COVER STORY: The Niemann formula

Once upon a time, retailing was simple. At least the goals were clear and—if one was willing to work hard enough—attainable. Beginning life as a corner market in Quincy, Ill. in 1917, Niemann Foods grew into a food retailing force in its Midwestern markets by pursuing a forthright mission of providing its customers with exceptional service and fair prices. The family-run chain worked the low-price strategy hard during the 1980s. Introducing discount superstores under the banners of Cub Foods and County Market Discount Stores, the company became the price leader not only in central Illinois, but in surrounding markets as well.

Simple strategies deftly executed make for successful retail operations. But players change, markets move, and simple strategies must be modified if success is to continue. Niemann Foods, under third-generation management, flourished in the early Nineties, but its proactive owners were becoming concerned. Realizing that emerging competition from Wal-Mart and other mass merchants would dramatically alter the dynamics of the supermarket industry by 2000, they concluded that change was inevitable if the business was to survive. These sentiments were echoed by their trusted executive committee, which worried the chain could not compete on price alone.

"We saw the future and realized that change was necessary. We also knew that change wouldn't be easy," says president Rich Niemann Jr. "While fear of failure has always kept us sharp, we have never allowed it to keep us frozen. This business presents some pretty tall odds, and we needed to be sure that all the pieces were in place—especially for our people."

The Niemanns' subsequent repositioning paid off as the Nineties came to a close. Over the past three years, the company has opened 22 additional stores, effectively doubling its store count to 45. At the same time, it managed to outperform industry standards while vying with the likes of Kroger, Meijer, and Wal-Mart throughout its 13 markets in Illinois, Kansas, Missouri, and Iowa. During the past three years, Niemann Foods achieved double-digit sales increases, with 2001 producing a 15-percent rise. Same-store sales were up 2 percent.

With the Niemanns, one thing is certain: Growth is no accident. The exceptional performance of Niemann Foods is the result of a strategic plan put into practice by Rich Jr. and his brother Chris, the chief financial officer. The owners and their executive committee, which includes their father, chairman Rich Niemann Sr., have incorporated into the operation several key components:

•Proven management processes practiced

consistently throughout the company.

•A stock ownership program (ESOP) to reward

associates and improve their quality of life.

•A technology infrastructure built to manage

corporate information and expedite


•Growth opportunities as identified by

Supervalu, Niemann's long-time wholesaler.

Rewind to1994. With the company's low-price position being attacked, Rich Niemann Jr. called upon the Atlanta-based consulting firm Team 2000. Its findings led to an administrative overhaul and a renewed retail focus that came to be known as the "value equation." Fresh perishables and exceptional service—supported by customer-friendly signage, improved sanitation, and detailed employee training and recognition programs—surfaced as top priorities.

To lead the initiative, Niemann recruited a driven executive by the name of Todd Peter from Hy-Vee. A 15-year veteran of the food industry, he was hired as director of perishables and became responsible for implementing a bottom-up management process that guides every activity performed by each Niemann associate to this day. It is called the DC Process, DC being short for Developmental Center.

"Accountability is the key to our success," says Peter. "Every day, DC inspections take place and all departments are expected to pass. There are no financial incentives provided to employees for passing the inspections. The program is credibility-based and it's part of the job."

The ultimate goal of the DC Process is to increase total department and store sales. The program teaches associates how to generate dollars through quality, cleanliness, stock levels, proper signage and pricing, and customer service.

"When the DCs are 100 percent in place in any given department, the results show it," observes district operations manager Owen Miller, a 14-year Niemann Foods veteran. "I've watched department managers who initially fought the program perform complete turnarounds. One meat manager even found ways to incorporate it into his personal life."

Adds Peter, "Everyday disciplines and accountability are the focus of Niemann's management. As a result, there's not one key person in this company who isn't growing every single day."

But how does a retailer attract and retain such dedicated, motivated people in a labor pool not necessarily known for those traits? Competitive wages, upward mobility for career advancement, holiday and vacation pay, service awards, health benefits, birthday celebrations, and profit sharing—Niemann Foods goes a long way for its associates. But to get them cranked up for the heightened competitive atmosphere of the Wal-Mart era, the Niemanns decided they had to go one better. In 1997, under the direction of Chris Niemann, the company established the Niemann Foods, Inc. Employee Stock Ownership Program.

"We knew that our associates were the key to our future growth," says Chris Niemann. "We needed to take advantage of employees acting like owners, and what better way to achieve that than by making them shareholders?"

Establishing the ESOP was no easy task, he says. The process required months of legal and tax planning. Once the documentation was in place, the executive committee and its management team began promoting the ownership program to associates.

"It has made a world of difference in the attitudes of our associates and the teamwork experienced throughout the company," says human resources director Jodie Felter. "And by the way, we've lost few people to our competitors. Last year, our turnover rate improved by 8 percent."

More than 1,000 Niemann Foods employees—one-third of the work force—own stock in the company. Thirty percent of the company's stock has been allocated for employees, and about 40 percent of those shares have been issued to date. Based on the retailer's annual performance and ERISA-governed eligibility requirements, associates are awarded shares of stock at the company's annual profit sharing and ESOP meeting. Also attending are food vendors that provide refreshments and sample products, along with profit sharing account representatives and various benefits administrators whose exhibits service the Niemanns' "larger family."

"Granted," says Chris Niemann, "the culture change didn't happen overnight. It took some time for our people to fully understand the value of what they were given. Once we began to share sales and profit information with all of our associates, the ESOP became more meaningful. Today, everything we do in the stores and at the support center affects the employees personally. "

Technology is another crucial weapon in Niemann's competitive arsenal. IT Director Larry Schaffer and his 10-person team orchestrate all electronic communications and information management for the company. From processing financial statements and payroll to managing the company's Max Card software and its intranet, Schaffer has one clear goal. "We want technology to be an asset, not a drag," he says. "Our mission is to provide all the tools necessary to successfully operate our stores. Retail execution is crucial and we must produce key indicators for the store directors so they can know what's happening daily, not just weekly."

Schaffer admits that managing the sophisticated infrastructure is indeed challenging. While he is attempting to "fine-tune and flush" the department to achieve maximum productivity, new projects continue to surface. For example, he is currently developing a loyalty program for the company's latest venture, the gasoline business. Even more useful, perhaps, is Niemann's proprietary market research program. Twice a year, Schaffer and his staff provide store directors with the results of an in-house consumer research study designed specifically for their stores. Sample groups of 200 to 400 weekly customers offer a detailed view of each location.

Other IT projects may not be as time-consuming as conducting market research or building an extensive data warehouse, but to Schaffer they are just as helpful. For example, the department recently provided each store with a digital camera. This allows managers to share with other stores—via intranet—merchandising ideas or new products that add to top-line sales.

To picture the growth of Niemann Foods is to appreciate the relationship the company has forged with Supervalu. The Niemanns and their associates own 17 Save-A-Lots, one of the wholesaler's most sought-after formats. According to Chris Farran, director of operations for Niemann's limited assortment division, three additional locations will open this year.

While the Niemann executive committee works diligently to create a sense of unity throughout the organization, it discovered that the Save-A-Lot operation required some autonomy. "The program is very structured, and in order to achieve maximum results we must follow it step by step. We're afforded little flexibility, but the format works," says Farran.

Save-A-Lot Store Director Perry Terwelp agrees. "We limit our number of SKUs, keep tight controls on productivity and building costs, and work with a limited number of approved DSD vendors. It's a different animal from our Cubs and County Markets, but the stores have proven to be successful."

Success hasn't always come easy for the Niemanns. Through the years, they've experienced good times and bad. Perhaps their greatest accomplishment has been the ability to develop a cohesive leadership team based not on who a person is, but on what he or she can contribute to the organization and its people. In other words, being born a Niemann offers no guarantees when it comes to managing the company.

When Rich Niemann Jr. earned his marketing degree more than 20 years ago and was asked to join the family business, he thought long and hard before making his decision. He agreed to join the organization based on one condition. "The company was to be professionally managed at all times," he says. "I could settle for nothing less. When my father made that promise, my decision was easy. And to this very day he has lived up to his word. Our success is not because we are Niemanns; it's because we have surrounded ourselves with exceptional people."

One of the family's greatest fans, Todd Peter, agrees. "What I respect most about the Niemann organization is that it's a family operation with hometown traditions. Plain and simple, this company values and empowers its people. Our executive committee, on whom the family relies to lead the company, includes key associates whose last names are not Niemann. That's what makes us unique and has allowed all associates to grow both personally and professionally."

Many independents dream of achieving what the Niemanns and their associates have accomplished, especially in recent years. Their success, however, would not be possible if it weren't for a strong foundation. According to Rich Jr., it was established early on in the business and was reinforced when his father became president in 1969. "Dad brought to the business two important things: honesty and a desire to reinvest and grow the company. There's not a more honest guy in the world than my dad," he says. "He's 71 years old, and while most guys his age are thinking about slowing down, he continues to focus on growth and making life better for those around him. He created this culture years ago and he makes sure we live it every day."

The grocery business has changed, admits the senior Niemann, yet he believes that it remains somewhat simple. "The harder you work, the luckier you get," he says with a smile. "This is perhaps the most exciting time of my entire career. I sit back and admire this next generation of leaders and I learn so much. They are so full of energy and talent."

Those are two good traits to possess in these competitive times, especially the energy.

Independent retailing editor Jane Olszeski Tortola can be reached at [email protected].
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