RPCS LOOKS FOR ADVANTAGES OF EMPLOYEE OWNERSHIP

Elliot Zwiebach

SPRINGFIELD, Mo. -- RPCS, parent company of Ramey, Price Cutter and Smitty's supermarkets here, is hoping that its new status as an employee-owned company will help it reduce waste and boost customer service.

The 32-store chain became 100% employee-owned on Jan. 1 when it was acquired from Roswil, the Washington, D.C.-based investment company that had owned it since 1967, and adopted an employee stock-ownership plan, or ESOP, that gave associates a stake in the company.

Erick Taylor, president and chief executive officer of the $300 million retailer, said he anticipates greater employee involvement will help boost the chain's fortunes. "We're hoping the ESOP will motivate employees to become more aware of shrink and the factors that cause it," he told SN. "We're also anticipating that service levels will improve."

The company's primary focus right now, Taylor said, is "to aggressively try to retire debt with cash from operations and to grow the stock value for employees by reducing shrink, increasing sales through better customer service and looking to grow."

He said he prefers growing through acquisitions rather than building new stores "because with all the competition from Wal-Mart and Target, there's too much square footage becoming available out there, and we expect more consolidation to take place across the country."

RPCS isn't considering any major acquisitions at this time, Taylor said. "We're looking more at making one- and two-store acquisitions this year. But within the next five years, there's a good chance we can make a major acquisition -- perhaps something with 10 stores or more."

He said the company would prefer to stay within its current 200-mile radius but might consider doubling that area over time. "We need to stay within 400 miles of our offices so we can maintain local flexibility and operate each store for the specific community," Taylor explained.

Going head-to-head with Wal-Mart Stores supercenters at 25 of its 32 locations, RPCS has been attempting to differentiate itself with better variety and perishables. Taylor acknowledged that the company rarely regains volume it loses to Wal-Mart, "so we have to look for other avenues to replace it, and that means getting it from other operators."

Besides Wal-Mart, the RPCS stable of stores competes with five Kroger-owned Dillon locations, Super Target and several independents.

Taylor said the company looks at the demographics of each store to determine what growth opportunities are available, "and that's the biggest advantage we have as a local operator -- the ability to look at each unit individually and figure out what we can do to compete better for share of stomach."

Accordingly, the company is adding natural and organic foods at stores in metropolitan areas and dollar sections at stores in rural areas, Taylor said. "We're also adding pharmacies or liquor departments at stores that don't have them, and we're adding Starbucks at some larger locations," he said.

The company has gone so far as to build a barn next to one of its rural stores in Seymour, Mo., to accommodate the large Amish community in the area, "so they can pull their horse-and-buggies in when they come to shop," Taylor pointed out.

He said he believes those efforts are working "because sales this year are the best they've been in the last five years."

Sales are up 5%, he said, and same-store sales are up 2.5%, compared with flat comps a year ago. While it's too soon to attribute the increases to the ESOP, Taylor said part of the upswing may be due to the price of gas in Missouri, which has risen 50 cents to $2 per gallon over the past year. "Restaurant sales are slipping as people are willing to drive less, and that may be helping our sales as people opt to cook more at home," he said.

Taylor said he believes the chain's improved selection and customer service are also contributing to the sales lift.

"We're focusing on improving customer service through discussions with employees. We're particularly interested in making the customer's last experience at the store -- the checkout and carry-out process -- better, and we're really pushing to improve on that by trying to speed up the process and training cashiers to look up and call for help if the checkstands are very busy."

Except for a single Save-A-Lot it operates in northwest Arkansas, the chain's 31 other supermarkets, which operate under three banners, are all conventional stores, "but we're the most aggressive conventional store in the market," Taylor said. Although Kroger has lowered margins over the last couple of years, "they're not as aggressive on price as we are. We believe in keeping expenses down so we can keep prices down," he explained.

With 22 locations, Price Cutter is the chain's primary banner, operating stores of 40,000 to 55,000 square feet, with five stores that range up to 70,000 square feet operating as Price Cutter Plus that include an in-store Starbucks cafe.

"We think 40,000 to 55,000 square feet is a good size for us because it offers enough space to carry all the variety we need to compete with Wal-Mart," Taylor explained. "It also enables us to find more convenient locations and accommodate the preferences of older shoppers, who like stores of that size."

Its six Ramey stores average 15,000 square feet and operate in rural areas, mostly in towns of approximately 2,000 people with no supercenter competition -- "locations where we're usually the only store in town," he noted.

RPCS has not opened any new stores under the Ramey banner for over 20 years "because we're not moving into towns of 2,000 anymore. But we are still looking for locations for smaller stores, and we could put the Rameys name on those," Taylor said.

The chain's three Smitty's stores average 70,000 square feet. Smitty's was an independent competitor that was acquired by Albertsons in 1999, then sold three years later to Roswil, which acquired nine of the stores, closed two, restored the Smitty's name on two others and converted an independent it acquired to the Smitty's banner while switching the others to Price Cutter Plus locations. "We used the Smitty's banner on stores outside the Price Cutter trade area where people knew the name," Taylor said.

The company has no plans to expand either Smitty's or Save-A-Lot, he added. "We'll grow Rameys for small stores and Price Cutter and Price Cutter Plus for larger stores," he explained.

For more than 30 years, the company had been owned by Roswil, a private-equity investment firm that also had real-estate holdings. Roswil acquired Ramey in 1967, then introduced a larger, updated version under the Price Cutter banner in 1990; it added the Smitty's banner when Albertsons exited Missouri.

Richard Taylor served as president of the supermarket operation from 1970 until 1992, when he was succeeded by his son, Erick Taylor. The younger Taylor left the company in 2000 to open the Save-A-Lot store, and when he returned here two years later, Roswil acquired the Save-A-Lot.

Roswil sold the company at the end of 2004 to the Taylor family, which decided to extend ownership to employees by operating the company as an ESOP.

Negotiations with Roswil went on for several years, Erick Taylor explained, "and we had a lot of time to do due diligence to figure out the best way to buy the company."

Working with its supplier, Associated Wholesale Grocers, Kansas City, Kan., and The Food Partners, a Washington, D.C.-based advisory group, "we looked at four or five different scenarios, and we decided an ESOP was the one that made the most sense because we felt it would be a lot easier to manage a company that was owned by employees who would be more motivated -- and there was also the incentive of not paying tax on the money that goes into the ESOP."

Taylor said RPCS is heavily involved in community events. For the past six years it's been the primary sponsor of the Price Cutter Charity Championship, held here in late July as part of a nationwide golf tour that raises money for children's charities. Last year, the event raised $600,000 for a variety of local charities, Taylor said.