(FNS) -- As food retailers look ahead to the rapidly approaching new millennium, challenges aplenty come into view.A surge of supercenters, consolidated chains, neighborhood stores and limited-assortment outlets will keep competition humming for the foreseeable future.But for companies that can provide good service and are adept at finding a niche, the outlook appears favorable.Many executives interviewed

(FNS) -- As food retailers look ahead to the rapidly approaching new millennium, challenges aplenty come into view.

A surge of supercenters, consolidated chains, neighborhood stores and limited-assortment outlets will keep competition humming for the foreseeable future.

But for companies that can provide good service and are adept at finding a niche, the outlook appears favorable.

Many executives interviewed by SN are counting on improved same-store sales as the century draws to a close.

"The economy is strong and consumers are going for upgraded products," said Ron Pearson, president and chief executive officer of Hy-Vee Food Stores, Des Moines, Iowa. "We are very optimistic for the remainder of 1999." Pearson said the company "spent a lot of money in the past 10 years on improving and enlarging. Now over one-half of our assets at retail are brand new." So the company is poised for the payoff.

Same-store sales in the second half of 1999 are expected to run 4% to 5% higher than for the year-earlier period.

Other retailers across the country said store renovations have emerged as one of the most important competitive tools. As has been reported in SN, many big industry players said more of their 1999 capital expenditure dollars would be spent on store remodeling and relocations than on store openings.

Upgrading facilities is especially important to smaller companies like Mad Butcher, Pine Bluff, Ark., said Roger Burks, senior vice president.

The eight-store company is being fine-tuned to make sure its presentation is in line with what customers want, said Burks.

"We're dealing with a different trade now. The customer today expects such things as deli-bakery and seafood shops."

Whether planning for the eventual rivalry of a supercenter or just trying to keep the customer happy, "you've got to keep your stores in shape," Burks said. "Some operators wait too long and then lose business."

He pointed out that Mad Butcher works closely with its wholesaler, Supervalu, in implementing renovations. Four of the firm's eight stores have been refixtured and have put in new freezers and meat cases. One store was doubled in size. As a result of the upgradings, plus the use of more astute advertising, sales and profits of Mad Butcher are expected to increase this year, said Burks.

As for the new advertising, he said that since the state now downloads money into the accounts of food stamp recipients on the fifth, 10th and 15th of each month, the company runs ads for one-day specials on those dates.

Modernization is the key challenge at Homeland Stores, Oklahoma City, said David Clark, president. The chain of 69 stores remodels seven or eight remodels stores each year to provide a good shopping experience for the customer.

As a result of physical improvements and better customer service, 1998 was an "upbeat" year financially and 1999 is expected to end on the same note, according to Clark.

The downside of failing to refixture soon enough might be illustrated by the decline of Carl's IGA, a three-unit operation in the Rio Grande Valley of Texas, sources said. As was reported in SN, then-president Buzz Waitz, said the company didn't have funds to "fix up like we want to." Facing competition from 19 chain stores and five supercenters, the seven-store Carl's group dwindled to three in eight years.

Fleming, the firm's wholesaler, recently took over operation of the stores. Waitz, no longer in the grocery business, said Carl's is being dissolved. A recent SN visit to the Weslaco, Tex., store found little or no improvement in fixtures, but the store had begun triple couponing, possibly in response to a new Albertson's soon to be constructed in the area.

Besides renovations, high on the list of industry challenges, according to executives polled by SN, are recruitment, training and handling of top-notch employees; the creation of clever promotions; the ability to take advantage of technological advances, and the reaction to big industry consolidations.

Many operators may be able to capitalize on the consolidation trend, said Jack Brown, president of Stater Bros., Colton, Calif.

"Who is served better by these consolidations, the customer or the shareholder?" he asked. "This is an issue the industry will be watching. Are efficiencies really taking place? Is bigger really better? Consolidation of banks has not gone well because people are looking for personal service."

So in the wake of big retail mergers, regional chains and independents might fill a void by providing exceptional personal service, Brown pointed out. Something as simple as recognizing someone by name at the checkout and the words "Thank you for your purchase" could keep customers, he said.

Stater Bros. has set up special training programs in anticipation of the proposed Albertson's-American Stores merger, which will include Lucky Stores in Stater Bros.'s region. Meat and produce managers and assistant managers have attended all-day seminars on how to provide exceptional service to customers.

Obtaining good employees is a top priority for most companies. Clark of Homeland, a company formed from what was a Safeway division, said store personnel have been the key to a "reinvigoration" process.

"We take a lot of time to communicate to our store people about where we're at, what we're doing, what our goals are and what we want to achieve so all of us can work together to achieve those goals."

Nowell's, a six-unit independent in Columbia, Mo., considers recruiting and keeping labor a constant challenge, especially since it's located in a city with a 1.2% unemployment rate and a host of competitors for workers, such as fast-food restaurants.

Bill Zschoche, president, said one lure is a 5% discount on groceries for all employees. And a lot of work is put into development of good store directors, Zschoche said. "They are the key to a store's success."

"We have always insisted on recruiting top-quality people," said Hy-Vee's Pearson. "Even though demand has increased, we [do more than just] go after people who just need work." Hy-Vee has become active in college recruitment.

Pearson said Hy-Vee has not closed a single store because of emerging competition from Wal-Mart and Target supercenters in the area run.

"We don't like more competition, but you just handle it. We operate in the same way, by taking care of our customers." Pearson added that every Hy-Vee store was profitably operating in markets with supercenters. He declined to disclose further tactics in the battle.

Nowell's competes with a Wal-Mart supercenter in each of the cities where it has stores -- Columbia, Moberly and Jefferson City, Mo. The company, based in Columbia, attempts to differentiate itself by heavy identification with successful local suppliers. For example, Nowell's has a leased department in its stores called "Old Mizzou" Barbecue. The company also sells Peggy Jean pies, which are baked by a local entrepreneur.

Zschoche said supercenters were a continuing worry. "If there is not one in town, just wait." Nowell's, which expects to acquire two stores in the Branson, Mo., area, said, "With so many supercenters around, it's like living with a lion. But we watch expenses, emphasize services and participate in community sponsorships. We are known as the friendly folks."

Some store officials get creative when Wal-Mart comes to town.

A Piggly-Wiggly Carolina corporately owned store in Florence, S.C., staged drawings for the following prize: it would pay up to $750 of the winner's rent/mortgage and electric, water and phone bills, said store manager Lynn Willard.

And in a bid to boost employee morale and customer excitement, Willard staged an open house in the store. Each department provided samples and a knowledgeable host to answer questions. For example, the bakery/deli offered cranberry bread, cheese, wine, turkey and cold cuts; the meat department demonstrated carving techniques on duck, ham and turkey.

Willard said that events are good occasions to offer samples of upscale products; one was Mrs. Smith's peanut butter silk pie. Sales for the product normally averaged a case per week, but during the open house the store sold 10 cases.

Such activities helped bolster the store's volume, which had dropped when the Wal-Mart supercenter came to town. In addition to Wal-Mart, the store competes with Food Lion, Bi-Lo, Winn Dixie and Harris Teeter -- all within three miles.

Mad Butcher, though it has no supercenter in its region, finds fast food outlets are big competition. So the company has a home-meal-replacement program in three of its stores and is working on more ideas. The firm has a pizza shop and carries sandwiches and salads in a store at Warren, Ark., a town of 4000.

Jeff Gietzen, president of D&W Food Centers, Grand Rapids, Mich., agreed that restaurants and various hospitality operations were more of a threat to supermarkets than supercenters. As a result, the company serves entrees at 23 of its 24 stores. Items are prepared in a central kitchen.

D&W competed with supercenters long before they got that name, said Gietzen, since there are more than a dozen Meijer stores in areas close to D&W.

What D&W offers is convenience, said Gietzen, adding, "But we define convenience differently than they do. They call it one-stop shopping, but we call it the ability to get in and out quickly while finding the items you want."

D&W stores range from 30,000 to 60,000 square feet. Despite its supersize neighbors, D&W has favorable same-store financial results and increases will continue into the second half, Gietzen predicted.

Supermarkets also are up against the limited-assortment format, which can compete successfully in some areas, and which may benefit from retail consolidations.

"As chains build bigger and bigger stores, they pull back from the total number of units. This creates a geographic and economic hole for limited-assortment formats," said Rusty McKay, president of Wigest Corp., Indianapolis. The company is a franchisee of two Cub Foods stores in Toledo, Ohio, and previously operated Cub units in Indianapolis.

Now it is concentrating on limited-assortment Save-A-Lots because it thinks they have the most potential, McKay said.

The company, with five such stores in Indiana, will soon tap the Tucson market; it has two units under construction there.

"We will actively pursue opportunities in both Tucson and Phoenix," McKay said. He is seeking 13,000- to 15,000-square-foot buildings with an occupancy cost of $5 a square foot.

"We cater to shoppers with a household income of $30,000 a year or below," said McKay. "There are not many companies pursuing low-income households."

He said comparable-store sales now show single-digit increases over last year.