SALT LAKE CITY -- American Stores Co. here is on the move with its Super Saver warehouse format.
In a strategic shift, American said its Lucky Stores division will open three or four newly built Super Saver units later this year in California, rather than rely solely on converting older stores to the concept as it did in the past.
The company also said it plans to expand the price-impact format eastward from California.
"Our plan for the time being is to focus on newly constructed stores instead of transitioning stores from Lucky to Super Saver," Meredith Anderson, vice president of public, government and investor relations, told SN. Anderson declined to say if all future Super Savers would be built new or if plans call for additional conversions. Super Saver stores carry about 60% of the stockkeeping units found in a conventional supermarket, priced 10% to 12% lower than conventional stores, according to the company. The first 12 units are all former Lucky stores in northern and southern California that were converted to the format during the past 12 months -- 11 last fall and one last spring. The stores range from 27,000 square feet to 62,000 square feet, with sales at the larger units running between $400,000 and $475,000 a week, observers told SN.
Anderson said American's decision to build Super Saver stores this year replaces its previously disclosed plan to convert 12 more units to the format during the balance of this year. She also confirmed American's intention to expand the concept eastward but declined to say
when the company might open Super Savers outside California.
Mark Hussen, a securities analyst with J.P. Morgan Securities, New York, said he doubts American would consider expanding the format beyond California until the stores there turn profitable, which he said is likely to happen in the fourth quarter of this year or by early next year. "Given the time required to secure real estate and complete all the planning prior to building, it could be another year before American expands Super Savers outside California," he said. Opinions varied on where eastward expansion would occur.
Gary Giblen, managing director of Smith Barney, New York, said the expansion probably would be in an area where Lucky, which oversees Super Saver operations, already has stores -- most likely in Nevada, "where there's plenty of space for additional stores."
Debra Levin, an analyst with Morgan Stanley, New York, told SN she believes American would like to expand the format to the Philadelphia-New Jersey region where the company operates its Acme Markets division "because there are few warehouse competitors in that area." However, she said she has no idea when any eastward expansion might occur. "Lucky wants to perfect the format first to make sure it can get the desired profits."
The decision to build Super Saver units rather than convert older, smaller stores is part of the company's formula to achieve profitability, Levin said. "Lucky has determined that a better return on investment is achieved by building larger units from the ground up than by renovating smaller former Lucky sites."
Jonathan Ziegler, an analyst with Salomon Bros., New York, said newly built Super Saver stores are likely to fall in the 50,000- to 55,000-square-foot range because, "as other companies have found with other formats, 27,000 square feet is too small and 62,000 square feet is too large. "But a 50,000- to 55,000-square-foot store is an ideal size for most formats, even if a warehouse format like Super Saver carries fewer SKUs."