Independent supermarket companies in the U.S. heartland have discovered that their landscape has changed in the past few years.
Hundreds of supercenters have arrived to siphon off their share of customers. Food retailers are now finding that communities that used to be able to support two conventional supermarkets are now no longer providing enough business for quite that many stores.
Michael Feldpausch, chairman and chief executive officer, G&R Felpausch (Feldpausch's grandfather dropped the "d" from the family name when he christened his first store), Hastings, Mich., called these localities "store-and-a-half towns." In Michigan, he noted, their population generally ranges between 6,000 and 12,000.
"What that means," Feldpausch explained, "is that in some of our towns, there is still an opportunity for a 'conventional' full-service supermarket and a limited-assortment store as an alternate format because, typically, 10 to 12 miles away in any direction you can find a supercenter." He observed that Michigan appears to be particularly ripe soil for the big-box format, home to supercenters of both the variety operated by Wal-Mart Stores, Bentonville, Ark., and the local species created by Meijer, Grand Rapids, Mich.
In his effort to keep up and change with the times, Feldpausch told SN he is willing to be the operator of a small town's half-store when necessary, in Feldpausch's case as a licensee of Save-A-Lot, St. Louis, a subsidiary of Supervalu, Minneapolis. He noted that Felpausch is willing to either open limited-assortment units from scratch or downsize existing stores. "It's whatever works best," he said. "One of our focuses is to help facilitate this kind of market consolidation."
Currently, along with his 19 conventional supermarkets and four convenience stores, he operates two Save-A-Lot units and is "looking at a third right now," he said. "So far, it's worked very well."
E.W. James & Sons, Union City, Tenn., currently operates seven limited-assortment stores (as in Felpausch's case, all are Save-A-Lot units) in addition to the company's 17 conventional supermarkets scattered across Arkansas, Kentucky, Mississippi and Tennessee, according to David James, the company's chairman.
James explained that his company also serves smaller towns, often the county seats of county's where the entire population is about 12,000. These communities used to be able to support two conventional supermarkets, he said, "but with supercenters moving in, it gets pretty tough."
Like Felpausch, his company turned to limited assortment when it needed a "store-and-a-half" strategy. "We bought a conventional store in a town where we already had a conventional store," said James. "We didn't need two conventionals. What we thought we would do is convert the new conventional to a Save-A-Lot, and that's worked well."
The company's limited-assortment units were developed in one of two ways, James observed. "We've converted some of our stores to Save-A-Lots in smaller towns," he said, "and then we've purchased from other Save-A-Lot operators."
Meanwhile, both Felpausch and James said they continue to stress both price and value at their conventional stores.
Commented Feldpausch, "We've always been known for our perishables side; high customer service; clean, friendly stores and always at a value. Today, we demonstrate more than ever that we are working hard to compete with the big boxes on price. You can't beat them on every price, but we're working harder than ever with our suppliers to make sure we're meeting the market in terms of presenting a value to the consumer."
Feldpausch added that he is also working hard to offer unique products to his shoppers. "In Battle Creek [Mich.], where we have four conventional stores and we're looking at the arrival of two supercenters, we have acquired a locally well-known restaurant that had a unique product line, and we've brought that entire line and the name -- Malia's Bistro To Go -- into the store. We make fresh-cut pasta daily. We have fresh seasonings and herbs that you can't buy anyplace else.
"We know when the supercenters open, we're going to lose volume in the community. Our alternative strategy is to replace those dollars with catering, with meals-to-go, with specialty products that are totally unavailable at supercenters."
Down in Tennessee, the James gang is also at work holding down prices. Explained Mike Coley, James' director of marketing, "Competing against Kroger [Co., Cincinnati] as well as other independents, we pretty much compete on every price across the board."