INDEPENDENTS STRESS NICHES FOR SURVIVAL

DON YAEGER

Independents need a niche to propel themselves into the 21st century.

And while many such operators have already found the calling, others continue the struggle to survive amid intense competition from large chains and supercenters in many parts of the country.

For example, Carl's IGA, with four stores in the Rio Grande Valley of south Texas, hasn't turned a profit in six years. The company is straddled with 19 chain stores and five supercenters. Retail square footage in the Mission-McAllen-Weslaco area has tripled in the past six or seven years, said Buz Waitz, president and part-owner of Carl's.

While retailers such as Carl's find themselves pitted against the giants, the Mission, Texas-based retailer and others also are discovering an emerging form of competition from drug stores and discounters -- as both segments increasingly take on food products.

Independents across the country interviewed by SN said that their colleagues, in order to compete, should:

Find a niche wherever possible, in format, product line or location.

Launch a customer loyalty-card program.

Follow the traditional independent store hallmarks of quality and friendliness.

Take advantage of all wholesaler programs related to buying power, private labels and technological advances.

Emphasize perishables.

Renovate wherever and whenever possible.

In the case of Carl's IGA, however, the company doesn't have enough funds "to fix up like we want to," said Waitz. He noted that competitors such as H.E. Butt Grocery Co. "spent millions" on expansions and remodelings in preparation for Wal-Mart's four-store supercenter entry in the area. He said that cash flow for the independent never improves because as sales get better someone opens a new store nearby -- and volume once again plummets.

Carl's has been "burning the furniture" to stay afloat, said Waitz, who is "guardedly optimistic" about 1998. In the past seven years, the firm has gone from seven stores with 1,000 employees to the current four stores with 250 employees. As part of a cost-cutting program, another unit was expected to close in April. However, following improved results in 1997, the retailer expects to turn a profit this year.

Waitz credits Carl's wholesaler, Fleming Cos., Oklahoma City, for assistance in a restructuring program -- and providing the IGA label, which, he said, "gives us a means to compete."

Survival strategy also focuses on perishables departments that offer products not available at most competitors.

"Customers tell us our beef is different," said Waitz. "We buy from upstate packers -- and get a product we feel is less tough and has more flavor. Most other stores here buy locally raised beef. Our in-store bakeries are scratch or mix, whereas the big guys are all bake-off or thaw-and-sell."

Most independents shy away from price competition, but Carl's has been getting a good following from its frequent-shopper card, he said.

Featured are 12 loss-leaders each week that, according to Waitz, are "the lowest prices in the valley." Topping the list recently was bread at 25 cents a loaf.

One independent that has found a niche -- with limited-assortment stores -- is Wigest Corp., Indianapolis. The company, franchisee of two Cub Foods stores in Toledo, Ohio, now is focusing on Save-A-Lots, said Rusty McKay, president.

"We went around the country looking at different opportunities -- and found an immediate need in Indianapolis. As chains build bigger and bigger stores, they pull back from the total number of units. This creates a geographic and economic hole for limited-assortment formats."

Wigest currently operates three Save-A-Lots in the Indianapolis area, with another under construction.

When price competition got too tough for McCaffrey's, a three-store operator with units in New Jersey and Pennsylvania, the company decided to go after the scale shopper, said Jim McCaffrey, owner.

Sales for the first half of this year are expected to be up about 7%, with profits showing a similar increase. And the company is in the process of negotiating a lease on a fourth store.

Key to the upscale switch is a 14,000-square-foot central commissary that was built more than one year ago. Among other things, the facility packages takeout gourmet meals that retail from $4.99 to $8.99 -- and are said to be moving well. One of the firm's stores was recently remodeled to include a food court and a sushi bar, McCaffrey said. Company stores are about 40,000 square feet.

When Giant Food came to the market with its Super G entry, "everyone was trying to buy market share," the retailer said. One wholesaler's retail accounts shrank from 90 stores three years ago to 62 today, according to McCaffrey. "They couldn't cut it in price, so they closed."

Another independent going the commissary route is Brodbeck Enterprises, Platteville, Wis., operator of eight Dick's Supermarkets.

"Prepared foods have grown considerably," said Bob Brodbeck, president. Using a facility for bakery, deli and HMR, Dick's addressed the issues of health concerns, product consistency and equipment duplication, Brodbeck pointed out.

While HMR has a good future for the independent, current levels of shrink have caused profits to be "very elusive," the retailer pointed out. The central bakery-deli for Dick's Supermarkets also serves other independents and some institutions.

First-quarter sales at Dick's were higher than last year, though "inconsistent," Brodbeck said.

"Sales were up -- but not where we would like them to be." Two of the eight stores reported lower volume in the quarter. The company was adversely affected by mild weather in Wisconsin this winter -- with customers traveling more and not eating at home.

Noting that convenience stores "are cropping up on every corner," Brodbeck said that most of them feature takeout foods. Stiff competition is also coming from limited-assortment stores and the food section of conventional Wal-Marts. It was reported that, about six months ago, Wal-Mart began selling milk and frozen products in area stores.

Although the nearest supercenter now is 60 miles away, there is talk that Wal-Mart is looking at closer sites, the retailer said.

In preparation, Dick's is emphasizing training, quality standards and variety. The firm is pleased with its loyalty-card program, which highlights the more unique products such as those often featured in demonstrations.

"We need to focus on the customer -- not what the vendor has available," said Brodbeck. Through a corporate dietitian, Dick's offers alternatives for the consumer who needs to get in and out in a hurry. There are suggestions covering such factors as nutrition and time of preparation.

But Jim Bauersfeld of J.M. Bauersfeld's, a three-unit operation in Topeka, Kan., has a different angle on who should get most attention.

"Formerly the customer came first -- but now our associates come first."

Department heads at his store are in charge of their own destinies, which means that they are included in the entire planning process including merchandising themes.

Bauersfeld said that his stores have excellent perishables and service -- factors that help them compete with a Wal-Mart hypermart, the Dillon division of Kroger, and Falley's, a Topeka institution.

The company has a scratch bread program and employs a centralized chef who is responsible for prepared meals.

Sales of the Topeka firm are running 2% to 3% higher than last year.

''We're holding our own," said Bauersfeld. "I don't like flat growth -- but it's happening all across the country,"

Failing to update is the independent's biggest problem, said Jesse Lindsay, co-owner of Paramount Foods, Clinton, N.C. Acting on that premise, the eight-store Piggly Wiggly franchisee recently renovated its largest store. The unit now measures 45,000 square feet and includes a "sidewalk cafe," a one-hour photo lab and a one-day dry cleaning service. A media center seats 140 persons and is equipped to handle catered business meetings. In addition, the store contains a branch of the First Citizens Bank. Presently, Food Lion is the only competitor, but a Wal-Mart is expected in the area by next spring.

Lindsay said the firm's flagship unit in Clinton has been enlarged five times since 1963. In the latest renovation, part of the sidewalk was enclosed in order to contain an 80-seat restaurant with a cafeteria line. The company has a rather extensive line of HMR items, Lindsay noted.

"If you have good food in the HMR program, you will make money," he said. At Clinton, a side entrance leads into the dining and takeout area.

At Jax Markets, Anaheim, Calif., first-half business is basically even with last year -- maybe 1% higher. Profits, too, are flat for the five-store group that mainly serves inner-city locations.

Because of welfare reform and cutbacks, the company is getting 25% less Food Stamp business this year, said Bill McAloney, president. But independents are said to have a rare price advantage in this market because of chains' high debt service resulting from numerous buyouts.

An eight-month-old loyalty-card program identifies good customers and carries temporary price reductions. If $30 is spent on a store visit, the firm gives the customer a free bus ride home between the hours of 10 a.m. and 7 p.m. The practice has resulted in reducing shopping cart shrink, he said. Buz Waitz of Carl's IGA said his company also has been adversely affected by welfare reform and reduced use of food stamps.

Change in ownership can be beneficial to the small merchant, observers note.

Huffer's Food Inc. reports sales running 10% to 12% higher at its 12,000-square-foot store following acquisition of the single unit in Wheatland, Wyo. Owner Frank Huffer attributes the gains to his 29 years of experience -- nine of them with a Safeway in the same community of 2,800 persons.

"When I worked at Safeway, I had heard customers say that produce was bad at the store I later bought."

Huffer said that with the aid of a produce consultant from his wholesaler, Nash Finch Co., the department was given "more of a produce look" by installing such fixtures as orchard bins.

The next improvement will be in the deli-bakery, where a deli case will be expanded to display shaved meats. The store, which operates under the Nash Finch Food Pride label, expects to buy a nacho machine and hot dog rollers to pull business from nearby high school students. A larger rotisserie is in the works to beef up quick meal offerings.

The 38,000-square-foot Safeway in town -- Food Pride's only competition -- has no deli-bakery.

Huffer said that when he took over the store, he instituted things he had learned in a career ranging from courtesy clerk to manager. He pushed cleanliness -- but also made sure that plenty of product was available to back up weekly ads.

Also partially responsible for sales gains are the "Our Family" private-label items from the wholesaler, Huffer said. Vegetable and fruit packaging recently was redesigned with more appealing colors. The most recent private label stocked is a soft cookie in a package very similar to one used by Nabisco -- but $1 to $1.50 cheaper.

McDonnell's Market Place, St. Louis, is yet another example of an independent shifting gears for survival.

"About five years ago as more women went back to work, we noticed a slowdown in our morning business," said Art McDonnell, owner of the 12,000-square-foot unit, located in a residential area about 4 miles from the nearest competition.

"A nearby business called one day and asked us to bring down some sandwiches for a meeting. That was the beginning of our catering business, which operates out of the store deli."

With one or two catering jobs daily (either for offices or individual parties) mornings at McDonnell's again have become productive, the retailer said. The catering operation also takes up the slack from reduced meat sales.

"Meat consumption is not what it used to be," said McDonnel, whose prime beef was highly promoted 20 years ago. "Meat had been a big profit center."

The catering-deli operation now comprises about 25% of store sales, compared with about 10% five years ago.

An aberration in the independents' struggle is the Kansas City market, where these operators have an estimated 75% market share. Kroger, A&P and Schnuck all have departed through the years, victims of aggressive independents in an over-stored market.

One observer said that independents have done well in Kansas City because they followed the wishes of the customer. Many of these stores began as bare-bones warehouse units or super warehouse stores when those formats were in vogue -- but later, cognizant of consumer trends, became more upscale with a focus on innovative perishables departments.

Fred Ball, who owns 23 stores in the area -- most of them Price Choppers, credits his supplier, Associated Wholesale Grocers, for its pricing and promotional programs. He said that retailers who are members of the AWG cooperative can compete because the wholesaler does large-scale buying through a high-volume warehouse.

Competition in Kansas City includes the Hy-Vee chain, three Target supercenters and many nongrocers who offer some food items.

Since there is hardly any exclusive merchandise available to the independent, steps must be taken to get customers in the store by other means, Ball said.