and other big name competitors. With some of Albertsons' properties likely up for sale, there will be those independents ready to pounce and turn around what was viewed as underperforming assets.

On the eve of the NGA's annual convention in Las Vegas, Feb. 8 to 10, Zaucha spoke with SN about where the independent sector has come over the last decade and where it is headed.

The big mergers in the late '90s -Kroger/Fred Meyer, Albertsons/American Stores, Safeway/Dominick's/Randalls and Ahold/Stop & Shop/Giant Food - did not presage the demise of the independent as some may have predicted. Zaucha said that scenario didn't happen primarily because the acquisition model has proved faulty. "Just look at Genuardi's, Tom Thumb, Randalls and you understand fully that while you can buy somebody, it doesn't mean you can adopt the culture of that company."

Independents have in fact maintained an important position in the food distribution industry and many of them, especially privately held regional players, have grown their store base and business. According to NGA statistics, last year U.S. supermarket sales reached $458 billion, NGA's constituents accounted for $200 billion, and the Top 20 grocery cooperatives represented $30 billion.

"The hallmark of the independent sector is its staying power," said Zaucha, who explained that independents have one significant advantage over publicly traded companies by not having to meet Wall Street's quarterly expectations. This allows them to strategically plan ahead and maintain a level of profitability that lets them grow, he said.

If Zaucha had a mantra for the NGA, it would probably be what he calls the two D's - diversity and differentiation. Last year the NGA wrote a strategic plan that embraces the two D's and is dedicated to promoting and preserving retail diversity within the marketplace.

In executing this strategy, the ultimate winners will be the consumers, Zaucha said. They'll benefit "through price competition, better service and product selection, and variety and overall value. The focus on the two D's has enabled the independent to develop a darn good growth mode."

However, Zaucha warns against what he calls the scorched-earth policy of big retailers who come to dominate a market with numerous stores and store formats.

"This saturation-bombing approach leaves little room for anyone to do business, and that is a significant concern for NGA and one that deserves our attention," Zaucha said.

NGA is dedicated to educating public-policy makers at the federal, state and local levels and pointing out the implications of competitive activity down the road, Zaucha said. Will there be a bigger or lower tax base as a result? Will there be more or fewer jobs as a result? Will the infrastructure of the community be enhanced or destroyed? "Increasingly, there is information and case history studies to answer those kind of questions," Zaucha noted.

NGA recently hired former independent retailer Greg Ferrara as director of government affairs. He has begun to work at the grass-roots level on NGA's Campaign to Preserve Competition and Consumer Choice to level the playing field on public-policy issues such as local tax subsidies and incentives being offered to supercenters.

The NGA is diligently monitoring and taking action on issues that may upset a level playing field, Zaucha said, such as closely watching Wal-Mart's attempt to change the banking laws that would allow it to establish an industrial bank in Utah and process credit-card, debit-card and electronic check transactions from its stores. High credit-card interchange fees are another priority on NGA's agenda this year. The association has filed an antitrust, class-action lawsuit against Visa, MasterCard and major banks, alleging that they engaged in illegal collusive practices by setting credit-card interchange fees at supra-competitive levels in violation of federal antitrust laws.

Zaucha said independents will continue to assimilate stores that the mega-chains sell off. "We predicted this would happen," Zaucha said. "Growth by acquisition for chains like Albertsons and Winn-Dixie did not work. This has enabled a lot of independents to pick up stores and assimilate them into their own culture and run them more effectively and efficiently than the chain competitors."

Zaucha also expects organic growth from his members. "If you are effective, then you have the wherewithal to bid for new locations to build new stores in emerging demographic areas where there is population growth," he said.