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State of the Industry

Though separated by less than 150 miles of Interstate 71, the Ohio cities of Cleveland and Columbus cast very different shadows. Among traditional supermarket competitors they share only a few brand names Giant Eagle and Buehler Food Markets. And both cities have seen the collapse of a once-strong franchise in recent years. Otherwise they are a study in almost complete opposites. Columbus is home

Though separated by less than 150 miles of Interstate 71, the Ohio cities of Cleveland and Columbus cast very different shadows.

Among traditional supermarket competitors they share only a few brand names — Giant Eagle and Buehler Food Markets. And both cities have seen the collapse of a once-strong franchise in recent years.

Otherwise they are a study in almost complete opposites. Columbus is home to several national chains and is ground zero for a face-off between megastores, with Kroger Marketplace joining an ongoing battle between supercenters Meijer and Wal-Mart. The area is also rich with specialty and natural/organic players, including Whole Foods and Trader Joe's, and is home to the greatest concentration of Sunflower Market stores, Supervalu's nascent organic concept, and several of Kroger's upscale Fresh Fare boxes. Those battles continue as Columbus expands into new growth corridors behind a healthy, white-collar economy.

Cleveland, by contrast, is one of the few metro markets in the country where independents populate the market-share picture. The city saw its first discount superstore (a Wal-Mart Supercenter) open only weeks ago, and as a result, margins have historically tended to be higher for Cleveland grocers than for their counterparts downstate. Their growth opportunities are dwindling, however. The city has been losing population for decades as its traditional manufacturing sector struggles; and although there are pockets of growth around the larger metro area, they're nothing quite like their neighbors in Columbus, sources said.

Discovering Columbus

The last significant local supermarket chain in Columbus fell in 2004 when Penn Traffic shuttered the Big Bear chain.

Founded in Columbus in 1932, Big Bear had at one time defined — and dominated — Columbus' food retail scene. It was one of the pioneering chains in all of supermarketing, introducing the Midwest to such innovations as the conveyor-belt checkout and the shopping cart, though by the 1990s it had fallen on hard times. A bankruptcy for corporate parent Penn Traffic Co. collapsed the chain for good in 2004, sending 38 stores up for grabs. At around the same time, four Kmart closings and two BJ's Wholesale Club closures threw more retail square footage onto the market.

“It's only once every few decades when you'll see this much already-developed real estate pop up,” Zac Kirk, a retail specialist for the real estate brokerage CB Richard Ellis, Columbus, told SN at the time.

The sites — including several Big Bear Plus locations, which combined the Big Bear grocery concept with a discount store — ultimately facilitated the transition of Columbus to a market where supercenters dominate. Cincinnati-based Kroger picked up several locations that became the first homes to its Kroger Marketplace multi-department stores.

Kroger today operates six Marketplace stores — and more than 50 Kroger traditional stores - in the eight-county Columbus area, a spokeswoman told SN. Bentonville, Ark.-based Wal-Mart Stores as of early this year operated 15 Supercenters in the region, and Meijer, Grand Rapids, Mich., operated 11 discount superstores.

“Today you're seeing a lot of conversions of Kroger going from their 65,000-square-foot model to the 100,000-square-foot Kroger Marketplace,” Kirk told SN in a recent interview. Marketplace stores are also part of new communities as the Columbus suburbs grow, particularly along the northern arc of Interstate 270, he said.

“Where you see growth here are the hot new retail corridors, where you might have a super Wal-Mart, a Kroger, a Giant Eagle and a Meijer all within the same geographic region, all within a stone's throw of each other,” he added.

Columbus is uniquely positioned to accommodate superstore growth, Kirk pointed out. “One thing Columbus has going for it that a lot of cities don't is that we're not constrained by any natural barriers,” Kirk said. “There's no lake here, no mountains, no big rivers. That's important when you need 12 to 15 acres of developable ground just to build one [superstore].”

Meijer, according to Kirk, tends to be the most pioneering of the superstores. “They will go to a site that's green and set the trend, and usually someone like a Home Depot or Target will follow,” he said. “Wal-Mart will go wherever they have the demographics to do it and don't have to fight a huge legal battle. They are also doing conversions from traditional discount stores to the super concept.”

Pittsburgh-based Giant Eagle grew its presence in the Columbus region by picking up nine former Big Bear locations, and today it operates 19 stores in the area. Its 12% share of the market ranks it behind Kroger (38.2%), Meijer (14.6%) and Wal-Mart (14.2%), according to Metro Market Studies, Tucson, Ariz.

The highest-ranking independent in Columbus, according to Metro Market, is GFS Marketplace, which primarily serves the food-service trade, at 1.8%. Buehler, based in Wooster, Ohio, operates two stores in the market and controls 1.6%.

“Columbus is very chain-dominated,” Tom Jackson, president of the Columbus-based Ohio Grocers Association, told SN. “I live in Dublin [a northwest Columbus suburb], and for me to shop at an independent grocery store, I have to drive 12 miles.”

Competition among chains tends to keep grocery prices low — and margins tight — in the Columbus area, Jackson noted.

“It's hard to say what effect the big guys have in the market,” Kirk said. “They affect one another, but it's not like they're putting a lot of little grocery stores out of business, because there aren't any. Most of the local ones were weeded out a long time ago. Big Bear was the last.”

Columbus in recent years has also seen an influx of specialty grocers. Austin, Texas-based Whole Foods Market opened in a former Big Bear location in Dublin last year and acquired a Wild Oats Markets store near the Ohio State campus in its recent merger. Minneapolis-based Supervalu debuted its Sunflower Market natural/organics concept in Columbus a year ago and today operates three stores in the region. Trader Joe's, based in Monrovia, Calif., operates stores in the Columbus suburbs of Westlake and Dublin.

Stan Eichelbaum, a professor at Michigan State University and president of Marketing Developments, a Cincinnati-based retail real estate consultant, said the arrival of the specialty concepts has tended to raise the game of all players in the supermarket business throughout the state.

“Ohio was a laggard in getting the contemporary grocery store, be it the Trader Joe's or the Whole Foods. There were gourmet efforts that ranged from the homespun — but terrific — Jungle Jim's in Cincinnati, to Dorothy Lane Markets in Dayton, but the traditional model was able to rest on its laurels for much longer than in other places.

“Now I think you're seeing catch-up. Kroger, which was a real laggard, is now really coming to life in aggressive ways with the Marketplace concept, and by further tailoring and reinventing its stores. A few years ago I picked them as someone headed for demise, but the boxing gloves are on now. They're starting to show the character to grow again,” Eichelbaum added. “When Meijer entered the market, it was still fairly traditional. The way you competed was to upsize, not upscale. With the entry of Whole Foods, Trader Joe's and Fresh Market, you've seen new ways of merchandising and concepting of the store. And we're seeing dramatic changes all over.”

Cleveland's Changing Landscape

The supercenter battle in Columbus — repeated in other Ohio cities, including Cincinnati and Dayton — has yet to make it all the way to Cleveland. Meijer and Kroger operate just about everywhere in Ohio, but both miss Cleveland, with Meijer stopping short just west of the city at Sandusky. Wal-Mart operates six Supercenters in the five-country Cleveland metro area, but opened its first within city limits only last month, when a Supercenter opened in a revitalized industrial site known as Steelyard Commons.

That supermarkets aren't flocking to open stores in Cleveland is easily explained, observers note.

“If you were Kroger, where would you want to be? The location where there's a lot of growth, and opportunities to get ahead of that growth, or do you want to be in a market that's entirely cannibalistic?” asked Tom Heinen, a co-owner of Heinen's Fine Foods, a 12-store independent that's Cleveland's No. 2 grocer in market share. “It's an easy choice. The only reason you would choose the latter would be if you felt the competition was so weak that you could easily cannibalize it yourself.

“But I don't think it's a matter of Kroger or anyone else feeling that they couldn't compete here in Cleveland,” Heinen continued. “It's just that opportunities are better elsewhere.”

Unlike Columbus, where white-collar jobs in the government, education, health care and insurance sectors have meant steady growth, the slow decline of the so-called “rust belt” economy in cities like Cleveland have meant population declines. With more than 733,000 residents, according to the latest estimates, Columbus is the 15th largest city in the U.S., slightly smaller than San Francisco, and the largest city in Ohio.

The same estimate shows a 3.1% increase in Columbus' population since the 2000 census. Cleveland in that same period suffered a 7.1% decline, to 444,000, falling from the 33rd largest city in the U.S. to the 40th.

Tops Markets, which at one time was Cleveland's largest supermarket chain, is among the victims of that decline, but observers say Tops' woes were also self-inflicted. The chain, owned by Amsterdam-based Ahold, walked away from 46 stores last year, after rounds of cost-cutting and an ill-advised move to prepackaged meat mortally wounded the brand.

As in Columbus with Big Bear's exit, the Tops closures were a transformative event for the area's grocery market. Though sources said the market is still adjusting to the new landscape, one clear winner was Giant Eagle, which picked up 13 former Tops stores for conversion to its banner. Giant Eagle also purchased five Tops stores for independents it supplied.

The acquisition and subsequent reopenings have added to Giant Eagle's leading market share in the five-county Cleveland metro area, which was 31.7% last year, according to Metro Market Studies. Observers say the chain effectively uses its FuelPerks gas loyalty program and its well-operated stores to stay on top.

“Giant Eagle is the real winner in Cleveland, for the way they've positioned their gasoline program around a collection of great stores,” Chuck Cerankosky, a Cleveland-based analyst for FTN Midwest Securities, told SN. “Whoever is going to compete in Cleveland today has to be one who can be effective in a market where there is one dominant player.”

“Often, when you see a chain get to No. 1, they will cut back labor and raise prices. But Giant Eagle just isn't slipping,” added David J. Livingston, president of DJL Research, Pewaukee, Wis. “The most notable thing Giant Eagle does right is staff their stores. They also have good perishables. They give the people what they want.”

Other fallen Tops stores went to independents like Dave's Supermarkets (the independent supplied by Giant Eagle), Heinen's and Cleveland Heights-based independent John Zagara, who bought one former Tops and doubled the size of his Zagara's Marketplace chain.

“Doubling your business in some ways is easy, and in some ways it isn't,” Zagara told SN. “Ordering and delivery has been easy — the suppliers and DSD people are there to help you. What's been more tricky for us is the technology — systems and scanning files and registers.”

In some ways, the downfall of Tops has made it tougher in Cleveland, Zagara added, “because other independents took stores I was competing against, and they become more effectual competitors than Tops was. They have a fresh meat program. They have employees who care about their jobs.”

According to Heinen, the Tops departure has also provided opportunity for specialty grocers and natural/organic players.

“The fact that a traditional competitor has fallen by the wayside is more than made up for by the fact that nontraditional competition continues to invade,” Heinen told SN. “I think we're still going through an adjustment period where we're trying to figure where all those millions of dollars per week that Tops was doing ended up. They had to be gained by somebody.”

Marc's, a deep-discount drug chain, has repurposed itself as a food retailer, and with 18 stores ranked fourth in area market share, according to Metro Market Studies. “They're good grocery merchants, and they sell cheap,” said Jackson, of the Ohio Grocers Association. “For a drug store, they're as close to a grocery store as anything I've ever seen.”

With Cleveland's Cuyahoga County projected to continue losing residents through 2030, the Greater Cleveland Marketing Alliance this year introduced a new campaign to drive business, tourism and conventions to the region under the auspices of Cleveland Plus, promoting a 13-county Northeast Ohio region including the cities of Cleveland, Youngstown, Akron and Canton. Combined, the areas count around 4 million residents and a population projected to hold steady in coming years.

Eichelbaum called the re-engineering of factory-dependent rust belt economies in cities like Cleveland, Pittsburgh and Detroit “the greatest economic challenge since the depression.” Heinen said he shares a vision of Cleveland as a future center for biotechnology, with the Cleveland Clinic and university hospitals leading the way. “Everybody is interested in it. It's only a question of how and when it comes to fruition.”

Different Directions

Columbus, the beneficiary of few topographical barriers to growth as well as an economic emphasis on the government, education, health and insurance sectors, continues to grow, census figures show. According to officials in Columbus, the city has grown in every census since 1830. Cleveland, in the meantime, has suffered a 7.1% decline in population since 2000 as it transitions from a manufacturing-based economy.

Cleveland 444,313 478,403 -7.1% 40 33
Columbus 733,203 711,470 +3.1% 15 15
Source: U.S. Census Bureau
Cleveland Market Shares
Giant Eagle 44 31.7%
Heinen's Fine Foods 12 9.6%
Wal-Mart Supercenter 5 5.6%
Marc's 18 5.2%
Buehler Food Markets 5 4.6%
Sam's Club 4 4.3%
Various Independents (Giant Eagle, American Seaway) 54 4.2%
Costco 2 4.2%
Convenient Food Mart 109 4.1%
BJ's Wholesale Club 4 4.1%
Dave's Markets 12 3.9%
Aldi 16 2.9%
Save-a-Lot 15 2.7%
Includes Cuyahoga, Geauga, Lake, Lorain and Medina counties, total population of 2.1 million.
Source: Metro Market Studies 2007 Grocery Distribution Analysis & Guide, Tucson, Ariz.
Columbus Market Shares
Kroger 51 38.2
Meijer 11 14.6%
Wal-Mart Supercenter 15 14.2%
Giant Eagle 19 12.0%
Sam's Club 4 3.9%
Aldi 15 2.4%
GFS Marketplace 5 1.8%
Costco 1 1.8%
Buehler Food Markets 2 1.6%
Carnival Foods 3 1.4%
Includes Delaware, Fairfield, Franklin, Licking, Madison, Morgan, Pickaway and Union counties, total population of 1.7 million.
Source: Metro Market Studies 2007 Grocery Distribution Analysis & Guide, Tucson, Ariz.