D&W’s pie packaging helps distinguish its fresh-baked pies from the thaw-and-sell versions.

When Spartan Foods purchased independent supermarket chain D&W Food Markets last year, western Michigan residents took special note. D&W, which got its initials from founding partners Roy Woodrick and Sid DeVries, had built a solid reputation for exceptional service and quality foods, particularly in its service departments.

A family-run operation since 1943, D&W management differentiated stores through their fresh departments and unique selection of foods. When Modern Baking last featured D&W’s in-stores ten years ago, its bakeries generated as much as 3.8 percent of store sales. At the time, D&W had 22 in-store bakeries in 24 stores, and it had just opened its innovative store design with a 2,300-sq.-ft. open production bakery in Holland, Mich.

Spartan acquired D&W Food Centers early last year at a time when the chain needed some financial support. Under the leadership of President and Chief Executive Officer Craig Sturken, Spartan has followed through with its plans for greater efficiencies within D&W. The company brought in Spartan private label products, closed some under-performing D&W stores and converted and remodeled at least one store to its Family Fare banner. Today, ten stores with in-store bakeries fall under the D&W Food Market banner.

Spartan has shown strong company performance in 2006 as a result of its actions, and fiscal 2007 third quarter net earnings increased more than 75 percent over the same period last year. "Our third-quarter net sales and earnings are at their highest levels in many years," said Sturken in a statement released this month.

The acquisition has clearly given Spartan a boost, and the company recognizes the D&W difference. "Spartan intends to continue D&W Food Centers’ fine tradition of providing high-quality products and services, and fresh, unique perishable selections," Sturken said in a statement at the time of the acquisition.

Spartan, like many other companies that acquire smaller independent chains, is challenged to maintain in-store bakery departments and other specialties that once differentiated the independents. To find out how D&W Food Markets in-store bakeries are performing a year after coming under the Spartan umbrella, Modern Baking visited Spartan stores and bakeries, spoke with customers and associates and interviewed industry sources familiar with the chain. Sources spoke on condition of anonymity. Company officials declined to participate.

Since the acquisition, D&W stores have retained their name and identity, and many of Spartan’s changes have been welcome. "They’ll probably rearrange the [D&W] operation to be a little more like what they know, like they did with Glen’s Markets," said a Midwest bakery/deli consultant.

Distributor becomes retailer
Spartan became a grocery retailer when it purchased supermarket chains Glen’s Markets and Family Fare in the late 1990s. With D&W in its mix, Spartan today operates 68 supermarkets, most with in-store bakeries. Like other grocery distributors, Spartan’s growth as a retailer continues the age-old debate whether being both a distributor and a retailer is a sound natural progression or a conflict of interest.

"If you are serving your customers’ needs by being their supplier, can you be competition to them also?" asks the consultant.

Spartan Foods and D&W Food Centers have a long relationship through Spartan’s distribution business. The company is the tenth largest grocery distributor in the United States with warehouse facilities in Grand Rapids and Plymouth, Mich. The distributor has supplied D&W with groceries, frozen foods, dairy products and private label products for more than 35 years until D&W switched to SuperValu briefly in 2000. As an independent operator, D&W’s bakery and deli departments has purchased supplies from several different bakery distributors or directly from manufacturers.

D&W’s signature bakery product lines are its pies, breads, muffins and cookies. Its decorated cakes alone generated 18 percent of bakery sales in its Holland, Mich. store and its dessert cake program is beginning to take off. Modern Baking’s recent visit to stores in Holland, Caladonia and Grand Rapids didn’t reveal significant promotion or merchandising efforts for custom decorated cakes or cakes in its service case.

"When Spartan bought them, they brought them into the fold of their own distribution and made them somewhat vanilla," a bakery supplier said.

Sources say that although the company as a whole is doing well, its bakery sales are flat. Spartan’s strong distribution network rightly has been the base for its own retail operations. "They have a good system with some pretty sound services," the consultant said.

Efficiencies of scale are optimal for center-store goods, but bakery/delis and other service departments can not survive solely on cost savings from ingredients and supplies. They require extra labor, service and attention from management to become a point of difference for customers.

"That’s why customers shop a D&W store. They want a point of difference," the bakery supplier said.

Spartan corporate management seems to be aware of the potential of D&W in-store bakery program because of its past performance as an independent retailer. It introduced its own private-label Aroma Street products to D&W in-stores, as well as other direct store delivery brands, such as Krispy Kreme donuts and Arnie’s Bakery products. Arnie’s, a Grand Rapids-based bakery, has branded merchandisers in most Spartan supermarkets. Arnie’s representatives stock and maintain the shelves; the units Modern Baking visited were disheveled and filled primarily with marked-down items.

Two-tier format
Spartan has maintained some of D&W’s more popular products and brands, particularly in its pie and artisan bread lines. Moving forward, the company also recently announce a two-tier supermarket program with D&W Food Market formats representing the higher-end tier and Family Fares being the basic format.

Although Spartan operates supermarkets in one state, regional differences still apply. Customers in the Grand Rapids area and other pockets around the state are generally more adventurous in their bakery purchases and are willing to pay higher prices for quality products. The Detroit area and much of the rest of the state’s bakery product staples are white bread and hamburger buns, sources say.

"The bakery business in the Grand Rapids area is there for the taking," the supplier said. Products popular throughout most of Michigan are fruit pies and other fruit-filled desserts. D&W continues to offer high-quality fruit pies that stand out from thaw-and-sell pies in their packaging. The in-store baked fruit pies are packaged in natural-colored window boxes that give them a farmer’s market appeal.

D&W stores continue to cross merchandise their bakery products well. Several stores position muffin and cookie displays near the check out lines, and in-store-produced sandwich rolls near the refrigerated lunch meat section.

Spartan Stores is investing in its retail locations. The company recently announced plans this year to renovate three D&W Fresh Markets and is beginning construction on a new Family Fare Supermarket. Grands Rapids area communities welcomed the remodels and format conversions Spartan implemented among some D&W locations last year.

Bringing any company into the fold of another organization is a giant undertaking. Supermarket chains, and particularly their fresh departments, bring their own challenges. With the initial necessary reorganization of D&W more than a year underway, Spartan’s successful sales performance in 2006 can continue if it turns its attention to its in-store bakery program to maintain differentiation.

D&W Food Centers, Caladonia, Michigan
A sampling of prices
Raspberry strip Danish, 14 ozs ................. $3.99
Blueberry muffin ....................................... $0.99
Bagel ............................................................ $0.59
"Killer" brownie .......................................... $2.99
Crumb cake, single serving ....................... $1.49
Donut ........................................................... $0.50
Gourmet chocolate cake, 8-in. round ......$11.99
Decorated cupcake ...................................... $1.39
Decorated cake,1/2 sheet ..........................$31.99
1/4 sheet ..................................................$14.99
single layer, 8-in. round ........................... $8.99
Ciabatta bread .............................................. $2.99
Cranberry walnut bread, 1 lb. .................... $4.99
Rosemary olive bread, 1 lb. ........................ $3.69
Crusty wheat bread, 1 lb. ........................... $3.69

D&W Food Centers at a Glance Parent company: Spartan Headquarters: Byron Township, Mich. Number of stores/in-stores: 10/10 D&W Food Centers; Spartan also owns and operates 24 Family Fare Supermarkets and 34 Glen’s Markets Management: Craig Sturken, C.E.O.; Glen Fornoff, bakery director; Mike Bawol, deli director Signature products: pies, artisan breads and muffins Production methods: cakes, frozen layers; breads, par-baked and frozen dough; pies, frozen; cookies, frozen dough and finished; muffins, frozen Plans: Renovate three D&W Fresh Markets; maintain D&W as its top-tier supermarket format with Family Fare as its more basic format; open convenience stores that sell gas and limited baked goods prepared in the adjacent Spartan supermarkets’ in-store bakeries