Los Angeles -- Certified Grocers of California here has put its priorities in order.
Confident that the company has finally moved past a series of circumstances that resulted in a volume drop of about $750 million during the past two years, the retailer-owned cooperative's management contends that Certified is in a stronger position to meet the challenges that lie ahead.
Helping the company meet those challenges will be Al Plamann, 52, who was elected Certified's president and chief executive officer in February
after four years as chief financial officer.
Plamann succeeded Everett Dingwell, 62, who has assumed the post of corporate chairman for the balance of the year following his retirement from a 35-year career with the cooperative.
The change in top management comes at a particularly crucial time in the history of Certified, which relies on southern California for 80% of its customer base and 65% of its volume. Volume for the year ending Sept. 3 is expected to fall below $2 billion for the first time since 1988, down from $2.01 billion last year and a peak of $2.77 billion in 1991. The downward sales spiral over the last two years resulted from the loss of several important retail accounts, including Bel Air Markets, Save Mart Supermarkets and Williams Bros. (See related story on Page 12.) Plamann told SN he believes Certified is on target to increase its sales base -- in part through a series of actual and tentative initiatives that include possible development of a limited-assortment format with perishables; a willingness to take short-term, passive equity positions in member companies; a possible push for new members in Arizona, and a stronger effort to equip smaller members' stores with scanning.
Plamann's approach to Certified's future is summarized in the philosophy of wholesaling and retailing that he's been preaching to the cooperative's members at every opportunity. That three-pronged approach includes the following:
A focus on members' needs. "In the past, most wholesalers, including Certified, have tended to focus too much on moving goods through the warehouse rather than on distribution systems that make sense for retailers," Plamann said. "Because we were focused on warehouse sales, we made very little effort in product sales. In the past, our sales effort consisted of giving members an order book. "Instead of losing interest in a product once the retailer buys it, we hope to increase sales by providing services all along the distribution channel until the product crosses the scanner -- and we want it to cross the scanner as soon after it's manufactured as possible." Plamann said he sees Certified's emphasis going beyond Efficient Consmer Response. "ECR concentrates on getting product to the retailer as efficiently as possible. We're taking it to the next step, which is moving it through the retail store quickly." Certified's retail focus is boosted by recent hires of executives with retail experience, he said. Certified has added Rick Kester as executive vice president of its Grocers Specialty Co. division, Corona, Calif., with additional responsibilities for sales and retail counseling. He was most recently senior vice president of national accounts at Food 4 Less Supermarkets, La Habra, Calif. In addition, Joe Montgomery, formerly vice president of buying and merchandising at Almac's Inc., East Providence, R.I., was named director of marketing at Certified.
"These people can communicate more directly with retailers in their own jargon and then bring those concepts back into our operation to help us grow our members' sales," Plamann noted.
A focus on processes. "Instead of taking a very traditional view of ordering, receiving, stocking, shipping and billing, we're now looking at how those functions can be integrated and how we can be more efficient and productive," Plamann said. "But rather than going through the universe of all logistics activities, which would take a lot of time and money, we're pulling it apart, process by process. Within each function are processes we can dig at and improve on by combining or otherwise re-engineering them on a rifle-shot basis, with the goal of getting perhaps 80% of the value we would get if we took the entire universe and tried to re-engineer it." The goal, Plamann said, "is to continue to offer a low cost structure and to reduce costs by performing each process more efficiently." Among the processes Certified has altered, he said, is moving its specialty product lines, sold through its Grocers Specialty Co. subsidiary, into its mechanized warehouse here, instead of stocking them in a separate facility, in order to provide members with a broader product selection of fast-movers and slow-movers on a single delivery, Plamann explained.
A focus on technology. "In the past, independents with a handful of checkout lanes have found it prohibitively expensive to install scanning. The challenge is to convert those members to systems that will make them successful into the next century. "Now that the cost structure is breaking down significantly, the hardware and software is more affordable, especially with our support. So our focus will be on upgrading technology with PC-adaptable software for independents with a small number of checkout lanes, who represent approximately 25% of our volume and 50% of our membership." Certified also intends to get more involved in electronic data interchange with vendors, Plamann said. "We have a lot of the capabilities necessary to communicate with our vendors electronically, and now it's a matter of building those kinds of relationships with vendors who have the technology in place." Despite a background with oil-giant Atlantic Richfield Co., Los Angeles, "where technology is everything," Plamann said, "I still look at the cost-benefit relationship. It's not technology at any cost -- it must be justified." As Certified seeks to expand its business, the primary focus in southern California will be on helping its existing customers do more business and assisting them to grow, Plamann said. "We're happy to participate with retailers in growing their businesses," Plamann explained, "and if that means participating on the equity side of the balance sheet, that's fine. But we want them to buy us out. We don't intend to own and operate stores." Certified has taken a minority equity position rather than a debt position in three member companies over the last three years, Plamann said, which has helped those retailers obtain their own leases. "With Certified putting equity in, the operator can negotiate directly with the developer and obtain working capital facilities advantageous to his operation," he explained. One of the three companies already has bought Certified out, Plamann said. "We want to help retailers develop formats that fit changing retail environments, and we may do more of these passive equity issues in the future on a smaller scale, just to get some of these formats going," he explained.
The primary format Certified hopes to develop is a limited-assortment concept similar to Supervalu's Sav-a-Lot format that would also offer limited selections of produce and meat geared to neighborhood demographics, Plamann said. "Los Angeles has a lot of small independents whose stores are simply tired, and just refurbishing them will not give them the sales kick they need," Plamann said. "We are in the process of identifying several of those independents and creating a format that will fit. We already have a decor package that we think will work, and we hope to open five or six prototypes within six months to a year." The target stores will be 12,000 to 15,000 square feet, he said, though some could range up to 20,000 or 25,000 square feet. "We believe we have a base of 50 to 100 stores that could accommodate this new format, and given the depth of their penetration in the core areas of Los Angeles, we think we could help all of them open the new format within five to seven years." Certified has not yet settled on a name for the format, nor has it decided whether it will license the operation. However, it expects to develop guidelines, disciplines and an operating manual for these stores, Plamann said. Certified would like to develop a stronger franchise in Arizona, where it already supplies specialty foods to Fry's Food Stores, Phoenix, Plamann said. It also hopes to supply Fry's with general merchandise, he added. Certified opened one of its four club stores, called Convenience Club, in Phoenix four years ago "and geared it to some wholesale distribution on a cash-and-carry basis to small stores through the back door while selling to retail customers out of the front end," Plamann said. "But because we were splitting our focus, we didn't do as well as we'd hoped, so we withdrew two years ago." (All four clubs were closed in 1992). "Since then, we've had some inquiries from independents in Phoenix and Tucson who are anxious to do business with us because it's such a highly competitive environment there," he explained. "But we need to assess the opportunities in Arizona before we jump off and go after them big time," he said. Plamann also sees growth opportunities in northern California, where Certified competes with Fleming Cos., Oklahoma City, and Market Wholesale Grocery Co., San Rafael, Calif. "We intend to stay competitively focused on that area," he said. Certified had discussions with Market Wholesale, a wholesaler with corporate stores owned by Provigo, Montreal, about acquiring its wholesale business, Plamann said. "It would have given us more northern California business and reduced our administrative costs, and it would have taken warehouse capacity off the market. "But we were apart on several major points," he noted. Provigo has subsequently decided not to sell the operation. In seeking additional sources of growth, Plamann said, "we hope to do more supplemental business with nonmembers, which is probably not a large sales growth opportunity but should be a profit generator." He said he doubts that Certified will go after convenience store operators, however. "We're not in that business at this time, and we're probably not moving in that direction," Plamann said. Certified hopes to do some incremental business south of the border, he noted, where it already does about $25 million in volume supplying fluid milk, bakery products and a variety of Springfield private-label products. But labeling laws in Mexico make it difficult for U.S. companies to sell there, Plamann said, adding that he doubts Mexico will be a significant source of revenues for Certified. Certified does about $100 million in sales in Hawaii and $20 million to $30 million more in other areas of the Pacific, "and we'll continue to try to sell into those areas," Plamann said. But no matter the geographic market, the company's renewed focus on member needs will enable Certified to sharpen its sales effort, according to Plamann.
"Now we're putting more focus on selling, which we believe will help the retailer move more product.
"With our new customer focus, we should be able to expand sales from our existing base by selling more products and helping the retailers' business more directly," Plamann said.