INDEPENDENTS REPORT: What's on the worry list?

What issues present the greatest challenges to independent supermarket operators? I posed that question to several of them and found that for both single-store operators and multi-store chains, the concerns appear to be mounting. Needless to say, Wal-Mart earned a spot on their combined list, as did achieving budgeted gross profits, niche marketing, and finding ways to pay for technology and other capital improvements. But the biggies were the rising cost of health insurance and workers compensation, combined with the need to attract a motivated and qualified work force.

While Wal-Mart is exerting tremendous pressure on sales, independents concur that they must pay close attention to price. And they agree they must search for ways to differentiate their stores, specifically in perishables and customer service.

Oregon retailer Rudy Dory, a 26-year veteran of the food industry, says the key to competing in a volatile environment is not only to be aware of the competition, but also to focus completely on what happens within your own store.

"I feel that we as retailers spend too much time worrying about how to beat Wal-Mart and not enough time dreaming and implementing ways to best Wal-Mart," says Dory. "In the words of Wee Willie Harper, 'Hit them where they ain't.'"

The single-store operator and IGA Retailer of the Year apparently practices what he preaches. Dory's 22,000-square-foot Newport Avenue Market IGA Plus in Bend recently celebrated its most successful holiday selling season ever, with sales up 11 percent over the prior record.

"These days, we can no longer view ourselves as food stores; rather we are solution merchants," he says. "Every customer has a problem, and we have the opportunity to solve it. When we solve that problem, they remember us. That's the link to market awareness."

Consumers in Brewster, Ohio have long been aware of Belloni Foods. Founded in 1908, the 15,000-square-foot store has developed an outstanding reputation for service, convenience, and cleanliness. And while much in retail has changed during the past century, the devotion of long-time Belloni customers and associates has apparently not wavered.

"Sometimes I shake my head and wonder why I'm so fortunate," says owner Buzz Belloni. "My employees are great, and they're committed to our customers. I don't see the lack of work ethic in young associates that I hear so many others complaining about. In every way they can be measured, my 50 employees are smarter and faster."

What does concern the third-generation grocer is that "We've become a mobile and homogenized society in that when one exits an interchange in, for example, Cleveland, it will look and feel like any other city. American consumers like familiarization and fear taking chances on things they don't know. They're drawn to retailers that they recognize, usually national chains," says Belloni.

"As independents, we can sit back and make excuses as to why the big guys have the magic. In many cases, they've simply built a better mousetrap," he says. "We need to learn to separate excuses from reality and be willing to change. Too often, independents become emotionally attached to the way things used to be. To that I say, 'When you discover you're riding a dead horse, the best strategy is to dismount.'"

For Belloni, bigger isn't always better. Last year, he cancelled plans to double the size of his store, saying the sales increase expected from it didn't warrant a $3.5 million investment. "Right now, we view our size as an attribute," he says. "We're focused on maximizing sales per square foot."

Travel west to Quincy, Ill. and you'll discover Niemann Foods, a company that has more than doubled its store count over the last three years. Operating 46 supermarkets under three different banners—Save-A-Lot, Cub, and County Market—Niemann faces challenges that practically mirror those of single-store operators.

"Wal-Mart and other chain competitors are driving down the price deck, which is forcing independents to be more aggressive promotionally. That's making it tough to manage gross profits," says Chris Niemann, v.p. and c.f.o. "At the same time, it's becoming more difficult for independents to capture attention—and dollars—from the vendor community."

Another issue is hiring, training, and motivating employees. "To attract the best talent, independents must be seen as viable long-term players," says Niemann. "When recruiting new associates, we promote the fact that our company is employee-owned through an ESOP. It's a real selling point when applicants learn that they can become owners and share in company profits."

A lot of the downward pressure on supermarket profitability is coming from the rising cost of health insurance. "While health care premiums have exploded in recent years, benefits are key to maintaining a productive work force," says Niemann. "Our company has assumed much of the burden of the increases, but we've asked our associates to pick up a small percentage of the cost."

He adds, "The employment/benefit structure must change, or gross profits must increase to cover the expense."

In the end, the retailers agree that successful independents must continually reinvest in their stores, both emotionally and financially.

"In my mind, growing our store base and advancing technology are crucial," says Niemann. "However, both require a great deal of capital. While our company has had no problem borrowing money to this point, there is a limit and a cost. At the same time, there is no standing still."

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