February 12, 2007
Stater Bros. Plants Roots to Grow
Staters Bros. has achieved remarkable success in recent years due to competitors imploding (SoCal grocery workers’ lockout/strike) and by the company keeping focused on its own workers and customers.
Over the years, the company has grown by acquiring locations from others and also building its own locations. To supply those stores, Stater Bros. has used a number of distribution centers (13 buildings in seven locations).
Now, the company has decided that a single point of distribution will help it better compete against its long-time rivals in California as well as Wal-Mart’s Supercenters. The new facility is being built on 160 acres in San Bernadino. It will include a 2.1 million-square-foot distribution center and headquarters and cost more than $300 million. In short, it will be the single largest capital expenditure in Stater Bros.’ history.
Mr. Brown believes the new facility will help Stater Bros. to reduce its costs, improve its ability to supply stores quickly and efficiently, and make it a tougher competitor.
Ultimately, Stater Bros.’ chief knows what will make the difference for his company. “My people have always been the head of my spear,” he told The Press Enterprise.
“They can’t match Wal-Mart on price, but they can make it up somewhere else, and often that’s in their people, customer service,” said David Livingston, principal at DJL Research and a RetailWire BrainTrust panelist. “Where’s Wal-Mart the weakest? It’s their perishables, fruits and vegetables. Stater can beat them there, too.”
Carla Casella, an analyst for J.P. Morgan, is also a believer in Stater Bros. “When Wal-Mart came into Florida, Winn-Dixie had to close more than 300 stores, and Albertsons closed some as well,” he said. “But Publix did really well. Any revenue they lost from Wal-Mart, they regained from the other stores closing.”
Bryan Hunt, a senior high-yield securities analyst for Wachovia Securities, is of the belief that Stater Bros. can do something akin to what Publix has done in Florida.
“Stater also has the reputation and brand position in that market to outmaneuver Ralphs, Vons and Albertsons against Wal-Mart,” he said.
There is another factor that has always seemed to help Stater Bros. and that is the relationship the company has with its unionized workforce. Three years ago, when the industry was involved in the lockout/strike taking place in southern California, customers were looking for other options where they could shop without the strife. For many, that place was Stater Bros.
Discussion Questions: What is your reaction to the capital investment Stater Bros. is making to combine all its distribution facilities into one location? How is it positioned to compete against its traditional grocery competitors, as well as others such as Wal-Mart, Tesco, etc.?
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I stopped second-guessing and being surprised by Staters years ago. Back when So. Cal had about ten chains competing in the marketplace, Lucky advertised itself as the “Low Price Leader.” They compared – by name – their prices to the other chains. There was always one chain conspicuously missing on the list: Stater Bros.
Staters has always faced the same union and competitive issues as Vons (Safeway), Albertsons, and Ralphs (Kroger) and Staters continues to make money by remaining focused on their loyal customer-base.
Meanwhile Vons, Albertsons, and Ralphs, companies that have distanced themselves from their So. Cal customers via consolidated buying – whine about unions and competitive issues, cut back on customer service and make their customers play wheel of fortune with product selection in the name of “slotting allowance” revenue; the only way those chains seem to be able to generate a buck.
If the consolidation of distribution centers increases efficiency for a company that continues to stay focused on its business requirements, then this will be an important and effective move for them. This business focus is critical for success and difficult for the big chains to continue.
13 Distribution Centers to 1 within Northern California looks fairly straight forward. This represents a significant overhead savings that maybe is offset by increased transportation cost. Consolidation should provide more frequent shipments which should reduce store inventory. Selling the old distributor center land in the hot California real estate market should offset much of the capital investment. Headquarters with the Distribution Center right next door should reduce communication lag time and thus cost. Looks like a sound business decision.
I know Stater Bros. best as a shopper. Both my wife & I visit the new Stater Bros. store near our home probably once every couple of weeks. Comparing their store layout, cleanliness, customer service, pricing and products against other chains like Ralph’s, Albertsons and Vons, I would say they rank at the top. Their employees seem service-oriented, which is more than I can say for Albertsons, for instance. I believe the reason for their success, as noted in the preamble to this discussion, is that they’ve avoided the mistakes of their competitors (i.e. union issues, mergers & consolidation) and stayed focused on their business. They’ve also very astutely “cherry-picked” locations that other chains did not want. I think Stater Bros. is in a better situation than the other grocery chains in California since they appear to have a strong management team, fewer distractions and understand their point of difference vs. existing and new competitors like Tesco. Operational efficiency is key to grocery chain profitability and it seems that their new distribution center makes a lot of sense for the long term health of the company.
Stater Bros., under Jack Brown’s leadership, has developed a very solid and sincere relationship with its union employees as well as its customers. The management-union empathy that exits, plus a centrally-located distribution center, should more than offset any presumed advantages their current 7 warehouses in 13 locations might have. Whether this is–or is not–the best strategy for Stater Bros. remains to be seen, but from my window, it’s the way to vote.
Stater Bros. has grown and prospered in a market where, over the years, there have been big players that have closed, consolidated or sold. Stater has executed a good plan under strong leadership and there is no reason to believe that they have not analyzed this decision, and that it will work as well as they expect.
The one thing I’ve learned over the years is that you never bet against Jack Brown, unless of course you like being unpleasantly surprised. The other thing I’ve learned is that it’s really foolish to bet against simplicity and improved logistical efficiency.
Stater Bros. could get together with the other unionized grocers for a two-part labor program. First, they could offer the union people greater raises if they’d organize some nonunion locations (such as Wal-Mart, Trader Joe’s, Target, etc.) Second, they could bond with the union to lobby for mandatory employer-paid medical benefits (like the union and the unionized supermarkets did in Suffolk County NY) to level the playing field between union and nonunion supermarkets.
This two-part labor program, based on enlightened cooperation, might beat the profit on the $300 million new headquarters and distribution center.
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I stopped second-guessing and being surprised by Staters years ago. Back when So. Cal had about ten chains competing in the marketplace, Lucky advertised itself as the “Low Price Leader.” They compared – by name – their prices to the other chains. There was always one chain conspicuously missing on the list: Stater Bros.
Staters has always faced the same union and competitive issues as Vons (Safeway), Albertsons, and Ralphs (Kroger) and Staters continues to make money by remaining focused on their loyal customer-base.
Meanwhile Vons, Albertsons, and Ralphs, companies that have distanced themselves from their So. Cal customers via consolidated buying – whine about unions and competitive issues, cut back on customer service and make their customers play wheel of fortune with product selection in the name of “slotting allowance” revenue; the only way those chains seem to be able to generate a buck.
If the consolidation of distribution centers increases efficiency for a company that continues to stay focused on its business requirements, then this will be an important and effective move for them. This business focus is critical for success and difficult for the big chains to continue.
13 Distribution Centers to 1 within Northern California looks fairly straight forward. This represents a significant overhead savings that maybe is offset by increased transportation cost. Consolidation should provide more frequent shipments which should reduce store inventory. Selling the old distributor center land in the hot California real estate market should offset much of the capital investment. Headquarters with the Distribution Center right next door should reduce communication lag time and thus cost. Looks like a sound business decision.
I know Stater Bros. best as a shopper. Both my wife & I visit the new Stater Bros. store near our home probably once every couple of weeks. Comparing their store layout, cleanliness, customer service, pricing and products against other chains like Ralph’s, Albertsons and Vons, I would say they rank at the top. Their employees seem service-oriented, which is more than I can say for Albertsons, for instance. I believe the reason for their success, as noted in the preamble to this discussion, is that they’ve avoided the mistakes of their competitors (i.e. union issues, mergers & consolidation) and stayed focused on their business. They’ve also very astutely “cherry-picked” locations that other chains did not want. I think Stater Bros. is in a better situation than the other grocery chains in California since they appear to have a strong management team, fewer distractions and understand their point of difference vs. existing and new competitors like Tesco. Operational efficiency is key to grocery chain profitability and it seems that their new distribution center makes a lot of sense for the long term health of the company.
Stater Bros., under Jack Brown’s leadership, has developed a very solid and sincere relationship with its union employees as well as its customers. The management-union empathy that exits, plus a centrally-located distribution center, should more than offset any presumed advantages their current 7 warehouses in 13 locations might have. Whether this is–or is not–the best strategy for Stater Bros. remains to be seen, but from my window, it’s the way to vote.
Stater Bros. has grown and prospered in a market where, over the years, there have been big players that have closed, consolidated or sold. Stater has executed a good plan under strong leadership and there is no reason to believe that they have not analyzed this decision, and that it will work as well as they expect.
The one thing I’ve learned over the years is that you never bet against Jack Brown, unless of course you like being unpleasantly surprised. The other thing I’ve learned is that it’s really foolish to bet against simplicity and improved logistical efficiency.
Stater Bros. could get together with the other unionized grocers for a two-part labor program. First, they could offer the union people greater raises if they’d organize some nonunion locations (such as Wal-Mart, Trader Joe’s, Target, etc.) Second, they could bond with the union to lobby for mandatory employer-paid medical benefits (like the union and the unionized supermarkets did in Suffolk County NY) to level the playing field between union and nonunion supermarkets.
This two-part labor program, based on enlightened cooperation, might beat the profit on the $300 million new headquarters and distribution center.