LOS ANGELES -- Certified Grocers of California here is seeking to raise its profile as the retailer-owned cooperative celebrates its 75th anniversary. "We want the public to understand there's a wholesaler behind the Springfield [private-label] name," Alfred A. Plamann, president and chief executive officer, told SN.
"In Michigan, Spartan has a very strong image, and people there know it's the name of the wholesaler behind the independent store. It's my hope we can bring a little bit of that kind of identification to Certified."
Accordingly, when Certified put together a major promotional program to celebrate its anniversary -- and the 50th year of its Springfield controlled-label line -- the company used statewide billboards to emphasize its own identity along with the Springfield name.
"Certified Grocers -- where your grocer goes for groceries," the billboards declared.
"Our identification, especially in southern California, has always been through Springfield, not as a wholesaler," Plamann said. "So in planning our 75th anniversary campaign, we sought to rejuvenate awareness of the Springfield plan and also to make consumers aware that Certified was the grocer behind their independent grocer. "We felt it was important to emphasize the Certified name because it helps our members by raising public awareness that there's a company of substance behind the independent operator -- that he's more than just the little guy with the corner grocery.
"And it also raises our profile among institutions that deal with the independent retailer.
"Using our name in the promotions was also an effort to say there's a change of attitude at the company -- not only that the retail member is part of a strong corporation, but also that we are really modernizing ourselves."
As Certified seeks to update itself for the 21st century, it anticipates more changes than it has experienced in the previous 75 years, Plamann said, including the following:
Exploring purchasing alliances with noncompeting wholesalers. Forming cross-functional teams to articulate corporate strategies.
Expanding the number of Apple Market licenses and possibly introducing other retail formats.
Using category management to increase margins.
Increasing the penetration of the Springfield line, including a greater push in the nonfood area.
Restructuring warehouse systems to make logistics and distribution more efficient.
Testing a meal-solution program that features products packaged by suppliers, but bearing the Springfield label.
Certified supplies more than 3,000 stores in California, Arizona, Nevada and Hawaii, with volume of $1.93 billion for the year ended in September -- a decline of 1.1% from the $1.95 billion reported in the prior year.
"We lost the Food 4 Less general merchandise business, which was brought into the Ralphs distribution system early in the year, and we also lost some other business -- but we obviously gained new volume to keep sales where they were the previous year," Plamann said.
The bulk of Certified's business is still in southern California, where the co-op supplies about 70% of the area's wholesaling needs, Plamann said. In northern California, its share is around 40% -- about the same as Oklahoma City-based Fleming Cos. there, he noted. Plus, it has a growing volume across the Pacific region and in Asia, including new supply agreements in the Philippines, China, the Marshall Islands and South Korea, and a trans-shipping arrangement for distribution in European Russia.
Asked about possible consolidation with other wholesalers, Plamann talked instead about potential alliances between Certified and other distributors.
"We will be actively looking to explore purchasing alliances with other, noncompeting wholesalers, to explore opportunities to combine purchasing activities in such categories as dry groceries, frozen food and private label," Plamann told SN.
"That could result in the formation of a basic buying group, similar to what United Grocers, Associated Grocers of Seattle and URM in the Pacific Northwest are doing on a limited basis with Associated Grocers of Salt Lake City," he said.
Plamann said Certified plans to meet with another wholesale distributor over the next few months -- although he was reluctant to supply any specifics -- "to see if it makes sense to form an alliance to participate in joint buying meetings with vendors."
Any alliance would not have to be with another cooperative, Plamann added, nor would it necessarily involve long-term partnerships.
"A partnership implies a combination of activities whose profits are shared, whereas an alliance allows each party to maintain its own impact on its own bottom line," he explained.
The benefits of such alliances, he pointed out, are increased purchasing power, the ability to streamline purchasing staff and the potential use of combined technologies to eliminate costs. Certified already has such an alliance with Earthgrains, the St. Louis-based baked goods company that licenses its name to the cooperative so it can manufacture and distribute products in southern California and serve as an intermediary distributor in northern California. To provide a clearer direction moving forward, Certified is engaged in a three-part study on worldwide industry trends, local economic and demographic trends and customer and consumer attitudes, Plamann noted.
"Once we've completed the studies and integrated the findings with those of a separate study on virtual chain economics, we will have a clearer picture of trends from the manufacturer to the consumer that will help us develop long-term strategies for the next three to five years."
Those strategies will then be given to six cross-functional development teams that will try to make specific applications of the findings in areas such as new business opportunities, internal business processes and technology, domestic and international business opportunities, better communications and better asset management.
Each team is headed by a Certified executive, "but we're looking to have high-performance employees help us develop new directions and new areas of emphasis," Plamann said.
The teams began work last summer, but have slowed down their schedules while Certified relocates its offices to another part of its existing property -- a process that's expected to be completed by early summer, Plamann said.
The shift in office locations will enable all Certified personnel to work in a single building for greater efficiency, he noted. The shift will also enable the company to make more efficient use of its warehouse space by consolidating some distribution centers, he added.
For example, slow movers, reserve storage items and specialty merchandise are likely to move into the 635,000-square-foot mechanized warehouse adjacent to Certified's offices, while some frozen and chilled items housed in separate facilities in southern and northern California will be relocated into a single warehouse in northern California, Plamann said.
One of Certified's newest and most successful ventures has been the introduction of Apple Markets -- the wholesaler's first-ever banner program that offers a consistent merchandising and decor package to a variety of independent operators to give them the look and feel of a chain store.
After less than two years, Certified members are operating 14 Apple stores -- 12 in southern California and two in northern California. In 1998 Plamann expects another 20 stores to convert to the program. "Apple has been a little slower getting up and running than we anticipated, but we have very high expectations for these conversions," Plamann said. "We've seen sales increases of 15% to 30%, and we're very pleased with the program so far."
While Apple is a conventional-store format, Certified is considering banner programs for other formats, Plamann said. "We have some other ideas, and we plan to test them. The next one out of the box will be a warehouse format, but that won't be ready to go for another six months to a year."
Certified introduced a frequent-shopper program last fall, which is available at several Apple stores and at other members' stores, as well. "The object is to get information back about consumer purchases, so we can target overall promotions better," Plamann said.
By year's end, about 40 independent stores were offering Certified's frequent-shopper card, he said.
Certified introduced a category management program in mid-1996 to determine whether members could make better use of shelf space to enhance their image and margins, "and we've had exceptional success each time we've put it in a member store," Plamann said. The target increase is 15% to 20%, he explained, "but members on the program have experienced sales increase of 20% to 60% in the categories in which the program has been implemented," he said. So far only 10% of the membership is on category management, he added.
However, Plamann believes it is essential for independents to adopt category management to maintain a steady cash flow, even in the face of inflation.
"In trying to boost margins, retailers need to be a little less concerned about sales increases and more conscious of operating cash flow and its benefits to profits," Plamann said.
"It's very easy to boost retail sales 20% by lowering prices to giveaway levels, but that's no good for operating cash flow.
"Concerning profitability, all southern California retail grocers are facing a difficult situation because of what I call 'break-even creep.' When you have an inflation rate of 3% to 4%, you can stay ahead of previous results because your fixed costs remain relatively constant. "With deflation, however, fixed costs increase and it's not as easy to manage or recapture sales, so your break-even number goes up, making it more difficult to maintain margins and cash flow. But if category management can help you simply stay even, then you may be ahead of the game.
"In a chain environment, managements facing break-even creep often look for marginal stores they can get rid of to cut fixed costs. But the independent doesn't have that luxury.
"We would like to see independents put in category management and work on overhead at the same time because, as the independent grows, overhead has a negative impact on cash flow. But if the independent constantly monitors his overhead and puts in controls at the same time he puts in category management, he should experience a bump in margins." Plamann said he is especially interested in having Certified members use category management in the area of general merchandise, "where spatulas and colanders that sit on the shelf for four or five weeks without selling are a poor use of space.
Certified has increased the number of Springfield general merchandise items from less than 1% a decade ago to close to 10% "because we feel the retailer needs product to compete with mass merchandisers, wholesale clubs and Wal-Mart, all of whom really have made the category very competitive," Plamann said.
"By bringing in more private label, the independent retailer can compete better and still enjoy strong margins."
Certified's goal is for general merchandise and health and beauty care items in the Springfield line to account for 25% of private-label sales within three to five years, Plamann said.
Springfield lines of dry grocery, frozen food and packaged deli items account for 17% to 20% of warehouse movement and 10% to 24% of retail movement, Plamann said. "It's been pretty stable the last three years, though we see it increasing when we promote, and we'd like to have a 20% penetration in all those categories."
One of Certified's newest ventures is Home Meal Favorites, a private-label meal-solutions line, which is being tested at several stores.