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Makings of a Maverick

March 12, 2010
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A unique mix of store formats - and a massive consolidation, rebranding and redesign project on the private brand side - make Smart & Final Stores LLC a nonconformist when it comes to food retailing.

You might call Smart & Final Stores LLC a nonconformist when it comes to food retailing. The company’s unique mix of warehouse and natural/organic food stores caters to a customer base that ranges from foodservice operators to budget-conscious families and health-minded moms. Moreover, its warehouse formats offer the convenience of club-sized packs without membership fees - and minus the distractions of offerings such as clothing, electronics and general household goods.

The retailer operates five distinct store formats, notes Randall Oliver, director of communications for City of Commerce, Calif.-based Smart & Final. (See the sidebar on p. 17 for a brief company history.) Its traditional Smart & Final warehouse stores (about 17,000 square feet in size) serve both foodservice and household customers, while its Cash & Carry Smart Foodservice stores focus exclusively on restaurant, caterer and institution kitchen customers.

The company’s Henry’s Farmers Market and Sun Harvest stores, meanwhile, cater to health-minded households, replicating what one might find at a traditional Farmers’ market. And Smart & Final’s newest format is Smart & Final Extra!, which Oliver calls a larger-format warehouse store (ranging from 20,000 to 30,000 square feet in size) designed to enhance the household consumer’s shopping experience through an expanded array of products in key product categories.

But Smart & Final’s nonconformist status also is evident in at least one area outside its unique store formats. The company is proving to be somewhat of a maverick on the private label side, too - thanks to a massive consolidation, rebranding and redesign project it completed last year.

Emphasis on Brand-Building

Raymond Swain, vice president of corporate procurement for Smart & Final, says the project - which involved the design of 2,500 SKUs - aimed to move the retailer from a traditional private label program to a corporate brands program - with the emphasis      on “brands.”

“Every retailer is trying to figure out a way to differentiate themselves in the marketplace,” he stresses. “What a corporate brands program allows us to do is to use those particular brands to help our quality image in the marketplace. And because we still are very much value-oriented in terms of our retails, we get both the quality and the value message communicated well with our corporate brands program.”

The project also strived to clear up shopper confusion resulting from 23 different private labels and, in some instances, a brand hierarchy rooted in foodservice that did not communicate effectively to the company’s growing household-shopper base.

For example, Swain says, Smart & Final had used star ratings reflecting “good,” “better” and “best” ratings for its former Chef’s Review brand.

“But based on the changing dynamic of our customer base to include more households, that brand hierarchy was somewhat confusing,” he notes. “I’m not sure we communicated well enough what the stars meant.”

As a starting point, the company conducted focus groups and online surveys with its customers in 2008, says Todd Fryer, Smart & Final’s director of corporate brands marketing.

“They were asked about their perception of our corporate brands, national brands, as well as corporate brands products from other retailers in our market,” he says.

In addition to concerns over too many brands, multiple tiers within the same brand and a confusing brand hierarchy, customers discussed a competitor that had private label brands with very strong brand equity among its customers, Fryer says.

Smart & Final realized it needed to communicate high-quality products and create a stronger connection with customers, he adds.

Ultimately, Swain says, Smart & Final set several major goals for the project:

• To reduce the number of brands so customers could truly understand each brand’s positioning and value, and to create a “core” or “flagship” brand.

• To create a single “value” brand.

• To consolidate the former Wild Oats and existing Henry’s Farmers Market brands into one natural and organic brand (Wild Oats owned the Henry’s Farmers Market and Sun Harvest stores prior to its acquisition by Whole Foods; Smart & Final acquired the stores from Whole Foods in 2007).

Smart & Final recruited the creative services of Boston-based Marketing by Design (MBD) to help carry out the rebranding project, Fryer explains. Smart & Final worked with MBD to create a consolidated core brand strategy representing 80 percent of the retailer’s corporate brand sales dollars.

The result? What Fryer calls three “power brands” - First Street, Simply Value and Sun Harvest.

The First Street brand is the core brand for the company’s Smart & Final and Cash & Carry Smart Foodservice banners (comprising 1,500 items developed over 16 months), he explains, while Simply Value represents the value tier within those same stores. Sun Harvest, meanwhile, encompasses natural, organic and “earth-friendly” products (many of them with unique flavors or spins) and is showcased within the Sun Harvest, Henry’s Farmers Market and even Smart & Final stores.

But Smart & Final also opted to keep a number of its existing brands - niche brands that Swain says have gained a strong position in their respective categories. These brands include:

• La Romanella, a line of Mediterranean products “inspired by the bountiful land of the Mediterranean.”

• Montecito, a line of authentic Hispanic products, including quality-guaranteed tortilla chips, condiments and Hispanic staples.

• Ambiance, a complete coffee and hot beverage program that includes a multi-tiered coffee assortment and tea and coffee service supplies and equipment for foodservice professionals and “coffee connoisseurs.”

• Snack’rs, a line of attractively packaged snack foods designed to enhance impulse sale at retail and convey quality to foodservice and resale customers.

• Tradewinds, a collection of high-quality spices and blended seasonings from around the world.

Bay Harbor Fisheries, a line of frozen fish and seafood products for household customers and foodservice operators.

• Smarty, an assortment of products “formulated to provide dogs and cats the optimum combination of protein, energy, vitamins and minerals.”

• Cattleman’s Finest, an exclusive line of hand-cut and trimmed corn-fed fresh beef.

Message Received

Each new corporate brand now boasts its own personality (much like the niche brands) and an appearance that clearly communicates its positioning.

“We really worked hard internally determining what we wanted these brands to communicate,” Swain says. “As the old Steven Covey quote says, ‘Begin with the end in mind.’ We actually started with the idea of what we wanted these brands to be, and then we worked with our packaging design companies to help us develop the visual image that helps us to communicate that.”

Although the First Street and Simply Value brands boast a consistent look across categories, the Sun Harvest brand differs a bit from category to category (and was, in fact, developed category by category). For example, commodities are treated differently under Sun Harvest than are fun-oriented foods such as ice cream, explains Michelle Weisberg, Smart & Final’s director of natural and organic. And as natural- and organic-oriented items, Sun Harvest products also need to sport labeling that clearly communicates any claims and health benefits, she adds.

Consumers have responded well thus far to all the changes.
“Our new flagship brand, First Street, was presented at exclusive customer focus groups representing our household and business customers,” Swain notes. “The brand rated superior to our previous brands, and strong versus key competitive brands.”

And the introduction of the First Street brand into the Smart & Final and Cash & Carry banners presented the company with many opportunities to create category-specific designs that communicated relevant quality and value messages, Swain adds, noting that his team is pleased with the results.

“In addition, the Sun Harvest brand allowed us to participate in a significant way in the ever-growing natural/organic/earth-friendly product segment,” he says. “The design is extremely important in communicating the brand position. It was also fun to create the design by product category.

“Sun Harvest Frozen Pizza was one of the winning designs in PL Buyer’s 7th Annual Private Label Packaging Awards (2009),” Swain adds. “Also, Sun Harvest Wildflower Honey recently won the PLMA Salute to Excellence Award in the natural foods category.”

Significant Support

Despite the impressive look of its revamped corporate brands lineup, Smart & Final understood that great-looking packaging might not be enough to get the new product message out to shoppers. For that reason, the company has been taking a number of steps on the merchandising and promotion front to get customers to take notice.

“We have developed an annual corporate brands promotional calendar that details themes and promotion dates around each brand,” Fryer says. “Corporate brands themes, contests and activities are integrated into this plan.”

The plan also details the specific merchandising support and in-store marketing that will support each event, he adds. And corporate brands also are featured regularly in Smart & Final’s ongoing merchandising activities.

Fryer also points to POP programs, “lots” of signage, outriggers, shelf talkers, in-store “radio” announcements and floor graphics as tools the retailer is using to draw attention to the new corporate brands.

“We’re working to get these three new brands to be systemic in all of our in-store merchandising - a theme,” he explains. “For instance, we just launched the Sun Harvest brand in our Smart & Final stores with a big splash in our ad. In addition, we utilized all of the previously mentioned merchandising tools available to their fullest potential.”

Speaking of Sun Harvest, Weisberg says the retailer took special care in introducing that brand to Henry’s Farmers Market and Sun Harvest store customers, knowing that the Henry’s name had enjoyed strong brand equity. Smart & Final put together a bag stuffer that provided questions and answers related to the brand, she says, and explained what made the brand different.

Another tactic on the Sun Harvest side was to communicate any extra value a product might offer, Weisberg says. For example, national brand ice cream manufacturers have downsized from a 1.75-quart container to a 1.5-quart container, but the Sun Harvest ice cream offering comes in a 1.75-quart format.

“We communicate to consumers that they are getting four extra scoops in every container,” she emphasizes. “And it’s a premium natural product and a great consumer value.”

Smart & Final also works hard to keep its tried-and-true niche brands top of mind with shoppers. Some of the larger niche brands even get their own annual contests. For example, a sales contest encompassing the La Romanella brand last year netted the winning store manager and district manager a trip to Italy, Fryer says.

“These programs definitely create recognition and enthusiasm at store level,” he stresses. “In addition, they are effective in driving sales.”

Store associates, too, make tremendous advocates for Smart & Final’s corporate brands. In fact, Swain says the company runs an associate sampling program that encourages trial and commentary. Product information (along with bullet points to guide in product-related customer conversations) is provided to each store and available to associates in the break rooms. Stores are given credit so they can pull specific products from the shelves for sampling, and associates often receive product coupons so they may try new products at home.

“That way, we get quite a bit more associate support and testimonials about our brands,” Swain maintains.

Eye on Quality

Smart & Final’s quest to communicate quality and value with its corporate brands involves a bit more than great new products and packaging, masterfully merchandised and promoted. The quality part of that message involves scads of work when it comes to juggling suppliers and managing the whole quality assurance process. (Speaking of suppliers, Smart & Final’s private label manufacturers also were actively involved in the brand consolidation and redesign effort, Fryer notes. Their effort and support contributed greatly to the success of this project.)

Melanie Nable, Smart & Final’s director of quality assurance, says the company meets with its key suppliers for a formal presentation twice a year.

“The company details its market positioning, as well as specific programs available that support our growth objectives,” she says. “Corporate brand positioning is also presented at these meetings.”

Smart & Final has written brand positioning statements in place for each of its brands, Nable explains. The company’s product managers work diligently with each supplier and potential supplier to ensure proper brand positioning and the appropriate quality specifications for each product.

“Our products are developed in conjunction with the manufacturer, our product manager and our quality assurance department,” she adds. “Packaging development is accomplished through a coordinated effort including the supplier, our packaging department, our product managers and our design company.”

Like any other food retailer, Smart & Final faces challenges related to food safety and what has become a global market for ingredient sourcing by suppliers. But the company’s quality assurance team works closely with product managers and manufacturers in developing and reformulating products to ensure the highest safety standards.

“Incoming products are randomly checked for compliance to our written product specifications,” Nable says. “Noncompliant products are subject to rejection. Processing and quality controls are assessed through [company-led] plant audits and/or third-party audits.”

The quality assurance team also scrutinizes product labeling and packaging for regulatory compliance, she adds, and issues any product recalls deemed necessary.

Nable says her team’s most significant challenge continues to be increased globalization of the supply chain.

“In the past year, we have seen numerous issues pertaining to product safety - food and nonfood - traceability and compliance to uniform product standards, and data management,” she says. “There is also a higher customer demand for safe food, as well as health and wellness information about the products they buy from our stores. Quality assurance has moved from lab testing to a much wider scope of responsibility.”

Nable, understandably, supports standardized food safety standards currently being encouraged by groups that include the Food Marketing Institute, the Private Label Manufacturers Association and more. Swain also voices a need for such standards.

“I’m in favor of standardized food safety standards so everybody would use the same standards on third-party audits,” he says. “I think that would help tremendously.”

Despite the challenges that come with a global supply chain, Smart & Final looks to be one industry maverick that is very well-positioned for a prosperous future.

“A strong corporate brands program is very important for Smart & Final for both sales and profit,” Swain says. “Smart & Final was progressive in converting from private label to corporate brands program several years ago.

“This differentiated approach has allowed us to connect with our customers in a unique way,” he adds. “Our new flagship brands, along with our existing niche brands, give us a strong platform to continue to grow our program and strengthen our relationship with our customers.” PLB

Sidebar: Smart & Final Stores LLC Snapshot

Headquarters: City of Commerce, Calif.

Chief Executive: George G. Golleher, CEO

Banners: Smart & Final, Smart & Final Extra!, Cash & Carry Smart Foodservice, Sun Harvest, Henry’s Farmers Market

No. of Stores: 282

No. Employees: 10,000

Corporate Brands: Core brands - First Street, Simply Value and Sun Harvest. Niche brands - Ambiance, Bay Harbor Fisheries, Cattleman’s Finest, La Romanella, Montecito, Smarty, Snack’rs and Tradewinds.

Sidebar: Smart & Final: Then and Now

Founded in 1871 in Los Angeles as the Hellman-Haas Grocery Co., Smart & Final Stores LLC began with one store that sold groceries, supplies and dry goods. It was renamed Smart & Final for its subsequent owners, J.S. Smart and H.D. Final, who eventually introduced the cash-and-carry wholesale grocery concept to the West Coast.

“By the arrival of the 20th century, the company had established itself as [Los Angeles’] principal wholesale grocer and had introduced the Iris private label, a brand that was featured on Smart & Final products for more than 100 years,” notes Randall Oliver, Smart & Final’s director of communications.

From there, Oliver says, the company continued to thrive, establishing a “solid presence throughout Southern California” and expanding throughout the state - and eventually into Nevada and Arizona. The acquisition of Portland, Ore.-based United Grocers Cash & Carry in 1998 took the company into Pacific Northwest territory (renamed by Smart & Final as Cash & Carry Smart Foodservice).

In May 2007, New York-based Apollo Management LP acquired Smart & Final LLC. That same year, Smart & Final purchased 27 Henry’s Farmers Markets and eight Sun Harvest stores from Whole Foods (which inherited the stores along with its Wild Oats purchase), further expanding the company’s reach.

It’s worth noting that the Henry’s Farmers Market and Sun Harvest stores are quite a bit different from the Whole Foods format.

“They are geared toward someone who wants high-quality natural and organic foods, but at a price that’s a good value proposition,” Oliver says. “And they also carry a large selection of vitamins, minerals and supplements.”

Today, Smart & Final operates five banners, including the new Smart & Final Extra! larger-footprint warehouse format. You could say the company has a format to please just about any shopper.

Smart & Final (and Smart & Final Extra!) stores serve both business (primarily foodservice-related) and household customers, Oliver says, and strive to provide “a blend of value and convenience that is superior to the large warehouse club stores and traditional supermarkets.” Household customers will find low-cost cooking, stock-up and cleaning products in convenient club-sized packs.

Cash & Carry Smart Foodservice stores, meanwhile, focus exclusively on the foodservice business market, including restaurants, caterers and institutional kitchens, Oliver notes. These stores have an emphasis on perishable categories such as meat and produce.

Finally, Henry’s Farmers Market and Sun Harvest stores replicate what shoppers might find in a traditional Farmers market, Oliver says. Here, produce accounts for some 25 percent of sales, and shoppers also will find high-quality vitamins and supplements; a bulk department with grains, nuts and candy; natural meats and seafood with a full butcher counter; natural grocery products; and an in-house bakery and deli.

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