Steven Pearlstein, a business columnist at the Washington Post, has a pointed rebuke to Giant Food this morning, and compares the Ahold-owned food retailer to another retailer (and not is a positive way).
Excerpts:
“Add to your list of dumb business moves two announced by area companies in the past week.
“Giant Food, the region's largest grocer, said it would eliminate fish counters at 50 stores -- ones with fresh fish arranged neatly on ice, with someone behind the counter. Instead, the fish will be packaged and offered in refrigerated cases, next to the chicken and pork chops.
“And Circuit City, of Richmond, said it had fired 3,400 employees across the country – 9 percent of its workforce -- not because they did anything wrong, or because the company no longer needed them, but because their hourly pay was a bit higher than what a newly hired employee could command.
“What we have here are the latest examples of what happens when you subject retail organizations to the incessant demands of Wall Street to produce not just good long term value for shareholders but an unbroken string of double-digit earnings growth. It's also what happens when you put financial people, rather than merchants, in charge of a store.”
And, Pearlstein writes:
“To hear it from Giant executives, many of the chain's fish counters don't do enough volume to justify the direct cost of having someone behind the counter, nor the opportunity cost of using the space to sell something else. Packaging the fish in plastic not only lowers costs but keeps the fish fresher.
“There is, however, circularity to this argument. Because Giant didn't sell much, it didn't offer much variety, and what fish it did offer sat there too long. The lack of variety and freshness, in turn, caused sales to fall further…Other supermarkets have discovered that if you invest in the fish department by offering fresh product that is well displayed and sold by knowledgeable clerks, you can sell more fish, at higher prices. And once the volume increases, it becomes possible to offer a wider variety, which attracts even more customers.”
Pearlstein suggests that this is part of a longer, negative trend at Giant:
“The late Izzy Cohen, who ran the family-owned chain for decades, understood there were higher margins to be made if you invested in product and service. But ever since Giant was sold to the Dutch retailer Royal Ahold, that wisdom seems to have been lost. A single-minded focus on cost cutting and consolidation led to a noticeable deterioration of service, which eroded not only the loyalty of customers but that of Giant's famously loyal employees. Before long, these trends began to feed on themselves, with falling same-store sales leading to more cost cutting, leading to further declines in service, sales, profits and market share. By the end of last year, things had gotten so bad that several hedge funds with large stakes in Royal Ahold began demanding that Giant be sold.”
But, he says, there may be hope:
“A visit to a prototype store in Urbana yesterday morning convinced me it may be too early to count Giant out. The produce, deli and prepared food departments are spacious, well stocked and pleasantly displayed. Service is good. While there's not quite the sense of theater that you find at a Whole Foods or a Wegmans -- and no fish counter -- you don't find their prices either.
“Belatedly, Giant may have rediscovered how to make money by investing in customer service rather than cutting it. Maybe Izzy can finally rest in peace.”
Excerpts:
“Add to your list of dumb business moves two announced by area companies in the past week.
“Giant Food, the region's largest grocer, said it would eliminate fish counters at 50 stores -- ones with fresh fish arranged neatly on ice, with someone behind the counter. Instead, the fish will be packaged and offered in refrigerated cases, next to the chicken and pork chops.
“And Circuit City, of Richmond, said it had fired 3,400 employees across the country – 9 percent of its workforce -- not because they did anything wrong, or because the company no longer needed them, but because their hourly pay was a bit higher than what a newly hired employee could command.
“What we have here are the latest examples of what happens when you subject retail organizations to the incessant demands of Wall Street to produce not just good long term value for shareholders but an unbroken string of double-digit earnings growth. It's also what happens when you put financial people, rather than merchants, in charge of a store.”
And, Pearlstein writes:
“To hear it from Giant executives, many of the chain's fish counters don't do enough volume to justify the direct cost of having someone behind the counter, nor the opportunity cost of using the space to sell something else. Packaging the fish in plastic not only lowers costs but keeps the fish fresher.
“There is, however, circularity to this argument. Because Giant didn't sell much, it didn't offer much variety, and what fish it did offer sat there too long. The lack of variety and freshness, in turn, caused sales to fall further…Other supermarkets have discovered that if you invest in the fish department by offering fresh product that is well displayed and sold by knowledgeable clerks, you can sell more fish, at higher prices. And once the volume increases, it becomes possible to offer a wider variety, which attracts even more customers.”
Pearlstein suggests that this is part of a longer, negative trend at Giant:
“The late Izzy Cohen, who ran the family-owned chain for decades, understood there were higher margins to be made if you invested in product and service. But ever since Giant was sold to the Dutch retailer Royal Ahold, that wisdom seems to have been lost. A single-minded focus on cost cutting and consolidation led to a noticeable deterioration of service, which eroded not only the loyalty of customers but that of Giant's famously loyal employees. Before long, these trends began to feed on themselves, with falling same-store sales leading to more cost cutting, leading to further declines in service, sales, profits and market share. By the end of last year, things had gotten so bad that several hedge funds with large stakes in Royal Ahold began demanding that Giant be sold.”
But, he says, there may be hope:
“A visit to a prototype store in Urbana yesterday morning convinced me it may be too early to count Giant out. The produce, deli and prepared food departments are spacious, well stocked and pleasantly displayed. Service is good. While there's not quite the sense of theater that you find at a Whole Foods or a Wegmans -- and no fish counter -- you don't find their prices either.
“Belatedly, Giant may have rediscovered how to make money by investing in customer service rather than cutting it. Maybe Izzy can finally rest in peace.”
- KC's View:
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Yikes.
Tough words. Tougher sentiments.
Here’s the question that Giant has to answer. Are Pearlstein’s words just the utterings of a member of the liberal media looking to generate some controversy? Or are they rooted in a real disenfranchisement being felt by Giant customers in the DC market?
In a broader sense, his observations need to be considered by other retailers caught in the Wall Street vs. Main Street maelstrom.
