"The secret is the back room."
Pete L. Manos is explaining merchandising to a couple of executives from Tops Markets Inc., a Buffalo supermarket chain. They're in town for a distributors meeting, and they've taken time out for a pilgrimage to the Dorsey's Search Giant in Columbia, Store 203.
So Mr. Manos, senior vice president for food operations, is
sharing the tricks of the trade. For instance, Giant was one of the first chains in the nation to turn a profit on thebulk-foods section. That was accomplished, he says, by making the area look sharp.
"The first thing we decided about bulk foods was to have a separate back room" to prepare all the barrels, he says, and a separate manager -- at Store 203 it's Jeannine Redding -- to keep the department clean and stocked. Ms. Redding's section sells $8,000 to $10,000 worth of bulk
food a week.
"If the back room is a ----house, I guarantee you the store's going to be a ----house," Mr. Manos tells the Tops executives, who respond by snapping photos of Ms. Redding, the bulk-food barrels and the back room.
/# Why have they taken time out to
visit Store 203? Why are they listening to Mr. Manos? And why are they taking snapshots like a couple of tourists at Disneyland? Says Tops' Dave Meuller: "They're one of the best."
Being one of the best means at least two things to grocery retailers:
It means you sell lots of food in each store and that you make lots of profit off the food you sell.
Store 203's average transaction is $32, almost twice the industry average. The company takes in $16 per square foot of selling area, almost twice as much as the average supermarket chain, according to Progressive Grocer magazine.
Giant sold nearly $22 million worth of groceries per store last year, a total thought to be the highest of any chain in the nation and more than three times the industry average. Its newest and largest stores are ringing up annual sales of up to $40 million.
Similarly Giant's net profit margin last year, 3.34 percent, was more than 2 1/2 times the grocery industry average, according to the Value Line stock analysis service.
The secrets of Giant's success are both visible in the stores and tucked away at headquarters in Landover:
* Giant, one of the first companies with electronic checkout systems in all stores, makes extensive use of its cash register data.
* The company's buying philosophy is geared toward the items that are most likely to sell, rather than merely what is backed by an attractive deal.
* It makes masterful use of store design, promotions and displays to push the products that make the most profit.
As head of food operations, Mr. Manos looks after the people who procure the product and merchandise it, or find the most effective ways to sell it.
Case in point: Step Saver Meats, four cases of prepared meals, including such items as shish kebabs and stir-fry dishes: "Freshly prepared entrees that are ready to cook," the sign says.
In two-thirds of Columbia's families, both partners work, Mr Manos tells the Tops executives, and they're willing to pay a bit more for the prepared Step Savers entrees. The whole gourmet meat department will do about $10,000 a week in sales, according to Bill Marriott, manager of Store 203.
Perched atop the Step Savers cases are jars of gourmet sauce, bottles of non-alcoholic wine, corkscrews and other "accessories." It's called cross-merchandising: Slow-moving but high-profit food items are sold with more popular fare, and, like most successful retailers, Giant does it throughout the store. But the real advantage of cross-
merchandising is the non-food general-merchandise products, with profit margins are 20 and 30 percentage points higher than those for low-profit staples.
No one goes to a supermarket looking for pizza slicers, so Giant and the others sell them next to the fresh pizzas.
Merchandising also means reserving more and better space for higher-profit or highly perishable items. "Produce is one of the main areas of the store where merchandising can control the volume. . . . As you expand or contract the space on a lot of the vegetables and produce, you'll affect the volume," Mr. Manos explains.
That comes in handy when you have to move the 300,000 cases a week that arrive in the Landover produce warehouse during midsummer.
For slower-moving but higher-profit items, shelf placement is crucial. Eye-level shelves tend to get reserved for things such as pickles, with profit margins of up to 35 percent, according to one pickle manufacturer, and for candy, where eye level is a bit lower (the hope is that children will pester their parents to buy the stuff).
Some of the best deals in the store for Giant, and for the customer, are the private-label brands, products made by an outside manufacturer but sporting Giant's name. The company buys hot dogs from Armour, canned meats from Hormel, pasta from San Giorgio and batteries from Eveready, but they all say Giant on the package.