Targeted Growth

SN's ranking shows that niche independents, including ethnic, organic and discount operators, expand their footprints

Niche retailers in the independent sector picked up momentum during 2010, according to SN's second annual list of the Top 50 small chains and independents [4].

While nearly half the companies on the list did not open or close any stores during the year and approximately 20% closed between one and three units, a third added at least one or two stores, with five of those operators — each serving different niches — expanding more significantly.

Those operators were as follows:

• An extreme-value discount chain — Grocery Outlet [5], Berkeley, Calif., which opened 12 new stores during the year and rose one notch to No. 2 on this year's list.

• A perishables-oriented retailer — The Fresh Market [6], Greensboro, N.C., which added eight stores and jumped to No. 4 from No. 14 a year ago.

• Three Hispanic chains: Bodega Latina [7], Commerce, Calif., operators of the El Super chain in Southern California, which added 10 stores through an acquisition and held on to the No. 10 position; Vallarta Supermarkets [8], Sylmar, Calif., which added five locations in Southern California and moved up four notches to No. 20; and Mi Pueblo Food Centers [9], San Jose, Calif., which added three Northern California units and came in at No. 47 compared with No. 49 a year ago.

“For a smaller operator without a lot of stores, finding a niche and building a business almost from scratch is easier than it is for a chain with a large number of stores, and that's one way a lot of companies will be able to survive,” said Jim Hertel, managing partner at Willard Bishop LLC, Barrington, Ill.

Niche marketing is a desirable approach, he added, “given that the old concept of supermarkets as all things to all people is a tough position for almost any food retailer today.

“But operations that stake out a much smaller portion of the overall food market — where they can be the best and do enough business to survive — seem to have much more appeal, and that seems like it will be a winning hand going forward.”

Gary Giblen, senior vice president of R.F. Lafferty & Co., New York, offered a similar opinion. “Niche marketing is where the growth opportunities are,” he said. “Because the U.S. is pretty well saturated with traditional supermarkets, there are a lot of opportunities at opposite ends of the economic spectrum — super-hard discounters at one end and stores with a perishables emphasis at the other.

“And with increasing ethnic populations, there are growing opportunities to serve fast-growing population segments outside the American mainstream, if there is still such a thing as an American mainstream.”

The primary reason for an independent to open a traditional store would be if he were the only operator in a rural market, Giblen pointed out. “Otherwise he would be wise to pursue niche opportunities.

“An independent can do perishables well because his labor expenses are usually lower, and the fact the owner is on premises is a big plus. An ethnic approach works particularly well if the owner is marketing to others of the same ethnicity so he knows the right merchandise mix for groceries and fresh offerings.

“Value retailing might be a bit harder for independents who might lack an advantage in procurement compared with a larger operator. But the lower cost of labor can help him keep prices down.”

Ajay Jain, senior analyst with Hapoalim Securities, New York, said the success of niche retailing among smaller operators reflects a long-term trend among food retailers in general.

“The biggest trends in square-footage growth are retailers who cater to a price-sensitive demographic and those who cater to an ethnic population,” he pointed out. “You're seeing more conventional chains investing in deep-discount formats, and Save-A-Lot is certainly a major growth vehicle for Supervalu.

“As far as ethnic marketing, it reflects the changes in demographics and indicates that conventional chains are not doing a good job serving that segment.”

On this year's list of the Top 50 small chains and independents, Fareway Foods [10], Boone, Iowa, came out on top for the second year in a row, with two additional stores helping it hold on to the No. 1 spot. In second place is Grocery Outlet.

Rising to No. 3 is Woodman's Markets [11], Janesville, Wis., which opened one additional supercenter during 2010 that helped boost it one notch from last year. The Fresh Market, Greensboro, N.C., is No. 4. King Kullen Grocery Co. [12], Bethpage, N.Y., closed two stores and fell to No. 5 this year from No. 2 a year ago.

At No. 6 is Cardenas Market [13], Ontario, Calif., a Hispanic chain, followed by No. 7 Redner's Markets [14], Reading, Pa.; No. 8, PAQ [15], Stockton, Calif., which operates 20 stores in Hawaii under the Times Supermarkets banner and 16 in Northern California (12 Food-4-Less units and four Rancho San Miguel stores).; No. 9, Northgate Gonzalez Market [16], Anaheim, Calif.; and Bodega Latina at No. 10.

Several companies included last year fell off the list: Gerland's Food Fair, Houston; Pro's Ranch Market, Ontario, Calif. (which sold four of its 12 stores); Town & Country Grocers, Fredericktown, Mo.; Mars Supermarkets, Glen Burnie, Md.; Scolari's Food & Drug Co., Sparks, Nev.; and Gristede's, New York.

METHODOLOGY

This is the second installment of SN's Top 50 Small Chains and Independents list. To qualify, a company must have sales under $1 billion, and it must not be owned by a wholesaler or a larger retail entity.

All volumes listed are estimates, although SN attempted to obtain accurate figures by contacting every company on the list.

If you feel your company belongs on this list, please contact reporter Elliot Zwiebach at [email protected] [17].