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Generational Stability, Generational Change
Family-owned Harbor Wholesale embraces change and positions itself for future success. "Their people, I trust," one customer says
by Bob Gatty
Ever since Carl Victor Erickson began delivering butter, eggs and cheese to small stores in Aberdeen, WA, back in 1923, the company that is now Harbor Wholesale Grocery has evolved through four generations of family leaders who have taken advantage of opportunities, thinking beyond the next trend, the next challenge.
Today, the company is led by two 30-somethings, Justin Erickson, CEO, and his cousin, Scott Erickson, COO, both determined to take this thriving northwestern distributor to even further success in an industry typically challenged by low profits and poor ROI.
Already, they’ve developed and launched a growing branded foodservice and coffee operation, capitalizing on high foodservice profit margins to develop a new profit center in the face of declining cigarette revenue. They’ve instituted new technological improvements for operations, and recently sold off a coffee affiliate using the proceeds to help finance the acquisition of the Paul Jackson Wholesale Company, Roseburg, OR, helping to extend service in that state.
The new division created with that acquisition is now led by Ron Black, who celebrated his 30th anniversary with Harbor Wholesale in August, having started as a truck driver and progressed through the ranks to become vice president of marketing before volunteering to move to Roseburg to become general manager there.
Clearly, the company does not stand still – never has.
"If you don’t change, you die. That’s been a big part of their business," says Jim Ball, the company’s director of sales.
Justin and Scott have the luxury of guidance and support from Justin’s dad, Mike, who at 56 is board chairman and executive vice president of marketing, and his brother, Bob, the chief financial officer. A third brother, Steve, Scott’s father, retired last year. Also in the mix is Adam Erickson, Justin’s younger brother, who at 28 is the company’s creative director, graphics guru, photographer and brand developer.
If you visit Harbor Wholesale in Tumwater, a little town on the outskirts of the state capital, Olympia, you’ll be impressed with the upbeat, positive attitude that fills the company’s cramped, unassuming offices and busy distribution center. And if you visit some of the company’s customers, you’ll find busy retailers who appreciate the efforts their distributor makes to help them maximize their own success.
"Their people, I trust," says Steve Hulbert, owner of Hulbert Auto Park, which operates a 5,000-sq.-ft. convenience store, quick-lube center, and car wash that opened in Olympia in 1998. Harbor Wholesale has been their distributor for most everything except DSD since the beginning, and he credits them with helping his store prosper through marketing support, category management assistance, and recommendations for new opportunities.
"They are the ones who can say, ‘Hey, we need this," Hulbert explains. "They come in here with a new set of eyes."
That kind of hands-on involvement with retail customers is one reason why Harbor Wholesale continues to grow. "Our customers pay our salaries," says the first item listed in the company’s Core Values contained in its mission statement. "We are all part of the same team," says Item No. 2.
Over the past year, the company achieved its highest gross sales at $243 million. It has 300 employees, and serves Washington, Idaho, Oregon, and a small section of northern California. It even ships some products through a consolidator to stores in Alaska. Altogether, Harbor Wholesale serves some 1,200 customers with 2,000 convenience and small grocery stores, with roughly 1,700 deliveries every week.
Four generations of growth
Mike Erickson credits each generation with taking key steps that have contributed to Harbor Wholesale’s long-term success.
After working to meet growing needs of his expanding customer base, Carl Victor Erickson during the 1950s turned the business over to his sons, Carl Robert and Jim. Leading the enterprise through the late 1980s, they expanded into the Olympia area and increased their focus on larger stores rather than the very small outlets that it had been serving.
Foodservice has been an important component at Harbor Wholesale for the past 50 years, first launched by Carl Robert and then nurtured and expanded by Mike.
In 1985, the company relocated from its Aberdeen birthplace to Tumwater, strategically situated along the I-5 corridor between Seattle and Portland, OR. "Because we grew from the coast, we had to grow eastward," Mike Erickson told the Puget Sound Business Journal in 1999. "And the Olympia-Tumwater area had become a major hub for distribution."
Product lines were expanded and technology was embraced, with an electronic ordering system implemented during that period. In the early ‘90s Mike and Steve became co-owners, and Justin and Scott began working there while in high school, handling assignments in virtually every area of the operation.
Justin graduated from the University of Puget Sound in 1997 and soon became the company’s top salesman before being named sales manager. Justin earned his master’s of business administration degree by attending night school at St. Martin’s College, and in 2004, was elected to the board of directors to become co-president with Scott.
Having earned a business degree from Washington State University, Scott came back into the business as warehouse manager, was put in charge of the IT department, and now, as chief operating officer, also has responsibility over distribution and operations. Scott also developed the company’s Java Classics coffee program, a coffee roasting business that was recently sold, and the company’s DSD coffee distribution business.
"Both of the boys had an appreciation for the business," recalls Mike Erickson. "Either they have it, or they don’t. We asked them what their vision was for Harbor Wholesale, and they saw it as a huge opportunity."
The customer focus
Like every Erickson who has been involved in the business, Scott, Justin, and Adam embrace the family’s philosophy, as expressed by Mike, of "honesty, integrity and perseverance. We stress the importance of dealing with the customer up front."
"We see our customers every week," Mike Erickson says. "There is no hiding out. You’ve got to walk the talk."
Apparently, Harbor Wholesale is doing a good job in that department. Bill Beslow, who runs the Tatoosh Food Mart in Packwood, WA, switched from offering Subway sandwiches in his store to selling Harbor Wholesale’s proprietary Mountain Fresh brand.
"When I started looking to change, I was impressed with Harbor’s commitment to foodservice and the guarantees they offered me," he says. "They have followed through on everything. They’ve gone the extra mile."
Beslow likes the quality of the Mountain Fresh products and the fact that he no longer must pay the Subway franchise fee. "It’s a great way for the small guy to get into foodservice inexpensively," he says.
"We’ve been here for 11 years. People know when they stop here they will get a good product. We’ve been with Harbor Wholesale since the beginning. They helped set this store up for me. We’ve been dealing with them ever since."
At the Kamilche Trading Post, owned by the Squaxin Indian Tribe which also operates a nearby casino, manager Ron Meyer likes the Western Family private label brand of grocery products provided by Harbor Wholesale.
"We’re growing," he says, noting that Harbor Wholesale has been the store’s primary distributor since November 2005. "We went with them because they were ready to get out of the box to meet my needs. We’re not what you consider your normal convenience store."
Indeed, the 2,600-sq.-ft. store, which features soaring wooden ceiling beams and a huge totem pole out front, carries some 6,800 SKUs, including an extensive tobacco area with cigarettes, OTP, and a large glass-enclosed humidor for cigars. It’s in a rural location and provides a substantial selection of grocery, many of which are purchased from Harbor Wholesale under its three item-minimum program.
According to Meyer, a veteran of many years in the grocery distribution business, service, flexibility and consistency are the primary attributes he wants from his distributor, and he says that’s exactly what Harbor Wholesale provides.
"I believe that the business relationship between me and my wholesaler is at a higher level now than I expected it would be at this point," he says. "If they weren’t performing, they wouldn’t be here."
Meyers appreciates Harbor Wholesale’s willingness to sell single-pick items, which mostly carry a three-item minimum requirement and come with an up-charge. "I buy as much single-pick as possible," he explains. "I only have so much space for SKUs, and with single-pick, I don’t have as much of an investment in product and I still have it available for customers."
But Meyers is also careful about maximizing his inventory mix. "Every product in here pays rent," he says. "If it’s not paying rent, it’s out the door."
At Harbor Wholesale, most all of its roughly 2,500 grocery SKUS are available in "each’s," with a three-item minimum. "We have a lot of country stores that are out of the way, and a lot of small grocery stores with gas stations. We believe this program gives us a competitive advantage, although most AWMA members might think we’re nuts."
However, Justin is quick to explain that Harbor Wholesale’s single-pick program is priced for profit and the company’s grocery product margin, he says, is about 16 percent. The company offers up to a 10-cent per unit discount to encourage customers to purchase products in a more efficient case quantity, rather than by the "each." Offering that flexibility, Erickson says, "gets us in the door with a lot of stores we otherwise would not be in."
To help customers maximize their inventory sales potential, Harbor Wholesale recently invested in category management software that can provide recommended category store sets for each customer. Photos of what the new section could look like help reluctant customers visualize leading to easier acceptance of proposed changes.
Foodservice innovation
The company’s foodservice initiative, which includes branded Mountain Fresh Deli products, Mexigo Mexican-American food, and Java Classics coffee program, is now led by Debbie Stoffer, director of foodservice, who sold her Howard’s Meats & Poultry Company, Portland, OR, to Harbor Wholesale in 2005.
Stoffer and her sister, Kim Simmons, operated the company for some 15 years after their father retired, serving convenience stores and small delis in Oregon and southwestern Washington. The company had some 400 active accounts and just over $5.5 million in sales, providing hot and cold deli items, chicken, Mexican foods, potatoes, sandwich meats and other convenience snack, as well as foodservice paper products and a coffee program.
"It was a good fit for me to come on board with Harbor," she says. "I’ve tried to bring my deli expertise to the grocery mentality sales reps and give them the confidence to be able to sell foodservice."
With her hard work, ethics, and individual expertise, "Debbie Stoffer is the best thing to come to our company from that whole acquisition," Justin Erickson contends. "We believe she will help take our foodservice department to the next level."
The company’s branded foodservice program serves 20 active Mexigo and 36 Mountain Fresh Deli accounts. "A lot of the growth has come in the last year," Stoffer explains, noting that it took time to identify which customers were the right fit, how to qualify them, and the best way to implement and market the program.
"Now, we qualify the account through store visits, analyzing equipment on site and monthly inside store sales, and finding out if the owner is willing to do what it takes to make it a success," she says. "Owners must invest in signage, equipment and facilities, but most importantly, in their people. They can’t expect a person who is pumping gas to go inside and make a pizza."
Bill Beslow at Tatoosh Food Market says he invested about $15,000 to implement his Mountain Fresh Deli program in his store, but that’s far less than the $40,000 Subway wanted him to spend upgrading his facility to meet their new requirements. Plus, there is no franchise fee with Mountain Fresh, although he is required to purchase his supplies from Harbor Wholesale.
Not every convenience or grocery store served by Harbor Wholesale can operate a full-scale fresh sandwich or Mexigo food program, so Stoffer says the company tries to do what it can for all if its customers – even if it’s just a roller grill, pizza by the slice, a Nacho cheese machine, or a cooler case stocked with pre-made sandwiches.
"We try to find something in foodservice for all of our customers’ stores," she says. "We believe this is a very profitable section of the store for the customer."
What are the requirements?
For Mexigo or Mountain Fresh, stores must have at least $60,000 monthly in inside store sales in order to have enough traffic to support the program.
"Convenience store operators in general are not very up-to-speed on foodservice, so we focus on training, helping them develop their program, and creating a benchmark income statement to use as a guide," Justin Erickson explains. "We can predict their potential sales and profit so they can understand the type of sales they need to be profitable."
Harbor Wholesale requires those customers to produce at least $500 per day in foodservice sales, and the goal is to help them reach $1,000 per day. "A lot of our criteria is customer-focused because if they are not successful, our profitability and longevity in the store won’t be there," he says.
With the company’s Java Classics coffee service, Harbor Wholesale provides the equipment and its service. The store’s only requirement is to purchase coffee and related supplies from Harbor.
"We look at the monthly purchases of coffee times four, and that should equal the value of the equipment," Erickson explains. "If they are purchasing $2,000 a month in coffee, we will invest $8,000 in equipment." Harbor Wholesale currently has provided customers with some $3 million worth of equipment, but is generating between 40 and 60 percent on coffee sales, according to Erickson.
While foodservice has a long history at Harbor Wholesale, Erickson says the new branded foodservice initiative was launched "because this is a growing category in the convenience store marketplace, and we feel foodservice will continue to grow even after other changes in the marketplace occur."
One company, the Casa Mia restaurant chain, has been with Harbor for decades and now operates nine locations across Washington. Their first location was in Aberdeen, where Harbor Wholesale began.
Preparing for the future
Erickson points out that tobacco profits no longer can subsidize other areas of the operation and that downward pressure on margins continues. "We needed to find products that will help us balance our business so we can sustain a high gross margin," he says. "We are trying to diversify ourselves so we are not 100 percent dependent on cigarettes for profitability."
It’s important to keep that mindset in place for the future, as well, notes Erickson, pointing out that as gasoline prices continue to increase, the number of customers purchasing fuel will begin to decline. "There needs to be a reason for people to shop at these stores. If people have less reason to stop for fuel, there needs to be a reason for them to stop and shop there.
"We keep hearing our customers say they need more inside sales to stay viable, so we believe in the neighborhood store concept with a deli offering, fresh foods from produce to bakery. We certainly haven’t figured out how to handle all of this properly. But we need to be working on it," Erickson adds.
For its own operations efficiency, Harbor Wholesale is now using routing software to increase the efficiency of its truck fleet, and has added multi-temp trailers to accommodate the growing foodservice operation.
In the warehouse, an inbound system for scanning freight is now in operation, resulting in "license plates" on products so they can be located properly in the warehouse to maximize efficiency, reducing "travel time" by pickers, explains Scott Erickson.
Now fully operational for about two years, Erickson says the company has reduced stocking and inventory control labor requirements and eliminated "safari type stuff," where pickers are sent hunting for products that have been put in the wrong slot.
"The biggest thing is our inventory accuracy rate has increased and that helps streamline purchasing because we can rely on our numbers," he explains.
A voice-pick system is also used, allowing selectors to speed through the aisles and pick products hands-free. While it meant "reinventing" the warehouse, Scott Erickson recalls, the increase in productivity has been well worth the effort. In fact, he says, savings have justified an improved incentive program for selectors, resulting in even more efficiency and reduced costs.
"Our turnover is one-tenth of what it used to be. We’ve motivated the crew, changed expectations, and it’s all working." Indeed, according to Erickson, warehouse productivity has increased over 35 percent.
Family challenges
What are the unique challenges in being part of a family business with such a long history?
According to Mike Erickson, the key is communication. "We all have our obstacles to overcome in meeting our goals," he says. "From the family aspect, communication is very important. We have to drive that. We can’t just wait for something to happen. Sometimes in the family, things are taken for granted. We have to communicate."
Bob Erickson, the CFO, has rejoined the family business after 26 years of working elsewhere. "It’s a source of pride that you have, to think that you might be able to contribute to the ongoing success – to see something your grandfather developed and your father nurtured," he says.
Neither Scott nor Justin felt like they had to come back to the business after college.
"I felt like it was something I wanted to do," Scott says. "It was something I viewed as an opportunity," adds Justin. "It wasn’t something I had to do."
In fact, Justin, interviewed by the Puget Sound Business Journal for a 2006 article about business leaders under age 40, had this to say:
"There’s a tremendous amount of pride in working for the family business. We have been doing business for 83 years, and with that comes a unique heritage. I believe that I am required, as the leader, to pass along the same sense of pride and heritage to each of our employees. Our employees and customers love the Harbor story."
But "family" extends beyond the Erickson name, Justin stresses, pointing, for example, to Ron Black and his 30 years of service. "Without the right people, we could not succeed," he says.
"We’ve been blessed with a lot of opportunity, and that’s inspired all of us to put in the 110 percent needed to keep this company going," acknowledges his dad, Mike Erickson. We’ve been a changing, dynamic company. We plan to stay that way."
Bob Gatty is a regular contributor to Distribution Channels and founder of Gatty Edits, a communications company based in Sykesville, MD.
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