FastForward - Management Tours to The Best Leading Companies. Менеджмент-туры в лучшие компании мира - Management-Tour to The Most Successful Retail Companies in USA [Philadelphia. 14-20/04/08]

Topic of the visit: Battle for customer! Face to face [Strategies. Experience. Innovations]
Dates of holding: 14^th – 20^th of April, 2008
Location: USA, Philadelphia
Format of the management tour: Open
Companies that we have met: Wal-Mart, Starbucks, Home Depot, Target, Costco, Whole Foods, Walgreen, Lowe’s, Wegman’s, Wakefern, Wawa
Participants (Russian, Ukraine): KRAY (Magelan), “PAKKO Holding” Ltd., Rush, Ltd., Epicenter, INCOM Corporation, Fozzy Group, Dymov (Moscow), Eksite Edi, Mars (Lugansl), Agrocontract, Alen-Sevastopol, System Investing Company, Favorit, Budynok igrashok, Apteka Zdravitsa

Ukrainian and Russian retail are now going through the period of rapid growth. Everything changes in short period of time: new formats of retail companies set up, current retail networks increase tremendously. For example, annual turnover of Fozzy Group Company (the biggest retail company in Ukraine) is now nearly $ 1,5 billion. Companies with annual turnover less than $ 10 million are considered not to be retail companies at all.

These facts lead Fast Forward Company to developing Retail Management-Tour. Tour lasted a week, from the 13^th till 19^th of April, 2008. Geographically the Tour was held in to U.S. States: the main part of visits went off in Philadelphia, and there were several meetings in New Jersey. The aim of the Tour program was to show the wideness and strength of American retail networks. The Companies for visiting were sorted out in that way to present the diversity of retail in USA. There were “classical” retail companies (so-called discounters), for example WalMart, Costco etc., as well as companies of the “premium” segment on market. Among such companies we could name Shoprite (Wakefern), Whole Foods, Wegman’s. There were also few companies with non-typical format of work, for example Wawa, retail chain of convenience store/gas stations, Walgreen’s, pharmaceutical retail company. The only type of retailers which wasn’t presented in the Tour is so-called “one dollar” retail. The reason of this is absence of interest from the participants.

Participants began plunging into the abyss of American retail with the introductory session, which was developed especially for participants to get acquainted with the main tendencies and trends in U.S. retail. Among the main tendencies of American retail companies we should mark out the next ones:

· Dinner’s ready. Americans don’t have enough time. That is why all the products, which are sold in stores, are prepared so that the person could take it out, unpack quickly, cook, and eat. The main principle is minimum interference from customer’s side, and maximum of quality from the producer’s one.

· Private label forever. In USA more and more retailers understand that one of the ways to increase margin is to provide “private label” products in chain (this means that chains sell products which they produce by themselves and brand them: Happiness retail Company sells milk with the same brand “Happiness”. Of course, in this case Happiness Company takes responsibility for the high quality of its milk. After all if “Happiness” milk doesn’t satisfy and make the customer “happy” all the company will fail.

· Distribute it. Retail companies in USA operate under the next scheme. Nearly 80% of all the production is supplied through its distribution center, and the rest 20% - simply from vendors, in other words providers. This makes the process of assessing production among the stores faster and easier.

In Starbucks participants noted an interesting fact. While the cost of license (or franchise) for selling production of this brand (nearly $ 250-300 thousand), conditions, which the company makes to its representatives, are extremely strict. On the other hand, it’s not the price for license to dictate its conditions; it’s about reputation and notability of a brand. Starbucks has a high level of brand notability or fame. One of these conditions, for example, is prohibition to sell in store production of other brands, related to Starbucks one (coffee, snacks etc.).

What made participants excited is “trainedness” of Starbucks’ staff. When the person comes to work in this company he or she attends a two-week training program. After 2 months of work he or she has training. In half a year and later in one year employee has to go through training programs as well. Broadly speaking during the first year of work Starbucks employee attends 4-5 weeks of trainings in company. Is it good or bad? Many of the participants said that in such case company invests considerable amounts of money and resources in staff development, but this doesn’t save company from staff leaving it. On the other hand the high quality of Starbuck staff arrests attention right away. They don’t ask to each other such stupid questions as “Oh, Mary, how do I have to stir milk?”. For Russian and Ukrainian participants there was unreserved acknowledgement of the fact that money invested in staff this way are usually recompensed.

Element of branding in Starbucks is interesting as well. Company names itself not a chain of stores, but a coffeehouse chain. But in fact Starbucks’ coffeehouses could be set up in one row with a store: you could buy there coffee, ready-made coffee, coffee beans, snacks, CDs, gift cards etc.

First of all, it should be said that these two retailers are direct competitors on the market. Here’s an illustrative example: if you pass through Home Depot store, in 500 meters you will definitely pass Lowe’s store. But at the same time there are a lot of differences in these 2 retail companies. As participants admitted, Lowe’s is more aggressive on the market. However both companies have strict scheme of activity against a competitor: permanent competitor’s prices monitoring, loyalty programs, more active work with consumers etc. Such actions aren’t relevant for Ukrainian retail market, because the market of construction retail companies isn’t saturated yet. Home Depot and Lowe’s stores don’t sell only the production connected with construction and building. There you can find all you need, beginning from tack and ending with truck.

· Stores are huge. To make the dialog between consumer and salesman more convenient and faster at one time in each store’s section there is defined place with the bottom “If you need help just push the bottom”.

· All the store is divided into several zone: hardware, enginery, scaffold etc. But among such sections you can find monobranding “islands”, items where production of only one brand is situated (for example, only Bosch production). This leads to loyalty increasing from customer’s side.

· In Home Depot participants paid attention to self-service cash desks. The principle of its work is obvious: customer weighs, scans production by himself, and then pay with the credit card. In USA such service works well, and despite the fact that there is 15-20 cash desks in store, there is always 1-2 desks with the opportunity to self-service. In Ukraine such cash desks are not popular yet (because the culture of self-service in our country isn’t developed).

· In the chains level of losses is pretty low, it’s about 1% (2% are to be normal level). Such situation is typical for all the U.S. retail market. For comparison, when Ukrainian “Karavan” had been opened, level of losses there was about 7-12%.

Shoprite is a retail chain of supermarkets, it is run under its corporate distribution arm, Wakefern Food Corporation. This kind of retail company is retailers cooperative. It consists of 45 individually owned and operated affiliates with over 200 stores. At the end of each year all profit is accumulated and shared among affiliates in equal parts. Such type of management is interesting as it looks like a family.

Shoprite operates in “premium” segment on the market. Unlike WalMart, which saves on everything thus setting up the lowest prices for its production, Shoprite is the supermarket where you want to stay for a while, but you will definitely pay more here. You’ll always see fresh appetizing bread in bakery section, in greengrocery you’ll find winning fruit and vegetables – everything is rich, new and attractive.

· In butcher’s section, in which meat, bacon, sausages are sliced, there is an indicator board, which displays permanently varying numbers – 87, 88 etc. These numbers show client’s serial number in line to take out his/her production. Thus a customer doesn’t have to stay in line for hours waiting for neatly sliced meat; he/she can take out it as soon as the indicator board will show “his number”.

· In the section of frozen food the portrait and name of supermarket’s employee are situated on column, let it be, for example, Mr. Smith. Also there is a title: “If you want to learn more about quality of the product, how to cook it etc, from 12 to 18 p.m. Mr. Smith will help you in this”. And customers know that the defined supermarket’s representative is responsible for this section, they trust him, because they know that the responsible person is real human. Such practice is pretty popular in retail companies in USA.

Another one peculiarity of U.S. supermarkets is that Americans buy with lists. List is one of the methods of sells stimulation, developed by American retail companies. The principle of list is simple. At the entry to the supermarket you’re posed to take a list with the most popular products to buy, like apples, potatoes, shampoo etc. You just have to mark the products you have to buy and make corresponding purchase. It’s scientifically proved that a customer will buy more with a list than without one.

Walgreens is a leading pharmacy chain in USA. Walgreens drug store would seem to be unusual for Ukrainian and Russian customers. Walgreens aspires to become “a store near your home”, that’s why when customer gets into it he sees either pharmacy production in the store or cosmetics, foodstuffs, he also can make photos there etc. In Walgreens it’s understood that people do not often visit drug stores. So, if the drug store will be combined with typical store, this will definitely increase store’s attendance.

In Walgreens’ drug stores production is assigned in next proportions: 10% of the whole production are prescribed medicines, 90% is the rest of production, as medicines sold without prescription, foodstuffs, cosmetics etc. The most interesting thing is that the 80% of income comes from selling these 10% of prescribed medicine, and the other 20% - from the rest stuff. In this case 90% of production in Walgreens’ drug store is an anchor which attracts consumers.

This day was completely dedicated to the one of the biggest and most popular companies in USA, WalMart Corporation. In 2007 Fortune named WalMart the biggest company in USA. What impressed participants the most is exceptional “saturateness” with corporate spirit in the company, in stores as well as in offices. Inside design of company’s buildings dazzles with Sam Walton’s (WalMart’s founder) slogans about values, corporate principles etc. At first, after visiting central office of NorthEast Division, the Tour participants felt that all this was a little bit affected. But then, come to one of the stores, they rejected at once all their doubts. WalMart’s team is really “inspired”, and this definitely impresses.

At the end of the last year the main advertising slogan was changed to “Save Money. Live Better”. The slogan means that money which people have saved on the everyday use goods they can spend on more important things, like children, health etc. This is not just words, it’s a definite step. For example, Procter&Gamble Company, one of the biggest suppliers of WalMart, especially for this chain, considering WalMart’s principle about savings, developed special washing powder. The uniqueness of this powder is that it consists of less water, and it’s more compressed. This means that the usage of this powder is more economic. Moreover, Procter&Gamble redesigned the shape of the powder’s can, so that the van, which delivers powder from distribution center to stores, could contain bigger amount of cans. Thus there are savings on each step of production selling cycle.

Here is another prominent example. Considering the same principles WalMart sells more economic Phillips bulbs (30%-40% of economy comparing usual ones). In each store there is a special machine, which counts savings in money equivalent of using Phillips bulbs. Calculations are made on the basis of next data: the amount of old usual bulbs to substitute on new Phillips ones, and the period of time to count savings. Participants of the management tour practically counted that using 100 Phillips bulbs instead of usual bulbs you can save $16,000 per year.

90% of production of this chain delivers to stores through the distribution center. There are nearly 80 gates in such centers, each of them concerns with a corresponding store in a state. The process of filling the van for a store consists of next actions:

The system of product supply is automated and debugged as well. Each manager of a store’s section in WalMart has his or her own small scanner (in a hand or on it). With the help of this scanner a worker checks barcode of definite product, for example, “Fantasy” shampoo. The system, as the answer of checking, gives the amount of the shampoo, which should be situated on the shelf of the section. For example, there has to be 7 bottles of shampoo, but it’s just 5 now on it. That means, that 2 bottles need to be ordered. The system considers this too, and at one time allows to order as much shampoo as is needed. Moreover, when the purchase of this shampoo occurs, the system sends the request to distribution center that the unit of product has been bought, and the new one is need to be delivered.

The system of motivation and privileges is also well debugged in WalMart for those, who have worked in the company during the long time. Each year of work in WalMart employee’s privileges increase. After 10 years of work here employees become share holders at some rate. Of course, the system is intended to employee’s involving into the work in company during the long time. For Ukrainian retail market such principle is rather unusual, as now there are only 2 extremes on it: a worker comes to company only for 5 months without building any career plans, takes all he can take from it and goes away (this causes a high level of staff flow); or a worker is not forwarded by pit road no matter how he works.

The fourth day of the Management Tour began with the information session dedicated to “private label” topic. During the session several examples of using private label strategy were viewed, with the detailed description of realizing such strategies. After the presentation tour participants visited the company which in practice showed effectiveness of using private label technology, and how this can be attractive.

There was an interesting case in this chain. At one time in Trader Joe’s stores thefts began to occur. It turned out that these thefts were made mainly by schoolboys. To cure them of stealing the company held special campaign under the slogan “You wouldn’t steal from your home store”, aimed to bring up children feeling that the store is native for them. Also one rule was established in store: more than 2 schoolboys are not allowed to be present in store at one time. Sometimes there were such situations when a child opened up a store and before entering it shouted: “Is there any children in here?!”. If nobody answered he entered the store. This example is rather funny, but it shows how Trader Joe’s pays attention to the store’s culture, “private label” strategy, which is put not only on production, but on the attitude to customers.

Wegman’s is the supermarket chain of premium class. Huge range of production and high quality are 2 main distinguishing features of this chain. What is interesting is that in Wegman’s stores there is a zone (like a cafe) where you may eat food you’ve just bought in store. The amount of people is pretty big there. Participants were given an impression that people come to store not only for shopping, but even to have a launch there. It’s hard to describe Wegman’s store, super lay-out and super production – that’s in a few words.

Milk section is organized in a very interesting way in Wegman’s. Freezing chamber and a warehouse are combined a store, the only thing which separates them is a door which doesn’t let cold in. Consumer has to open a door and to pick up production he needs. A worker, responsible for this warehouse, to solve the problem of production lack has to just bring a pallet, and corresponding product will be available for buying. Thus Wegman’s saves nearly 40% of electrical energy, and rationally uses cold of freezing chamber.

Here is one more interesting observation. A toy railway is hung above the section with cereals. It’s made with the next aim: when moms with children come to this boring section their kids stop attention on this toy, and thus a mother could make more buyings than if a kid pulled her to leave this section.

Whole Foods is one of the few retail chains in USA which specializes on selling organic food. Nowadays in USA there is a whole movement targeted on absence of pesticides and other unhealthy substances in food. Whole Foods is clearly specialized on such production. Their production is, of course, more expensive. But people by their spent dollar support this company.

Let’s give an example of this product’s ecological compatibility. Usually to make fish (salmon) more attractive some unhealthy substances are added to its meat, which make it more red. But Whole Foods sell salmon without any additions. The company doesn’t just sell production, but also tries to cultivate in its consumer understanding of “nature” products by putting special tablets with the description on them of how unhealthy substances make food more attractive, and why Whole Foods doesn’t do like that.

As to compete on American retail market is too hard you have to have strong positioning for representing your company in a worthy manner. That is what Whole Foods retail chain has achieved made “nature” food its competitive advantage.

Costco is the membership warehouse club chain. That means that a customer makes some due, comes to store with a club card and does shopping. The prices for production are really low, and every day use products are sold in lots.

On the whole in assortment Costco is a chain of pretty commonplace, even boring format. That’s why tour participants were extremely surprised when they got to know that Americans go exactly to Costco when they want “to be astonished”. The secret of such attitude is simple: in Costco 90% of production is stable assortment of everyday use goods, but the rest 10% is regular exclusive novelties, every month or every 2 weeks. You may come to Costco and find Ferrari there, or Iphone, or other unusual toy from another part of the world. There is even an expression among Costco clients: “You never know what you can buy in Costco”.

Wawa chain has an unusual name. The image on Wawa’s corporate logo is a goose, so the name somehow apes gooses’ scream. Wawa started to operate in 50s as a milk seller. In 70s the company outgrew into a chain of convenience store/gas stations.

Imagining our native gas station strict fancy comes to your mind: small store with the stuff with poor language and the same assortment of production on shelves. In Wawa you’ll meet cardinally opposite situation. You definitely won’t want to go from there.

And here is the reason why. There are more than 18 sorts of coffee represented in the store, ready to taste. Fresh bread, snacks, cookies – everything that allows person to make shopping with pleasure. The assortment is not as wide as in WalMart, but smartly chosen for people who called in there on the way. The distinguishing feature of Wawa, as it was said before, is the vast variety of coffee represented in stores. It also has its own private label for coffee. As a result Wawa takes the second place (after Starbucks) in selling coffee, nearly 16 million cups of coffee a year. Besides the whole amount of private label production in Wawa chain is about 40%.

Wawa doesn’t own its distribution center, and it’s unusual (if not unique) for American retail companies. Wawa cooperates with McCain logistic company which build distribution center especially for Wawa. McCain is responsible for all the risks connected with production lost. On the question “Why won’t you build your own distribution center?” Wawa representatives answer simply: “We have less profit, but at the same time we have less “headache”. The average standing of Wawa’s employee is about 15 years. Such situation defined by the fact, that in this company the system of company loyalty to worker and vice versa is well organized.

With management tour completed its participants held small information session, during which each of them named the best idea among those he had seen in American retail companies. Soon you will be able to find the realization of these ideas in the stores of Ukrainian retail companies!