THE BIG SEASON

The upcoming fourth quarter holds the promise for supermarkets to break out of their financial doldrums, which have plagued most retailers -- from the largest chains to the single-store operator -- for the last three years.As far as the economy goes, there are glimmers of hope on the horizon as some 25 million families begin to receive their $400-per-child tax credits in time for back-to-school, and

The upcoming fourth quarter holds the promise for supermarkets to break out of their financial doldrums, which have plagued most retailers -- from the largest chains to the single-store operator -- for the last three years.

As far as the economy goes, there are glimmers of hope on the horizon as some 25 million families begin to receive their $400-per-child tax credits in time for back-to-school, and others are anticipating larger tax rebates from the Bush administration's tax cuts. Other economic indicators are boding well for a full recovery. Corporate profits across all sectors are generally reporting up for the second quarter. Wal-Mart Stores raised its second-quarter earnings projections, and expects to gain in comp-store sales. Economists' expect that corporate cost cutting and layoffs are ending. This may mean that consumer confidence will finally return and shoppers will be more willing to splurge this season.

This leaves food retailers with an opportunity to push their earnings into the profit zone by promoting higher-ticket merchandise and premium brands. To maximize the opportunity and beat the competition, supermarkets have to execute well-timed and planned promotions to drive sales over the top.

The retailers represented in the reports that follow give a glimpse into how food retailers are approaching the coming fourth quarter. Some common themes are: how to stand out from the competition with exclusive merchandise not readily available at other retailers; how to capitalize on the convenience of one-stop shopping during the busy seasonal periods; and how to best merchandise premium products and add value to the overall purchase.

The fourth quarter is not all about hitting the numbers and pleasing the investors. As retailers like Albertsons, Kash n' Karry, Big Y and others will demonstrate, it is about giving back to the community through back-to-school fund-raisers (see "Making the Grade," Page 18), food drives and other charitable efforts.

While there are no guarantees that all the hard work ahead will satisfy retailers' sales and profit expectations, there is the real hope -- more than in the last few years, anyway -- that retailers will be filled with a sense of thankfulness going into the new year.

NONFOOD STRATEGIES

TOY STORY, TOO

More supermarkets are playing up one-stop-shopping convenience by getting into the toy business this holiday season.

For those supermarkets making the commitment to toys, seasonal promotions become all the more important since between 50% to 60% of all toys are sold in the fourth quarter, according to analysts. Last year, U.S. toy sales totalled $20.3 billion, according to the Toy Industry Association, New York.

Big Y Foods, Albertsons and Rosauers Supermarkets are a handful of the retailers arranging toy promotions this fall.

"You have to have a presence during the holidays coming into Christmas," said Al Jones, senior vice president, procurement and merchandising, Imperial Distributors, Auburn, Mass. "If you're going to be in the toy category, if you're carrying the Toys 'R' Us name in your store or trying to make a statement in toys, you're going to have to have more than just the gift items."

One national chain is doing just that. Boise, Idaho-based Albertsons is planning to expand its partnership with Toys "R" Us after a successful test in its Jewel-Osco stores last year, as previously reported by SN. The chainwide rollout will feature permanent branded and unbranded Toys "R" Us sections, depending on store size and foot traffic.

Stop & Shop, Quincy, Mass., and Giant Food, Landover, Md., both banners under Ahold USA, also have toy partnerships with the national toy retailer, headquartered in Paramus, N.J.

Albertsons began installing its "Toy Box" program in half of its 2,300 stores this spring in time for the holiday season, Tim Cogil, senior category manager, seasonal, told SN. Gearing up the rest of the stores is expected to be complete early next year.

The Toy Box offers seasonal and everyday toy selections, he said. The ability to offer seasonal toys for the upcoming holidays is "what's great about the Toy Box," Cogil said. "It provides a different mix of products for customers than they would normally see every day."

Albertsons had merchandising success with a 12-inch Harley Davidson collector's edition motorcycle last Christmas. This year, Cogil said that Albertsons will offer another "hot item at a great deal," but he declined to disclose the specific toy. The product will be cross-merchandised throughout the store to capitalize on its trendiness.

Rosauers, Spokane, Wash., is preparing for its first toy sale right after Thanksgiving, said Gordon Thompson, general merchandise buyer for the retailer. "We're testing the waters to see what happens," he said. "Supermarkets are trying to find different channels to increase sales and search out other pockets to get that extra dollar. If you've got toys at Christmas, you have the opportunity to make extra sales."

Rosauers picked about 20 unbranded import toys under $9.99 for both boys and girls, Thompson said. The section will measure 12 to 20 feet depending on store size. Displays of dolls, games and similar items have been slotted for the seasonal aisles or in a lobby toy section, he said.

"It's something we've never done before, and the product looks good," he noted.

Whatever their size, source or item count, supermarket toy sections are being designed to fit the larger one-stop-shopping trend, said Jonathan Ziegler, principal, PUPS Investment Management, Santa Barbara, Calif. "[Supermarket] customers are generally female, and a toy department certainly saves her the trouble of going to the toy store," he said.

"Supermarkets are focusing on categories that appeal to our customer base," agreed Jan Winn, director of GM/HBC, Big Y Foods, Springfield, Mass. "We can offer the brands that customers are looking for at competitive retails, and provide another convenience that will keep the customer in our stores."

Big Y Foods has an in-line department with toys from Mattel, Hasbro, Zapf Creations and Mega Blocks. The retailer also handles various promotions with Ja-Ru peg toys and imported seasonal novelties, said Winn.

Competition in the toy category is only going to get more fierce, retailers told SN. However, it remains to be seen if people will shop for toys in the supermarket on a regular basis, said Jones.

"The potential is there and certainly the demand is there, but whether or not people will move from the traditional toy retailer into the supermarket is the question," he said.

Stephanie Loughran and Dan Alaimo

FRESH MARKET

ALL THAT GLITTERS

As the big holiday merchandising season nears, supermarket perishables departments are counting on presentation, image and quality to attract shoppers.

Kowalski's Markets, a seven-store chain based in St. Paul, Minnesota, is hoping its in-store bakery's year-old "grab-and-go" program will be a vehicle to boost holiday sales this year.

Bakery director Steve Beaird said store bakery departments have been trying to boost interest in individual bakery items, such as cookies, muffins and biscotti, by improving packaging and placement. The push to elevate the image of the items is seen as a way to compete with convenience stores and appeal to the on-the-go shopper.

"We've put out individual items for a long time, but it's always been done in a low-quality, afterthought kind of way," he said. "Now, we're trying to take it and upscale it by pushing it a bit more with nice labeling and packaging. We're trying to get the consumer thinking that they're not just buying something with a piece of overwrap that's been sitting on a counter. That didn't communicate a quality product."

While the items are still overwrapped, they now bear a nicer one-inch label that includes information on ingredients and a sell-by date. Some products also are bagged and placed in attractive baskets. "All of a sudden, they become a little different product," Beaird said.

Demi baguettes, gourmet cookies, biscotti and Rice Krispie-style bars have been particularly big sellers. As the holiday season approaches, Beaird said holiday fare, such as gingerbread cookies, are likely to get a boost from the effort.

In conjunction with changing packaging and presentation, the stores have expanded the areas where the products are offered. The checkout area is one that's been targeted, in addition to other impulse areas, including the bakery department itself. "The more places I can get bakery around the store, the better," he added.

The effort hasn't necessarily been focused on changing pricing. Gourmet cookies may sell for 99 cents for a three-ounce product, rice bars may go for $1.59, and biscotti may be priced at two for $1.79.

"The program is still in its infancy, and it's something every store has done with varying degrees of success," he said. "But it's really enabled us to bring the presentation up a notch and get more of that impulse, individual-piece business. If we have someone running into the store for something quick and they don't intend on going back to the bakery area, I'm not going to get a sale. But this program enables me to hopefully get some more sales we wouldn't normally get."

Stores in the Town and Country Markets chain, based in Bainbridge Island, Wash., are trying to boost fresh department sales by calling attention to them with big in-store banners. The "Big Board Buys" program allows the stores to generate excitement, said Ron Nakata, vice president of retail operations.

Full-color banners measuring four feet by four feet and featuring artistic renderings of items call attention to everything from rotisserie chicken in the deli to salad bar sales to meat and seafood buys and artisan breads.

"We don't try to find and promote the cheapest products, but instead shoot for high-quality items shoppers won't find in a conventional supermarket," he said. "So prices may actually be higher than you'd find in a competitor's ad circular."

The banners effectively replace ad circulars for the chain.

"We feel our customers are not the type who look for grocery ads in their mailbox each week, but who are still interested in value," he said. "So we needed a highly visible program that communicates instantly that there are values to be had in the store. Differentiation is what we strive for as far as a merchandising and promotion strategy."

Penhollow Markets, owner of three Thriftway stores in Seattle, has been able to boost some of its holiday perishables department sales in recent years by encouraging shoppers to think ahead.

Beginning in October, shoppers are encouraged to put their bid in for a specially aged prime rib product available from a small Washington grain-fed beef supplier. The Misty Isle brand product is promoted on shopping bags, which as of last year also have an order form shoppers can fill out and return to the store. Last year, about 15% of all the stores' sales of the product were ordered in advance. Larry Roberts, operations supervisor for Penhollow, is hoping to get a quarter of all sales pre-ordered this year.

"While we'll stock some of the prime rib for regular sale, doing it this way guarantees consumers that they'll get their order," said Roberts. "It's something that doesn't have a lot of price sensitivity and which appeals to a certain type of customer who doesn't necessarily just want the cheapest product available for the holidays."

The chain also has used the bag advertising/order form format for a wild seafood promotion as well as an Easter promotion for a locally produced smoked ham.

Another program that's worked well for the chain around the holidays is a smoked Coho salmon promotion. Last fall, for the first time, Penhollow made a bulk purchase of Coho salmon and arranged with a local company to smoke the product, a move that cut the retail price of the product from $20 a pound for pre-smoked Coho to about $12, and ensured that the store would have enough for the normal holiday rush for the product.

Penhollow also has had good luck pushing its selection of more than 350 gourmet cheeses in its deli department by aggressively cross-promoting it with wine. "We probably increase the cheese selection by about 30% around the winter holidays, and we push real hard on pairings of wine and cheese. Our customers want to splurge around that time of the year, and we want to help them do that," said Roberts.

Tom Zind

CENTER STORE

MAKING THE GRADE

Now that back-to-school is here, retailers are sharpening their pencils, hitting the books and preparing for a new class of promotions aimed at aiding local schools and students. While retailers are embracing national fund-raising programs like General Mills' Box Tops for Education and Campbell Soup Co.'s Labels for Education, they're increasingly working with manufacturers to develop programs that are exclusive to their stores.

In one of the largest retail initiatives announced to date, Albertsons, Boise, Idaho, reported relationships with several of its vendors -- including Kimberly-Clark, Pfizer, Johnson & Johnson, Coca-Cola and Minute Maid -- to give back over $5 million to communities during the school season.

"We are helping provide resources that will make a meaningful difference in the quality of education in the neighborhoods we serve," Larry Johnston, chairman and chief executive officer, Albertsons, said in a statement.

The program includes several components:

The chain will team with Coca-Cola and Minute Maid to donate the one-millionth book in a reading initiative called "Half Million Books Program," which provides free books to elementary schoolchildren across the United States. This year's 500,000 paperback books -- published by New York-based Scholastic Inc. -- will be delivered to kindergarten through fifth-grade classrooms.

Albertsons shoppers who purchase participating Kimberly-Clark/Pfizer products will receive two free PBS Kids Books. In addition, PBS books will be donated to underprivileged kids throughout Albertsons' operating areas.

Albertsons, Acme, Jewel-Osco, Sav-on and Osco are teaming up with Johnson & Johnson to donate 5 cents on selected items (up to $5,000 per operating area) to purchase computer equipment for local educational institutions.

Albertsons is participating in a back-to-school fair in Dallas. Area children will receive free school supplies, courtesy of Albertsons, and can also visit Albertsons Celebrity Reading Center.

As for why Albertsons is so involved in education, Johnston points to studies showing that 82% of parents are looking for easy, effective ways to be involved in their children's education, while 62% are willing to raise money for their children's school if it is easy and convenient.

Along with Albertsons, a growing number of other supermarkets are partnering with manufacturers for exclusive education-based promotions. Many of these programs start during the back-to-school season, but continue well into the rest of the academic year.

For instance, beginning today and running through Dec. 5, 2003, Kash n' Karry Supermarkets, Tampa, Fla., will support local schools and reward customers who purchase select General Mills products with certificates that can be redeemable for cash by the school of their choice.

Called "Kash n' Karry Helps Schools," the initiative awards certificates from the cashier with the purchase of select General Mills products. A $2 certificate is awarded with the purchase of three products; $4 certificate, six products; and $6 certificate, nine products. The certificates can then be redeemed by the schools to purchase educational products.

Featured products include General Mills cereals, Pillsbury, Betty Crocker and Progresso soups. Shelf signs highlight the participating brands.

While the promotion was created last year, several new components were added for the 2003-2004 school year, including the addition of an online registration option.

Last year, about $730,000 was raised, and 300 schools participated. Kash n' Karry anticipates an even larger response this year.

"Being that school budgets are so tight, this is a wonderful way to raise funds for everything from buying new computers to building playgrounds," said Camille Branch-Turley, manager, corporate communications, Kash n' Karry, a member of Delhaize America, the U.S. division of Brussels-based Delhaize Group. Branch-Turley said the program has been successful because it's easy to understand and use.

"These are normal, everyday, real foods that kids eat," she said.

Many supermarkets are linking their school fund-raising efforts to their frequent shopper cards. For instance, Haggen Food & Pharmacy, Bellingham, Wash., has awarded more than $360,000 to schools in four counties through its "Haggen School Bucks" program, which operates in conjunction with the Haggen "C.A.R.D." (Customer Advantages, Rewards and Discounts). Kraft Foods, Northfield, Ill., is the manufacturer partner.

When Haggen shoppers use their C.A.R.D. to buy specially marked Haggen and Kraft products, Haggen donates 5 cents per product to the school of their choice.

Schools can use the money to purchase educational equipment and services. The program operates year-round, and checks are issued to participating schools in March and September.

Customers can choose from more than 1,500 Haggen, Food Club, Top Crest, Pet Club, Full Circle, Premier and Top Care brands. In addition, about 1,000 Kraft products are included, including the Kraft, Nabisco, Oscar Mayer, Post and Planters brands. Participating products are identified in-store with a School Bucks shelf tag.

Officials at Haggen were unavailable for comment.

Along with raising money, retailers are aiding local schools in other ways. Take Big Y Foods, Springfield, Mass. On Sept. 15, the retailer will open the phone lines to its free Homework Helpline, a toll-free service that provides one-on-one homework assistance to students in Massachusetts and Connecticut who are primarily in kindergarten through 12th grade. About 7,000 calls were handled last school year.

"We believe that well-educated children make smart consumers and good future employees," Michele D'Amour, educational partnership administrator, Big Y, told SN.

The program has been in place for 12 years, though the retailer refreshes it each year in several ways. This year, Big Y is welcoming two new sponsors: PowerAde and Hormel, who will join existing partners, including Pepsi-Cola Co.

Manufacturer sponsors help pay for the 15 certified teachers who handle the calls, and for the phone lines themselves. In return, Big Y highlights their products with shelf talkers. Most calls are from students in grades 6 to 12 who need help with math homework. Teachers are directed to steer callers in the right direction, but not to let them off the hook completely, according to D'Amour.

"The goal is to help them come up with their own answers, not to give them the answers," D'Amour said.

Big Y heavily promotes the program in store circulars and other advertising. This year, it has even created a special paper grocery bag that can be easily cut into a book cover featuring the hotline's toll-free number.

Carol Angrisani

School Days

If supermarkets could get school report cards, they would likely get all A's for their community service.

That's because retailers are doing more than just supporting local education -- they're developing innovative ways to help to fund it.

Among the numerous programs in place:

Albertsons, Boise, Idaho, is partnering with several of its vendors -- including Kimberly-Clark, Pfizer, Johnson & Johnson, Coca-Cola and Minute Maid -- to give back over $5 million to communities during the back-to-school season.

Kash n' Karry Supermarkets, Tampa, is supporting local schools and rewarding customers who purchase select General Mills products with certificates that can be used by the schools of their choice to purchase educational products.

Haggen Food & Pharmacy, Bellingham, Wash., is donating 5 cents per product to schools designated by shoppers who purchase select Kraft and Haggen private-label products.

Big Y Foods, Springfield, Mass., will open the phone lines to its free Homework Helpline on Sept. 15, 2003.

CAROL ANGRISANI