Building Trust, Growing Sales

2/24/2014

AWG serves to enrich its member owners, and together they grow the industry.

“I have 633 bosses — all retailers,” says Jerry Garland, making it quite clear that no single co-op member is more important than another.

The president and CEO of Kansas City, Kan.-based Associated Wholesale Grocers (AWG), Garland, along with his leadership team, works for the benefit of those independent retailers, which operate hundreds of grocery stores across the country “We can’t be successful unless they’re successful,” he says. “Our fate is intertwined with our members’. That philosophy for shared success has played out really well.”

How well? For starters, 2012 was a record year for AWG, with sales reaching $7.85 billon. In 2013, members’ overall sales rose 7 percent, with a 2 percent increase in identical-store sales, in an increasingly competitive arena.

Next, expenses have fallen in four of the past five years, while gross margin is down 13 percent over 10 years. “That means our members are paying less grocery fees than they were 10 years ago,” Garland says.

Meanwhile, patronage payments over 10 years are up 20 percent. “Our payment this year will be almost $200 million, paid back to our retailers,” Garland declares.

That’s money that AWG’s member owners can invest back in their stores to keep them up to date, relevant and inviting to a growing number of grocery shoppers. That’s good for everyone in the food industry, and it’s among the reasons Progressive Grocer has selected AWG — the second-largest grocer-owned cooperative in the United States — as its 2014 Wholesaler of the Year.

Founded in 1924, the retailer-owned cooperative serves more than 2,300 member stores, ranging from small to large footprints, with a complete assortment of grocery, fresh meat, fresh produce, specialty foods, health care and general merchandise items.

Through an extensive distribution network and nine distribution centers, AWG and its subsidiaries deliver to nearly 3,000 retail outlets in more than 30 states. AWG provides its retail members, many of them family-owned businesses, with assistance in establishing a strategic position in their respective marketplaces that builds upon their unique strengths.

According to its website, AWG’s mission is “to ensure the success of our member retailers and provide opportunities to our employees. This will be accomplished by satisfying the customers’, and our member retailers’, needs for quality supermarket merchandise and superior support services. We will do this with high-quality employees whose mission is to provide the lowest possible cost of goods in order to ensure our members’ profitability, competitiveness and continued growth.”

Garland elaborates: “The biggest challenge for cooperative wholesalers and individual retailers is remaining relevant in the marketplace. It’s a challenge for retailers to remain a destination place for consumers. You need competitive prices, extraordinary service and a unique flair. Growing profitable retailers is the lifeblood of AWG. They need exciting facilities, competitive prices, something that says, ‘I’m unique —come shop with me.’ If you are irrelevant in the marketplace, you will soon not exist.”

Membership Has its Privileges

That’s definitely something AWG’s member retailers recognize, and it’s why they’re come to rely upon their progressive wholesaler as way to keep the independent grocer competitive against larger regional and national chains, superstores, dollar stores, c-stores and other grocery-carrying outlets that continue to fragment the market.

“Being a co-op helps everyone, small and large, to be competitive against the big boys in town, not only in pricing, but in service,” says Danny Boyle, an AWG board member and COO of Country Boy Markets, which operates two stores in Harrah and Little Axe, Okla. “We probably made as much money in our first 10 years with AWG as in the previous 20 with another wholesaler.”

An AWG member for about 14 years, Boyle cites the co-op’s honesty as a key asset to membership, in addition to its goods pricing. “When you ask AWG a question, you get the whole truth. They’re very transparent,” he says. “What’s good for one is good for everybody — that’s the beauty of the co-op.”

Paul Bresette, whose family owns a Price Chopper store in Platte City, Mo., appreciates the “power in numbers” that AWG provides to independent operators. “With AWG, you get the efficiency of a chain but the adaptability of an independent,” he says. “They understand the unique necessities of an independent retailer, and, because they do sell in the billions, the cost of goods is significantly better.”

Services like store engineering and ad programs also are assets to membership, Bresette notes. “They help you accomplish everything as an independent retailer as a chain, that without them would be extremely difficult,” he says.

Investing in Growth

Offering world-class service and support requires a top-notch infrastructure, and AWG hasn’t been shy about investing the resources necessary to keep its member retailers supplied in a streamlined and efficient manner.

“Our initiatives are focused on how to take costs out of the system,” explains CFO Bob Walker.

Another factor is being completely open with members about those initiatives. Adds Walker: “Jerry’s been adamant about transparency in costs.”

Dating back to production standards established at its warehouses in the early 1980s, AWG has since gone more high-tech, introducing voice picking in 2002 and a warehouse management system in 2007.

For a company that spends upwards of $30 million annually on its infrastructure, cost savings have been realized through the installation of hydrogen-powered handling equipment, and upgrading lights to motion-controlled LEDs.

Meanwhile, shifting its computer systems from mainframe to server saves AWG $1.5 million a year, notes Walker, who adds that the move gives the company better recovery from downtime or emergency delays.

Further, as part of centralized truck routing and dispatching, onboard computers and cameras have made a “big difference in driver behavior and compliance with safety rules,” says COO Mike Rand.

Adds Walker: “Improving efficiency makes people more accountable and reduces accidents.”

Down the road, AWG will be looking at alternative fuels for its truck fleet, Walker continues. “We’re going to be looking at other sources like liquid or compressed natural gas,” he says.

Rand concludes with a familiar theme: “The whole focus is to spend money on gaining efficiency, drive out costs and improve profits for our retailers.”

Sales and Service

Streamlining the AWG corporate structure over the past two decades has also delivered benefits to its members.

AWG has evolved from a two-division operation in 1995, with locations in Kansas City and Springfield, Mo., basically operating independently, to a network of seven full-line distribution centers, plus two focusing on general merchandise, operating on a common system. Those latter two locations operate under a wholly owned subsidiary, Valu Merchandisers Co., which distributes health and beauty care, general merchandise, and specialty food products to co-op and non-co-op retailers.

“We combined those services that made more sense here at our Kansas City corporate office,” such as IT and training, Garland explains. “It really creates an economy of scale for us, while keeping the sales-building activities local at the division level.”

Each division maintains an open line of communication with retailers “for feedback on what we should be doing,” Garland adds, “creating a team atmosphere to service our retailers.”

The Kansas City headquarters provides operating support to distribution centers in AWG’s home city, plus Springfield, Mo.; Oklahoma City, Okla.; Fort Worth, Texas; Southhaven, Miss.; Memphis and Nashville, Tenn.; Fort Scott, Kan.; and the newest facility in Pearl River, La., which opened in early 2013.

Garland says that opening the Louisiana-based Gulf Division is one of AWG’s proudest achievements of the past year. Although it’s been open less than a year, there’s already talk of expansion, due to the operation’s early success, he says. AWG’s total warehouse sales are up 150 percent over the past 10 years.

Sales in the past year have also benefited from AWG’s new web blasts, which allow the co-op to reach all of its stores at once. A significant breakthrough in communication with co-op members, the web blasts give category managers the opportunity to share information with retailers that’s designed to improve their sales, profits and overall operations.

Internet notifications are deployed to announce an upcoming presentation tailored to a specific department in the store. The morning of the actual event, e-mails are sent to a predetermined group, with a link to the brief presentation. Retailers view the presentation on their phones or computers, and submit orders. The actual blasts can be reviewed on multiple occasions, so the entire store team can watch them.

Garland says retailer response to the web blasts has been overwhelming, far exceeding expectations. “When we went out manually, it would take two to three weeks. This has shortened the cycle, been accepted by all stores and is very efficient,” he says, noting that the blasts have yielded nearly $100 million in additional sales incremental to existing sales. Moving forward, AWG plans to expand the topics covered in the web blasts and make it even easier for stores to order.

Additionally, to help members develop the social media programs that are proving indispensible to connecting with consumers, AWG maintains its Customer Connect Center, known as C3, which brings economies of scale to what would otherwise be a cumbersome and expensive task for individual retailers.

C3 employs industry-leading technology to monitor the web presence of retailers. It tracks trends, notifies retailers of potential store opportunities and alerts suppliers when product-specific problems arise.

Housed in AWG’s marketing/advertising department, C3 monitors broadcast feeds of local news and events, as well as Twitter feeds, Facebook pages, Pinterest accounts and blogs that mention retailers.

Making Retailers Win

All of these functions are innovative and essential components for working toward AWG’s overarching goal, which, in Garland’s words, is “providing our members with the tools to win at retail.”

The company culture, one of openness with members, is key to success, Garland says. “We believe in transparency — it builds trust with people,” he insists, noting that all of the facts and figures are posted online for all members to review. “We believe being a retailer-owned co-op simplifies business. Your customer and your shareholder are the same person.”

He continues: “We’re most proud of our profitable retailers, who provide jobs in the communities they serve, volunteer in the same clubs and offer community outreach through their businesses.”

But even with AWG’s record of success, persuading smaller operators to take that leap and invest what in most cases are families’ life savings into their businesses can be a difficult task.

“Our challenge in small-town America is to get retailers to invest in the things that get people in their doors,” Garland says. “There’s a time to invest, to harvest and to reinvest. … it’s tough to get folks to invest family fortunes, but it’s what it takes for retailers to win.”

“Our challenge in small-town America is to get retailers to invest in the things that get people in their doors.”
—Jerry Garland, CEO

“Growing profitable retailers is the lifeblood of AWG. They need exciting facilities, competitive prices, something that says, ‘I’m unique — come shop with me.’”
—Jerry Garland, CEO

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