NGA CONVENTION 1999

ELLIOT ZWIEBACH

SAN FRANCISCO -- Independents are finding that battling supercenters and other alternative formats isn't as complicated as they might have thought.

Panelists in a session at the National Grocers Association convention here said focusing on basic strategies and core strengths is the best prescription for independent survival.

Their suggestions for independents included enhancing customer service; growing market share; maintaining facilities; exploiting competitor weaknesses; retaining operating flexibility, and offering shopper-loyalty programs.

"Regardless of the competition, if you take care of your own business, you'll have a good foundation for whatever comes," Carole Friedman Bitter, president and chief executive officer of Harold Friedman, Inc., Butler, Pa., said.

"If your core is strong -- including your people, your facilities and your community involvement -- it will serve you in good stead for whatever competition comes along."

Jack C. Smith, chairman and CEO, K-VA-T Food Stores, Abingdon, Va., said the key to survival is "service to customers at the front end and throughout the store. With good, friendly associates and a self-distribution program already in place that enabled us to compete for years with Food Lion on price, we were already considered competitive when Wal-Mart supercenters came into our area."

For Sacramento, Calif.-based Raley's, growing market share is one of the keys to longterm survival, Michael Teel, president and CEO, told the NGA audience. "As we face more competition from alternate formats, growing market share is a way to compete efficiently, and we can do that by working out deals with vendors, reinvesting in our foundation and acquiring additional stores," he said.

According to Michael A. Bozzuto, president and CEO of Bozzuto's, Cheshire, Conn., "For a regional wholesaler, it all goes back to basics. You need to be the best back door for your customers that you can be. Good service builds loyalty."

Panelist Bill Lancaster, vice president, corporate sales, for Associated Wholesale Grocers, Kansas City, Kan., said the Wal-Mart Neighborhood Market presents a real threat to supermarkets. "The danger I see is that Wal-Mart is willing to modify these stores to meet whatever customer expectations are not being addressed, and it can put them in so many locations very quickly.

"But if you concentrate on basics and don't build expectations that you can't deliver, then you will do well. Your stores have customers in them now, so if you can make adjustments quickly enough, you will be OK."

Another panelist -- David Rogers, president of DSR Marketing -- called Wal-Mart "an equal opportunity competitor that's going after supermarkets, specialty retailers, independent pharmacies and larger drug chains" in a variety of formats.

The latest format, the Neighborhood Market, is flexible enough to go into a variety of locations, Rogers said, "and it's still in the experimental stages."

But supermarkets have to take a longterm approach to all competition, Rogers said. "Every battle is local, and every battle is longterm.

"Wal-Mart likes to move managers around, and a good manager will open a supercenter and spend two or three years there, and when he moves on, standards may slip. So if you keep on top of opportunities and exploit whatever weaknesses you see, that can be a route to longterm survival."

Thomas K. Zaucha, NGA president and CEO, who was moderating the panel, said one advantage independents have over Wal-Mart's Neighborhood Market is the ability to communicate a community image.

"That's certainly an opportunity to exploit," Teel said. "In our company, we live in the communities where we do business, so why not take a position of leadership and take a leading position to improve the local environment. It's one of our responsibilities to lead and set an example."

Asked about the future of the independent operator, Bozzuto said, "People keep saying the independent is dead. But I've never seen a good independent operator go out of business, and the chains that are most successful think like independents.

"Independents are flexible, and they can react quickly, and the retailer that ties that attitude into technology to know his customers better will always succeed."

Bitter said she is bullish on the future of independent operators. "We were told in the 1930's that A&P would put the independent out of business. And today, as we read about so many mergers, we have to ask if we are doing the right thing by not selling.

"It's important for independent retailers today to know what's going on in the wholesale sector and to help strengthen the wholesale part of the business. And then we need to tell those wholesalers, give me the cost of product the chains are paying and I can compete in hundreds of little ways. "

One way independents can compete, Bozzuto suggested, is to offer frequent-shopper card programs.

Teel said Raley's offers loyalty cards at its Nob Hill subsidiary, "and we're looking to see how we can use a loyalty program to drive volume on a wider basis. But personally, I'm still undecided because, while I see a place for loyalty cards, I'm concerned about excluding some shoppers from receiving advertised specials."

Smith said K-VA-T has had a loyalty-card program for a year, "and we've spent most of that time promoting the card itself for everyone. Now we're at a point where, we plan to begin sending individual mailings on a monthly basis to the top 40% of our customers to reward our better customers without taking anything away from our casual customers."

According to Bitter, "We have no card now, primarily because our wholesaler cancelled plans for one several years ago. But two of our major competitors have introduced card programs, so we've decided to delay action because there's less impact when you're third in the market. We're also concerned with the costs versus the rewards.

"Instead, we're putting that money into store remodels and into more advertising of promotions available to everyone."

In a workshop session on competing for employees with supercenters, Patricia Storm, director of recruitment and training for Pay Less Super Markets, Anderson, Ind., said bakery, deli and dairy sales were hurt the most when Meijer, Grand Rapids, Mich., first opened supercenters in its trade area two years ago.

"We lost about 20% of our business at one store, but a year later, that's beginning to come back. And at a second store we lost 25%, but 90 days later, our sales are even with where they were when the supercenter opened," Storm said.

"To compete with supercenters there was no magic solution," she said. "We stuck to basics, did what we did best, and followed the Golden Rule -- to do unto others as we would have them do unto us."

To prevent Meijer from stealing its employees, "we formed a task force of our associates before Meijer arrived to look at established Meijer stores and make recommendations on how to compete with them," Storm said.

"Then we had companywide meetings to challenge associates to keep doing what had made us successful, and when Meijer opened, we lost only five part-time associates and one full-timer."

Storm said Pay Less was able to hold on to its employees for several reasons. Based of taped employee testimonials Storm aired at the workshop, those reasons include scheduling flexibility; the opportunity to move up in the organization; the willingness to hire retired people, and the willingness to allow employees to transfer among stores.