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CASUALTIES OF CONSOLIDATION

The seemingly unstoppable march toward consolidation in the supermarket industry has generally been greeted with glee by investors.In executive offices, however, news of the latest merger is more likely to provoke anxiety than enthusiasm.In interviews with present and former supermarket executives, executive recruiters and food-retailing consultants, SN found that concern about the effects of consolidation

David Ghitelman

August 16, 1999

9 Min Read
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DAVID GHITELMAN

The seemingly unstoppable march toward consolidation in the supermarket industry has generally been greeted with glee by investors.

In executive offices, however, news of the latest merger is more likely to provoke anxiety than enthusiasm.

In interviews with present and former supermarket executives, executive recruiters and food-retailing consultants, SN found that concern about the effects of consolidation on careers in the industry is nearly universal.

"I've had the privilege of working for two of the best retailers in the land, and they had six owners in 22 years," said Terry Peets, formerly executive vice president at first Ralphs (since acquired by Kroger, Cincinnati) and then Vons (now owned by Safeway, Pleasanton, Calif.). "No one is too big for consolidation."

Until last month, Peets was president and chief executive officer at PIA Merchandising Services, Irvine, Calif., a firm that provides retail services to national consumer brands.

Even though Peets has left retail, consolidation continues to pursue him.

Last month, PIA was bought out by a competitor, Spar Group, Tarrytown, N.Y. Peets is now president and CEO of a newly enlarged Spar, although he has not yet moved out of his home on Balboa Island off Newport Beach, Calif.

Not that long ago, advancement in the industry generally involved a slow, steady progression up the corporate ladder, beginning as stock clerk and ending, some 30 or 40 years later, in an executive office. Now, consolidation appears to have changed the basic shape of careers in food retailing.

"One of the things that's most admirable about the supermarket industry is the way it has developed a tradition of loyalty and long service to a single employer," said Brian M. Meany, vice president of Herbert Mines Associates, New York, an executive-recruiting firm.

"That may also be the industry's greatest problem," he added. "You have people who have not only worked their entire careers for only one company, but also in only one function at that company."

Today, with fewer supermarket companies, high-level positions in the industry are harder to come by. Some executives are undoubtedly adjusting to this situation by trimming their ambitions. Others, however, have responded by taking their careers in new directions, starting boutique food stores that cater to niche markets, or even venturing into the largely uncharted realm of e-commerce.

"People need to keep their horizons as broad as possible. They should not underestimate the excitement and satisfaction of small business," said Bob Hermanns, who until early last year was chief operating officer for procurement and logistics at American Stores Co., Salt Lake City, which in June was acquired by Albertson's, Boise, Idaho.

Today, Hermanns is CEO of Shopeaze.com, Santa Clara, Calif., a startup that is developing software that will enable supermarkets to sell their wares more easily on-line.

Not Much Room at the Top

When merger winds blow through a company, they usually howl loudest in the executive suites.

"The higher you are, the more threatened you are," said recruiter Meany. "The industry will always need people to operate and supply stores."

What it does not need is an oversupply of vice presidents. "Whoever reports to the president or chief executive officer," Meany said, is a strong candidate for a pink slip in the event of an acquisition. He added that layoffs happen more frequently among senior executives of the acquired firm than among those of the acquiree.

Dan Raftery, president of Prime Consulting Group, Bannockburn, Ill., agreed mergers can be tough on high-level folk. "Every public statement issued at the time of an acquisition includes phrases like, 'The new, larger company will be more efficient,' " he said. "For sure, that means some executives will be let go."

With more people competing for few jobs, the supermarket industry has become "a Darwinian environment," according to Jose Tamez, senior consultant at Craig Affiliates, Richardson, Texas, an executive-recruiting firm. "The continuing merger and acquisition environment leaves fewer opportunities for senior executives."

Displaced executives are likely to find it difficult to find comparable positions. In part, that's because there are fewer companies out there. "The grocery industry is a narrow field," said David Thompson, former executive director of information services with Associated Wholesale Grocers, Kansas City, Kan., which made news earlier this year when its takeover of Affiliated Food Stores, Tulsa, Okla., fell through. "There are really a limited number of players." Thompson is now a project manager with Effective Technology Consultants, a company based in Mission Viejo, Calif., although Thompson continues to live in Leawood, Kan., a Kansas City suburb.

What's more, many industry observers said the largest supermarket chains are looking for a different set of skills than many who have come of age in the industry currently possess. The chains today want executives with "a real clear understanding of how to manage a highly leveraged megacorporation," said Raftery. "You're not building an empire from a 50-store chain. Your team needs to be at least as savvy about how to make Wall Street happy as how to make shoppers happy."

To find such executives, companies are increasingly recruiting top people from outside the industry. "Our work has changed over the last three to five years," said Mary Jane Grubach, retail director at Cook Associates, Chicago, whose work consists of finding job candidates for executive positions in food retailing. More and more, she said, her clients want her to find candidates from outside the supermarket industry.

"They have to come from a place that at least touches supermarkets in one way or another," she added. "We look for people in customer service and consumer products. Someone from a technology company would be too far removed."

If the bad news is that executives from outside the industry are taking the few remaining jobs, the good news might be that they are also pushing up high-level salaries in food retailing. "Executive pay levels outside the industry are much higher," said recruiter Meany. "Supermarkets offer more experience for the dollar than any other industry."

While average executive salaries show at best a slow, steady increase (see chart, Page 13), some observers say more dramatic pay increases will come soon. "The trend is starting to shift," said Grubach. "In order to get someone from consumer products, the more progressive firms are beginning to put forth comparable salaries."

Life After Consolidation

The decline in the number of jobs and the growing popularity of hiring non-supermarket veterans to fill them does not bode well for experienced retailers who have been displaced in mid-career by a merger. Said recruiter Tamez: "Most executives start out looking for a comparable job, but, as time goes on, by and large, people who have been displaced end up settling for something a little less."

Others, however, paint the current situation in far less discouraging colors. "Consolidation has freed up a lot of talented executives," said Grubach. "We are seeing a shift in how business is being done, and there are many new opportunities in alternative formats.

"Some people go to food-service chains, some to food-service organizations. There are also sorts of new positions that didn't even exist a few years ago: vice president of e-commerce, vice president of category management."

A handful of former supermarket executives are peddling their retail expertise to Silicon Valley startups. Along with Shopeaze.com's Bob Hermanns, there's Ed Martin, who in 20 years at Lucky Stores, Buena Park, Calif. (now part of Albertson's), rose from courtesy clerk to director of information services. "I'm really a grocer who learned technology," he said.

Now, Martin is vice president for development at Planet U, San Francisco, a company that provides consumer promotions (that is, coupons and the like) on the Internet. His advice to displaced executives is "take the expertise and experience you've gained and figure out how they might be used to help service companies."

Some, Martin said, won't find this easy: "Food retailing is a very traditional business. Thinking outside the box is difficult for many people. But you have to continue to grow your skill set. The worst thing you can do is stop learning and growing."

Other executives have gone from working for very big food-retailing corporations to very small food-retailing outfits. Charlie Bergh, for example, went three years ago from the post of group vice president of perishables at Ralphs to the post of vice president of marketing at Bristol Farms, Los Angeles.

Unlike so many of his fellow executives, Bergh never carried customers' groceries to their cars. Instead, he started off as an apprentice meatcutter.

When Bergh joined it, Bristol Farms was a 12-year-old company with four upscale stores, all focusing on high-quality produce. Now an eight-store chain, with a ninth unit about to open, it will never be in the same league as the more than 400-unit Ralphs, which is fine with Bergh.

"In a small company like this," he said, "I can be more hands-on. I can get closer to the business. I can see all the stores on a frequent basis."

Also, Bristol Farms' smallness may be exactly what will enable it to survive and flourish in the age of the mega-food retailer. "With consolidation, we're going to see more and more big stores that you won't be able to tell apart," said Mike Julian, who until June was chairman and CEO of Jitney-Jungle Stores of America, Jackson, Miss.

"These big stores provide all things to all people but excellence in very few things," he added. "They're creating an opportunity for more entrepreneurial stores."

Last month, Julian announced he was going to take advantage of this opportunity. In spring 2000, he will open Giuliano's Fresh Market and Restaurante, Virginia Beach, Va. The market will sell only produce and baked goods. "We're starting a retail store that is going to cater to the consumer who is looking for quality service," he said.

But can the veteran executive give up his prized security to enter the much riskier worlds of high-tech startups or niche marketing?

"Somebody who has been with an organization for 20 years usually isn't willing to put forward the intense time and effort it takes to develop a new business," said Grubach.

They may not be willing, but they may not have a choice. "Anyone who thinks he or she can't lose a job because of consolidation isn't reading the papers," said Berg. "It can happen to any company at any time."

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