FOOD MARKETING CONFERENCE PANEL SERIES: Small Store Format

Articles
May 19, 2009

n the 44th annual Western Michigan Food Marketing Conference, executive forum, the topic of discussion was leading and winning in the new economy. Moderated by Phil Lempert a panel of five key retailers exchanged insights in a discussion on consumers in the wake of turmoil and the challenges and opportunities the food industry is facing. In the fourth series of these discussions, the panel discusses the small store format and who is doing it right. The five experts on the panel were Jim Wright, Chairman, President and C.E.O of Tractor Supply, Mike Jackson President and Chief Operating Officer of Supervalu and Chairman of NGA, Mark Batenic, Chairman, President and C.E.O of IGA USA, Alex Miller President of Daymon Worldwide, and Craig Sturken, Executive chairman of Spartan stores. Phil Lempert: Let’s talk about retailing. Smaller store formats, people are experimenting with them, is this the future? Or is it just temporary? Feel free to name retailers that are doing it right or wrong. Mark Batenic: Well, IGA is doing it right. We’ve been doing it right for 50 years. And the independent retailer, Craig and Mike here now them well, they’ve got everything on the line every day, but they’re traditionally in the smaller store format and located in the B, C and D counties, but they’re still there. Last year the IGA retailers that we are associated with had a great year. This last month we’ve seen a little bit of softening, but they had a great year. Consumers are staying close to home. Our research says that of the consumers there, they like shopping in our stores because the people know them. Our people are friends. They get great service and there’s also confidence and trust in that grocer and in that community. So, how that independent retailer is connecting with is community is more important, and that’s part of the value equation we’re all talking about. They don’t pretend to be the cheapest, but they are there for the consumer when they need them. At IGA our average format size is around 24,000 square feet, but it ranges all the way down to 5,000 and all the way up to 60,000. That footprint seems to be fine because consumers want to go to the store quickly; they don’t want to navigate a 200,000 square feet box. They want to get in; they want to get out. Time is still valuable to them. They know where things are in the store, and they don’t move too often depending on the new products that come into the store. They can always find what they’re looking for. There’s a value in that smaller format. And I think that everybody’s looking at it now, even Walmart is coming out with a smaller format. They think Tesco is a big deal out in the west now, so they’re watching them closely. I hear their small format is doing very well in Arizona. That’s what I’ve been told.

In the 44th annual Western Michigan Food Marketing Conference, executive forum, the topic of discussion was leading and winning in the new economy. Moderated by Phil Lempert a panel of five key retailers exchanged insights in a discussion on consumers in the wake of turmoil and the challenges and opportunities the food industry is facing.

In the fourth series of these discussions, the panel discusses the small store format and who is doing it right.

The five experts on the panel were Jim Wright, Chairman, President and C.E.O of Tractor Supply, Mike Jackson President and Chief Operating Officer of Supervalu and Chairman of NGA, Mark Batenic, Chairman, President and C.E.O of IGA USA, Alex Miller President of Daymon Worldwide, and Craig Sturken, Executive chairman of Spartan stores.

Phil Lempert: Let’s talk about retailing. Smaller store formats, people are experimenting with them, is this the future? Or is it just temporary? Feel free to name retailers that are doing it right or wrong.

Mark Batenic: Well, IGA is doing it right. We’ve been doing it right for 50 years. And the independent retailer, Craig and Mike here now them well, they’ve got everything on the line every day, but they’re traditionally in the smaller store format and located in the B, C and D counties, but they’re still there. Last year the IGA retailers that we are associated with had a great year. This last month we’ve seen a little bit of softening, but they had a great year. Consumers are staying close to home. Our research says that of the consumers there, they like shopping in our stores because the people know them. Our people are friends. They get great service and there’s also confidence and trust in that grocer and in that community.  So, how that independent retailer is connecting with is community is more important, and that’s part of the value equation we’re all talking about. They don’t pretend to be the cheapest, but they are there for the consumer when they need them. At IGA our average format size is around 24,000 square feet, but it ranges all the way down to 5,000 and all the way up to 60,000. That footprint seems to be fine because consumers want to go to the store quickly; they don’t want to navigate a 200,000 square feet box. They want to get in; they want to get out. Time is still valuable to them. They know where things are in the store, and they don’t move too often depending on the new products that come into the store. They can always find what they’re looking for. There’s a value in that smaller format. And I think that everybody’s looking at it now, even Walmart is coming out with a smaller format. They think Tesco is a big deal out in the west now, so they’re watching them closely. I hear their small format is doing very well in Arizona. That’s what I’ve been told.

Phil Lempert: And I guess what I heard from you, part of the equation for a small format store needs to be that independent grocer that’s involved in the community and who knows the customers.  When we shift it to Walmart, SuperValu, and Tesco, is it going to work because they don’t have the heart and soul of the community?

Mark Batenic: From my point of view they won’t.  It’s hard to replace the guy or gal who owns that store who has everything on the line that day. Their heart and soul is in that. And I’m not saying there aren’t good store managers out there. There are tons of good store managers who take it as their own, and those are the guys that are successful too.  They think it’s theirs, but it’s hard to beat an entrepreneur who’s got everything on the line. He’s going do just about anything, and he doesn’t have a corporate office telling him that he can’t because he’s the boss.

Mike Jackson: I would acknowledge that there’s a passion that the independent retailer has that is hard to replicate in a corporate store. There’s absolutely no doubt about that. But you can have local relevance and be connected to your community in a corporate store also.  But there is no compensating for that passion that an independent retailer has.  I would say that the IGA’s, and we have many IGAs and other stores, they may be smaller stores on average as Mark pointed out, but for their communities in a C and D market or a grass roots market they are adequate size. I mean they are size appropriately for their marketplace. So that’s a little different than a Tesco going into major markets and trying to get by with a 15,000 square foot box with all other kinds of offerings and competitions around it. They are sized right for their marketplace, and that’s the independent. They know their market. They know what to do. They relate very well to that.

Phil Lempert: Let’s talk about this new small store format, 10,000 – 15,000 square foot, led by some of the leading retailers globally that are pushing it forward. Are we going to see one supercenter, one 50,000 square foot store, and then 20 or 30 10,000 square foot stores in a city?

Mike Jackson: As long as they have the Sav-A-Lot name on them, they’ll be good.

Alex Miller: Seems like you see that other places outside the U.S. You see the smaller format retailer. I don’t know about the Phoenix area, but I’m not so sure Tesco is doing all that well throughout the country. But Tesco is a powerful retailer who given enough time I think will get it right. We have a customer in Portugal and they actually have a tremendous small format. Very good perishables around the perimeter. They have the A and B brand, and they kind of bid them against each other.  And they have very robust private label program. It seems to be a really good format. It’s a format where you can get the shopper in. I don’t know if the shopper is going to do 100% of their shopping there, but they’re going to do a lot of shopping there.

Phil Lempert: I want to bring up Tesco with Fresh & Easy for a moment and build on something that Jim had said. When you were cutting costs, you were cutting costs away from the consumer. I think one of the problems that Fresh & Easy had was they were taking so much costs out of the system and so much efficiency that they forgot about the consumer.  You had in Los Angeles, consumers walking into a store seeing a single apple wrapped in plastic. While from a Tesco point of view that was very efficient, consumers looked at that and said I don’t want an apple wrapped in plastic. And it could be something as primal as that, knowing where to cut your expenses, and I agree Tesco is a very smart company. They will figure it out and especially now with the war in Phoenix between Walmart and Tesco. They’re both getting very smart very quickly on this.  Any other comments on the small store format?

Craig Sturken: Well, I think the big question is can you build at today’s cost a neighborhood store that will work in a corporate environment? I think the jury’s out. Neighborhood stores as we know them are entrepreneurs in small stores with older occupancy expenses. And that works very well. Can somebody build a new store and pull it off? That is yet to be seen. I personally have an interest in doing something like that. (Not me personally. I’m not going to open a store! But I personally believe there is an opportunity there. I don’t think the formula we’ve seen out in Arizona and out west is what I would consider to be a winner.

Mike Jackson: I think the formula really…people are trying to make it something it’s not. If you’re going to go into a small store format, you really have to make it what it is. Market it for what it is. Acknowledge the limitations, and just run the heck out of it. But everybody’s going into smaller formats and experimenting and trying to make them a conventional shop or conventional supermarket, and that’s got the glass upside down. It’s just not going to work. Sav-A-Lot, for example, we don’t over promise and under deliver. People know what they’re getting. We describe that format. We market it appropriately. And that’s why they are successful. People know what they are. But these ones that are not really well defined in the marketplace, that’s where you see them struggling.

Jim Wright: To comment on smaller stores, and I’m certainly not a grocery expert although I try to pretend to be one on Craig’s board, one of the siren songs for a retailer has always been the next larger store. As an industry we go to a larger store because we believe the customer is going to have a better experience, which they do, but they don’t pay us for that. And now we have larger stores, to which we add the lesser productive SKU or category. And if we were to look at profit per square foot today versus what it has been any decade in the past, inflation adjusted. With the exception of supercenters (that’s a different model completely), most retail stores have answered that siren song. I’m sure you’re familiar with the statistic, but to get back to the retail square footage where we were in 1998 it was ten feet per person/per capita. It’s 19 now or 17 because a lot have closed. But 100 million square feet of retail has to close for us to get back to where we were ten years ago. That’s because everyone had the aspiration or decision of customer experience, higher this, broader that, wider this, the next fresher, the next SKU, more varieties and sizes. An observation about smaller stores is when fuel costs come back to where they were, the suburbia has been declared ill if not morally wounded, and people are moving back closer into old suburbs and back into the empty part of the doughnut around our cities, we can’t have a big box. So you ask where are we in 40 years? I would suggest that in 40 years the average square footage per stores is smaller than what it is today.