Fairway Market, the New York fresh grocer whose new ads encourage shoppers to “eat big and live large” is tightening its belt and thinking small.
The company announced this week that it was delaying construction of at least two planned stores in Manhattan and would instead focus on a 40,000-square-foot store expected to open next year in the quiet Brooklyn neighborhood of Georgetown. That store — to take the place of a former Waldbaums — will cost considerably less to build and operate than typical Fairway units, and, officials said, would not be expected to draw sales from existing Fairway stores.
The announcement accompanied word that Fairway had terminated a lease at the high-profile Hudson Yards project in Manhattan, although the company obtained a limited right of first negotiation if developers seek to include a supermarket in the development’s second phase.
Fairway also put off the arrival date for a previously announced store in the Tribeca neighborhood, with CEO Jack Murphy telling analysts in a conference call that “we are still wrestling with what kind of concept we might do,” at that site.
Plans originally called for opening Tribeca early this year, but Murphy said the Georgetown store, penciled for a late May or early June 2016 opening — would be the next Fairway to open. Murphy also acknowledged the 52,000-square-foot footprint of the Tribeca site was probably “maybe a few thousand feet more than we need right now.”
While the changing plans speak primarily to the company’s precarious financial position — same-store sales are losing ground amid competitive openings while costs have weighed on earnings — Murphy maintained that Fairway would not sacrifice selection or service at the coming openings.
He said size and cost reductions were guided by value engineering studies and decisions to downscale where appropriate. For instance, the Georgetown store won’t include Fairway’s customary hand-laid tile floors but a simple polished concrete finish.
“There's a savings of some $600,000 to $800,000 in that one item alone, and that is one of many items that we've reviewed line by line by line just to give you an example of how detailed we're getting in terms of the cost of building out these buildings,” Murphy said.
Overall, he said, the company would shoot to build stores for $200 to $210 per square foot, down from typical costs of $275 to $300 per foot.
Observers and analysts are taking a wait-and-see approach. “They are going to have be careful,” one industry observer, who asked not to be identified, told SN. “One of the problems stores encounter when they downsize is that they impact their mix. For a store like Fairway, you can’t leave less room for fresh. And when you’re building on a budget, they could be taking away from the panache that their best stores have.”
Burt P. Flickinger III, managing director of Strategic Resource Group, said he believed Fairway could operate a 40,000 square-foot store successfully but noted Fairway's growth plans — which fueled its IPO and investor sentiment — can’t really be executed until financials stabilize.
“[Hudson Yards] will be a good site for Fairway, but until the company stabilizes and stops losing money, they can’t go commit the cap-ex they need to fund a project to fund a project like that,” Flickinger told SN.
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