Schnucks and Dierbergs Battle for St. Louis Home
By George Anderson
Craig Schnuck summed up the current situation his company finds itself in. “We’re under attack virtually by everyone in the retail business who is trying to sell food in their
stores.”
And the chairman and chief executive of Schnuck Markets has plenty of competitors. According to a report in the St. Louis Business Journal, Mr. Schnuck and St. Louis native
and rival Dierbergs find themselves competing against the likes of Wal-Mart, Sam’s, Costco, Target, Whole Foods, Trader Joe’s and Wild Oats.
The fact that two family run, regional chains have managed to, in many cases, thrive and not simply survive in the face of such national competition is a testament to the businesses.
Not trying to be Wal-Mart or any other retailer has been a key for both chains.
“We struggle with Wal-Mart,” admitted Laura Dierberg Padousis, vice president of corporate development for Dierbergs Markets. “But (other grocery and retail) stores that have
lowered prices to compete have not succeeded.”
“They’ll (Wal-Mart) get business, there’s no doubt,” said Greg Dierberg, executive vice president for Dierbergs. “They have everywhere else. But hopefully we can do what we do
best and retain our customer base.”
Dierbergs has focused on organic growth driving revenues and profits with its upscale product selection and merchandising.
“Schnucks is an exceptionally well-run company by an exceptionally dedicated family,” said Bill Bishop, president of Willard Bishop Consulting. “They have a diversity of talent
and a very strong culture of mutual respect and cooperation among family members. They probably could manage a company several times their size.”
The company’s knowledge of their hometown market has also, say analysts, helped them succeed in acquiring the best locations for their stores and locking out competitors in the
process.
Dick Shepard, principal of Real Estate Strategies, said, “Both Schnucks and Dierbergs have done a good job of not only serving as supermarket anchors but developing the centers
around them or having developers build around them.”
Moderator’s Comment: What is your assessment of Schnuck Markets’ and Dierbergs’ current situation and what they will face in the future? How big is the
“local” angle in their success?
“We actually live here,” said Greg Dierberg in the St. Louis Business Journal. “If you’re not local, you’re not as invested in it.” –
George Anderson – Moderator
Both of these chains are well run…Schnucks in particular. Their excellent real estate site section team is one of the industry’s best. Their strategies have paid off well for them as they have watched other chains like Kroger and National leave the market with their tails between their legs. Nothing like having the home field advantage.
Tip O’Neill said: “All politics is local.” In grocery, that’s true, too. Even Internet customers can’t get their groceries from out-of-town. And since the food market is so broad, with so many positionings possible, you needn’t be the lowest priced or the best selection or the highest quality or have the best service. You simply need to have a formula that keeps enough customers (you don’t need all the customers) coming back. For a number of years, Lechters Housewares made good money, even though it had an infinite variety of competitors selling housewares (discount stores, department stores, gourmet stores, supermarkets, dollar stores, etc.). Lechters made good money as long as it stuck to its proven formula. Expanding its market share wasn’t necessary to remain profitable. Wiping out the competition was not necessary, either.
My vote on why Schnucks and Dierbergs are dominating in greater St. Louis today is because both have been able to develop a successive series of great management teams and the accompanying assets and services they have produced.
My food retailing career began in St. Louis many years ago. At that time Kroger, A&P and National Tea dominated that market. Schucks had a single store in midtown St. Louis and Dierbergs ran a very small rustic store in Creve Coeur, MO. Schnucks’ founder expanded to the west suburbs and the sons operated a very fine contemporary store. Dierbergs picked off a site that Kroger passed on, made it into a destination center. Since then, both families have produced excellent operating teams and have long since captured the St. Louis market with wonderful upscale stores and good customer service. The former leaders, Kroger, A&P and National, left town for want of competitive innovation in both stores and union relationships.
Having lived in St. Louis for a number of years, we miss both Schnucks and Dierbergs stores now that we live in the Chicago area. Both stores met your needs so well that there was no reason to consider going to Wal-Mart, other than to save a few cents, but it wasn’t worth it. We did go to Costco and Sam’s to save on some bulk items, but not like we do now.
Both of these chains have excellent management teams and really understand their local markets. And they respect their customers! They are such a wonderful contrast to chains like Jewel and Dominick’s that are run run from the west coast and are just profit centers for their respective companies.
As good as Schnucks and Dierbergs have thrived with the threat of Wal-Mart and Sam’s Club, they are still missing the boat by not appealing to an even higher-end customer with products and services. They should model their stores after the Nordstrom experience. They can do it…they have the customer base and the real estate…and they can really shine without alienating their base. But they continue to maintain a traditional Supermarket shopping experience. Occasionally, there are glimpses of marketing brilliance but they fail to capture the excitement of their customer.
I believe they are as successful as they are for one reason…Wal-Mart has few, if any, Supercenters in the St. Louis metropolitan area. They are ringing St. Louis like the Indians did the wagon trains. When they make their move, Schnucks and Dierbergs will have serious problems. Walk into either of these stores with your eyes closed and then open them…you will not be able to distinguish which you are in. They are positioned the same in the customer’s mind. The customer goes to the one that is convenient. But, put a Wal-Mart Supercenter nearby with quality products significantly lower and they will find themselves fighting for their life. Schnucks and/or Dierbergs need to step out of the box and take some bold steps NOW to position themselves far from the oncoming competitive threat. They spend most of their time now complaining about the competition. They should be more pro-active. Time is on their side now but it’s running out.
I have lived in St. Louis all my life and both Schnucks and Dierbergs have been a part of my upbringing. Currently, I shop at Dierbergs, however, I know Schnucks equally well. While I have no business dealings with either of them, I have been doing business with Wal-Mart and Sam’s Club for many years. They are never comfortable with success…they are always trying to improve their models. Schnucks and Dierbergs can take this one lesson from them.
Speaking of going for the even higher end customer, I just spent a week in Portland, Oregon, attending a national conference on historic preservation. I also work on neighborhood commercial district revitalization, so I spent a lot of time in such districts. Portland probably has the most dynamic independent retail environment in the country.
And on my last day I happened on a small chain called Zupan’s, and their store on W. Burnside. Granted, they don’t have as much “exhibition” activity as the new headquarters Whole Foods Market in Austin, Texas, but this store is impressive. They put the average Whole Foods store to shame. Zupan’s is beautifully appointed. I’ve never seen a grocery store look so good inside. And this particular store competes with Fred Meyer and Trader Joe’s a couple blocks away, as well as independent upscale markets.