From the C-Suite: The Right Stuff

Schnuck Markets Inc. isn't trying to go head-to-head with Walmart.

While Walmart means low prices, Schnuck Markets is the food expert, says Scott Schnuck, chief executive of the family-owned St. Louis-based grocery retailer with annual revenue of $2.5 billion.

"Our vision for our kind of a company is we need to be the dominant, quality food retailer in the markets that we operate," Schnuck says. "We're going to be the last one standing with Walmart in terms of the place
we hold."

It's a message he has been refining since he took over as chief executive officer in 2007. Previously, when Schnuck was chief operating officer and his brother Craig was chief executive officer, the company grew rapidly through acquisition and by emphasizing its drug store component along with grocery. But given the economic environment and changing retail landscape, Scott Schnuck says a focused emphasis on greatness in grocery is a more effective strategy than further expansion.

A shrinking pie

The grocery industry in general has been grappling with the changing context of competition as consumers buy food from more channels today than in the past, and the trend isn't likely to dissipate anytime soon, Schnuck says. As Walmart has become a stronger force in the grocery business, it has impacted the entire industry. Restaurants also are more potent competitors, as consumers eat out or purchase takeout for lunch and dinner. While the down economy has slowed the pace of growth for the restaurant segment, "it's still a huge part of the market," Schnuck says.

Schnuck Markets CEO Scott Schnuck is positioning the company brand to connect with food expertise.

The shrinking pie for conventional grocery stores is evident in Schnucks' hometown of St. Louis. The company controls 40 percent of the conventional grocery store market but just 15 percent of the overall food market when Walmart, Target, drug stores, dollar stores and restaurants are added into the mix, Scott Schnuck says.

To thrive in the future, grocery retailers will have to differentiate themselves and find a way to provide value. "When I took over as CEO, stepping back, I had to say, 'What do we really need to do as a company to compete?' We were on a path that we were going to get smaller as opposed to prosper and grow," says Schnuck.

So he pursued a razor-sharp focus on providing food expertise and quality in his stores.

"We've got to be right in the stores that we're in," he says. "There's so much growth and opportunity for us to improve our sales per square foot. We can grow our business through that strategy and have a healthier, stronger company."

The integrity factor

It's a natural emphasis for a family-owned business that has embraced integrity as a core value. It stems from their father's passion for pleasing the customer, says Todd Schnuck, who is chief operating officer and Scott's younger brother by eight years. The Schnuck brothers, who are grandsons of the company's founders, learned business principles from dinnertime conversations with their father, Donald Schnuck, who took the company to a new level with the acquisition of Bettendorf-Rapp stores in 1970. Both sons worked at the stores as teen-agers and learned the importance of high expectations, which this year played out in a new marketing campaign.

"One of the things [my father] said that I always remember is, 'You can expect what you inspect,'" which was his way of encouraging people to check things out for themselves and be a presence in the stores, Todd Schnuck says.

That explains Schnucks' decision to interact more with customers and connect the brand with food expertise. To that end, the company has launched cooking classes and demonstrations designed to teach shoppers new recipes and skills. An added benefit is the feedback the customers provide, says Lucy Schnuck, chef instructor and great-granddaughter of the founders.

Lucy Schnuck teaches cooking classes on the second floor of the company's 74,000-square-foot flagship location in Des Peres, Mo. The store, which opened in September 2009, also includes Schnucks Cooks demonstration stations, a cheese and wine room, Kaldi's coffee shop with WiFi connections, two restaurant areas with counter seating, a beer cave and food stations offering made-to-order sandwiches, salad, pizza, artisan breads and more.

Making investments

"When we started on building a strategic plan for our recipe to success, things started to happen," Scott Schnuck says. "In our downtown culinary store and in Des Peres is our game coming to life. We've stepped up our presentation in almost every area of the store. We've added new things."

The company also has invested in new design formats in other remodeled locations to capitalize on the fact that consumers are eating at home more as they stretch their budgets amid higher food prices.

Investing in the business at a time when grocery margins are under pressure from higher commodity costs and consumers' tightened food budgets is a decision the privately held company made easily, Scott Schnuck says, noting that he answers to a small group of family members. The ability to make decisions quickly for the long term is one reason the company continues to be independent, since publicly traded competitors often don't have that luxury. "The market doesn't always reward a company that has managed their business for the long term because the market is interested in short-term results," Scott Schnuck says.

"We've stepped up our presentation in almost every area of the store."
—Scott Schnuck

Selling quality

Schnucks is also getting the word out to customers about the stores' renewed dedication to quality. Historically, Schnucks' slogan has been "The Friendliest Stores in Town." But its recent Qualityville campaign takes that further. Through 14 short videos available on its website and an accompanying social media campaign on Facebook, the company emphasized its high standards and introduced new slogans: "No one does all the things Schnucks does in setting the standard so high" and "Get peace of mind quality—only at Schnucks."

The videos, which have been viewed by 100,000 people, show "attributes and advantages" that set the company apart, Todd Schnuck says, such as sell-by dates much shorter than competitors offer to ensure freshness, and bagels and rolls baked daily on premise. While the featured attributes aren't necessarily new, they were often overlooked. Bringing them to shoppers' attention helps distinguish the company, Todd Schnuck says.

"What we're best known for is service. We wanted to move the needle a little bit as far as why customers were coming into our stores," he says.

But quality doesn't translate to high prices because consumers today won't tolerate them, Scott Schnuck says. "We can't have insult pricing in our stores, particularly the center store, vs. Walmart," he says. Instead, the company has a strong value proposition and has held the line on prices by working hard on continuous improvement and eliminating waste to lower costs.

Collaborating with vendors

Schnucks has introduced systems enhancements while also working with suppliers. Scott Schnuck, who also is chair of the industry relations committee for the Food Marketing Institute and co-chair of the Trading Partner Alliance, a joint project of FMI and the Grocery Manufacturers Association, understands the importance of developing relationships with vendor partners.

That's one reason Schnucks has self-distributed products to its stores since 1970. "We have always thought that it's better to have the direct relationship with our vendor partners," he says.

"Our biggest cost of doing business is our cost of goods sold. It is critical that we have strong partnerships with our vendors where we can drive down costs and eliminate inefficiencies in the way we do business together so we can have the lowest cost in our stores," he adds.

Strong partnerships industry wide should also result in a more efficient industry and better prices for consumers, he says. While some conflicts of interest are inevitable, the Trading Partner Alliance formed by GMA and FMI two years ago strives to "put them on the table" and discuss them in a straightforward manner.

"There's an automatic continual tension between suppliers and rising input costs and their need to pass along price increases that we don't want to see," says Scott Schnuck.

"What we're best known for is service."

—Todd Schnuck

And for Schnucks, self distribution also provides the company with more control over food safety, another area where grocery should be working with suppliers, he says.

"The more our industry can work together to find solutions to each of these areas, the better we're going to perform and satisfy the needs of our customers," he says.