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The sages who track consumer behavior say that shoppers for four out of every five American households are focusing on price more than ever before. That's proving to be more than enough motivation for increasing numbers of conventional supermarket operators to try extreme-value store formats as another way to serve their markets and face off against the biggest, baddest discount operator of all.
The limited-assortment store is not a panacea for all retail ills, however. It should be applied carefully and only in markets where its narrow, low-price selection offering makes sense, say the operators who have made the alternative format work for them.
"The key is to simplify. The limited-assortment format offers very sharp pricing of limited product lines with a limited amount of labor," explains Tom Roesener, v.p. of the Save-A-Lot division of privately held Clemens Family Markets in Kulpsville, Pa.
Certainly the performance of powerhouse price retailer Wal-Mart confirms it may be worth trying. The world's largest retailer will generate in excess of $250 billion in sales this year and, in the process, continue to dominate the fiercely competitive grocery industry.
While the prevailing wisdom among many in the supermarket community seems to be that you can't directly confront Wal-Mart by pushing price, some wholesaler/retailer partnerships are trying to poke holes in that theory by investing in small-box limited-assortment formats designed to take back some of the price end of the market.
Prime examples of the trend are Supervalu's Save-A-Lot and Roundy's Mor For Less formats, which, along with the corporately held Aldi chain, generated more than $16.1 billion in retail sales in the United States during the past year.
"No format completely insulates you from Wal-Mart," says Frank DiPasquale, e.v.p. of the National Grocers Association. "Yet, if you own or operate a store where the demographics lend themselves to being a very price-competitive market, and Wal-Mart lurks in your midst, limited-assortment stores have proven to be quite the attractive option to a conventional format [operator].
"Keep in mind that the fastest-growing customer base today is made up of households that earn $25,000 or less per year," adds DiPasquale. "The limited-assortment format provides value and convenience for that specific consumer, and an opportunity for the retailer to be competitive with Wal-Mart supercenters on price in key center store categories."
However, DiPasquale cautions that once they venture into the limited-assortment store business, independents and regional chains must think and act like the big guys, adapting rigorous buying, selling, and operating standards to keep costs low.
At least two successful supermarket operators with limited-assortment units would fully agree. Roesener of Clemens Family Markets and Chris Niemann, e.v.p. and c.f.o. of Quincy, Ill.-based Niemann Foods, confirm that they treat their limited-assortment operations like virtual chains, committing to strict operating and procurement procedures set forth by their wholesaler, Supervalu.
Know your limits: One key, they say, is to keep a tight lid on SKU counts and DSD deliveries. It also pays to go heavy on store brands.
"Our limited-assortment stores carry approximately 2,000 items," says Niemann, whose company trades in four Midwest states and operates 61 stores, 21 of which are Save-A-Lots. "The Save-A-Lot program, which is designed to control expenses, does offer a changing assortment of national brands such as Little Debbie, Kraft, Pillsbury, Quaker, ConAgra, and others," he explains. "However, it limits the number of DSD vendors who service our stores, because DSD product lines are often duplicative of what's already offered in custom brands, and they require more labor in receiving, accounting, and price management."
Adds Niemann: "Generally the consumer perceives national brands as being more expensive. That's why we focus mainly on store brands."
Roesener, a 36-year veteran of the industry who runs two Save-A-Lots among 26 stores, says another tactic is to avoid products or services such as film and film developing, beer and wine, cigarettes, and lottery tickets, since these items typically increase labor costs and are more subject to theft.
Such strictures, however, can result in frustrated shoppers in search of the precluded categories. "The two items customers most often request are cigarettes and more variety in spices," reports Roesener, adding that "due to state laws, supermarkets operating in Pennsylvania are not permitted to sell beer and wine, so that's a nonissue for us."
Fully loaded: The limited-assortment format also embodies efficiencies further up the logistics pipeline, carefully calibrated to a store's volume. Save-A-Lot stores are serviced from one of 16 regional distribution centers, and each store's entire order is delivered on a single truck and shipped in custom cartons that can be displayed directly on grocery shelves.
Says Roesener: "Deliveries from our warehouse require that we receive a full truck, which is measured at 42,000 pounds of product or 1,725 cubes. Therefore, store volume dictates the number of deliveries a store receives each week."
Stay on message: Another key is strategic, judicious use of advertising. "Newspaper ads are limited, and television advertising, which invites consumers to save up to 40 percent on their everyday grocery purchases, is sponsored by Save-A-Lot corporate," notes Niemann.
Adds Roesener: "Save-A-Lot is a growing concept in the Northeast. Therefore, we're running an awareness campaign consisting of radio and billboards, and a monthly circular that is distributed via free local newspapers, as we find that most of our customers do not subscribe to weekly or daily newspapers."
Trim hours, staff: The concept is true to its name with regard to business hours and staffing, as well.
These are not 24-hour operations. The Niemann's Save-A-Lot stores are open to the public from 8:00 a.m. to 8:00 p.m. Monday through Saturday, and from 9:00 a.m. to 6:00 p.m. on Sundays. Similarly, the Clemens units operate Monday through Saturday, 9:00 a.m. to 8:00 p.m., and from 9:00 a.m. to 6:00 p.m. on Sundays.
Both Niemann and Roesener report that the number of associates per store is based on overall volume, with some stores employing as few as 11 associates, and others as many as 35. The trick is to carefully match needs and resources.
"The management structure at each of our Save-A-Lots consists of a store manager, assistant manager, and a perishable manager," says Niemann. "Keep in mind that we do not operate bakeries or deli departments in the stores because of the high labor involved. We do, however, offer in excess of 80 fresh produce items and carry about 100 fresh meat items. On average, our produce and meat distributions run 6.3 percent and 13.9 percent, respectively."
Niemann notes, "Our grocery distribution, which includes dairy and frozen foods, runs in excess of 77 percent, and our total store productivity budget is approximately $183 in sales per labor hour."
While the productivity budgets of the two retailers practically mirror one another, Roesener says he operates with a slightly different management structure in the limited-assortment stores, employing a store manager, co-manager, two assistant managers, and a meat manager. The remaining associates work part-time.
Both companies' training approaches are similar in that they start with intensive training of the managers and then allow their learnings to trickle down to store level.
"All managers participate in an extensive training program provided by Niemann Foods, Inc.," explains Niemann. "Our associates, who service nearly 3,800 customers per week at each store, are trained at store level. The store manager spends substantial time on the sales floor and performs more physical labor than managers in our conventional stores."
Roesener's Save-A-Lot managers attend a six-week training program at Save-A-Lot headquarters in Missouri. "Our store managers' and co-managers' focus is to maintain the simplicity of the format," Roesener says. "Two of those weeks are spent in a structured classroom environment, followed by four weeks of field training."
Independent Retailing Editor Jane Olszeski Tortola can be reached at [email protected].