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Winn-Dixie was TKO'd into bankruptcy in 2005. Today, a trimmed-down company is using a CPG-like approach to reinvigorate its private label strategy.
Critics long had jabbed at it about dingy stores and prices that were higher than competitors. Walmart and Publix, to name just two stronger opponents it’s faced over the years, treated it like a low-rent-gym sparring partner, repeatedly making it look like it had no fight left while taking away its best customers.
And that was only in the early rounds. In February 2005, came a trip to the canvas when Winn-Dixie filed for bankruptcy protection, citing almost $400 million in losses for just one quarter of a year’s operations.
But like Cinderella Man James Braddock and Donnie Walhberg’s Mickey Ward, Winn-Dixie has picked itself up, dusted itself off, and is trying for a comeback. And private label is playing a major role in that effort.
If it succeeds with its new private label approach, a newly respectable Winn-Dixie could point the way for other troubled traditional food retailers trying to find the right training regimen to again become champs in today’s far different food retailing arena.
After it emerged from bankruptcy in November 2006, Winn-Dixie in 2007 staked out a new private label plan, consolidating almost 60 different private labels into a three-tier approach that includes Winn-Dixie national brand equivalent products, a premium Winn & Lovett line and a value line that was originally Thrifty Maid but converted in 2010 to Valu Time. It also added natural and organic private label products under the Winn-Dixie label.
“Those efforts were not made in the past. The current management has made great strides in positioning the whole private label portfolio to the customer in a brand new way,” says Chuck Cerankosky, managing director of Cleveland, Ohio-based investment firm Northcoast Research.
Today, like Rocky switching from being a south-paw to a right-hander, Winn-Dixie, which ranks No. 21 on PLBuyer’s 2011 Top 35 North American private label retailers, also is trying an entirely new approach to how it fights its private label bouts and how it tallies up its wins.
“Winn-Dixie’s own brands department has begun the process of changing its in-house philosophy from a traditional corporate brands team to more of a streamlined group that performs like an internal CPG company,” says Matt Gutermuth, group vice president of center store, pricing and own brands, and Wesley Bean, vice president, own brands strategy and innovation, in written responses to questions submitted by PLBuyer.
Gutermuth should know what acting like a CPG company means. Prior to joining Winn-Dixie in March 2008, he had spent time at CPG giants Kraft and PepsiCo, according to his LinkedIn profile. He also was president and CEO of Safeway.com just prior to taking the Winn-Dixie post.
Winn-Dixie’s change in strategy has meant not just consolidating private labels but also going from making its own private label products to outsourcing.
“In 2005, Winn-Dixie began the move toward a strategy that would allow the company to focus on its core business: Operating grocery stores that provide our guests with superior service, great selection and variety. Part of this mission included Winn-Dixie exiting our manufacturing operations. The last plant in Fitzgerald, Ga., was sold in April of this year,” wrote Winn-Dixie’s private label tag team. “This strategy allows Winn-Dixie a more flexible supply chain model to work with multiple vendors.”
PLBuyer editorial board member Craig Espelien gives Winn-Dixie kudos for exiting the processing side of private label, noting that when he was still handling private label at Supervalu about five years ago, he had considered sourcing from Winn-Dixie only to decide its manufacturing capabilities were outdated and couldn’t assure consistent quality. Given its scaled down post-bankruptcy size today, the company would have found it difficult to support the overhead of its former private label manufacturing operations.
Bean joined Winn-Dixie in February 2008 as senior director of strategic sourcing, coming from competitor Walmart where he was director of strategic sourcing.
Winn-Dixie now appears to be working with Skokie, Ill.-based Topco Associates LLC, which supplies its value line under the Valu Time label, and Stamford, Conn.-based Daymon Worldwide, which has acknowledged that it has been involved in packaging design for Winn-Dixie.
Winn-Dixie’s private label bouts are increasingly being fought with a beefed-up arsenal of new products. In its fiscal 2011, which ended in June, for example, it rolled out more than 300 new private label items, a virtual private label rope-a-dope compared to its pre-bankruptcy new product pace.
“New product development is one strategy that Winn-Dixie will pay close attention to in the coming years. We would like to spend more time in our QA [quality assurance] kitchens working with our culinary experts in producing products with high value. That value is producing restaurant quality foods to our guests that are not just produced based on a price point,” its two private label executives wrote PLBuyer.
While many retailers look at sales penetration rates as the measure of private label success, Winn-Dixie wants to move beyond that to a new approach in sales metrics as well.
“The most common way for companies to measure their private labels is through penetration numbers,” Gutermuth and Bean write. “Winn-Dixie’s current penetration is running over 22 percent in sales and almost 26 percent in units, but we don’t believe that is the right measurement for success. We believe that our own brands should be measured more closely by the profit and sales impact provided the overall business and the leverage it creates with our national brand partners to ensure we offer a value to our guests.” Translation-chasing penetration rates is just shadow boxing if you’re not making money on your private label and using it to enhance overall store sales.
In addition to its private label efforts, Winn-Dixie also is in the midst of a store remodeling campaign. Its so-called transformational stores include Internet cafés, expanded produce sections and prepared meal offerings, among other features. In them, private label products are positioned and merchandised to attract a more affluent shopper than in the past. Stores also are being localized to appeal to distinct markets, says the company.
Some retailing ring watchers don’t give Winn-Dixie much chance of winning again despite all these retailing upper cuts it’s trying to deliver.
Indeed, comments on a recent RetailWire.com discussion about a generally positive story done on Winn-Dixie in the Tampa Tribune in October were generally negative about the retailer. “WD has been in a downward spiral for a long time and it appears the reasons are systemic. They can’t compete effectively with either Publix or Walmart. It seems to me it’s a matter of how long do they keep the lights on,” said Art Williams, a retail marketing consultant, in the RetailWire discussion, for example.
Earnings fell to $7.3 million in the company’s fiscal 2011 fourth quarter from $14 million in the same quarter of the previous year while sales fell 3.8 percent to $1.6 billion. Winn-Dixie noted the quarter was a week shorter this year than last. It also took encouragement from the fact that same-store sales rose 3.2 percent in the quarter.
Despite the naysayers and earnings issues, some analysts are in Winn-Dixie’s corner.
“I think the company has made tremendous progress in rebuilding the quality image of the store and its [PL] offerings,” says Cerankosky. Agrees Jim Hertel, managing partner with Barrington, Ill.-based consulting firm Willard Bishop, “I think they’re doing a lot of the right things. They seem to be moving maybe a little bit more upscale. The question is going to be one of timing. Is this the right time to be doing that?”
The Next Rounds
Winn-Dixie had to do something different as it emerged from bankruptcy. It closed about a third of its 920 stores at the time and completely exited three states, concentrating its remaining resources in Georgia, Alabama, Louisiana, Mississippi and its home state of Florida. Today, it has 483 stores. That includes six former SaveRite stores that it’s converting to Winn-Dixies after an aborted attempt to create its own discount grocery banner. But just getting smaller wasn’t going to make Winn-Dixie a long-term winner in food retailing.
Winn-Dixie “either had to go drastically upscale or drastically downscale because the middle is what’s really hurting right now,” notes Carol Spieckerman, president and CEO of newmarketbuilders, a Bentonville, Ark.-based retail consulting firm. “They had to distance themselves from the murky middle.”
The company’s so-called transformational stores, remodelings that cost an average of about $5.5 million a pop, clearly seem an effort to do just that. Winn-Dixie has created five of these to date and plans a total of 17 in its fiscal 2012 which began this summer.
The new stores emphasis fresh items like produce, and ready-to-eat meals and meal elements designed to provide shopper convenience. But private labels also play a role in them.
“These transformational remodels provide Winn-Dixie’s own brands an opportunity to showcase more of our products such as the natural and organics throughout the store; our Artisan bread program and the freshest fruits and vegetables,” the two executives write.
Winn-Dixie today has more than 3,750 private label SKUs out of roughly 40,000 SKUs it sells. Private label is roughly 63 percent food items and 37 percent non-food, the company tells PLBuyer.
Speaking of the transformational stores, Spieckerman says “They’re amazing, you really do have to look back at the outside of the store and say ‘is this really a Winn-Dixie?’”
Winn-Dixie has been busy remodeling other stores beyond its transformational ones as well, having done more than 200 of those. The same good, better, best strategy the retailer is using in private label seems to apply to the levels of remodels its doing, she says. Stores are being tailored to the local markets they serve.
And as Winn-Dixie elevates its image with its shoppers, its private labels are benefitting, Spieckerman explains.
“They’re putting a lot of money into enhancing the perception of their brand, really taking the Winn-Dixie corporate brand upscale and I think that’s going to have a trickle-down effect into the individual [own] brands,” she predicts.
When Paula Rosenblum, managing partner at Miami-based consulting firm Retail Systems Research, took a walk through a Winn-Dixie in the Miami area, she reports to PLBuyer that she found a large assortment of private label frozen vegetables, premium private label ice cream and a wide range of private label frozen organic products. Also evident were aisle labels for Winn-Dixie’s Chek private label soda.
“I went shopping at my local Publix this weekend,” Rosenblum e-mailed a few days after her Winn-Dixie outing. “And I must say that in many ways I really preferred the Winn-Dixie I went to on my field trip. The frozen natural food selection is FAR superior at WD, and I might have to drive up there again to buy more of it.”
Still, despite her positive feelings about the Winn-Dixie she visited, Rosenblum, like others, notes that the retailer is clearly not about to raise its hands in ultimate triumph anytime soon.
“It’s going to come down to the old location, location, location battle. In Miami-Dade, at least, there’s a Publix every 20 blocks. That’s actually important when buying frozen stuff, especially in the summer. The Winn-Dixie is about 100 blocks away, and while we’re getting close to a season where I can make that work, in the summer it’s impossible,” she notes.
Self-proclaimed Supermarket Guru Phil Lempert thinks Winn-Dixie should be translating its transformational store concept into smaller formats, the hot format in today’s scaled-back retailing world. “I applaud what they’re doing,” he says of Winn-Dixie, “but I think that’s a short-term strategy and they need to be looking ahead.”
Espelien gives Winn-Dixie credit for getting out of the discount grocery business by dumping its SaveRite banner. “They’re getting closer to figuring out who they want to be as a retailer and clearly that’s been a long, arduous process,” he says.
Looking at Winn-Dixie’s private label approach, he notes that “they’re trying to match what the consumer wants to buy with their private label program and slowly move them up market. They’re trying to make Winn-Dixie a better Winn-Dixie.”
“Private label has the ability to help it define its direction and execute against it,” Hertel says. “I think private label will play a big role” in any Winn-Dixie comeback.
Winn-Dixie apparently thinks that as well. But it has several more rounds in its comeback match before it knows if its new private label strategy is working.
PL Grocery Sales: $1.5 billion*
Retail Banner: Winn-Dixie
No. of stores: 483
No. of Employees: 47,000
Private labels: Valu Time, Winn-Dixie, Winn & Lovett; Winn-Dixie organics, natural