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Survival Of The Fittest

Independently Owned Supermarkets In Puerto Rico Compete Successfully With Giants By Offering More, Faster Services And 'The Human Touch' Of Hands-On Owner-Managers


October 31, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

United we stand: Independent supermarkets join forces to keep down costs, improve marketing, and adapt to change

'It is not the strongest species that survive, nor necessarily the most intelligent, but the ones most responsive to change.’
Charles Darwin

The local supermarket industry is engaged in a retail war in which the smart players will win and the squeamish will lose—no matter their size. This era of constant consolidation and powerful megaretailers entering the Puerto Rico market makes for fierce competition in the local food industry.

A number of locally owned independent supermarkets, those managed by their owners, are putting up a valiant fight. Lacking the brawn to go up against the bigger guys, they are instead using their smarts to adapt. Here are their stories.

The evolving supermarket industry

This isn’t the first time the little guy in Puerto Rico has faced the big bad wolf. Forty years ago—when the local retail food industry was mostly made up of mom & pop stores (colmados) and some midsze independent supermarkets—the introduction of larger supermarket chains was deemed a menace.

In 1961, House Speaker Ernesto Ramos Antonini lashed out against the proliferation of supermarket chains and shopping malls, claiming they threatened the existence of mom & pop stores and independent supermarkets. His fears were clearly unfounded.

Supermarket chains such as Pueblo (established in the 1940s) and Grand Union, most of which started as a single store, increased competition. But independent supermarkets—locally owned stores that have joined others under one brand name—and small chains haven’t disappeared. They’ve successfully adapted to survive and, in some cases, to expand.

Many of these supermarkets are growing amid rapid changes in consumer behavior. For instance, studies indicate consumers are visiting supermarkets less often (see chart).

The independent supermarkets that have survived in Puerto Rico have done so by capitalizing on their larger competitors’ weaknesses or by carving niches not served by the competition. This strategy has allowed the independents to go up against large supermarket chains and megaretailers such as Costco, Wal-Mart, and Sam’s Club, fairly recent arrivals on the local market.

Looking at the strengths

Independent supermarkets’ biggest competitive advantage is that most are managed by their owners. The impact of a walk-around owner-manager on both the quality of service and the satisfaction of customers and employees cannot be overstated. An owner who closely manages his business can quickly identify problems and implement solutions.

Independent supermarkets that band together can reap the benefits of greater purchasing power, increased exposure from a brand image, and shared information about the best business practices.

Successful independent supermarkets have learned more than a few tricks from studying the areas in which large supermarket chains and megaretailers leave customers dissatisfied. According to industry insiders, some of the mistakes larger competitors make are having too much bureaucracy, not paying close attention to shoppers’ likes and dislikes, and not placing importance on personal interaction with both employees and customers.

"What makes the independents successful is the virtual absence of middle management," said one industry source. "In large supermarket chains, solving simple issues takes too much time. Meanwhile, the owners of independent supermarkets are in the store and can make decisions quickly. They are accessible and have a hands-on approach to their business; they are interested in everything that happens in the store.

"Another problem I see in large supermarket chains is that there is hardly any communication because middle management is afraid to give opinions or suggestions," the source continued. "This doesn’t happen at the independents."

The owner of one independent supermarket chain said his competitive advantage is based on "giving better service, more variety, and more quality."

Generally missing at large supermarket chains and megaretailers is the human touch. It isn’t uncommon, for instance, for managers of independent supermarkets to know their customers by name.

"The human touch aspect is definitely an area where the independents do a better job than their larger competitors," said the owner of the independent supermarket chain. "At my stores, if a customer needs help finding an item, we don’t just say, ‘You’ll find it in aisle 10.’ We train our employees—including the manager—to actually go with the customer to the aisle and find the item. Customers appreciate this."

Edwin Lopez—president of Selectos, a chain with 32 independent supermarkets throughout Puerto Rico—also knows the importance of personal service. Lopez said each Selectos supermarket is run by its owner, who usually has a close relationship with shoppers. The same is true at Mi Familia and Econo, two other chains of local independent supermarkets, according to their respective presidents.

"Independent supermarkets have an advantage in that their management can establish a connection with customers because they are able to see and talk to each other regularly," said Claudio Medina, president of the Puerto Rico Wholesalers Chamber of Commerce. "This, in turn, yields other advantages. When management knows customers and what they want, they can cater to those needs quickly."

Medina listed some ways independent supermarkets could add value to their service and make them more competitive. "While it’s unlikely that independents can compete against larger retailers by lowering prices, there are other strategies they can use," he said. "They can grab consumers by increasing promotional efforts that target the particular needs of customers, for instance. This is possible because independent supermarkets know and constantly interact with customers." These recommendations can be implemented by paying close attention to market studies, Medina added.

How to keep prices competitive

Most industry insiders don’t recommend smaller stores compete with megaretailers in price. However, one independent supermarket chain owner interviewed by CARIBBEAN BUSINESS said it is possible for others like him to get good deals from suppliers, which will allow customers to enjoy lower prices similar to those of megaretailers.

"The trick is to always pay suppliers on time and to shop around," said the source. "We buy our products from many suppliers. Some are from the mainland U.S., some from Canada, some from Spain, and some are local. Besides paying on time, I would advise single independent supermarkets to form alliances in order to be able to purchase merchandise in large volumes and obtain discounts."

Examples of such alliances in Puerto Rico are Mi Familia, Econo, and Selectos, with 24, 37, and 32 stores, respectively. These coalitions enhance the purchasing power and marketing efforts of the individual supermarkets. The strategy has been so successful that it’s being attempted by other local retailers, such as independent drug stores.

"By creating an alliance we are able to buy as a group and obtain better prices. It’s not the same to buy one container-load of merchandise than to buy 20. The more you buy, the more you save," explained Econo President Juan Barreto. He added that Econo has a 60,000-square-foot facility in Manati where products are stored and distributed to the chain’s independently owned stores.

A joint effort between Oscar Super Cash & Carry and Mi Familia supermarkets created the Retailer Distribution Center Inc. to allow small retailers to purchase merchandise at lower costs. According to Jorge Reyes, president of Mi Familia supermarkets, the center makes independent supermarkets more competitive with the megastores and large supermarket chains that obtain lower prices for merchandise because they are able to buy at larger volumes.

Added-value services

One example of how independents can offer added-value services that are in line with customers’ needs is Super Plaza’s improved discount card program, now called "Tu Tarjeta del Ahorro" (Your Card for Savings).

The original card, developed about five years ago by Information Systems Manager Jose Saavedra, attracted 17,000 shoppers at Super Plaza’s two supermarkets, in Patillas and Guayama. The new card should be even more popular.

"Our card has been successful because we offer real specials on our items. But times change and we must target the new generations as well as the older ones," Saavedra said. "The new card not only has bright colors but also is versatile and pocket friendly. It has the customer’s name and full-color picture, plus a new logo. The elements emphasize that this is your [the customer’s] card for a lifetime." Another major difference is that whereas the old card required a $10 annual fee, the new one requires only a one-time $10 fee, he added.

Paul Knapp, publisher of the Puerto Rico Supermarket Bulletin, praised Saavedra’s efforts. "Excitement and enthusiasm combined with an innate sense of creativity and supermarket smarts have kept Super Plaza on the cutting edge," Knapp said. "It is estimated that by the second purchase at Super Plaza, the customer will have saved the cost of the card."

This strategy reaps rewards not only for Super Plaza but also for other small businesses in the area, which in some way or another are affected by megaretailers, according to Saavedra.

"Local businesses can take advantage of the new card," Saavedra said. "In exchange for offering a 5% to 25% discount to cardholders, they get to have their ad in the more than 40,000 shoppers we print every two weeks, increasing their exposure." Saavedra said all sorts of businesses are already participating. "Cardholders can obtain discounts on oil changes, video rentals, jewelry, rental equipment, furniture, massages, and even funeral arrangements," he said.

Independents expand despite competition

"We’re as strong as ever," Econo President Juan Barreto said with optimism. In fact, Econo is expanding. Barreto said a supermarket in Yauco and another in Guanica would join the chain by year’s end, with others under evaluation. In 2003, four stores will be expanded and remodeled, he added.

Super Plaza is investing about $1 million to relocate and expand its cash & carry operations in Patillas, according to Saavedra.

Reyes said Mi Familia has equipped all its stores with a computer system to collect all inventory information and help stores easily reorder merchandise before they run out of stock. Additionally, the chain is welcoming a new supermarket in Guayama and expanding another in Corozal.

Selectos is also riding the expansion wave. According to company sources, the chain will add five stores next year and is remodeling a supermarket in Carolina.

Judging from the experience of these independent supermarkets, the little guy needn’t be swallowed by the big bad wolf. It is possible to put up a good fight.

This Caribbean Business article appears courtesy of Casiano Communications.
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