CEO of Australia’s largest privately owned supermarket group, Ritchies Stores, Fred Harrison explains why local stores are as relevant as ever – and shares his winning tactics for independent retailers and producers alike. Stuart Ridley writes. This article was first published in Food & Drink Business April 2020.
Fred Harrison’s first business was selling fresh fruit and vegetables to his local supermarket, which just happened to be the very first Ritchies, in Frankston, Victoria.
Even then, in his mid-teens, he understood how to succeed in the food business: you can either be the cheapest or make them an offer they cannot refuse. Young Fred’s offer then was great service, convenience and quality – and it is still working for him 40-plus years later.
Harrison worked his way to the top the old-fashioned way. First as a supplier, then using his local knowledge as a store manager, and eventually stepping up as a passionate leader of the whole business.
In the early 1990s, Ritchies was a mid-strength player in a supermarket game where almost everyone was getting smashed by a couple of huge competitors. Harrison says it is a sad truth that local businesses often come off second best when they get caught up in price wars started by bigger rivals.
He says, “You want to be price competitive, but how much stock can you afford to sell at a loss in a vainglorious attempt to win more customers?”
When Harrison was appointed as CEO of Ritchies in October 1994, the company was in bad shape with three years of straight losses from 1991 to 1993.
“We’re never going to be the cheapest for everything, because we’re not going to win that battle. Where we’re going to be good is around service, around convenience and the quality of our range that differentiates us against the chains.”
Winning hearts and wallets
Harrison firmly believes retailers and suppliers who live in the communities they serve can gain a competitive edge by nurturing customer loyalty and offering friendlier, more personalised service.
He says managers and business owners alike need to get on the front foot – and front-line if necessary – to handle customer feedback, whether it is good, bad or ugly.
“Ever since I’ve been CEO, every piece of customer feedback has been copied to the office,” he explains.
“We have a team of people responding to customers promptly, and making sure we all do our best to rectify any negative experience. I often say to the team ‘Here’s a chance for us to really shine’ and then we’ll move heaven and earth to win the customer back.”
In 2020, Ritchies will launch its Friendliest Team program across all 76 stores. But it is more than just being friendly.
Harrison says, “Local businesses can mean more to customers than somewhere to conveniently buy a few things on the way home – they are part of the community.”
Rewarding local store loyalty
Early in his tenure, Harrison looked at several ways to build stronger community connections and decided with his team to reconfigure the concept of a loyalty program.
“We had to come up with something different from our competitors,” recalls Harrison.
“And we realised most loyalty programs in those days weren’t great: you’d earn 1000 points and maybe you could choose a couple of tins of tennis balls given to the store by a supplier.
“So, our idea was, what if, instead of building up points to get things for yourself, you could nominate a local community group to receive a percentage of your spend, donated by Ritchies every time you shopped?”
The idea harked back to 1870, when the founder of Ritchies, Thomas Ritchie, started a charitable Penny for Every Pound program to support his local community.
Ritchies piloted the new Community Benefit program at one of its worst performing supermarkets, in Hastings, at a cost of $150,000 for new registers and backend IT.
Word soon got out, attracting new customers and motivating regular shoppers to spend more in that one store.
“Sure enough, we saw a noticeable increase in sales for Hastings, so we introduced the Community Benefits program to other areas,” says Harrison.
“It’s better than running huge, awkward ads in the papers for things at half price – we could never get better support than clubs and schools asking their communities to shop at Ritchies instead of one of the big chains.”
Ritchies passed the $50 million mark for donations to local organisations in February, with a $5000 donation to the Dromana CFA from its flagship store (Ritchies Dromana won an International Retailer of the Year award in 2019).
Looking back over the data collected during the program reveals interesting insights into the causes Australians care most about.
The top three causes are emergency aid, animals and cancer research.
The loyalty program is being updated with an app that allows customers to track their nominated groups for Community Benefits, as well as receive offers on favourite and new products.
Promoting quality over quantity
Ritchies stores offer most things households might need in a weekly shop, but Harrison admits, they tend to be the secondary shop because they can’t compete against the big chains on price or bulk-buy deals. But they do see customers more often during the week.
“Don’t get me wrong, I’d love to be the primary shop, but we’ve got to play to our strengths,” he says.
“The trend back to preparing more meals at home is very good for us and our suppliers, and we’re marketing aggressively around having a whole lot of locally-sourced lines that just aren’t available at Aldi, Woolies and Coles.”
“One of the great things I’m seeing with our local suppliers is that everyone is raising the bar. There’s a big demand for food that’s good for you – and premium quality.”
Fred’s keys to business success
1. Hit your top line sales targets: “Your profits may not be a lot more than inflation, they might be two to three per cent, but you have to reach them consistently, to give yourself a chance to be successful.”
2. Don’t sacrifice too much gross profit margin to make sales: “Too many sellers want to sell $1 for 95 cents or at half price. Margin isn’t just your accountant’s problem – it’s imperative to keeping a business open.”
3. Monitor wage costs: “Independent businesses can be a little slow on wage control. We set wage costs by the week and monitor them daily to make sure we have the right number and balance of staff for each shift, otherwise it can eat so much into your profitability.”
