Meijer Inc., the Michigan grocery and merchandise chain that pioneered the superstore concept, is the tenth largest U.S. private company, with about $13 billion in sales. But in its industry, the family-owned enterprise is considered a small player. The company’s success lies in its commitment to its regional customers.

It may seem odd that a company that generated an estimated $13.2 billion in revenues in 2005 and ranks No. 10 on Forbes’ list of America’s largest private companies is considered a small player in its market. But with 65,000 employees and 170-plus stores, Meijer Inc. (pronounced “Meyer”), a grocery and merchandise chain that operates in five Midwestern states, is vying with Goliaths like Wal-Mart.

“While we are fairly large as a private family business, in our field we are going against the $50 [billion] to $320 billion national and multinational organizations,” says co-chairman and co-CEO Hendrik (Hank) Meijer, 55, a grandson of the founder. “We are small in that we are not able to do what they do in procurement and importing, which means that we need to continuously learn how to be smarter on the smaller scale.”

Meijer, based in Grand Rapids, Mich., and founded in 1934, is credited with pioneering the superstore concept. The company opened its first modern-format store in 1962, combining grocery and department store items. Meijer’s stores — in Illinois, Indiana, Kentucky, Michigan and Ohio — average 200,000 to 250,000 square feet, about the size of four conventional grocery stores. Meijer shoppers can select from about 120,000 items, including apparel, electronics, hardware and toys as well as groceries; many Meijer stores also sell gasoline, offer banking services and have in-store restaurants. Though his stores can’t compete on price against big-box behemoths like Wal-Mart and Target, Hank Meijer says he welcomes the challenge. “The competition can also be wonderful in that it truly focuses your mind,” he says.

Definable differentiator

Meijer has presented itself as an attractive alternative to the big-box competitors by emphasizing its regional flavor. The stores sell locally grown produce, offer some food items that are available only at Meijer and stock shelves with products that appeal to the demographics of the area. “Even though you may know the individual demographic, that does not mean that you will know what truly touches the people,” explains Hank’s father, chairman emeritus Frederik (Fred) Meijer, 87, who remains very active in the company. “This is an art and a connection — not purely following numbers. This is one of the hardest aspects to capture. We have always known that our differentiating factor is all in the eyes of our consumer base, and what they think the difference is — satisfying that is what really matters,” Fred says. “Our approach has been to put forth a solid vision [and] pursue it.” That vision, according to the company, is: “We will provide our customers with a compelling range of fresh solutions at great prices in a convenient format.”

According to Hank, Meijer’s mission to be there for its customer was the key driver in the 1988 decision to keep the stores open 24 hours, every day but Christmas.

In making sure that Meijer continues to accomplish its goals, Hank notes that the management team has done a lot of soul-searching. “We rediscovered that even though we have thought of ourselves as a one-stop-shopping supercenter, in the minds of our customers we are a supermarket with much more,” says Hank. That revelation led to a two-pronged strategy, he notes. The first conclusion, he says, is that the company must work to make its general-merchandise offerings more compelling. The second is that “we have the obligation and requirement not just to be very good in food, but to be excellent in food.”

Even amid the competition from the giants, a regional chain has some advantages over a national one, Fred asserts. “This is one area where we can really understand our customers — far better than someone operating 3,000 stores,” Fred says. “While we have more stores than some of our supermarket-only competitors, we are still in a position to know our people and customers much better than the big guys.”

Thomas V. Schwarz, the director of Family Owned Business Institute at Grand Valley State University’s Seidman College of Business in Grand Rapids, points out that in Meijer’s Midwestern market, “People know that they are ‘one of us,’ treat consumers well and give large amounts of money to local communities — something that is rarely done by national chains. However, in keeping the loyalty they enjoy, Meijer must continue watching the market, embracing innovation and matching any initiative Wal-Mart brings to the table when feasible.”

A changing market

Family-owned and other small grocery chains are giving way to mass marketers in many regions across the nation. Santa Monica, Calif.-based “supermarket guru” Phil Lempert, food trends editor and correspondent for NBC News’ Today show, says the companies that are buying up independent grocers are hoping to exploit the smaller chains’ relationship with their client base. “The larger chains are gobbling them up in hopes of emulating the benefits that make them special,” Lempert says.

Meijer itself was the subject of takeover rumors in November 2005, when The Grocer, a U.K. trade journal, reported that British company Tesco was seeking to buy 49% of the company. Meijer denied the rumor; Fred, Hank and Doug sent a memo to employees that said, “[W]e are not negotiating with any company for the sale of any part of our company. Our family is committed to Meijer’s future and to our success.” Hank says the rumors “were apparently started by an analyst in the U.K. and completely without foundation.”

Despite the family’s commitment to the community, Meijer has had to downsize its staff in order to keep costs and prices on pace with its global competition. The company cut 1,900 management jobs in 2004, the largest reduction in its history, preceded by 350 salaried positions in 2003. “We were completely united in recognizing the need to make our company more efficient and effective,” Hank says. “Wherever that transformation affected someone’s job, we worked hard to think through each move, and then tried to help those affected consider alternatives.”

Meijer has also altered its growth plans. Five years ago, for instance, the company was focusing on aggressively entering the Chicago market. But as larger competitors started moving more stores into Meijer’s established territory, the company opted to instead open only ten stores in Chicago and add more stores in its existing Illinois, Michigan and Ohio markets. “Yes, we knew that by opening additional stores in these markets that we were going to take some business from our existing units,” says Hank, “but if we didn’t do something to capture more of this market, someone else might. Ultimately, this led us to strengthen our position and fill some holes that we did not initially see.”

Putting its best foot forward

Meijer’s recent plans also have included remodeling two-thirds of its existing units. Pharmacies have been moved to the front of the store, making them more convenient for customers; drive-through pharmacy service has been added in many locations. The stores’ electronics departments, which previously had drawn criticism for their small size and selection, also have had a face-lift. “Seeing that we had been around a long time it meant that we had physical locations that were getting old,” Hank says. “So we really needed to reallocate our assets in a manner to best improve our formats.”

According to Hank, the overall goal was for Meijer to put its best foot forward. He says he’s been satisfied with customers’ response to the remodeling efforts. “It is hard to tell when you have a brand-new supercenter across the street and sales have remained flat,” he notes. “But in reality it is an issue that the brand-new store across the street has not robbed you of sales.”

The chain has experimented with an array of concepts over the years. Its website (www.meijer.com) now features a specialty foods area where shoppers can order kosher, organic, international, and health and wellness products. Recently, it’s expanded its Meijer Gold premium products into most of its supermarkets.

Acknowledging that the health of the Meijer brand will ultimately depend on maintaining its reputation as a low-cost, reliable retailer that exceeds customer needs, Hank and his non-family co-CEO, Paul Boyer, have revised the company’s cost and price structure. “Paul really made us recognize that if we were going to have a future as a low-price mass merchandiser, we needed to be low-cost as well,” Hank says. “This altered our direction so that our key priorities were on survival and then growth.” The company aims to eliminate operational waste without sacrificing customers’ service expectations, which has required it at times to take measures such as restructuring the workforce and adopting new technologies. For example, the addition of radio frequency identification chips in shopping carts in test market locations, alerts management as customers are heading towards the checkout so that it can open more lanes and speed up the checkout process. “We now have a much stronger platform primed for stability,” Hank says, “and what we are trying to do now is figure out and embrace a model that will effectively help us avoid taking the dangerous ‘me too’ philosophy that usually kills a business.”

Family and non-family managers

Hank’s brother Doug, 53, serves along with him as company co-chairman. Mark Murray, 52 and Hank and Doug’s mother, Lena, are members of the board of directors.

Meijer family members say they strive to protect the family feeling at the company. “We work hard at knowing our team members and making them feel a part of the family,” says Hank. “This is easier said than done, but we also know that it provides a cultural advantage. Obviously, the [superstore] format still has to be there, but you cannot overlook the value of cultural advantages. This allows you to be in tune with what is happening in the individual markets rather than continuously worrying about what is happening in China or Mexico.”

Jack Veale, principal of West Hartford, Conn.-based PTCFO Inc., a management advisory firm for family-owned and privately held businesses, agrees that this type of loyalty helps set Meijer apart. “It makes their employees want to continue bringing forth the results and new ideas that solve customer needs,” Veale says. “Historically, they have been very good at it, but Meijer needs to make sure that they keep this loyalty in place. These outside talents are the true DNA of the future.”

In fact, Meijer has looked to non-family executives often in its history. “We learned this early on, in that we grew up with people outside the family serving as president even as our father was fully involved in the business,” Hank says. “We always recognized this need, and we were very fortunate to have people take the reins. Just because the name is on the door does not confirm any special talent. Instead, it usually means that there is an ego that makes you think it does.

“The family cannot think about expanding until the components are in place to trust someone else,” says Hank. “It was the willingness to trust someone else with the keys at the third store that led to accepting the fact that the best leadership is not always a family member. You need to be able trust someone else with your livelihood and then provide the support necessary for these individuals to succeed.”

In the 1980s and ’90s, Fred Meijer acted as chairman and focused on long-term concerns, while non-family president Earl Holton managed daily operations. In 1999, non-family executive Jim McLean, who had been with the company since 1986, became president and CEO. In 2002, McLean resigned and Hank became CEO; Boyer, who had been executive vice president, was promoted to president and chief operating officer. “All along, the whole intention was to get a Meijer back in the helm,” a company spokesman told the trade publication DSN Retailing Today at the time. Boyer, who has been with the company since 1970, was named vice chairman and co-CEO in 2005.

The next non-family president, Larry Zigerelli, served for only about seven months in 2005. Zigerelli, who had joined Meijer in 2002 as senior vice president of marketing and advertising after three years at CVS Corp. and 18 years at Procter & Gamble, left at about the same time the Tesco rumors were circulating, but Meijer executives stressed that his departure was for personal reasons.

In August 2006, Meijer named one of its board members, Mark A. Murray, as president. Murray had been the president of Grand Valley State University. News reports quoted Fred Meijer as saying the company looked outside retailing because it wanted to take a “different approach.”

The Meijer family is committed to reinvestment in the company, keeping dividends low, Hank says. “We recognize that we will not be able to get our prices as low as our giant competitors, but we also do not have to answer to the expectations of the public markets,” Hank says. “This means that we have the money available for reinvestment. We need to be profitable, but we would much rather reinvest for the long term than continually pull out.”

This way of thinking, consultant Veale says, is “the mentality that you need to make next quarter’s numbers or the stock is going to drop. They get to avoid wasting time focusing only on numbers. Meijer needs to make sure that they keep this loyalty in place.”

Looking forward

Because the oldest of the five next-generation members is just 21, it remains to be seen whether any of them will one day run the company, Hank says. While he hopes the younger Meijers will join the business, “It is way too early to presume anything. We do not know where interests or competencies lie,” he says. “We hope that they view it as something worthy of continuing, as opposed to a source of money.”

Both Hank and Fred are quick to point out that they do not want to force anyone in the family to join the business. “I know when I got out of college the last thing I wanted to do was come back and work for the company, so I do not want to see someone in future generations automatically come into the business,” says Hank, who started working for Meijer at age 11 as a bagger. After college, he worked as a reporter for a southeastern Michigan suburban newspaper group and then became editor and publisher of a weekly newspaper in suburban Detroit for about four years. He rejoined Meijer in 1979 as assistant advertising director and became marketing director in 1982.

Hank says of the family’s next generation, “It is great if they have the drive and zeal, but if they can benefit from outside experiences they are going to feel better about themselves and bring fresher eyes if and when they do come to the business. There is truly a benefit to following your passion rather than having a point where you feel like you are trapped.”

Fred is even more emphatic. “If they are not interested, they should not continue the business,” he asserts. “If there is not the interest or ability in the family, then you need to consider selling before the legacy is damaged and the loyalty is hurt. We would like to think that we are an honorable family that has done a good job. If ever the family does not take an interest or does not have the ability to continue on, I hope that they see that and sell out to someone that has the desire.”             FB

This article appeared in Family Business – Summer 2007

Peter Fretty is a business writer based in Whitehall, Mich.