Winn-Dixie's Awakening

In a PG exclusive, the Jacksonville, Fla.-based grocer's chief executive discusses the company's ongoing “transformational changes” to improve its brand and customer count.

After years of eroding market share and crouching in the shadows of its formidable, fast-growing Southeast U.S. market rivals, it would appear as though Winn-Dixie's best days are long behind it.

Peter Lynch, however, begs to differ, believing firmly that the best is yet to come for the regional retailer.

To be sure, Lynch, chairman, CEO and president of the Jacksonville, Fla.-based supermarket chain, is bent on putting the pieces in place to win back customers lost to rivals in the past two decades, with a dedicated, all-hands-on-deck drive to restore consistency to store operations, transform the retailer's aging store base and focus on customers' needs on a market-by-market basis.

Having led the struggling chain out of bankruptcy four years ago, Lynch and his team are now working furiously to rebuild Winn-Dixie's brand, culture, store conditions and shareholder value in the wake of a brutal economic cycle that's been particularly harsh in the grocer's core five-state operating territory.

In an exclusive interview with Progressive Grocer in late December, Lynch discussed the company's renewed outlook from the perspective of its glass being half-full rather than half-empty, which, until fairly recently, hadn't been the case.

“We have been fortunate to celebrate quite a few accomplishments over the past four years,” Lynch notes. “Most significantly, we have successfully navigated through an unprecedented economic environment and positioned ourselves for future growth. Beyond that, we have shown dramatic improvements in brand positioning,” as well as “strategically balancing promotional activities and a consistent focus on profitability and margin expansion in the wake of flat top-line performance.”

With 484 stores in Florida, Alabama, Louisiana, Georgia and Mississippi operating under its eponymous flagship banner, Winn-Dixie remains one of the largest food retailers in the southeastern United States. Within its base, the chain also has 379 in-store pharmacies, 74 liquor stores and four fuel centers, as well as six distribution centers. Its average store size varies by location, ranging from approximately 30,000 square feet to more than 60,000 square feet.

While Winn-Dixie has endured its share of jabs and darts in recent years for having a tired, outmoded store base, subpar selection, inconsistent merchandising schemes and a sluggish response to intensifying competition, Lynch says he readily recognized the company's need to shore up its operations and store conditions as part and parcel of drafting a new blueprint to prioritize the critical ingredients necessary to capture — and reclaim — a disenfranchised customer base.

Adamant to begin the process by focusing on a singular mission of “earning the trust and loyalty [of customers] every day,” Lynch says the engines of Winn-Dixie's companywide overhaul are fueled by a renewed commitment to “focus on our customers, our store conditions [and] our product offerings [while] implementing marketing and merchandising programs designed to fit the communities we serve. We believe that having a focused merchandising strategy and clean, modern stores is essential to improving our brand positioning and building upon our current customer base.”

Few would argue with Lynch's pertinent description of the requisite elements of a market-leading food retailer in today's cutthroat, competitive landscape, which accordingly requires captivating, relevant store configurations that attract and enliven consumer interest.

To this end, Winn-Dixie quietly embarked in 2007 on what has since become an aggressive “fresh and local” store remodeling campaign, which Lynch says has consequently provided the company with ample impetus to keep the jackhammers humming. The “fresh” side of the remodeling strategy centers “on expanded perishables departments such as produce, floral, deli, cheese and meat, as well as wine and beer.To date, we have completed nearly half of our current store base in the basic remodel format. We also organized our store offerings to reflect the needs, tastes and preferences of each of the diverse neighborhoods we serve, such as affluent, Hispanic and urban neighborhoods.”

“Transformational” Formats

Encouraged by the results of Winn-Dixie's ongoing companywide remodeling campaign, as well as of its companion thrust into neighborhood marketing, Lynch says the needle is trending favorably forward with “enhanced customer perception of our brand and 
 improved financial performance. In fiscal 2010, we opened two new stores” — in Covington, La., and Margate, Fla. — “which are based on the same 'fresh and local' strategy, but which included many expanded and upscale attributes in a new format that we call ‘transformational.’”

“The actions we took in July 2010 enabled us to lower our cost structure, improve efficiency, and build the right foundation for our business now and in the future.”—Peter Lynch

Featuring polished wood flooring, exposed-beam ceilings, expanded deli and hot food departments, wood-burning rotisseries, locally grown produce, and other products indigenous to specific areas, the concept stores have garnered “very overwhelmingly positive” reviews from shoppers, according to Lynch. In particular, the Covington store, he notes, “features a large outdoor farmers' market with a wide variety of organic and natural foods and stained concrete flooring, while the Margate store has a whole-bean coffee station and a large candy shop” that further sweetens the shopping experience — both figuratively and literally.

In keeping with the transformational theme, Lynch continues, Winn-Dixie recently completed a major remodel of one of its stores in Mobile, Ala., which now also offers an outdoor farmers' market and expanded hot food offerings, among other new features. “Going forward, we plan to utilize that same transformational format in 17 of the 22 remodels we expect to complete in fiscal year 2011,” he notes.

In seeking to get a closer look at shoppers' perceptions of its store restoration efforts, Lynch says the company tapped an outside market research firm to conduct an “image survey” last spring to measure consumers' views of Winn-Dixie locations. “We benchmarked the ratings in certain categories vs. our primary competitors, as well as against results for Winn-Dixie from a similar survey performed in 2005. The research firm estimates that we showed the greatest improvement in our peer group over that time period,” with many of its most influential higher-income customers returning.

Perhaps coincidentally, but likely not, Winn-Dixie revealed in July, shortly after the survey results were tallied, that it would shutter 30 underperforming stores and consolidate four operating regions into three. Discussing the impetus behind the move, Lynch says the difficult decision was a necessary part of the plan to help Winn-Dixie regain its financial footing and concentrate its turnaround efforts on the markets where its competitive prospects are most promising.

Emphasizing the southeast geographic corridor's “particularly difficult economic and retail environment,” Lynch observes that the store closures were part of the company's imperative “to constantly review our retail operations and support structure, to ensure that we continue to build a strong and healthy company. The actions we took in July 2010 enabled us to lower our cost structure, improve efficiency, and build the right foundation for our business now and in the future.”

“Finding a good value that does not sacrifice quality has become an essential goal for budget-conscious consumers as they work to stretch tight food budgets. As a grocer, it is our responsibility to listen and respond to these needs.”—Peter Lynch

As he reflects on the lingering effects of the economic downturn, Lynch's pragmatic, straightforward viewpoint mirrors that of many of his chief executive industry peers: “I think the industry as a whole has learned quite a bit from weathering the Great Recession, because it affected everybody in one way, shape or form, in every single walk of life.” In Winn-Dixie's case, he says, while high unemployment in its home state of Florida “has changed our customers' lifestyles dramatically,” the silver lining has been “more people eating at home more often — and family meals became a prime focus for our shoppers. Finding a good value that does not sacrifice quality has become an essential goal for budget-conscious consumers as they work to stretch tight food budgets. As a grocer, it is our responsibility to listen and respond to these needs. And that is exactly what we did.”

To that end, Lynch says Winn-Dixie's corporate and store teams have striven to redefine “'value' in the eyes of our customers: what it means, what it looks like and how it helps to make their life a little easier. In doing so, we have introduced [bundled] meal solution programs like our very popular 'Make-A-Meal,' which offers a center-of-the-plate item at a very good price, along with four complementary items for free.”

The concept, Lynch continues, was further extended to nonfood categories under the “What-A-Deal” moniker, which combines a main household item, such as laundry detergent, with four free related products. “We also offer a promotion we call 'Double Play,' in which a customer can buy one item, like peanutbutter, and receive a companion item, such as jelly, for free.”

The value-focused programs, he adds, further complement Winn-Dixie's other ongoing shopper incentives — including “Locked-in Low Prices” — all of which Lynch affirms are paying bottom-line dividends.

As existing and new competitors continue to encroach on Winn-Dixie's marketing turf, Lynch thinks the company's enhanced stores, aggressive pricing strategies and entrenched roots remain among its most formidable competitive advantages. “We believe we operate in attractive markets located across five states,” he notes. “We hold a top-three position in over 75 percent of the markets in which we operate. In 13 of our 14 largest markets, defined as those with 10 or more stores, we maintain a top-three market position. We believe our market positions provide meaningful competitive advantages in the markets in which we operate compared to both existing competitors and potential new entrants.”

Lynch also cites Winn-Dixie's standing as the only major retailer in the Southeast with a loyalty card to be another powerful weapon in its increasingly aggressive playbook. “Our Customer Reward Card (CRC) data gives us a deeper understanding of our customers and their shopping patterns, which allows us to better serve them,” he says. “And it gives us the ability to deliver discounts and rewards electronically.The CRC also allows customers to earn 'fuelperks!' [customer loyalty] rewards in the markets where we offer the very popular gas discount program.”

While the next chapter of Winn-Dixie's chronicles remains to be written, Lynch is, in a word, indebted to the company's 46,000 associates, “who are committed to earning trust and loyalty every day,” and whom he describes as “our greatest strength.This business is all about people, and I can say with confidence that our people are among the very best in the industry. Many of them were here when we filed for Chapter 11 reorganization in February 2005, and when we emerged in November 2006 — and [many are still here today, helping us build a strong and healthy new company through our turnaround. We have always been known as a company with a heart; our associates are the foundation of that heart, and their dedication to our turnaround has been inspirational to me.”

In the realm of Winn-Dixie's corporate culture, Lynch prioritizes “open communication” as the summit of its “internal management compass,” which is rounded out by “leadership, teamwork, trust and community. At the end of the day, maintaining open communication is like following the North Star — it keeps everyone going in the same direction, so nobody gets lost.”

Recalling when he first came to Winn-Dixie in December 2004, Lynch recounts: “One of the first things I promised our associates was that I would update them regularly, either electronically or during our town hall meetings, about the state of the company. The other commitment I made was that they will hear any major business announcements pertaining to Winn-Dixie from me or a member of the executive team before they hear or read it in the news.” Lynch says he has made good on that promise, and fully intends to honor it for the duration.

Aside from associates, Winn-Dixie's suppliers are a crucial paving stone in its road to restoration, according to Lynch. “We value our relationships with our vendor partners, and we look forward to continuing to grow and strengthen those ties going forward,” he notes. “Their ongoing input, innovation and support are vital to our success, and I am pleased to say that we have forged some very strong bonds over the years. Now, more than ever, we are focused on partnering with our vendors to raise the bar when it comes to offering value to our customers.”

“Executing Like Crazy”

To that end, Lynch says the retailer has begun building a portfolio of customer solutions with its vendors that includes everything from meal and home solutions — such as Make-A-Meal and What- A-Deal — “to philanthropic promotions designed to give back to the communities we serve, as we do with Kellogg's and Habitat for Humanity, to partnering on event sponsorships and demos. In addition, loyalty programs such as the fuelperks! rewards program present a unique opportunity for vendor partner tie-ins.

“Quite frankly,” adds Lynch, “there has never been a better time for Winn-Dixie and our vendors to work together in new, exciting and mutually beneficial ways to attract and retain customers. My team and I share a strong commitment to taking these relationships to the next level and beyond as we continue moving forward.”

In addition to remaining focused on its “fresh and local” strategy, store remodeling campaign and neighborhood marketing initiatives, Winn-Dixie is concentrating on its “Neighborhood Butcher” program, which Lynch says “really harkens back to our heritage as 'The Beef People'” — but with a new twist. “We are bringing our butchers out from behind the counter in a customer-centric approach that is designed to allow them to interact with our shoppers, answer questions, provide suggestions, offer recipes and also give ideas for the rest of the meal,” explains Lynch. “This is the type of assistance that our customers have told us they want, and who better than 'The Beef People' to deliver it?”

Beyond merely talking the talk, however, the seasoned industry vet is also well versed in walking the walk. “I am out in our stores at least two days of every week,” he says. “There are some things that need to be done in the office, but the real action happens when you get into the stores, kick the tires and talk to the people to see what works and what doesn't. This isn't a complicated business as long as you remember that it is all about people. Once you get that, quite frankly, the rest is just a matter of keeping it simple and executing like crazy.”