Stop & Shop chief talks business.
Do you remember such phrases as "The Leisure Time Economy," "The Youth Revolution," "The Affluent Society," and "The Greening of America," not to mention "Conspicuous Spending," or "Leisure Time Industries"? Do you also remember when fresh produce was considered to be on the way out and the only question was whether frozen or irradiated products would replace it, when cooking from scratch was considered old-fashioned, and meals by pill were just around the corner?
So, we really shouldn't talk about "Trends in Retailing." Instead, we should determine how to differentiate ourselves from our competition and how to develop our own niche in the marketplace. To do that, it is necessary to stop and think, in an organized way, about what we want our companies to be. And I have some suggestions as to how to go about that thinking process.
Although it may seem rather basic, supermarket operators should start by asking themselves what business they are in right now. They should stop and think, "Are we in the food business or are we retailers?" I believe the answer is, "Both."
First, let's consider the name of one association--the Food Marketing Institute. But even in so-called conventional stores, are we only food marketers? Statistically, the answer is, "Certainly not." The conventional store with 20,000 to 22,500 square feet of sales area contains about 11,000 items. Putting aside issues of nutrition, and including food and beverages, by the broadest definition, only 76% or 8,360 items can be classified as "food." That leaves 2,640 items that are not food. They, in turn, are divided between approximately 1,460 items that are regarded as food items, but clearly are not, such as detergents, paper, and so forth, and about 1,180 items that many call "non-food." Of course, when we move to the superstore, the percentage of items which--purely defined--are "food," declines radically.
So can we conclude that it is a mistake to think of ourselves as food marketers? Absolutely not! If we want to continue to achieve a high level of excellence, then we must be the best possible food marketers--the best at buying, distributing and merchandising food and at serving customers who want to buy food.
We at Stop & Shop believe that if a store is going to succeed in the marketplace, it must have a personality. No matter what mix of items we carry, we must keep focusing on the personality of the store. A food store is a place where consumers come to buy food, where they can--hopefully--enjoy buying food, where our people can enjoy selling food. We want our customers to say, "This is wonderful food store." A wonderful food store, where they can buy 1,180 or 3,000 items that don't meet Webster's definition of food, but still a wonderful food store.
When I asked, "Are we in the food business or are we retailers," the answer I gave was, "Both." The first and essential part of the answer is: "We are in the food business." We must remember that because it is important to maintain a food personality in our stores and give a food message to shoppers.
But I still said, "Both." Why? Because in a way our stores are like a symphony orchestra, not a group of soloists playing independently, but many instrumentalists presenting a harmonious message to the customer. Yes, there is an overall theme, but the blended parts of a symphony require different talents. A violin is different from a French horn, and although the violins may play the lead part, all the instruments are important.
In our stores, we food merchants have traditionally recognized the importance of groceries, meat, dairy, produce, and now our specialty deparments, such as cheese, bakery, deli, floral. But we sometimes forget that the same principle applies to general merchandise.
Many of us in the food industry refer to general merchandise as "non-foods." Why? Men are not "non-women," nor are wowen "non-men." In our company, we call "general merchandise" exactly that, because we emphasize the importance of talent in our general merchandise departments the same way we emphasize the importance of talent in our meat, grocery and produce departments. We give the same kind of attention to standards of quality and of merchandise presentation, to reporting systems and controls for our general merchandise area, as we do for our food departments and people.
So, if we ask ourselves what business we are in, the answer is that all of us are food retailers and all of us are general merchandise retailers--that is if we are in the mainstream of supermarket retailing. And we have to act on the implications of that answer simply to maintain the excellence of our performance within that mainstream.
To go one step further, supermarket operators should ask themselves if that is enough for their companies or if they wish to diversify. Some truly great retailers have answered," Basta--enough!! We love the food business. We've done well for our customers, for our employees, and for our shareholders, and we will continue to do so." And there are some very good arguments supporting this position.
First, there is great wisdom in concentrating on what you know and what you like. Never underestimate the importance of management loving the business it is in. From that love comes a dedication to the business that makes that company a very tough competitor. So one piece of advice I am sure of is: If you really don't like a business, don't go into it, and get out if you are in it already, because ultimately you won't excel.
Secondly, it certainly is wise to avoid spreading yourselves too thin. Many advocates of diversification, particularly those from the financial community, simply underestimate the management attention each individual business requires. There are always substantive differences between apparently closely allied industries, and there is no such thing as an easy business. The old KISS philosophy of "keep it simple" is not stupid, but smart. Each company must decide for itself, and there is plenty of evidence that staying strictly in the food business works.
Furthermore, there is a great deal of diversification and niche marketing within what we have traditionally called the food business. This is apparent from the evolving, exciting, challenging, sometimes bewildering, variety of store types with their great opportunities for product variety and departmental presentation.
This is particularly true in the superstore, with its multiplicity of the departments such as the salad bar, the melon bar, natural foods, flowers, soup-to-go, bulk foods, fresh pasta, service fish, service meat, service fish poultry, service bakery, service candy, books, greating cards, general merchandise, pharmacy, financial services, and on and on.
I suggest that we in the supermarket industry might well call this explosive development "internal diversification." Every one of these departments requires specialized expertise and emphasis in terms of knowledge, space commitment, trained people inventory commitment, systems and controls, and romand and merchandising. Each of these specialized department appeals to a different customer need. The key is to minimize the satisfaction of these needs on an individualized sales, profit and share of market for the total store, and thus build return on equity for the total company. The Stop & Shop Companies is committed to this direction in our Super Stop & Shops.
Some management officials say that the food business provides plenty of opportunity for success, and others say the supermarket concept will provide plenty of room for internal diversification for many years to come. However, some food companies have decided to become diversified retailers, and even more may do so in the future. So I have to ask yet another question: "What are the arguments for diversification across the broad spectrum of retailing?"
The first is basically to spread the risk. Different industries--even within retailing--experience different competitive cycles and react differently to macroeconomic trends. As these differences are reflected in financial results, a company positioned in several retailing sectors can achieve a stream of steady growth and be less vulnerable to competitive and economic pressures over a period of years. So diversifying may well give a company a more consistent record of performance.
In addition, we food merchants must recognize that there are areas of retailing which are less mature, less saturated, perhaps even of less gut-level importance to consumers than the supermarket business. Therefore, they are somewhat less competitive and may produce greater growth in sales and profits, greater return on investment, and greater return on equity.
On a more subtle and, perhaps, less measurable point, diversification into more growth-oriented retailing sectors can establish a more dynamic image in the financial world. And for a public company, like it or not, this does affect "the multiple."
Finally, diversification, properly executed, can generate synergy for an existing supermarket company. "Synergy" is a much overworked word. But it is achievable.
Back in the 1950s, Stop & Shop opened many stores in New England in the same shopping centers as the early discounters. Perhaps because of our close association with them, we began to recognize that self-service general merchandise shopping was the wave of the future and we became more and more interested in that business.
In 1961, we seized the opportunity to acquire a failing discount chain called Bradlees. It had seven stores, six of which were located in the same centers as Stop & Shops. Over the last 23 years, we expanded Bradlees substantially. WE have also developed the Medi Mart Super Drugstore Company, acquired the Charles B. Perkins Company, and opened our latest venture, Raxton.
Currently, Bradlees operates 127 stores from Maine to Virginia that in 1983 generated over $1 billion in sales. Our supermarket company operates 120 stores in New England, including six Super Stop & Shops at a volume in excess of $1.4 billion yearly. Medi Mart has 54 stores with volume of about $125 million. And the balance of our business is done in the smaller general merchandise companies.
While it is one thing to develop and to set down on paper a good plan of diversification, it is another to execute it at a high level of excellence. I believe strongly that an essential prerequisite of that level of excellence is a cadre of what I call merchant managers, operating with as much individual initiative as possible. We are totally committed to the concept of decentralized management, emphasizing the responsibilities of the presidents of our operating companies.
However, merchant managers are required at the senior management level as well, particularly in the management of a major retail company. The direction and leadership of a group of retail operations in today's environment is a major management challenge which cannot be accomplished which cannot be accomplished by a seat-of-the-pants approach.
The capital investments required, the length and scope of lease commitments, and indeed, the intensity of the competitive environment all dictate the use of every modern management tool available: state-of-the-art management information systems, sophisticated research and advanced management techniques, carried out by a group of dedicated, well-educated, and experienced professional managers. On the other hand, no great retailing company has risen to the top, and remained there, without concentrating on the importance of merchandising to the consumer.
It is absolutely essential that the senior management stay close to the business, that they keep involved in what's going on in the stores, that they stay abreast of merchandising trends and the demographics of the consumer, that they stay out of the ivory tower and in the real world. You cannot manage without the numbers in retailing today and survive, and you cannot manage solely by the numbers in retailing today and survive. At The Stop & Shop Companies, we have tried to strike the right balance, and that, perhaps, is my most important point.
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|Author:||Goldberg, Avram J.|
|Date:||Apr 1, 1984|
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