ROUNDY'S NEEDS YEAR TO REACH RAINBOW POTENTIAL

MILWAUKEE -- Roundy's here said last week it may be another year before its Rainbow Foods stores in Minneapolis/St. Paul are operating up to their full potential.Robert A. Mariano, chairman and chief executive officer of Roundy's, told SN Rainbow remains a chain in transition a year after it acquired the 31 stores from Fleming, "and I think it's a reasonable expectation that it will take us one more

MILWAUKEE -- Roundy's here said last week it may be another year before its Rainbow Foods stores in Minneapolis/St. Paul are operating up to their full potential.

Robert A. Mariano, chairman and chief executive officer of Roundy's, told SN Rainbow remains a chain in transition a year after it acquired the 31 stores from Fleming, "and I think it's a reasonable expectation that it will take us one more year to get the stores to where we want them to be."

Mariano said Roundy's has two new Rainbow stores planned for the next 12 months: a store in Shakopee, Minn., that is scheduled to open in the fall; and a store in Lakeville, Minn., with groundbreaking set for this summer and an opening contemplated in the first half of 2005.

Mariano spoke with SN in the wake of the June 4 resignation of Dale Riley as vice president and general manager of Roundy's Minnesota division, which encompasses the Rainbow operation.

He said the company expects to name a permanent successor to Riley within a couple of weeks.

Mariano told SN Roundy's is looking inside and outside the company for a successor. He said he was surprised by Riley's decision, "and we're sorry to see him go, but we're going to move ahead aggressively" in attempting to get Rainbow turned around.

Named to succeed Riley on an interim basis is Don Rosanova, group vice president, supply chain, who previously served as head of operations at Chicago-based Dominick's when it was independently owned under Mariano's leadership.

Riley, 54, had been responsible for overseeing day-to-day operations at Rainbow since last June.

He told SN he left Rainbow for personal reasons. Quoting from his letter of resignation, he said, "The corporate structure and the process for much of the decision-making is different than what I have been accustomed to the last 25-plus years. I know there are reasons that the company manages in this manner, and I understand and respect that. But it is simply too different, so I feel it is best to leave."

Riley emphasized that he had not been fired or forced out. Mariano told SN he agreed that differences in management style was the reason for Riley's departure.

Riley is a veteran of two upscale retail operations -- 28 years at Byerly's here and three years running Kowalski's Markets, Woodbury, Minn. In between he worked briefly for Supervalu as vice president, drug stores.

Riley said he hopes to return to the food industry in some capacity but not until after the summer. Meanwhile, he said he intends to share his marketing insights with his daughter as she opens her own clothing store in Minneapolis.

Local sources said Riley's departure was hastened by the slowness with which the chain was moving on store remodelings. At the time Riley joined the company he told SN he was looking forward to getting stores remodeled, explaining, "We've identified certain stores that will be our initial remodeling targets, and that work will probably happen as quickly as possible without being disruptive to customers."

Mariano said Roundy's plans to begin its first two store remodelings at Rainbow in the next several weeks.

Riley told SN he considers his year at Rainbow a success.

"We were able to breathe spirit back into the employees," he said. "Bob [Mariano] spent part of each week at the stores for the first nine months so people would get to know him, and they revered him and were happy and proud to be working for Roundy's.

"Roundy's spent money before and after the acquisition, measuring consumer opinions about Rainbow, and then it spent money cleaning the stores, upgrading them and elevating the quality of perishables and adding the Roundy's private-label lines, and people shopping there are delighted with the new Rainbow Foods."

Mariano told SN Riley was an integral part of the effort to turn the Rainbow stores around.

"Our first priority was getting product back on the shelves," Mariano said. "Next we got prices competitive with the marketplace, and we enabled the staff to take care of customers by offering better service, rather than trying to hit some specific payroll percentage.

"Now we've started the process of improving the quality of the stores' perishables."

David Livingston, managing partner at DJL Research here, said Rainbow's sales have been picking up in the last few months. "At the time Roundy's took them over, Rainbow's sales dropped about 15%, but the latest figures show they're down about 6%, so they've apparently bottomed out and are making some progress," he told SN.

A high-yield analyst, who asked not to be named, told SN the Rainbow stores have seen sales continue to slide. "The stores have improved, but people are not coming back. Roundy's gave them a good whitewashing, but Cub is still pretty dominant, and Target is also strong on price, so it's still a tough competitive environment there."

Mariano declined to discuss specific sales numbers at Rainbow, "but we are very pleased with the progress we've made to date," he told SN. "It was a company that had been in disrepair for five years [under Fleming's ownership], and in the 10 months since we began reopening the stores, we've raised the bar somewhat, though we still have work to do."

Livingston said he blames the slow turnaround on decisions by Roundy's to drop Rainbow's loyalty card program and introduce its own line of private-label products.

Mariano said research indicated customers and employees were anxious for Rainbow to get rid of the loyalty cards "because there was no discipline to their use, which meant all customers were getting the same discounts."

He said Roundy's offers loyalty cards at Copps and Pick 'n Save, its two Wisconsin-based retail chains, but has no plans to reintroduce a card program at Rainbow.

Mariano also said he's been "flabbergasted" by comments that consumers resent the introduction of Roundy's private-label line at Rainbow "because the products are continuing to move off the shelves, and nothing in our research shows any customer dissatisfaction."

Industry observers told SN one of Rainbow's primary challenges is finding a niche, given the low-price approach of Cub Foods and SuperTarget and the service orientation of Lunds, Byerly's and Kowalski in the Twin Cities marketplace.