Kroger bets on bigger stores

• Kroger now has more than 90 Marketplace stores nationwide.
• The company's goal: compete with retailers that use food items to drive traffic.
• Analysts say Kroger has plenty of room to grow the concept.

Kroger is opening its latest Marketplace store Thursday in Florence, promising shoppers everything from apples to appliances, lettuce to lawn chairs and cantaloupe to clothing.

Shoppers must just love the big concept – since Kroger has added 15 since last summer and is in the midst of building 17 more. Kroger now has 90 Marketplaces in 14 states, including 13 others in Greater Cincinnati. On April 4, developers announced Kroger would build its largest-ever in Oakley to open early next year.

But can big get too big? As Kroger ramps up its larger concept, it's finding some resistance from some communities objecting to sprawling stores in criticism normally aimed at uber-rival Wal-Mart.

Analysts admit too many large stores can eventually turn off customers and note Wal-Mart is now focusing its U.S. growth strategy on growing smaller-format Neighborhood Markets. Still, experts say Kroger has a lot more room to grow its bigger stores and the retailer is putting its own mark on the concept.

The new Kroger Marketplace in Florence promises customers the freshest produce, the choicest cuts from the meat department and even an olive bar and fresh sushi station for dedicated foodies.

But the store also offers shoppers non-food items: a Baby World section, offering everything from diapers to strollers; a Little Clinic, offering affordable diagnosis and treatment of minor illnesses; a Fred Meyer Jewelers; and a variety of apparel for women, men and children, who can try on items in dressing rooms.

"I've shopped at the ones in Walton and Independence and they're really nice – I can't wait," said Jordan Neiheisel, 22, of Florence, a full-time mom to Aria, who turns 2 next month. She's looking forward to being able to buy baby clothes and other supplies at the new location. "I can do everything in one store."

Large-store concept key to future expansion plans

The Florence store is the third Marketplace to open within eight months in Greater Cincinnati. Kroger officials say the large-store concept is key to their future expansion plans.

"Our Marketplace stores are a growth format that differentiates Kroger and delights customers who love one-stop shopping convenience," said Kroger spokesman Keith Dailey. "These destination stores have a grocery store plus general merchandise, outdoor living products and home goods products."

Kroger is tight-lipped about how many they ultimately plan to build, but the company will have more than 110 by the end of this year. Analysts predict Kroger could build another 200 or more within the next few years.

Analysts say supermarkets are growing larger as non-traditional competitors have started stocking food items to drive customer traffic. Discount stores like Target, drug stores like Walgreens and dollar stores like Dollar General have all started offering groceries to drum up their business. The flood of new competition has forced supermarkets to slash prices.

In 2003, Kroger responded to intensifying competition by cutting prices – but also widening its product selection. Analysts say Kroger's current expansion dovetails with its broader strategy of offering more food choices and other products.

"I love the Kroger strategy – they're not the cheapest, but they're the best," said Howard Davidowitz, chairman of New York retail consultant Davidowitz & Associates. "They can keep going, there's lots of room for growth."

Some customers express concern over sprawling space

Not every loyal Kroger shopper is thrilled with Kroger's expansion plans.

A recent Marketplace project won a critical zoning change approval in nearby Union over the adamant opposition of local residents.

Patti Raftery, 76, said she visits her Union Kroger store less than a quarter mile away two or three times a week. But a planned Marketplace store that will replace it will be across the street from her subdivision, altering the rural view from her ranch-style condo at the Villas of Fowler's Creek.

"Some people complain the current store is too small, but I've never had a problem trying to park," Raftery said. "Most of the residents here are upset."

In West Chester, a Kroger Marketplace project proposed along Princeton-Glendale Road has twice been shot down by township officials as local residents expressed concern over sprawl.

Besides more difficulty winning local planning approvals, analysts say large-format stores have limits. Large stores can be overwhelming and difficult to navigate for some customers.

"There's always that risk that customers don't embrace the stores," said Scott Mushkin, a senior analyst with Wolfe Research in New York.

Wal-Mart, which popularized large-format stores by building more than 3,200 supercenters nationwide, has struggled to grow U.S. sales in recent years. Locally, Wal-Mart downsized its supercenter on Smiley Road in Forest Park in 2008 from 220,000 square feet to less than 130,000 square feet.

Ironically, to spur growth, the Arkansas-based retailer has turned to expanding its smaller-format stores, called Neighborhood Markets, that are a quarter the size of typical supercenters.

Last year, Wal-Mart opened 122 Neighborhood Markets, compared with just 72 supercenters.

Kroger, however, appears to have only begun rolling out its latest growth vehicle. Marketplaces represent a fraction of Kroger's total 2,640 stores in 34 states.

Analysts say Kroger is using a slightly different approach than competitors. While Wal-Mart and Target are general merchandisers selling groceries, Kroger keeps emphasizing a broader selection of food even as it offers more general merchandise.

Davidowitz doesn't think Kroger will expand most of its stores, but rather over time will use the larger stores to construct a hub-and-spoke network of stores. Under such a scenario, Kroger would offer communities large stores that offer more choice for big shopping trips, but maintain several traditional-sized stores that are more convenient for smaller excursions.

Davidowitz noted that while Wal-Mart has supercenters that are up to 260,000 square feet, the grocery section of those stores is only a fraction of the size of a Kroger.

"Yes – Wal-Mart has huge stores, but only 40,000 to 50,000 square feet of that is food, so Kroger has a much bigger, fresher selection and the price is close," Davidowitz said. "Wal-Mart killed everybody, but Kroger has figured out how to compete." ⬛

HOW STORES HAVE GROWN

The average Kroger has gotten bigger as the retailer offered more selection.

1930: 3,000 square feet

Selling only groceries

1960: 12,500 square feet

With a broader selection of groceries

1980: 42,000 square feet

The stores offer drugs, health and beauty items

2000: 53,000 square feet

The first Marketplace stores open

2013: 61,000 square feet

More stores offer apparel

Source: Kroger

Kroger's largest area stores

• Mount Orab: 124,000 square feet

• Amelia/Pierce Township: 123,000 square feet

• Florence*: 123,000 square feet

• Independence: 123,000 square feet

• Hebron: 117,000 square feet

• Harrison: 117,000 square feet

• Walton: 116,000 square feet

• Newport: 116,000 square feet

• Lebanon: 110,000 square feet

• Liberty Township: 107,000 square feet

• Middletown: 107,000 square feet

*Opening Thursday

Source: Kroger

This Kroger Marketplace in Florence, opening Thursday, is the latest example of a large-store concept.