1. THE AMERICAN CONSUMERKey developments: Slimming down; scaling back; buying smarter.What's next: Holding the food industry more accountable for what it's selling them.Americans are overweight, time-pressed and getting older, and they expect retailers to solve these problems. As the end user of all the products and services offered at retail, the customer is always right, even though time and fitness


Key developments: Slimming down; scaling back; buying smarter.

What's next: Holding the food industry more accountable for what it's selling them.

Americans are overweight, time-pressed and getting older, and they expect retailers to solve these problems. As the end user of all the products and services offered at retail, the customer is always right, even though time and fitness are challenging commodities to source.

Sixty-four percent of Americans are either overweight or obese, according to the U.S. Centers for Disease Control, and the CDC, media in tow, has begun to sound the alarm. Reported cases of diabetes are on the rise, and the Department of Health and Human Services has said obesity may soon replace smoking as the leading preventable cause of death.

So America has spent the past year going on a serious diet. In response to consumer demand, nearly 2,000 carb-conscious products were launched in the first six months of 2004, and few traditional areas of the supermarket have been untouched by the low-carb craze during the past year. The egg category was up 11% in dollar volume at the end of 2003, and fresh meat sales rose 16% in 2003 on top of a 35% spike in 2002, according to ACNielsen, Schaumburg, Ill. Light beers, diet soft drinks and sugar-free candies continue to outpace the growth of their full-flavored sugary rivals. Meanwhile, cereals, breads, pastas -- even fresh fruits and juice -- have weathered declines or flattened sales linked to carb counting.

The NPD Group, Port Washington, N.Y., estimated that about 9% of Americans were on a low-carb diet in February, but only 6% to 7% were in June, so the trend may have begun to plateau. Still, the past year has clearly demonstrated how eager U.S. consumers are for convenient solutions to nagging problems, such as weight.

"Consumers are now looking to change, and the first place to start is eating better because exercise requires time," said David Bishop, a director at Willard Bishop Consulting, Barrington, Ill. Primarily the result of longer work hours and commutes that have grown steadily longer during the past decade, "time compression" is a phenomenon that Bishop said has fueled trends ranging from dashboard dining to channel blurring.

The supercenter channel has grown rapidly because large stores offer customers low prices, as well as offering them groceries and often gasoline, in one stop. Dollar stores have broken from the gate to broaden the deep-discount segment, while the convenience and drug store channels continue to place a premium on fill-in items, thanks to their accessible corner real estate.

Yet from this fiercely competitive environment, the supermarket industry is emerging with new standards for service. Many chains are employing nutritionists to help their customers plan menus and make better choices. Natural and organic sections are expanding. Some companies have produced shopping guides to help customers on special or restricted diets navigate the store. Photo kiosks for digital cameras help customers develop prints while they shop. Others are hosting more product and cooking demos within their aisles or opening in-store restaurants.

With the aging of the baby boomer demographic, this trend toward improved service could offer significant promise. By the year 2010, consumers 55 and older will represent 36.4% of the country's population, said Bishop, citing U.S. Census data. These customers are brand-conscious and quality-driven, and they place a premium on the type of service that is experiencing a revival in the channel.

Younger consumers, of course, are growing up in this same hectic environment, and however fickle those pressures make American consumers seem at times, quality service remains the coin of the realm for loyal customers of all ages.


2. H. LEE SCOTT JR., President and CEO, Wal-Mart Stores

Key developments: Supercenters moved into urban markets; fought union pressures and various public interests.

What's next: Stay on top of rapid growth, maintain margins, and improve public image.

Food industry retailers watch out! Under Lee Scott's reign, Wal-Mart Stores will only get bigger and more powerful as a food retailer.

That was the message the president and chief executive officer of the world's largest retailer has related in recent speeches. Scott is not satisfied with the status quo, observers noted, and he has instilled that feeling throughout the Bentonville, Ark.-based company.

"We don't see any short-term or mid-term limits on our growth or on our ability to take care of customers, and we continue to see opportunities to add to our top line," he told analysts late last year.

The engine driving food sales growth is of course the supercenter, and Scott said he is amazed how close together the company can build them without cannibalizing sales.

Last year, there were just over 1,400 supercenters. Analysts expect over 200 to be added this year to Wal-Mart's projection of 320 to 345 new stores this year. A recent Merrill Lynch report said supercenters will help Wal-Mart capture a projected 21% of the U.S. retail food industry in 10 years. It opened its first urban 99 format, just under 100,000 square feet to meet zoning requirements in urban areas, earlier this year in Tampa, Fla. Art Turock, sales growth strategist, Art Turock & Associates, Kirkland, Wash., said another is expected to open in the Salt Lake City area this year.

Wal-Mart introduced its first supercenter in LaQuinta, Calif., this year, and plans to have 40 in the state within the next three to five years. By last month, LaQuinta was running 35% ahead of Wal-Mart's projections, the company reported.

However, Wal-Mart is prepared for more community resistance to its supercenter expansion efforts. Last year, it lost a ballot initiative to build a supercenter in Los Angeles county. Commenting on that situation, Scott said, "We have to get more aggressive." He later admitted that mistakes were made in handling public relations there.

"Everything expressed at the shareholders meeting [June 4, 2004] was very much about food growth," noted Turock, who closely follows Wal-Mart and attended the meeting. "Even the original division one discount stores are all going to have an expanded food offering. There will be increased square footage devoted to food." Wal-Mart turned in what it considered respectable sales of $256 billion in 2003, up 11.6% from the prior year. In Wal-Mart's U.S. business, food sales at supercenters were up 26% over the previous year. "It was a good year, but not a great year," stated Scott.

While Scott concentrates on growth here and internationally, Wal-Mart risks being an even bigger target of lawsuits and the ire of community and union leaders. Wal-Mart now faces the country's largest discrimination lawsuit in the case of Betty Dukes vs. Wal-Mart Stores. "When you get large and successful, the spotlight can be uncomfortable," Scott told the shareholders, and described new programs aimed at ensuring fair hiring and promotional practices for women and minorities.

Turock said Scott proved his leadership with his willingness to be accountable for Wal-Mart's labor issues and by taking specific action.

He noted Scott faces a number of challenges going forward; the biggest is related to its growth plans through 2008.

"Just look at Wal-Mart's employee retention rate. About 44% are going to leave. With about 1.4 million employees, that's a large number [about 660,000]. So just to stay even, they've got to hire a lot of people. If they add another 800,000 employees from 2004 to 2008, which would be a likely projection, that would mean 47,000 management slots. The challenge is getting good people, especially in management positions. Wal-Mart managers really are the ones at store level who create the Wal-Mart culture."

Another challenge that Scott faces is polishing the company's tarnished public image. Scott has urged Wal-Mart employees and supporters to publicize the positives about Wal-Mart and let the world know it is a good place to work. "This needs to be watched vigilantly," said Turock. "The dilemma is that Goliath is only going to get bigger, and the company becomes a clearer target."

Turock also pointed out that as Wal-Mart grows its food business, its margins will get squeezed. The company plans to counter this with fewer markdowns, global sourcing and more efficiencies in its distribution. That probably means RFID, noted Turock. "This will put a tremendous challenge on the rest of the supermarket industry if Wal-Mart has found yet another innovation in supply channels that will give them a greater cost-efficiency lead."


3. STEVE BURD, Chairman, president and CEO, Safeway

Key development: Kept Southern California chains together during 141-day strike-lockout.

What's next: Focus on corporate efforts to differentiate Safeway.

When Steve Burd says something is final, he means it.

That's what the United Food and Commercial Workers Union learned last fall when the industry's "last, best and final" offer to 159,000 Southern California clerks and meat cutters turned out to actually be its "last, best and final" offer -- a hard-line negotiating stance Burd has been advocating for several years and one he has passed on to his counterparts at Albertsons and Kroger.

The Southern California offer involved cuts in health care and pension benefits for existing employees and the introduction of a second-tier wage and benefits package for new hires at the Pleasanton, Calif.-based chain. It turned out to be very close to the offer the UFCW ultimately accepted after a bitter 141-day strike-lockout there.

Explaining his bargaining philosophy during Safeway's annual meeting in May, Burd said, "We are in a fight for our basic survival, and the best thing for us to do is to restructure the contracts now, when it will have a minimal effect on the existing workforce, because we can't assure the future by paying extraordinary health and pension costs.

"If we give in on costs, we'll have no money for remodels or upgrades, and the company would die of natural causes."

Asked during the annual meeting how he was able to bear the burden and sleep at night, Burd responded, "All of us in management sleep well because we believe that what we're doing is fundamental to the survival of the company and the continued employment of 175,000 people."

The employers have taken a similarly tough bargaining position in subsequent negotiations across the country, and those contracts have been settled relatively quickly and without labor turmoil -- due in large part to Burd's industry-leading hard-line position, observers told SN.

"Steve Burd has taken the lead on industry-wide issues, and he's certainly led the effort to realign labor relations for the whole industry," Gary Giblen, senior vice president and director of research for CL King Associates, New York, told SN. "Though the jury is still out on the long-term success of that effort."

According to Jonathan Ziegler, principal at PUPS Investment Management, Santa Barbara, Calif., "Burd represented the spine of the strike. He's built his reputation on making a final offer that's non-negotiable and sticking to that, and he's doing what he has to do. "Maybe he's a bit too abrasive in the way he goes about it, [but] health care costs are a structural problem in the U.S., and Burd is caught up in the maelstrom and doing the best he can."

Even without the strike, it's been a difficult few months for Burd.

In Chicago, Safeway's tough bargaining position with the UFCW resulted in a stalemate on a new contract, prompting the company to put Dominick's up for sale in 2002. However, when the potential buyer -- widely believed to be Supervalu -- couldn't reach an accord with the union either, Safeway decided to hold on to Dominick's and open a new round of talks with the union -- talks that are still progressing.

Burd also withstood an attempt earlier this year by a coalition of institutional investors to split the positions of chairman and CEO at Safeway in an effort to weaken his standing and force the company to be more responsive to requests for corporate governance reform -- efforts the company characterized as a union-backed attempt to discredit Burd.

According to Giblen, "Burd failed in his effort to sell Dominick's, so the question remains whether Safeway can turn it around. As for the corporate governance issue, that was the sharpest challenge ever in the retail food industry, and the company made several changes to meet some of the investor demands."

With the strike and the investor challenge behind him, Burd and the rest of Safeway management can focus on completing ongoing efforts to upgrade Safeway's perishables departments while keeping a lid on pricing as part of an effort to differentiate itself in the eyes of consumers.

"Steve has said, in essence, 'The hell with profits. We're going to grow sales because that's what the market cares about,"' Ziegler said. "Though it's way too soon to know whether he's figured that out or not."


4. ROBERT ATKINS, Founder, The Atkins Diet

Key development: Touched off the low-carb food frenzy.

What's next: His Atkins Health & Medical Information Services will keep diet growing in scope.

Like all revolutionaries, Dr. Robert Atkins didn't live long enough to see the dramatic changes his ideas wrought.

When he died in 2003 at the age of 72, his series of diet books was just beginning to capture the attention of a whole new generation of overweight and frustrated consumers. His low-carbohydrate, high-protein regimen -- advocated since the first book, Dr. Atkins' Diet Revolution, appeared in 1972 -- stunned many longtime observers of the food business.

"I've been watching people eat for the last 25 years, and I can't say I've seen anything this fast and this dramatic," said Harry Balzer, a vice president with the NPD Group, an industry trend tracker. "The intensity of the movement toward low-carb products was unbelievable."

The craze hit the food industry like a tidal wave. Restaurants now offer low-carb menu items, supermarkets have low-carb food sections, and manufacturers tout the reduced-carb contents on the labels of new foods. The diet trend created winners and losers. Demand for protein-rich foods, such as meats, cheeses and eggs, soared, while sales of pasta, rice, breads and sugary fruit juices have fallen.

"Atkins may not have had the scientific community behind him, but he had real people who lost weight and they gave the diet credibility," Balzer said. "It was his diet plan that captured Americans' imaginations."

Low-carb diets are one of the leading weight-loss plans in the United States. By one estimate, there are 14 million people on low-carb diets, be it Atkins, South Beach or some variation, according to the NPD Group, Port Washington, N.Y.

"We could start to see things in our medical practice subtly change six to seven years ago," said Jacqueline Eberstein, director of nutrition information for Atkins Health & Medical Information Services, New York. "We were getting doctors telling patients to go to the Atkins Center. I think a lot of doctors now realize if we're going to deal with the epidemic of diabetes and obesity, people have to have different options."

Eberstein, a registered nurse, worked with Atkins for 30 years. What impressed her most was the doctor's endless curiosity about any number of medical topics, his energy, unpretentious manner and sense of humor. She never saw Atkins with anything to read other than a medical journal, and he usually had stacks of those. Atkins was willing to listen to other opinions, and was always approachable, Eberstein said. Though he could be shy, when Atkins revealed his sense of humor, he could crack up his audience with his impressions.

"He worked his way through school as a comic waiter," she recalled. "He did imitations. He used to do Buddy Hackett. He had comedy routines that would reduce you to tears."

If he were alive today, what would he think of the low-carb movement? "I don't know if he could have imagined the magnitude it's taken," Eberstein said. "It's so huge."


5. DAVID B. DILLON, Chairman and CEO, Kroger

Key development: Newly elected top officer of the nation's largest conventional supermarket chain.

What's next: Forging labor peace and, at the same time, reducing expenses and building sales.

Kroger now has a new "food guy" as its principal officer.

In a hand-off that occurred during Kroger's June 24 annual meeting, David B. Dillon, 53, assumed the additional title of chairman from longtime Kroger executive Joseph A. Pichler, 64. With that, the long-planned retirement of Pichler was effectuated and Dillon became the top officer of the nation's largest conventional supermarket chain.

At $53.8 billion in sales -- driven by its two-dozen store banners through its most recent fiscal year -- Kroger, Cincinnati, stands head and shoulders above its closest two conventional rivals, Safeway and Albertsons. Those chains chalked up sales amounting to $35.6 billion and $35.4 billion, respectively, during their most recent fiscal years. Dillon's election as chairman at this year's annual meeting represents the culmination of a series of promotions that have come his way. At last year's annual meeting, Dillon was appointed chief executive officer. Dillon's ascension to those two top posts at Kroger was part of a well-plotted transfer of leadership representing little less than the changing of the generational guard: Also at last year's annual meeting, Don W. McGeorge, 49, was named president and chief operating officer and W. Rodney McMullen, 43, was named vice chairman. Both were Kroger executive vice presidents previously.

Dillon's background is characterized by significant depth and nuance of experience in the food business, a level of experience some food-distribution companies have lost because of the current propensity to appoint top officers from outside the industry. In addition to his two most recent promotions, Dillon has held numerous high-level posts at Kroger, including those of president and COO. He became an executive vice president of Kroger in 1990 and was named president of Dillon Cos. in 1986. Kroger acquired Dillon Cos. in 1983. Further showing Dillon's depth in the business, his father was on the financial side at Dillon Cos., his uncles on the operational side.

Pichler also came to Kroger as a result of that acquisition. Indeed, the career paths of Dillon and Pichler have deep roots. As a youth, Dillon studied at the University of Kansas, at which time Pichler was a professor there. Dillon, though, never took a university class from Pichler. Class was destined to be convened at a different sort of university.

But a rendition of a resume's worth of achievements fails to depict Dillon's depth of operational involvement in the business, according to those who have worked with him. (Dillon declined, through a spokesman, to be interviewed for this profile, evidently continuing the low-profile culture at Kroger.)

"People would say he is very smart and is deeply experienced in the business," one acquaintance of Dillon's told SN. "He has held nearly every job in the supermarket. If people are in a meeting talking to him about the deli, he knows what that's all about because he used to manage a deli department. Maybe the best description of him is to say he's a food guy.

"He's also known for being humble and unpretentious. When you talk to him it's more like talking to your neighbor, instead of someone who has obviously done extremely well for himself. He is open-minded. He empowers people well. He encourages broad feedback, including feedback about what he might not really want to hear."

As a personal reflection of that, the observer said, Dillon is on Cincinnati's Urban League as a board member. "He rolls up his sleeves and works like everyone else. Probably few people on that board know he heads a big company like Kroger.

"In fact, he's so affable that he is sometimes underestimated, but that's a mistake. He has a laser-like focus and a toughness about getting the job done."

So what job is in front of Kroger's new helmsman?

According to Kroger's most recent proxy statement, the job is to reduce operating costs and to increase sales, using a calculus that admits to the effects of labor discord in Southern California. The statement also stipulates that 2004 earnings are not expected to measure up to those of 2003, "an acknowledgement of a rapidly changing industry and a sign that we intend to be prudent and deliberate about improving our future."

That conservative approach follows the trajectory set by Kroger's previous top officer. Indeed, observers said there's no reason to expect much change in Kroger's strategic direction, despite Dillon's new title, since Dillon has long been a member of the executive team that sets long-term strategy.

Some observers are of the opinion that there may be a subtle change or two in the offing, though. Jonathan Ziegler, principal in PUPS Investment Management, Santa Barbara, Calif., said Dillon may seek to leverage a better relationship with labor -- as compared to industry peers -- into better store service.

"Better labor relationships will result in higher in-store service environment, creating a brand distinction for the Kroger banner. He knows he can't beat Wal-Mart on price, so he will do it by having more contented people, which will yield better stores. He knows that works better with labor on his side. That follows the Whole Foods model to some extent." Asked how such rosy a outlook about labor squares with Kroger's involvement in the protracted strike and lockout that dogged Southern California late last year and early this year, Ziegler noted that Kroger, through its Ralphs unit, was obliged as a member of a bargaining unit to lock out its workers when a strike against Safeway's Vons ensued.

But, he said, labor removed pickets from Ralphs long before the labor strife ended. That, he said, is because of all actors in the labor drama, Kroger is seen by labor as being the least strident; Safeway the most. Albertsons also locked out workers in the market. Indeed, in the wake of the events in Southern California, Kroger has achieved five new labor agreements without strife.

Chuck Cerankosky, analyst, McDonald investments, Cleveland, said Dillon's long experience in the business means stability for Kroger, but that improvements will be sought, particularly in technology.

"I don't see a great deal of difference in management styles ahead. He has been a retail operator for many years and knows labor challenges. He was involved in retailing during the late 1990s when the objective was to trade customers up. He also watched the industry consolidation wave.

"I think he will be an aggressive competitor and will make sure Kroger gets more than its fair share of the market. "The company is now building on some great point-of-sale information that will help in the future with store layout in various formats. He will take technology a couple of steps further along."


6. LARRY JOHNSTON, Chairman, president and CEO, Albertsons

Key developments: Flattening the organizational structure while expanding the company's geography with the Shaw's acquisition.

What's next: Continuing to find ways to lower costs of doing business.

BOISE, Idaho -- Larry Johnston refuses to be boxed in.

One of the most commonly heard comments from industry analysts about the chairman, president and chief executive officer of Albertsons is that he thinks outside the box.

"Johnston is taking a whole new approach to removing costs from a narrow-margin business," Jonathan Ziegler, principal at PUPS Investment Management, Santa Barbara, Calif., told SN. "He recognizes the pressure that low margins put on sales, and he's taking a decisive position on taking costs out."

Johnston thinks outside the box because he is from outside the box. In contrast to his industry peers, who came up through the operations or financial ranks of the grocery industry, Johnston joined Albertsons in mid-2001 after 29 years with General Electric.

For his first couple of years at Albertsons, Johnston often tended in public remarks to defer to Peter Lynch, the chain's president and chief operating officer. Yet as part of his effort to flatten the Albertsons organization -- and as a clear indication that he was no longer feeling his way, but was completely in charge -- he eliminated Lynch's position a year ago and took on the additional title of president.

In the past year, outside-the-box thinking by Johnston has led Albertsons in several directions:

To exit underperforming markets and enter new ones. The company has taken a hard-nosed approach in evaluating the competitive marketplace, opting out of New Orleans and Omaha while aggressively seeking expansion opportunities, as demonstrated by its acquisition of Shaw's Supermarkets, West Bridgewater, Mass., from J Sainsbury for nearly $2.5 billion, making Albertsons a supermarket player in the New England market for the first time. Shaw's operates 202 stores with an annual volume of approximately $4.6 billion.

Gary Giblen, analyst, CL King Associates, New York, said Shaw's has been one of the most successful food retailers, "and I think Albertsons' ability to acquire it is a very visionary move that will pay off in the long run."

To flatten the company's organizational structure. Albertsons began that effort in its Dallas/Fort Worth division earlier this year -- and introduced it in part of its Intermountain division last month -- utilizing what Johnston called "an all-new leading-edge retail operations structure" intended to improve the quality and speed of execution, increase spans of control for regional operators and store directors, and enable a faster flow of information via technology to create a competitive advantage.

Albertsons also consolidated 11 retail divisions down to seven earlier this year.

To make innovative use of technology. The chain expanded the use of handheld scanners to 105 stores in the Dallas/Fort Worth market earlier this year after testing the program at some of its Chicago-area Jewel-Osco stores since late 2002. In Texas, the initiative has resulted in basket sizes nearly double the stores' average, Johnston said.

To introduce Six Sigma Quality to re-engineer the company's business processes -- a three-year effort designed to eliminate waste and implement continuous improvement in every function and discipline.


7. JOHN MACKEY, President and CEO, Whole Foods Markets

Key development: Another year of record sales and growth.

What's next: Setting a new example in corporate governance.

John Mackey is showing the food industry that organic and natural foods can become big business and still not betray the principles on which the movement was founded.

In the past year, he has launched a humane animal treatment initiative that takes a hard look at how Whole Foods Market' suppliers treat the animals they raise and he also has instituted programs that further empower his employees.

That he's guiding a business to financial success year after year is a given, but recently Mackey has underscored the "principles" part, and said publicly that businesses in America should pay attention to more than the bottom line.

Whole Foods Market has reported continuous, same-store sales increases even while expanding. But what Mackey seems most proud of is that WFM made Fortune's list of best companies to work for -- for the seventh year in a row.

After touring the company's stores coast to coast last year, he decided to find out in a new way what employees want. Part-time as well as full-time employees companywide were given the opportunity to vote on benefit options ranging from health insurance to discounts on items they purchase.

"John knows that happy employees are key. He knows that's where good customer service begins. That's part of his vision. A lot of people have a vision but they haven't developed it like he has," said Theresa Marquez, marketing director at Organic Valley, a LaFarge, Wis., cooperative that was an early Whole Foods supplier and still is.

Marquez has known Mackey since the days when he had only one store, more than 20 years ago.

"Whole Foods is a reflection of his approach to how teams can work. He's good at choosing the right people who will take the culture he started forward. And it shows in the merchandising and customer service in every store."

The financial community, too, sees that culture as key to Whole Foods' sales and profitability.

"I think John has figured out how to niche-ify the food retailing business and to differentiate and immunize his product against the 800-pound gorilla which is Wal-Mart. And he has managed to tap into mainstream consumer interests to bring in crossover shoppers. He has figured out how to put the entire package -- the customers' concerns, the employee's concerns and real estate -- together to be a growth company in a mature industry," said Jonathan Ziegler, principal at PUPS Investment Management, Santa Barbara, Calif.

Another financial analyst, Gary Giblen, CL King Associates, New York, agreed.

"Whole Foods is dramatically the best performing in the retail arena, and John Mackey is its life force. There were some early glitches, but now it's running smoothly without commandant control. It's a test case of enlightened human resource management," Giblen said.


8. JEFF NODDLE, Chairman and CEO, Supervalu

Key development: Grew business in unique ways following Fleming's demise.

What's next: Continue to rationalize business to focus on profitable operations, including third-party distribution.

Jeff Noddle has taken an innovative approach to food distribution in the past year.

"We're looking at the industry in a more nontraditional way than we ever have before," the chairman and chief executive officer of Supervalu, Minneapolis, told SN, "because wholesaling is a very mature business with an attrition rate of 2% to 4% a year, which doesn't mean we can't grow, but the overall distribution business is not going to grow, which is why we're pursuing more nontraditional growth in the supply chain and logistics part of the business.

"For example, we did the swap with C&S [of Supervalu's New England operations for the Wisconsin and Ohio business C&S had acquired from Fleming], which was certainly unique, because we saw an opportunity to exit what was a low-return market for us where C&S had a strong asset base and exchange that for an area where we had a lot of assets based and where we felt we could add volume to our existing distribution network and make each facility more efficient, productive and profitable."

Besides the business Supervalu added in that swap, "the shutdown of Fleming's wholesale business was a unique, one-time opportunity that enabled us to pick up some premier retailers across the Midwest," Noddle said.

The demise of Fleming's wholesale business also enabled Supervalu to become the exclusive supplier to SuperTarget, "and we took a unique approach to that by opening a dedicated distribution center in Fort Worth, where we have no other distribution operations," he added. (Noddle said Fort Worth seemed as central a distribution hub as any.)

Supervalu also left the Denver market this year, "and that was an example of how we look at things differently because we sold our facility to Kroger and left with a third-party logistics contract to operate the warehouse for them," Noddle pointed out.

Supervalu also ended its supply agreements with D'Agostino in New York City and Haggen in Washington state "because we chose not to meet the financial metrics that may have been required to maintain that volume," Noddle explained. "Our desire is not to lose any business, but those were two situations where we felt our financial and human resources could be better applied elsewhere in more productive ways."

Jonathan Ziegler, principal in PUPS Investment Management, Santa Barbara, Calif., called Noddle "an innovative thinker in a mature industry.

"He recognized early on the need to develop new ways to grow overall volume, and that led to the creation of Save-A-Lot -- the limited-assortment format that has been such a phenomenal addition to Supervalu's distribution business, as well as a way to provide independent retailers with an alternative format to go up against Wal-Mart -- and the acquisition of Deal$, where Jeff recognized the value of the dollar store format before everyone else moved in that direction.

"He was smart enough to turn down the Kmart business in 2002 because he analyzed the situation and saw the potential for problems, and that's why Supervalu is operating today and Fleming is not. He knows where his company can deliver value-added services and make money and where it cannot, and that's a great way to run an enterprise like his."


9. A.G. LAFLEY, Chairman, president and CEO, Procter & Gamble

Key developments: Executive restructuring and 10% sales growth.

What's next: Grow by line extensions, cooperative ventures, acquisitions and continued focus on existing brands.

Now that A.G. Lafley has Procter & Gamble, Cincinnati, past the turnaround stage, he has the giant packaged goods company hitting on all cylinders, posting year-to-year growth figures remarkable for a $50 billion company.

While turning around a corporate behemoth was no small thing, rapidly changing its mind-sets and habits to create and sustain growth is all but unheard of in today's world of big business. The Cincinnati company's core volume grew about 10% for the year ended June 30, according to Andrew Shore, analyst, Deutsche Bank Securities, New York.

As a result, he has earned the unanimous and glowing praise of analysts and consultants contacted by SN. "It's been a fairly stupendous turnaround," Shore said.

"When you look at what A.G. Lafley has done with a $50 billion, risk-averse, consensus-driven monolith, to grow it at this pace -- in the almost 19 years that I have followed P&G, I have never seen it any better than it is today," he said.

"What he has done at P&G in his tenure has been nothing short of remarkable," said Charles Carlson, chief executive officer of Horizon Investment Services, a money management firm in Hammond, Ind., and editor of the DRIPInvestor newsletter. "What he has done in the last year vs. his first year is, in some ways, even more impressive. It's one thing to come in when a company is down and out, and get a quick bump and a turnaround, because you are coming off a pretty low base. But P&G has continued to string together three years of pretty strong results, and they have continued to show very nice volume gains quarter after quarter, and the hurdles keep getting higher and higher," Carlson said.

"We are really bullish on A.G.," said Ted Zittell, partner, McMillan-Doolittle, Chicago. "He is one of the most brilliant brand marketers around today, which is fitting for the company that invented brand management back in the early days of the 20th century. He really gets the power of brands in the marketplace for consumers, and he is a brilliant people manager as well," he said.

What sets Lafley apart is that "he has a clear-eyed view of the changing marketplace and its needs," said Bill Bishop, president, Willard Bishop Consulting, Barrington, Ill. "He calls it like he sees it and he sees it very clearly, and then he defines the challenge and has been able to mobilize a large bureaucracy against those opportunities."

Lafley has been noted for the time he spends on management, taking time on weekends to monitor the performance of each executive. This is part of the story, as nearly every component of the company is now on solid footing and performing well or beyond expectations, analysts said. "Basically, nothing is really broken," said Shore, who reported that P&G is seeing double-digit growth in many key international markets, such as China, Central and Eastern Europe, Western Europe and Latin America.

Integrating the acquisitions of Clairol and Wella has been another part of the story, as has been the effective marketing of nearly every product line and category, and experimenting with new promotional and advertising approaches.

Initially downplayed and even derided in some quarters, Lafley's use of mantras and catchphrases has helped unify and

motivate the giant company. Conversations with P&G executives quickly reveal that the company has internalized Lafley's concepts of "connect and develop" -- making affiliations with outside companies -- and "the two moments of truth" -- when the consumer chooses the product in store, and then uses it at home.

A major development this year that did not relate directly to product was Lafley's executive restructuring of the company, creating four vice chairmen forming a line to succeed him when that time comes -- he's 56, a long-time P&G executive and not likely to go anywhere soon. The restructuring also underscored the company's focus on health and beauty products, which are now 41% of its sales, according to a spokeswoman.

"The executive restructuring is part of his continued work to align the corporation against his objectives and against his strategies," said Zittell. "The portfolios of the new senior executives become pillars of how the company is going to deliver against the vision."

The short-term future of P&G was demonstrated during a recent media event at its Cincinnati headquarters where executives described and demonstrated many new product lines, and even completely new categories. One such example is Olay Moisturinse In Shower Body Lotion, and a dramatic line extension of Febreze fabric freshener into Febreze Air Effects aerosol spray and Febreze ScentStories, consisting of scented discs and a player for the discs. The new Home Cafe line of single-serving coffee filters and appliances will get much attention, while the Iams pet food line and Downy laundry brand will see significant extensions.


10. JIM SINEGAL, President and CEO, Costco Wholesale Corp.

Key development: Gaining on food retailers and Wal-Mart.

What's next: Getting better at pleasing Wall Street.

Not many retailers can beat Wal-Mart Stores at its own game, but Jim Sinegal's Costco is one.

In the offbeat world of wholesale clubs, where 20-pound mayonnaise stacks up near high-end electronics, Costco, led by co-founder Sinegal, is one tough competitor. Costco has not only siphoned sales away from conventional supermarkets but has out-dueled Wal-Mart's Sam's Club. His performance boosted him out of the ranks of "other retailers selling food" in last year's Power 50 to the Top 10 in this year's list.

For example, though Sam's Club has more warehouses (539 vs. Costco's 434), more members (46 million vs. 42 million) and cheaper membership fees, Costco's latest annual sales were an estimated $42.5 billion, compared with Sam's Club's $34.5 billion.

Sinegal has consistently placed Costco above Sam's Club in not only revenues, but sales per location, average transactions and sales per square foot, according to a report in Fortune last November.

Indeed, over the past year Sinegal's strength has been his consistency, which has also impacted mainstream retailers, according to Gary Giblen, senior vice president and director of research for C L King Associates, New York.

"I would say that Costco is becoming more and more important because they are gaining major market share from conventional food retailers," said Giblen. "They are widening the gap in the quality of their perishables as well as widening the gap on pricing. They are becoming better on all accounts vs. the supermarket chains."

Costco, based in Issaquah, Wash., has been able to satisfy both employees and shoppers. Its employee turnover is just 23%, compared with the 64% retail industry average, according to reports. Costco's ability to produce a pleasant shopping environment for customers was borne out, in difficult circumstances, by the clerical strike that hit Southern California's major chains late last year, Giblen pointed out.

"They picked up the most business of any other operator during the strike, and they've retained much more than anyone else because they were able to provide a positive shopping experience, even when they had surges of extra customers coming in," said Giblen. "Other [non-striking] chains got deluged and really didn't provide a very good experience."

Sinegal played another important role in California, helping to pass the workers' comp reform bill that went into effect in April, noted Giblen. Sinegal, along with other retailers, helped convince Gov. Arnold Schwarzenegger to push through the bill, which is projected to reduce workers' comp costs by 33%.

"[The retailers] really led the political action behind a major reform of a dysfunctional workers' comp system in California that was very anti-employer," said Giblen.

Not everything has gone smoothly for Sinegal in the past year. Recently, Costco has come under fire from its stockholders. It had to lower its earnings outlook twice in 2003, and its all-time-high stock price of $58 will not likely be reached anytime soon. But unlike many scandal-plagued public companies, Costco, founded in 1983, has held onto its core values and business standards, thanks to Sinegal, observers said.

His steadfastness will continue to pay dividends, said Giblen. "Costco consistently performs, day-in and day-out, by having the vision to say, 'We can have superior perishables, and different perishables than the supermarkets, and we don't have to restrict ourselves to just the cheap bulk items.' While at the same time, they maintain their low-price leadership."