Progressive boss proves firm is no basket case

By Karyn Scherer

Ted van Arkel can be forgiven for feeling somewhat smug. For years now, supermarket operator Progressive Enterprises has been regarded by most investors as a hopeless case. But in recent weeks, the company which controls a large chunk of grocery retailing in this country, has seen its share price suddenly take off.

It is not yet rivalling the American Internet stocks, but for investors who have patiently stood by the company through a long period of turmoil, last week's all-time high of $2.50 a share was nevertheless welcome.

The surge appears to coincide with van Arkel's move into the top job at Progressive at the beginning of April. When it comes to taking credit, however, the former Fletcher Challenge executive is happy to acknowledge the efforts of his boss, Foodland managing director Barry Alty, who ran the company himself for 12 months after falling out with Graeme Kelly.

For the past year, van Arkel has been Alty's understudy. The two were rising stars at Woolworths in the early 1970s. Alty has now returned to Foodland's Perth headquarters full-time - a move that has boosted investors' confidence, as Alty had made it clear he would not be handing over the reins to van Arkel until he was certain the company was back on track.

The Australian-based wholesaler and retailer is also putting its own money where its mouth is. Since December, it has lifted its stake in Progressive from 58 per cent to 63 per cent. However, the fact that van Arkel is Progressive's sixth chief in as many years has not been lost on staff, nor on the man himself.

"I fully realise that was a risk, but at the same time I can only think of Foodtown and what it stood for in the early 60s and 70s and the tremendous high standing it had in the supermarket industry, not only in New Zealand but on a worldwide basis," he replies.

"Foodland feels very positive about it and if we can reignite that flame, we can make some very positive progress."

Winning back investor's confidence has meant drastic action at the company which controls 70 Foodtown, Countdown and 3Guys stores. Over the past year, staff numbers have fallen from 10,500 to around 9500 as stores have been shut down and administrative costs slashed.

The company initially announced it would be phasing out the poorly performing 3Guys brand, but it has been forced to keep the brand going until some of its longer-term leases run out.

"I think it will ultimately go, but whether it's another five years down the track I don't know," says van Arkel. "Having said that, a lot of customers still have faith in it."

However, it is the wholesale side of the business that has borne the brunt of most of the tough decisions. Over the past nine months, four of its 16 Rattray's outlets have been closed.

The company has made no secret of its plans for rationalisation, but van Arkel is reluctant to say more at this stage. However, he does acknowledge that low staff morale has been a major issue at the company.

"No one likes working for a losing company, but we're starting to get some runs on the board. As a result of that, suppliers are really keen to make sure Progressive becomes a successful organisation once again."

In order to boost profits, the company has ditched some of its more ambitious plans and gone back to the basics. Its experiment with an in-store cafe and takeaway food department at the Meadowbank Foodtown is unlikely to be repeated, for example.

"While the kitchen was at the leading edge as far as the home meal concept is concerned, one could also say it was at the bleeding edge," he confirms. "It has been expensive."

Its loyalty programme for Foodtown customers has also had mixed success. More than 500,000 New Zealanders carry a Foodtown card. The scheme was recently changed to ensure customers without a card were not missing out on special offers, however van Arkel says improvements are not far away.

As far as other global trends are concerned, such as Internet shopping and providing self-scanners for customers, Progressive is happy to sit and watch for now, he says.

However, one area it is keen to develop is house brands. It has brought in American brand specialist Daymon Associates to advise it on revamping and extending the house brands it currently offers, with the aim of branching out into new areas such as fresh food.

The board has also approved a $180 million refurbishment programme over the next three years, to tart up some of its older stores.

Revamps of existing Foodtowns in the Auckland suburbs of Grey Lynn, Onehunga and Sunnynook have been a "resounding success", says van Arkel. Next on the list are the Greenlane and St Lukes Foodtowns, and Countdowns at Papakura, Highland Park and Birkenhead.

He admits the company was not entirely happy with previous makeovers of two South Island Countdowns in Nelson and Timaru. However, it is happy with its new store at Westgate in Auckland, and will copy the look elsewhere.

"Both chains are getting a fair bit of attention brand-wise. 3Guys is being left in a holding pattern."

The hard work certainly appears to be paying off for investors. Over the past year, Progressive has increased its earnings before interest and tax from 1.5 per cent of sales to 2.4 per cent of sales. Its goal is to reach 3 per cent, which is the norm in Australia.

While van Arkel concedes the company faces stiff competition from rival chains, who are trying to win more sales by building more stores, he believes its market share has stabilised at around 27 per cent after years of gradual decline.

"Certainly, this current financial year, the emphasis has been about improving the bottom line. Once we get through that stage, and feel comfortable with where we're positioned, we'll look at market share growth."

The company has been honest with investors that it does not expect to be skiting about its performance for another two years.

"At 55 years of age, I think I've got a reasonable challenge ahead of me for five years at least."