09Aug2009

Winn-Dixie: Winning?

It may surprise you to know that most of the frozen and dairy food vendors we asked about Winn-Dixie expect it to gain share over the next year.

It sure surprised us. Until recently – like many in the industry – we’d written the Jacksonville, Fla.-based chain off. After emerging from a brutal bankruptcy nearly three years ago, it was certainly healthier. But it was still squeezed between low-priced Walmart on one side and high-service Publix on the other. Death seemed inevitable – it was just a matter of when.

An Upbeat & Smart Team
Recently, however, market observers told us of a rejuvenation, an upbeat and smart team, and (can it be so?) share points stolen from Publix. We heard this from vendors now doing business with Winn- Dixie. Those not selling to the chain (and thus less familiar with it) generally described ancient history as if it were still today‘s news. Old perceptions die hard.

So. Everything is rosy at Winn-Dixie today, right? Ha! Florida took the recession on the chin earlier and harder than most states. Walmart supercenters sprout like dandelions around the company’s stores, which have an aging customer base crying out for younger shoppers. And of course Winn-Dixie competes cheek by jowl with Publix, an industry icon. That’s just for starters.

But there have been substantive changes for the good. While our jury is still out on Winn-Dixie’s future over the next few years, we did have a paradigm shift early this year when Peter Lynch, the company’s energetic chairman, president and CEO, made a presentation at the Midwinter Conference of the Food Marketing Institute. Lynch is a personable and convincing speaker, and it helped that his PowerPoints included positive numbers and a compelling story.

Earlier parts of the story were not pretty. The chain had gotten over-extended, with too many stores in markets where it was weak, and its stock tanked. When Lynch came on in 2004, some said the company had few options but to file for Chapter 11 reorganization, and that’s what it did early the following year. The ensuing rounds of store closings, layoffs and restructurings remain fresh (perhaps too fresh) in everyone’s minds.

But now, with 515 stores versus nearly twice that at its peak, Winn- Dixie has new (and fewer) faces in its offices. Underperforming stores have been sold or closed, an aggressive store remodel program is well underway, private label is being revamped and the chain is gaining new respect and attention.

So let’s start out with the story of Winn-Dixie, as told by Winn-Dixie, in its financial reports and conference calls with securities analysts. (Try as we might, we couldn’t coax them to talk to us. Yes, we tried everything.)

Then we’ll get into how outside observers (vendors, consultants and others) feel about Winn-Dixie’s prospects, how it’s differentiating itself and how it might improve. We’ll also look at the updates to its private label program. Finally, we’ll compare and contrast shopper demographics of Winn-Dixie, Walmart and Publix. Buckle up.

‘Winn-Dixie Is on a Roll’
Partly because it had nowhere to go but up, and partly because it’s finally gotten its act together, most observers see the chain continuing to gain share.

“Winn-Dixie is on a roll,” a vendor told us. “Part of this is due to having sufficiently low comps to exceed versus the prior year, but it’s also due to strong management and solid execution.”

Kudos to Management
Strong management by President Peter Lynch was a recurring theme we heard. Michael Sansolo, former senior vice president of the Food Marketing Institute and now a columnist at www.MorningNews- Beat.com, notes that “It’s clear that Peter Lynch’s team has brought a lot of new energy to the company to change its fortunes. Anyone who doubts that strong leadership can rebuild a company should study retailers like Sainsbury in the U.K., which is building market share right now with focus, energy and improvement in store conditions. The details always matter.”

A frozen food vendor said, “They have truly changed their management team and their operating approach. Their senior management team has a real vision and a plan that makes sense.”

There’s wide consensus that Winn-Dixie is more open to collaboration with vendors on new ideas that produce win-win, and is concerned with improving vendor ROI on trade spending. Continued improvement here, along with better in-store execution on trade events, will help Winn-Dixie compete, vendors say.

“Their largest traditional supermarket competitor (Publix) is very well respected for their great operations,” said a manufacturer, noting that Publix may be overly confident in going up against Winn- Dixie. “While they (Publix) deserve credit for a large part of their success, they also got where they are because their competitors were historically inept. Now Publix has to deal with a new team that is flexible, open and knows how to operate in a highly competitive arena.”

Touring the Remodels
Vendors say frozen and dairy food departments are larger and more shopper-friendly in remodeled stores. One adds that Winn-Dixie has become very aggressive in expanding frozen seafood on the perimeter.

We spent two days walking Winn-Dixie stores in the Jacksonville area, including significant time at the remodeled Marketplace format store at 1520 University Blvd. West. (As an aside here, let us add that Winn-Dixie really takes care of the customer in high-crime, low-income areas where nobody else serves them. This country boy from Vermont paid visits to a couple stores that scared the daylights out of him, but left him with renewed respect for Winn- Dixie’s dedication.)

The University Blvd. store, like the other remodels we visited, has brighter lighting and a more upscale feel (an olive bar, wine aisles, $59.99 Brut – you get the idea). In the frozen department, there are bunkers at the end of the aisles, often with promotional merchandise. This arrangement, with two bunkers lengthwise up the aisle and another running across them at the end – sort of like an endcap – has become a Winn-Dixie trademark, according to several market observers, although we noticed the same set-up at Publix stores.

There are 38 doors in aisles without the bunkers, and 28 doors in the aisles with these “endcaps.” The frozen cases are black inside, so that packaging and even shelf tags really pop out.

There’s a frozen kosher section over by the produce department, with four frozen doors stocking items we’d have preferred to see over in the mainstream lineups. (We feel the same way about natural/organics, but that’s another story.) One thing we like: at the end of the ice cream aisle nearest the registers, there is a door for individual grab-and-go novelties. Wide selection, easy pickings and just a grand idea. It looked pretty picked over, which is a good sign.

Shelf talkers aggressively promote savings with the customer reward card. Observers say Winn-Dixie is making better use of the data it is collecting, and is localizing its offerings with improved precision. We see plenty of BOGOs and multiples (5 for $10) throughout the store, earning the love and the wrath of vendors of different persuasions on these techniques. Winn-Dixie also promotes a “Locked in Low Price” for a month, “Good Til” savings that last throughout a threemonth promotional period, and “Getting Better All the Time” for one-week promos.

Over in dairy, we noticed particularly hot pricing on Kraft shredded cheese – at two for $3 – in one of the spot merchandisers in the aisle. In another merchandiser, we saw 20-ounce Simply Potatoes on a BOGO and Dannon Light ‘n Fit at 10 for $5.

Observers characterize Winn-Dixie pricing as more high-low than EDLP, although it is a hybrid. They say prices are sometimes hotter than Walmart’s, sometimes higher than Publix’. Whatever – it works sufficiently well to keep some shoppers loyal to the chain over price, as we found when we asked them.

But perceptions at Publix stores we visited were different. Shoppers there told us that Publix stores were cleaner, with shorter lines and with older, more professional checkout clerks. It did seem that checkout clerks at Winn-Dixie were your basic high school crowd, while Publix’ had more senior citizens in the ranks, but we didn’t see any real difference in cleanliness or length of lines.

(A friend tells us that customer perception here is based on Winn- Dixie’s past history of stores that, well, needed more sweeping. “New and remodeled stores only look nice for a while,” he said. “The real litmus test is how they keep up the store over time. A ‘57 Chevy can look better than a 2007 model if it has been better cared for. Same goes for stores.”)

One difference we did note, however, was how aggressively Publix promotes its private label, and compartmentalizes its sections. For example, Publix has a Greenwise Market which serves both as a store section and as a brand – something we could sense immediately.

Our Jacksonville store tours left us thinking that Winn-Dixie has gotten much better at offering friendly, clean stores where shoppers can find what they want and feel good about it. Publix has been doing that for a long time, and we figure that the economy and Winn-Dixie’s low-price perception has been behind recent share point changes.

How that might change when the economy comes back depends on Winn-Dixie, Publix and Walmart. We’re not taking any bets, but it’ll be interesting to watch.