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Management style fosters efficiency, rapid growth

THE BALTIMORE SUN

On paper, Bill Marriott is a retailing whiz.

He opened a 56,000-square-foot supermarket in Columbia last year, a store whose 200 employees sell everything from carrots and carnations to laxatives and live lobsters.

Almost from the opening day of Giant Store 203 in the Dorsey's Search Village Center, sales were strong: $675,000 a week. The store should take in $35 million this year, and it was profitable only a few months after it opened.

On paper, Bill Marriott is retailer of the year.

But in the store he has very little decision-making authority. He cannot, for instance, choose which brands of potato chips to carry or move the produce section to the back of the store. If the Valu Food down the street is offering Ghostbusters Slimer Fluoride Bubble Gum Toothpaste Gel for 10 cents less, it's not up to Mr. Marriott to match that price. And he can't decide to close the store early so his people can head to 33rd Street for the Orioles' opening day. At the top of the company, it's just the reverse. Robert Schoening, senior vice president for data processing, recently spent about $7 million on a couple of computer and communications systems, virtually on his own authority. "As it is today," he says, "I'm not asked to explain enough."

This "loose-tight" style of management has served Giant well in its 54 years in the Baltimore-Washington market. The retailer is now the 12th-largest supermarket company in the country, with $3.25 billion in sales in fiscal 1990. Its profit margin -- 3.34 percent of sales -- placed it second among all publicly traded grocery chains and was more than three times the industry average.

But with nearly 27,000 employees, with a market so saturated with stores that new ones are beginning to build sales at the expense of older ones, and with a weaker economy slowing sales growth, the company is meeting challenges it never had to face before.

In a letter to employees recently, Giant Chairman Israel Cohen tried to boost company morale during what he called "trying times." Treasurer David B. Sykes sounded the same note during the company's annual meeting last month.

In an interview, however, Mr. Cohen says he's not worried. He puts his faith in Giant's three biggest assets: "people, people and people."

"Izzy is an involved, hands-on person in the company," says Pete L. Manos, senior vice president for food operations. Mr. Cohen participates in the weekly merchandising meetings and he visits the stores, "but he leaves the operation of the company to the people in the departments." Lassen gehen, as the Yiddish phrase goes. Let 'em go.

"It's amazing how much of Giant's business is conducted in the halls and the cafeteria," Mr. Schoening says.

In the stores, however, very little is left to the imagination of the workers. Mr. Marriott, a 34-year-old Towson State University graduate, has the demanding job of managing his 200 staffers, making sure they properly execute the game plan drawn up at headquarters. But it's not his place to call any plays at the line.

"All we expect from each store manager is to follow instructions," Mr. Cohen says. "You can't have a dummy running a store; he's had 10 years of training before he became a manager." But "what do you want him to do, you want him to come up with an idea of changing the point of sales [cash register system] from what we have now to the new [IBM] 4680? That's not his job. You want him to change a fixture from a top and bottom ice cream as opposed to a coffin [ice cream display case]? That's not his job. You want him to get involved in Superdeals? That's not his job. . . .

"All we're interested in is the execution as it's been dictated by headquarters: clean stores, in stock, service, attitude, atmosphere, courtesy."

The strategy doesn't stifle Giant staffers or turn them into curmudgeons for at least three reasons: The company's rapid growth provides opportunities for advancement; new positions are almost always filled from within the ranks; and Giant treats its people well.

"The Giant Family" isn't just talk, says Alvin Dobbin, senior vice president for operations. "Associates," as employees are known, are encouraged to bring family members on board. At a store opening in Leesburg, Va., a few years ago, Mr. Dobbin asked whether any staffers had relatives with the company. "One woman raised her hand and said she had 37 family members working for Giant," he says.

The company has an emergency aid fund with a more or less optional payback policy that helps out staffers in need. (Mr. Dobbin says people repay the loans if they can.) For example, a checker who was shot and paralyzed off the job received a home renovation to accommodate her wheelchair, and a clerk whose legs were crushed earlier this year when he pushed a pregnant woman out of the way of an oncoming car received a $5,000 check.

Unlike some other companies, Giant closes on Easter, Thanksgiving and Christmas. Two years ago, when the Washington Redskins were in the Super Bowl, the chain closed at 5 p.m. so fans could go home and watch the game. (Washington crushed Denver, 42-10.)

Jack Boswell, meat department manager at Store 203, marvels at the fact that each of the company's top officers has a private number that anyone can call without going through channels. "You can call Pete Manos and leave a message to have him call you at home. And he will," Mr. Boswell says.

There's also the pay. Store managers can earn up to $1,300 a week in base pay, more with overtime. Mr. Marriott will earn about $77,000 this year, before a bonus and stock options. Mr. Dobbin took home almost $350,000 in salary and bonuses last year. (Mr. Cohen earned $1.2 million in cash compensation.)

Last year Giant, and the other large union grocery chains in the Baltimore-Washington region, signed a three-year contract with the Food and Commercial Workers Union that provides for a $1-an-hour pay increase. Under the contract, clerks with high seniority earn $12.99 an hour this year and $13.44 an hour next year. Those hired after September 1983 earn less.

Most analysts were surprised, and concerned, about the size of the increase, which cost Giant $28 million in the first 12 months. But Roger D. Olson, senior vice president for labor relations and personnel, says "it was viewed as a sort of a payback for the previous two contracts," which weren't terribly generous.

The new contract benefits Giant more than its competitors because Giant hires more new people and its ratio of new, lower-paid employees to older ones grows faster than at the other chains.

There were some complaints, but store employees interviewed for this article generally agreed that Giant treats them well and certainly better than other companies.

The company may serve its own people well, but there's some concern that others are being ignored. George N. Buntin -- executive director of the Baltimore chapter of the National Association for the Advancement of Colored People -- is among those people who still question Giant's commitment to serving inner-city residents, particularly in Baltimore.

The company has a few stores in some mostly black neighborhoods in Washington and southern Prince George's County -- although not nearly as many as Safeway does -- but it has no presence in inner-city Baltimore.

The problem, Mr. Dobbin says, is land. "It's very hard to find locations to accommodate our type of operation, which is a large food/pharmacy, in the inner city, to find the ground that's affordable and to afford the rents that are warranted by the ground.

"The city's developed, and the ground is exorbitant. We don't open small stores. That's not our business."

New stores contain 60,000 square feet or more, not including parking lots, and the company plans to open a total of at least 10 stores this year and next. Analysts have started to question whether Giant can keep up the pace of sales growth in its small region and whether it will have to expand beyond its current boundaries, diminishing its savings in transportation costs.

A report by Merrill Lynch Pierce Fenner & Smith Inc. last year estimated that as much as 40 percent of Store 203's sales would come from existing Giant stores in the area, such as the ones at the Wilde Lake and Owen Brown shopping centers a few miles away.

Value Line said in May that "cannibalization" of older stores by new ones has depressed same-store sales -- those excluding stores opened in the previous year -- to a 4 percent or 5 percent increase since the end of last year. Giant's midyear financial results this year showed that same-store sales increases slowed from 7 percent for fiscal 1990 to 2.1 percent in the first half of fiscal 1991.

"It's pretty hard today to build a store that doesn't overlap at least a little" on the market area of other stores, says Michael Bush, Giant's vice president for real estate.

Still, he and his assistant John Bradshaw just finished an analysis of the region that shows "Giant can continue to grow at its historical growth rate for as long as we can realistically project," Mr. Bush says. He expects most of the growth in the near future to come in the Reisterstown and White Marsh areas, and in the largely untapped regions between Washington and Charlottesville, Va., where Giant has one store.

Closer to home, Giant has had to deal with membership clubs such as Price and Pace, and the rise of low-cost warehouse stores.

The most successful grocery discounter is Shoppers Food Warehouse. With only 21 stores, it doesn't pose a real threat to Giant yet, but Shoppers has the third-largest market share in the Baltimore-Washington area and was one of the few companies to increase its share this year, according to Food World, a local trade publication. The company's parent is 50 percent owned by Washington's Haft family, which owns Crown Books, Trak Auto and various shopping centers, and some observers say the Hafts may launch a major expansion of Shoppers.

Then there's the economy. "The market is softer right now than it's been for a long time because real estate's a problem," Mr. Dobbin says.

"People are building office buildings, [but] they've got a two-year backlog in the [Washington] metropolitan area of office space that's unleased," he says. "A lot of homebuilders are going Chapter 11 because people aren't moving in as fast as they did, and the government is looking at cutting back on defense spending."

In a letter to employees this month, Mr. Cohen quoted Thomas Paine -- "These are the times that try men's souls" -- and referred to the weak economy, the Persian Gulf crisis and Giant's declining stock price, now close to a 52-week low. "At Giant -- like all local supermarkets -- we have seen our sales growth slow substantially," he wrote, and then rallied the troops to continue providing "the personal touch."

Mr. Sykes, the treasurer, remains confident, however. "So far, anything that's happened in our area -- either in Washington or metropolitan Baltimore -- hasn't affected any of our internal plans," he says.

"If and when arms expenditures decline, then the government will find a way to spend their money some other way," Mr. Sykes adds. "I think they're very capable of doing that. And I think they will. They haven't let me down so far."

As for personal spending, Mr. Dobbin notes that "people obviously continue to eat. That's not one of the luxuries you give up." But, he adds, the groceries they buy aren't as expensive -- fewer filet mignons, more ground beef.

If there is any other real concern about the company's future, it centers on Mr. Cohen. Now chairman, president and chief executive officer, he has been with Giant since the day his father opened Store No. 1 in 1936. Nearly everyone at Giant has an "Izzy story," but he serves on no outside boards, prefers to spend his leisure time at Laurel Race Course (he owns a few thoroughbreds) and reveals little about himself. In a rare offhand comment, Mr. Cohen mentions the anti-Semitism he faced while growing up in Lancaster, Pa., as a 9-year-old immigrant from Palestine.

Now, at 77, he is still 13 years shy of his father's retirement age (N. M. Cohen was killed in an auto accident in 1984 at age 93). Mr. Cohen says he plans to break N. M.'s record.

But even Izzy Cohen won't live forever. His children are not involved in the business; they're not interested, Mr. Cohen says, and he doesn't want any nepotism at his company, not at the top, at least. He owns 125,000 of the 250,000 voting shares of stock -- the rest are held by the heirs of Giant's co-founder, Jac Lehrman -- and he says he has no plans to sell the company. Mr. Cohen has the right to appoint more than half of the board members.

He refuses to reveal what he plans to do with his stock, or whom he will name as successor, although he does hint a bit. "We never went outside for a manager or a department manager. We're not going to go outside for a CEO. It's going to come from our vice presidents," he says.

There are some obvious choices. Al Dobbin is among the top picks, if you're handicapping. His office adjoins Mr. Cohen's, and his name is mentioned most often by the other executives. Pete Manos; Mr. Sykes, who also is secretary and senior vice president for finance; and David Rutstein, senior vice president and general counsel, all have appeared on the tip sheets.

Except for Mr. Rutstein, they are all in their 50s or older, and if Mr. Cohen remains in charge as long as he predicts, a younger crop of vice presidents will have to be considered. It's likely that a few people would be named to take the various titles Mr. Cohen holds now.

But Izzy Cohen isn't talking. "If I were to say, 'You're going to be the heir apparent,' what do you think the other 19 VPs are going to do?" he says. "You think they're going to feel good about that? Like this, everybody knows he's got a shot."

In the end, he and others say, there are plenty of capable successors, and concerns about Mr. Cohen's health aren't motivated by the same concerns that surround, say, President Bush's welfare.

"Once a company is in place, and it's a good company, anybody can be the CEO," Mr. Cohen says. "Good horses make good trainers, and good organizations make good CEOs."

Besides, he adds, "Who says I'm going somewhere? I'm not going anywhere."

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