IGA: Expanding the global family
Elsevier Food International, Vol.9, Number 3, September 2006 Len Lewis
To the casual observer, IGA is just another group of independents struggling to survive the chain store juggernaut – a quaint reminder of the supermarket industry’s roots as a family business. However, industry watchers increasingly view IGA as a major player on the world stage, a global icon that is unfurling its banner across the US and everywhere from South Africa and South America to the Pacific Rim.
“We are one-third larger in China than Wal-Mart and Carrefour combined,” said Dr Thomas Haggai, the charismatic chairman and CEO of the Chicago-based group and an ordained Baptist minister who has shepherded IGA since the mid-1970s. “The family-owned business and creating stores that are community centres is our core strength in the US and internationally.”
This year, IGA, whose retail members ring up sales of more than US$19 billion annually through nearly 5,000 stores worldwide, is celebrating its 80th anniversary – a milestone that has been reached by relatively few chains or independents in any business. This is all the more important considering that the past decade is often viewed as one of the most turbulent in IGA’s history, prompted by the rise of the supercentre and the decline and fall of the Fleming Cos., which supplied about 40 per cent of IGA stores in the US and whose demise sent shock waves throughout the organisation.
IGA is clearly on the road to recovery, adding distributors in the US and overseas to service its growing retail ranks. However, Haggai and his top executives concede that there’s more work to be done externally and internally. “We have the methods to go. But we’re taking steps in the directions we need to go,” said Doug Fritsch, vice president and chief growth officer.
Reorganising IGA
One major issue is the proposed reorganisation of IGA into three separate entities. Under the current plan, IGA Inc. will own all the intellectual properties and be responsible for presenting IGA’s image to the world. Under that will be two separate companies – IGA USA, based in Chicago and IGA Global, a Singapore corporation – with separate boards of directors. Another leg will be the IGA Coca Cola Institute under the direction of vice president and chief learning officer Paulo Goelzer, which develops and executes all classroom and online training programmes for IGA retailers worldwide.
“The separation of the companies has been voted on but not formalised yet,” said Haggai. “We’re still in the process of determining what services the companies will do jointly and separately. Manufacturers have been wanting us to do this for a quite a while.”
The move is also expected to facilitate expansion domestically and internationally. The 80-year-old voluntary group has been asked to enter about 45 countries over the years. At present, 66 per cent of sales and stores are outside the US and by the end of 2007 that figure should be up to 75 per cent, said Haggai.
One of the most lucrative areas of the organisation’s overseas business has been in Australia where 1,200 stores under the IGA banner account for about 20 cents of every food dollar spent in supermarkets. However, China is gaining ground with 181 stores and another 100 opening by August. “The goal is to have 500 stores by the end of the year,” said Haggai, noting that the organisation will also be affiliated with thousands of small stores in China that are about the size of conventional convenience stores in the US. Most will not fly the IGA banner, but will be affiliated with the IGA system.
Because of its non-profit structure, IGA has become a favourite of both the Chinese government and retailers. “When China entered the World Trade Organization two years ago, Chinese retailers thought IGA was the answer. The government didn’t want to just open up to outside business. But because we are a non-profit corporation our franchise fees are capped at a very reasonable level. This way the wealth created stays in China.”
Global expansion
In other international business, IGA Canada, which has been a separate entity for years, is likely to become part of IGA global once the separation of the company is accomplished. The organisation has a significant presence in Indonesia, Thailand, and the Philippines and the entire Pacific Rim. It recently re-entered Malaysia and is looking at expansion in Vietnam. Expansion is also in store for Africa where IGA already has a presence in Namibia, Mozambique, Zambia, Zimbabwe and South Africa. In South America, IGA is present in Brazil and likely to enter Colombia and Chile, Haggai said. “We’ve never really had a solid approach for Mexico, but we will eventually.”
Europe is something of a mixed bag. “Expansion in western Europe will only happen if someone asks us to come in. But I do see us expanding dramatically in Poland. MacLane Polska has the only two distribution centres built from the ground up since World War II. They will be our anchor for growth in central and eastern Europe,” he said, noting that the organisation is also waiting for the Ukraine to get back on its feet financially.
Although there is intense competition for emerging markets, it is unlikely to hinder IGA or change its strategy. Intense competition is the reason for IGA’s existence. As companies like A&P and National Tea spread across the US in the 1920s, J. Frank Grimes, an accountant for wholesalers, saw an opportunity for his clients to supply independents under one banner. After a full year trying to muster support for this voluntary alliance, IGA was finally born in 1926 with its first store in the rural town of Poughkeepsie, New York.
Grimes was also an early proponent of unique marketing techniques and pioneered radio promotions for food stores with the creation of a national radio show called the IGA Hometown Hour and enlisted celebrity spokesmen like heavyweight boxing champion Jack Dempsey and baseball legend Babe Ruth. Since then, the phrase “Hometown Proud” has been the organisation’s promotional mantra.
Interestingly, Haggai came to Grimes’ attention in 1960 when he heard one of his radio sermons from High Point, North Carolina. Haggai, who had been under contract with such diverse organisations as General Motors and the Pentagon, was invited to speak at one of IGA’s southern meetings. The relationship grew and he was named non-executive chairman of the board in 1976, eventually becoming chairman and CEO.
At the time, some industry pundits questioned IGA’s choice of someone who had no retail experience. However, looking back Haggai believes that his training as a pastor was not all that dissimilar to retailing. “It was good preparation. No one owns the Southern Baptist churches. They are independently owned by the congregations who can sell them and vote to hire the ministers,” he said.
Expanding the wholesaler network
One of the biggest challenges facing Haggai and his executive team now and in the future is the development of its licensed distribution centre (LDC) network. “It was simpler when each wholesaler had its territory and specific states to cover. Now territories overlap and a lot of time is spent negotiating who is going to service particular stores,” he said.
Meanwhile, IGA, which has always had something of a paternal relationship with wholesalers, is trying to turn things around. “In the past, it was like the distribution centres knew all the answers and retailers were there just to be pleasant. The business was driven for the profitability of the distribution company,” he said.
“Today, our retailers are running far more complicated stores. They are very smart and astute business people. The goal is to shift IGA to a retail driven organisation. It hasn’t taken place yet but it’s evolving,” he said. These moves began several years ago with the establishment of IGA’s retail Advisory Council which consists of retailers from different regions of the country, three senior officers from distribution companies and three senior people from manufacturing firms.”
However, relationships with wholesalers are a key part of IGA’s long-term strategy, said Fritsch, who joined IGA a little over a year ago. ”Some wholesalers are more aggressive than others when it comes to the IGA banner and it means a lot to retailers who may like the programmes we offer. But ultimately they have to decide whether they like their wholesaler and whether they provide satisfactory costs and service,” he said. “A lot also depends on how much information retailers are getting from their wholesalers. Some are more communicative about IGA programmes than others. But we’re also learning how to better communicate the value of the alliance to wholesalers.”
New ratings system
Similarly, IGA is scrutinising all of its programmes to improve their retail value. One example is reworking the five-star assessment programme designed to rate retailers on certain fundamentals. “We have discontinued a third-party audit system which focused on sanitation and we’re in the process of developing a new marketing and brand-focused system,” he said. “We can rate stores on execution and the look of the stores. We’ll let the health department stick to putting thermometers in the soup to check temperatures.”
IGA’s relationship with manufacturers has also been a positive one thanks to the development of the Red Oval partnership programme 24 years ago. “We had a very small staff and any time there was a promotional event we had to start from scratch to build up money to pay for it. The idea was to have branded manufacturers give us funds that would be totally dedicated to retail promotional events. By doing that, they would have the first ‘rite of passage’ with us on promotions,” Haggai said.
The Red Oval concept has been very successful for IGA, according to Haggai. However, the organization has felt the impact of all the mergers in manufacturing which have simply reduced the number of manufacturers in the marketplace. Additionally, we haven’t aggressively raised the fees for manufacturers to be part of the programme,” he said.
Asked about the potential expansion of the Red Oval programme, Haggai replied: “We are getting some manufacturers back who may have slipped away. One of the challenges for my successor at IGA USA will be to recruit others, including more equipment companies and even some of the large private label manufacturers,” said Haggai.
The Fleming factor
As noted earlier, Fleming’s demise had a significant impact on IGA operations and was a calamity from which it is still recovering. “It was far more serious than I realised at the time. They were very aggressive and pro-IGA and IGA was the core of their business.”
Some industry observers believe that the deal to supply the Kmart stores in the US was Fleming’s downfall. However, as Haggai put it: “This is giving too much credit to Kmart. There was simply a lack of leadership.”
Although wholesalers like C&S and Supervalu acquired pieces of the defunct wholesaler, additional distribution centres were closed, leaving many IGA retailers without a supplier. In total, Fleming’s liquidation resulted in the closing of 28 distribution centres, leaving 849 IGA stores without a distributor.
“Nearly 50 per cent of our source of supply was gone when they went under and there weren’t a lot of other wholesalers out there to turn it over to,” he said, noting that when he came to IGA in the 1970s the organisation had three dozen wholesalers. Most of which disappeared through mergers.
“I’m optimistic that we’re coming out of it. Same store sales are doing well and we are adding stores at a steady pace. But I’m also a realist. We still don’t have good distribution in places like Arizona and we’re still weak in California,” he said. Fritsch added that prime areas for expansion would be in Florida, Texas, Oklahoma and Pennsylvania, all of which are underserved markets for IGA.
Meanwhile, independents are making changes at store level that will enable them to keep up with changes in the retail environment. ”Clearly, retailers have to look at net profits. But they also have to set aside funds for technology and refurbishing the store. The rule of thumb in the past was seven years between remodels or upgrades. Now it’s down to five years. Many of our retailers are not letting the stores get too old.”
Do not blame Wal-Mart
As might be expected, pricing strategies are a challenge for independents. But this does not put IGA at the mercy of the discounters, according to Haggai. “We’ll be competitive. But we’re not structured to be the low cost company. We don’t have anything bad to say about companies like Wal-Mart or Carrefour. But they are different channels of distribution,” he said. “There are a lot of people out there lecturing on how to be Wal-Mart. But you’re not going to be and if you fail, you end up blaming Wal-Mart instead of improving your own stores.
“Our strategy is to give shoppers a feeling of intimacy and really be part of the fabric of life in towns in which our stores operate. And there’s nothing that goes on in a town that our retailers don’t support in one way or another. Now, the big thing for chains is to say they are local and connected. Everything they want to be is what we really are by our nature.”
Fritsch agrees and emphasises the need for continual improvement. “Frankly, we weren’t doing a very good job of communicating who we are and what we have to offer both to our retailers and our licensed distributors. But we have a great story and we’re starting to get more attention.
Whether these and other shifts will result in an increase in retail membership in the US over the next several years remains to be seen, said Fritsch, noting that there are about 1,150 domestic IGAs. On the other hand, there is no reason to believe that membership will decline any further than it has. “Independents are a pretty large group. The universe consists of about 10,000 stores. I don’t think all of them should be IGA stores. Often, when we talk to a new member they are concerned about losing their independence. But with IGA they have the opportunity of being connected to a brand but remaining independent.
.jpg)
