Tuesday, March 3, 2009 DeVos Place, Grand Rapids International Council of Shopping Centers meeting
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Good morning, ladies and gentlemen. We have a lot of friends in this room — and colleagues. I hope today, as we assemble as leaders in business and government, that [we all] share the optimism of those of us who believe in Michigan. And that may be kind of a strong statement right now because people interested … in investing in and operating retail real estate in the one state in the union most bruised by today’s economy can be in short supply sometimes, but I hope not in this room. And I say that, even as the coming challenges of 2009 in our automotive industry could make 2008 look like a relatively healthy year.
We’ve all seen the numbers — from unemployment to population decline. It’s a rather daunting time to live in Michigan and talk about commercial real estate and business development. But I can speak for us; we’re not moving to Texas. And 75 years after my grandfather opened his first grocery store up in Greenville, Michigan is still our home.
This is our 75th anniversary year, and it’s taken a lot of luck and a lot of effort to reach that milestone. If I reflect on some of the specific things that it’s taken, they would have to include innovation, and that certainly brought them to where we are today. Our willingness to adapt has just been critical. My grandfather, who was a novice, small-town merchant in the Great Depression, had to figure out how to meet or beat the prices of the mighty A&P. In fact, in that first store in Greenville, he had to be willing to go self-service and borrow [capital] to expand to become a supermarket. And almost 30 years after that, he and my dad had to be willing to venture into the discounting of general merchandise, which was a business about which they knew next to nothing. And if they’d cut a business plan for it — that first big Thrifty Acres store — it would’ve made no sense at all.
But we’ve been willing to take the plunge many times, from opening 24 hours to developing our own brands to giving away free antibiotics. And, of course, we’ve failed more than a few times. There are probably not many people in this room who remember we once ran a fast-food restaurant in front of our Alpine Avenue store (in Grand Rapids) called Thrifty’s Kitchen. Or our discount drugstores called Spaar. And then there was SourceClub, which you may remember, which we thought would be the next big thing in retailing. But we weren’t smart enough to make it work; we were too little, too late and got out before it jeopardized the company …
Along with innovation, or, to put it another way, that willingness to fail, I thank my dad and grandfather for building a corporate culture committed to a high standard of integrity. Earl, it was gracious of you to mention that. It certainly doesn’t mean we never make mistakes, goodness knows, but it means that, as a team, we operate — and I speak for Mike and Julie here, and for others of you who work with us — we operate with the assumption that we’re going to do the right thing. And it means we’ll be good neighbors and generous corporate citizens in the communities we serve. That means we’ll value and respect our team members. There are threads from our past that are woven together pretty tightly today, and I’m reminded of them and the stories behind them in a terrific new biography called Fred Meijer: A Life in Stories that will be coming off the press in about two weeks. And speaking of Fred, his efforts to plan for the future, to make our company sustainable, have been and will continue to be crucial.
When we talk about who we are today, and we hope we can count on many of you as valued customers, we define ourselves to ourselves by saying, “Meijer provides fresh food and merchandise to families in the Midwest. We distinguish ourselves from other retailers by the quality and assortment of our food, the breadth of our general merchandise, and the low prices we charge.”
Compared to our national competitors and on the general merchandise [side], chiefly who we have are Wal-Mart and Target and Kohl’s and Penney’s and Lowe’s and Home Depot — you can go down the list of all those “big boxes”; alas, we can’t distinguish ourselves by geographic diversity. We are home here and our business and what profits we make depends on here. But in 2009, we hope we can also distinguish ourselves by adding talent, rather than announcing layoffs. And by opening stores rather than closing them. In a normal course of events, we grocers can be the profit margins. … And these, of course, are not normal times, and we are very grateful — and I really mean that — to be in the business of selling food. Our food sales have been solid, even as the general merchandise side of our stores has lagged, along with our counterparts’ in the rest of the retail world.
In 2009, we know that maintaining either sales or profits — I don’t know that I can say both — either sales or profits will be tough. And we’re ready to work on the former by sacrificing some of the latter. Overall, we’ve held our own, although at the start of 2008, we certainly had hoped to do better than [what] we ended up with. But we’re reasonably satisfied. And it feels kind of odd today that we’re “reasonably satisfied” with mediocre results. But we find ourselves serving the region we all live in with a declining population with residents who have fewer dollars to spend. So sometimes “success,” in a contracting market, has to be measured in market share. And overall, we’ve been showing some gains there.
We’ve also been excited over the last year to see our internal scores for “friendliness” improve. We recognize that if we’re going to keep your business once you come in the store for other things, we’ve got to not be another impersonal “big box.” We’ve got to be a friendly place to shop. We’ve seen our logistics and distribution team work along with our operations team to get the cleanest back rooms that we’ve ever had; that means we’re doing a better job of controlling inventory. And we all know how important that becomes when revenue growth is harder to come by. You look at every facet of your execution. We’re doing a better job of having the right products on the sales floor, rather than the wrong ones buried in back. And we’re seeing some heartening sales growth in Chicago.
In Chicago, we are very small fish in a very big pond. We have 11 stores, which would obviously be a lot in Grand Rapids, but there, if you want to have any kind of economies of scale, of advertising, of recognition in the market, we’re pretty small. But Chicagoland is the only major metropolitan area in our market in which we can look forward to significant population growth. Suddenly, that starts to loom very large in our future.
We opened nine new stores in 2008, which is really one of our biggest years ever for new stores. But that’s a little bit deceptive because we also closed four stores. So the new stores that we opened in Columbus (Ohio) and Dayton, Ohio, and down in Battle Creek (Mich.) were actually replacements.
Years ago, we had investment bankers come through every once in a while hoping that you’re going to sell out or [take on an] acquisition and they’ll be there for the business. I remember an investment banker asking us what our store-closing strategy was, and we said, ‘We don’t have one.’ But as we grow, that’s no longer a sensible response. So we’re looking at opportunities, as we did last year, to replace older stores at less-desirable locations with newer stores in that market.
One of the adjustments we’ll see in 2009 and beyond is in our ability to do more modest remodels. For too long, we seemed to be stuck — a little bit — in a pattern where we either did nothing with a store and let it fall out of date, or we spent millions of dollars on very costly remodels. And sometimes we got paralyzed trying to make that choice. And we’re learning to be more flexible in what we can do that suits an individual store [or] individual market without breaking our budget, but allowing us to serve that customer better.
And speaking of flexibility, one of our big changes this past year was the opening of a somewhat smaller version of our supercenters. I get that they’ve called that a new format because it’s still a supercenter, but these are stores with about 156,000 square feet, rather than the 190,000 or 200,000-plus that most of us are familiar with. We had smaller stores in the past, of course, but what we intended to do was reduce the food and general merchandise — reduce all the departments proportionally so that we were stripping too much out of our core food offerings. And we know this time around that this new format, or this new version of our stores — we still have a lot of tweaking to do. Our goal is to be more thoughtful about our general merchandise assortment, but [to] not compromise our position as the leading supermarket in town.