COVER STORY: Retailer of the Year: The true center of 'super'

In Michigan the big U.S. automakers might have learned a thing or two about survival if they'd been watching their compact yet powerful neighbor, Meijer, Inc. They would have learned something, for example, about always keeping their eye on the customer -- on the competition, too, but letting the customer be their true guide. They might have also learned not to be afraid to innovate -- even if it means sometimes making mistakes -- to score bigger, longer-term hits.

For sure, another U.S. giant, based in Bentonville, Ark., has already learned plenty from Meijer and its pioneering of the one-stop-shopping concept. And Meijer has returned the compliment, taking cues from its most formidable competitor and fellow supercenter expert Wal-Mart -- especially with the latter intensifying its presence in Meijer's backyard.

Still, for this Grand Rapids, Mich.-based chain, the most important teacher of all is the local customer. It's been that way since, under Hendrik Meijer, the family first joined the grocery game in 1934, but a lot about retailing has changed since then, and Meijer has had to change, too.

If its 63,000 team members are following the lead of grocery legend and lifelong student Fred Meijer, then Meijer's customers ideally will see not a chain of 176 classic supercenters run by a regional powerhouse in five Midwestern states, but rather "My Meijer," a store attuned to their needs and their community.

By most measures not a small company, Meijer still moves like the most entrepreneurial of small companies, thanks to leadership and vision on the part of the Meijers, innovation on the part of its management team, and commitment to execution exhibited down through the ranks. It's a modern-day version of the quintessential family-owned grocer, writ large on the supercenter canvas and supported by many of the latest technological tools, but still driven by traditional maxims of integrity, thrift, and deep knowledge of and empathy for the needs of shoppers.

Meijer caps it off with the willingness, demonstrated in word and deed from the top of the organization on down, to roll up its sleeves and get things done.

"If you run your own business, whether it is one this size, or any size, the fun is being able to make your own decisions, right or wrong," says Fred Meijer, ex-bagger and currently chairman emeritus. "And sometimes they are right and sometimes they are wrong, but they are yours to make. They are not going to be dictated by some corporate headquarters answering to Wall Street."

In a brutal regional market overrun with stores from big, public chain retailers of many stripes, some observers consider Meijer's private status a distinct advantage. But Fred Meijer has another word for it.

"I would say it is a joy."

The fun started back in 1934, when Hendrik Meijer, a barber in Greenville, Mich., converted space in a building he owned to a grocery. Hendrik was the first to demonstrate the Meijer knack for knowing how to please customers, and Fred learned at his father's knee the longer-term value of consistently pleasing shoppers, even when it means losing money in the short run.

In the long run Meijer isn't about losing money. With the reins in the hands of Fred's sons Hank and Doug, the retailer is profitable and growing its sales and market share, according to its top executives. Forbes lists it as the nation's 10th-largest private company, with estimated revenues of $13.2 billion in 2005, up 5.6 percent from the year before. TDLinx, a sister company to Progressive Grocer that collects and maintains store information across all channels, puts Meijer's grocery-equivalent revenue alone at roughly $6.7 billion for the year. The chain has reportedly set forth of goal of having a portfolio of 400 signature supercenters by 2020. (As a private concern, the chain elected not to reveal in this article the hard numbers of its performance.)

Meijer's current standing as a retail force in the Midwest hasn't come without a lot of hard work, nor has it come without a price. Under intense competitive pressure over the past several years, Meijer has been evaluating every aspect of its operations to stay on target regarding prices and margins. Around 2002 Meijer realized it had to get its house in order if it were to continue to stay vital in the Midwest in the face of encroaching competition from Wal-Mart, Kroger, and other, more specialized rivals. Consequently it instituted a tough companywide assault on operating costs, and revamped its merchandising processes and supply chain ops from top to bottom.

As it has started to see the benefits of these efforts, in terms of sustainable SG&A controls, Meijer has also had to be more vigilant than ever in protecting its reputation as consumer-centric, a leader both in low prices and quality merchandise -- a balancing act it continues to try to perfect.

The focus has always been low prices and a simplified, meaningful shopping experience. It used to be that the traditional one-stop shop via the supercenter format was the way for Meijer to deliver on this promise, but times and competition have changed. Now Meijer is finding new ways, through localization and differentiation, fueled by technology but also developed, considered, and judged through the prism of customer needs, to hone its supercenter formula.

Clearly, it can't let down its guard: Its supercenter archrival Wal-Mart is upping the ante, with plans just announced to open five units in the metro Detroit market next summer, and another three likely on tap for 2008.

This year Meijer rebroadcast loud and clear its devotion to low prices, a part of its legacy that it apparently had allowed many customers to lose sight of. Its current "Price Drop" program is a full-on, traditional broad price recalibration scheme bent on hammering home the value message with thousands of items in every aisle. At the same time, the retailer is breaking new ground with experiments involving mobile text-messaging to customers about real-time bargains, and RFID in the store to track the ebb and flow of traffic and adjust operations accordingly.

Like more than a few of its privately held brethren in the grocery business, Meijer is a leading regional chain that found itself increasingly under siege by deep-pocketed national powerhouses, both in the grocery and general merchandise segments. In response it has had to sharpen its competitive edge and polish its low-price image. The key for Meijer has been to do that without devolving into me-too merchandising. Indeed, it seems safe to say that Meijer has no intentions of surrendering an inch of ground.

Hard time in the heartland

Meijer's playground is the Great Lakes region of the Midwest, Michigan, Ohio, Indiana, and Illinois, with Kentucky to the southeast. Its backyard and historic homeland is auto industry country, and its primary markets have reflected that domestic industry's decline for decades.

"If these markets have anything in common, it is that they are the heartland of America, and the heart of manufacturing in America, which from an economic and demographic standpoint has a lot of implications for us," explains co-chairman and co-chief executive Hank Meijer. "We don't have the benefits, if we make a mistake, that there are likely to be new rooftops surrounding us within five years. We are in some very slow-growth markets."

Meijer's territory skews slightly older, slightly more blue-collar manufacturing, compared with the nation at large. On the other hand, the region does partake in the widespread American trend toward growing ethnic diversity in communities large and small. And Meijer's retail presence extends into a wide array of micromarkets, ranging from strictly rural to heavily urban.

"In many ways this is the retail crossroads of America," says Hank. "So everything seems to have been coming toward us from every direction."

Hank and Doug Meijer, brothers and co-chairmen, have grown up in the business, and know well the joys and burdens of pioneering and then surviving in the supercenter strata. They regard with respect their chief competitors on the food and general merchandise sides.

"Wal-Mart has been a factor as long as we can remember," says Doug. "I can remember our dad talking and lamenting about Wal-Mart's impact." The rivalry has been toe-to-toe for at least five years, ever since Wal-Mart began to encroach on Meijer's turf in a big way.

Today, adds Hank, "Wal-Mart is, of course, our single most important challenger from a market share standpoint overall. Kroger is far and away our most significant supermarket competitor. But it just so happens that is not unique; those two are dominant forces most anywhere you operate now.

"What's different for us is that when you are in our kind of business, you have a universe of competitors that is much broader," continues Hank. "There is Target, of course, significant in GM, and Jewel [owned by Supervalu], which will be very significant in food as we expand into Chicago. The supermarket competitors then break down more regionally, except for Whole Foods and Trader Joe's. The GM people breakdown nationally, but more by niche, so you've got Home Depot and Lowe's; Best Buy; Bed, Bath and Beyond; Costco; and Sam's, of course."

It's a pastiche of competitive threats that keeps Meijer on its toes, and forces it to stay focused more than ever on customers even as it looks over its shoulder.

"Competition is a huge factor," admits Hank, "but the priority better be who our customer is. That is not to say that we are not critically interested in what the competition is up to, because chances are, our customer is also somebody else's customer. We debate internally all the time about how to respond to competitive forces around us.

"So, for example, when your largest competitor announces its generic drug offer, sometimes your knee-jerk reaction is simply to mimic that move in response, but sometimes the better move is to is to step back and say, 'Wait, let's not just simply adapt their program; let's figure out what's best for us, what sends the strongest signal to our customers about how we are thinking of them.'" That was just what Meijer did, fashioning its own free-antibiotics program "rather than just signing on to the competition's program," as Hank puts it.

This willingness to go its own way sets Meijer apart from the more typical industry practice of copying what works elsewhere, or matching competitors move for move. That doesn't mean it won't jump into the fray when it needs to, however. "Sometimes our response is the classic grocery price war, and we'll fight it out over the price of bananas, but sometimes it's saying, 'We are not going to let them lead the march as the perceived leader in value in this category, but rather than just copying, what can we do that speaks more directly to our customers?'"

As Fred sees it, Meijer's competitors "are all good and tough, and we have had to get 'gooder' and tougher. One way to stay on your toes is to never sell a competitor short." He adds, however, that at times the wise choice might be to ignore a competitor's salvo, "because we know we've got a reputation that's strong enough that we don't need to jump every time a competitor does." That confidence comes from a lifetime as a shrewd competitor -- and also from expert knowledge on what customers want.

"The answer is different depending on where you are," notes Hank. "If you've got a small-town market -- and we've got several of them -- you've got basically two stores, a Meijer and a Wal-Mart supercenter; there, whether you respond to competition is a relatively simple question. But in a metropolitan area, competition is so much more diffuse, and we have to really understand the nuances of the demographics, as opposed to just figuring out how we survive against one opposing supercenter."

Without question, Meijer's strongest advantages are its relationships with customers, its solid reputation for low price and quality, and the agility, given its size, that comes from private entrepreneurial ownership. These three elements permeate everything the chain does.

As Fred has said before, "We think company tradition is good, as long as one of the traditions is being an innovator."

One might also consider it innovative for a retailer such as Meijer to install a nonretailer as its president, which it did at the start of 2006, in the person of Mark Murray, whose leadership pedigree includes a stint as Michigan's treasurer, and another as president of Grand Valley State University in Allendale, Mich. Murray has already been a key contributor to aggressive strategic moves the chain has made to sharpen its price image, remodel its portfolio of stores, and push the envelope on innovation in marketing and supplier relationships.

Murray says that the Meijer family's mission to keep the company light on its feet allows it to be alert to the winds of consumer perception. This came in especially handy recently, when Meijer realized that perception had shifted in the wrong direction.

"What we found probably a year ago now, in one of our periodic analyses of benchmarks of how the customers perceive us, was that customers were not perceiving us as having the low-price offering that we know for a fact that we had in place," explains Murray. Indeed, the chain found it could be pricing 15 percent to 20 percent lower than major competitors in some markets, but still wasn't getting credit. "We knew that we were more price-competitive than our customers understood."

The chain swiftly took action in the form of an aggressive price-cutting initiative. It rolled the Price Drop program out this past July with a vengeance, targeting about 5,000 items off the bat and adding new ones each week. Hitting every corner of the store, the program spawned a sea of blue shelf tags, banners, floor graphics, aisle signs, buttons, and outdoor billboards, all reinforcing the chain's price position -- and it's still in full flower.

Meijer will keep the Price Drop program, and the volume of the message embodied in it, cranked for as long as it takes. "People are recognizing it and seeing that we are sticking with it," reports Murray. "In the retail environment you are always putting messages out there for a fairly short term, but this message has been out there for a while, and will continue to be out there, as a way to secure a communication point with the customer base."

The retailer prides itself on the two-way lines of communication that keep it centered on consumers, and the lapse in price perception demanded swift action, adds Paul Boyer, Meijer's vice chairman and co-c.e.o. "We might have gotten away from talking about price as much as we had historically, and we are reinforcing it now."

The chain is also reinforcing its standing as a purveyor of general merchandise. Known historically as a food merchant first, Meijer has had to tweak its relative emphases on the food and nonfood sides of the store. Among customers, food persists as the main draw, a perception deep in the regional psyche, even if competitive realities demand that the chain make sure its prowess in GM shows no sign of slipping. Striking the right balance is a challenge that never ends.

"We think of ourselves as both a grocer and a mass merchant," says Doug. "But our customers view us first as a grocery store."

The chain's latest prototype, the centerpiece of an ambitious ongoing remodeling program that is about 40 percent done and expected to fully transform the store base within three years, is a study of the give and take between food and nonfoods. It features new adjacencies, including kitchen supplies and small appliances near the grocery aisle. The baby section also now features food, diapers, strollers, and clothing. The pharmacy department is prominently situated at the front of the store with health and beauty care, while jewelry, greeting cards, and floral have been moved up front to provide the convenience of one-stop gift buying. Pet supplies are directly across from the grocery aisle.

"We get a core customer base, due to our really strong reputation in food," says Murray. "We pioneered the supercenter concept that crystallizes the one-stop-shopping opportunity, along with a full range of general merchandise. Right now we are making sure to remind that ever-changing customer base that we are well developed and price-competitive in the GM aisles."

Indeed, continuing pressure on the GM side has got Meijer's strategists thinking in 2007 about the challenge of redefining one-stop shopping.

"When you've got so many people that are so compelling in so many different areas, and no one can bring that all under one roof anymore, then the challenge for us is, how do you make a strong case now for one-stop shopping?" says Hank. "We have to keep redefining one-stop shopping, because it isn't what it was 10 years ago, and for us to make that real estate in our store work, it can't be going forward as it is now. Department by department, we've got to ask: Do we even need this department going forward? Is this still a compelling part of our mix anymore? How do we redefine these other departments to stress what best complements a food offering, which also has to get better and better as the core of the one-stop shopping experience?"

What this really points to, explains Murray, is Meijer's devotion to "being where we need to be in terms of the customer. In serving the food customer, we are always in continuous improvement, for example, building up international food sections, or carrying the latest in produce, a shift toward more seafood, or wherever the customer is headed. We are always with them."

A network of talented store directors is key, allowing the right amount of decentralization -- and localization of offerings. "It is a pretty simple, straightforward mentality that the store manager sets the tone first," says Murray. Their field-based intelligence is carrying more weight than ever.

"We are 176 stores, and I do not think you could find any two that are a matched set," continues Murray. "We are a mass merchant with the same core offerings in all stores. But in every market there is at least some level of customization, and that is a renewed focus here -- localization is getting more attention."

To that end, the chain has made deeper localization a priority. "We have been investing quite heavily in new merchandising systems in the last several years, and those are just starting to roll out now, and will make it easier for our teams to make those localized assortments as they are doing their planning and buying," says Boyer.

Getting this formula right is more important to Meijer's leadership than growth at any price, and that's one reason the company remains independent and private.

"The plan is to grow," says Boyer, "and the chain right now is growing and profitable. We are aiming to get back to 6 percent growth annually, and we are not there yet."

"Sure, if we were public we could grow a lot faster," reasons Doug, "but would that be the best thing for us?"

"We have a shared vision about this," continues Hank, "a vision of our future as an independent, privately owned company, that was made possible by some very thoughtful estate planning that our father did many years ago. Back in 1978, we flirted with the idea of going public, but we don't see any compelling reason to do that now."

Clearly, the Meijers and their top executives see private ownership as a competitive advantage. It allows management the latitude to put its focus where it believes it needs to be, and the retailing intelligence and instincts of the Meijer family haven't failed the enterprise yet. In terms of expansion, the strategy will likely be to push its current borders, rather than leap dramatically into any new markets.

"The biggest potential market for us is Chicago," says Bill Noakes, the chain's e.v.p., who counts real estate development among his many responsibilities. "You've got a population in the north Illinois counties that is almost 90 percent of the population of all of Michigan. We have 86 stores in Michigan, and nine in suburban Chicago. We are looking at how many more stores we can build there, and how we acquire the properties to do that."

The nature of that market would make it difficult to acquire 20 or 40 acres of land, so Meijer will start to rethink how its stores could fit on a smaller footprint. As Noakes sees it, Meijer's status as private, coupled with the family's vision, will help to shape its future in the face of such challenges.

"For the longest time our proposition was, we have everything under one roof, and it is cheaper than anybody else," says Noakes. "We've seen Wal-Mart also move into that space. So who then are we for our customer? I think ultimately, we have the premier food offering among supercenters, and you can expect something unique, something fascinating, that will draw you past other operators to us."

Says Meijer's marketing specialist, Michael Ross: "We always do what's right for the customer. That is always the first question. Many times we will make decisions that sacrifice profits in the short term, but in the long term it is taking care of customers, building the brand."

Over its more than 70 years in business, Meijer has acquired entire generations' worth of loyal customers. Doyle Hayes, prominent local businessman and longtime Meijer shopper, is one of them.

"Meijer represents far more to me than just a supermarket," says the Grand Rapids resident. "We've all grown up with Meijer. I'm very loyal to Meijer -- as are many other people I know -- because of what they do in Grand Rapids and beyond."

Hayes praises the Meijers for their support of the arts and many other philanthropic activities in Grand Rapids and elsewhere. "We not only see them in our communities, but we can also touch the things they've done for us outside the stores," he says, referring to civic treasures such as the Frederik Meijer Gardens and Sculpture Park, and Grand Rapids Civic Theatre's Meijer Majestic Theatre.

Hayes is also quick to applaud the chain's "excellent service that's always fair. They're a wonderful source of great produce and of hard-to-find items. Most folks know if they can't find something anywhere else, they can get it Meijer."
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