CENTRAL ATTRACTION

PORTLAND, Ore. -- At Fred Meyer Stores here, food is central. After years of offering food on one side of its multidepartment stores or the other, Fred Meyer is putting the supermarket at the center of the store, flanked by apparel and hardlines."Putting food in the middle positions the department better for customers. And, it's easier to operate with food in the middle, rather than having a store

PORTLAND, Ore. -- At Fred Meyer Stores here, food is central. After years of offering food on one side of its multidepartment stores or the other, Fred Meyer is putting the supermarket at the center of the store, flanked by apparel and hardlines.

"Putting food in the middle positions the department better for customers. And, it's easier to operate with food in the middle, rather than having a store with three separate entrances and food on one side or the other," said Mary Sammons, president and chief executive officer of Fred Meyer Stores.

Not only is food in the middle more convenient from the customers' point of view, said Sammons, "but it also allows us to differentiate departments better and section off the department store merchandise so that when you're shopping for apparel, there's no sense you're in a food store."

Fred Meyer Stores is a division of locally based Fred Meyer Inc., which also operates three other food divisions: Smith's Food & Drug Centers, Salt Lake City, which was acquired in September 1997; and Ralphs Grocery Co., Compton, Calif., and Quality Food Centers, Bellevue, Wash., which were both added last March.

The parent company agreed in November to be acquired by Kroger Co., Cincinnati, in a merger scheduled to close early next year.

The company operates 122 Fred Meyer Stores in Oregon, Washington, Idaho, Montana, Alaska and Utah -- all but four of which have food -- ranging in size from 80,000 to 190,000 square feet. The food-in-the-center prototype measures 165,000 square feet.

After testing the concept at a few stores last year, Fred Meyer began opening the new prototype earlier this year, with locations in Spokane, Wash., and Bountiful, Utah, which opened last February; one in Vancouver, Wash., which opened in October; and a store in Mill Creek, Wash. -- a suburb of Everett, Wash. -- which opened in mid-November.

With only four such units, the jury is still out on whether the new arrangement is helping to boost food sales, Sammons said.

"We tested it at a few stores before developing the prototype, but we still don't have enough stores open to know what kind of incremental sales we can get," Sammons said.

Darrell Webb, senior vice president of the food group for Fred Meyer Stores, said the company is "happy with the results at the first few units," noting that sales at the last few stores Fred Meyer has opened seem to have started at a higher level than usual "because people understand our concept better as supercenters are getting more attention."

Fred Meyer Stores still prefers to call its stores multidepartment stores rather than supercenters, Webb added. But even though the company promotes its stores as one-stop shopping locations, "customers who come in for groceries may pick up an item or two from the nonfood side, but they usually make separate trips for food, apparel or the garden center," Webb said. "There's usually a primary purpose for each shopping trip, and you very rarely see a basket full of mixed goods."

Although Fred Meyer is satisfied with the new prototype, "as with any prototype, you're always refining it," Webb said, "and next year's version will look a little different."

Sammons said Fred Meyer plans to open nine or 10 new stores next year with food in the middle, including one or two two-level stores with food on the lower level and department-store categories above.

"We have seven or eight two-level stores already," Sammons said, including some with parking on the upper level, "and we always put food where it's easiest for customers to shop.

"However, we prefer a single-level store."

Even as it prepares to become part of Kroger, Fred Meyer is moving ahead with several initiatives in its food departments, including the following:

Continuing to find synergies among the merged companies and adapting programs from its sister companies that fit its needs.

Making ongoing adjustments in its prototype.

Refining its private-label program to make it interchangeable among the various retail chains. Sammons said she believes the merger with Kroger will be easier for both companies because of Fred Meyer's experience over the past 14 months.

"We already know how to develop teams to explore synergies, and I think our people can contribute to the [merger] process and shorten the time period because of the things we've already learned about private-label, product-procurement and contract issues," she said.

"In addition, Kroger has been very decentralized until recently, and we've done more than they have in centralizing procurement, and that should help the merger process." Sammons said the proposed merger with Kroger is proceeding smoothly, with both companies anticipating "the ability to move to a greater level of buying" after the deal is completed.

She said the prospect of buying seasonal merchandise for more than 2,000 post-merger stores -- and the buying power that goes with it -- "had Joe Pichler [Kroger's chairman and CEO] very excited when he came through our stores."

According to Sammons, the addition of Smith's, Ralphs and QFC to the Fred Meyer family "has enabled us to seek out opportunities to learn from each other and take advantage of the skills and capabilities each company brings, because you can never know enough."

She said Fred Meyer is still developing synergies as part of a four-year initiative -- which will continue even after the merger with Kroger -- aimed at achieving cost savings of $155 million by 2001, including $80 million this year, $35 million in 1999, $30 million in 2000 and $10 million in 2001.

"We're well on track to achieving our goals, and probably slightly ahead, and we're finding opportunities we didn't think about, including several ideas on the nonfood side," Sammons said.

"For example, we knew there would be opportunities to add nonfood products in the larger Smith's and Smitty's stores, but we're also seeing great sales increases from the addition of nonfoods to the Marketplace stores we've developed for Smitty's, particularly in the area of garden sections.

"And we've also discovered a lot of possibilities at Ralphs by developing a Marketplace format [which offers a wide assortment of nonfood] and an upscale Fresh Fare format [which integrates a range of nonfood into a grocery store]."

Among other synergies, a spokesman said, Fred Meyer is supplying its stores in Utah and Idaho from former Smith's distribution facilities in Utah, rather than going to an outside supplier; and using Smith's ice cream and novelty plants as a source for private-label products at Fred Meyer and QFC.

In addition, Fred Meyer has adapted the look of the service deli cases at Ralphs for cases at its prototype stores, including displaying products in pewter dishes on top of granite-based fixtures, Webb pointed out.

Webb said Fred Meyer is also instigating changes in its private-label program that will reduce costs while allowing a wider rollout of private-label lines throughout all four Fred Meyer operating companies.

He said the company is going to a new common-label architecture, with a red band across the top of the product label with space for a logo or icon that can carry the name of either Fred Meyer, Ralphs, Smith's or QFC.

For upscale products, Fred Meyer is dropping its own First Choice label and substituting Private Selection -- the name Ralphs uses -- Webb pointed out.

In a similar move the company is replacing its Fred Meyer label in the stores' nutrition centers in favor of Natural Choice, "so we can carry those products at all the companies," he explained.

Within the food operation, Fred Meyer is trying to highlight more departments better "and to make sure each really stands out," Sammons said. "We've done a lot in the last year working more cross-merchandising into the food side. For example, we have Oxo houseware gadgets, which is one of our better brands, at the back of the store, where the food section ends, because it makes sense in the food experience and makes a nice transition to the hardlines side of the store."

A transition that Fred Meyer is still working on is also at the back of the store, where customers pass from the seafood section through an archway into the children's apparel department on the department-store side.

In the current layout the seafood case closest to the archway features an open display of whole fish on ice, "but we plan to change the case lineup by moving the whole fish further back in the section and substituting a glass-enclosed display at the end so the product that serves as a transition doesn't smell or otherwise interfere with the customer's transition to the department store side," Sammons said. Another change Fred Meyer wants to make at future stores is the addition of juice and espresso bars, which Sammons said will be located on a wall directly in front of customers when they enter the store on the apparel side.

In the current prototype that wall has a cheese and pizza case related to the adjacent service deli. "But we think a juice and espresso bar will add an element of difference to the food department," Sammons said.

According to Webb, the bar area will have stools and TV monitors, "which will give it a more upscale look. We're not happy with the current look [of the cheese and pizza display], and the new look will give us a nicer transition to the apparel section," which is located just through an archway where the wall ends.

The company has already tested the juice-espresso bar at a single unit in downtown Portland, Webb noted.

Fred Meyer also wants to add a demonstration kitchen area at the back of its food departments, using one side of an island fixture between the wine and meat section, Sammons said.

The company will also strive to strengthen its home-meal replacement program. "We want to have a stronger assortment of product," she said, including expanded varieties of entrees and salads "that are quick and easy to take out.

"We've always done well with certain HMR items, and our sales are as good as anyone on roaster chickens" -- "where the store uses fresh rather than frozen birds to emphasize quality over price," Webb interjected -- "but we're weak on entrees and side dishes," Sammons said.

"Our challenge is to make HMR more convenient. We plan to use island cases at the front of the service deli to get customers in and out quickly, and we've learned a lot from QFC and Ralphs on how we can improve our offerings -- by adding items like individual pizzas and single- and multi-item heat-and-serve entrees.

"We want to build volume with a well thought-out assortment and see if we can make money in that area. No one has really found a way to do it right and make money," Sammons said.

To smooth the transition from produce into the stores' nutrition center, Webb said, the company plans to move its bulk foods fixture that borders the nutrition area and replace it with two additional island tables that will feature organic produce on the side facing the nutrition center,

The nutrition centers at newer stores, like the one that opened last month in Mill Creek, Wash., will feature an on-line computer hookup -- Health Notes On-line -- that allows customers to search for information on such topics as general health, nutritional supplements, herbal remedies, homeopathic remedies, drug interactions and diets and therapies.

Webb said several hundred customers a day are using the system, which enables customers to get information on topics that employees are legally restrained from discussing.

The nutrition center at the Mill Creek store is also the chain's first with a bulk herbal center and double the amount of space for refrigerated and frozen health foods.

As an everyday low price operator, Fred Meyer Stores has no interest in loyalty cards, Sammons said. "We don't believe a card is right for our business, which offers EDLP on food, plus a large selection of nonfoods.

"The cards tend to be more effective for a company with a promotional, high-low strategy," she said.

Sammons came up through the nonfood side of Fred Meyer. Asked if being a woman gives her an edge in running a retail business, she replied, "My being a woman is not as relevant as the fact that I came up through the merchandising and operations side of the business, so I've always had profit-and-loss responsibilities. "Then I moved into nonfood sales, and I've done a lot of learning and had a lot of experience across all those businesses, including consumables, fashion and basics." Before her appointment last January to her current post as president and CEO of Fred Meyer Stores, Sammons said she spent a lot of time looking at the food operations at Smith's, Ralphs and QFC. "And I've been on a lot of food-store tours over the years, though not quite as many as I've been on lately, so by the time I was promoted to oversee food, I didn't feel uncomfortable with food as my responsibility."