Independent grocers in the South benefit from their own combined buying power through retailer-owned Associated Grocers, Inc.
By James Buchanan
Businesses that operate in industries with tight profit margins on their products must find economies of scale whenever possible.
For large retail grocers, this means leveraging the size of the company and its purchasing power to negotiate the best possible prices on products.
But what if you are an independent grocer? For this group, strength comes with unity.
“We are a retailer-owned company, which means that we are a company owned by the independent retailers that we serve as our members,” says J.H. Campbell, Jr., president and CEO of Associated Grocers, Inc. “We at one time were a cooperative, but changed to our current structure 17 years ago to build capitol and equity for our owners.”
Based in Baton Rouge, La, Associated Grocers was founded in 1950 with 17 member stores, which represented grocers from a number of old and respected business families of the area.
Today, Associated Grocers has more than 230 independent retail members located in Louisiana, Mississippi, Texas and Alabama. The organization offers a means for its members to purchase in a manner like the much larger national chain stores and discounters, by combining the buying power of its members to purchase goods directly from manufacturers.
“We are primarily a wholesale distributor, and we operate a very large distribution center here in Baton Rouge,” says Campbell. “We also provide a number of retail services that are all voluntary, fee-based services that our members can use if the need them.
“Our mission is to be completely focused on the independent retailer by providing ancillary services to help our members, because our success is strictly dependent upon their success. They are our exclusive focus and their ability to succeed ensures our continued success.”
Services offered by Associated Grocers include advertising programs; store dev-elopment, which helps with site evaluations, negotiation, and planning of major purchases; marketing strategies and programs such as retail bannering; retail support counseling and product merchandising; accounting, payroll and bookkeeping services; and various state-of-the-art retail technologies and tools.
Perhaps, though, the most used and powerful tool they provide is the 700,000 sq. ft. warehouse, distribution and administrative facilities.
“We maintain a very broad inventory of 18,000 to 19,000, items and a very full inventory so that we are able to meet the stock needs of our customers,” says Campbell. “However, running the distribution center is very capital intensive. We own the distribution center and the trucks and trailers. We have all of the necessary equipment to manage the distribution center such as its refrigeration equipment, forklifts, pallet jacks, batteries and chargers, inventory management tools, and this represents a tremendous investment.
“But our model for retaining revenues allows us to reinvest into the business, and therefore not have to draw upon the retailers’ capital resources. We can reinvest into our asset needs.”
The means by which Associated Grocers manages its revenues is rather unique, and designed to provide members with a stake in the organization without requiring membership fees.
“We do make a profit, and all of our ownership stock is owned by the members of this company,” says Campbell. “All of the profit, after taxes, goes into the value of the shares as growth in the value stock.
“We have a formula for determining the minimum level each member must own in stock. The purchase of the stock is also used as security against the purchases members make from the company. A new member is not required initially to buy stock to join, but the formula is based upon how much a member buys from the company; so that the more goods they purchase from us the more stock they would need to carry as security [subject to certain defined maximums].”
Campbell adds, “This model also allows us to give price breaks on volume purchases to our members. This is a reward we give to our customers that send in fewer, but larger invoices. More products on fewer orders allows us to be more efficient.”
When a member decides to leave the company, the member will redeem the stock with the company, receiving back the current stated value of the stock, which is set each year. That said, the company has maintained a very steady membership.
The biggest threat to its membership has been the devastation caused by hurricanes Katrina and Rita, which forced many Associated Grocers members to close due to the flooding, wind damage and other adverse effects of the storms.
“Some have been able to make a comeback as the people have returned and rebuilt in the communities in which they were located. For others, the people have left those communities that were devastated, and they have yet to return,” says Campbell. “As a result of the storms, there has been a major population shift into other communities and regions. If the people do not return to an area, then there are no customers for these former stores and no employees to work the stores. It’s a simple equation.”
This shift has presented an opportunity for some retailers that are able to re-locate businesses in the areas where the population has surged and demand has outstripped supply, says Campbell.
“For our members affected by the storms, we have assisted them with in many ways,” he says. “After the storm we provided them with office space within our facility, we helped with insurance filings, we acted as a resource center for them by collecting information to help them recover, and we helped them locate their employees that evacuated when the storms hit.
“In all, some have recovered better than average, while others have not been able to do so.”
The story of how Associated Grocers reacted to the storm to serve its members is emblematic of the organization’s mission, says Campbell.
“Our mission is more focused than any organization of its type,” he says. “We do not seek volume for the sake of volume. We seek independent retailers as members whose needs we can help meet.
“The products and services offered are the types and brands that most consumers are looking for and which meet their needs. Independent retailers have in their arsenal the brands, prepared foods, and fresh perishables that customers want, and which make them the shopping alternative from the chains and discounters.
“We are here to serve the independent retail grocer. Our mission is: The support and the success of the independent retail grocer,” he notes.
Campbell goes on to say that it is the organization’s determined focus that has promoted its growth.
“We have experienced steady growth every year since the founding of the company more than 50 years ago,” he says. “In the fiscal years ending ’04, ’05, and ’06, we grew sales in the double digits each of those years, such that we grew by 50 percent in sales in those three years combined.”
Asked how he plans to continue to grow the organization, Campbell says it is simply more of the same with some refinement in product and service offerings, and assisting the members in retail execution.
“We will continue to grow through a continued focus on independents,” he says. “We will grow by supporting their needs and making sure they have access to the best and highest quality products and other retail support services and resources to bring customers in to them. And we will do this by working to improve on variety, quality, selection, uniqueness, and service offerings.
“This is what it takes to attract customers to our retail members, which is good for us,” he concludes.