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COVER STORY: Retailer of the Year: Growing up Bashas'

In a year when virtually every retailer in the United States was pitching in to help the victims of a hellish trio of natural disasters, the impulse to give came quite naturally to an unassuming family-owned supermarket operator in Arizona. That's because for Bashas', Inc., giving is second nature.

Whether the Chandler, Ariz.-based company is paying for an employee's business or language classes, donating uniforms to a community soccer league, or hosting a weekend event to raise money for a local charity, the prevailing wisdom there is that whatever you give, you get back tenfold.

This philosophy has shaped and sustained Bashas' from its humble beginnings in 1932 to its current status as a well-run 155-store retailer with four distinctive formats -- and plans for continued expansion, renewal, and diversification in a market that's tough as nails. Currently bringing in around $2 billion in sales, Bashas' has grown in size and in earnings year after year, even as other locally based competitors have been swallowed up or shut down.

"When we prosper, Arizona prospers," says Eddie Basha Jr., the chain's chairman and c.e.o., whose second-generation leadership has kept the family firm intact for more than 30 years and laid the groundwork for its future.

Bashas' has deep roots in the Arizona soil and culture, but the company has stayed flexible enough to move with its rapidly evolving territory. Along the way Bashas' has perfected a formula for market-specific differentiation that many operators today would envy -- and, most importantly, that even the biggest of mega-chains find difficult to keep pace with.

Intrinsic to this formula is community involvement and support. But how far can good deeds go in today's unrelentingly competitive environment?

Bashas' might present an ideal case study for the debate. It thrives in what's considered to be one of the most competitive food retail markets in the United States. Kroger, Wal-Mart, Albertsons, and Safeway all operate stores in Arizona, shoulder to shoulder with a slew of alternative competitors that includes Whole Foods Market, Wild Oats, and Trader Joe's. Recent market share analyses of the Phoenix MSA find that Bashas' holds about a 17 percent share of the grocery market, putting it at present in third place, behind Kroger-owned Fry's, which owns about a 27 percent share, and Wal-Mart's supercenters and Neighborhood Markets, which together hold close to 19 percent of the market. At the beginning of the year, Bashas' had jumped to the No. 2 spot in Phoenix market share for the first time, an occasion the retailer celebrated by hosting a sparkling cider toast in its corporate office.

Bashas' stands apart from its major contenders because it's the sole locally owned supermarket chain in Arizona, where once upon a time several prominent grocery dynasties thrived. Bashas' has earned its credibility and longevity in Arizona the hard way -- by putting in the time.

"Arizona is our backyard," says Johnny Basha, s.v.p. of real estate and vice chairman of Bashas' board of directors. "We are Arizona, and I think our customers know that. We have to continue along that path, in order to effectively compete with the mega-giants of the world. It's our biggest advantage -- our people, and the fact that we're a family-owned company."

Make no mistake, however: Bashas' isn't resting on its laurels or its family ties. Just as Arizona is growing by leaps and bounds, Bashas' is moving in new directions to best serve the state's diverse population.

The booming Latino population can find homestyle Mexican foods at Food City, the company's ethnic and EDLP banner. Foodies will drool over truffles and caviar at AJ's Fine Foods, a specialty food format. The Navajo population is catered to by the banner Dine Market ("Dine" means "the people" in Navajo). And the Bashas' banner, a more conventional format featuring hi-lo pricing and top-notch perimeter departments, serves just about everybody else.

There's more diversification on deck, with format No. 5 in the planning stages and set to debut next year in Phoenix. Called Ike's Farmer's Market, it will specialize in organic and natural foods. And further experimentation is on the horizon.

In addition to its flair for diversity, another of Bashas' business strengths is its straightforward buying structure. The company has its own team of wholesale buyers who purchase product directly from manufacturers. Local vendors are sourced whenever possible, in line with the company's hometown emphasis. Not surprisingly, its state-of-the-art distribution center in Chandler keeps expanding, too, practically bursting at the seams at 700,000 square feet.

In the past year the company has also begun to make fuller use of retailing's latest technological tools. "In 2005 we rededicated ourselves to technology applications that improve costs and efficiencies, and give us new ways to respond to customers," says Christie Frazier-Coleman, s.v.p. of marketing and a 20-year veteran of the company.

For her part, Frazier-Coleman helped launch an initiative using applications from TCI Solutions to ensure sharpened pricing in purchasing and sales. She's also been getting more involved in data mining, using the company's loyalty card program to track shopping patterns and target specific customers.

Human resources, meanwhile, began employing electronic centralized timekeeping in 2005, notes Don Adams, v.p. of training and development, a 36-year veteran of Bashas'. Also, the company hired a v.p. of information technology, Jim Clendenen, at the end of 2004, and has since added two Web site developers to work on and the retailer's Groceries On The Go online delivery service.

In short, Bashas' is a company at a crucial juncture in its development, making strides that will propel it forward, but striving as well to preserve its deep roots as a labor of love for a hard-working clan.

"We have the sophistication and the efficiencies of a major corporation, but the sensitivity of a family-owned business," summarizes Johnny Basha.

Lebanese merchant's legacy

The Basha family tree in America can be traced back to Najeeb Basha, a Lebanese immigrant who moved to New York in 1886 and 15 years later met his wife, then Najeeby Srout. Seeking opportunity out West, the Bashas moved to Congress Junction, Ariz. in 1910. They opened several general merchandise stores, aided in the business by their seven daughters, and two sons, Ike and Eddie Basha.

The brothers learned valuable lessons about the work ethic and retailing, which served them well when they opened stores of their own, beginning in 1932. In the 1950s, as the concept of the modern supermarket took hold, Ike and Eddie opened the first Bashas' supermarket in Mesa.

From the 1970s through today, under the leadership of Eddie's son, Eddie Jr., the company has grown exponentially. There are now 81 Bashas' stores, including one each in Needlepoint, Calif. and Crownpoint, N.M.; seven Dine Markets and three reservation Bashas' stores; 62 Food City stores; 11 AJ's Fine Foods stores; and a more rural version of the conventional format, operating under the name Eddie's Country Store.

The family-owned firm has certainly been able to take advantage of the shifting fortunes of others in the landscape; much of the company's growth over time has come from acquisitions of stores that were closed by competing grocers. Yet despite their penchant for seizing opportunities, the company's managers, both in and outside of the Basha bloodline, have not strayed from a founding philosophy of taking care of the neighbors first.

"My grandmother always told her children, and in turn they passed it on to their children, that if we're going to be successful, we have to have healthy communities," recalls Johnny Basha, who is gradually taking on more responsibility in the company and will take over full leadership when his cousin, Eddie Jr., retires.

If Johnny has any trepidation about the company's future, it's what continued growth might do to that ethos. "When I look into the future, I think our biggest challenge is, as we grow, to still maintain family values, a family atmosphere, and the warmth of a family environment. I'm amazed that we've been able to do it this far. We work very hard at it."

Indeed, it's hard to imagine that a company with 14,000 employees can maintain a "family" feel. But Bashas' makes it work. Turnover percentage hovers at no higher than the low 30s, well below industry averages. All those employees are "family members," in as real a sense of the phrase as is possible under the circumstances.

"We came up with that term 25 years ago, before it was trendy," says Johnny. People who've spent a decade with the company are still considered newcomers; everyone jokes that those at the 20-year mark are still on probation. There are couples who've met, married, and raised families while working here, and grandparents whose grandchildren are now working their way up the ladder. Even retirees can't seem to let go: They've formed the Retired Members' Association, and some of them serve as volunteer greeters in the stores.

Bashas' treats its members quite well compared with the practices of the average supermarket chain. "One of our mantras is that we will treat people better than what's laid out in union contracts in Arizona," explains Frazier-Coleman. Thus, store directors and assistant store directors are salaried and receive benefits. And the company has never been unionized.

Management believes the most important component to employee relations is the support it gives its members in the form of training. Indeed, training goes hand-in-hand with Bashas' mandate to reflect the diversity of the markets within which it operates.

Training head Adams spent years beforehand in retail operations, including a stint in the company's far-flung operations in northern and eastern Arizona, encompassing the stores on Native American reservations. It was there he says he learned how crucial it was "to leverage diversity, how to acquire and train individuals to work well within a cultural situation, before 'leveraging diversity' was even a term." Bashas' learned to develop local members into management positions, from within a community largely alien to the business and profit-making acumen needed for successful retailing. "You can apply the lessons from that kind of a human resource development challenge to any situation," says Adams.

Multilingual skills are another key to Bashas' commitment to diversity and training. Trainers speak Spanish, English, and even Navajo, and members are encouraged to study second languages, with 100 percent tuition reimbursement of college-level courses. "It all ties into embracing diversity and making it a real competitive advantage over the competition," explains Adams.

The initiative for continual training and member support extends to the company's senior management. For instance, every month executives from marketing and merchandising spend time working alongside store associates.

"We've learned a lot about the stores just from doing that," says president and c.o.o. Mike Proulx. "For example, we found that a lot of stores were getting special requests, so we went to our buyers to see how we could make the process quicker." (Mark Barnett, s.v.p. of sales and merchandising, developed an electronic request program as a result.)

"When it's done right, it's the best day of the month for us," says Ralph Woodward, s.v.p. of retail operations, who's been with Bashas' for 21 years. "One Valentine's Day I spent the day in the store folding boxes. It helps us create good relationships with folks in the stores."

Getting down to business

While the Basha family continues to play a large role in the company's strategic direction, day-to-day operations of its "family" of banners are given the utmost care under Proulx and his executive team. Proulx, who has been with the company nearly 40 years, is clearly a leader by example: He can be seen corralling carts in the parking lot on a recent store visit.

The traditional Bashas' format, which accounts for the majority of the company's stores, has been upgraded significantly in recent years. Focusing on its strength in fresh food merchandising, Bashas' now highlights perishables in the front of the stores as well as throughout. At one of its newest units, No. 161 in Chandler, a colorful floral display and low-profile produce display catch shoppers' eyes as they enter on the right, while an impressive deli/foodservice operation buzzes with activity on the left-hand side of the store.

"We have a reputation for top-quality produce and service meat and seafood," notes Proulx with pride. The chain is currently capitalizing on that reputation by using the tagline "Bashas' Fresh" in many promotions. It also publishes a magazine called Bashas' Fresh Is Best.

Another of Bashas' trademarks is its Chef's Entrees program, which is run by in-house culinary whiz Chef Celia Sablone, a former restaurant owner who joined AJ's a decade ago and since that time has developed a line of more than 250 recipes at Bashas'. "We like to prepare as many fresh dishes as possible, using traditional and more upscale items," notes Sablone. Some stores sell at least 150 dinners a night, she adds.

Some unusual items and programs in the Bashas' units are actually imported from sister banners, as merchandising ideas are cross-pollinated throughout the company. The homemade tortillas and tortilla chips come from Food City. Likewise, gourmet pastries from AJ's are displayed in the bakery. The new Chandler store is testing a 25-pound bag of flour that typically sells well at Dine Markets.

"We create quasi-operations, allowing each banner to bring in products and ideas from other banners," explains Woodward. Still, he notes, each banner maintains a separate identity. In the same vein, store directors are given a degree of flexibility in making decisions. "We have schematics for the store, but we give the managers flexibility," he says.

That flexibility is crucial to Bashas' ability to successfully execute in so many diverse areas. Notes Barnett, who's been with Bashas' eight years, "We have stores in copper-mining towns and other unique areas where we can't expect store directors to follow the program 100 percent."

One category that store directors across Bashas' have been watching closely is organic foods, which have been growing 20 percent on average annually. The company has responded by so far building 65 store-within-a-store sections called Nature's Choice, which include shelf-stable goods and some frozen products.

"We watch the numbers in our stores where organics are in line, and when they get large enough, we look at adding a separate department," notes Paul Chapman, store director of the new Chandler store. "We had one store where sales grew 10 times overnight, after we introduced the standalone department."

To make the sections successful, it's important to hire the right manager, notes Proulx. In fact, Bashas' is crafting its overall customer service strategy around "in-store experts" who can speak intelligently about products and services.

One department where Bashas' will need an extra helping of experts is pharmacy, as the company plans to continue aggressively opening in-store operations. "Pharmacy is at the top of the list of what customers want to see in our supermarkets," notes Proulx. The phenomenon is tied to demographic changes transforming Arizona: A growing number of Baby Boomers are seeking the state's warm climate and laid-back lifestyle. At the same time, Arizona is fourth in the nation at attracting young families, due largely to its rapid job growth.

As Arizona's population continues to grow, Bashas' intends to grow right along with it, confirms Proulx. The company's current expansion plans include five to seven new stores a year, plus an expected 25 remodels planned for next year.

Because of rapid growth in the state, Bashas' has become much more aggressive in site selection. "It used to be that the store came after the neighborhood. Today we're building stores before the neighborhood is there," says Woodward.

A perfect example is the company's new store on the ground floor of a new apartment building in Verado, an area just beginning to see residential growth. "The store isn't doing nearly what it needs to right now, but we see it as an investment," observes Proulx.

While the strategy entails risk, it might be the best competitive approach to take in a market where the population is expected to double in the next 20 to 25 years. In fact, Arizona shows so much promise that for now, Bashas' isn't looking elsewhere for growth.

Diversity at work

Part of the reason Bashas' has expanded so successfully is because of its responsiveness to the needs of individual neighborhoods.

One of its oldest downtown Phoenix stores, located in the multicultural Willow district, has been remodeled to create a "retro" feel and celebrate the neighborhood's history. Employees wear old-fashioned uniforms, while photographs on the walls depict the neighborhood and Bashas' stores as they looked many years ago. As the neighborhood's makeup began to lean more toward ethnic diversity and price-value shoppers, the company initially planned to convert the store to the Food City banner, but after members of the community loudly lobbied to hold on to their Bashas', management relented.

Hundreds of miles away, Bashas' is the only supermarket operator in Arizona that runs stores on the Navajo Nation reservation.

"We were invited -- we're guests on their land," explains Proulx. "In 1980 the Navajo Nation sent letters to major retailers inviting them to visit and to potentially enter an agreement to build a store there. Eddie picked up the phone right away and called the chairman of the reservation. He said, 'I want to be your grocer.' A year later we opened our first store there."

Today there are seven Dine Markets on the Navajo Nation reservation and three Bashas' stores on the Apache and Tohono O'odham reservations. The stores differ from Bashas' conventional format mainly in their product mix. Whole mutton, veterinarian supplies, animal feed, and yarn used to make rugs are just a few of the items tailored to Native American customers. At least 95 percent of the stores' employees are Native American, and most of them speak both English and Navajo. Signage in the stores is also bilingual.

Bashas' other ethnic concept, Food City, serves two purposes: It's a banner aimed at Arizona's always-growing Latino population, but it's also an EDLP format that can be tweaked to appeal strictly to price-conscious shoppers.

The format brings in nearly half of the company's sales, although its contribution to margins is lower. "We bring in a lower margin than the conventional stores, but we make it up in volume," says Tom Swanson, v.p. and general manager of Food City and a 23-year veteran of Bashas'.

Typical deals at Food City include $1.99 for a gallon of milk, $3.99 for five dozen eggs, and 99 cents for one pound of Bar-S bologna, one of the store's top sellers. Pallet drop aisles ensure rapid sales of the quickest-moving shelf-stable items.

Over the past decade Food City has evolved from a single store to a 62-unit chain -- an amazing feat of ethnic retailing for a privately owned grocer. Only one Food City has been built from the ground up; the division grew mostly via store acquisitions and conversions from Bashas' conventional stores to keep pace with neighborhood demographic changes.

Food City's stores carry an array of authentic products and sport service meat, bakery, seafood, and tortilleria departments. Perishables account for 60 percent to 65 percent more sales than in the general market, says Robert Ortiz, v.p. of sales and merchandising for Food City, who has been with Bashas' for 26 years.

The product makeup differs from store to store, says Swanson, since "the store directors have a lot of autonomy to do what they want." A lot of the Hispanic-owned companies have brokers in the area, which facilitates direct buying, he adds.

The chain's prepared food lineup has expanded to include the first Food City restaurant, Su Cocina Dos Ranchitos, which the company plans on expanding. The cafeteria-style restaurant is adjacent to a Phoenix-area store and features indoor and outdoor seating, as well as a drive-through window for to-go orders.

Like its conventional sister stores, Food City offers health care services via "A Su Salud!" (To Your Health), a bilingual program that offers nutrition education and health screenings to low-income customers who lack adequate health care coverage.

Perhaps the biggest event that Food City sponsors is its annual Copa Food City interleague soccer tournament each fall, open to community soccer leagues at no cost. Food City's supplier partners get heavily involved in setting up booths and sponsoring teams. This year the tournament attracted 90 sponsors and around 30,000 attendees. Store directors and other associates got involved in helping out, too.

Although Food City is a lower-price banner, employees are treated the same as others in the company, notes Swanson. "From an operations standpoint, we give our members the same pay raise as those who work for Bashas' and AJ's. The benefits are the same, too.

"The people who work here have a lot of pride," he continues. "We've seen people who have little education move up into management positions. This opens a huge door of opportunity for some local people."

For love of food

Bashas' ties run deep with another community in and around Phoenix -- foodies -- by virtue of the AJ's Fine Foods chain. Each of the banner's 11 stores has its own personality, created through the interaction of store personnel and customers, both groups sharing a passion for food.

"These customers are very much into food and entertaining," says Dave Murdock, v.p. of AJ's Fine Foods and a 42-year member of Bashas' who started as a courtesy clerk. "They want high-quality products, unique items, and information about those items. They have traveled the world, and have interests in other cuisines."

Thus, AJ's emphasis on freshness, service, and quality practically knows no bounds. The decor and design inside and out, the layout and merchandising fixtures, the assortments, and the doting levels of service and expertise in every department all reflect a love of fine food and the things that go with it. The beef is only prime and high choice, the flowers include rare tropical varieties flown in twice a week from Hawaii, and some aged balsamic vinegars go for $400.

"It is a big occasion store, and many of our shoppers turn to us when they're planning entire entertainment events around food," says Murdock, "while others just shop for their lunch and dinner with us." He is also proud of the fact that chefs often shop with AJ's, and are among the most aggressive requesters of hard-to-find items.

Murdock says his small chain enjoys "steady growth, not red-hot growth," but AJ's has a solid spot in Bashas' strategy for the future. Ranging from about 14,000 to 25,000 square feet, the present format is being rethought with smaller versions in mind that could be placed in more high-density settings such as new commercial/residential developments or the centers of college towns.

Considering its many strengths and strong ties to the communities it serves, it's almost a no-brainer that Bashas' would make a prime candidate for acquisition. "We're approached on a regular basis," confirms Johnny Basha, "but we have no interest."

It's not just the board of directors' wishes he's thinking of, however. "This is more than just the Basha family," he notes. "The Basha family extends into a company that's comprised of 14,000 members -- this is their livelihood."

Indeed, it's a growing family that takes pride in its purpose of presenting Arizona with a unique source of employment and career fulfillment, community service, and, of course, quality groceries.
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