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The long haul back.

Six years ago, when the rumblings being caused by warehouse stores up North were suddenly heard in Kansas City, grocers there dismissed the format as a product of inflation. The stores, they said, would be blown out of town by the next twister.

They were partially right. When the storm ended, some stores were gone from the Kansas City scene. But they were the conventional stores for whome the city had been a stronghold. Now the warehouse stores were in control as home-grown Milgram Food Stores and other conventional store chains found Kansas City no longer offered the high margins and grosses they had grown accustomed to.

The decision ultimately left for Milgram and the others was to follow the basic warehouse format route or take the next bus out of the city. The choices were made. Kroger opted to head for the Sunbelt. A&P, which operated 24 stores in the metro Kansas City area, hung on for four years before its high labor rates sent it packing. Safeway stayed, determined to counter with warehouse stores of its own.

Milgram stayed too, and today bears little resemblance to the company that, prior to the warehouse incursion in 1978, was ringing up one out of every five food dollars spent in Kansas City. Although it lost possibly as much as half of its market share during the height of the battle, Milgram is now hoping to prove that it's once again a force to be reckoned with.

Currently, Milgram operates 31 stores in the Kansas City area, of which only 10 are conventionals. The remaining units are SaveMart warehouse stores--the majority are converted 20,000-square-foot conventional units. Earlier this year, the company opened its first super warehouse store, a 40,000 square footer that management hopes will speed up the drive to regain market share. President Frank Hopfinger says that the share is now at 16 or 17%.

Two more such units are planned to open in September, while another will debut next month in Arkansas, where Milgram operates four other stores.

Milgram is planning to open three to four large stores each year for the next five years. While most of these will be of the super warehouse format, Hopfinger, who joined Milgram 30 years ago as a stockboy, has not given up on conventionals. "It is feasible that we might build another conventional store," he says. "In the right environment, we're convinced that convetional stores will still work in Kansas City."

Nevertheless, Hopfinger says four of the 10 remaining conventional Milgram's in the Kansas City market will probably be closed down permanently at one point because "they do not have long-term potential." Employees displaced by the closings will be transferred to existing or new stores.

Although Milgram's entered the warehouse store field less than a year after Associated Wholesale Grocers brought the first Price Chopper warehouse store into Kansas City, some local observers say the chain was slow to react and claim its market share dipped to the single digits. Hopfinger, who stepped into the presidency two years ago, disagrees.

Among the handicaps Milgram had to overcome to regain market share was its prohibitive union wage scales. That pressure eased considerably in March 1983, when the chain won some significant concessions, cutting the hourly wage rate for senior clerks from $11.11 to $8.67 in both conventional and warehouse units. Shortly afterward, Safeway, and then most of the union independents in the area, received similar concessions.

"These concessions enabled us to really 'take on' the non-union competition," says Hopfinger, "and I think that has really been the cornerstone of our recent success in increasing our market share and re-establishing Milgram SaveMart in Kansas City." (The concessions also helped Safeway stay afloat in the area, where observers put the chain's share of market at approximately 18%. By comparison, AWG is said to control more than 50% of the market, and Fleming and Wetterau combined, approximately 15%.) The Big Thrust

Most of Milgram's emphasis is in the super SaveMart direction. The prototype was opened in February at the site of a former TG&Y discount department store.

The store, which features an upscale look, is equipped with 10 scanner checkouts. It has 29,120 square feet of selling space and 11,700 feet of backroom area. Yet the super SaveMart was relatively cheap to construct. Its new equipment tab came to approximately $20 a square foot, and leasehold improvements amounted to another $11 a foot, says Hopfinger. But, he adds, raising capital for expansions of this type is not easy for privately-held companies like Milgram.

The cost of the new store's opening inventory was $450,000, and the value of its more than 16,000 SKUs at any given time is about $420,000.

While Hopfinger calls it "a typical superstore/conventional store" offering many services, the 24-hour unit operates with a lean staff of 26 full timers and 40 part timers. Nonetheless, the bulk-type delicatessen department makes trays-to-go and the bakeoff operation handles specialty items on request. In addition, there is a popcorn-making machine and a sausage machine, both of which have been quite successful.

For customer convenience, the store has an arrangement with a group of savings and loan organizations so that customers can make their deposits and withdrawals at a special desk near the store office. An ATM (automated teller machine) may be installed in the future in this and four other units.

Grocery, which is displayed on warehouse-type racks, accounts for 54% of store sales. Although most of the emphasis is placed on national brands, Hopfinger stresses that, "We don't emphasize national brands exclusively--a la Cub."

The store also features a line of Topco private label items with the Food Club name, and Topco generic line, but Hopfinger admits that the chain's double couponing practice impacts private label sales. "A customer with a coupon worth 30 cents--doubled to 60 cents--put against national brand merchandise, would end up being able to purchase that product for less than the private label," he says.

In an interesting, but not surprising move, AWG recently introduced its own "Always Save" private label, targeted to replace its Thrift King and generic lines. Priced competitively with generic products, the 300 product line is said to be undergoing strict quality control and is available exclusively through the wholesaler--to the chagrin of local brokers.

Among the essential perimeter departments, produce accounts for 11% of store sales; self-service meat and seafood, 23.5%; and bakery and deli, 2% each. Hopfinger says, "We'd like to get more out of the profitable perimeter departments." He says the trend to health awareness is prompting the chain to consider giving produce departments expanded space in future stores.

The driving force behind SaveMArt's appeal is, of course, price, which Milgram aggressively promotes both in the store and in its ads. Inside the new store, a Wall of Value features deal merchandise in addition to some 200 to 300 green-tag items that are part of the temporary price reduction (TPR) program, which is also connected with vendor deals. Promoting Price

Like Milgram's smaller warehouse units, the new hybrid store display a market basket price comparison at the front end. The display features four shopping carts with signs comparing the tab for these items in SaveMart and three other area stores. "Our rationale is to demonstrate to the shopper that we have the price," says Hopfinger, who scoffs at claims by competitors in the area that the items have been "hand picked."

Price is also pushed in the weekly ads run for all Milgram stores in the greater Kansas City metro area. In addition, Milgram sends out a super SaveMart mailer to residents in the North Oaks vicinity. A spokesman for the Kansas City Star says the chain's newspaper advertisments seem to be skewed toward its warehouse units. On the Best Food Day before Easter, for example, the Star carried three ad pages for SaveMart, two the Milgram conventionals and one for the chain's Party Shop liquor store in Kansas City.

Another way the shopper's attention is grabbed at the new super SaveMart is through extensive sampling. "Customers really like this, and so we've continued to foster it very heavily," says Hopfinger. He says it's not unusual for six demos to be going on simultaneously in various parts of the store on any given weekend. Coping With the Competition

While Hopfinger keeps volume figures close to his vest, it's clear that he hopes to significantly increase average store sales, which have been running at approximately $6 million. With the success of the new super warehouse store, said by Hopfinger to be "beyond management's expectation," it appears that Milgram's has a good head start at meeting its objectives. However, the super SaveMart, which has an average customer count of 12,800 a week, must compete with the likes of a Price Chopper warehouse store, a Safeway Food Barn, a Bob's IGA and a United Super, all in its immediate area.

Although there are actually three Bob's IGA stores within a five-mile radius of the super SaveMArt, Laarry Ryan, grocery manager of one of the Bob's stores claims to have lost no business at all to the new store, except during SaveMart's two opening weeks. "Our stores stress service, quality and product at what we consider to be good, competitive prices. We match or beat others in the area," he says. "And we have friendly stores that offer the personal touch. We have a lot of loyal customers."

In contrast to SaveMart's price-only advertising, Bob's TV and print ads deal with perimeter departments and are institutional in nature.

While one competitor views Milgram's move to super SaveMart as "just following the moves of some independents, by upgrading the warehouse store concept," antoher says the format seems to be the way to go. Byron Duffield, president of Fleming's Kansas City Division, says, "Milgram's new format will continue to be a viable competitor in the future." But Duffield adds that the United Super stores' sales have increased 10.7% over a year ago. Duffield says his division, which already supplies three warehouse-type units, may go the super warehouse route in the near future.

For Hopfinger and Milgram, there are still some stron obstacles to overcome. One is the soon-to-expire labor agreement that won Milgram its much-needed wage concessions the last time around. The general feeling in the market is that, come September, any futher concessions will be out of the question.

Milgram did, however, manage last month to obtain a one-year wage freeze from its meatcutters under a two-year tentative contract agreement. The meatcutters, who earn $13.33 an hour, will get an 80 cent increase in the second year of the pact--45 cents at the start of the second and 35 cents six months later.

One thing everyone agrees on is that Milgram has indeed become more agressive--taking the offensive, rather than the defensive position of late. "At one time, we wondered when Milgram was going to be knocked out," says a local food broker. "Now, we feel that if it is knocked out, it will certainly go out fighting."

Not long ago, he adds, Milgram was "reaching to the market." Will market soon be reacting to Milgram?
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Title Annotation:Milgram's
Author:Linsen, Mary Ann
Publication:Progressive Grocer
Date:Jun 1, 1984
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