SUPPLY CHAIN

Hometown Heritage

BY Deena Amato-mccoy

Seventy-five years ago, two Italian immigrants came to the United States to live the American dream. The brothers established their roots in the heart of New York City’s borough of Manhattan and soon created D’Agostino Supermarkets, a grocery store based on intimate customer relationships, convenience and home delivery.

As D’Agostino Supermarkets celebrates its Jubilee Anniversary this year, Nicholas D’Agostino III is using technology to uphold the company’s retailing strategy and focus on the chain’s signature personal service and convenience.

D’Agostino Supermarkets is more than a grocery chain. It is a true success story. After arriving at Ellis Island in the 1920s, Nicola D’Agostino ran a corner store on Manhattan’s Upper East Side at Lexington Avenue and 83rd Street. In 1932, Nicola (Nick) and his brother Pasquale (Patsy) bought the store.

The store, filled with groceries, baked goods and fresh meats, also featured a home-delivery service. This combination made D’Agostino’s a shopping destination for many Upper East Side residents.

As the name and reputation of the two Italian immigrants spread over the next few decades, the brothers opened more D’Agostino supermarkets across the city. By the early 1960s, the company earned the reputation of being “New York’s Grocer.”

Today, D’Agostino’s is a 20-store chain. Sixteen stores operate across New York City; there is one store in Park Slope, Brooklyn; and three others are located in Westchester, N.Y. The Larchmont, N.Y.-based chain remains a privately held, family-run company that employs approximately 1,000 employees, including full-time and part-time associates. (The chain posted $170 million in sales for fiscal year 2006, which ended July 31, 2006.)

Nick D’Agostino III, the chain’s new president, is the third-generation legatee to chart the company’s destiny. He succeeds his father, Nick D’Agostino Jr., who is now the company’s chairman and CEO.

The company remains a landmark in New York City, yet D’Agostino (known simply as “Nick” to his associates) does not discount how drastically the supermarket industry has changed in the last 75 years.

“We compete against national brands like Target, Trader Joe’s and Whole Foods, for example. But we feel tougher competition from other ‘neighborhood’ brands like Food Emporium [owned by A&P], privately held Gristedes, and Associated locations,” he told Retail Technology Quarterly. “Since we feature neighborhood stores, we are dedicated to offering quality merchandise and the best customer service possible.”

This task became difficult to manage as the chain expanded. “In the past, my father and grandfather personally knew their customers, and what they purchased on a daily basis. They also treated each customer individually,” D’Agostino said. “That is a much easier task to do when you are only running eight stores or less.”

Shoppers’ busy lifestyles are also taking a toll on the chain’s communication efforts. “Traditional media is no longer a successful way to communicate with shoppers or follow up on relationships,” he said.

Technology touchpoints: Eager to uphold the high-touch relationships that his family worked so hard to build, D’Agostino is a strong advocate of technology. And this commitment is not new. D’Agostino said the chain was a pioneer in adding barcode scanning at the front end. “This milestone opened doors for us to test new solutions that could improve our business operations,” he added.

For example, in 1996, D’Agostino’s was one of 500 merchants that participated in a pilot program that introduced New York City residents to smart-card technology. And soon the chain’s point-of-sale payment terminals will accept MasterCard’s contactless PayPass cards.

Today, technology is helping the chain uphold the customer relationships that the company was built upon.

“During the 1990s, we developed the ‘D’Ag Plus’ loyalty-card program. However it was hard work to run the program ourselves and produce the cards,” D’Agostino noted.

In 2004, the chain partnered with Delray Beach, Fla.-based loyalty solution provider S&H Solutions. Today S&H maintains the chain’s new loyalty program, D’AG Rewards.

Like other grocers’ loyalty programs, D’AG Rewards features weekly promotions that can only be attained by cardholders. Shoppers also earn points for each promoted item they purchase.

However, D’Agostino knew it had to up the ante to remain a neighborhood favorite. “We wanted our program to reward the customer,” he explained. “While all programs deliver discounts, we wanted to create a way to reward our shoppers so they feel appreciated and special.”

That is how the chain’s “Smart Prices” concept was born. Smart Prices are targeted markdowns on high-penetration items. They may be eggs, toothpaste, milk, or even fruits or vegetables.

While these items are on special all year long, with no limits or no expirations, there is a catch: Shoppers must redeem their points to get the rock-bottom prices.

When RTQ recently visited three East Side New York City stores, large eggs were promoted for $0.29, with 500 points. Similarly, a quart of milk is $0.49 with 400 points.

These exclusive deals seem to be making an impact. To date, more than 200,000 households have a D’AG Rewards card, and approximately 75% of sales are card-based transactions.

Card-based sales continue to climb. While results vary by item, the chain increased its year-to-date unit sales of San Pellegrino sparkling water by 79%; organic banana sales increased 55%, and the sales of 100-oz. containers of Tide detergent increased by 17%.

D’AG Rewards is also helping the chain gain more personal touchpoints with shoppers. By analyzing its cardholders’ purchase history, the chain is rewarding its best shoppers.

“Last Thanksgiving, for example, we awarded our best shoppers with turkeys for the holidays. They didn’t even have to make a purchase. We had fun doing it,” D’Agostino explained. He declined to share how many turkeys the chain distributed.

“Looking ahead, we will enable other loyal shoppers to earn turkeys or rewards based on their purchases during specific time frames,” he added.

The chain is also adding new facets to the loyalty program. The newest addition is the chain’s Organic Club.

“Rather than provide discounts, we are hoping to distribute free product as new items become available each season,” D’Agostino explained. The Organic Club is slated to launch this summer.

Personal touches inside and out: Besides a history of strong customer relationships, New Yorkers instantly connect the D’Agostino brand with the chain’s home-delivery carts—a fixture around Manhattan since the company’s inception.

In the early days of the chain, the D’Agostino brothers or a clerk often peddled pushcarts to deliver orders to its Upper East Side residents. The popularity of the service remains a hallmark for the company.

“Prior to the advent of the Internet, we enabled shoppers to phone or fax in their orders,” he explained. “We picked the merchandise and used the carts to deliver orders.”

By transitioning this service to the Web, D’Agostino’s expanded this trademark service.

As shoppers place their orders online at www.dagnyc.com (or via phone and fax, for that matter), orders are compiled based on where shoppers live.

“We fulfill orders based on the closest stores to ensure freshness and speedy fulfillment,” he explained. “Merchandise is picked directly from store shelves. If an item is out of stock, we will go to another store, or even a competitor, just to ensure we don’t disappoint our shoppers.”

Online orders of less than $75 are subject to a $10 delivery fee. Orders of more than $75 receive a $2 delivery-fee discount.

D’Agostino’s also provides same-day delivery. Orders placed by 5 p.m. are delivered within three hours. Shoppers can specify preferred one-hour delivery windows.

Shoppers can also opt for deliveries during the week. Regardless of their preferred delivery option, shoppers know their goods will arrive in the chain’s well-recognized delivery carts with the “D’AG NYC” logo emblazoned on the tub. (There is also an in-store pickup option.)

Currently, the chain is working with a third-party provider, MyWebGrocer.com, to rebuild its online store and make online navigation and ordering easier. (A dedicated team manages the e-commerce operation.)

D’Agostino plans to “cut down our delivery time to less than a three-hour window,” he added.

One way to achieve this goal is to trade in a paper-based picking operation for handheld units that will monitor orders and record fulfillment. D’Agostino declined to reveal when the chain will make the transition.

The chain is further stepping up the value of its Web site by integrating its loyalty program online. This enables shoppers to enter their card number and earn points and discounts as they shop online. They can also redeem rewards for Smart Price items.

The more shoppers order online within a month, the more points they earn. When shoppers place their second order, they earn 50 bonus points. Three orders entitles them to 100 points. They earn 150 bonus points after their fourth order, and five or more orders give shoppers 200 bonus points.

“We want to give customers exactly what they are looking for and remind them we are all about personal service,” he said.

While D’Agostino believes the chain has a competitive edge when it comes to building customer loyalty, he knows these efforts come with their share of challenges.

“It is always difficult to emerge as an expert in the eyes of the shopper and deliver a consistent message about why our chain is a valuable place to shop,” D’Agostino said.

“We have been creating personal relationships through quality, service and conveniences like home delivery for 75 years,” he concluded. “The way to remain an expert is to keep finding new ways to deliver that quality service.”

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Weekly Retail Fix

BY CSA STAFF

THE NEWS: SAM’S REALIGNS STORE-LEVEL MANAGEMENT

BENTONVILLE, ARK. Sam’s Club is changing the management structure in its stores. In the realignment, approximately 250 positions will be eliminated, Wal-Mart Stores announced last week. The company said it’s replacing five lower level management positions at each Sam’s Club location with three new higher level and higher paying assistant manager positions.

“This is not a cost cutting effort. We expect a slight increase in payroll upon completion of this change,” said Sharon Orlopp, senior vp of Sam’s people division.

THE FIX: Differentiation would better help Sam’s

Since Sam’s decided that its refocus on the business customer was too narrow, it has sought to find ways to make its clubs more attractive to primary shoppers, i.e., women. And that’s a pretty tough row to hoe, as Costco has done a pretty good job at satisfying the club customer in general and BJ’s has been going after female shoppers for several years now, with some success.

Having fewer managers with more direct responsibility could create a tighter knit club-level management and shorten lines of responsibility and accountability. Yet, without differentiating the offering, execution isn’t going to overcome all of Sam’s challenges.

That being said, a store-level management realignment might be overlooked at other retailers, but, this being Wal-Mart, everyone has to make a big deal about it. But that’s the price you pay as the big guy on the block.

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Weekly Retail Fix

BY CSA STAFF

THE NEWS: TOYS ‘R’ US EARNINGS GAIN 40.1%

WAYNE, N.J. Toys “R” Us today posted net earnings of $199 million for its critical fourth quarter, which meant it turned a profit for the fiscal year ended Feb. 3. But special charges and gains had an impact on its numbers.

Sales for the previous fiscal annum were $142 million, the difference translating into a net earnings increase of 40.1% year over year. For the last fiscal year, Toys “R” Us posted net earnings of $85 million versus a net loss of $384 million for the previous period.

Operating earnings in the fiscal 2006 fourth quarter gained 53.1% to $571 million versus $373 million for the fourth quarter of fiscal 2005. For the last fiscal year, operating earnings were $649 million versus an operating loss of $142 million for the previous period.

THE FIX: Improved shopper experience ups comps

Of course, any observer has to take into consideration special financial circumstances. Fiscal 2006 operating earnings were positively impacted by $96 million from gains on property sales, slightly offset by restructuring and other charges. In fiscal 2005, operating earnings were negatively impacted by $410 million in costs relating to the merger of the company, as well as $58 million of costs and charges relating to contract settlement fees, restructuring and other charges.

Still, sales were trending up at last year’s end. Net sales gained 15.8% to $5.7 billion. In the full fiscal year, net sales advanced to $13 billion, up 15.2%.

Comparable-store sales for the Toys “R” Us’ U.S. division gained 0.6% in fiscal 2006, and that represents the division’s first comps increase in six years. Comps at Babies “R” Us were up 4.8% and those at Toys “R” Us international were up 2.6% for the fiscal year.

Jerry Storch, chairman and ceo of Toys “R” Us, said the company is “pleased with the strides we made in fiscal 2006 to improve at all levels of the organization and reposition the company for profitable growth over the long term.”

He said the company’s new management team has been focusing on executing a strategy that would turn the retailer into a global toy and baby products authority.

“This translated into higher overall sales, positive comparable-store sales, improved gross margins and strong operating earnings growth for the 2006 fiscal year,” Storch asserted. “The key to our strategy has been improving the customer shopping experience in our stores. We are accomplishing this by delivering a more compelling merchandise selection, better service and a cleaner and more comfortable shopping environment.”

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