Meijer Sees New Normal

November 18, 2005
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GRAND RAPIDS — Meijer Stores has gone through a transformation over the past couple of years to adjust to an increasingly competitive low-cost, mass-retailing environment.

The company has had to face the "very brutal" facts of an evolving industry and undertake a lot of painful changes, Meijer Stores CEO Hank Meijer told a packed audience at the GrandValleyStateUniversity's DeVosCenter Wednesday. The company founded by Meijer's grandfather 71 years ago has undergone an internal makeover.

Meijer recalled that when his grandfather, Hendrik Meijer, opened Meijer Grocery in Greenville in 1934, the Great Depression was at its depth and MontcalmCounty had 21 other grocery stores. Hendrik's then 14-year-old son, Fred Meijer, was more or less a partner in the business from the start. Hendrik didn't have a growth strategy, Meijer said. Opening that store was a survival strategy because his barbershop had lost a lot of business in the Depression, and he had a mortgage to pay.

"Fortunately, his survival strategy was neatly aligned with the needs of Greenville shoppers. He was going to offer low prices — the lowest that he could — because that was all most people could afford to pay," Meijer said.

The Meijer family was quick to add variety and self-service to the Meijer business model and was among the first to embrace the supermarket concept, he noted. Hendrik and Fred Meijer anticipated a second retail revolution in 1962 and opened the first Meijer Thrifty Acres store. That same year, the first Wal-Mart store opened in Arkansas

As Wal-Mart gained ground, Meijer Inc. was faced with a significant new competitor. It had to develop a new survival strategy, he said, and the only way it knew how to survive in mass retailing was to be competitive on price.

Subsequently, the company went on an internal cost-cutting spree. It sold its company cars and the company jet, cut 25 percent of the cost, and tackled its health-care costs, Meijer said. It closed one office, eliminated some business functions and reorganized many others. Hundreds of jobs were eliminated.

"Meijer people have spent the last two years transforming our company," he said. "We had to keep reminding ourselves that we were doing what was in the long-term interest of the overwhelming majority of our team members. Accomplishing such changes can be achieved only by facing the very brutal facts of our industry."

As part of that strategy, he said, the company began sharing profit figures with its employees, began communicating with employees "clearly and often," and opened the floor to employee ideas and opinions. It also put greater focus on relationships with its suppliers.

When the company was the only one-stop-shopping game in town and a private company to boot, Meijer said, it could sometimes be too insular and too secretive for its own good.

"We always have to be better at providing service in our self-service environment than our self-service competitors," he said. "But above all, we have got to be merchants who love to sell things. Sometimes as an organization grows, you lose sight of that in all those logistical and operational challenges.

"We needed to commit ourselves to low price as we hadn't in decades. We'd always been aggressive in our promotions, but now we had a low-cost elephant that was pressuring us as never before and customers who had a handy comparison to check us against and keep us honest on our prices."

As he sees it, the one-stop-shopping supercenter model is "the new normal"; it's a place where traditional mass retailing — whether in food or merchandise — is being replaced by a highly fragmented market. It's a place where low-cost retailers have to show value all the time, Meijer said.

In "the new normal," customers are less impressed by promotions, he said. Trying to compensate for uncompetitive prices on the shelf with "hot" specials just isn't compelling any more, because customers are too sophisticated and too time-starved to be swayed by those old methods, according to Meijer.

He said to an extent, Meijer has neutralized price differences with Wal-Mart and other discounters like Target.

"But we have to go beyond price perception because even if we match exactly, Wal-Mart is brilliant about owning the low-cost perception," Meijer said. "When competitors are national or global and have the resources to create their own brands or acquire brands more readily than we do, we have to be more nimble and creative about that than we have been in the past. And that's part of the new normal."

Currently, the company is trying to make its departments "destinations," just as its pharmacy and cosmetics departments have become, he said. It's also concentrating more on Meijer corporate brands, which he believes helps the company differentiate itself from competitors.

"We know we have a long way to go to brand ourselves, especially among new customers," Meijer acknowledged.

He said the company also has to get better at providing customers with incentives to shop the whole store, and that it needs to take more risks in introducing new items.

The company's goal is to grow at a rate of 6 percent a year and up its number of stores to 400-plus by 2020, he said. Meijer's current annual sales exceed $10 billion.    

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