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Tough Times On Horizon For 2013 Grocery Biz

Jack Brown-Bob Reeves-Ron Johnston
From left: Bob Reeves, VP-West, The Shelby Report; Jack Brown, Stater Bros.; Ron Johnston, president and publisher, The Shelby Report.

Last updated on January 4th, 2013 at 04:27 pm

Stater Bros.’ Jack Brown: Year ahead will be one of the most competitive

by Kristen Cloud/staff writer

If you thought the past few years were tough for business, just wait until 2013 runs its course—at least according to Jack H. Brown, chairman and CEO of San Bernardino-based Stater Bros. Markets, which operates 167 stores in Southern California.

“I think 2013 and 2014 will be two of the toughest years in our business, competitive-wise, because we have coming into the marketplace new players,” Brown told The Shelby Report in late October. “When Vons and Ralphs and even Albertsons used to open a store, we knew pretty well what it was going to look like, we knew pretty well what they were going to do because that’s what they’d done for a long time. But now you have a lot of new players coming in with huge ­financial resources.”

Among those players: Walmart’s Neighborhood Market concept that, Brown says, plans to open hundreds of the smaller, all-grocery formats next year.

“Here’s a company like Walmart that’s invested, that’s going to build, 100 stores in China,” Brown said. “So, the funds they make in America go to China? I don’t know. But it just doesn’t seem like the ­competitors that we were used to.”

Another segment to keep an eye on: the Hispanic retailer.

“Hispanic markets are becoming very sophisticated,” Brown said. “We’ve got some really competitive Hispanic chains here in Southern California, and they’re not one or two little tiendas on the corner. They’ve got 35 stores and they’re all doing fairly well.”

Keith Anderson, VP and senior analyst for RetailNet Group, an ­insight and advisory firm with ­specialized expertise in forward-thinking guidance pertaining to ­retail growth, recently told The Shelby Report that the ethnic segment would continue to expand.

“We see big growth regionally in ethnic grocers that have brought a level of authenticity in the assortment—that is, the brands that people grew up with in their home country are on the shelf; the employees come from the community; the celebrations celebrated in their culture are celebrated in the store, and the seasonal merchandising ­reflects that,” Anderson said.

“Whether it’s a Hispanic or an Asian or an East Asian store, we’ve seen examples throughout North America of these very successful regional chains of 25 or 50 stores that are kind of flying below the radar in a lot of ways,” he added. “But in aggregate, they represent another pretty meaningful pocket of growth in the grocery business.”

Tesco, the U.K.’s biggest retailer, is an operator to watch as well, as it “evaluates its situation” in the West, according to Brown.

Tesco’s Fresh & Easy Neighborhood Market venture launched in the U.S. in 2007 and has 200 stores in California, Arizona and Nevada. On Dec. 5, the company announced that it is conducting a strategic review of its slow-growing U.S. operations that likely would lead to the sale or shutter of the division (see related story on next page).

Fresh & Easy’s same-store sales grew less than 2 percent in the third quarter. Tim Mason, Fresh & Easy’s chief executive, also has left company, according to Tesco.

“Tesco is a huge company,” Brown said. But “they came over and, like some in the industry have said, they found out it wasn’t ‘fresh’ and it wasn’t ‘easy.’”

What does all this mean? In addition to increased competition and uncertainty in the market, Brown points out that “the unions are going to have to stand up for their membership because every one of the new chains coming in are non-union, and that membership is dwindling.”

Though union news dominated the headlines throughout 2012, particularly in California, Brown reports that today only about 17 percent of the grocery business in SoCal is union chains vs. 80 percent when he started in the business years ago.

“In that race, you don’t want to be the last to close the door,” he said. “but everyone has to work ­together if our customers are to get the finest shopping trip in America, and I should say the finest shopping trip in the world…America’s supermarkets are the finest supermarkets in the world.

“In the ‘60s particularly, they came here from Japan, from Europe, from everywhere, to look at our stores—to see what Ralphs had, see what Vons had, see what Boys Market had. They wanted to see how this works. Well, they found out. It worked because people were really dedicated to taking care of the customer.

“Southern California shoppers got the best shopping trip in America. There was a time when you could take (the) No. 1 and No. 2 (supermarket) in L.A. and they could switch places any week they wanted, just depending on what kind of ad they ran. Now that can’t happen because they’re owned by bigger conglomerates with deeper pockets.”

Stater strives to stay a customer-focused company

The success of Stater Bros., going on serving four ­generations of customers, with at least third-generation employees working for the company, can be credited to its customer focus, according to Brown. That focus, ­especially of late, has entailed adapting to the economic environment in order to bring customers the best possible price and shopping experience.

And it’s paid off. Though Stater Bros. Markets’ latest financials and numbers had not been released at press time, Brown says customer counts are up significantly.

“That means that not only have our customers stayed with us, but we’ve attracted other customers who like what they see in our pricing,” he said.

What’s the secret?

“Our whole company is focused on our customers. We have gas at over $4.50 a gallon in California, up from $1.89 four years ago,” Brown said. “Where does that money come from? It comes from customers’ food budgets. That’s the only funds they have that are discretionary.

“We continue to work hard at holding our line on price/cost increases, by holding our line on our retail prices. We usually drag at least 90 days anything in the warehouse at a higher price to try to give, again, our customer a chance to buy for their family and fill their pantry at the lower costs.

“They recognize it, and we know they know we’re working hard for them. And we’re doing it by being more efficient in how we buy every product we sell, or every service we acquire—whether it’s gasoline for our cars, for our trucks. We try to consolidate loads, we try and consolidate trips that supervisors make so they don’t go alone, they take somebody else with them.”

Brown himself is proactive when it comes to cutting costs, no matter how seemingly insignificant—even finding savings of $2.60 per thousand on envelopes.

“It may seem trivial,” he said, “but if a CEO of a company isn’t concerned enough to look at those cost savings, too, why should the rest of the company ­believe that leadership isn’t talking out of one side of their mouth and doing something entirely different?”

Investing in remodels and new stores also was on the front burner in 2012 for Stater Bros.

The company opened a new supermarket in Hesperia on Aug. 1, replacing a smaller Stater Bros. store nearby. Additionally, Stater Bros. recently completed nine store remodels that include modernized decor, wider aisles and a larger assortment of food items. New energy-efficient refrigerated cases and freezers are featured throughout these remodeled ­supermarkets as well. Two more Stater Bros. stores, one in Jurupa Valley and one in La Verne, are ­expected to receive makeovers in December.

Brown notes that his company in the year ahead will continue to dominate in the areas where it operates “with dedication of our people because we’re going to deliver price and quality—we won’t compromise those issues in 2013.”

Economy needs ‘hope’

There’s “hope” coming. That’s the message that must be heard for the economy to start moving again, ­according to Brown.

“We live off the cash flow of Wall Street,” he said, like “when we borrow money to build stores, which hires new people. Government cannot create enough jobs to take up the slack no matter what they do. So it takes Wall Street to have confidence that we’re on the right track and then for us as retailers to go to Wall Street with our story and hopefully tell it strong enough to make an impact; enough to be able to earn their ­confidence to advance us funds to build the economy.”

Taxing the rich to remedy the nation’s debt woes isn’t the answer, either, Brown says.

“You can take everything (the rich) own and it would be a little over one and a half percent of all the taxes that need to be raised,” Brown said. “And they’re the ones who create the jobs by investing that money into other things.”

This also can create a hateful divide.

“Pitting people against people, in my judgment, is a very low thing to do; you pit them by ethnicity, you pit them by income.

“When I was growing up I didn’t think my boss was a crook. I was glad to have a job. And maybe he drove a Corvette. I just wanted to work hard so maybe one day I could buy a Corvette. I didn’t say he stole it from me…or stole it from his customers.”

Brown says the incentive to do better for one’s self and one’s family has been the hallmark of America and that sentiment shouldn’t change.

Hard lessons in California

“Most of us grew up in a family that had limited ­resources, and each month we would sit down and ­decide who got the new pair of shoes, who got a new bicycle or if the car had to be fixed,” Brown said. “Our parents taught us that there were priorities in life and that we couldn’t have everything.”

Likewise, today California must “understand we can’t have everything,” he says.

“Just creating more tax dollars solves nothing. It might for a moment, but in the long pull it solves nothing. We have to be able to take taxes out of the political process, and I have no idea how you do that.”

California’s November ballot brought forth several ­issues that Brown refers to as “solely geared for a very small, select group of people to benefit from.”

“They try to use our children, they try to use fear of not having paramedics available in the community; if you don’t vote for this you won’t have enough paramedics in case somebody dies. I don’t think those are the right reasons to be voting for something.”

Cleaning up the political process to deal with the facts must be priority for California, Brown believes.

“That’s my biggest fear as a native Californian—to get back the realities of what we can afford to have.

“People talk about our young people being promised a free education,” he said. “I was never promised a free education. I was promised the opportunity to go to school. But I worked through college. Granted, it was a lot less expensive than it is today, but I think most of our college students today that I’ve met, they’re willing to work to go through school, but the cost of administration and the cost of all these other expenses outside the classroom really concern me. And I go through the programs of local colleges—you know, Winemaking 101, Basket Weaving 402, what does that do other than enhance somebody’s life, which is important, but first we’ve got to be able to pay the bills.

“So I would encourage other states to watch California, and to help them solve this glaring problem.”

Giving back

While consumers across America have had to tighten their purse strings, nonprofits also have felt the pinch, Brown says. Because of this, Stater Bros. Charities hosts and sponsors numerous fundraisers for local charities.

“Here in the Inland Empire, where we have 91 of our 167 (stores)…nobody does more to help those who live here than we do,” Brown said. “And Susan Atkinson, our vice president of corporate affairs, directs all those activities.

“For example, we just finished our Believe Walk for cancer. In the little town of Redlands, Calif., we had 10,000 walkers (in early October) and we raised over half a million dollars—in a little town, and because people care.

“I think people really want to help each other, they just don’t know how. And they want to be sure that it’s going where they think it’s going.”

For more about Stater Bros. Charities or State Bros. Markets, visit staterbros.com.

In the featured photo at top is Jack Brown, center, with Shelby Publishing’s Bob Reeves, left, and Ron Johnston.

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