“I was one of 11 children,” says Tato, president and CEO of Contract Interiors, one of the largest commercial furniture dealerships in Cincinnati. “My mother did not know what to think of my confidence at times. She would ask me, ‘Who do you think you are?’ But the truth is that I always had a strong sense of who I was and what I wanted.”
Tato put her confidence and drive to good work when she began leading Contract Interiors. And her leadership has paid off: The company’s revenue in 2005 was $12.5 million, and Tato projects 2006 revenue of $15 million.
Smart Business spoke to Tato about how she accepts mistakes, finds the right employees and earns respect.
How do you recruit and retain great employees?
If you are running a healthy company, your employees are your best advocates. They will promote your company as a fantastic place to work.
When we find a candidate with the right skill set, that is just the first step. The next, and perhaps more important, is to ensure they fit into our company culture. You will not confuse Contract Interiors with another office furniture company. We have a distinct culture where motivated and self-directed employees flourish.
I sit with every new employee and tell them they can be here 30 days or 30 years either one is fine and I mean it. I believe in cutting my losses quickly if the fit is not a good one. Typically, 30 days is enough time to determine this.
How do you handle employees’ mistakes?
One of our greatest strengths is our healthy view toward mistakes. Most corporate environments train people to fear mistakes because they are punished. We literally celebrate mistakes because they are great growth and learning opportunities. In fact, we used to reward employees in staff meetings for the biggest screw-up by giving them $50.
Although we don’t do that any longer, we still have the same perspective toward mistakes. This is a safe environment where people can be human and authentic. Failure is viewed as a stepping stone to bigger and better things.
How do you earn the respect of employees?
I can only communicate effectively if I have credibility. That means delivering on every commitment. Employees want to follow a leader who is respectable.
To be respected, you must earn credibility by showing integrity and commitment at all times. There is no margin for error.
How do you maintain a strong customer base?
It’s not complicated. We practice the Golden Rule, which is the key to happier customers. We have also modified our approach over time from expecting employees to be jacks of all trades to a more specialized approach.
We are able to draw on the strengths and talents of our staff and customize a winning team to complete a particular project. It essentially comes down to putting the right people in place depending on the priorities of the project.
What is the most important business lesson you’ve learned?
When we expanded our operation to another city, I went into it with lots of confidence. After all, the city was close by, and we certainly knew how to sell furniture. Unfortunately ... I ultimately had to close the operation. Through this experience, I realized how essential it is to have leadership in place who embraces the same value system and management philosophy.
They must have a common unchanging purpose that mirrors your own. If you choose to expand your business, pick your leaders carefully.
How to reach: Contract Interiors, (513) 641-3700 or www.contractint.com
When Kathleen Mason joined Tuesday Morning Corp. as its president and CEO in July 2000, the upscale discount retailer had a lot going for it.
Customers were loyal and loved the bargains on high-end brands, and they even formed lines on occasion to get into the stores at the start of a sale day. By all accounts, the stores were a hit.
But the company wasn’t doing as well as it could be. Mason, a veteran of the retail industry who previously served as president of Homegoods, thought Tuesday Morning’s balance sheet was bloated and its technology lagging; she notes that Tuesday Morning didn’t even have voicemail when she came onboard.
The company also had way too much inventory, scattered in warehouses across the country to feed the chain of stores. And its marketing wasn’t nearly as savvy as its customers were. As Mason saw it, having a strong brand and bloated balance sheet was an ideal situation.
“It was not looking good from an operational management perspective,” Mason says. “That’s a great set-up for success because as long as you know who your customer is, you have all of the right components for success. ... It was an opportunity to return to some great operating margins and be a very profitable business and be a very low-cost operator so that everything we delivered was value to the customer.”
Tuesday Morning’s formula for success is this: Sell great merchandise at deeply discounted prices and close stores for periods of time, so when they reopen with new merchandise, it’s an event. And the stores are always open on Tuesday mornings, hence the name.
The Dallas-based company, which opened its first store in 1974, operates 732 stores in 46 states.
Mason has made the company profitable, with increased earnings each year. In 2004, it reported net income of $62.6 million on sales of $898 million, compared to net income of $24.6 million on sales of $587 million for 2000.
From the top down
Mason’s plan for success started at the top with the reorganization of the management team.
“We restructured organizationally,” Mason says. “We were able to take some of the people who had made the company great and get them in the right positions. We added, too. We brought in some new people and changed the organizational structure to reflect the best of both of the inside and outside.”
Shortly after Mason’s arrival, Tuesday Morning appointed as chief operating officer/executive vice president Mike Marchetti, who is responsible for distribution, computer and communication systems, and loss prevention. He also helped Mason address the company’s sticky distribution issues as they brought in new buyers to hunt down merchandise.
“I’ve learned that you hire good people you can trust,” Mason says. “You keep in touch, but stay out of the way.”
After reorganizing the management team, Mason tackled the distribution of merchandise.
“First of all, we closed 16 regional warehouses,” Mason says. “We had a lot of inventory sitting in warehouses waiting to go to different regions and stores. We really didn’t need those warehouses, and we lost control of those warehouses. We closed those distribution centers. We expanded our existing facility in Dallas, and that gave us much greater control over our inventory. We improved our systems, our information systems.”
Tuesday Morning purchased new computers and software for the distribution center to help track what was coming into and going out of the warehouse to keep better tabs on the merchandise. It also replaced warehouse distribution and sorting equipment.
“We got the inventory in line with reasonable levels,” Mason says.
Mason wanted to update Tuesday Morning’s image through television advertisements and hired a new agency to help it. The company hired Lauren Bacall to serve as its spokeswoman three years ago.
“I can’t think of a classier woman than Lauren Bacall,” Mason says. “She really speaks well for us and speaks to the brand. Sometimes celebrities can be iffy and have checkered backgrounds. Lauren Bacall fit our needs very well. She represented a fine taste level. Since she was a shopper, she loved Tuesday Morning. She loves our product.”
It’s hard to say if the ads have directly led to increases in sales, but Mason thinks they are at least partially responsible for the company’s growth.
“It has given us greater visibility as the value provider that we are,” Mason says. “It has reinforced our message of being a great place to find first quality brand names at fantastic prices.”
And it’s helped the company reach customers who perhaps had never heard of the stores or weren’t sure what they offered, says Mason.
Mason also uses technology to reach its customers more effectively. Tuesday Morning notifies most customers about upcoming sales via a mailed flyer, capturing addresses at the cash register for future mailings. Some 7.5 million shoppers have signed up.
“We don’t sell that list,” Mason says. “We hold it close to our heart. We take care of our customers by giving them notification of some of the more fantastic buys we find throughout the world.”
Mason says about 10 percent of those 7.5 million people receive e-mail notification of sales, called eTreasures, something she started for the company. Those customers access an online catalog that is essentially the mailed flyer posted on a Web site for their perusal, with daily new arrivals. The company doesn’t sell anything over the Internet.
Taking chances on stores
With the major operational challenges addressed, Mason began leading the company on an aggressive push for new markets for stores.
During her tenure, the number of stores has grown from 415 in 2000 to 732, with plans to reach 1,000 by 2010. She doesn’t shy away from small cities but says a new market must meet specific criteria, such as median income. Tuesday Morning aims for communities with an average household income of $60,000 but doesn’t consider that a hard-and-fast rule. Executives also look at other factors, such as average educational levels, that help them get an understanding of the community and whether it will support a store.
“They do have to have more of an aspirational customer, a customer who really wants quality at a price,” Mason says. “That can still cut a pretty wide swath. Even a young customer on a limited budget wants quality. If they recognize a name brand, nothing else will do. ... We are opportunistic in everything we do, so we might bend the rules a little bit. But there are a number of metrics that we look at.”
To keep costs down and profits up, Tuesday Morning looks for bargains in real estate, sometimes settling for locations that other retailers might pass up because it knows that customers will make the effort to find the store.
It has been aggressive and taken on some risky markets, but there has only been one that simply didn’t fly, Mason says. A store in Cheyenne, Wyo., opened in February 2001 and closed in June 2002.
“That was a real stretch for us,” Mason says. “Although it is an upscale community, there are just not enough people there who are interested in shopping. It’s too spread out, too remote.”
Mason says her only other flop was attempting to make the stores more attractive with better-looking shelving. But after several tries, she abandoned that effort because the new shelving was difficult to work with and didn’t seem to matter to shoppers.
“We thought it was a way to pretty up the stores and better display merchandise,” Mason says. “It was expensive and too specific. Our customer is used to the treasure hunt and doesn’t mind that. We are not for everyone, but the customers who have come to appreciate our no-frills format really do benefit by finding some of the most fantastic things from around the world.”
Mason also has increased the number of days the stores are open. When she came to Tuesday Morning, they were open about 250 days a year and closed in January, July and between sale events. Now, they are open about 300 days a year.
“There is always that risk of hurting that sense of urgency that was part of our formula,” Mason says. “But we had to balance that with the consumer’s desire for convenience. It was a clamoring request, especially from younger customers who say, ‘Look, I’m a working woman and I can’t pay attention to when you are open and closed.’”
Mason and other Tuesday Morning executives give a lot of thought to that customer, who she is and what she wants. They want to know who those customers are, how much they make, where they live and what their shopping habits are.
In 1998, before Mason came to the company, Tuesday Morning did a complete analysis of customers through surveys to get that information. It recently completed another year-long survey, and the results will likely guide future decisions.
“It helps us really refine our understanding of who is buying at Tuesday Morning and to be more pointed in addressing that customer in terms of communication in every way,” Mason says. “It’s like when you give a speech, you need to know your audience. You don’t communicate with everyone the same way. The more you know that person, the better you are able to communicate with them.”
The survey results are still being tabulated, but Mason says it appears that the Tuesday Morning customer is very much the same person she was six years ago.
“We still have a wonderful core customer who is an upscale customer,” Mason says. “She really appreciates and recognizes brand names. They really have to be a shopper.”
HOW TO REACH: Tuesday Morning, www.tuesdaymorning.com
And it may be thanks to is.group that independent office supply stores are surviving. Despite intense competition from national chains such as OfficeMax and Staples, the independent stationer is still going strong.
"Clearly, the independent's market share suffered because of predatory marketing and pricing by the big box stores [national office supply chains]," says Mike Gentile, the cooperative's executive vice president. "If not for us, they would have suffered more."
In fact, Gentile says, there has been a resurgence of independents in the industry. Is.group's members represent about 30 percent of the total number of independent dealers in the nation, making it the largest cooperative in the industry.
Gentile says is.group's members are able to compete with those big box stores because of the combined buying power and resources the cooperative offers. Member stores, locally owned and operated, can purchase about 3,000 products through the organization.
Last May, is.group opened three regional distribution centers (RDCs) -- in Indianapolis, Fontana, Calif., and Mechanicburg, Pa. -- allowing dealers to reduce their inventories and save costs. Says Gentile, "The RDCs were developed to help the independent dealer get products at a lower cost and more quickly."
Kreidel says the new system, coupled with is.group's acquisition of IT wholesaler Express Computer Supply, could save member companies millions of dollars. The RDCs, he says, have been well worth the risks.
"The biggest risk to the new RDC system was if we decided to not move forward," says Kreidel. "Another big risk was that some members would decide to take sucker prices in the short term. That will make our volume go down in the start-up phase and losses will be higher."
But the impact of the new system has been mostly positive.
"Dealers are now experiencing lower inventory levels at their companies," he says. "In fact, we believe we have freed up over $90 million in dealer working capital. Also, the savings for IT [computer supplies] for our dealers is huge.
"Predistribution, our dealers were buying 100 percent of their IT products from wholesalers. This was, in most cases, about 40 percent of the dealers' cost of goods sold. So the savings just on a vendor like HP is in the millions for our members."
Kreidel says members are already benefitting.
"Dealers are seeing higher margins and finding themselves more competitive and gaining new business," he says. "Also, after distribution, dealers could order a combined vendor order of office products and IT products with a very low prepaid freight, just a few thousand dollars. With a much wider breadth of product available at direct costs, many dealers are choosing to increase the number of SKUs they stock, which increases their gross margins versus buying wholesale. Is.group's distribution is simply a much better way to buy direct."
Kreidel believes the system could be so successful that is.group may open it to other industry cooperatives, an innovative strategy for all independent dealers to remain competitive.
"In the long term, we believe this system may even service more than just us," he says. "Why? We are stronger by working with other co-operatives that are our competition -- we have coined that 'co-opitition.'"
The RDC system wasn't born overnight. Kreidel and his team conducted months of research before moving cautiously.
"Is.group completed an exhaustive supply chain and market share study conducted by A.T. Kearney," Kreidel says. "The conclusion was that we should open regional distribution centers to achieve a much more efficient supply chain and thus, significant savings for our members."
Still, before he could move forward, Kreidel had to convince is.group's board of directors -- comprised of member companies.
The board agreed the RDC system should be part of the cooperative's strategic plan, which is based on a survey of members, and Kreidel says it isn't always easy to come to a consensus.
"It's a challenge with more than 600 entrepreneurs, but the plan is our guiding light," he says. "We simply execute to that plan."
Kreidel then began to reduce the financial risk involved in the system.
"We are using two very fine outsource companies, Exel for warehousing and Meridian IQ for logistics. That way, we own no real estate or major leases," Kreidel says. "We do own the intellectual property for the warehouse management and the freight management connectivity.
"If we have issues, we could easily move to another provider. This mitigates the start-up risks and potential losses."
So far, the system has worked fairly well, and . despite a glitch in user software that is being worked out, the system has been embraced.
"There are a few drawbacks, such as special orders taking a little longer for a dealer to get," says Kreidel. "But we are working on solutions for that issue."
Kreidel is keeping his eye on the costs of the new system, as well.
"We have capitalized the group over the last several years," he says. "Some we will simply expense and the rest will be simply a reduction in dealer rebates in the short term. We aim to keep our debt in line."
Most important, Kreidel wanted the most talented logistics experts to run the new system, knowing that the skills didn't exist in the cooperative's structure.
"We actually were working with another company to set up a joint venture," Kreidel says. "That did not work out so we hired their logistics man. He was passionate about the program, so George Maney joined the team."
"We were looking for people that shared our vision and commitment to helping the little guy," adds Gentile. "We found the right people, and that was the key -- and they had all been in the industry for some time."
A not-so-vicious cycle
Is.group's new system has been a boon to its recruiting efforts.
"We have already recruited nine new members since the system launched," Gentile says. "These nine new members recognized the value of the distribution centers."
The more members the co-op recruits, the better it is for both is.group and its existing members, adding to the combined purchasing power of the group. And that, after all, is what it's all about.
"We are dedicated to serving the independent dealer in an increasingly competitive environment," Gentile says. "We try to anticipate the needs of our members. Sometimes, it's like herding cats -- these are independent entrepreneurs. You don't tell them what to do or how to do it. We offer services to help them run their businesses more effectively."
Kreidel is especially passionate about serving the independent dealer, since he was one for several years before selling his stores to Corporate Express, a move he later regretted.
"Before coming to is.group, I was part owner in an office products dealership for 10 years as a member of is.group," he says. "During that time, I contributed a lot of sweat equity in a few dealer groups and as director of is.group. We sold our dealership to Corporate Express during a time when Wall Street was paying stupid money for dealerships.
"I worked for them for two years during an earn-out period, and then realized it was a mistake to sell the business. My penance was to come back to the world of independent office products dealers and do all I could to help them compete."
And if the RDCs' results are any indication, Kreidel's efforts and passionate commitment are paying off.
How to reach: is.group, (317) 845-9155 or www.isgroup.org.
"Go to Wal-Mart and look at their produce. They buy little oranges," he says, holding the small, invisible orange in front of him.
"We buy big beautiful oranges," says Heinen while holding up the other hand. "We don't sell the little ones. They are not a good value and it is not what we stand for. It is not what we believe our customers want."
Tom Heinen, along with twin brother Jeff, has carved out a niche for their 15-store chain that's based on quality and customer service, the same principles their grandfather founded the business on in 1933. It's no accident that Tom mentions Wal-Mart -- more than any other business, Wal-Mart has taught consumers to shop on quantity and price.
In the commodity business of the food merchant, buy-one-get-one free, triple coupons and three-for-a-dollar offers fill weekly ads and in-store signs and dominate consumer buying decisions.
But the Heinen brothers have survived in the era of the mega-chain by counting on the fact that there is still a market for a community grocer who can deliver service, quality products, clean stores and fair prices.
"Jeff and I believe that customers are not stupid," says Heinen. "We think they are smart."
In a market dominated by Giant Eagle and Tops, both with hundreds of stores and a huge marketing budget, the family-owned Heinen's chain is carving out a niche that aims for the educated consumer. Price is important, but the Heinen brothers think there is a market segment that is not driven by price alone.
Joseph Heinen was working in a butcher shop in the late 1920s when, dissatisfied with the quality of the product being sold and thinking that the wave of the future was to offer multiple grocery items and not just meat, he struck out on his own.
He opened his own butcher shop in 1929, and by 1933, opened Cleveland's first supermarket on what is now Chagrin Boulevard.
Heinen had decided to go into business for himself at the beginning of the Great Depression. A hundred people lined up for every job, and customers who didn't have the currency to pay for food could barter.
"He was very committed," says Tom Heinen. "He always wanted the best quality, and he always understood people. He understood that treating people right was the best thing to do when dealing with customers, but he also understood that your employees were the ones that could really make or break you."
By 1964, Heinen's had grown to four stores, and the second generation came into the business and focused on growth.
"My dad (Jack) was really very focused on economies of size," says Heinen. "We were one of the first companies to build a warehouse with just four or five stores."
The company still distributes its own groceries as a way to control more of its supply chain.
Tom and Jeff joined the business in 1978 at age 23, and by 1981, Heinen's opened its 11th store.
"We were one of five family-owned chains in Cleveland at the time," says Heinen, 48. "There were no big chains that dominated the market. In fact, Cleveland was a city that the big chains had left. The market was dominated by pretty successful family chains."
By 1990, Tom had been brought up through the ranks in the meat, bakery and deli departments, while Jeff had overseen produce, dairy and the grocery departments.
"Dad's theory was you have to learn the business at the stores, because that's where we earn our money," says Heinen. "He was very focused on that."
In 1994, Jack died. Tom and Jeff took over as co-presidents and continue to share that role today.
"Fortunately, and unbeknownst to the rest of the company, my brother and I had really been running the business for about four years," says Heinen. "We had started forming the direction of the company from the mid-'80s."
The perfect store
One area Tom Heinen exerted influence over was store design. Working with a 90-something-year-old architect -- a friend of his grandfather who provided invaluable feedback on how his grandfather viewed different aspects of the business -- he came up with a new concept for Heinen's store design.
The concept was aimed at being more appealing to Heinen's target customer, someone in the middle to upper income bracket. By focusing on this small slice of a demographic, the company is able to keep its products very targeted to its market.
"We want to be able to streamline what we do and leverage what we do wherever we can," says Heinen. "If you have to have a highly different format and product mix (for each store), it adds to the complexity of our business. Just like the big guys like to streamline their business, we like to streamline ours, too. The ability for us to learn about these different pockets and demographics is important for us to do a better job.
"Supermarkets have different customers. Wal-Mart sells those little tiny oranges, and somebody is buying them -- they are not throwing them out. Look, that's fine, and that may be all that their customers care about, but that's not our customers.
"We are all about fine foods and quality foods. We need to be in a market that is educated and understands the difference."
In 1989, the new store concept was put into practice with the construction of the present day Pepper Pike store.
"We went out there with a radically different upscale store than anything else we had ever built before," says Heinen. "It had a different decor, it was organized differently, and it worked. It had a huge restaurant-style kitchen in it and European-style display fixtures.
"We looked at it and said, 'Instead of this being a one-time only store, let's make it the prototype.'"
By 1995, when the Aurora store was built, a cafe had been added to the concept.
"Now there was not only a full restaurant kitchen in the back, but a cook line in the front," says Heinen. "It allowed us to prepare food that could compare and compete with any family-style restaurant."
As the Heinens further refined their niche, they added and enhanced products and services to meet the demands of the targeted demographic. A health division featuring vitamins and food supplements, coffee roasters with whole-bean coffee and an enhanced wine section with its own wine consultant became part of each store. The size of the average Heinen's store increased from 35,000 square feet to between 50,000 and 55,000 square feet.
"It's all about variety and services," says Heinen, but everything is always targeted at the company's niche customer.
The growth of the chain is entirely dependent on finding the pockets of upper income demographics that will support the company's focus on quality and understand the difference between price and value.
When the right demographic emerges, Heinen's considers building a store there. There isn't a goal of X amount of stores by a certain date.
"Our growth is dependent on being aware of where these pockets are," says Heinen. "We never thought we needed to be the biggest. We are really focused on our target market."
For example, the Avon store was opened when Heinen's saw that people from Westlake were moving across the county line to take advantage of lower taxes. A suitable space was available in Avon Commons, a shopping center that featured stores that were attractive to the same demographic Heinen's targets, making it a solid opportunity for expansion.
Being focused also means realizing when the demographics of a location have changed and no longer match the target market or there are other issues that threaten the profitability of a store.
"We have closed some stores because of real estate or size issues," says Heinen. "We had 11 stores in 1981. In 1997, we still had 11 because of closing some and opening others. Now we've built four stores since 1998. That's high growth for a company like ours, but the opportunities presented themselves."
Being careful about growth is vital to the survival of a small company; a few bad investments can threaten the entire organization.
"We never build a store until we have a management team that is ready to take over," says Heinen. "The demand on them is way higher than it was in the past. We are asking them to make many more decisions than they used to. The whole idea is that it is their store and that they are autonomous.
"We are building market share one department at a time and one store at a time. The payout for a new store is not immediate, so it is difficult to build new ones. Years ago, you could make money the first year a store was open. That doesn't happen for anybody anymore."
Heinen declined to say how many years it takes for a Heinen's store to become profitable, but said the industry average is three to five years. Targeting a high-end demographic has helped propel the company's growth from about $150 million in 1981 to $300 million today. He estimates its marketshare is about 10 percent.
"From a real estate perspective, I think we are more attractive (to a developer) today. If you want a Heinen's style store, there isn't anybody else. Giant Eagle believes they are a suitable replacement for Heinen's, but I don't think that's the public perception.
"If you want local service and quality, we are the only one left, literally."
There was a time when buyers from all the local chains jostled for the best fresh fruits and vegetables at the Northern Ohio Food Terminal in Cleveland. But consolidation and mergers in the grocery industry have left Heinen's as the last chain that still buys locally.
"Food companies are focused on the system and how to be profitable," says Heinen. "They have chosen not to really differentiate themselves in product quality and differences. We try to get local products. The reason they don't do it is it isn't efficient. They buy truckloads of produce.
"We're in six days a week buying 60 percent of what we need on the market every day. If it's not good enough, we don't carry it. We buy trucks, too, but (the competition) are not putting the same attention into quality."
Another example is Plainville Farms Turkeys, a smaller producer that has complete on-site control of its production process to make sure its birds are of a consistent quality.
"Much like we are, they are a smaller guy in the industry," says Heinen. "If you can find some of those type of people, you get a better product and a better commitment. They also treat us like important customers. We cultivate a lot of relationships like that. For our beef and pork, we partner with the ranchers so we know everything that happens to our product -- it's scripted. It allows us to control quality and costs.
"These programs cost slightly more. Like most things, if you want them done well, it's going to cost you more."
The controls Heinenn's has on its meat, for instance, mean that it doesn't have to worry about mad cow disease. The disease starts in cows that are at least 30 months old; Heinen's beef is slaughtered at an average age of 18 to 19 months and no later than 24 months.
"We do everything we can to be sure we are delivering the best product," says Heinen.
In some cases, the quality standards may mean higher prices, but that's the difference between the Heinen's customer and the average grocery store customer: The Heinen's customer appreciates the quality and is willing to pay slightly more for it.
If you want to get Tom Heinen riled up, just tell him his stores are expensive.
"If there is one misnomer that exists today, it's that we are expensive," says Heinen, who in his blue Heinen's shirt and black zip-up Heinen's sweater vest looks ready to step out of the corporate office and back behind the store counter at a moment's notice. "It is no secret in our industry where we are priced. Anybody can run five items out of 40,000 on sale. Those items don't determine anybody's food bill. We are very comfortable -- and even today, on the heels of a perceived price war by our competitors -- that if you shop our store, you will save 5 to 10 percent.
"I remember asking my dad as to why everyone thinks we have high prices. He said that when you have great quality and clean stores, people don't want to believe they are not paying for it. If there is one challenge we have, it is to drive home the fact that we are not more expensive, it's that we are actually less expensive. If you pay more at Heinen's, then there is a value proposition as to why you are paying more. You are getting something better."
Without the demographic that understands that proposition, Heinen's would not be successful. But reaching that demographic can be challenging.
"One of the major drawbacks of a company of our size is the inability to mass market anything that we are doing," says Heinen. "It's a function of an economy of size. But do they deliver on what they promote? If they get the message across but are doing nothing to support it, what good is it?
"We typically see our market share return. We are seeing it return now after the perceived price war. Customers can leave, but if someone isn't doing something to keep them and truly delivering a different value proposition to them, then they won't be back."
Doing something different in the grocery business means delivering something that others talk about but few deliver on: Customer service.
"Big companies in our business, no matter what they say, they look at labor as an expense to be minimized," says Heinen. "Labor is clearly an expense, but we look at it as an expense to be leveraged."
With public companies, everything is driven by the quarterly report. CEOs have 12 weeks to show results, or they put the stock price and their job in jeopardy.
"Their reality is committed to 12 weeks at a time," says Heinen. "It costs money to invest in people, and the return is not there in 12 weeks. That's one of the advantages of being privately held: Companies couldn't be committed to customer service the way we are and still make it work."
Some of that commitment to service comes from the values of the neighborhoods Heinen's serves and from which it draws its employees. They come predominantly from families with good work ethics and values, but the rest of the equation is nothing fancy.
"For years, we had no formal (employee training) program," says Heinen. "It was simply about treating customers right. The other people around them would not let bad things happen. About seven years ago, we finally did formalize it into five sessions of customer service."
Heinen says the program's aim is to give people the tools to succeed in personal development; it just happens to be wrapped around a customer service focus.
"When you come to work, you have a choice as to whether to be in a good mood or a bad mood," says Heinen. "Stop being a victim. You may have a crappy manager, but that still doesn't control how you should deal with the customer."
Being a family business for three generations makes the customer service pitch easier, simply because the family has set the tone from the beginning.
"For three generations, we have been nice, respectful and helpful to people," says Heinen. "If you go to Heinen's and ask for something, it is pretty much firing squad death if you say, 'That's not my department,' but that's standard fare in tons of retail outlets."
Probably the most important aspect of investing in people is keeping today's most valuable currency -- knowledge -- in place.
"You have got to have people that are knowledgeable about the product and really be able to help the customer," says Heinen. "People simply don't know about the tons of food that is now available. There is less understanding today about cooking than 25 years ago. Shoppers today know less about cooking, but it is because they are cooking so many different foods.
"It used to be there was just ocean perch and cod at the seafood counter. Now there's salmon, perch, cod, grouper and a bunch of other stuff. It puts a lot of pressure on the person behind the counter."
The 1,300 full-time and 800 part-time Heinen's employees now have to be what Heinen calls sales merchants.
"They have to be able to sell across the counter," says Heinen. "They have to be able to build a display."
This means having someone from the meat department slicing ham in the aisle, talking to people and educating them about the product. It means having people from the prepared foods department giving holiday tips and ideas on how to use the available products.
"It's not just a demo woman saying, 'Try the product,' but giving the customer information that may entice them to buy now or later," says Heinen. "Each person needs to be very knowledgeable about the products they sell in order to be a sales merchant. That is our future. The rest of the people, despite what they say, are not committed to that."
Tom Heinen laughs at the fact that Tops offered a buyout to some of its senior people, something Heinen wouldn't even consider doing at his company.
"(The senior people) are our backbone," he says. "They are the ones that know everything. People ask me about a buyout, and I say, 'No, you have to stay, I have a lot invested in you.' It's a different environment."
Big competitors focus on squeezing better results out of the systems. Heinen's, which lacks those economies of scale, has to focus on people to get better results.
"The competition views customer service as working faster," says Heinen "Their message and incentives are all about controlling those costs, not developing people and teams and setting goals and improvements for people. Their goals are to go from stocking 100 cases to 125. The people side is where Heinen's is. We will either survive or fail based on our people. We aren't big enough to get the same cost efficiencies they do.
"Wal-Mart doesn't sell poor quality, they just sell good quality. They are selling items of a different price and grade. Their product isn't going to kill you, but do you want the big orange or the little orange?
"My guess is that if we get to the point where there aren't enough people that care about the size of the orange, then we'll cease to exist."
HOW TO REACH: Heinen's, (216) 475-2300
"The front end on a Saturday morning was almost deafening from the pounding of the mechanical registers," says Armbuster, president of Supervalu Corp.'s Shop 'n Save division since April. "You could hardly hear yourself think."
The most notable distraction at a Shop 'n Save store checkout today might be the television screen that faces the customer in line, flashing news headlines, lifestyle information and advertising.
While the cacophony of the old front ends might have served to blunt the thinking process, the information age terminals are capable of collecting data that can be crunched and collated to help skilled marketers make smarter, more informed decisions.
Arguably one of the most profound changes that Armbuster and his colleagues have witnessed in their industry is the emergence of technologies and tools unimagined when he first tied on a clerk's apron in 1970. Retailers had relatively crude methods to measure sales data three decades ago, but barcode scanning and IT advances have revolutionized the quality of information available to buyers and merchandisers.
"The data can be segmented into what you sell in an hour on any given Tuesday," says Armbuster.
Technology provides the tools but not the techniques for success, however. The successful retailers will be the ones that can tie together bytes and business sense. And Armbuster is in a position to have a critical impact on the changes the chain implements as its 19 company-owned and 60 independently owned stores -- with a combined 8,300 employees -- battle to compete with myriad competitors, traditional and nontraditional, local and global, that are vying for the consumer's retail dollar.
Armbuster minimizes his own role in the process of keeping Shop 'n Save competitive in the marketplace.
"Shop 'n Save has never been about who is president," says Armbuster.
Although he plays down his importance, it seems no accident that Armbuster's career with SuperValu -- a wholesale and retail operation that supplies more than 1,400 stores under an assortment of regional banners that will approach $20 billion in sales this year -- is steeped in the skills that retail experts expect will be most crucial in the future.
Armbuster moved up the ladder and around the company -- six cities during one 11-year span -- through various merchandising positions, including vice president of sales and marketing with the St. Louis division of Shop 'n Save, and as vice president of general merchandise and health and beauty products for SuperValu.
His touch is already noticeable in one of Shop 'n Save's showcase corporate stores in Wilkins Township. The departments and product categories on which supermarkets are betting their futures are in evidence here. New is a section with $1 items, designed to appeal to the value shopper attracted to the proliferation of dollar retailers, and an expanded health and beauty products section with a third more items than previously stocked, located and configured so that shoppers will find it nearly impossible to miss.
And there is a heavier emphasis on perishables, particularly the massive and diverse produce department, the bakery and delicatessen. The prepared foods department, the one that supermarket operators have used to retrieve a portion of the food dollars that restaurants have taken away, has gotten a facelift and more space.
Everyone's a competitor
Not only has technology had a dramatic impact on the industry, but the competitive landscape for supermarket retailers has changed substantially since Armbuster entered the business.
Supermarkets have always dominated the grocery and perishable foods marketplace, but the times, they are a-changing. Once the hunters, taking chunks of business from hardware retailers, pharmacies, bakeries and virtually every specialty retailer on the block, they now find themselves on the defensive, facing competition at every turn. The Food Marketing Institute lists 14 distinct categories of grocery retailers.
One statistic that is perhaps the most telling of the supermarket industry's plight is that, of the top 10 food retailers in the United States, three of them -- Wal-Mart, Costco and Sam's Club -- are not traditional supermarket chains. Even Sears, Roebuck & Co., better known for appliances and power tools, is testing a new supercenter-type format, Sears Grand, and plans to sell convenience groceries, such as milk, bread and pet food, on its shelves.
Limited assortment stores, such as ALDI, lure customers that used to be attracted by "loss leader" merchandising strategies. A Japanese convenience store operator, FamilyMart, plans to open as many as 400 stores in cities on both U.S. coasts. Traditional drug stores like Walgreen's, and Eckerd have expanded their offerings and adopted aggressive pricing and marketing tactics to lure customers and recapture the prescription business they lost to other retailers, including supermarkets.
So, unlike in the past, when supermarkets watched each other to fashion a competitive strategy, they now have to keep an eye on virtually every location that has a cash register.
"Everyone's a competitor," says Armbuster. "The consumer wins when that happens, and it causes everyone to be better than they might have been."
If industry analysts are clear in their view of what the future holds, supermarket operators and retailers in general that expect to survive and prevail will have to be substantially better than they might otherwise have been. Retail Forward Inc., an industry research and consulting organization, predicts that a "handful" of retailers will dominate the global market by the end of the decade.
And supermarkets will have to scramble for their share in an increasingly tough competitive landscape. Retail Forward forecasts soft sales growth for the supermarket industry in 2003, with real sales increasing less than 1 percent.
A key to survival for supermarkets may be in perishables, where they have the most experience and expertise. And Armbuster says Shop 'n Save has a lot of room to run when it comes to perishables.
"We believe there is no topside in produce, meat and deli," says Armbuster. "We believe that we will win by being one of the best purveyors of perishables."
That contention is demonstrated in the company-owned store in Wilkins, one of the chain's newest and an important testing ground for new merchandising concepts and strategies. The key to maximizing meat sales, Armbuster says, has been to offer the customer greater variety within the category. Shoppers who might be prone to pass up some beef products, for instance, might be persuaded to buy the same cut if it is sliced thinly, offering smaller portions to the diet- or cost-conscious consumer.
Produce departments account for about 10 percent to 12 percent of total sales in the typical supermarket, but their profit margins are high -- 40 percent or more -- and consumer research shows that customers rate produce quality high on the list of reasons for shopping at a particular store.
At the Wilkins store, the produce department offers items like prepackaged salad greens, exotic fresh and dried fruits, and an assortment of fresh herbs. It also features an expanded array of organic products, a category that researchers say will grow in importance in the future as the baby boom generation ages and seeks out healthier food choices.
While the Wilkins store is only a few years old, the delicatessen, in-store bakery and prepared foods departments already have been revamped and expanded; the deli now has about three times the linear footage of the previous department.
To stay competitive, Armbuster says, Shop 'n Save is using the data it collects from its corporate and franchise stores, all of it residing on a single database, to make decisions about merchandising its stores. The data can indicate where strengths or weaknesses lie, and suggest to the experienced merchandiser what action might be taken for improvements.
A store that is weak in a key category may require a repositioning of the merchandise in a more prominent location or demand more shelf space. The stores, particularly the corporate-owned locations, become laboratories where the company tests its merchandising concepts. Those that show promise are then rolled out to the other stores.
"If you went and visited the various corporate stores, you would see things that are different in each store, and you would see that in the independent ranks as well," Armbuster says. "We're constantly testing and then pulling together the successful tests, and then creating a better and better model."
Armbuster believes the data can help fine-tune individual stores' merchandising, taking advantage of varying buying habits and patterns in particular locations.
"We also believe that there's a tremendous upside to micromarketing each store site to the demographics around the store," says Armbuster. "In some markets, Italian foods sell better than in other markets, and all that's in the data."
A lot of the best ideas come from the independent owners, a group that Armbuster says is particularly sensitive to the demands of their customers.
"Having a group of stores that have individual owners really creates a whole level of commitment that you don't find in a group of stores that simply have store managers," says Armbuster.
Armbuster says learning to read the data and using it to make the right decisions are critical to meeting the demands of customers who have more choices and whose demands and tastes are changing. And reaching the right conclusions means experimenting with various techniques to find what gets the desired response from the consumer.
Says Armbuster: "The best way to leverage that data is to be sure that your assortments and your product presentation satisfy the needs of those customers on a Tuesday afternoon. It has become that kind of environment."
But meeting the customers' expectations is only part of the formula that it takes to win in his business, he says.
Says Armbuster: "Success is not just fulfilling customers' desires today, but anticipating what they'll be tomorrow."
Every year, thousands of investors flock to Berkshire's annual meeting to hear the "Oracle of Omaha" hold forth on the prospects for investing success in the coming year. But on this early September day in 2002, Buffett wanted to hear what Doris Christopher had to say.
Just a week earlier, the $36 billion dollar man had never heard of Christopher. Now he wanted to know if the founder and CEO of The Pampered Chef would sell her company -- a direct seller of 225 high-end kitchen tools including everything from vegetable peelers and cutting boards to skillets and fondue sets -- to Berkshire.
But it wasn't the cooking accessories that drew the interest of Buffett, whose culinary tastes run toward a simple steak and Dairy Queen ice cream. Instead, it was the fact that The Pampered Chef had grown by more than 230 percent since 1995, had no debt, offered juicy profit margins (estimated as high as 25 percent pre-tax) and boasted a following of 70,000 dedicated sales reps, or "kitchen consultants" as the company calls them.
So there was Christopher, a mother of two daughters and a former full-time homemaker, face-to-face with the man Fortune magazine calls the most powerful person in business. After a brief meeting, he made an offer. She accepted.
"We are extremely excited by The Pampered Chef," the notoriously tight-lipped Buffett said in a brief statement. "Doris Christopher has created from scratch an absolutely wonderful business and (CEO) Sheila O'Connell Cooper is exactly the type of manager Berkshire admires. They both clearly love the business and the people they work with. We are delighted to add The Pampered Chef to the family of Berkshire businesses."
While details were never released, it is estimated that Berkshire paid around $900 million for The Pampered Chef.
To think it was just 23 years ago that Christopher thought she might want to be a caterer.
It was 1980, and Christopher's youngest daughter was ready to start school for the first time. That left Christopher, a former high school home economics teacher and adult education instructor at the University of Illinois Cooperative Extension Service, with more time on her hands.
She wanted to work again, but it couldn't be just any job. It had to involve something she enjoyed, but be flexible enough that she could still take care of her daughters. She loved cooking and entertaining, so she thought starting a catering business might be a good solution. If it were only so simple.
"One of the things I didn't have much of was capital," Christopher recalls from her office in The Pampered Chef's new 780,000-square-foot headquarters in Addison. "Plus, when people need caterers is pretty much the time I wanted to have off -- weekends, holidays, things like that."
Christopher noticed, however, that when she entertained friends and family they would admire and ask about the kitchen and cooking tools she used to prepare and serve food.
"These tools seemed to be very simple and basic to me, but they were things that other people seemed not to have," Christopher says. "With that, I got the idea and thought, 'Maybe there's a business here.'"
With a $3,000 low-interest loan taken out on an insurance policy, Christopher sought out a line of kitchen tools and devices focusing more on quality than quantity. The easy part was choosing what to sell; the hard part was choosing how to sell it. Retail was too expensive and too time-consuming, and printing mail order catalogs required more capital than Christopher had.
"What I did know a little bit about, not much, was in-home selling through party plans," she says. "The only thing I knew was that I had been a customer a time or two, so I had a little bit of an idea how the party plan system worked. That really was the basic knowledge we were armed with as I started the business."
The party plan
There were some things she didn't like about party plan sales: The high-pressure pitch, the obligation to purchase something even if you didn't want to. From the beginning, Christopher eliminated that aspect from The Pampered Chef's culture, and focused simply on the quality of the tools and the expertise of the consultants.
Here's how it works. A host offers up his or her home for what The Pampered Chef calls a "kitchen show" and invites the guests. The kitchen consultant arrives and demonstrates a range of kitchen tools. Afterward, the consultant takes orders from the catalog. There's no obligation and no pressure, yet the formula is wildly successful.
"I didn't have a formal business plan," Christopher admits. "I didn't study direct selling or party planning. When I look back on it now, I truly was a novice, both from a business perspective, but certainly from the perspective of understanding anything about direct selling. I learned as I went along."
From the first kitchen show in 1980, Christopher booked more shows until about nine months later, when a woman approached her about doing her own kitchen show. Christopher had always thought she would add a sales force, but wasn't sure she could afford one.
That night, she and her husband devised a commission system for the kitchen consultants and made their first hire. By 1981, The Pampered Chef had 12 consultants.
By the late 1980s, The Pampered Chef had expanded to states surrounding Illinois but had yet to make the leap to other parts of the Midwest, let alone the eastern states. By that time, Christopher's girls were older and didn't need as much supervision, which allowed her to do some traveling.
She went to St. Louis, Indianapolis and Milwaukee to recruit new kitchen consultants. She placed small newspaper ads and worked her personal network of family, friends and consultants who knew people in those areas who might be interested in selling.
"One of the things that's very strong in our business is that we recruit other people into our business from the experience itself," Christopher explains. "That's how we recruit them best. That is where people become really enamored and excited about being a part of this, so having kitchen shows is pretty important."
A little good press helped, too. A few small articles in national magazines about this new kitchenware phenomenon that was quietly sweeping the Midwest proved to be a major catalyst for Christopher. Eventually, The Pampered Chef cracked Pennsylvania, then Maryland, then Washington, D.C., and Virginia. Soon, it had a kitchen consultant in every state.
Hitting the brakes
This dynamic growth came with its share of problems. Christopher had long since left her basement office where she started the business and moved to larger and larger buildings to accommodate the rapidly expanding inventory and staff.
So she put on the brakes. In 1991, she called for a hiring freeze of all kitchen consultants. The back end of the business needed to catch up with the front end before the company careened out of control.
"That was a very trying time," Christopher says. "First of all, from our standpoint, it sort of stopped the momentum. Secondly, there were people out there in the field who viewed this as a real wedge in the momentum of their business as well, so some chose not to stay."
Most consultants, however, did stay, and during the seven months of the hiring freeze, The Pampered Chef started a waiting list for consultants. By the end of the freeze, it reached into the hundreds.
"We got through that time," Christopher says. "These things do have a way of working themselves out, but they're challenging as you go through them."
With the rapid growth under control, by the late 1990s, Christopher and her husband started to plan for their future with the company and to make sure it continued to thrive after they retired.
Although one of their daughters worked for the company, she was not ready, and not yet willing, to take the reigns. Christopher decided to look for a buyer for The Pampered Chef, but one that would maintain the same vision and enthusiasm with which she started the business.
"We had financial people over a five-year period who said to us that this is a business that has all the earmarks of something Berkshire Hathaway would be interested in," says Christopher. "The more we looked at it, the more we thought that it, indeed, would be a world-class place for this company to reside."
All in the family
It's been a year since the acquisition. Sheila O'Connell Cooper was named CEO of the company, while Christopher remains as chairman of the board and is still very active in the strategic vision of company.
Christopher is by no means ready to exit her company, but when that time comes, she knows it will be in competent hands. That, she says, is why she sold to Berkshire Hathaway now instead of in five or 10 years, when the pressure to sell would be much greater.
"There was no reason why we had to do this at this point: No financial crisis, no health problems, nothing at all," Christopher says. "The business is alive and well and thriving, as am I. And I intend to be here for the long term.
"But being here through the transition and being able to see that through was the prudent thing to do."
HOW TO REACH: The Pampered Chef, (800) 266-5562 or www.pamperedchef.com
He knew what Bill wanted, and John didn't have it. Bill, secretary-treasurer for Canton-based Ziegler Tire & Supply Co., was looking for the annual budget for one of the company's Ohio stores, and John hadn't been able to get it done.
The day before, he had fielded some 70 phone calls from various employees and customers who had questions or simply wanted to talk to someone at the company with the last name Ziegler.
As marketing manager and the company's No. 3 executive, John had spent half of this morning calling distributors to help one of his managers track down specialized tires for a boat trailer.
He knew it wasn't the best use of his time, but those kinds of tasks had always been part of the job.
Ziegler Tire, founded 79 years ago, revels in its distinction as the oldest Firestone dealer in the world. Over the last 20 years, its growth has been on a roll. The number of retail locations has more than tripled, to 18 today. Employment increased in the same period from 80 people to 210. Customers include not only drive-in consumers but also commercial clients ranging from UPS to LTV Steel Co. to Hertz. In addition to tire service, the company has followed customer demand to offer such basic automotive needs as brake jobs and wheel alignments. Sales last year exceeded $46 million.
But as the company grew, John and the other family managers realized they were barely in control.
The number of high-level management issues had grown right along with revenue and payroll, yet the Zieglers were still viewing themselves as the people in charge of handling the little details so employees wouldn't be distracted.
"We kept trying to treat it as a small family business," John says. "That just didn't get it [done]."
What the Zieglers realized is that their success had come from a business culture where the little things matter a lot-the way customers are treated, problems are handled and employees are kept informed.
Even as the managers grew more skilled and effective at strategic planning, they still had to find time for such routine details as regularly analyzing per-store profitability, or making sure the salesmen understand the intricacies of unity technology. They had to find a way to flawlessly execute details, even as the company grew too large for the Zieglers to handle the details themselves.
That's been a focus of their efforts in the last few years, and the results are telling: as sales rise, so too are profit margins-at 1 percent a year, which is pretty healthy in a mature industry such as theirs. That goes against the rule in business, where growth often brings hard-to-fix problems that eat away at the all-important margins.
The Zieglers don't claim their execution is always perfect, but the health and reputation of their business would indicate it's better than average.
With that careful disclaimer, here are some of the ways the people at Ziegler Tire make sure the little things get done.
Promote the people who value details
Some 85 percent of Ziegler's business is corporate, for accounts as varied as Timken Co. and Cleveland Public Schools. The remaining 15 percent is consumer sales.
Whether the customers are corporate or retail, the Zieglers make sure everyone in the organization is focused on them. How? By making customer service part of everyday life, and then promoting the people who do it the best.
All 17 of the company's store managers started out as tire changers or mechanics. "They know what it takes to fix a car and what it takes to please a customer," John says.
"Our managers have worked right there with the service department," Jack says, "so they know how to approach the customer exactly the right way."
Treat everyone like a customer
Busy organizations may remember to treat customers right, but they often lose sight of how important it is to treat vendors and employees the same way.
Everyone involved with a company, internally or externally, ultimately affects customer satisfaction, the Zieglers say. "As you grow," Bill says, "a lot of your company supports other parts of your company."
"Everybody is a customer," John says. "When a store manager calls us, he's not calling me to say hello. He's calling because he needs tires for a customer."
The Zieglers say many companies don't realize how a sharp word or bad attitude from one employee or manager can easily rub off to others, who subconsciously pass it along to a customer.
The always-be-courteous attitude extends particularly to the accounting and HR staffers, who field questions involving paychecks and benefits and related issues that are extremely important to the employees, but might seem less urgent to management on a day-to-day basis.
"When an employee's wife calls, that wife is a customer, too," John says.
"If she has a problem with the insurance and we help her take care of it, she's happy. If she's satisfied, then he'll probably be satisfied, and that in turn will help keep him motivated
"If we don't handle it right, he'll go home and she'll say, 'I can't believe you still work for that idiot.' And that might affect his job performance."
Avoid the turnover trap
Reducing turnover has been a conscious effort, Bill says, because hiring and training were taking too much time.
Recruiting is enough of a headache. Then, Bill says, it takes two or three years to get a typical person up to speed in the job.
Before the expansion was launched in the late '70s, the company's wages and benefits package were "way below average," John says. Turnover, predictably, was not.
So the management team addressed the main issues. Today, John notes, wages are above average (though admittedly not at the top end), the benefits package has been enhanced and the 401(k) plan includes a profit-sharing component.
That last element, according to Bill, cements employee loyalty. "If the company is successful, the people feel successful and they don't want to leave."
As a result of the compensation overhaul and focus on company culture, Ziegler Tire today enjoys an average employee tenure of 12 to 15 years.
"It's easier to do the little things right," Bill says, "when everyone knows their job."
Set a simple goal that everyone can understand
Ziegler Tire has no mission statement, but it operates around a short and sweet motto: "Whatever it takes."
It's easy to focus on the details of customer service, John says, when everyone knows it's accepted and expected that you'll do whatever is required to make the customer happy.
"It's the little stuff we try to ingrain in the managers," he says. "They're three words you hear a lot, but we try to live by them."
In the case, for example, of a customer complaint, "We say, 'What will it take to make you happy?'" John says. Customers usually ask for less than the company might have offered.
When a customer walks in upset about a tire that blew out on a pothole, the Zieglers don't turn him away because he didn't buy the road hazard insurance.
Instead, the manager might offer to split the cost of a new tire, and then allow the customer to buy the warranty retroactively on the other three tires.
"It's not whether they're right or wrong. It's what they perceive," John says. "Don't tell them what you can't do for them. Tell them what you can do."
Don't forget to reorganize at the top
Ziegler Tire's top management team consists of President Harold Ziegler, Secretary/Treasurer Bill Ziegler, Marketing Manager John Ziegler and Jack Ziegler, who retired from the day-to-day two years ago but still serves as chairman of the board.
Harold talks of retirement sooner vs. later; Bill and John constitute the third generation.
While the company's employment nearly tripled in 20 years, the Zieglers didn't worry about expanding their management team proportionately.
Harold , who's been president since 1978, found himself performing tasks that someone else could have-should have-handled. Ordering license plates for the company's 120 trucks is important, but it doesn't require the expertise of the No. 1 person. Only three years ago, he finally delegated the task to an assistant.
"That's the stuff that's hard to get away from," Harold says. "You've just always done it."
John says the family finally realized, because of issues like his failure to complete a store budget, that it was time to expand the management team. "We were too busy," John says. "We couldn't get everything done."
Four key middle managers were promoted from within, covering retail, commercial, retread and accounting.
"Some of the things we let go of were the fun things," Harold says. "[I] like to sell. I never liked the paperwork. The office [work] just isn't fun. The selling is still in my system."
Along with responsibility, the family had to give the new managers authority, too-a difficult step in a company where every piece of paper historically had a Ziegler's signature on it.
"You have to let go," says Bill. "It's very easy in a company like this to try to do everything yourself. But we had to give our managers as much as they could handle and let them do it."
Don't overmanage your employees
A generation ago, Ziegler Tire had four stores and four brothers. It worked out well from the standpoint of balancing work.
What it also meant, however, is a Ziegler was always within eyeshot of every employee. "There was a lot more micromanaging in years past," concedes Bill.
Even as the locations began to outnumber the Zieglers, old habits continued; "I used to have my hands in everything," John says.
The Zieglers today have succeeded at stepping away from day-to-day management of the various stores and departments-but only because they identified it as an issue and made a conscious effort to change.
Top managers sit down with department heads generally once a month and will check in as needed. If the manager needs to improve inventory turns, John might help to develop a plan. Then he backs off, trusting the manager will call if he needs more help.
"At the end of the month, it's report card time," John says. "It's either, 'Good job,' or it's, 'We need to do more.'"
Customers like details too
Ziegler's success in the commercial end of the business has resulted, at least in part, from its attention to detail on behalf of those clients.
For example, five years ago the company bought software to help analyze customers' tire usage and help them make better decisions about tires and retreads.
For example, the service showed one client how he could retread and rotate old tires to the back of his trucks to get as much as 450,000 miles out of one tire.
"We're helping them be more profitable," John says. "If he can make more money in his business, then I'll make more in mine."
Aim to be a 10 and maybe you'll be a 7 or 8
"We drop everything for the customer with a problem," John says. So if a customer walks in with a flat tire and no appointment, he or she will get some level of immediate attention-even if all the racks are full.
"We'll go right out and say, 'Let me take that out of the trunk for you.'" The customer will immediately be calmer, John says.
He acknowledges that many deflect the cliche that there are no problems, only opportunities. "I say, damn it, yes, you do have an opportunity-an opportunity to make that person happy. If you take care of them in 15 minutes, you're a hero."
That's where the word of mouth kicks in. "We have people walk in and say, 'I've never been here before, but my neighbor Fred recommended you.' That's as good as it gets.
It was October 2009, and the severest economic environment Frey had seen in his 40-plus-year career had slashed Universal Trailer Corp.’s annual revenue from about $400 million to about $200 million and forced him to gradually cut his staff by half, which finally leveled off with 1,175 employees. Still, in the depth of the recession, the manufacturer stayed true to its commitment to growth and made an acquisition.
UTC bought Wells Cargo Inc., the nation’s original cargo manufacturer, which happened to have headquarters in Elkhart, Ind., home of one of the highest unemployment rates in the country.
Frey knew his employees would ask: “How can you go make an acquisition when we’ve reduced employees and the size of the company?”
His answer: “We’re not going to lose sight of our long-term goals, our vision, creating competitive advantage and a better, stronger company for the future — for our employees and our customers — just because we are in difficult times. But we are going to adjust to those difficult times.”
You have to be realistic and make changes to your business as the environment dictates. While facing difficult times, you can’t abandon the building blocks and goals that drive your organization.
“When an organization faces a severe downturn, it’s pretty easy to drift away from those fundamentals and forget about them,” says Frey, president and CEO. “The first thing that we should all remember as leaders is, in a downturn, don’t forget what you’re trying to do and don’t forget what your strategy is.”
Here is how Frey led UTC out of the deepest part of the recession while keeping the manufacturer’s mission, vision and strategy in front of the entire company.
Stay on track
It’s important to keep the building blocks of your business visible so you don’t drift from them as you make decisions on surviving the down times. You do that by constantly revisiting the goals you’ve set.
“Although it’s hard — and I fall short of it at times — (you need) to make those a living part of your process — your management, leadership process,” Frey says.
To make those building blocks a priority at UTC, every month, Frey gathers his chief financial officer, chief operating officer and the top three leaders of each business unit for an operations review. Depending on the topic at hand, others are brought into the conversation based on their specific insight or to broaden the spectrum of thought. But the important aspect is that the meetings are regularly scheduled to keep a continuous pulse on how close the company is to reaching its goals.
“We review, ‘OK, how do these things that we’re doing, these initiatives, relate to our strategy?’” Frey says. “We try to discuss it on a regular basis and to measure ourselves against how we’ve progressed toward our goals.”
For example, UTC has a five-year plan titled Vision 2x. While already the largest specialty trailer manufacturer in North America, the company wants to be twice the size of its nearest competitor. In order to reach that goal, UTC has to capture market share —hence the reason to acquire Wells Cargo. So as the group of company leaders sits down every month, a portion of their conversation is dedicated to thorough analysis of where UTC stands in the market.
“We, in each segment, every month, measure what’s our trailing, 12-month market share for our business units,” Frey says. “If we’re trying to gain market share, what is the strategy? Why should we gain market share? Part of our strategy or competitive advantage we call ‘why us.’ We discuss: What are the things that we’re doing to create brand trust that causes the customer, the end user of our product, to prefer to buy from us rather than our competitors? What competitive advantage did we create, and how much better have we gotten? What are we doing to improve our products and processes so that the value of our product is better?”
Then the company leaders go through what initiatives drive competitive advantage.
“Is it a product development initiative, is it a cost-reduction initiative, is it a service initiative that we’re going to pursue, and how well are we doing on that initiative?” he says.
The conversation should be in-depth about the processes or initiatives you’ve undertaken to move toward your goal and whether or not they’re actually working. You need to set criteria and ask specific questions that will allow you to measure your progression.
UTC reviews the top two or three initiatives in each operating unit. And though the criteria will be specific to your business and industry, Frey uses vehicle registrations to measure market share.
By doing a regular, thorough analysis, you breathe life into your strategy and vision. It allows you to determine where you’ve faltered and what corrective action needs to take place to get back on track as well as whether the adjustments you’ve made to counteract the economy and down market are helping your business stabilize.
“By keeping those building blocks alive and part of your discussion on a regular, ongoing basis, it keeps us from drifting away from them,” Frey says. “Most of us, in the fray of day-to-day battle, drift from the adherence of these fundamentals and lose discipline. We end up doing lots of stuff but not all of the critical initiatives that drive us toward our vision.”
Communicate the building blocks
The understanding of your building blocks can’t only be fresh in your mind and the minds of your top management team.
Twice a year, Frey meets with about 50 employees whom he considers key managers, and about every other year, he speaks to all of his employees about strategy. Those are specific meetings that speak to the company’s goals. But as the leader of the company, the mission, vision and strategy must be conveyed by you as well as your managers on a regular basis. And there needs to be an even greater emphasis on communication during difficult times.
“Communication needs to be heightened,” Frey says. “When you go through each step in an action, you have to stop and talk to people about why you’re doing it.”
In this recent recession, maybe you had to cut budgets and lay off employees. Those hard decisions were probably made in an effort to strengthen the company in the long run. Still, those choices affect employees in every level of the business. You need to explain why the decisions took place and how those decisions position the company to meet its goals.
“It’s not only painful and a very unhappy and unpleasant experience for the people who lost their jobs because of the economic pressure we’ve been through, but it’s also a trauma of sorts for the managers who have to manage through that and the people who are still with the organization,” Frey says. “You have to make sure that you continue to communicate with those people, as well, so we all know why we’re taking the steps that we’re taking and what the long-term goals and visions are — where we’re getting to, why we’re taking these steps, and why we’re going to move forward and be better off in the longer term as an organization.”
Explaining the “why” aspect of the latest decisions, along with the company’s future steps, helps employees realize how the organization can be successful and the role they play in progressing toward those goals.
The key to getting your message across is reaching out to employees with multiple forms of communication and through multiple levels of management.
Frey recently held a webinar, which allowed employees to submit questions in an open forum to him, the CFO and the COO about how the company is doing financially and what direction the manufacturer is headed.
“The best way to communicate to employees is face to face in conversation, where they have the chance to ask you questions,” Frey says. “We as leaders should do that as much as we possibly can. The president isn’t the only person that communicates with people. Part of my responsibility, or any president’s responsibility, is to have an organization of leaders who likewise communicate and are honest and forthright people who are going to express the values you want expressed and treat people the way you want them treated, [and] that includes communication.”
When it comes to communicating messages as important as your company’s mission, vision and strategy, you need to make sure all of your employees are hearing the same information.
Frey doesn’t tell his managers word for word what to say and in what format. But when he’s asking them to communicate important topics, he makes suggestions on what should be included in the conversation.
“I do talk to our leaders and ask them in certain important communications to script themselves, and I counsel them on that script,” he says. “By script, I don’t mean tell them exactly what to say. Say it in your own way, but let’s be sure you’re incorporating these elements of the message so that the message that the whole company is trying to communicate gets across to your team the same way it gets across to other teams in the organization.”
Frey has spent more than a quarter of a century leading businesses, but he still remembers his roots as an operating and manufacturing guy. He spends nearly 5 percent of his time visiting UTC locations, during which he gauges whether the corporation is on track, reinforces messages and tries to understand how well employees understand the company’s mission, vision and strategy.
“It starts really with people’s reactions,” Frey says. “One develops a feel over years and years, and I can feel the tempo of a plant, I can understand how productivity is working and not working. I try as often as I can, in the office as well as on the production floor, to feel what that productivity is and talk to people about how they’re doing.
“Then I try to understand the processes. Most of the time I do spend at a business, unfortunately, gets wrapped up in meetings. But I try to spend time understanding a process or two and how it’s developing, particularly one of the critical initiatives that that business unit is working on.”
Observation of the environment and direct communication with those doing the work allow you to gain firsthand knowledge of whether your message is being correctly relayed throughout the entire organization. Your direct communication with employees also allows them to feel that you’re interested in them and assures them that all levels of leadership are on the same page.
Once the announcement was made that UTC would acquire Wells Cargo, Frey made a presentation at every company site that first week. It required him to travel to eight states.
With the assistance of the COO, the CFO and the former owner of Wells Cargo, he explained why they were making the acquisition, what it meant, what they were doing and how it was going to be put together within the company.
The acquisition allowed UTC to realize $4 million to $5 million in synergies and add a strong brand as its sixth company.
When UTC returned to a quarter of profitability this year, Frey sent a companywide e-mail with a photo of fireworks and asked employees to celebrate for the afternoon. The manufacturer expects to be profitable this year and anticipates continued growth and a stronger 2011. And, of course, the company plans to take more market share by sticking to its mission, vision and strategy.
“The building blocks of a winning organization are a pretty simple process understood by most experienced leaders,” Frey says. “But it’s pretty easy to drift away from those core fundamentals — what you’re trying to do — during difficult times. One of the most important things in leadership through downturns — it’s important all the time, but it becomes more important in a downturn — is to continue to keep in the forefront of your leadership and management the building blocks of a winning organization and what you’re about.”
How to reach: Universal Trailer Corp., (513) 671-3880 or www.universaltrailer.com
To say that Patrick Byrne is a complex corporate executive would be an understatement.
On one hand, the founder, chairman and CEO of Overstock.com is a well-known vocal proponent of free markets, smaller government and school vouchers. But at the same time, he’s called for greater SEC oversight, has written a CEO Owner’s Guide to ensure stronger ethics in business leadership, and is adamant about a crackdown on naked short selling of stock, a stance that has provoked the wrath of Wall Street.
“Our capital markets mean your savings,” Byrne says about his campaign. “Rogue hedge funds are killing businesses for profit. That doesn’t mean I’m against capitalism. It just means there needs to be more controls in place.”
Byrne says he is consistent in his thinking. He cites his belief in economic freedom, that he wants people to stop exploiting the system’s loopholes for personal gain and rallies around a common cry that education is at the root of empowering today’s employees as well as our youth.
This type of outspokenness has made Byrne a polarizing figure over the past few years and has drawn quite a few critics as well as champions.
All that has done is crystallize Byrne’s resolve. It hasn’t distracted him from his passions, including his belief that fighting poverty and educating young people must be priorities. Byrne has personally founded 19 schools internationally, and in 2001, he founded Worldstock.com, an Overstock.com microsite that sells handcrafted products from artisans in developing nations and from underprivileged artisans in the United States. Overstock keeps a low profit margin on these items and ensures that the artisans receive, on average, 60 percent of the total revenue.
With all of this, there’s one thing just about everybody can agree on about Byrne he’s extremely passionate. But he has also shown a knack for growing a business that’s hard to dispute. In just over 10 years, Byrne has taken Overstock.com from a $1.8 million start-up and transformed it into a public company that generates more than $800 million in annual revenue and receives top-notch customer service rankings.
Smart Business caught up with Byrne for a broad-ranging discussion that included how he’s been able to focus the Overstock.com team on customer service and why continuous improvement isn’t just lip service.
Ethics seems to be a common theme throughout your business, your philosophy and your causes. What’s the key to running a values-driven company based on strong ethical values?
There’s this Hindu term ‘Dharma,’ that is usually translated to ‘duty,’ but it means ‘the way you’re wired.’ I don’t think of myself as some super-ethical guy; it’s just the way I’m wired. But when you see certain things that are bad, you’re supposed to stop them, and when you see some chance to do some good in the world, you do that.
It’s a lot easier if you start off ethically, and it comes from having the right heroes. If you have the right heroes as a kid, you end up modeling yourself after them. Then it becomes easy. It’s not what courses you take in college.
How do you manage naysayers in your quest to continually grow the business?
A huge advantage we had is that we did go through rough patches early on; every new business does. I had this friend in the U.S. Army, a colonel named Stephen Tryon. He sent me a paper that the Army had developed. In 1991, when the Soviets collapsed, they did some interesting work on leadership development, and in 1994, they came up with a new doctrine: ‘BE-KNOW-DO.’
What it means in the Army context is this: The knowing and doing of being a soldier they say they can teach you in 14 weeks. You rehearse. You practice. But the most payback for their time was in the ‘BE,’ which means character. So focusing and shaping character, or only having the right character on your team, is critical.
At one point, when we ran into a rough patch and were trying to figure out what to do, I heard from this colonel and he sent me the paper. This was in 2004 or early 2005. After I read it, we made it key part of our culture. I realized that what I had been doing. For example, if I had an employee who had a skill set I needed, I was overlooking a bunch of other stuff. I had people who spun things, gave half-truth answers, played political games, etc. … and I overlooked it because they were a great C++ developer or something else I thought was valuable.
So what did you do?
Well, we were in a jam, and I had this moment where I realized we should get rid of these people. We fired all kinds of people just for being the wrong character. All of the executives who were left made a commitment to each other that, from that point forward, we would be police for the right type of character at the company. It became our first filter for bringing people in. They had to have the ‘BE.’
It turns out that was an enormously liberating decision. We realized half of our energy was fighting all these internal battles. But by getting rid of this group of people, it was getting rid of where the negative energy was in the company. When you eliminate this, it’s amazing how much energy it liberates in the company.
Overstock.com has grown significantly from its original offerings to include cars, auctions and real estate. What is your process of developing new ideas for the company, and how do you remain focused on your core competencies and mission?
Some of the ideas are not testable you either do them or not do them. What we’ve learned is we don’t want to sink $10 million into an idea without knowing whether it will work or not. We try to find inexpensive ways to get new ideas live and see if our customer base is attracted and wants to use them.
What we’ve discovered is that as long as we stay within our fairway our customers are looking for discount shopping, to save money and for us to wrap that up with exceptional customer service adding services to that profile works for us. The homes and cars fit our shopper profile value shoppers and seem to work.
There are other things we’ve tried to do that didn’t fit. Those were stillborn. Now, as we do new things and develop new departments, we test by getting a small number of products out and then see how our customers react to it.
You have millions of loyal customers who come back time and time again. What are some of the lessons you’ve learned on how to build customer loyalty?
We have a saying: The customer isn’t always right, but the customer always deserves justice. The truth is there are people out there who buy a diamond ring from you, take it, pop out the diamond and slip in a cubic zirconium and send it back to you. But the customer deserves justice.
It begins with the customer service function and having the right people there. They can’t be bureaucratic. They can’t view things in black or white. They have to understand that every situation is different. But on the other hand, they can’t be pushovers. They have to always be doing what’s fair by the customer. If they do that, customers recognize that.
American Express and the National Retail Federation conduct a poll every year. A few years ago we were No. 4; now, we’re No. 2. People name us one of the best for customer service, ahead of Zappos.com (No. 3) and Amazon.com (No. 4). So yes, you have to have the pricing right. And yes, you have to deliver. But the mechanics have to be in place. Then, you have to smother it in customer service that operates by a real theory of justice. And you can only do that by having the right people running customer service.
Customer service isn’t some backroom cost center. In fact, when we teach newcomers to our company the business, we explain that our company is like a Grecian temple. The pillars are all these different departments marketing, branding, buying, technology but the roof of the temple is customer service. The customer service department is sort of the boss to the entire company.
That’s the quickest way to make your company customer-centric. First, put the right people in charge of customer service; then make it the boss. It changes how you view the customer.
Another one of your passions is education. Why is education such an important part of success?
Our human capital development side is critical. I used to look at HR as not a function I spent a lot of time thinking about. That was a big mistake. At Apple, the head of HR reports directly to Steve Jobs. I thought about that. Our payroll is at $45 million. If you rented a machine for $45 million a year, you would certainly spend a couple million [dollars] tweaking it, trimming it and making sure you were getting the best.
I hired Steve Tryon a few years ago and he developed ‘O’ University. There are 500 or 600 courses that are online and there’s a job matrix set up. It’s really second to none. For every job in the company, there is a specific set of courses you have to take. Some of the courses are general, like business math and basic accounting. Some are more advanced, like negotiating skills. We’ve developed a course for every job in the company, with certifications. We tie raises to people working through the course material. A course may just be an hour, but it has a test at the end. We have an unbelievable human capital development program. It’s been a real key to our success. Right now, we’re spending $2 million or more a year in this area.
You’re well-known for your personal and corporate philanthropy. What drives that philosophy?
A lot of CEOs are Republicans and talk about small government. They don’t want government to do this or that. As a leader, you’re also aware of a lot of problems in society. So it’s hypocritical to argue that government shouldn’t be working to improve things and to simultaneously argue that and not do things about it yourself. If you’re in the camp of government shouldn’t be big, you have to roll up your own sleeves and help fix things yourself. To me, that’s education and corruption in our capital markets. If we can focus on those two areas, that will determine the health of our country.
HOW TO REACH: Overstock.com, www.overstock.com
Jerry Chapman’s wife laughs every time he attributes his company’s growth to luck. That’s because she saw all the 20-hour workdays that were really behind it, at least when her husband first founded Signal Group LLC.
Back then, the self-admitted control freak had a good excuse.
“When you’re a control freak, you have to work 20 hours a day because nobody can possibly do it as good as you,” says Chapman, CEO of the 50-employee company. “No one’s going to give the customer service you think the customer needs unless it’s you.”
But as SolidSignal.com the company’s online retailer of audio and video equipment and accessories has grown to 2009 sales of about $18 million, Chapman has had to adjust.
“The reality is that I stopped micromanaging and started surrounding myself with people who could make great decisions, who understood the vision,” he says.
Smart Business spoke with Chapman about empowering your employees to provide the kind of customer service you would.
Share best practices. People come with all sorts of different talents that you don’t have. So you sit down, you try to tell them everything you know. Then you have to learn to let go.
Now you start empowering. You start saying, ‘OK, what do you need in order to get better?’ You just become a listener. It’s very easy to say, ‘No, no, no, just try it this way or do it this way,’ instead of listening and trying to figure out the problem. Instead of saying, ‘Well, here’s what we’ve been doing,’ you try to look at what it is that they’re asking and try to solve their problems.
At the end of the day, we spend a lot of time talking to each other. Many times we have many different viewpoints with the exact same piece of data. It’s very surprising sometimes somebody will claim something and they have all this evidence to prove it and they’re right until you add one more piece of data in there: the way somebody else is looking at it. How quickly that other person will look at it and say, ‘Oh man, I can’t believe I missed that.’ Let people know what’s going on and all this informal communication will occur.
Sometimes you try to figure out what went right instead of what went wrong, and then you try to mass produce that. So it’s that whole best-practice concept.
Give employees information. We’re developing wikis now, and we have this database of information that’s easily searchable internally. As you grow, you start developing how you’re going to handle the vast amount of data that you have whether it’s just customer information or sales information, purchasing. It starts making them a little more powerful as they can utilize that data. Because you have this ability now to extract the data you already have, what about putting data in? That’s the difference between what we call wiki and just data.
The idea behind it is if somebody calls up on the phone and they need an answer to the question, we’re hoping that we’ve already answered the question a hundred times. If that customer service rep doesn’t know it, they don’t have to learn it themselves by trial and error. They can just type in a couple things and maybe something will pop up.
The first time you do it, you’re sort of reading it. And then the second time that you’re doing it, you’ve read it before ‘Oh yeah, I remember that.’ Maybe by the third or fourth time, you’ve had somebody else explain it to you or something else that you knew about this jives now.
After you recommend a few hundred antennas, you get really good at recommending antennas. And then after that, you get really good at recommending antennas, let’s say, for Chicago. And then after that, you get really good at recommending antennas for Southfield. And then after that, you get really good at some part of the country you’ve never heard of before because you’ve [done it] four or five times.
It has to do with: How do we make the people that we have even better, faster, more nimble, more flexible, [learning] different ways to approach a solution.
Let employees pass it on. If we’re doing that internally, why shouldn’t we make that available to our customers? That way, they’re not even asking the question. They already know and they feel comfortable about their purchasing decision or maybe not to purchase.
I think there are different ways to answer a question. All those answers can be based on all sorts of variables they could be based on how much money do you have to spend, could be based on location, could be based on the impact of new technology in the future. To take away the ability for somebody to think is if you say, ‘OK, here’s what you have to do.’ The minute you do that, our answers become stale.
So the objective is to be able to provide the information as detailed as possible to the customers so that they can make the better decisions for themselves. We’re making recommendations; we’re not holding guns to people’s heads.
We’ll make a recommendation to a customer and he or she doesn’t want [that] and they want to try something else and it works. We’ll post that so people can see what it is that other people have done in their area. We also do that with best-selling products.
You’ve got to keep going. So the first one was just linking everything together. The second one was adding to it. The third one was letting our customers have access to it. The fourth one is let them add to it. And then there’s no end.
We’ve got people who steal content from us all the time. And that’s perfectly fine. At least a customer knows what it is that they’re getting. It helps reduce our return rates. It doesn’t matter that they didn’t find it from us but maybe they’ll still purchase it from us because we have the best service or the best price or maybe we have it in stock and nobody else does. But at least they got the information before they purchased.
How to reach: Signal Group LLC, (877) 312-4547 or www.solidsignal.com