CASE 5: PUBLIX SUPER MARKETS, INC. – ACHIEVING CUSTOMER INTIMACY
Publix Super Markets, Inc. is a Florida-based grocery chain which has over 140,000 employees in 2011. Furthermore, Publix serves over one million customers every day. There are no immediate international expansion plans at this time. Publix, named after a chain of motion picture theaters, is one of the largest employee owned companies in the world with annual sales of over $25 billion. It was the first supermarket chain to install electric-eye doors, Muzak, fluorescent lighting, and air conditioning in its stores. Publix was also one of the first companies to have water fountains, self-service shopping, shopping carts, and computerized scanning technology. Since 1997, Publix has been rated as one of the best companies to work for in America as reported by Fortune magazine.1
At Publix, everything they do revolves around pleasing the customer; this is why they have enjoyed the kind of success they have had since the 1930’s. Publix’s goal is to make every customer feel personally valued in such a way that they see themselves as one in a million. This profile focuses on the company’s customer intimacy philosophy and how Publix satisfies and delights its customers daily to help them become the “premier quality food retailer in the world.”
BACKGROUND AND COMPANY PHILOSOPHY
By 2010, Publix’s was operating over 1,000 stores in Florida, Georgia, South Carolina, Alabama, and Tennessee which makes the largest employee-owned supermarket chain in the
United States. According to Publix managers, over 25,000 of their employees have been working
*This case was co-authored by Dr. Bahaudin G. Mujtaba, Nova Southeastern University and Dr. William C. Johnson, Marketing Know-how LLC. They may be reached at [email protected] and [email protected] . 2
with them for ten or more years. Also, for many years over the past few decades, Publix has outperformed the S&P 500 Index and the customer Peer Group Index with regards to return on investment. The Peer Group includes A&P, Albertson’s, American Stores, Bruno’s, Food Lion, Giant Foods, Hannaford Bros., Kroger, Safeway, Smith’s Food & Drug, Weis Markets, and Winn-Dixie.
A key differentiating factor in Publix’s success formula, can be attributed to the philosophy of its founder, Mr. George W. Jenkins who stated that “… some companies are founded on policy. This is wrong. Philosophy, the things you believe in, is more important. Philosophy does not change frequently … and is never compromised … we attempt to adapt a philosophy in such a way as to allow ordinary people to achieve the extraordinary … to reach higher… to look upon average with disdain.” The philosophy of caring for people has been embedded in Publix’s corporate culture throughout its stores in the four states. Publix associates understand that they are not just in the grocery business but also in the people business. Therefore, taking care of associates, customers, suppliers, and community members is important to Publix people and the communities which they serve.
George Jenkins once said that “Publix will be a little better place to work or not quite as good because of you.”2 A philosophy of employee appreciation has been embedded in the culture of the organization; so when the upper echelon visits retail stores, especially during appreciation week, they make it a point to personally see and thank every associate. They understand that people need recognition and sincere thanks for their hard work and commitment to the company. According to Howard Jenkins, member of the Publix board and retired CEO, “growth is the end result of a simple equation. As each of us continues to please our customers, more customers will 3
look to Publix for their shopping needs. We must never lose sight of exactly what those needs are.” Exhibit 1 presents some of the highlights in the evolution of Publix’s growth.
Publix associates are encouraged to interact with their customers on a daily basis. Publix associates constantly attempt to keep their fingers on the pulse of the customer in order to get immediate and local feedback. One of the District Managers in Central Florida region used to encourage, and in some cases require, his department managers to learn at least two customers names, every day through face-to-face introduction and interaction. This is important because Publix employees serve their own communities and through this face-to-face interaction they can better determine customers’ needs, wants, and desires faster than any research firm could ever do. Also, research shows that nearly 75% of supermarket shoppers shop and visit supermarkets on weekly basis. So, building a relationship with customers is a necessity as opposed to a luxury in order to stay aware of their needs and expectations.
It is through these types of programs and committed people that Publix is able to offer its employees an environment “where working is a pleasure” and its customers an environment “where shopping is a pleasure.” Publix associates’ success with customers originates from their belief that no sale is final or complete until the meal is eaten and fully enjoyed. Then, they have made a positive and lasting impression. Publix’s guarantee, which every associate is aware of, reads that “we will never, knowingly disappoint you. If for any reason your purchase does not give you complete satisfaction, the full purchase price will be cheerfully refunded immediately upon request.” These are not just words to live by but they are moral imperatives for retailers which have made Publix the successful and innovative giant it is today. 4
KEY SUCCESS FACTORS
There is strong competition in the supermarket industry. For example, Wal-Mart, now the number one retail grocer in the world, has opened major supercenters throughout Florida and across the globe. However, Publix is not willing to concede their customers to the competition. Bill Fauerbach, vice president of the Miami Division, said “only we can give our customers a reason to shop elsewhere. As long as we take care of our customers better than anyone else, we will defeat our competition.” The new generation of Publix leaders understands that complacency is their number one enemy; therefore they continue to focus and improve on factors which have made them successful in the past.
Publix has demonstrated their commitment to this principle when entering the highly competitive Atlanta market in 1991. Publix took the lead over both Kroger and Wal-Mart by emphasizing less clutter, more consistent product placement and faster checkout experiences, along with intensive customer service training.
They further understand that delivering superior customer value is a race without a finish line in today’s fast-paced world. Therefore, they never lose sight of caring for people, delivering quality products and service, and excellence in everything they do. A previous president of Publix, Ed Crenshaw, in 1995 during his first year in the office introduced four success drivers for the company. The four drivers are: knowing the business, knowing the product, knowing the customer, and continuously training people. Therefore, every department has implemented different means of doing a better job with these four success drivers.
Publix has instituted a world-class training program for its perishable departments like deli, bakery, produce, and seafood. The goal of getting to know the customer has made Publix better 5
than ever with regards to understanding customers and fulfilling their needs in a timely fashion. Publix’s customer intimacy program has enabled managers to keep their fingers on the pulse of the customer on a daily basis. This focus on customers has encouraged management to gather feedback not only from their own customers but also from their competitors’ customers. They gather data and feedback from satisfied as well as dissatisfied customers because they understand that using biased data to make generalizations regarding all customers is more dangerous than not using them at all.
Publix continuously collects data from its store associates using a program called Associate Voice Survey (AVS). For example, during 1997, over 90,000 retail and support associates completed this survey and, as result, Publix learned that communication was the dominant factor in associate satisfaction while customer service, loyalty, and positive co-worker attitude ranked as the next top three satisfaction drivers. Another positive outcome of AVS was that, many departments and stores created cross-functional and ad hoc teams to discuss opportunities for improvement. Furthermore, Publix has invested heavily in developing an internal professional development curriculum to develop associates’ skills and help them assume greater responsibility and leadership roles at Publix. Howard Jenkins once said to employees that “we envision Publix as a world player. And there will be bumps in the road as we grow larger and spread further. I need each of you to help me uphold our mission to be the premier quality food retailer in the world.” This type of a statement from a top company representative can be very influential and encouraging with regards to teamwork, taking personal responsibility for results, and overall financial performance.
A major factor contributing to Publix’s ongoing success is their loyalty and commitment to 6
employee training. Most employees begin working for Publix at a young age and tend to stay there after college as well. There is story about a young man that had recently graduated from college and was hired by a supermarket. On his first day on the job, the manager greeted him with a warm handshake and a smile, gave him a broom and said, “Your first job will be to sweep out the store and then we will begin mopping.” “But I’m a college graduate,” the young man replied indignantly. “Oh, I’m sorry. I didn’t know that,” said the manager. “Here, we do have on-the-job training so give me the broom – I’ll show you how!”
INDUSTRY TRENDS AND RANKINGS
Industry Trends. Although U.S. food spending is on the rise, supermarkets are not capturing their fair share. Alternative formats, such as supercenters, warehouse clubs, extreme value grocers, natural/organic and specialty/upscale food markets, and non-traditional channels, e.g., dollar stores, drug stores, are all increasing their grab for the food dollar.
The major players in the industry are also embarking on store-based rationalization. Lackluster financial performance has plagued some supermarket players in recent years, so to turn things around, some supermarket operators are focusing on their most profitable units and exiting non-core markets, divesting their unprofitable units and non-vital operations to hone in on geographic areas where they typically are first- or second-place market share players.
Alternately, the focus is beginning to shift to differentiation and performance improvement vs. size. Conventional supermarket operators are finding it difficult to compete on price vs. Wal-Mart and other value-oriented grocers at the low end and shopping experience vs. natural/organic and specialty/upscale markets at the high end. 7
Private label branding continues to grow with grocers now getting close to 25 percent of their sales from their own brands. According to a 2008 Nielsen release, private labels account for more than $81 billion in sales in the U.S., a 10.2 percent increase from 2007 that continues to rise. Nearly one in four items in supermarkets is of a store brand, representing $88 billion in sales. The Food Marketing Institute found that in 2008 some 64 percent of shoppers said they often or always buy a store brand rather than a national one. That was up from 59 percent the prior year. Today’s cost-conscious shoppers are turning away from premium priced goods produced by name brand labels such as General Mills and Kraft to individual store brands.
Industry Rankings. A customer satisfaction survey conducted by Consumer Reports revealed that Publix Supermarkets was ranked third among 46 chains, nationwide. Publix scored an 82 out of a possible 100, meaning that customers were very satisfied, on average, according to the magazine. Consumer Reports surveyed more than 25, 000 of their readers during 2001 and early 2002, asking them to rate the various chains on prices, checkout speed, service and cleanliness. Raley’s, an 83-store chain in the West, and Wegmans, a 65-store chain in the Northeast, topped the survey. Raley’s scored an 84, while Wegmans had an 83. Differences of fewer than four points are not meaningful, according to the survey, so the top three chains essentially are even. Raley’s, Wegmans and Publix each received neutral ratings on prices but excelled in checkout speed, service and cleanliness. Many customers say they don’t mind paying a little more to shop in Publix’s clean stores staffed with well-trained and friendly employees. “Service is what Publix built its reputation on,” said Chuck Gilmer, editor of The Shelby Report, an industry newsletter based in Gainesville, Ga.
Publix is consistently ranked the highest among its competitors in the American Customer 8
Satisfaction Index or ACSI (see Exhibit 2). The ACSI, which was established in 1994, consists of uniform and independent measures of how households rate various consumption experiences. ACSI tracks trends in customer satisfaction and provides valuable benchmarking insights of the consumer economy for companies, industry trade associations, and government agencies. The ACSI is produced through a partnership of the University of Michigan Business School, the American Society for Quality (ASQ), and the international consulting firm, CFI Group. The ASCI questions also assess perceptions of value and how well the products or services lives up to customer expectations and whether customers are willing to pay more for them.
The National Quality Research Center polled more than 50,000 customers on 200 companies. The University of Michigan measured the responses according to six quality indexes and scored the companies on a 100-point ACSI Index (see Exhibit 2). Publix has consistently scored higher than their industry competitors since the ACSI index scores for the supermarket industry were first compiled in the mid 1990s. In another ranking by Fortune, Publix moved up to the number two spot in the Food and Drug Store Industry for America’s Most Admired Companies. Walgreens took first place. While Publix has had its share of success and recognition as a tough competitor, the fact remains that it is still relatively small compared to other supermarket giants with regards to the number of stores and yearly revenues (see Exhibit 3).
Publix continues to lead in the highly competitive supermarket industry where its annualized sales per square foot is $548, just behind Whole Foods’ $820. Rivals Supervalu and Safeway Inc. all had sales figures at their supermarket-format stores between $460 and $490.
Publix has received various rankings and awards for being a caring employer, an industry leader, and for being socially responsible in the community. Publix, as a caring employer: 9
Named by Child magazine as one of the Top 10 Child-Friendly Supermarkets
One of the top companies in Fortune’s list of “100 Best Companies to Work For”
One of Jacksonville magazine’s top 25 Family Friendly Companies
One of the nation’s Outstanding Employers of Older Workers, according to Experience Works
One of BestJobsUSA.com’s “Employers of Choice 500”
One of Central Florida Family magazine’s top companies for working families
One of the top 10 companies to work for in America in the book, The 100 Best Companies to Work for in America (Currency/Doubleday)
Won a United Way’s Spirit of America award
As of November 2010, Publix’s sales for their third quarter of 2010 were $6 billion, which represents a 3.5 percent increase from the previous year’s $5.8 billion. Similarly, comparable-store sales for the third quarter of 2010 increased 2.7 percent. Net earnings for the third quarter of 2010 at Publix were $283.2 million, compared to $254.9 million in the previous year, which shows an increase of 11.1 percent. Similarly, earnings per share at Publix increased to $0.36 for the third quarter of 2010, which is up from $0.32 per share in 2009. Overall, the company’s sales for the first nine months of 2010 were reported to have been $18.8 billion, which represented a 3 percent increase from the previous year’s $18.2 billion. Similarly, net earnings for the first nine months of 2010 at Publix were $996 million, compared to $877.3 million in the previous year, which shows an increase of 13.5 percent. Earnings per share at Publix increased to $1.27 for the first nine months of 2010, up from $1.11 per share in 2009. As a sign of their prosperity, the company announced (effective Nov. 1, 2010), that Publix’s privately-held stock price actually increased from $18.45 per share to $19.85 per share. Publix’s current Chief Executive Office, Ed Crenshaw, said “I’m very pleased that our good operating performance and improvements in the 10
stock market resulted in an increase in our stock price. Our associate owners continue to deliver exceptional customer service, the key to our success.”3
According to Howard Jenkins, these positive results come as no real surprise to the people of Publix. He further stated that “Publix people have been working hard, preparing for an even grander vision of our future. Earlier in this decade, we committed ourselves to a mission to become the premier quality food retailer in the world. We introduced our own quality improvement process and later adapted a discipline of Customer Intimacy, which is helping us to listen more effectively to our customers. All of these initiatives have engaged the resourcefulness of thousands of associates from every area of our company. Together we are discovering powerful new methods for delivering customer value.” These successful results actually make Publix an attractive place for employment. As of 2010, Publix reported on their website that the average income earnings for various management positions in the retail stores are as follows:
$44,300 per year for Assistant Department Managers
$64,600 per year for Department Managers
$76,400 per year for Assistant Store Managers
$110,700 per year for Store Managers
Non-management employees who work part-time or full-time can actually earn average salaries up to $25,000 annually depending on their expertise, hourly salaries and longevity in the company.
SERVICE WITH A SMILE: THE PUBLIX STYLE
The author of the slogan “Where shopping is a pleasure”, the late Mr. William (Bill) Schroter became a legend within the Publix culture as the spirit of the statement spread throughout the company and became part of the Publix culture. Mr. Schroter started working for 11
Publix in 1949 and served the company for over forty years, retiring in the early 1990’s and died in 1998. Publix’s slogan “Where shopping is a pleasure” replaced an older slogan, “Florida’s Finest Food Stores”, which according to Mr. Schroter was self-congratulatory, offering no promise to customers. The current slogan or value proposition tells Publix employees that their customers want more than just groceries. Publix people know that customers want good quality, excellent prices, and a good shopping experience. While quality products and good prices are very important to creating customer value, they are not enough to keep customers coming back to their stores. Therefore, Publix associates have always been receiving training on relationship-building techniques in order to better understand customers and quickly take care of their needs.
Publix’s mission statement very clearly states that Publix is passionately focused on customer value. Publix is committed to satisfying the needs of their customers as individuals better than their competition. While their competitors can offer good prices and quality products, Publix wants to stand out in the customer’s mind for providing delightful customer service in every shopping experience. Competitive prices and quality products must exist in order for a business to be successful and are easily duplicated; however providing delightful customer service comes from the culture of an organization which creates superior customer value. This is why Publix associates closely align their daily work habits to stay focused on customers.
Publix people understand that they cannot be casual about achieving customer intimacy. They realize that customer intimacy needs an intimate, professional, thorough, consistent, and disciplined method of serving customers that will become a normal way of doing business.
In fact, the goal at Publix has been to build customer intimacy in all of its stores by creating an environment that is both sensitive and responsive to the wants and needs of all customers. 12
Publix spends considerable time studying the best practices of other companies and incorporates a practical and comprehensive plan for developing customer intimacy in all Publix stores.
Developing customer intimacy means working through four phases again and again. Each phase is critical for success of the program and feeds the next phase.
1. First, you must understand your customers’ wants and needs (with respect to food acquisition).
2. Second, you need to understand your customers’ perceptions of your company and your competitors’ perceptions of your company.
3. Third, you need to establish and maintain a strong customer intimacy program throughout the company.
4. Fourth, continually improve the customer intimacy relationship program.
The philosophy of Publix is not just to satisfy and delight customers one time; customers must be satisfied, delighted, and excited every time they visit or shop at your store. Publix associates are taught that customers are their most valued assets whom must be welcomed, cherished, and appreciated for choosing to shop at their stores. Associates are often asked to reflect on some of the following facts, and others similar to the following, about customers.
The average customer spends $5,000 on groceries each year and lives in one geographic area for about ten years (total spending or lifetime value (LTV) = $50,000.00).
Attracting a new customer costs companies five to six times more than keeping one who already shops with them.
Ninety-five percent of complaining customers will continue to do business with the company if you take care of their problems properly and resolve those problems on the spot.
One dissatisfied customer tells eight to ten potential customers about a problem or bad experience that wasn’t addressed in the store. It has been said that each of the eight to ten potential customers are likely to tell at least five more people about the problem or bad experience.
Publix associates understand that if they cannot satisfy customer’s requirements and meet their demands, the customer will cease to do business with them and may shop with other retailers. They remember that if they, as Publix associates, don’t offer a great shopping 13
experience for their customers then someone else will. Therefore, all retail associates are taught the 10-Foot and 10-Second Rules to help them quickly acknowledge customers. The 10-Foot rule states that one must acknowledge all customers that are within ten feet of one’s surroundings, and the 10-Second rule states that these customers must be acknowledged within ten seconds of entering into the service counter area or the 10-Foot zone. Research in the supermarket industry indicates the factors that affect customer loyalty:
The largest percentage of customers (68%) leave if they perceive an attitude of indifference.
Some customers (14%) leave because they feel they can find better quality products and services elsewhere.
Customers (9%) shop elsewhere because they think your prices are higher than your competitors.
A few of the customers (5%) become friends with people who work for a competitor and take their business there.
Some customers (3%) leave because they move to a different area.
Publix Associates are also encouraged to use their daily observations, customer feedback, survey evaluation, and other data to improve their jobs, better serve their customers, and make Publix a better place “where shopping is a pleasure.” Associates can use Publix’s Quality Improvement Process (QIP), Work Improvement Now (WIN), or other such tools and continuous improvement concepts to improve their jobs based on fact-based decisions and data. These statistical tools are available for everyone to learn and use during their work hours in order to deliver more than what they promise.
Publix teaches the principle of “deliver plus 1%” which states that you must consistently meet your customers’ shopping needs and then exceed their expectations by improving your service one percent. They believe in positively surprising the customer by over-delivering on what customers value. This principle further states that when you make a promise to a customer, 14
you must be consistent and deliver all the time. It means before exceeding your customers’ expectations, make sure you are satisfactorily meeting their needs. And if you promise any extra services, make sure you deliver as promised.
Finally, Publix rewards top-notch service by implementing an awards program which shows associates how much management values their efforts to provide delightful service to customers. Delightful Service Awards are given for customer service that is over and above the minimum standards listed on the Observation Sheet for the area. Associates are expected to provide great customer service as part of the job requirement. The awards are given to associates who make the extra effort to delight customers who shop at Publix. To receive a Delightful Service Award associates must provide delightful service to a customer in a way that is formally recognized by either the customer, by a “mystery shopper” who is purposely appointed by district management, or by a member of the store management team. Associates are trained and encouraged to set personal goals for themselves with regards to better serving customers and exceeding their expectations. They are asked to find out what they can do to increase and improve their personal commitment to customer intimacy. They are encouraged and rewarded for setting goals to increase their awareness of customers as well as customers’ wants and needs. For instance, associates may set goals like:
Learning the names of two or more “regular” customers every week.
Identifying new or unusual products in the store, noticing when a customer has selected the product for purchase, and using the new item as a conversation-starter.
Noticing at least four customers in a week’s time who may need help locating a product and taking them to it.
Volunteering to demonstrate a new product in the store so they can develop or improve their people skills with customers.
Conducting their own unofficial mystery shopper evaluation when they shop at a Publix store. This will help them become aware of how they define delightful customer service when they are the customer.
PUBLIX GOES ONLINE (AND OFF)
An industry study revealed that by 2007, about 20 million households in the U.S. will purchase groceries, food and other household items online. They will spend approximately $85 billion dollars for mainly food items.4 However, to date none of the major grocery chains have mastered the online arena. Peapod, Inc. was the first one. Peapod began as a startup with no money. Peapod took phone calls and faxes for orders. Employees filled them at local supermarkets and delivered them to the homes of customers. Peapod was initially profitable, but eventually began to fail when by 1999, they had incurred losses of $29 million dollars on sales of $73 million (Peapod was acquired outright by the Dutch giant retailer Royal Ahold NV in late 2001).
California-based Webvan entered the scene in 1999 with much fanfare and was going to revolutionize grocery retailing. Webvan utilized a “central fill” model where large distribution centers costing $35 million each were dedicated to fill online grocery orders. Customer demand never reached anywhere near levels required to recoup their huge fixed costs investment and Webvan was losing from $5 to $30 on every order it handled. Webvan filed for bankruptcy protection in early 2001 and ceased operations later that year.
Profits for Internet grocers were scarce, affected primarily by high shipping costs and regular distribution centers which were not well-suited to handle order fulfillment. Not a single online grocer in the U.S. has been able to turn a profit (Note: Tesco, based in the UK has reported a profit in their online operations). Tesco, as well as Safeway and Albertson’s utilize a “store pick” model (see Exhibit 4), where orders placed online are simply drawn from the same goods that are on their store shelves and delivery costs tacked on to the cost of the groceries (as opposed 16
to Webvan’s emphasis on central warehouses). While the warehouse system can be cheaper in the long run, it requires a huge amount of initial capital and a well-developed infrastructure to get the goods from the warehouse to the shopper. Distribution logistics are a “make or break” proposition in online grocery retailing.
Publix was one of the late comers to enter the online grocery business when they launched PublixDirect in September, 2001. Publix, unlike competitors Safeway and Albertson’s, followed a centralized or “direct fill” fulfillment approach. PublixDirect served online customers over a 35-mile radius in the South Florida market from a 140,000 square foot distribution center, which was more than twice the size of many of its stores.
The warehouse was divided into areas for frozen foods, vegetables, meats and poultry.
PublixDirect also operated its own bakery which was devoted solely to their online business. For a $7.95 fee and a minimum $50 order, PublixDirect would pick up the groceries and deliver them – to a customer’s doorstep. Average order size was approximated $120 per customer. PublixDirect took 18 months to develop a strategy for the Internet venture, hoping to succeed where many others have failed. For their Internet venture, it stocked only 12,500 items, selecting those that move most quickly off store shelves, whereas the typical Publix carries 40,000 stock keeping units or SKUs.
The company benchmarked earlier grocery online operations to fine tune and perfect their processes including order taking, order fulfillment, and outbound logistics and payment. Orders placed at the company website, would be downloaded at midnight to a central computer, which organized them for pick-up in the warehouse and for delivery by truck. Orders, which could be made seven days in advance, were filled starting at 6 a.m. Each order was distilled into a bar 17
code and attached to a plastic box. When a PublixDirect employee scanned the bar code, a shopping list came up on a tiny computer attached to his or her wrist. The order also appeared on a hand-held computer given to each truck driver. When the goods were delivered, the customer signed for the delivery on the computer screen using a stylus. Payment was made in advance at the website, using a credit card. Customers were issued a paper receipt and were sent a back-up via e-mail. If a customer had ordered beer or wine, the driver would be prompted on the computer screen to check his/her age. Drivers were even asked to cover their shoes with footsies when they entered a house.
PublixDirect believed that the average income of its online target customer would skew higher than its regular store shoppers. Although initially anticipating that its primary target market would be dual income families with household incomes exceeding $75,000, much to their surprise, the typical shopper attracted to PublixDirect turned out to be single-income households, with stay-at-home moms.
PublixDirect strongly felt that their prospect for survival in the online grocery business would be based on a well-conceived value proposition which includes the following:
? _Convenient solution to grocery shopping
? _Prices similar to local supermarkets
? _Superior product quality
? _Superior customer service.
The company benchmarked earlier grocery online operations to fine tune and perfect their processes including order taking, order fulfillment, and outbound logistics as well as payment. In spite of a well-conceived business plan, PublixDirect ceased operations in August, 2003. Charlie Jenkins (CEO of Publix) explained, “We regret that our on-line grocery shopping business did not meet our expectations. Despite many loyal customers and dedicated associates, PublixDirect 18
simply didn’t have enough volume to continue this service.”
Publix is privately held and has been tight-lipped about the specific reasons leading to the discontinuation of PublixDirect. Although it is not clear as to why PublixDirect failed to meet their internal profit and revenue targets and close their doors (portals), following are some possible contributing factors as to why PublixDirect failed to succeed.
With a few notable exceptions, what most failed Internet grocers overlooked or miscalculated was the disconnect between marketing strategy and the operations strategy. The few successful online grocery success stories (notably Tesco, Sainsbury’s, Peapod, and Albertson’s) treat their online services to customers as a convenience added option which will cost customers more, but which can then be supported by using the extra funds to support operations aimed at providing convenient timely delivery. A new market such as Internet ordering for home delivery of groceries puts great pressure on the integration of marketing and operations. The need to drive markets from a marketing perspective while simultaneously keeping a tight rein on operational costs and challenges puts a great deal of pressure on this market. PublixDirect had a huge “nut to crack” due to the operational complexity and high labor costs (one failed Internet-based grocery retailer is said to have required 200 employees to fill 600 orders a day) associated with supporting such an operation. Revenues simply never caught up with the huge upfront investment. The question is would revenues eventually catch up and did Publix pull the plug too soon?
Cost control in online operations is crucial to success. Companies need scale and PublixDirect never achieved the scale necessary to “crack the cost nut”. The UK food retailer Tesco benefits from high population densities whereby logistical costs can be spread over a 19
larger and more serviceable volume of customers. PublixDirect operated over the length and breadth of Broward County, a sprawling metropolis, where traffic patterns made delivery difficult and expensive.
Internet ordering with store pickup rather than home delivery seems to be the most cost-effective business model. This “store-pick” (Tesco, Albertson’s, and Safeway) rather than the “direct fill” (PubixDirect) approach has turned out to be the most viable fulfillment approach.
The keys to success for online grocer retailing are: convenient solution for grocery shopping, prices similar to local supermarkets, comparable quality to products purchased in the store, and superior service. Publix was able to largely achieve 3 out 4 of these objectives, but given the large number of conveniently located Publix stores, convenience was not overwhelming in this case. [Note: as a postscript, PublixDirect discontinued operations in August, 2003, just short of two years after it was launched. Its Broward County, FL and surrounding area pilot program failed to meet management’s projected revenues and profits levels for the business].
Online technology is certainly going to play a major role in every retailer’s efforts to offer more value for their customers. New forces in the environment, such as technology, are likely to bring about many changes and new procedures. Change is constant and ubiquitous throughout the supermarket industry because customers are becoming more knowledgeable and demanding. In today’s market-based economy, customers want a variety of ethnic foods that are made with quality ingredients and represent their culture; therefore quality service must be aligned accordingly with the best prices in order to deliver superior value.
Over 20,000 new items are hitting the market every year and understanding the value of each 20
product to each customer is no easy task. Therefore, the value of understanding, anticipating, and determining consumer preference cannot be overestimated. Changing effectively is a matter of keeping up with the demands of consumers, offering more value for the customer’s dollar, being competitive, and creating raving fans.
Food safety is becoming a major issue in the grocery industry. According to a Better Homes and Gardens panel study, only 20% of the panelists were very confident that the food they buy is safe to eat. Global activist group Greenpeace, has joined two other coalitions — True Food Now and GE-Free Markets — which are trying to convince two supermarket operators in California to stop using genetically engineered ingredients in their private label food lines. According to NBC Dateline investigation, seven of the nation’s largest grocery store chains, operating more than 7,000 stores in nearly every state, admitted to re-dating meats and fish after they had reached their original “sell-by” date. In the food retailing industry, leaders are paying more attention to ensuring that food products are safe and produced in a clean environment. According to Todd Rossow, corporate quality assurance lab coordinator at Publix, their associates are constantly looking at all the risk factors associated with food quality as well as food safety while attempting to eliminate them.
Today’s customers are increasingly more concerned and vocal about the quality and nutrition of the food they purchase. According to research, 70 percent of women and 54 percent of men say they consider nutrition to be an important factor in their consideration of food purchases. Once a niche category, organic foods are becoming increasingly mainstream as small, regional organic food-producing companies have been acquired by major manufacturers. Demand for organic is growing 20-24% annually as Americans spent $460 billion on groceries and $9.4 21
billion on organic items in 2001,per the U.S. Department of Agriculture. Today’s nutrition-conscious supermarket shoppers are checking labels as never before. The Food and Drug Administration started requiring that trans fat (trans fats are found in foods ranging from partially hydrogenated oils to fried foods, cookies, pastries, dairy products and meats) content appear on all food labels as of January 1, 2006. Finally, some manufacturers are considering the idea of offering “functional foods” which are fortified with a growing number of popular herbs, vitamins, hormones and other healthy additives.
Technology which allows customers to be their own cashiers and checkout their own groceries have been around for many years. However, it is only recently that some food retailers are toying with its implementation as a strategic tool to enhance their competitive position and offer better service to the time-impoverished customer. This is because self-checkout technology, which allows shoppers to scan their own items, offers savings to both the shopper and the retailer along with an added convenience. Self-checkouts can serve only a segment of the market which wants to scan their own groceries and have a debit card to pay for their groceries. Check-out efficiency has also been improved by widespread use of debit and credit card payment systems.
The days of preparing complete meals at home are becoming a distant memory. Today’s time-impoverished shoppers are opting for prepared foods such as precut produce, cooked dinners, and prepared takeout foods. According to a Better Homes and Gardens consumer panel survey, 37 percent of respondents buy prepared products at least once each week, compared with 27 percent in previous years. About 22 percent of the panelists use more convenience foods than two years ago and 76 percent buy convenience products such as salad mixes and precut vegetables. Also, 77 percent of the respondents purchase prepared foods to eat at home and 49 22
percent of those who eat at home said they do so because they are more careful about what they eat. It has been said that over 40% of all consumer spending on food is for meals that are eaten away from their homes.
Publix’s history shows that they bought seven Grand Union stores in Miami in 1959 and 19 All American stores in 1945 to expand their market share. According to Publix leaders, currently there are no plans for major mergers or acquisitions. They believe in a careful and steady growth strategy in order to maintain the Publix culture.5 However, they are not against the idea of acquiring another company that fits Publix’s culture and philosophy. “If the right opportunity came up we could acquire another company….we may or may not find another company we like.”….we believe in internal growth, building our own stores.” The supermarket industry is becoming increasingly concentrated as large regional chains such as Kroger, Safeway and Albertson’s dominate their markets. The rapid growth and development of “supercenters” as evidenced by Wal-mart’s grocery industry ascendancy is testament to the viability of hybrid formats (i.e., grocery and general merchandise). Therefore, more companies are being forced to grow faster, partner, or merge in order to survive long-term.
1. What factors are currently involved in successfully competing in the supermarket industry and how will these factors change in the next five years?
2. What factors are currently influencing a customer’s decision to shop at Publix? Why haven’t competitors been able to successfully duplicate the Publix success formula?
3. What can Publix do to strengthen its market position with regards to its suppliers, customers, competitors, and employees?
4. What are the values of Publix’s organizational culture, employees, customers, shareholders, suppliers, and competitors? Which ones do you consider to be value-adders and which ones do you see as value-destroyers? Can Publix become the premier quality food retailer in America?
5. What were the factors that led to the demise of PublixDirect? In hindsight, what should they have done differently to keep PublixDirect a viable business model? What does it take to create a successful online grocery operation in the U.S.? It is a decade later –is the time right to reintroduce PublixDirect? Explain.
Exhibit 1. The Publix Spirit over the Years Year Accomplishments
1930 First Publix Super Market opened in Winter Haven, Florida.
1940 First store known as the “marble, tile and stucco food palace” built in Winter Haven, featuring such revolutionary retail concepts as air conditioning, wide aisles, and electric-eye doors.
1944 Publix bought the 19-store chain of All American Food stores in Lakeland and moved the headquarters to Lakeland.
1950 New 70,000-square foot grocery warehouse built in Lakeland. Today this warehouse occupies over 2,000,000 square feet.
1957 Publix Employee Federal Credit Union opened in a Lakeland warehouse.
1959 Publix opened its first store in Miami and bought seven stores.
1963 Publix opened the Southeast Coast Headquarters and Distribution Center in North Miami.
1971 Two stores opened in Jacksonville.
1973 Publix opened the Bakery Plant and constructed the Produce Distribution Center in Lakeland.
1974 Publix sales passed $1 billion annually. Publix opened Distribution Center and Division Office in Jacksonville.
1975 Publix Employee Stock Ownership Trust (ESOT) started this year.
1980 Publix celebrated 50 years of shopping pleasure. Dairy Processing Plant opened in Lakeland. Checkout scanning implemented chain-wide. It was during the early 1980’s that Publix started being open on Sundays.
1984 Publix sales passed $3.23 billion. According to Progressive Grocer, Publix’s 2.36% before tax net was the highest of top ten super market chains, 2 .times better than Safeway – the industry leader.
1986 Publix opened its first Food and Pharmacy stores in Orlando and Tampa.
1987 Publix opened its Dairy Processing Plant in Deerfield Beach.
1990 Publix had 400 stores and 74,000 associates in Florida.
1992 Publix announced their expansion plans to Georgia and South Carolina.
1993 Implemented a company-wide Quality Improvement Process (QIP) and Work Improvement Now (WIN) tools for fact-based decision-making and employee empowerment.
1994 Sales were $8.66 billion. Publix implemented a chain-wide Customer Intimacy program.
1998 Publix has sales of over $12 billion and 120,000 associates. Almost 600 stores in four states.
2000 Publix was ranked 132 on the Fortune 500.
2001 Charlie Jenkins Jr. replaced his cousin Howard as CEO of the company.
2002 Publix began opening stores in Nashville Tennessee.
2005 Publix celebrates its 75th anniversary.
2008 Ed Crenshaw becomes the new CEO. Todd Jones becomes Publix’s sixth president.
2009 Publix opens its 1,000th store at Murabella, St. Augustine (St. John’s County), Florida.
2010 On February 18, 2010, for the 16th consecutive year, Publix is ranked as the highest-ranking supermarket for customer satisfaction.
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