"My brother [Tom] and I represent the third generation of Heinen's," Jeff Heinen said. "Only about 10 percent of family businesses make it to the third generation, and only 3 or 4 percent make it to the fourth generation."
UNIVERSITY HEIGHTS, Ohio -- Heinen's Fine Foods' co-CEO Jeff Heinen asked a standing-room-only crowd of nearly 300 John Carroll University students to consider where and from whom they buy their food.
"Think about how many choices you have as consumers to purchase the things that we sell," he said. Now considering all those options, what could possibly motivate shoppers to drive by those competitors to come to Heinen's? That's the crux of his family's 86-year-old business.
Mark Hauserman, director of the school's Muldoon Center for Entrepreneurship, asked the students in the Entrepreneur Minor Club-sponsored lecture: "If you were running a business that sold food, how would you differentiate yourself from other people in the marketplace who are like you?" His daughter, Sarah, works at Heinen's.
Jeff Heinen, a 37-year veteran of the grocery business, answered by showing them a YouTube video promoting the 2011 book "Different: Escaping the Competitive Herd," written by Youngme Moon, a marketing professor and chair of the MBA program at Harvard Business School.
"What does it mean for a business to be different? Today we have more of everything: More brands, more products, more choices. But it all just feels like more of the same. A great big blur of similarity," Moon wrote. The more companies compete to be the biggest, newest and shiniest, the more that makes them just like everybody else.
"So in a culture where we have more than we could never want or need, and in a business landscape where companies seem to be running a race to nowhere, what does it mean for a business to be different? Meaningfully different? Maybe it means saying, 'No,' when everyone else is saying, 'Yes.' Maybe it means going small when everyone else is going big."
"The businesses that stand out are the ones that understand this, even as they take that sharp left turn down that unpaved road," Moon said.
"We were selling local before 'localvore' became a buzzword."
Jeff Heinen asked: "So what is Heinen's doing differently?" Two key things: Selling different products than everybody else, and "using our associates as a competitive advantage," instead of seeing them as expenses to be squeezed.
Joe Heinen, Jeff's grandfather, opened the first "Heinen's" in 1929, on the exact corner where the Shaker Heights store now stands. The family believes his store, which began as a butcher shop but added produce, prepared foods, and other staples, was Cleveland's first supermarket.
Joe Heinen always insisted on having his own vendors and suppliers, instead of relying on someone else to bring him what he sold. "We are only one of two companies under 50 stores who do their own distribution," and consequently, "we are able to do many things that most other stores can't do," Jeff Heinen said.
"We buy most of our produce directly from the people who grow it. We know the people we're buying from, and more importantly, they know who they're selling to," he said. "In the summer months, 70 percent of our produce is locally sourced. We were selling local before 'localvore' became a buzzword."
Heinen's has similarly deep, and in some cases decades-long, relationships with its ranchers and farmers. "We know the places were the animal was raised, how it was fed, and that it was humanely treated," Jeff Heinen said. Its source-verified program also includes its poultry, pork, and lamb products.
Heinen's is just as picky about its seafood, he said. "We know many of our fisherman, and we spend extra to FedEx in the product from the fishermen directly to our stores. That fish that was swimming in the ocean yesterday is on your dinner plate tonight."
"My brother [Tom] and I represent the third generation of Heinen's," Jeff Heinen said. "Only about 10 percent of family businesses make it to the third generation, and only 3 or 4 percent make it to the fourth generation."
The Heinen's story now stretches over 22 stores in Ohio and Illinois: 18 in Greater Cleveland and four in suburban Chicago. The brothers invested $750,000 to install kitchens in all of their stores, where they make their popular heat-and-eat meals.
They have hired a physician as their chief medical officer and devoted a larger share of shelf space to health and well-being. "Consuming more and more pills isn't really the answer, so why can't the grocery store be the pharmacy of the future?" Jeff Heinen said.
Heinen's shelves and produce bins also feature more than 500 locally made products, and its buyers are always on the hunt for more. Twice a year, they host a "SharkBank" at Heinen's Downtown Cleveland store where local vendors pitch their products for the chance to sell at Heinen's.
"The reason why people can't copy what we do"
But their not-so-secret weapon, "the reason why people can't copy what we do," are their customer service-focused employees, Jeff Heinen said. "We call them 'associates' because we work with them rather than having them work for us... It's all about putting your people first."
Their larger rivals view people as a cost to be minimized. "Many people look at retail jobs as transient jobs, so why would you train somebody if they're just going to leave in the future?"
At Heinen's, "the level of our associates' satisfaction drives the level of service higher, which improves our customer satisfaction, which drives higher loyalty and more profit, which lets us invest more in our people," and the cycle begins again, he said. "It's a 365-day-a-year deal. If it's just words on a wall, or just lip service, people see it."
It's not an insignificant investment; labor costs eat up 23 percent of Heinen's total sales, and with grocery margins averaging 1 percent to 2 percent, "it's a pretty slim margin of error," he said.
"But the investment we make, we believe, makes our stores 'different' -- and creates a very different experience for our customers."
Other highlights from Jeff Heinen's remarks:
-- The Downtown Cleveland store at 900 Euclid Ave., a striking former bank building which reopened as a Heinen's on Feb. 25, is still losing money. "You need 20,000 people to support a grocery store," and the downtown population is still at 13,000, he said.
So Heinen's is appealing to the lunchtime crowd and has turned the upstairs into The Balcony wine-and-beer lounge, with eight beers on tap and 40 wines available by the pour. "But we need people in that store to be to food shoppers," he said.
"My brother and I are lifelong Clevelanders, and we went into this as much as an investment in Cleveland -- wanting Downtown to be successful -- as we did wanting to make money," Heinen added.
-- Heinen's expects to keep growing in suburban Chicago. "We wanted to continue to grow, and we didn't think we could do that in Cleveland," he said. "We didn't want to do two stores on Columbus and one store in Toledo" and have them become islands.
"So we asked, 'What's within a six- to seven-hour drive with enough of a population to support 10, 12, 15 stores?' If you draw a circle around Cleveland, the only place that comes up is Chicago." The brothers opened their first store there in August 2012.
-- Jeff and Tom Heinen aren't grooming their children to take over any time soon. When Jeff's son asked to join the business after college, Jeff told him: "You work for a year and see how you really like the grocery business, and we'll see how we like you.'"
"My brother has two daughters a year or two older than my son, both very bright. They haven't shown an interest in our business yet, but until they do, we'll be OK."
-- His biggest pet peeve is people who can't spell. "I'm astounded by how many college students don't know how to spell," he said. "If you read an email from someone that has multiple misspelled words in it, it just dilutes what you're trying to say. If you're not good at spelling, drag a dictionary with you, use your phone, or do something" to fix it.
-- "Our biggest competitor in this market is Giant Eagle. There's no question they have customers who should be ours," Heinen said. But he also frets about Costco, Trader Joe's and Whole Foods, "and when I really don't want to sleep, I think about Amazon."