Food Fight

Grocery chains are always rising and falling in Milwaukee. Remember Kohl’s, Cub, Jewel-Osco? Yeah, we thought so. Why Pick ’n Save could go the way of the dodo.


By Larry Sussman

Pick ‘n Save was the original low-price leader.

In frugal Milwaukee, the chain’s first store, Pick ’n Save Warehouse Foods, opened on Blue Mound Road in 1975 like a revelation. Milwaukeeans went wild for its ramshackle décor, unfinished floors and bargain-basement prices. They overlooked its meager selection of produce, complete lack of fresh meat and paper-thin staff. They gleefully etched prices onto their purchases using crayons, plucking the jars and cartons from shipping containers repurposed as sales displays.

Grocery supplier Roundy’s Inc., founder of the store, hadn’t bothered to hire enough workers to affix price tags to the jars of mayo, bags of chips and tubs of ketchup it was hawking. It hadn’t bothered to hire baggers, either, which was a bold move considering how the Kohl’s Food Stores that were ubiquitous in those days were known for generous and attentive customer service. The first Pick ’n Save really looked like a warehouse, but so many thousands of customers poured into its parking lot – and into what local news described as a new wave of “warehouse food stores” – that police had to direct traffic.

By the early 1980s, Kohl’s was playing second fiddle to the Pick ’n Save phenomenon. The first warehouse-store led to about a dozen more in southeastern Wisconsin and a hardball marketing campaign. “You can’t afford not to shop Pick ’n Save,” read a boastful ad in the Milwaukee Journal in 1980.

Oh how the tables have turned. Now Pick ’n Save faces a similar threat from a price-cutting powerhouse – Wal-Mart. To date, Wal-Mart is runner-up in the race to control Milwaukee’s grocery trade, though the fight has intensified as all comers step up their game.

The most visible sign, of late, of a knock-down, drag-out food fight has been an ad war between the top two players. Here’s a taste: In mid-June, Wal-Mart ran a full-page color ad in the Milwaukee Journal Sentinel showing the side-by-side grocery receipts of a woman who shopped at a Wal-Mart Supercenter in Muskego – and also at a nearby Pick ’n Save. According to the ad, one of several Wal-Mart ran telling similar stories, she paid 14 percent less at the former for the same 28 items. The tagline repeated Wal-Mart’s core slogan: “Save money. Live better.”

A week later, Pick ’n Save fought back in a half-page ad that slammed Wal-Mart for shipping in beef and not cutting it freshly in its stores. “And good luck finding a butcher there at all to help you,” it added, turning the screw. Not to be outdone, another Wal-Mart plug highlighted its stores’ “USDA Choice Premium Beef” and guaranteed, in small print, “If you don’t love our steak, bring your receipt back for a full refund.”

Such ads are par for the course in Milwaukee’s grocery industry. Wal-Mart has even taken to TV to snipe at Pick ’n Save and Milwaukee-based Roundy’s, the chain’s owner. It’s unusual for retail competitors to slap each other around as publicly as this (think of all the furniture outlets promising to beat the prices “at those other stores”), but the stakes are high. For many years, Pick ’n Save has captured more than half of the money spent in Milwaukee on take-home groceries, according to David Livingston, a grocery analyst based in Waukesha. And Livingston would know: He served as Roundy’s market research manager for 16 years, until 2002, when a Chicago-based private equity firm, Willis Stein & Partners, snatched up the rapidly expanding grocery company for a cool $750 million.

But Roundy’s grip on the city, which makes it hard to drive anywhere in the metro area without running into a Pick ’n Save, is in danger. The company owns about 60 supermarkets in metro Milwaukee, plus three Metro Markets, essentially high-end Pick ’n Saves in Downtown Milwaukee, Mequon and Brookfield – but it faces a slew of new supercenters opening across the city. By and large, they’re attempting to undercut Pick ’n Save on price. The scope of this retail build-out is hard to overstate. “I guarantee that there will be 50 new supermarkets in southern Wisconsin before [Gov. Scott] Walker’s first term is over,” Livingston says. “Ten or 15 years ago, Pick ’n Save was pretty much considered the low-price leader in the Milwaukee market. But right now, Aldi, Wal-Mart, Target, Costco and Woodman’s are the low-price leaders.” And they’re swinging for Roundy’s, he says. “They consider Pick ’n Save the weakest competitor.”

The multitude of grocery chains can seem amorphous from a distance, but each has a distinct identity. Wal-Mart, the big-box king, is the nation’s No. 1 merchant in grocery sales. Costco, a members-only competitor of Sam’s Club, inspires fierce loyalty in some of its customers. Woodman’s, the Janesville-bred grocer, carries on the warehouse strategy pioneered by Pick ’n Save Warehouse Foods. Aldi is run by a hyper-efficient German company obsessed with streamlining costs. Piggly Wiggly pushes “Certified Angus Beef” and advertises that “The Pig’s the Place for Low Prices.” Target is marrying low-cost groceries to its more sophisticated brand of big-box retail. Sendik’s stores are impressively upscale, and Sentry, once a powerful chain here, has supermarkets proudly run by independent owners. (“It’s your community. It’s your Sentry,” said a recent ad.)

For Roundy’s, an alarming number of these competitors are skewing to the market’s low end, including Woodman’s. “Pick ’n Save hasn’t had a lot of everyday low-price competition,” says Woodman’s Vice President Clint Woodman. “But now, people in Milwaukee are getting used to seeing options out there.”

A recent market survey suggests that these food fighters – especially Wal-Mart – have already put a dent into Pick ’n Save’s pre-eminence. Earlier this year, Scarborough Research, part of Nielsen, asked 2,128 adults in southeastern Wisconsin where they bought most of their groceries. Forty percent said Pick ’n Save, down from 48 percent in 2008, and 14 percent responded “Wal-Mart Supercenters,” up from 12 percent. Next were Piggly Wiggly (11 percent), Aldi (10 percent), Woodman’s (9 percent) and Sentry (5 percent).

And don’t look now, but Meijer Co. of Grand Rapids., Mich., is expected to open several supercenters around the metro area in the next few years. The family-owned company, which builds Wal-Mart-style supercenters offering groceries, home décor, electronics and pharmacy items, has almost 200 stores in Michigan, Ohio, Indiana, Illinois and Kentucky. Meijer spokesman Frank Guglielmi confirmed that the company is interested in Grafton and Franklin locations. “We’re in the early stages of due diligence,” he says.

In other big-box news – which is appropriately voluminous – Woodman’s is completing a new Waukesha location. Trader Joe’s, a stylish national chain with a hopping store at Bayshore Town Center, is expected to open another next spring in Brookfield, near a new Target that also sells groceries. Wal-Mart just opened new “Neighborhood Market” stores in Wauwatosa and Milwaukee and started construction earlier this year on another in Menomonee Falls. Configured like small supermarkets, these are the first such stores in Wisconsin.

New Wal-Mart Supercenters are also under way in Greendale, South Milwaukee and West Milwaukee, according to Wal-Mart spokeswoman Delia Garcia. She’s unapologetic when asked about the company’s hardball ad campaign targeting Pick ’n Save. “Families are trying to make ends meet, and we believe that this message resonates with them,” she says. “We want them to know that Wal-Mart is an option for affordable groceries and general merchandise.”

Livingston predicts that even more Wal-Marts will follow those that have already been announced. And for good reason. The most important question for consumers, he says, is not, “Who’s got the prettiest store?” but, “Who’s got the lowest price?” – and that’s a question Wal-Mart loves to answer.

“The prettiest stores aren’t very impressive in Wisconsin,” he says. That’s why price-cutters, and Wal-Mart in particular, are seeing “a tremendous opportunity in Wisconsin right now, particularly in Milwaukee. The biggest chain isn’t providing the customers with the lowest prices.”

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So how did Pick ’n Save go from being the city’s leading low-end grocer to a brand in limbo? The story starts in 1872, when Smith, Roundy & Co. – the precursor to today’s Roundy’s – opened a grocery warehouse in Milwaukee. One of the founding partners, William Smith, would later serve two terms as governor, though Roundy’s would eventually outshine (and outlast) even his celebrity. It persisted as a grocery supplier for decades, growing into one of the Midwest’s largest.
In 1953, the company reorganized as a cooperative, meaning its shares were split up among the grocery store owners who used its services. This arrangement gave local retailers control over the wholesale prices they paid, and it proved to be a boon for Roundy’s, which continued to grow. That first Pick ’n Save Warehouse Foods in 1975 grew out of the company’s continued success, and a new company division – Roundy’s Real Estate and Development – was created in 1976 to guide the founding of new Pick ’n Save stores.

By 1983, there were 27 in Wisconsin and four in Illinois. But in keeping with Roundy’s cooperative format, these supermarkets were generally run by independent owners. The company didn’t emerge as a corporate powerhouse until the late 1990s, when it began buying up pre-existing Pick ’n Saves and other stores. The Chicago-based private equity firm, Willis Stein, cemented Roundy’s new identity in 2002 when it bought the blossoming company and installed a new CEO – Bob Mariano.

He’s the well-tailored gentleman whose image is printed on umpteen plastic bags used in Roundy’s stores. “Chairman Bob Approved,” they say, next to a serious-looking Mariano giving a thumbs-up. “Roundy’s products are approved for quality and signed by Chairman Bob himself.” Mariano, now 62, is the closest thing the company has to a mascot. With gelled hair and a ready-for-anything demeanor, he strikes a balance between a slick businessman and an affable corner grocer. According to Bloomberg Businessweek, his total compensation was valued at about $1.6 million in 2011.

Mariano learned the grocery trade in Chicago, working for the Dominick’s chain of stores. He spent 25 years climbing through its ranks before becoming CEO, but he was replaced in 1998 when supermarket giant Safeway bought the chain. Under Mariano, Dominick’s shifted to the ritzier end of the grocery store spectrum – it tried a “Fresh Stores” concept that included Starbucks cafes and restaurant-style food.

Roundy’s followed a similar course after Mariano took over as chairman, president and CEO. He instituted what’s called a “high-low” pricing strategy, according to Dave Spiegelhoff, a former Pick ’n Save owner and current chairman of the Wisconsin Grocers Association. Under such an approach, some prices are marked down aggressively and touted as sales, but others remain relatively steep.

Mariano also oversaw a buying spree in the early years of his leadership. Between 2003 and 2007, Roundy’s acquired 26 independently owned Pick ’n Saves, 13 closed Kohl’s supermarkets and five abandoned Jewel-Osco stores. Through these buys, “Pick ’n Save was able to consolidate the market and become the dominant force in groceries in metropolitan Milwaukee,” says Janice Blankenburg, a marketing lecturer at the University of Wisconsin-Milwaukee.

As Pick ’n Save became the city’s top grocery chain, it quietly dropped its low-price persona. Roundy’s still puts out weekly fliers loaded with coupons, but the company continually changes prices for items not included in sales.

“We normally use Wal-Mart to price-compare,” Clint Woodman says. “Pick ’n Save is difficult to price against because of its week-to-week, high-low pricing. The prices at Pick ’n Save could change every week on one item.”

Luckily for Roundy’s, Milwaukeeans love coupons. In a survey conducted earlier this year, Scarborough Research found that 47 percent of adults in southeastern Wisconsin used grocery store coupons one or more times a week. No other city surveyed by the firm yielded such a high number. Scarborough concluded that Milwaukee adults are 41 percent more likely to use grocery coupons than the national average.

Today, Roundy’s is based in Downtown Milwaukee, in a high-rise office building a short stroll from the Milwaukee Art Museum. In all, the company has about 18,000 employees, including those at the Rainbow Foods stores it owns in Minneapolis.

Through staff, Mariano declined several requests to be interviewed for this story. “We don’t want to talk about our competition,” says Roundy’s spokeswoman Vivian King. “We try to focus on what we can do. We’re not running scared.”

She adds, “We understand the risk that we’re taking by not talking. … But there are limitations on what Mr. Mariano can say because Roundy’s is now a publicly traded company.”

The grocery leader went public earlier this year to pay off debts accumulated partly because of its relationship with Willis Stein, its equity firm owner. In 2005 and 2010, Roundy’s borrowed $550 million and $150 million, respectively, to pay dividends to Willis Stein. These were, essentially, paydays for the firm. Karen Short, an analyst who covers Roundy’s for BMO Capital Markets in New York, says the grocery company needed the $150 million because, “Willis Stein is trying to make a return on their investment.”

She adds, “This will not benefit Roundy’s, per se.”

Many private equity firms buy companies in the hopes of selling them in five years for a profit, according to Short. That appears to have been Willis Stein’s plan, but it’s been unable to find a suitable buyer. “A retailer with Roundy’s assets and background is not an overly compelling investment as a standalone,” she says. “It’s not really a growth story. Their earnings before interest and taxes are pretty flat.”

The initial public offering of Roundy’s stock, RNDY, opened Feb. 8 at $8.50. The sale was reasonably successful, but not wildly so. Afterward, the company still had about $702 million in outstanding debt and lease obligations, according to filings. By early August, RNDY was trading at around $10.25. But soon after, it took a dive. On Aug. 10, when Roundy’s announced lower-than-expected second-quarter earnings, its stock fell to $7.71 a share.

In a conference call with analysts the day prior, Mariano had said the company would be instituting “a lower everyday price [strategy] and fewer deep promotional offers” in response to a 3.2 percent drop in customer transactions.

CFO Darren Karst acknowledged the company was facing a stiff headwind. “The competitive environment in two of our key markets, in Minnesota and Milwaukee, has gotten more intense,” he said. “And frankly, the effect that it’s having [on] us is more than we expected.”

RNDY took a previous hit in May, dropping a couple points after Robert W. Baird & Co. downgraded the stock’s rating from “outperform” to “neutral.”

Peter S. Benedict, the Baird analyst who downgraded the stock, says Roundy’s “underlining fundamentals are not particularly robust.” The drawbacks include “declining store traffic, negative comparative store sales and no substantial growth in earnings or cash flow.”

To get investors to buy RNDY, Short and Benedict say the company has had to promise a high dividend, one of the largest as a percentage of stock price among publicly traded grocery companies. (Roundy’s paid 23 cents a share in the second quarter of 2012.)

Still, Mariano was bullish when speaking at the retail-focused Jefferies 2012 Consumer Conference, held in Nantucket, Mass., in June. Roundy’s has co-existed with big-box operators like Wal-Mart “for a number of years now, and we have been able to grow our business as they have also grown theirs,” he said. “The lost share has come at the expense of independent operators, and we see that continuing as time goes on.”

Mariano credited Wal-Mart with a 16 percent share of Roundy’s marketplace and downplayed that sliver’s significance. “That is pretty consistent with what you will see around the U.S.,” he said.

What you won’t see widely advertised, especially not in a store circular, is another one of Chairman Bob’s remarks, on Roundy’s pricing strategy: The company seeks “to be about 110 to 112 of supercenter operators and additionally emphasize our advantages of quality, depth of product selection, service and convenience,” he said.

Earlier this year, Roundy’s ran a promotion claiming to have reduced a wide swath of prices. “We lowered over 5,000 prices,” proclaimed a sign outside a Super Pick ’n Save in March. Customers were asked to look for special signs inside the store showing the reductions. (Super Pick ’n Saves are expansive Wal-Mart-style stores intended as a direct answer to the supercenter inrush.)

With higher margins, Roundy’s has more room for such price-cutting, but its stores aren’t designed to run as cheaply as those of Wal-Mart and Woodman’s.

“Roundy’s may buy an item for $1 and have to sell it for $1.27,” says David Livingston, the grocery analyst. “Woodman’s or Wal-Mart might be able to buy the same product for 95 cents and sell it for $1.12. Roundy’s couldn’t afford to sell it for $1.12. Where’s the money going to come from for all their extra expenses? Where do you get the money to pay for the gimmicks?” he asks, referring to promotions like the “Monopoly” game.

Grocery stores run on notoriously narrow margins, which explains why some have gone as far as dimming their lights to trim power bills (though this desperate measure is rarely seen anymore). For most grocers, net profit is about 1 percent of sales.

Livingston estimates Pick ’n Save’s markup rate at 25 to 27 percent, as compared to about 18 percent for Wal-Mart and Woodman’s. The latter saves by owning its own stores (Roundy’s generally leases), avoiding debt and refusing to take credit cards. Wal-Mart, like Woodman’s, is non-union and also has tremendous national buying power.

But retail experts are quick to point out that price isn’t everything. “The customer is willing to pay a slight premium for service and convenience,” Short says. Benedict adds that, even in price-conscious Milwaukee, “Price is only one part of the formula for success in retail. Just because you don’t have the lowest price doesn’t mean that you can’t survive.”

However Roundy’s configures its formula, Mariano is expected to remain a major variable. The grocery exec still lives in Illinois – in the wealthy Chicago suburb of Inverness, according to four speeding tickets accumulated between 2007 and 2010 – but his commute leads to Wisconsin Avenue, where he leads one of the state’s most powerful retailers.

At June’s conference, he talked up perishables, those classier items that were missing, by and large, from the original Pick ’n Save Warehouse Foods. “Perishables are critical to the ongoing growth of our business, and the relationship with our customers,” he said. “God willing, I will be around another 15 years, and I will keep talking about this.”

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Presumably, a conscientious shopper could visit five different chains and save a pile of money – if she or he had unlimited time, energy and gasoline. Bargain-hunting is expected to only increase in Milwaukee, as prices on beef, pork, eggs and dairy trend upward in 2013 due to this year’s drought. Beef, one of the hardest-hit items, will go up about 5 percent, according to estimates by the federal government, along with smaller increases for other staples.

Price hunters will have plenty of options. Too many, some say. One owner of some Milwaukee-area grocery stores, who asked not to be named, criticized Roundy’s for saturating the market with the many flavors of Pick ’n Save. “When you open a store, you normally do so for the right reason,” he says. “You’ll have the best bakery, the best delicatessen or the best meat department, and there are none in the area. But to open a store so that no one else opens one there, [that] takes away from what you’re doing. That’s doing something for the wrong reason.”

Even for a chain that’s flooding its own market, he says, the results are less than optimal. “The stores don’t perform well,” he says. “They cannibalize one another.”

Roundy’s 2011 annual report not only acknowledges this problem, it uses similar wording. Some new stores have suffered “as a result of cannibalization from existing stores in close proximity,” it says, but over the long term, “any such cannibalization will be more than offset by future net sales growth and expanded market share.”

Woodman’s strategy, on the other hand, is purely carnivorous. Its stores resemble large warehouses and normally span more than 200,000 square feet. At the checkout area, you can barely see from one end of the building to the other. Stores have about 25 aisles, plus separate produce and bakery sections, liquor stores and gas stations – and each provides customers with a map.

These stores, and others run by the chain, have some of the state’s cheapest grocery prices. In a Milwaukee Magazine survey of prices at nine area stores, those at Woodman’s rang up cheapest. For a dozen items, all products or brands carried at each of the stores, Woodman’s charged $30.32, including sale prices. Prices at the Pick ’n Save shopped totaled $39.13, and even a Wal-Mart Supercenter was more expensive – its “Every Day Low Prices” totaled $31.47.

Woodman’s 14th store opened in August in Sun Prairie, Wis. The company’s small empire of warehouse stores traces its roots to 1919, when farmer John Daniel Woodman opened a produce stand in Janesville. In 1921, the Woodman family moved the stand indoors, creating a 580-square-foot shop it called “Woodman’s Super-Service Grocery Store.” The family later added stores in Beloit, Madison, Green Bay and Appleton.

The cut-rate chain is a relative newcomer, however, in southeastern Wisconsin. A store in Kenosha opened in 1997, followed by the Oak Creek location in March 2008 and the Menomonee Falls store in 2010. “At best, we can open one new store a year,” says Clint Woodman, grandson of Willard Woodman, owner of the family’s first retail store.

A new Woodman’s is slated to open next summer at Highway 164 and Main Street in Waukesha, but beyond that, the company has no further plans to expand in Milwaukee “in the next couple of years,” he says.

The company, still based in Janesville, has about 3,100 employees and stocks its stores with an exhaustive selection of canned tunas, peanut butter varieties, frozen green beans, etc. “We market on the idea that every customer is unique, and we want to offer the largest variety,” Woodman says. “Our target demographic is everyone.”

Woodman’s also markets itself as “employee-owned.” Once employees have worked for the company for six years, they receive a free helping of Woodman’s private stock, equivalent to 15 percent of their gross wages. The stock’s value, based on company earnings, is adjusted once a year, when it usually goes up: Clint Woodman says that in the 25 years he’s worked for his family’s company, the value has never declined.

Target’s results in the Milwaukee Magazine survey were also persuasive. Its line of groceries beat even the Super Pick ’n Save on West Good Hope Road in Milwaukee. During the past two years, Target has expanded about a dozen of its Milwaukee-area stores to carry larger lines of groceries.

At the opposite end of the pricing spectrum were Sendik’s, Sentry and the Downtown Metro Market (Roundy’s upscale store at the intersection of North Van Buren Street and East Juneau Avenue).

The Sendik’s name is a holdover from two stores that opened in Milwaukee in the 1920s, making the “chain,” if it can still be called that, the city’s oldest. Now, it’s owned by the Sendik and Balistreri families, and John Nehring, who runs the location on Oakland Avenue in Shorewood.

All of the stores are warmly upscale. “Sendik’s fruits, vegetables and meats are excellent, and I think consumers will pay extra for that,” says Janice Blankenburg, the UWM marketing lecturer.

“Milwaukeeans want to be respected,” says Ted Balistreri, a co-owner of the Balistreri stores. “They want overall value for their groceries, which includes freshness, variety, a pleasant shopping experience and service.”

Balistreri siblings Ted, Patrick, Margaret and Nick partnered in 2001 to expand their Sendik’s store in Whitefish Bay to others in the area. What followed was a steady string of openings: Wauwatosa and Mequon in 2004, Grafton in 2005, Elm Grove and Franklin in 2007, Greenfield and Germantown in 2008, New Berlin in 2010 and West Bend in 2011.

In the Scarborough Research survey, Sendik’s captured just 3 percent of market share, but Ted Balistreri isn’t worried. “We’re more interested in customer loyalty,” he says. “We have the most loyal customers because we continually deliver what they’re looking for.”

The iconic Sendik’s on Downer Avenue, with its green- and white-striped awnings, is owned by John and Tony Sendik, along with their father, Salvatore. The three also own Sendik’s Piggly Wiggly in Brookfield and the Sendik’s in Bayside.

John, a stocky man in his early 50s, says the Downer Avenue store entices customers with fresh baked goods, some of which he eats himself. “No one trusts a skinny grocer,” he says.

Yet these are lean times. “A lot of people are restricting themselves to buying only what’s on sale,” he says.

Add this to the city’s pre-existing frugality, and you’ve got one fickle customer base. “I’ve always heard that if it sells in Milwaukee,” he says, “it will sell everywhere.”

To keep it cheap, Milwaukeeans are hitting Aldi (short for Albrecht Discount) stores, which have applied some pressure to Pick ’n Save from the lower end of the pricing scale, Blankenburg says.

Aldi epitomizes penny-pinching. Its stores accept no credit cards or checks. You deposit a quarter to rent a shopping cart, and only get it back once you return the buggy. The vast majority of items sold inside are private-label generics, though the packaging is often similar to the national brands being mimicked.

Chris Hewitt of Aldi’s Oak Creek division says that by trimming costs and “not having to hire someone to police the shopping carts, we are able to pass the savings on to our customers.”

Piggly Wiggly fared fairly well in the magazine’s comparison shopping results, falling near the median. The chain, which has almost 100 stores in Wisconsin, used to open stores primarily in the state’s rural areas. But today’s store owners, most of whom function as independent operators, are “aggressively seeking opportunities in all markets, including the larger metropolitan marketplaces, such as Milwaukee,” says Gary Suokko, chief operating officer for Piggly Wiggly Midwest.

They’ve earned a foothold in the city and have stores in Oak Creek, Mequon, Cedarburg, Hartland, Oconomowoc, Sussex, Muskego and Hubertus, even winning over two independently owned Sentry stores in West Allis and Menomonee Falls in July. The stores switched allegiances after rumors that Supervalu, the national grocery company that owns the dwindling Sentry chain, was putting itself up for sale. Sentry – which has lost about a third of its Milwaukee-area stores since 2004 – fell from 8 percent of market share in 2008 to 5 percent in 2012, according to Scarborough Research.

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Walking through any of these supermarkets can be an alternately soothing and frustrating experience. Pick ’n Save, Piggly Wiggly, Sendik’s, et al., ply you with soft rock, classical music and the smells of freshly cooked foods, but grocery shopping is a notoriously annoying experience. There’s a reason why David Foster Wallace, in his famed graduation speech at Kenyon College in 2005, described standing in line at a grocery store when cautioning the graduates against closed-mindedness and giving into self-centered frustrations. “Who are all these people in my way?” he says. “And look at how repulsive most of them are, and how stupid and cow-like and dead-eyed and nonhuman they seem in the checkout line.”

Interestingly, the city’s top two purveyors of groceries, Pick ’n Save and Wal-Mart, also topped a Consumer Reports survey of frustrated supermarket customers. “No chains tried their customers’ patience more than Wal-Mart Supercenter, Pathmark (Northeast), and Pick ’n Save (Wisconsin), where roughly three-fourths of shoppers had one or more problems,” says the story, which ran in May. Pick ’n Save shoppers rated the stores highly on cleanliness but complained of out-of-stock specials. Wal-Mart shoppers said the supercenters were confusingly laid out and populated by indifferent employees, but they liked the “Always Low Prices.”

Competitors Costco and Trader Joe’s rated highly, suggesting that customer happiness, especially when coupled with low prices, is another vulnerability for Pick ’n Save.

In the meantime, Roundy’s is opening stores in Mariano’s old Chicagoland stomping grounds, competing directly with Jewel and his old employer, the Dominick’s chain. The Milwaukee company chased Jewel out of this city several years ago and plans to keep up the offensive in Chicago. So far, Roundy’s has opened only a handful of Mariano Fresh Market stores around the Illinois metropolis, but the company plans to add four or five a year over the next five years, according to its 2011 annual report.

“There’s a real demand for that concept in Chicago, and Dominick’s and Jewel are not that strong,” says analyst Karen Short. “There’s definitely market share to take, but the question is whether [Roundy’s] can do it profitably.”

Livingston is also a little skeptical but highly impressed. “In Chicago, the Roundy’s stores are some of the best stores that I’ve ever seen for low price, high level of quality, service and selection,” he says. “No one can figure out how they’re making money there.”

On a Saturday afternoon in mid-June, the Mariano Fresh Market store in Arlington Heights, Ill., was packed. Shoppers were funneled into an indoor and outdoor café area with a dozen tables, and further inside the store, a voice rang out over the store’s intercom periodically, announcing must-buy specials. Next to the door, a pianist was playing a piano that could be heard throughout the store, where prices, according to Short, are “almost comparable to Wal-Mart’s.”

Livingston says Roundy’s is doing the right thing by expanding in Chicago and paying less attention to some of the lower-volume Pick ’n Save stores in Wisconsin, stores that may eventually close.

“In Milwaukee, some of the Pick ’n Save parking lots are littered, whereas the decor in Chicago is first-class,” he says. And the Mariano stores are better-staffed. “You don’t have to wait at the checkout lines in Chicago.”

As for Roundy’s assertion that it’s “not running scared,” Livingston disagrees.

“I think that they’re running scared to Chicago,” he says. “In Wisconsin, you don’t put lipstick on a pig if it will get slaughtered tomorrow.”

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