"Not Just Shopping"
The number one company on Fortune's new "best companies to work for" list is Wegmans Food Markets, which exemplifies the savvy use of aesthetics to create consumer value--and major profits--in a market where the alternative is intense price competition. Paradoxically, one of the major drivers behind today's aesthetic imperative is the power of Wal-Mart, a company not exacty known for its aesthetic edge. You may not be able to beat them on price, but you can surely beat them on experience, and, as the holiday shopping season indicates, consumers don't just care about price. They care about value. Here's an excerpt from Fortune's cover story.
Privately held Wegmans—which had 2004 sales of $3.4 billion from 67 stores in New York, Pennsylvania, New Jersey, and Virginia—has long been a step ahead. Its former flagship store in Rochester, opened in 1930 by brothers John and Walter Wegman, featured cafe-style seating for 300. Walter's brilliant and pugnacious son Robert, who became president in 1950, added a slew of employee-friendly benefits such as profit-sharing and fully funded medical coverage. When asked recently why he did this, 86-year-old Robert leans forward and replies bluntly, "I was no different from them."
Robert is chairman now; his son Danny, a sartorially challenged Harvard grad who came back to Rochester to cut meat for Wegmans, took the reins in 1976. Early on, Danny was keenly aware of the threat posed by nontraditional grocery outlets like club stores and discounters. (His 1969 senior thesis ended with these prophetic words: "The mass merchandiser is the most serious outside competitor to ever face the food industry.")
In 2003 those nontraditional grocers had 31.3% of the grocery market, and industry guru Bill Bishop projects that number will grow to 39.7% by 2008. That's because consumers think traditional grocers don't offer anything special; 84% believe all of them are alike, one survey has found. Most grocers responded to the competition by slashing prices, wreaking havoc on already razor-thin margins. From February 1999 through November 2004, the four largest U.S. grocery chains (Albertson's, Kroger, Safeway, and Ahold USA) posted shareholder returns ranging from -49% to -78%. Winn-Dixie Stores was booted out of the S&P 500 in December for its horrendous performance.
You don't see such problems at Wegmans. While it has no publicly traded stock, its operating margins are about 7.5% (the company will not disclose net margins), double what the big four grocers earn and higher even than hot natural-foods purveyor Whole Foods. Its sales per square foot are 50% higher than the $9.29 industry average, FORTUNE estimates, thanks to a massive prepared-foods department featuring dishes that rival those of any top restaurant. (Wegmans asked famed Manhattan chef David Bouley for input.)
Each of the newer Wegmans stores is 130,000 square feet—three times the size of a typical supermarket. That means it can offer true one-stop-shopping for every taste. And unlike Whole Foods, which disdains products containing pesticides, preservatives, and other unhealthy stuff, Wegmans stocks both organic gourmet fare and Cocoa Puffs, at competitive prices. That vast selection helps explain why in places like Rochester, Syracuse, and Buffalo, the zeal for Wegmans often borders on kooky obsession. In 2004 the company received nearly 7,000 letters from around the country, about half of them from people pleading with Wegmans to come to their town. Ann Unruh, 52, an insurance manager in Sparks, Md., who has never set foot in a Wegmans, is so excited about a store opening in her area later this year that she plans to take the day off work to be there. She says there will be no need to visit Whole Foods anymore: "I will just shop at Wegmans."
Each Wegmans store boasts a prodigious, pulchritudinous produce section, bountiful baked goods fresh from the oven, and a deftly displayed collection of some 500 cheeses. You'll also find a bookstore, child play centers, a dry cleaner, video rentals, a photo lab, international newspapers, a florist, a wine shop, a pharmacy, even an $850 espresso maker. "Going there is not just shopping, it's an event," says consultant Christopher Hoyt. In an annual survey of manufacturers conducted by consultancy Cannondale Associates, Wegmans bests all other retailers—even Wal-Mart and Target—in merchandising savvy. "Nobody does a better job," says Jeff Metzger, publisher of Food Trade News.