PITTSBURGH -- Giant Eagle here is spreading its wings deeper into the Midwest and mid-Atlantic marketplaces.
"Our plan is to grow," David Shapira, chairman and chief executive officer, told SN, "and in order to grow, we must move into new markets, preferably geographically contiguous markets that can be served from our existing distribution centers."
Having expanded out of its core market here into Cleveland (in northeastern Ohio), Giant Eagle is moving west into Toledo and south into Columbus -- at the same time it's expanding into northern Maryland with four stores this month.
The move to Columbus puts Giant Eagle into Kroger's backyard, and the move to Toledo sets up a head-to-head battle with Kroger and A&P's Farmer Jack -- ironically, the two major chains Giant Eagle forced out of the Pittsburgh market in the late 1970s, according to local observers.
But while Giant Eagle was the hometown grocer operating from a position of strength in its home base, it is starting virtually from scratch in Columbus and Toledo, with single stores in each market -- pending potential acquisition activity.
Acquisitions are always a possibility, Shapira acknowledged, though he declined to discuss any specifics.
"Our plan is to double sales through a combination of acquisitions and organic growth," he noted. "How we get there remains to be seen."
The goal, Shapira said, is to double Giant Eagle's sales to $9 billion over the next five years.
Giant Eagle entered Columbus in November 2000 with two stores; it currently has four, with a fifth scheduled to open later this year. "We're looking for sites," Shapira said, "and Columbus is a huge metropolitan area." The chain entered Toledo with a single store in August.
Giant Eagle's newest market entry is in Maryland, where it acquired County Markets in January -- a six-store operator based in Lavale, Md., with four stores in northern Maryland, about 40 miles southeast of Giant Eagle's closest store, and two in Pennsylvania.
Those two stores -- in Johnstown and Somerset, Pa. -- complement the chain's existing store base. However, the four Maryland stores -- including two in Frederick and single units in Hagerstown and Lavale -- are new marketing areas "that represent a big leap for us," Shapira said.
Giant Eagle began taking down the County Market banners and replacing them with its own last month, "but we don't have any current plans to remodel any of those units because they're all nice stores," Shapira said.
The stores already have floral departments, video sections and natural foods -- among the hallmark departments of traditional Giant Eagle locations -- "but they won't look quite like Giant Eagles," Laura Karet, the chain's senior vice president of marketing, told SN. "Although we will remodel them down the road, there's nothing we could add in the short term to make them any better than they already are."
When they might ultimately be remodeled remains to be determined, according to Ray Burgo, president and chief operating officer. "We will continue to gauge how much change those stores require based on consumer acceptance," he told SN.
Giant Eagle also plans to grow through organic expansion, targeting five new stores a year -- plus expansions and conversions -- at a cost exceeding $100 million annually, Shapira said.
Giant Eagle is a privately held chain, with 208 stores doing a volume of $4.5 billion. The store base includes 120 corporate locations and 88 independently owned stores that are licensed to use the Giant Eagle name.
The company is owned by the same five families that founded it 71 years ago. Some ownership has also been given to nonfamily executives, Shapira told SN.
"Family ownership has been very important to our success because the families really care about the business," he explained. "And as we've grown the company, we've been able to take a long-range view and not had to worry about short-term ups and downs."
He said Giant Eagle considered going public in 1997 when it acquired Riser Foods, Cleveland, which was a public company. "We got close at that time, but we decided we didn't want to be public," Shapira noted.
He told SN there are no current plans to alter that decision.
Nor is Giant Eagle for sale, Shapira said. "We have no interest in selling, and that's pretty well-known, so we don't get a lot of inquiries."
Much of the chain's growth over the last 20 years has come through acquisitions, beginning with Tamarkin Co., Youngstown, Ohio, in 1981, and capped in 1997 by the Riser acquisition, "although we've made several smaller acquisitions since then," Shapira noted.
"Historically, we've made a whole series of acquisitions, most of which were relatively small," he indicated. "As chains pulled out of our area, we bought their stores, including 11 in Altoona, Pa., from A&P in 1989, which extended our geography beyond Pittsburgh into central Pennsylvania."
In the last couple of years, Giant Eagle has acquired 31 stores, including: Reiders, Solon, Ohio (six stores); Park Orchard, Cleveland (seven stores); Russo's, Chesterland, Ohio (four stores); Hartville Foods, Hartville, Ohio (three stores); and Food Gallery here (two stores).
The company began licensing its name to independent operators in 1984, shortly after it acquired Tamarkin, which already operated as both a retailer and wholesaler. "That mix was one of the reasons we bought Tamarkin," Shapira explained. "We like the idea of having independent operators utilize their capital to run stores with our name because they treat it like their own business."
Independent stores are virtually identical to corporate stores, with only a handful of exceptions, Burgo noted. They contribute about 45% of the chain's total sales, Shapira added.
Giant Eagle controls more than 50% of the market share in Pittsburgh, where its primary competition comes from Shop 'n Save, a group of corporate-owned and independent stores supplied by Supervalu, Minneapolis.
In its Cleveland division -- which also encompasses Akron, Canton and Warren, Ohio -- the competition includes Ahold's Tops Markets and three independents -- Acme, Heinen's and Fisher Foods.
According to Chuck Cerankosky, a supermarket analyst with McDonald Investments, Cleveland, Riser's Shop & Save stores already had the No. 1 market share there when Giant Eagle acquired them nearly five years ago.
One of the first things Giant Eagle did when it took over the stores was to add pharmacies, he said. "Riser had reduced the number of pharmacies, but Giant Eagle put them back in."
Although it didn't change the Stop & Save name for about a year, Giant Eagle added its own private-label lines -- a category the previous owners had not emphasized, Cerankosky said. "That was definitely a different merchandising technique for those stores, and it took time to build consumer confidence in those lines," he pointed out.
Giant Eagle also introduced loyalty cards into the Cleveland stores' operations, he said. "They know how to use point-of-sale data to target customers, and they're doing a good job with direct-marketing mailers," Cerankosky noted.
Although the Cleveland stores all operate under the Giant Eagle name, the conversion process inside the stores is ongoing. "The company is still expanding, remodeling and relocating stores in Cleveland; it's definitely putting capital into this marketplace," Cerankosky said.
The changes were not all one way. According to Shapira, Giant Eagle picked up some best practices from Riser. "There were ways they bought better in certain categories than we did," he explained.
Having established itself in Cleveland, Giant Eagle's decision to expand into Toledo and Columbus appears reasonable, Cerankosky said, "though the big difference for Giant Eagle in those cities is, they've got a very aggressive Kroger to deal with in both markets, though that aggressiveness won't be focused on what Giant Eagle does but on how the other players in the market behave."
Giant Eagle's entry into Toledo comes when the market has heated up competitively -- a situation that developed early last year when Farmer Jack acquired three independent stores in the area and took an aggressive promotional position, sparking strong responses from Kroger, Meijer and Food Town.
Exacerbating the situation was the entry of two Wal-Mart supercenters in outlying areas.
"For close to a year Toledo has been an area of higher-than-average competitive activity," Cerankosky said, "and there aren't any signs it will abate soon."
According to Karet, the store is in an area of high population growth, "with demographics that are very suitable to our store offerings, and we have been very pleased with our progress there, and we are very optimistic about our growth potential in Toledo."
One Midwestern observer said new store openings by Farmer Jack and Kroger have kept the competitive fires stoked in Toledo, while Giant Eagle, with only one store, hasn't been much of a factor in the overall market. "Giant Eagle is operating a very upscale store on the outskirts of a very blue-collar marketplace," he told SN.
"There are a couple of suburbs where that kind of store might be successful, but I doubt that format would succeed in the main part of Toledo. And at 80,000 square feet, the store is bigger by 20,000 square feet than anything Kroger or Food Town operates, which means there probably won't be many acquisition opportunities in that size range -- though if Giant Eagle wanted smaller stores, there are a handful of independent operators it could buy."
The move into Columbus will be a challenge for Giant Eagle, Cerankosky said -- primarily because it will be expanding store by store, pending any potential acquisitions.
"Columbus is Kroger's backyard, and it's also home to Penn Traffic's Big Bear chain," Cerankosky pointed out. "It's always a challenge for any operator to enter a market where Kroger is so well-established, and as it's demonstrated in Toledo, Kroger doesn't like to give up market share."
Building a business one store at a time will require "a strong commitment to long-term payoffs," he said. "It will take time to establish a place in the Columbus market, but Giant Eagle may be willing to fund one or two new stores a year there till it has created a critical mass -- unless it can make an acquisition.
"Looking at its history, it's clear Giant Eagle has grown its way from its core market into northeast Ohio through acquisitions, and maybe we will see a repeat of that in Columbus," Cerankosky said.