SACRAMENTO, Calif. -- Raley's Food and Drug Stores here are as much a part of the state capital as the state Capitol, and that's been a key to its formula for success over the years.

"This is where our roots are," Bill Coyne, president and chief operating officer of the 134-store chain, told SN. "The company was founded 69 years ago in Placerville, about 40 miles northeast of here, and we've grown the company from here over the years, so we have a lot of well-established locations that have been serving the same customers and their children and even their children's children for a long time.

"And we've always tried to be part of the communities where we do business and to be very active in those communities because the people who live there are not just our customers -- they're our friends and neighbors."

Raley's is family-owned, with the late founder's daughter, Joyce Raley Teel, and her husband, Jim Teel, serving as co-chairs. One of their four daughters, Claudia Teel Doerhoff, serves as a member of the board of directors, and their son, Michael Teel, was president and chief executive officer of Raley's until early 2001, when he left to pursue other interests, "although he still has a presence in the community," Coyne said.

"We don't toot our own horn about local family ownership, but people know about it through word-of-mouth. And while most of the corporate entities we compete with are headquartered elsewhere and are controlled by Wall Street, we live and work in the same communities as our customers and answer only to ourselves."

Another Raley's edge, Coyne said, is "a very strong and positive corporate culture. We all have a lot of pride in the legacy we've been given -- a unique combination of tradition and reliance on the past, combined with a forward-looking, innovative, cutting-edge attitude."

Of Raley's 134 stores, 44 -- approximately one-third -- are in the Sacramento metropolitan area in Northern California, where the chain has a 34% share of shoppers, compared with 17% for Safeway, 15% for Albertsons and 6% for Ralphs and its warehouse format, FoodsCo. Over the years it's also spread its reach across a 180-mile radius, with stores operating as far north as Yreka, Calif., just south of the Oregon border; south to Turlock, just north of Fresno; west to San Francisco Bay; and east to Winnemucca and Elko in northern Nevada. Raley's has also expanded through acquisition, adding Bel Air Markets here in 1991; Nob Hill Foods in the Bay Area in 1998; and stores in Las Vegas and New Mexico in 2000.

There's no shortage of competition for Raley's, Coyne noted, including Albertsons, Safeway, Save Mart, Food 4 Less, Ralphs, Whole Foods, Sam's Club, Costco and Winco, plus a handful of independent chains. "But all of them make us sharper operators," Coyne said, and with Wal-Mart Supercenters, Target and other discounters opening stores that will intensify competition for traditional operators, "we believe our most competitive years are still ahead of us."

Coyne said he believes there are particular benefits from having Whole Foods as a competitor "because now, in addition to us pointing out the difference in the quality of perishables between what we carry and what the other chains carry, Whole Foods is doing that as well, and that raises overall consumer expectations," he explained.

According to Coyne, perishables have always been one of Raley's strengths, highlighted by the natural and organic foods departments and nutrition centers that have been part of its operation since the early 1990s. In the last few years those departments have been combined with pharmacy and produce to create wellness centers, he pointed out.

The wellness centers also encompass an events room that is used by the store's dietitian to conduct classes on healthier living or to administer cholesterol screenings or flu shots. "Those programs have brought us new customers and given existing customers one more reason to shop with us," Coyne said, "and as we remodel and remerchandise our stores, we are expanding those areas."

Raley's is also expanding its selection of fresh prepared foods -- introducing Ozark Grills at new and remodeled stores over the past three years. (Founder Tom Raley was from the Ozarks, Coyne pointed out.) Stores also offer USDA Choice beef and Certified Angus beef, and have been increasing its offerings of value-added meats in the service meat cases for the last few years, he said.

Coyne said Raley's strives to make sure the shopping experience is pleasant by stressing store-level execution. "That's the bedrock on which we've built our company -- clean stores with wide aisles and no clutter, and beating the competition with hard work, great services and top value."

Raley's opted to sell its 18 stores in Las Vegas to Kroger Co. last year after determining the stores were not performing up to the company's standards, market-share was static and there were greater investment opportunities elsewhere, Coyne explained. However, he said Raley's is committed to the nine New Mexico stores -- eight in Albuquerque and one in Taos -- and to making sure they operate with the same high standards as the company's stores in California and Nevada.

To achieve those standards, Raley's has assigned a veteran executive as vice president and general manager of Raley's New Mexico -- Kevin Konkel, "who grew up in the Raley's organization and understands our way of doing business," Coyne said.

Raley's has committed "a significant capital investment program" in New Mexico to bring the stores there up to the same standards of execution as the rest of the chain, he added, with some stores scheduled for expansions and new fixturization "and some scheduled to move departments for a better traffic flow."

There's no set timetable for upgrading the New Mexico stores, Coyne noted.

Asked about the company's challenges going forward, Coyne cited "the increased costs of doing business, including health care insurance, workers' compensation and energy. But our goal is to continue to stay ahead of the changing marketplace because things are moving so quickly and competition is so aggressive that we have to be at the top of our game every day to meet the needs of our customers."


Market Position: No. 1

Main Competitors: Safeway, Albertsons, Ralphs, Food 4 Less, Save Mart, Whole Foods, Costco, Winco

Distinguishing Features: perishables, store-level execution, local roots, family ownership Biggest Challenge: increased costs of doing business