Outstanding Wholesaler: Associated Wholesale Grocers, Kansas City, Kan.

Associated Wholesale Grocers' strategic objectives for 2005 sound much like those of a large publicly owned supermarket operator aiming to please its shareholders:

• Build same-store sales.

• Expand store base.

• Reduce the cost of goods.

• Continue building private label brands.

• Effectively create a point of differentiation from supercenters and other competitors.

The differences here are that the shareholders are the retailers—and that Kansas City, Kan.-based AWG hardly needs to convince anyone that its game plan can be successful. Instead this grocery wholesaler, one of the largest and the oldest in the United States (founded in 1924 and incorporated in 1926), has been enjoying consecutive annual sales gains for the past several years, despite fierce competition in its operating region.

AWG, a cooperative comprising 478 member-owners representing more than 1,400 stores, projects that sales will top $5 billion this year. Its 21-state territory now spans as far south as Florida, as far west as Texas, and as far north as Michigan. Its diverse store concepts designed to serve those areas include Country Mart, Cash Saver, Apple Market, Price Chopper, Sun Fresh, ALPS (Always Low Price Stores), and Thriftway.

The wholesaler is largely credited with a starring role in keeping many of its retail accounts alive, while competition rages all around. Ironically, one of the reasons AWG thrives, according to president and c.e.o. Gary Phillips, is that very level of competition.

"Our members have been impacted more than any in the United States, because of the proximity of our competition's headquarters and distribution centers. Yet that competition has actually made both AWG and our retailers stronger.

"The fact that we have nearly doubled in sales since the first supercenter opened in our trade area shows that we have a successful plan," adds Phillips. "In an age of intense competition from the megachains and supercenters, AWG's retailers have prospered by differentiating themselves and reinvesting in their businesses, time and time again."

Indeed, Kansas City is one of the few major metropolitan areas left where independents, and not grocery chains, dominate the market—although it is a market that once did belong to the big chains, and today includes Wal-Mart supercenters. Today AWG's retailers hold more than a 60 percent market share there. Other markets where the wholesaler owns a majority share include Springfield, Mo. and Lincoln, Neb.

Although AWG's retailer members are ultimately responsible for their own success through execution, AWG makes the task much easier by providing a myriad of services comparable to those at the disposal of any large chain.

For merchandising support, AWG offers complete planograms for its retailers in more than 120 grocery, frozen food, and dairy categories. "For the stores' convenience, all of the business plans can be accessed via our Internet Web site," notes Dennis Kinser, s.v.p. of grocery products, who leads the merchandising program with Lucky Hicks, s.v.p. of perishables.

AWG provides its members a full range of products including everything from grocery, frozen, and dairy to a full complement of meat, produce, bakery, deli, seafood, and floral items. Additionally, AWG's Valu Merchandisers subsidiary offers full lines of health and beauty care, general merchandise, authentic Hispanic products, specialty foods, and dollar items.

"This gives our members the tools they need to compete against any alternative format," observes e.v.p. of marketing Jerry Garland.

Private label strategy

AWG's stores also have access to two lines of private label products: Always Save and Best Choice. Always Save was introduced in 1984 as an answer to what limited-assortment stores were offering. Best Choice followed in 1985, positioned as a line equal to or better than national brands. Today AWG has more than 2,600 private label items in distribution, and aspires to continue growing that number.

"Our goal is to have 30 percent of our sales in store brands, because it differentiates our retailers from competitors and affords them better gross margin dollars," notes Mike Rand, e.v.p. of wholesale operations.

In the area of real estate, AWG's members have access to site selection, market research, construction management support, store layout design, and interior decor. Scott Wilmoski, s.v.p. of real estate and store engineering, oversees the initiatives.

According to Rand, AWG's No. 2 goal is to assist its retailer members in growing their companies through new-store expansion.

To support that growth, AWG is investing heavily in training. "We have one of the most complete retail training programs in the industry," notes Steve Dillard, v.p. of corporate sales. "Through the AWG Education Institute, we offer over 50 seminar topics in three categories: management development, store operations, and department operations."

Some of the most popular seminars are "Competing Against Supercenters," "50 Ways to Increase Sales," "Fundamental Management Skills," and "Motivating Today's Workforce," he adds. More than 4,000 grocers attend the seminars each year.

AWG wields technological advancements to cut costs and improve communication. Says v.p. and c.i.o. Keith Martin: "Our retail systems' 'Paragon Project' links our retail members with AWG by providing the industry's best practices in the areas of POS, retail pricing, and store-based movement information."

The wholesaler is currently implementing a new procurement and billing system to provide better availability of product to its members, adds Martin. And the company is "committed to data synchronization," he says. "The goal is to streamline the flow of product information through our supply chain, to increase data accuracy, and to move products to the shelf in a timelier manner."

Much of AWG's success is credited to the wholesaler's talented management, which Frank DiPasquale, e.v.p. of the National Grocers Association in Washington, D.C., calls an "A-team."

Of the president, DiPasquale says, "Gary Phillips demonstrates a steady yet dynamic leadership style. His executive team is the best in the business. It's not only his style, it's also his ability to attract, retain, and motivate some of the best and brightest people around.

"The fact that AWG is a co-op makes it even more impressive. Gary has been able to nurture the relationship that the staff has with its retailers. That doesn't always happen," DiPasquale adds.

The NGA official also points to AWG's investment in acquisitions as a strong suit. The company's earliest acquisition was in 1975, when it took over the Kroger Kansas City division stores. Twenty years later AWG expanded into Oklahoma City via the purchase of distribution facilities that belonged to Homeland, Inc. In 2003 AWG acquired six former Fleming distribution centers, which opened up new trade areas in the Southeast, with distribution from Memphis and Nashville, Tenn. Most recently, last year the company acquired 31 former Winn-Dixie stores in Kentucky and put them in the hands of its independent operators.

"AWG works closely with its retailers as the company grows through expansion," observes DiPasquale.

As AWG continues to expand in the years ahead, its executive leadership team may become an even more crucial component of its retailer members' ability to perform. As is all too often the case among the big chains, a breakdown in communications from the chief to store level can lead to a loss in market share.

"Our greatest challenges will be to help our member retailers remain competitive in an area of big-box competition, and to build the second and third generation of independent leaders to take our industry forward," acknowledges Bob Walker, e.v.p. and c.f.o.

If its record of success so far is any indication, more big-box competition will only spur AWG's "A-team" and its retailers to continue getting the best of their rivals.