Roundy’s CEO Trash Talking the Competition
Roundy’s is putting its plan to open up to 12 Chicago-area stores in high gear, according to Crain’s Chicago Business.
The Milwaukee-based chain is reportedly close to signing a lease to open a 60,000-square-foot store in the West Loop. The upscale but unnamed banner will serve as the anchor of a mixed-used space that includes both retail and a residential complex with 230 units.
The fact that the planned store will open across the street from a Dominick’s doesn’t appear to concern Robert Mariano, chairman and CEO of Roundy’s.
Mr. Mariano, who once ran Dominick’s, compared the competitive store to “a shade of vanilla” and told Crain’s, “we’re entrepreneurs and merchants.”
Interestingly, Supermarket News recently named Dominick’s parent Safeway the recipient of its “Annual Retail Excellence Award.” The editors at SN said Safeway was being honored for the development of the lifestyle format, store brands such as O Organics and Eating Right, and other factors.
Discussion Questions: What do make of Robert Mariano’s confidence concerning Roundy’s move into Chicagoland and his apparent lack of concern about Dominick’s as a competitor? What objective support is there for Mr. Mariano’s contention that Roundy’s is a company of “entrepreneurs and merchants?” What about his “vanilla” comment concerning Dominick’s?
[Author’s commentary] In the sports world, Mr. Mariano’s comments would be bulletin board material used by the competition to pump its members up. Mr. Mariano must figure it doesn’t matter how much Safeway/Dominick’s management gets pumped up because he’ll beat them no matter what.
Safeway has been converting some Dominick’s to its vaunted “lifestyle” format but apparently this hasn’t impressed Roundy’s CEO either. You would have to think that Mr. Mariano has something very special planned for Chicago.
Chicago is a very expensive ad market. With only 12 stores, Roundy’s needs to be very creative about how it reaches its audience. Without brilliant marketing, Roundy’s will find it hard to make decent money. Not only does Roundy’s have to attract new customers, the customers have be so impressed that they’ll keep coming back after the newness wears off. Many retailers have exciting grand openings, but 2 years later their sales trends are declining. Occasionally a retailer starts out strong, and builds unusually good comps year after year. That’s the way to make good profits, because it’s very hard to make money in year one, and even harder to sustain profitability if sales decline after that.
The cost of advertising or real estate or the amount of competition really isn’t the main issue here. Shopper (dis)satisfaction with existing players in the market is. Most people I know are not happy with where they shop and switch frequently among various stores. When we talk about changing grocers, here is the general consensus: Whole Foods is great, but extremely overpriced and shopping there is simply not possible for people on a budget. Jewel and Dominick’s are considered expensive for what you get, too large/plain and at certain unremodeled stores, the penultimate freakshow horror experience. Everyone absolutely raves about Trader Joe’s but rants about the overcrowding and traffic at its three stores in the city. Aldi is the ultimate horror experience. No one I know has shopped there twice. The smaller players–Treasure Island, Potash Bros., Fox & Obel, among others–are flying under the radar of most people outside their respective neighborhoods.
The opportunity is definitely here. Frankly, I’m surprised Trader Joe’s hasn’t made the city a higher priority. It could certainly triple the number of stores it has within the city limits with little cannibalization of existing sales. If Roundy’s has a winning format, the battle for customers isn’t all that uphill. Trader Joe’s experience proves that you don’t need much scale or much advertising to gain a foothold in Chicago. You simply need customers who rave about your store.
It’s (almost) always nice to see a new entrant into a market, especially in Chi-town, still reeling from the separate missteps from Safeway and Federated; does it make sense (?)…I don’t know: Milwaukee is 90 miles from Chicago, perhaps that is close enough to realize some synergy; or maybe they hope to benefit from anywhere-but-there attitudes that may not have been as strong years ago when other entrants’ efforts failed.
You really cannot get more plain vanilla than Jewel and Dominick’s. I don’t care what kind of awards Safeway gets, the bottom line is, Safeway generally underperforms in markets outside the West Coast. Chicago has to be one of their worst.
I recently did a market study in Chicago and found Domimick’s stores having sales per sq. ft. figures running 30-40% below the market average. This includes those spruced up ghost towns with the Lifestyles remodels. We are finding sales at the Dominick’s stores below the level that Bob Mariano had them 10 years ago. In my opinion Dominick’s will no longer be around in a year or two. When you pour millions into remodels only to get them back to 1990s levels, then what’s the point?
Raymond Jones is right, Dominick’s is just a shadow of what they once were. Doron Levy is right as well that Roundy’s will have an uphill battle. Roundy’s does have a better shot in Chicago compared to when they went into Minneapolis. In Minneapolis they had no idea what they were getting into. Chicago is different. Mr. Mariano has pirated the best employees from Dominick’s, knows the market, and has all the real estate and government connections. Probably much more so than Safeway and Supervalu which are now just sterile out-of-state corporations. Mariano will be in the face of local politicians while Noddle and Burd will be busy dancing for Wall Street.
I’ll admit, Mariano has been all talk and the private equity groups haven’t been buying it. But if he is really serious about Chicago, I think he could be successful if he put his mind to it. What will be interesting is if they can convince the new owner of Roundy’s to actually invest in these Chicago deals. From what I hear, no leases have actually been signed.
Self-confidence is the first requisite of great undertakings, but self-deception can sometimes become its next of kin. Whether Bob Mariano believes that Roundy’s is a company of tried and proven “entrepreneurs and merchants” that can capture Chicagoland consumers’ hearts in a sustainable manner that other new fine retail entrants into Chcago couldn’t or whether his memories just linger on and motivate Roundy’s, this question is: will this become a victory for innovation or a penalty of imprudence?
Roundy’s entry into the Twin Cities market via acquisition of Rainbow few years has not upset the scales in that market. But in Chicago impact will undoubtedly be made by Roundy’s even as strategists in Pleasanton, CA, and Eden Prairie, MN, invest in self-protective counterattacks. Mr. Mariano has a very fine reputation, did a bang-up job for Dominick’s and knows the nuances in the Chicago market quite well, still the red flag arises as Roundy’s enters the giant Chicagoland marketplace.
While it sounds like hubris as the gentleman said “It ain’t bragging if you can do it.”
Mariano has a huge market share in Milwaukee with little upside and lot’s of downside. He has not been able to turn Rainbow’s sales around although it is probably spinning off a lot of cash. That leaves the Chicago market if he wants growth. The big question is does he see on opening in the vanilla marketplace or is he charging into Chicago like Cub did because of unresolved issues? Time will tell.
We skipped a light fandango,
Turned cartwheels ‘cross the floor.
I was feeling kind of seasick,
But the crowd called out for more.
The room was humming harder,
As the ceiling flew away.
When we called out for another drink
The waiter brought a tray.
And so it was that later,
As the miller told his tale,
That her face at first just ghostly,
Turned a whiter shade of pale.
Procal Harum
Roundy’s has an uphill battle ahead of it. Chicagoland will be a tough nut to crack but if they can offer up something different in terms of product and service, they should be able to capture some of the market. In doing some focus groups in Chicago, I found shoppers there to be very picky when it comes to retailing and the gaps between competitors sales is huge. I like Roundy’s model and it is a bit of a departure from the norm but they have to offer more than the established merchants already servicing those high density areas.
The Chicago consumer is ripe for the added competition as well as Mariano’s ability to understand that each location will be slightly different, catering to the ethnic backgrounds of the specific areas served. When Bob ran Dominick’s, the company had the right product at the right place at the right time at the right price–need not say anymore!
Good Luck–I will be there opening day.
Dominick’s today is now just a shadow of the force it once was in Chicago. Safeway has destroyed much of the equity they bought through monolithic cookie-cutter formats and too much emphasis on their own label. While Safeway may be getting kudos for their lifestyle format, it has not yet had an impact in the Chicago market.
Other retailers with a strong presence outside Chicago have tried to crack the market without much success. Kroger has played at the edges. Meier has a few stores. A few years ago, Byerlys out of Minneapolis failed miserably in Chicago.
Roundy’s is a creative merchandiser with a strong equity in the Milwaukee market, but none in Chicago. Mark’s comment about the need for scale in Chicago is exactly right. Roundy’s will need to invest heavily to build an equity in Chicago. Both media and real estate are expensive. One has to wonder if Roundy’s has the deep pockets to play in this league.
Many years ago, Kohl’s Food Stores (from which Kohl’s department stores arose) opened several grocery stores in Chicago but eventually retreated. And Roundy’s stores in Milwaukee today (under the “Pick and Save” banner) may own a huge market share but are nothing special compared to other regional chains like Schnuck’s. (Take it from a regular Pick and Save customer.) Twelve stores in a huge market competing with two strong nameplates–Jewel and Dominick’s–looks like an uphill battle for a grocer without much distinction like Roundy’s.
Chicago is a tough market for any food store to enter, even though Wal-Mart has a relatively low presence in the city. On top of that, look at all the new entrants to the area like Strack and Van Til that have entered since SuperValu divested itself of its Chicago-area Cub locations when it acquired Jewel-Osco. Those former Cub locations are getting by with one and two locations but for how long?
However, Roundy’s already has stores in the far northern fringes of the Chicago metro area (like Waukegan) so moving farther south is more like expanding the Milwaukee market far south rather than entering a whole new markert. Furthermore, Roundy’s tends to have pretty much the same advertising for all of its nameplates so it wouldn’t be much expense or effort to expand to one more nameplate or area.
Although Roundy’s offices are based in Milwuakee, Roundy’s is owned by Chicago-based Willis Stein. With Chicago consumers smarting from the non-local takeover of businesses like BankOne/First Chicago, White Hen and Marshall Field’s, a Roundy’s takeover of Dominick’s would essentially make Dominick’s a local, home town store again. That would give Roundy’s a huge “home team” advantage.
But most of all, Mariano is the key. He knows the Chicago market. He did a great job of getting Dominick’s ready for sale when it was purchased by Safeway in 1998, and, as someone else pointed out, he knows Chicago’s movers and shakers more than any other outside chain. The city has consulted him about opening a State Street grocery at one point. Furthermore, Mariano is positioning Roundy’s to compete with Dominick’s in the event there is no acquisition. In addition to the proposed Roundy’s adjacent to the West Loop Dominick’s, Roundy’s is also planning on setting up shop on the site of the old YMCA down the street from the Dominick’s on Division and Clybourne. If Mariano and Roundy’s doesn’t get Dominick’s, it will at least steal a little market share from Dominick’s. Perhaps it will be enough to push Dominick’s over the edge.
Sounds to me that Mariano has wanted Dominick’s back for a long time and he is getting his ducks in a row to force Safeway’s hand, bringing Dominick’s back home as a local store. And that could be the only way a grocer could re-enter the tough Chicago market.