 | | |  | The Wegmans Way
By Matthew Boyle
Sara Goggins works part-time in a grocery store. The blue-eyed 19-year-old attends college in upstate New York, aiming to teach high school history someday. Poor kid, slaving away at a thankless job for some faceless retail conglomerate. But her employer has a face—a ruddy, smiling one, topped with curly auburn hair—and it's right in front of Sara on this snowy mid-December day in the Rocherster suburb of Penfield, N.Y., complimenting her on the display she has helped prepare in the store's French-inspired patisserie.
The face of Danny Wegman, president of Wegmans—the best company to work for in America—turns even redder when Sara whips out a picture she took of the two of them earlier this year, which she keeps behind the counter. "I love this place," she tells a visitor. "If teaching doesn't work out, I would so totally work at Wegmans."
Supermarkets aren't often thought of as desirable employers, what with low pay, grueling hours, annual turnover rates that can approach 100% for part-timers, and labor unrest such as last year's strike in California. Wegmans, however—along with the three other grocers on our Top 100 list—does things differently, including the way it deals with employees. The company has proved adept at battling the intractable problem facing grocery stores in this country—that there's no compelling reason to shop there anymore.
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 café-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.)
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