Giant Food Inc.'s new chief executive sees cost-cutting as one of the first steps in an overall strategy to preserve and increase market share in the fiercely competitive supermarket industry.
In his first interview since taking the helm of the region's dominant chain Jan. 2, Richard A. Baird said Giant, which employs 27,000, needs to bring its higher costs in line with those of its unionized rivals.
The company is also poised to take advantage of economies of scale under the umbrella of Royal Ahold NV, the Dutch food retailer that acquired Giant in October.
Royal Ahold, with $26 billion in annual sales, plucked Baird from one of its four other U.S. supermarket chains, Stop & Shop Supermarket Co. of Quincy, Mass. The 57-year-old former executive vice president replaced former Giant Chairman Pete L. Manos, a 39-year company veteran who had been selected by co-founder Israel "Izzy" Cohen as his successor in 1994.
"I wanted to take the opportunity to help mold Giant from a family-run business it was so successfully into a part of a larger, global operation," Baird said Friday at Giant's Landover headquarters. "The immediate challenge is to look at all aspects of a relatively high cost of operating. We're in the process of looking at each segment."
During his years with Stop & Shop -- where he rose from assistant controller in 1972 to an executive position overseeing store operations, construction, engineering technical support and pharmacy -- Baird used to look with envy at the formidable position held by Giant, a chain with a similar philosophy and corporate culture.
Now, as head of the 179-store chain with annual sales of $4.2 billion and a quarter of the Baltimore-Washington market, Baird faces the challenge of reducing costs while expanding the chain's reach and maintaining and improving service.
Shortly after the Ahold acquisition was announced, Giant representatives joined "synergy teams" to look for ways to merge overlapping functions in areas such as construction, operations, distribution and human resources, he said. Finance and accounting departments will likely be looked at next. Representatives of each chain are also working to determine best practices, which will be put in place at appropriate chains.
For instance, Ahold, whose U.S. operations are based in Atlanta, runs a central information technology center in South Carolina, with some of its employees stationed at each chain's headquarters. And the parent company is looking to leverage buying power in areas such as construction to significantly reduct costs.
It is also probable that some of Giant's departments, such as its pharmacy operation and its ice cream manufacturing plant, would service other Ahold chains, Baird said.
"Giant has the best pharmacy operation," Baird said. "We can help other companies grow their pharmacy business."
He said it is too early to know how Giant's other manufacturing and distribution operations might be affected.
In the past, Baird has succeeded in taking the best ideas from two merging companies. For instance, when Stop & Shop acquired a local chain, Purity Supreme, Baird, then senior vice president of technical services, adopted its special coupon system that offered consumers promotions while keeping costs down, said Burt Flickinger, president of Reach Marketing, a Westport, Conn.-based retail consulting firm.
"Dick's a great team leader and consensus builder," Flickinger said. "Dick will really tap into the talents of the strong people Giant has on board. Dick has a wonderful track record of working very closely with the good people from the company he's in."
As a senior vice president, Baird also helped lead Stop & Shop's effort to pioneer a "superstore" concept in New England that featured expanded pharmacies; improved meat, seafood, poultry, deli, bakery and produce departments; and broader assortments of competitively priced health and beauty-care products. The expanded format has been so successful that the chain, with 200 stores primarily in Massachusetts and Connecticut, boasts the highest-volume stores and the highest dollar sales per square foot of any major supermarket chain in the country, Flickinger said.
In one of his first cost-cutting measures, about 4,200 store workers paid at a higher scale than newer workers have been offered voluntary buyouts -- $30,000 for full-time workers and $22,000 for part-timers. Those who take the buyouts would be eligible to re-apply to the company at the lower scale, Baird said. But cost cutting won't come at the expense of service or presentation in the stores, he said.
Giant will continue its "Fresh Ideas, Great Values" marketing campaign that emphasizes high-quality perishables and service, and will include lower prices on about 4,000 basic items, an expanded assortment of baked and deli goods, and cross merchandising among departments.
Plans also call for remodeling older stores, updating them with wider aisles and a greater emphasis on fresh produce, he said. A new store prototype is under development and about three-quarters completed, he said.
Baird has spent his first weeks visiting dozens of stores, but he said he needs to see more before determining the number that will be immediately upgraded.
Renovating or building replacement stores would likely take place during the next two to three years, he said. The company hopes to expand in its current market area of Maryland, Virginia, Delaware, Pennsylvania, New Jersey and Washington, especially in underserved urban areas.
He envisions the company in a position to build 10 to 12 new stores a year and expand outside its current market area. Such growth is imperative amid intense competition, he said. And that can only intensify, especially for supermarket retailers who operate on thin profit margins of 1 percent.
In the Baltimore area, Metro Food Markets, Super Fresh Food Markets and Safeway are expanding. Harris Teeter, an upscale, North Carolina-based chain, opened its first supermarkets last year in Northern Virginia, another of Giant's strongholds. And Wal-Mart, which is chipping away at supermarket business with its array of nonperishable food, is preparing to bring its supercenter concept to the Northeast.
As with other forms of retailing, the supermarket industry has become increasingly polarized. "The highly successful operators have either elected to go the low-price route, like Food Lion, or the upscale route like Harris Teeter and U-Krops," said Kenneth Gassman, an analyst with Richmond, Va.-based Davenport & Co. "The supermarket chains in the middle, like Winn-Dixie, continue to struggle to maintain market share."
Giant will continue improving on one of its strengths -- a high level of service that has won it a loyal customer base, Baird said.
"We may not have the lowest prices in town, but we'll have the best value and service," he said.
Pub Date: 2/07/99