RICHFOOD EVOLVES TO MEET CONSOLIDATION CHALLENGES

MICHAEL HARRISON

PALM BEACH, Fla. -- Conditions in the retail food industry are as difficult as ever, according to John Stokely, chairman and chief executive officer of Richfood Holdings, the Virginia-based, Mid-Atlantic region wholesaler and nascent retail player.

"I don't think I've ever seen conditions in this business as difficult as they are today," Stokely said at the SN Food Retailing Summit here.

"I can't think of any other business in the United States changing as rapidly and as fundamentally as the food industry today. I know of no other industry that's going through such revolutionary changes -- not even our high-tech companies have seen such radical change in terms of industry restructuring," Stokely said.

After running down a laundry list of big-time consolidations -- "Fred Meyer/QFC Albertsons/Buttry's; Giant, Landover, was acquired by Ahold;Safeway/Dominck's; and, a couple of weeks ago, Kroger Fred Meyer," -- Stokely was quick to mention "the emergence of different food competitors and channels of distribution and alternative formats." To him, the extent to which the industry remains in flux is "unbelievable. It's crazy."

And if the flurry of activity weren't enough to digest, Stokely added a daunting statistical reality: "The population is just not growing as fast as competition." He did manage to inject a bit of levity into his topic -- the battle for market share of retail channels -- when he quipped "I expect Merrill Lynch to come out with its own brand of teas shortly."

He then went about the business of explaining why his company, despite the already tight market, was able to record nearly $5 billion in sales last year.

"I'm very fortunate to be part of an organization that has literally reinvented itself a couple of times. Our company has evolved with the changing times and even today we're evolving to meet the challenges of this consolidation," he said, explaining how Richfood metamorphosed from a cooperative into a lucrative public entity.

Among the elements, Stokely said, "are financial incentives that were designed to incite our retail customers into behavior that would make us more efficient; and we share those savings with them. In doing so, we gave them the competitive tools and competitive weapons to grow and be successful.

"First of all, we just learned how to sell our existing customers more product. The best customers are the ones you already have." There's also another approach: " aggressively marketing new customers to take them away from our competitors." When it comes to wholesale, Stokely said, "It's a bad business if you want to run it poorly. It can be a very lucrative, successful business if you want to pay attention to the details that make you successful."

Richfood, Stokely said, has an easy-to-follow philosophy. "Very simply, we believe in low-cost operations, big distribution centers and a regional approach." In addition, "We are fanatics about cost."

What it comes down to, he said, is "we can move supply cheaper" while saving financial and "human capital" and allowing stores "to focus on retail business."

According to Stokely, "We can get national economies on a regional basis by concentrating on this tight, geographical region." Pointing out the company's 1.3 million-square-foot distribution center, which Stokely said moves 1.5 million cases of groceries "each and every week," and another 1 million-square-foot facility in Pennsylvania, Stokely said, "We use cost as a weapon."

The company also employs foresight, Stokely said, mentioning another distribution center that measures more than half a million square feet, which Richfood is keeping in reserve until it's needed to accommodate future growth.

Taking questions from the audience, Stokely was asked about the role of technology in Richfood's wholesale operations. "In the wholesale business, technology is incredibly important," he said, explaining that his company has been able to take advantage of software that allows it to "take cost out of the system."

This presentation was moderated by SN Senior Editor David Orgel.