SMALL STORE, BIG CHEESE

ANN ARBOR, Mich. -- If big things can come in small packages, it's no wonder the diminutive food shop, Zingerman's Delicatessen here, is racking up big sales of specialty cheese.The business operates in only 1,000 square feet of selling space. Its 250-square-foot cheese department offers 80 to 100 varieties at any given time, which is not especially large compared with the cheese departments that

ANN ARBOR, Mich. -- If big things can come in small packages, it's no wonder the diminutive food shop, Zingerman's Delicatessen here, is racking up big sales of specialty cheese.

The business operates in only 1,000 square feet of selling space. Its 250-square-foot cheese department offers 80 to 100 varieties at any given time, which is not especially large compared with the cheese departments that can easily stock twice that amount in many new or remodeled supermarkets.

However, Zingerman's selection draws an average $9,000 in weekly sales, according to Matt Morgan, retail manager. The "little tiny store," he said, has turned the often problematic category of specialty cheese into a highly profitable, big-time business, with revenues reaching $400,000 to $500,000 a year.

What is Zingerman's secret?

The operation pairs a carefully chosen, distinctive assortment with a staff well educated in the two arts of handling cheese and handling customers.

It also strikes a profitable balance between the steady business, and margins, of its more common, strong-selling varieties and the attention-getting, but shrink-prone, unusual cheeses that set it apart from competitors.

But while all of that helps, it takes even more. "The bottom line for everything we do is flavor," according to Morgan, who has managed the category for the past two years at Zingerman's.

"The cheese department is worth quite a bit to our overall business," Morgan told SN. The retailer protects and cultivates that investment by treating cheese like living, breathing food -- not food that you seal up in packages, pack into a chilled case and forget, but food that requires constant, skilled handling in order to release its true potential for high flavor and for merchandising appeal.

"It's definitely a point of distinction, and it's probably one of the five best departments in the country in terms of product quality," Morgan boasted.

That translates into cutting most of the cheese to order; into ripening and maturing some cheeses right in the store to assure they are sold at peak flavor; and into setting the tone for a deep level of interaction between staffers and customers, with the underlying goal of convincing the shoppers to "think with their taste buds, rather than concentrating on price or relying on brand names."

The result, Morgan said, is a highly focused, creative and successful cheese department. The full-service operation is part of what Morgan describes as a "very fun and colorful" shop that showcases food rather than getting preoccupied with fancy displays.

"The store is visually very dense, with product everywhere," he explained. "There's provolone hanging, parmagiano stacked high on the counter and Emmenthal and Gruyere alongside it. Our mission is to offer fully flavored, traditional foods from around the world. We want people to experience the aesthetic value of our food, so we choose not to prepackage everything and tuck it away on a shelf."

The category accounts for roughly 25% of sales, according to Morgan. Cheese is not its only star; in ready-to-eat sandwiches alone, the stores does a yearly business of $3 million or more from the deli department, he added.

Zingerman's other main departments include variety breads, delivered freshly baked up to four times a day; deli meats, olive oils and vinegars, coffee and teas.

But cheese does set the stage, located just to the left of the shop's entrance. Zingerman's concentrates on an assortment featuring more distinctive, hard-to-find cheeses, and on avoiding "bland and neutral flavors and cheeses that are mass-produced," Morgan said.

"Mass-produced cheeses are available everywhere, and they compete with one another on price," he said. "They're made to appeal to the least common denominator, so their flavor is seldom very distinctive."

Morgan admitted that taste is a "subjective" issue that renders his high-flavor rule of thumb "a little fuzzy," and that "what is bland to me might knock your socks off."

Nonetheless, Zingerman's bases its cheese-buying and marketing decisions on a collective palate perfected through the constant tasting of cheeses from around the world.

"It's important for my staff and me to like the cheeses we sell. The hardest thing for us to do is to sell a product that none of us likes."

The department also relies heavily on the cheese staff of about 10 to impart its knowledge and love of the cheeses on hand to consumers.

"Our style is to interact with the customer," Morgan noted. With that in mind, he staffs the department with personalities that are friendly, outgoing, passionate about food and eager to learn.

A helpful and knowledgeable staff provides product samples, points out product distinctions, makes suggestions, and helps customers understand such things as the agricultural and hand-made nature of cheese and any tendencies it has to differ in taste from season to season, he said.

There's a lot for the staff at Zingerman's to know. While the section carries up to 100 varieties of cheese at any given time, it will stock maybe 200 varieties over the course of a year. About 50 of those varieties represent year-round staples, while the remaining ones serve as a mix of new and revolving selections.

About 80% of Zingerman's overall selection is imported, with Italy, England, France and Switzerland as the top-four supplying countries ranked in order of poundage sales. Additional source countries include Spain, the Netherlands, Belgium, Greece and Cyprus.

The department's top five-selling cheeses are parmagiano, big Swiss, English cheddar, Emmenthal and English Stilton; parmagiano, for example, generates about $2,000 a week in sales and accounts for about 20% of the volume sold, Morgan reported.

Prices per pound range from a low of $6 to a high of $40, although about 75% to 80% of poundage sales occur in the $10-to-$15 per pound range, said Morgan. The high-end price is typically $25 to $30 per pound, he added.

Cheese transactions average a healthy $40 per customer. Price, obviously, is not something that Zingerman's emphasizes. "The focus is on flavor," he said, supported with constant sampling and with monthly cheese tastings, which are usually held in the evenings just before the shop closes.

With so many cheeses being popped into shoppers' mouths, the pressure is on to keep the varieties at their peaks of taste. Morgan said Zingerman's keeps quality sharp by cutting almost all of its cheese to order; by refusing to grate the product and by using a humidified maturing room for aging.

Indeed, Morgan said he would love to "cut every single piece to order," but the department has to make some "concessions for the convenience of our customers."

The volume it does on parmagiano calls for such a concession. "We have too many customers who stop by to pick up a few items -- like bread, olive oil and parmagiano -- and if the product isn't precut, they'll be waiting in line."

With 80 to 100 90-pound wheels sold annually, at $10 to $12 per pound, parmagiano is Zingerman's biggest seller, and is the only cheese that the department precuts on a daily basis.

The department cuts anywhere from 20 pounds to 40 pounds of parmagiano on a typical day, with precut sales accounting for about half of the variety's sales. Still, "We only precut what we know will sell in a day or two," Morgan said.

However, in a nod to peak flavor, Zingerman's refuses to grate its cheese, in the belief that doing so in advance of use "diminishes the flavor" and creates a "compromised product," Morgan said.

Also testament to Zingerman's commitment to taste is the fact that whenever cheese arrives that has not attained the level of maturing the shop desires, the product goes right into a 10-foot by 12-foot humidified maturing room, and stays there until it is ready.

"We'll put a wheel of cheese into the room for as long as necessary. It could be a week or up to six months, because it's important to deliver just the right flavor and texture," Morgan explained.

Why bother? "If we can't offer something better than what's down the street, why should people come here? We're a busy store, parking can be difficult and there's often a wait."

Such devotion to flavor is only the foundation of a cheese strategy that also addresses product selection, pricing and shrinkage.

Zingerman's assortment walks a "tight rope" between reliability and variety to provide customers with everyday essentials, as well as a constant influx of new varieties.

The pricing strategy is also a balancing act, based on the goal of limiting the costs of product, shipping, shrinkage and sampling to 48% of the retail price. Not every variety needs to meet that criteria, and that is where the balance is struck.

According to Morgan, one of the "keys to a successful program" is to identify the top five to 10 best sellers, and protect their margins to such an extent that there's room for flexibility with the other varieties in the department while still maintaining profitability overall.

Morgan chose parmagiano and Stilton as one example of how the interplay works. "Parmagiano is our biggest seller, and it produces almost zero shrink. But Stilton, on the other hand, has a huge shrinkage problem of about 5% to 10%, because it has a soft rind and loses a lot of moisture, which can affect flavor and weight, both of which impact our bottom line."

By saving costs due to negligible shrinkage rates on parmagiano, Zingerman's is able to offer the higher shrink Stilton and still make money, he said.

But that's only part of the profit equation. It's still necessary to understand such things as what varieties sell strongest at different times of the year, and to order accordingly, again with shrink control in mind.

Morgan insisted that proper care of the product is also a crucial element in squelching shrink. Zingerman's has a full-time employee who spends eight to 16 hours a week maintaining the cheese, performing tasks such as turning cheeses, clearing them of mold, and monitoring the progress of those cheeses in the maturing room.

Expertise in product handling is also the key when deciding what cheeses to keep in the department's refrigerated cases -- which occupy about 20 linear feet in front of the department and another 20 feet behind the counter -- and what to leave on the counter at room temperature.

Morgan displays about 20% of his cheeses on the counter, rather than in it, basing his decisions on such factors as the hardness of the cheese, the seasonal temperature and the rate at which the product is selling.

For example, he chooses not to refrigerate Gruyere, which he sells at a rate of about a wheel a week; but would choose refrigeration if that same wheel took a month to sell.