Progressive Grocer   Store of the Month Caputo's Fresh Market Naperville, Illinois

June 1, 2007

BELLISSIMO !

Jenny McTaggart

JUNE 01, 2007 -- Alternative formats, sexy retail experiments, and killer tech applications—a lot of consultants, analysts, and even some retailers are enamored of such strategies as paths to salvation for a supermarket industry under siege. But in the grocery trenches, there are also operators that avoid overcomplicating the business with too many such tactics, preferring instead to rely on old-fashioned, attentive customer service and intuitive merchandising that comes from knowing a market intimately. Caputo's Fresh Market follows the latter strategy, and its latest store is a case study in succeeding at the basics, where deploying the sexy new tools of the trade fell short

merchandising that comes from knowing a market intimately. Caputo's Fresh Market follows the latter strategy, and its latest store is a case study in succeeding at the basics, where deploying the slick new tools of the trade fell short.

The five-unit independent thrives in the competitive, chain-dominated Chicago market, thanks largely to a straightforward formula: Focus on satisfying customers, and offer a diverse assortment of authentic Italian goods and other market-relevant ethnic foods, along with farmers'-market-fresh produce.

Caputo's tried-and-true formula is the likeliest explanation for its latest success story: a takeover of the much-lauded—but ultimately disappointing—"Lifestyle" experimental format that Marsh Supermarkets introduced in August 2005 and closed less than a year later.

After Marsh had launched its Lifestyle concept in Naperville, Ill., the industry watched closely to see how consumers would react to the store's unusual circular layout, in which departments were housed in "rooms" around the perimeter.

Despite the innovative design and attractive fresh selection, however, the store didn't catch on. What happened? Some observers conclude that the layout might have been too confusing for time-starved shoppers. Others speculate that Marsh was at a disadvantage from the start in Chicago, a new market where competition was just too tough for the Indianapolis-based retailer.

Marsh, which has since been acquired by Sun Capital Partners, Inc., hasn't offered much in the way of explanation, except to say that the store just didn't attract the business it had hoped for.

But the subsequent success that Caputo's has experienced in a short time in the very same space in Naperville suggests that other factors are at play. Caputo's experience also supports the case that independents can maintain a competitive foothold if they work hard at finding the right niche.

Without diverging all that much from the original store's layout and design, Caputo's manages to draw in up to 15,000 customers a week. Although the grocer declines to share financials, Progressive Grocer estimates that the 70,000-square-foot store—with about 50,000 square feet of selling space—easily brings in at least $500,000 a week.

The operator has turned this store around by offering a higher level of service, along with an enormous assortment of imported items at competitive prices—and most importantly, by thinking of customers first. "This is a commonsense business," notes Robertino Presta, c.e.o. of Caputo's. "It's about working hard and listening to your customers."

At Caputo's, that means making sure shoppers are "100 percent satisfied," find the products they need, and have their questions answered by friendly associates. There's no such thing as a "Caputo's salute" here; new associates are instructed to interact with shoppers and to guide them to the aisles or items that they inquire about, not just point in the general direction.

To encourage continued dialogue, Caputo's includes a phone number at the bottom of customers' receipts, and managers are equipped with Nextel phones so that they're reachable at any time to deal with complaints or requests.

Taking this a step further, Presta charges his staff with making the store "a resource for food" by continually educating shoppers about its abundance of products.

This service-first retailing philosophy has been handed down directly by Angelo Caputo, who founded the business with his late wife, Romana, in 1958. Presta got his start working in Caputo's original store in Elmwood Park, Ill. when he was just 13. It was there that he met his future wife, Caputo's daughter Antonella, who today serves as president of the company.

In 50 years the family business has grown to encompass five stores and around 600 employees, and Presta confirms that Caputo's will open more stores in the future. Indeed, store No. 6 is slated to open later this year in South Elgin, Ill., next door to a SuperTarget. Presta stresses, however, that Caputo's wants to have "controlled growth," because "as you get bigger, you have to keep the fundamentals the same."

Among those "fundamentals" is making sure management is walking the stores and talking to customers. For instance, when Caputo's celebrated the grand reopening of the Naperville site last November, Angelo Caputo arrived several hours early to greet shoppers and explain the layout of the store.

"I told them to think of it as a ballfield, with floral as first base, deli as second base, and bakery as third base," explains Caputo. Produce takes up much of the "infield," while seafood, beer and wine, and meat are in the "outfield."

"On their way out of the store, they said it made sense, and that they planned to come back," he notes.

While Caputo and company didn't make drastic changes to the ex-Marsh store, it still took them three months to tweak and fully inhabit the footprint. "It was the first time we had to close a store before it reopened," notes Dale Ohman, director of marketing. "We had to build more deli cases and produce coolers. We also changed some of the lighting, and the compressors on the roof."

In a nod to its local roots, the retailer added large posters showcasing Caputo's original store in Elmwood Park, as well as the company's founders and family.

Even given the reworking the store required, Caputo's considered the Naperville site an attractive piece of real estate, because as Ohman explains, "We're a destination draw for people who live here."

Many of Naperville's residents fall into a high-income bracket, according to data from Spectra. (See page 50 for the demographic details.) Within a one-mile radius of the store, 75.2 percent of households earn more than $100,000. But middle-class families and people employed in service occupations also live nearby.

Regardless of income, price is an important variable in the market, insists store director Marcus Padilla. "I have customers telling me, 'Just because we have million-dollar homes doesn't mean we want to spend a fortune on food.'"

Naperville and the surrounding area are also home to a variety of ethnic groups, he says. Angelo Caputo estimates that at least 50 percent of the store's customers are of Italian descent, but the numbers of Latino, Polish, and Middle Eastern shoppers are growing.

The store's robust product mix reflects that diversity. Yes, Italian items are most prevalent, with representation in the deli, bakery, center store, and more. Seven aisles are dedicated to tomato sauce and pasta. But Caputo's also features distinctly non-Italian ethnic sections among its dry goods and in produce.

One particular tribute to the retailer's Italian roots: Caputo's impressive private label line, La Bella Romana, is named after the Caputo matriarch. The line comprises approximately 60 products in 20 categories, from canned goods to bakery.

Other retailers have approached Caputo's to express interest in carrying La Bella Romana products, but that's off-limits, according to Ohman. "It's something that helps set us apart," he explains.

Another feature that sets Caputo's apart is its eye-catching produce selection. "We were the original indoor fresh market," notes Ohman. The bountiful department takes up the middle section of the store, and offers many fruits and veggies from Chicago's own South Water Market.

The fresh selection is a draw for many of the ethnic groups from nearby communities, observes Ohman. "The Middle Eastern population, for one, has a large percentage of vegetarian diets, and the word has gotten out that we have really fresh produce." Ethnic items include hot Serrano peppers and Thai peppers, fresh nopales (cactus), bok choy, Napa cabbage, and bean sprouts.

While many grocers struggle to drum up any excitement at all in their center store aisles, Caputo's specialty packaged goods section, located behind the coffee bar that's in the center of the store, must be seen to be believed. For example, seven double-sided table displays are dedicated to pasta and tomato sauce alone. La Bella Romana sauce is sold individually and in cases of 20. Conventional names such as Ragú and Kraft are represented, too, as are top-of-the-line brands such as authentic San Marzano tomatoes. The higher-end pasta assortment includes bagged spinach ribbons, which retail for $4.29 a package.

Contrary to what one might think, such upscale items haven't cannibalized sales of lower-priced products, says Padilla. "The sales have been incremental."

Two other Italian cooking staples, olive oil and red wine vinegar, are present en masse as well. One aisle consists solely of olive oils packaged in large bins, while various brands in other aisles reflect the many regions of Italy, but olive oils from other countries are represented as well. Indeed, the center store also prominently features Hispanic, French, Greek, Asian, and Middle Eastern products.

While Caputo's primary distributor is Hodgkins, Ill.-based Certified Grocers Midwest (the retailer is a member of the cooperative wholesaler), the grocer also works with a variety of DSD distributors to get the right mix of ethnic items. "We rely on their expertise," explains Ohman. Romeoville, Ill.-based Kehe Foods, Inc., for one, has done a "wonderful job" of supplying Caputo's organic and natural assortment, he says.

The floral department, a.k.a. "first base" in Angelo Caputo's analogy, is essentially a specialty shop inside the supermarket. Thanks to the passionate floral manager, Nadine McChesney, who brings to the job a professional background in horticulture, the variety of plants and flowers for sale touches on a wide range of price points.

"We're always changing the displays to keep it looking fresh," notes McChesney. "Our floral sales are mostly impulse. We decorate a lot for the holidays, too, using hats with ribbons for Mother's Day, for instance." Christmastime is extra special at the Naperville store—a fireplace graces the floral department, where customers like to stand around sipping cider, she says.

Year-round, shoppers can order custom-designed arrangements with real or silk flowers for weddings, funerals, and other occasions.

Outside the store, a beautiful assortment of plants, reminiscent of what you might see at a nursery or home repair superstore, is on display.

Back inside the store, shoppers might be tempted to linger on "second base"—the "world-famous" deli—for longer than they intended, once they take a look at the selection of imported cheeses, meats, and Italian-style prepared foods.

"We have a much wider variety than the chain stores," boasts Padilla.

Caputo's goes all out for its La Bella Romana grated cheese, for instance, importing the cheese directly from Italy and grating it by hand. Soups, sauces, olives, and macaroni are among the other scrumptious private label deli items.

The retailer makes some its homemade items in an on-site kitchen; eight chefs prepare dishes in the Naperville store, for example. Other items come from a central kitchen at Caputo's headquarters in Addison, Ill.

Deli specialties include eggplant salad, tortellini salad, Italian meatballs, 13 types of olives, bocciccini (fresh mozzarella) wrapped in prosciutto, Italian home-made baked beef; and orancini— "golden balls"—filled with rice, peas, cheese, and meat or spinach.

Cheeses from around the world, including Poland, Greece, and Mexico, occupy one side of the deli case.

Suggestive selling is second nature for Caputo's employees. Friendly associates are available to suggest new items, explain where a product is from, or answer customers' questions about cooking techniques.

The deli is also a testing ground for new products from outside vendors. One of the latest items being tried out is Russian mustard sold in a tube, for example. "We strongly request support from our vendors," says Ohman. "We're willing to try new things if they're willing to work with us." As such, demos and sampling are a big part of Caputo's merchandising strategy.

With smells that conjure up an old-world European bakery, the bakery department ("third base") features Italian specialties, along with plenty of other traditional breads and baked goods.

Caputo's bakes its own bread at the commissary in Addison. "We're the only from-scratch bakery in the area," says Padilla. The store supplements the scratch offering with products from up to 10 DSD distributors.

European-style desserts are another highlight. One of the retailer's most sought-after sweets is homemade cannoli. "We still make our own shells, and we fill them all the way through," says Caputo. During the store's grand reopening, four clerks were making cannoli throughout the day to keep pace with demand.

Caputo's offers made-to-order communion cakes, wedding cakes, and anything else that customers might need for celebrating via a catering program. "We have many repeat customers," notes Ohman. "And our catering business has been growing tremendously. We've done radio ads that have helped people learn about our services."

Chicagoans have also learned that Caputo's has a good selection of fresh seafood and meat. Fish arrives via air three times a week, much of it from the East Coast. Items such as fresh smelts, baby octopus, and meluzzo whiting differentiate Caputo's seafood assortment from the typical supermarket fare.

Meanwhile, Ohman says the grocer considers its meat department an "old-fashioned butcher shop."

That means associates will cut meat to order and fulfill customer requests. They also make a variety of sausage fresh every day. But some shoppers go for the less-gourmet options: At $4.69 a package, Boar's Head hog dogs sell like hot cakes, says Padilla.

Caputo's has sustained certain Marsh offerings, such as a gourmet burger program, that the former retail resident had a lot of success with. Another business that Marsh did well with, alcoholic beverages, is a new venture for Caputo's, since the founding family wasn't comfortable selling alcohol in its stores until about four years ago. (The retailer still refuses to carry cigarettes and other tobacco products.)

Alcohol sales have done phenomenally at the Naperville store, thanks to a "room" design that allows for a much larger assortment, says Padilla. Behind the liquor and wine racks is a walk-in beer cooler, but the most discriminating customers can purchase a bottle of Louis XIII Cognac, if they want to drop $1,499 for it.

While Caputo's still uses Marsh's concept of a "breakfast room" featuring cereals and other packaged breakfast items (along with milk and other dairy products), the retailer changed two of the rooms that were included in the store's original design. One was being used for bath and beauty items, but Caputo's is now using it for organics. The other room, which was devoted to pharmacy, will soon be filled by a Charter One in-store bank. (Caputo's doesn't operate in-store pharmacies.)

While these changes are rather small in the whole scheme of the store's design, it's the bigger changes brought in by Caputo's that are making a real difference here. Call it the "hometown advantage," but it seems that the grocer has already won over the loyalty of Chicagoans by providing years of hands-on service and merchandising. Caputo's was named "Best Neighborhood Market" by Chicago magazine in August 2002.

The retailer also retained some Marsh employees, whose insights about the Naperville market have been helpful, says Padilla.

Caputo's flood of positive feedback indicates that the retailer is on the right track. "We get a lot of comments from people coming through the store for the first time, who say they like the layout, the prices, and the quality," notes Caputo. And best of all, he adds, many of those people say they'll come back.