Wal-Mart does not fear Kroger, which it already had taken on and bested in various cities around the country. However, the prospect of doing battle with a company as big, proud, and well-connected as Kroger on its home ground gave even Wal-Mart pause. At the end of 2003, Kroger operated seventy-four supermarkets in greater Cincinnati and had 45 percent of the grocery market, compared with Meijer’s 14 percent and Bigg’s 10 percent. 7 Wal-Mart’s share was 2 percent, thanks to two Supercenters on the metro area’s farthest fringe: one in Aurora, Indiana, and the other in Dry Ridge, Kentucky.
Kroger is king in Cincinnati and had been for a century, but uneasy lay the crown by 2004. For two years, the Cincinnati newspapers had been filled with reports of Wal-Mart’s real estate maneuverings around the city’s suburban fringe. (The company also made one brief, aborted effort to secure a location downtown.) The details often were sketchy, but the message between the lines was unmistakable: Ready or not, here we come. Wal-Mart planned to ring downtown Cincinnati with at least twelve and possibly as many as twenty Supercenters over the next few years. “Wal-Mart is going to come in and just blitz Cincinnati,” predicted Stan Eichelbaum, the city’s leading retailing consultant. 8 In anticipation of Wal-Mart’s belated assault, Cincinnati’s established grocers already had turned on one another in a frenzy of cost-cutting and new store openings in an attempt to add market share before the Arkansas invader started wresting it away. The skirmishing quickly claimed a major casualty. In May 2004, the Thriftway chain announced plans to close its twenty-one stores. 9 As recently as 1998, Thriftway had ranked as Cincinnati’s second-largest grocer, with an 18.4 percent share.
Today, the Battle of Cincinnati looms large as the ultimate municipal showdown of the nation’s two largest food retailers. “Wal-Mart just keeps growing,” said David B. Dillon, Kroger’s chief executive. “And I don’t see any signs of a slowdown in the number of stores.” 10 For Kroger, the stakes in Cincinnati are especially high. What hope would Kroger have of holding its own, much less regaining its former greatness, if it cannot stop Wal-Mart from besting it in its hometown?
Cincinnati is equally intriguing as a test case of the place of the independent grocer in the twenty-first century, for it is the home of Jungle Jim’s International Farmer’s Market, America’s most weirdly wonderful supermarket. Jungle Jim’s proprietor, James O. Bonaminio, known as “Jungle” to his friends and employees alike, is an independent with a capital “I.” When the mood strikes, Bonaminio will don his purple and gold wizard costume—a gift from Procter & Gamble—and roller-skate through the aisles performing “price magic.” Or he’ll jump in his “Jungleland” ambulance and go off “junking” for a few hours, returning with a ton or two of bargain-priced salvage that he eventually will figure out how to incorporate into his handmade store, as he did with the animatronic Robin Hood recycled from a trade show, the 45-foot trawler he’d pulled out of a swamp, and the 40,000 blocks of wood extracted from defunct highway guardrails.
Bonaminio’s business card shows him in doctor’s whites performing surgery with a machete on someone labeled “Phill,” who appears to be screaming in agony on the operating table as a smirking nurse sticks a needle into him. Bonaminio was known to interrupt meetings with dressed-for-success types by seeking the counsel of a mock hunting trophy—the hindquarters of a deer covertly equipped with a fart machine—mounted on his office wall. “What do you think, Butthead?” he asked after a visiting delegation of bankers offered him a loan at 7 percent. “Is 7 percent good?” The responding horn blast of flatulence—triggered by the remote control hidden in Bonaminio’s hand—blew that 7 percent right out the window. Although Bonaminio never lets business stand in the way of a laugh, the numbers suggest that there is method to his madness. In 2004, he booked $64.5 million in revenue, up from $29.8 million in 1995.
Bonaminio, who got his start selling produce out of the back of a truck in the mid-1970s, has thrived even as the number of independent supermarkets in America has steadily dwindled to the current total of 11,645, according to Progressive Grocer magazine’s latest tally. (The category includes everything from Mom-and-Pop corner stores to local chains of as many as eleven stores.) The independents’ national share of the market has dwindled to 16 percent from 27 percent a decade ago and is generally expected to continue to fall as more and more of them are hammered by the intensifying price wars among the big chain supermarkets and even bigger chain superstores. 11
Consultants agree that the best way to counter Wal-Mart is to be what Wal-Mart is not. And what food seller is less like a Supercenter than the truly independent grocer? The old corner store faded because it was unable to compete on price and selection when driving long distances to food-shop became a way of life in most of the nation. Consumers flocked to chain supermarkets and to the even larger big boxes that opened later on the edge of town. But that did not mean they rejected the convenience and intimacy that the store down the block offered. For many people over thirty, the phrase “the corner store” continues to be powerfully evocative of an establishment where the person across the counter knew you and would even extend credit if you were a bit short, a place that was as distinctively personal as its proprietor’s fingerprints.
If no independent could hope to equal Bentonville’s corporate muscle and supply-chain sophistication, neither could Wal-Mart’s 1,700 Supercenters pretend to rival the trait that ultimately defined the independent: individuality. To the contrary, Wal-Mart expended enormous effort to make its Supercenters as nearly identical to one another as possible, standardization being the essence of chain-store management.
Although price still rules in the great middle of the food market, and probably always will, affluent consumers in particular increasingly are seeking out alternatives to the big-box bargain hunt, as seen by the surging growth of high-end chains like Wild Oats and Whole Foods, which are thriving despite charging premium prices for organic and prepared foods. At the same time, Americans across all income categories are increasingly drawn to retailers offering a distinctive shopping experience. “In all of our consumer research, we are seeing a complete metamorphosis of consumer behavior,” observed John J. Ruf, a partner in the New England Consulting Group (which numbers Wal-Mart among its clients). “Consumers today are on the hunt for the best shopping experience and become loyal to ‘inspirational’ retail destinations.” 12 According to Ruf ’s definition, “inspirational” retailers come in all sizes, cut across all product categories, and include both chains and independents. What they all share, in Ruf ’s estimation, is a creativity that gives them a leg up on “surviving in a Wal-Mart World.” 13
Jungle Jim’s International Farmer’s Market is inspirational retailing at its most madcap. Bonaminio may be a merry prankster of an entrepreneur, but he has thought long and hard about what Wal-Mart’s looming invasion of Cincinnati means for his business. “People say, ‘Don’t worry about Wal-Mart, you are unique.’ Bullshit!” boomed Bonaminio. “Independents are different, man; you can’t ever let your guard down. You got to understand that it’s not just Wal-Mart either. It’s the crossfire. You got Kroger, you got Meijer’s, you got all these guys shooting. As an independent you’re sitting there in the middle of the shooting range….
“I’m fighting for survival! We’re all fighting for survival!” continued Bonaminio, his decibel level rising. “I’m fighting for my niche. I’m fighting for who I am. I’m fighting for my people so they get raises. Look,” he said, calming down a bit, “business is business, and you have to learn how to compete. Wal-Mart came up with this deal? God bless ’em. If it’s not Wal-Mart, it’s going to come from someone else anyway. I’m just giving you the particulars. I’m not sitting here crying.” 14
Kroger was the Avis of supermarkets before there was an Avis. The Cincinnati-based company expanded hugely during the great chain-store explosion of the first two decades of the twentieth century, without ever coming close to overtaking its archrival, The Great Atlantic & Pacific Tea Co.,
the Wal-Mart of its day. By 1929, Kroger operated 5,575 stores across the country, second to A&P’s 15,400. 15 (Grocery stores of this vintage were tiny, averaging just 1,200 square feet.) As the modern-day supermarket came of age, Kroger was slow to adjust and suffered the humiliation of being dropped to third place among national grocery chains in 1936 by the emergence of the more dynamic California-based upstart Safeway Stores. 16
Like A&P, the Kroger Co. was a dinosaur mucking about in the tar pits as smaller, more flexible companies like Meijer in the East and Fred Meyer & Co. on the West Coast combined high-volume grocery selling with discounted general merchandise to create the superstore in the 1960s. Kroger began halfheartedly fiddling with the emerging one-stop-shopping model by opening thirty-three discount stores combining food, general merchandise, and drugs. However, the stores were much too small to make a resounding impact, and Kroger betrayed its inexperience by stocking too much of the wrong sorts of goods. 17 Luckily, a new generation of leaders that took charge in 1970 concluded that Kroger was doomed unless it underwent an extreme makeover. “We did extensive research and the data came back loud and clear. The super-combination stores were the way of the future,” recalled Kroger Chairman and President Lyle Everingham. “We also learned that you had to be number one or number two in each market, or you had to exit…. There was really no question about what we had to do. So we just did it.” 18
Everingham’s laconic recollection underplayed one of the most dramatic corporate transformations of the last thirty years. During the 1970s and 1980s, Kroger methodically reinvented itself “store by store, block by block, city by city, state by state.” 19 It closed or remodeled hundreds of outlets, withdrawing entirely from such longtime hubs as Chicago, Milwaukee, and Birmingham. Kroger concentrated its openings in the Sunbelt, where population growth tended to be faster and competition weaker. The new-generation Kroger stores carried a wider array of products, though not nearly as many as a Meijer or a Meyer. These still were supermarkets, not superstores, and they were definitely not discount operations. To the contrary, Kroger widened its profit margins by reorganizing its stores around new specialty departments like delicatessens, bakeries, cheese shops, cosmetics counters, nutrition centers, and flower shops. Many of its moves paid off spectacularly. For example, just two years after it opened its first flower shop in 1980, Kroger became the largest florist in the country. 20 Kroger’s long-suffering stockholders finally celebrated as their shares generated returns ten times greater than the market averages from 1974 to 1999.
But by the time that Kroger passed floundering A&P to finally become America’s number-one grocery chain in the mid-1990s, the Cincinnati giant already was succumbing to arrogance and complacency. In 1997, Wal-Mart ranked a distant ninth among food retailers, with just $17 billion in annual sales. Kroger’s senior executives smugly assumed that they had the Ozarks upstart safely measured in the rearview mirror, only to find themselves quickly choking on Supercenter dust. In 2000, Wal-Mart sped past Kroger into the number-one spot. By 2003, Wal-Mart racked up $138 billion in food sales (including Sam’s Club) to Kroger’s $54 billion. Although Bentonville’s gains came mainly at the expense of smaller operators, Kroger was staggering, losing market share in most every city where it competed with a Supercenter. Wal-Mart is “the greatest challenge to Kroger since those days when there were no antitrust laws to protect Barney Kroger,” said consultant Burt Flickinger of Strategic Resource Group. 21
Wall Street had expected Kroger to take the fight directly to Wal-Mart after shelling out nearly $13 billion to acquire Fred Meyer Inc. in 1998. The West Coast superstore pioneer operated 800 stores and had performed well against Wal-Mart in the twelve states in which it operated. Acquiring Meyer enabled Kroger to become a more cost-effective distributor of nonfood merchandise. But CEO Joseph Pichler opted not to expand the Meyer franchise nationally, deciding against building superstores under any of the company’s other two dozen supermarket brands. Standing pat in the face of Wal-Mart’s 30 percent price advantage, Pichler wagered Kroger’s future on the proposition that superior product quality and selection, plus convenience of location, would enable its supermarkets to repulse Wal-Mart.
Wall Street emphatically disagreed, sending Kroger’s stock into a tailspin from which it has yet to recover. Not until 2002, Pichler’s penultimate year as CEO, did Kroger get serious about cutting prices—and operating costs—to counter Wal-Mart. The supermarket giant finally had the “right strategy, possibly three to five years too late,” said UBS Warburg analyst Neil Currie. “I think it’s going to be very, very expensive for them. But it is the only strategy.” 22
Under new CEO Dillon, Kroger became much more aggressive in all respects. In southern California, the company joined with Safeway Stores and Albertsons to hold the line on labor-cost increases, proving its resolve by holding fast in the record-setting UFCW strike that doomed the union’s Wal-Mart campaign. In October 2004, just six months after the California strike was settled, Kroger’s UFCW contract with 8,500 workers in the Cincinnati region was set to expire. Again a showdown loomed. Kroger paid its hometown workers an average hourly salary of $11.05, which compared to Wal-Mart’s average national wage of $9.68. However, Kroger also covered all of its workers’ health-care costs, adding $5.76 to the average workers’ hourly compensation, bringing total pay to $16.81 an hour. 23 The company offered a minimal wage hike over the next three years and insisted that employees start picking up part of the cost of their health benefits, as was true with most corporate health plans. Kroger workers reacted angrily to the notion. “They need to put a Wal-Mart sign up, if they’re going to act like Wal-Mart,” snapped one ten-year veteran of the produce department. 24
Kroger and the UFCW careened right to the edge of a Cincinnati grocery strike. An overwhelming percentage of the union’s members voted to authorize a strike on seventy-two hours’ notice, and the company began training replacement workers. In the end, though, the UFCW essentially caved, and the union’s leaders did not even bother throwing around the usual “win-win” rhetoric. “Kroger should not kid itself,” said Lennie Wyatt, president of UFCW Local 1099. “This contract was ratified for one reason and one reason only: there simply was no workable alternative at this time.” 25
Walking through Jungle Jim’s with Bonaminio is like making the City Hall rounds with a charismatic small-town mayor. His well-publicized antics and gloriously cheesy television commercials have made him an icon in Cincinnati. He is an imposing figure—broad-shouldered, six feet one, with the lantern jaw of a comic-book action hero. His dark hair turned silver a few years ago, but he remains fit and brawny at age fifty-five. Everybody knows Jungle or feels like they do anyway. He can’t walk through his store without signing autographs, even when he’s out of costume, as he is this July morning in 2004. He is showing me around his new flower shop and gift center when a boy of five or six walks right up to him, eyes aglow. “Hi, Jungle Jim,” he says.
“Hi! How you doin’? What’s going on?” says Bonaminio, bending over to shake the boy’s hand. The kid is with his mother and another woman who could be his aunt. “You messin’ around or what?”
“Yeah,” he replies happily. As the boy walks away, his hand in his mom’s, he turns his head and keeps smiling at Bonaminio until he vanishes around a corner.
Bonaminio already has shifted his attention to the flower shop’s manager, a petite, feisty-looking woman of about sixty. Her name tag says Jeanne Wallace.
“Looks great, looks great,” he tells her. “Go for it, baby! Get ’em. Don’t take any prisoners.”
Wallace laughs contentedly. “I’m building categories already,” she says. “I feel pretty good about that.”
“Looks nice,” Bonaminio says. “Whatchamacallit did good by bringing you in over here.”
Bonaminio is a stickler for a clean, well-ordered store. A dozen times on our walkabout, he is annoyed to discover a minor flaw—an out-of-stock candy shelf, a cracked counter, a dusty beam, an unlo
cked door that was supposed to be locked—and immediately gets on his cell phone to register his displeasure. In every other respect, though, he gives his thirty managers a lot of room, imposing himself only when they screw up. “She runs the whole thing,” he says of Wallace once we are out of earshot. “She’s gonna hire, she’s gonna fire, she’s gonna buy her own things. If she has a great idea, she comes to me and I help her. That’s what I do: I block for these people. I don’t even come in here unless there’s a problem.”
Bonaminio hates labor unions as much as Lee Scott does, except that he is honest about it and does not try to mask his antipathy with PR spin. “You know what I’d do if I had a union come in here, I’d milk this son of a bitch. I wouldn’t fix nothin’,” he says. “Then I’d sell the real estate and thumb my nose at them and say, ‘Fuck off.’ The day I walk around this store and tell a guy, ‘Hey, the floor is dirty, why don’t you get a broom?’ and he says, ‘That’s not my job,’ then it just ain’t worth it to me.”
Not that the UFCW or any other union has thought it necessary to attempt to organize Jungle Jim’s. Bonaminio has negated any labor cost advantage he might enjoy in competing with Kroger and Meijer’s—union shops both—by paying his 400 employees top dollar. A cashier who sticks around awhile can make $14 or $15 an hour at Jungle Jim’s, though managerial employees who want a raise often have to beat Bonaminio at poker or billiards to get it. (Lose and you keep your job.) Bonaminio complains that his store is overstaffed, but he can’t bring himself to eliminate jobs and fire loyal workers. “You want to take some of them with you to New York? How many do you need?” he says.
The Bully of Bentonville Page 22
