Divide and conquer: by operating conventional, warehouse and super warehouse formats, Strack & Van Til builds strength through diversity.
Shoppers redeemed coupons for free eggs, bacon, ice cream and other items. They made minimum purchases of $25 so they could get $1 off, or they made purchases of at least $50 to get $2.50 off. Although he lost money, Van Til was happy because the promotion achieved its top priority. "My goal was to increase my customer base and increase the average customer transaction to give me increased volume," he said.
Weekly dollar sales ran about 8% higher than normal during the four-week promotion and were still at that level three months later.
Van Til got added satisfaction out of the promotion because the percentage gain exceeded that of his major competition, a warehouse store called Ultra Foods, by at least 3 % .
The odd thing about all this is that Ultra Foods is owned by Strack & Van Til, of which Frank Van Til is treasurer. He competes fiercely against one of his own stores.
This operational idiosyncrasy is one of several that distinguish Strack & Van Til from other retailers. There are actually two companies. Strack & Van Til owns and operates three large conventional stores in Indiana under the Strack & Van Til name, a Cub Foods franchise in Lansing, Ill., and the Ultra unit in Highland, Ind. The second company, Van Til's Mega Mart Inc., of which Van Til is president, operates one store, the Mega Mart, in Hammond. (Sales for the six stores totaled approximately $180million in 1988, Van Til said.)
The two-company structure dates from the founding of Strack & Van Til some 26 years ago, when Frank's father, Nick Van Til, joined forces with another grocer, Ernie Strack. Despite the merger, Nick Van Til retained ownership of the store he had operated beforehand. After his death, Frank Van Til took it over.
The Mega Mart and Strack & Van Til stores are similar in size and format. Both have selling areas of 35,000 to 40,000 square feet and contain service fish, deli and bakery departments. These units could qualify as superstores except for the lack of emphasis on non-foods. But the unusual thing about these stores is their large back rooms and basement storage areas-equal to the selling areas in the three Strack & Van Til units. Mega Mart has 60,000 square feet of storage divided between a huge basement and a back room with several refrigerated lockers. The selling area totals 40,000 square feet. Strack & Van Til also has a 100,000square-foot warehouse at its headquarters in Highland.
All of the storage space-including the warehouse-is devoted to goods bought on deal"We buy deal-to-deal and keep items at reduced prices," said Van Til. After a competitor exhausts its supply of an item bought on deal, Strack & Van Til still has it-and continues to sell it at a low price, Van Til said. "That's how we build volume-through a cheap price concept. That's how we've been a success."
Each day, the stores feature 2,500 to 3,000 items at reduced prices. These specials are announced with signage reading "Choice Price." Ron Mitchell, manager of the Mega Mart, said, "Some items haven't been at the regular price for years."
Another operational precept is that each store is responsible for its own bottom line. Combined with the company's buying strategy, this approach has enabled Strack & Van Til to go head-to-head with chains and come through unbowed, said Van Til. "Chains want to make die whole chain profitable, not an individual store," he noted.
Sometimes, Van Til admitted, prices can sink ridiculously low, as in the Great Turkey Price War of 1987, when the birds were selling for 8 cents a pound at Thanksgiving. Initially, they were marked at 38 cents, said Van Til. At least one Cub Foods in Chicago beat that price, which prompted Dominick's and independents to go even lower, "and that forced us down." Strack & Van Til was the first to go to 8 cents per pound. "We were the leader with it," said Van Til. "We created a dumb thing. Consumers just bought. We lost hundreds of thousands of dollars." He shook his head and laughed. "But you've got to do it or you die."
Similar-but less extreme-thinking prodded Van Til to launch the four-week promotion offering free items and money off minimum purchases of $25 and $50. Van Til decided to do a mailing because he discovered that the redemption rate on coupons distributed through the local newspaper left much to be desired.
Although the promotion increased volume, Van Til expressed caution about doing it again. "It's a big gamble," he said. He hinted that offering $2.50 off minimum purchases of $50 might have been a mistake.
As a consolation of sorts, he had the unique satisfaction of knowing exactly how the promotion affected sales of his main competitor, Ultra Foods, at the company's regular Monday meetings where, Van Til said, "We share volumes and we share anything that would be an expense to the company."
Those who work in the Mega Mart visit the Ultra store to do price checks and vice "It's competitive," said Van Til.
But, of course, they don't compete to the point of each other's detriment. If one store is having trouble moving an item, another that is having success will take it.
Just as competition takes on a whole new meaning when a company is structured in the way of Strack & Van Til, so does cooperation. Operating three formats -conventional, warehouse and super warehouse-requires nimble talents in key positions. Van Til said department managers for delicatessens, meat, produce and bakery "have very difficult jobs because of the different pricing structures."
Grocery buying is done separately, with one buyer for the Ultra and Cub stores, another for the other four units. J.M. Jones, Urbana, Ill., supplies the Cub store, while Central Grocers, Franklin Park, Ill., supplies the other units. Meat and produce buying are done jointly. To get the best possible buys in meats, milk and frozen foods, Strack & Van Til goes directly to suppliers. Beef is purchased from a packer in Omaha; pork from an Iowa supplier; and milk from a supplier in Indiana.
These items are picked up and brought back to the stores by Strack & Van Til's truck fleet. The company owns five refrigerated trailer trucks and plans to buy a sixth, said Van Til. Seven drivers and a mechanic are employed full time by the company. (Apart from the trucking operation, a maintenance staff of 10 full-timers looks after refrigeration, air conditioning and heating systems in the stores and in the warehouse.)
Despite the complexity of operating three formats, Strack & Van Til has no intention of hewing to just one in the future. With each new store, " the market will dictate what format we have to go with," said Van Til. Two or three markets are being explored as possibilities forconventional units. A big conventional store in Hobart, Ind., and a Cub franchise in Chicago Heights are scheduled to open this year.
The third generation
There is one factor in the company's expansion that will not be dictated by market conditions, said Van Til, The new stores, just like the cuffent ones, will be closed on Sundays. This practice dates from the time the company was founded, when Nick Van Til made it a condition of die merger agreement. Frank Van Til said the Sunday closings are based on "moral belief. Sunday is a day to go to church with the family, to have the day off with family." Van Til said the company's Cub franchise is the only Cub unit he knows of that closes on Sunday. It performs well enough the rest of the week that Super Valu appeared resigned to the fact that the company's second Cub franchise also will be closed Sundays, Van Til said.
Along with the Sunday closings and the various formats, Van Til is committed to preserving another distinctive feature of Strack & Van Til: family involvement. He hopes that the third generation will enter the business, despite the fact that family-owned supermarket companies rarely achieve such longevity. At the moment, management is in the hands of the second generation, including Frank, his brother Sam, and Ernest Strack's son, Jack. There are nine young people in the wings, one of whom graduated from college and began working in the company in January. The others are attending elementary or high schools.
While the company waits for the next generation to reach working age, it may be said to be stepping into the future in other ways, especially in its sophisticated, expensive and somewhat hard-nosed approach to loss prevention. Indeed, Va Til considers loss prevention a euphe mistic term. "It's a nice, subtle phrase when you're talking to an employee," he said.
Strack & Van Til invested in very expensive surveillance equipment to battle theft, sweethearting and other headaches that plague grocers. The surveillance equipment cost approximately $50,000 per store and is installed in all six stores, said Charlie Mak, a retired police officer who heads Strack & Van Til's security staff of 10 employees.
The system records store activities on videotape. The equipment is advanced enough that 24 hours of elapsed time can be nin at a higher speed and viewed in two hours, Mak said. When the viewer spots something unusual he can rewind the recording and watch it at normal speed.
Another advantage is that four cameras feed into one tape. When the tape is played, the screen divides into four panels, allowing a viewer to scan the recordings of all four cameras at once.
The system has been in use for eight years and has proved useful in thwarting theft and debunking what Mak called"your professional slip-and-fallers. We just had one where die husband was helping her down." This scene was captured on videotape, said Mak.
To bolster security at the front end, scanning systems are designed to provide exception reports if a cashier is redeeming an unusually high number of coupons or meat or dairy sales differ from the average. When the system issues such a report, security personnel monitor the cashier's scanning transactions from a terminal in an office. At the same time, said Van Til, "We can put a camera on her and watch her in living color."
To control losses in the receiving areas, the company established a "dedicated receiver program." Employees assigned to receive direct store deliveries acwally work under Mak's supervision rather than as store employees.
The company does not hesitate to go to court to recoup losses. Writers of bad checks, for example, find that they are in for a bad time if they don't make good; state laws in Illinois and Indiana now make it possible for the victims to file lawsuits against those who write bad checks, said Mak. Under those laws, judges can award triple the value of the bad check. According to Mak, Indiana judges frequently award triple damages, but their counterparts in Illinois are more forgiving.
Chop suey, chop-chop!
A takeout service for Chinese food, complete with a speaker system and window for drive-through orders, is being planned for a Strack & Van Til supeffnarket in Highland, Ind.
The choice of Chinese cuisine springs from research by a consulting firm that asked randomly selected Strack & Van Til customers what type of food they would like from the stores' delicatessens. Dishes such as spaghetti, rump roast and stuffed pork chops got the "thumbs down." Shoppers mentioned Chinese food most frequently.
To determine whether a qualified chef could prepare Chinese dishes in the normal delicatessen setting, the research company, R. Bieder man & Associates, Overland Park, Kan., conducted an in-store test in which shoppers sampled various Chinese dishes, some prepared in the supermarket deli by Biederrnan's staff cook, others from local Chinese restaurants, Shoppers, without knowing where the dishes were cooked, rated them for taste and color. They also were asked whether they would buy any of the dishes to take home.
"Ours did better than the food from the Chinese restaurants," said Frank Van Til, treasurer of Strack & Van Til. Encouraged by the results, Frank's brother, Sam, along with the company's deli supervisor, traveled to California to visit supermarkets offering Chinese food.
Strack & Van Til has now committed more than $25,000 to add the drive-through service to its conventional unit in Highland. The service will offer a limited menu of Chinese items and nothing else, said Van Til. Inside, adjacent to the deli, a 12-foot hot foods case will offer the same Chinese cuisine and will have a separate checkout.
Frank Van Til stressed that the service is intended to compete with the takeout business of restaurants rather than fast food establishments. "We'll never get the hamburger business. We don't want it. We can't compete with McDonald's and Wendy's." Meanwhile, Van Til said, there is a job opening at Strack & Van Til"We are now looking for a Chinese cook."
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|Date:||May 1, 1989|
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