The Growth List: Chains on the fast track
Operators of nontraditional concepts dominate the list of those food retailers who are growing the fastest in terms of new-store development, with a few exceptions.
Specialty and natural and organic operators like Whole Foods Market, Trader Joe’s, Sprouts Farmers Market and The Fresh Market lead the pack in terms of new units planned as a percentage of store base, but limited-assortment banners Aldi and Save-A-Lot are not far behind.
THE GROWTH LIST
Walmart
Kroger Co.
Costco Wholesale Corp.
Publix Super Markets
H-E-B
Save-A-Lot
Meijer Inc.
Wakefern/ShopRite
Whole Foods Market
Trader Joe's
Aldi
WinCo
Mariano's
Sprouts Farmers Market
The Fresh Market
SN INSIGHT
“The limited-assortment channel is one of the fastest growing in the retail grocery space, and we are well-positioned to take advantage of this opportunity,” said Sam Duncan, president and CEO of Supervalu, Save-A-Lot’s parent company, in a recent conference call with investors.
In this issue SN is profiling those six chains and nine others that have aggressive growth plans in the year ahead, with information on growth strategies, new unit increases, capital expenditures and estimated costs per store.
Among traditional operators Kroger Co., Cincinnati, has become a growth company through its acquisition of Harris Teeter, which has been adding new stores in the Baltimore-Washington region at a rapid clip. Other traditional operators on The Growth List include Publix Super Markets, which plans to open 32 new stores this year, including several in the Charlotte market, its newest division; H-E-B, which is thought to be gearing up for a big push into the Dallas market; Wakefern/Shoprite, which stands to grow more rapidly with its new PriceRite discount banner; and, at the other end of the spectrum, Mariano’s Fresh Market, a high-end, high-volume chainoperated by Roundy’s in Chicago.
Of course, the food retailer with the perhaps the most impactful expansion plans is Walmart, which has accelerated the pace of its smaller-format rollouts, including the Neighborhood Market.
“The combination of large- and small-store formats allows us to strengthen our market-share position and give customers convenient access to shop for food and general merchandise,” said Bill Simon, president and CEO of Walmart U.S.
“We’re also pleased with how well the 20 Express stores are doing, and we’re expanding our pilot beyond the initial three markets.”
From its base in Matthews, N.C., Harris Teeter has been opening six to eight stores a year, or more, pressing aggressively north to the greater Washington, D.C., market, while filling in the Charlotte area to wrest the No. 1 spot in that market from Food Lion. (It has since lost the No. 1 spot to Walmart, according to at least one analysis.)
“They’re not coming into [Wisconsin] just to have [a handful of] stores,” one local consultant said. “They’re coming here to make a splash.”
It also gives Wakefern a vehicle to go into more low-income, urban areas, he explained.
“In terms of the new-store side of their growth, they are doing really, really well,” said Andrew Wolf, a Boston-based analyst with BB&T Capital Markets. “Until about three years ago, about half of their growth came from buying competitors, but now they have become a pure growth company, and have managed that very well.”
After opening just 14 stores last year, the Monrovia, Calif.-based company anticipates opening 34 new locations this year, with plans to open between 30 and 35 per year going forward, industry sources said — a pace Trader Joe’s can accommodate, one observer said, “because the company has the people to run them and the systems to support that growth.”
Near the top of its expansion list is Southern California, where it plans to build a regional office and an 850,000-square-foot distribution center in Moreno Valley, Calif., capable of serving 200 stores. The facility is scheduled to open in 2016, which is when Aldi is expected to begin expanding into California.
WinCo opened eight stores in the fiscal year that ended in March — for a total of 93 — including its first two locations in the Dallas-Fort Worth market, and it plans at least three more in Texas this year: in Duncanville, North Richland Hills and Lewisville, all in the Dallas-Fort Worth metro area.
Walmart, Kroger
Walmart doubles down on small-format expansion
As Walmart continues to get bigger, it is continuing to grow ever smaller.
The company said it plans to double the number of small-format stores it expects to open in the U.S. this year to between 270 and 300 — a mix that will include between 160 and 180 Neighborhood Markets and between 110 and 120 Walmart Express locations.
The company was operating 286 Neighborhood Markets at the end of its fiscal year in January, “[and] they are a proven model,” Bill Simon, Walmart U.S. president and CEO, said. “We will accelerate growth of Neighborhood Markets because of their strong returns, consistent comp-sales performance and double-digit net sales increases.
Walmart had initially disclosed plans to open a total of 120 to 150 smaller locations this year. However, it revised the numbers upward in February because, according to Simon, “we are transforming our business to meet [customers’] expectations.
“We believe our multi-format portfolio will fuel the next generation of retail, enable the convergence of digital and physical store locations through ecommerce and unlock value, giving our customers anytime, anywhere access to Walmart.”
Simon said he envisions the small-format units becoming part of the company’s site-to-store ecommerce system in which customers can order products from a supercenter via their phone or online and have them shipped to their nearest Express location for pickup.
Besides the small-format stores, Walmart plans to open approximately 115 new supercenters this year, down from 125 in 2013, though supercenters remain Walmart’s primary growth format, the company said.
“The combination of large- and small-store formats allows us to strengthen our market-share position and give customers convenient access to shop for food and general merchandise,” Simon noted.
Supercenters and other large formats accounted for the vast majority of Walmart’s U.S. sales of $331 billion last year, with Sam’s accounting for $56 billion, Neighborhood Markets for an estimated $6 billion and Express stores for less than $1 billion, according to company statistics and industry estimates.
Industry sources told SN that, by 2018, they expect Neighborhood Markets to account for volume of $23 billion and Express stores’ volume to reach $2.5 billion.
Capital spending in the U.S. this year will fall between $6.4 billion and $6.9 billion — up $500 million from a year ago due to the acceleration of small-format openings and ecommerce initiatives, the company pointed out.
Industry sources told SN Walmart prefers to build supercenters from the ground up, though it often converts existing Division 1 discount stores to supercenters using the existing buildings. For smaller formats, it tends to build new stores in rural areas and take over existing locations in urban centers.
Walmart prefers buying to leasing, with 86% of its U.S. properties owned by the company (87% of supercenters).
—E.Z.
A new growth vehicle for Kroger
Kroger Co. grew its store count by more than 200 units through the purchase of Harris Teeter, and that promises to be an acquisition that keeps on giving.
While Kroger itself had been shuttering more stores than it opened for the past several years, the Cincinnati-company may be ending that streak with the addition of the fast-growing Harris Teeter.
“Kroger likes the way Harris Teeter operates, and I would not expect Kroger to change much at Harris Teeter except to reduce its cost of operations,” said Chuck Cerankosky, an analyst at Northcoast Research, Cleveland. “If Harris Teeter is successfully expanding, or successfully running their internet shopping program, I don’t anticipate Kroger interfering with any of that. I would expect everything to remain pretty much the same as far as new store openings.”
Harris Teeter’s expansion strategy, he noted, has been to “go after enclaves where it felt its stores would do well in the densely populated Baltimore-Washington corridor,” he said, in addition to filling in existing markets in the Carolinas, “and that should continue.”
In addition to its expansion plans for Harris Teeter, Kroger also said it expects to enter a new market this year organically, although it has not yet indicated where it would seek to do so.
“I would guess it would be contiguous to its existing distribution and manufacturing infrastructure, but that doesn’t rule out too many places,” noted Cerankosky.
Last year was the first full year under Kroger’s new capital allocation strategy, in which it is managing investment in new-store development centrally to pursue opportunities with the best opportunities for returns, rather than leaving it up to the divisions.
“It is still early, but we’re pleased with their performance to budget, and expect these and future stores will greatly support our growth plan,” said J. Michael Schlotman, SVP and CFO, Kroger, in a recent conference call with investors.
Many of Kroger’s newly constructed stores have been its Marketplace supercenter-style formats.
Kroger emphasizes self-development and ownership of its own real estate, the company said in a filing with the Securities and Exchange Commission.
Costco anticipates 30 new store openings this year, compared with 28 in 2013, 16 in 2012 and 20 in 2011.
“There’s a lot of development going on in the Charlotte market, and Publix is taking a lot of those locations, as well as Whole Foods — they are getting some of the best sites,” said one observer in the market, who asked not to be identified.
Costco, Publix
Costco plans 30 new stores in 2014
Costco Wholesale Corp. is accelerating its warehouse openings, with 150 additional locations projected over the next five years.
Increasing the rate of growth “simply reflects that we are doing well and we want to ramp up expansion,” Richard Galanti, EVP and CFO for the Issaquah, Wash.-based company, said. “In addition, we continue to find good opportunities, and it’s part of our nature to grow as membership grows and to do it profitably.”
Of the 2014 total, just over half will be in the U.S. — all within the 43 states in which Costco operates (which exclude Arkansas, Maine, Mississippi, Oklahoma, Rhode Island, West Virginia and Wyoming). Galanti said there are no short-term plans to expand into new states.
Of the 150 new warehouses contemplated over the five-year period, roughly half will be in the U.S., though the number of new U.S. warehouses will go down year-to-year as the company opens more locations abroad, Galanti told SN.
Half of the warehouses are scheduled to be in-fill locations and half in new markets, he added.
Costco will open its first warehouse in continental Europe this May — in Seville, Spain. It also contemplates its first store in France in 2015.
Costco owns about 80% of the warehouses it operates, and it also prefers to build its own stores rather than move into existing buildings “because, given the size of our warehouses, it’s hard to find empty buildings that suit our needs,” Galanti noted.
Costco warehouses average 143,000 square feet, though they range from 135,000 to 160,000 square feet, with a current prototype of 155,000 square feet.
The size has stabilized after growing gradually over the last few years, Galanti said, as the company added more fresh foods, including organics, plus refrigerated foods, as well as ancillary businesses.
—E.Z.
Publix expands in Charlotte and elsewhere
Publix Super Markets is ramping up new-store growth in the Charlotte market, but also continuing to open stores in its existing markets in Florida, Georgia, Alabama, South Carolina and Tennessee.
The Lakeland, Fla.-based company has a long history of careful site selection, and building stores appropriate to the markets in which it operates, whether those are new-store developments or takeovers of existing structures.
Publix has opened five store in the market already, with five more stores planned for opening there this year, and another four or five planned for 2015.
Observers said they expect Publix to take a careful, deliberate approach to expansion in the Charlotte market, opening first in outlying areas before moving into the city itself, where Harris Teeter has a stronghold. Most of the sites Publix has planned for the near term are in the south of Charlotte, where much of the commercial and residential development is taking place.
Publix spokeswoman Maria Brous recently told SN that the company “explores all options” for buying and building stores.
“We approach North Carolina as we do every market in which we operate — we look for the best locations to serve our customers,” she said.
Publix also is willing to work with a wide range of store sizes and layouts. At least two of its first stores in the market are former Bi-Lo stores. Publix stores run up to about 61,000 square feet.
“Our 49,000- and 56,000-square-foot locations work well,” Brous noted.
A new Publix location set to open this month in Huntsville, Ala., will measure only 33,278 square feet. It will be Publix’s 12th location in the market.
Of stores opened in the last few months, four are in Florida, two are in North Carolina and one is in South Carolina. They measure from 45,600 square feet up to 63,000 square feet.
Company officials declined comment on where its expansion will take it, beyond saying the company plans to open nine new stores this year.
As a result, he said the company will focus on new-store growth opportunities at the small-format discount banner, which numbered about 1,330 locations at the end of the company’s most recent fiscal year.
H-E-B, Save-A-Lot
Dallas looms large for H-E-B expansion
Will they or won’t they?
After more than 25 years of flirting with a major entry into the Dallas-Fort Worth metroplex, H-E-B may find its way there if the pending merger of Albertsons and Safeway results in store divestitures within the Tom Thumb chain, according to some industry observers.
One source said he believes H-E-B could shake up the Dallas market with 15 or 20 locations — and Dallas would be quite a market to shake up, he added, given it has as many as 40 banners selling groceries.
“H-E-B hasn’t entered Dallas — except for three Central Markets — because of the competitive landscape,” the source told SN. “But if Albertsons decides to unload some of the Tom Thumb stores there, it would be an ideal situation for H-E-B and a great opportunity for them to pick up some good real estate.”
However, another industry executive said he doubts H-E-B will ever acquire a large group of stores. “Charles Butt [the chain’s chairman and CEO] has his own way of doing things, and that doesn’t include buying someone else’s stores,” he pointed out.
“He’s had several shots over the years to buy stores in Houston, Austin, Waco and other markets, and he’s never taken any of them. And he doesn’t want to buy stores that are unionized, which Tom Thumb is.”
A major move into Dallas would give H-E-B a firm foothold from which to expand more than it has into north Texas, the industry executive added. The chain opened a major distribution center in Temple, Texas, several years ago, from which it serves its stores in Austin and central Texas and which could serve as a distribution point for the northern part of the state, he pointed out.
Local reports began circulating in the Dallas market late last year that H-E-B was ready to make the move into Dallas after a real estate consultant there said the chain has been buying a site a month in the region and could have nearly 25 stores there within three to five years — comments that were quashed by the company, which told local media the chain has been considering an entry into the DFW market for years and continues to evaluate it.
—E.Z.
Save-A-Lot rides growth momentum
After a relatively quiet year of new-store investment in its Save-A-Lot division, Minneapolis-based Supervalu is ramping up expansion this year with 65 new locations planned (along with about 30 planned closures).
“Save-A-Lot continues to be an exciting growth opportunity for us,” said Sam Duncan, Supervalu’s president and CEO, in a conference call with investors. “We are pushing to expand a footprint over the coming years. The limited-assortment channel is one of the fastest growing in the retail grocery space, and we are well-positioned to take advantage of this opportunity.”
Capital expenditures are projected to double at Supervalu overall in the current fiscal year, to about $230 million to $240 million, with nearly half of the projected spending expected for the Save-A-Lot division.
John Heinbockel, an analyst at Guggenheim Securities, New York, said he “continues to believe that Save-A-lot holds the key for secular value creation” at Supervalu, with the potential to double share-price growth in the next three to five years.
EBITDA at the chain — which is operated by both the company and individual licensees — stands to increase as the company accelerates the pace of new-store openings and leverages its fixed costs.
In Supervalu’s recent fourth-quarter conference call with investors, Duncan said new, tightly enforced standards for licensees could result in some operators’ stores being taken over by the company, which has been generating better sales performance than the licensees as a whole.
Save-A-Lot licensees have begun adopting some corporate programs into their stores, including new directional sign packages, more prominent displays of price investment items, and newly introduced horizontal merchandising sets. In a multi-store test with one large licensee group, Supervalu said it has “seen high single-digit sales increases after working with the Save-A-Lot team on store resets and improved store merchandising.”
In addition, Save-A-Lot is “in the early stages” of developing a modular general merchandise program to supplement the grocery offering at Save-A-Lot, he said.
Scott Mushkin, an analyst with Wolfe Research, New York, said he expects positive trends to continue at Save-A-Lot.
“The discount business appears to have turned a corner and is gaining momentum following some of the company’s initiatives put in place last fiscal year, including fresh meat cutting and improved produce, as well as a reduction in inside margin,” he said in a report.
—M.H.
Meijer, Wakefern
Meijer pushes west to Wisconsin
For Meijer Inc., “On, Wisconsin!” seems to be its favorite fight song at the moment, if its expansion plans are any indication.
After opening six stores last year — its most aggressive single-year expansion in recent history — the Grand Rapids, Mich.-based company anticipates up to 12 openings this year, most of which are likely to be in Wisconsin, according to industry observers.
Hank Meijer, co-CEO of the 204-store chain, told Midwest media the company anticipates a major push into the Badger State. “We expect to concentrate a lot of our expansion in the next few years in Wisconsin,” he said. “Milwaukee ought to be able to support a dozen stores, but whether we will find a dozen sites in short order is another question.”
The company has announced plans to open stores this year in three Milwaukee suburbs — Grafton, Sussex and Wauwatosa — and another new store in Kenosha, Wis., along with new locations in South Haven and Alma, Mich., and one in Bowling Green, Ky., which would be its southernmost unit.
It has also scheduled new stores for 2016 in Waukesha and Oak Creek, Wis.
Real-estate sources said Meijer could potentially acquire shuttered Kmart stores in the area. “A lot of those Kmarts are just dead stores in good locations,” said one.
Helping fuel the push into Wisconsin was the acquisition early last year of a 580,000-square-foot distribution center in Pleasant Prairie, Wis., from Supervalu.
Meijer is also continuing to open urban stores in the Chicago market, where it operates four locations of approximately 100,000 square feet each.
Last year the company opened its first store in Detroit — a 190,000-square-foot supercenter, and it also opened its 200th store in May in Swartz Creek, Mich.
—E.Z.
Wakefern opens up new opportunities with PriceRite
The Wakefern/ShopRite cooperative has been enjoying robust growth for several years, and stands to ramp up that even further with the recent decision to open up the PriceRite banner to individual members.
The Keasbey, N.J.-based company generated $14.1 billion in retail sales in 2013 from about 250 ShopRites and 51 units of the discount PriceRite banner.
“With PriceRite, it gives them the ability to go into new areas where they could not have gone before,” said Matt Casey of Matthew P. Casey & Associates, a site-selection consultant based in Clark, N.J. “For years, ShopRite has had to have a big building to run their programs. Now, with PriceRite, there might be a site that’s too small for a 62,000-square-foot ShopRite, but you can fit about 30,000 square feet, and that’s a good size for a PriceRite.”
The company recently unveiled plans for its first New Jersey PriceRite, which will also be the first to be operated by a member, as opposed to Wakefern itself. Inserra Supermarkets, based in Mahwah, N.J., is slated to open the discount banner in the town of Garfield later this year.
Wakefern’s history of aggressive store expansion has been a product of its unique cooperative structure, Casey explained.
“You’ve got about 50 members that own stores at this point, and each member has the ability to grow if they want,” he explained. “So you could have Saker ShopRite looking for their own sites, and Inserra looking for their own sites.
“Plus, Wakefern has their own real estate department, and they are actively looking for sites. So, you’ve got a lot of different people kicking tires and turning over dirt looking for locations.
“If it’s a good supermarket location, then they are interested — if Wakefern’s not interested, maybe one of the members is, and they will consider what they need to do to make it happen.”
Wakefern has been a big beneficiary of the decline of A&P and Pathmark over the last several years, Casey noted. In fact, the Inserra PriceRite in Garfield is replacing a former A&P.
“It used to be that Pathmark got the first phone call from developers,” he said. “Now, that call goes to ShopRite, because they will get the highest customer counts.”
One of the things that makes Wakefern unique, Casey noted, is its dedication to making stores achieve a good return, even if they don’t open up at the volumes initially projected.
“They tweak it, and work on it until it does the volumes they think it should do,” he said. “That’s unique among operators around the country.”
—M.H.
Whole Foods, Trader Joe's
Whole Foods keeps its foot on the gas pedal
Whole Foods Market has ramped up new-store openings for each of the last four years, and shows no signs of slowing down.
The Austin, Texas-based operator opened 32 new stores in 10 new markets in 2013, adding about 8.2% to its total square footage. At year-end, it operated a total of 367 stores in 40 states, the U.K. and Canada, and had signed 47 leases for future sites, with 94 new stores in some phase of development.
The company’s regional operating structure, he explained, helps in its efforts to expand rapidly because of the market understanding it fosters.
“They have a lot of regional expertise, and really understand their markets,” Wolf said.
Although Whole Foods historically has favored upper-income demographics, it has recently expanded in some more low-income areas with a lower-priced offering focused on its private labels.
“If the volume is good, they should be fine,” said Wolf. “I think that’s been a positive surprise for them, how well those stores are doing.”
Chuck Cerankosky, an analyst at Northcoast Research, Cleveland, noted that Whole Foods has reduced its average store size in the last few years, without slowing its sales growth.
“Sales per square foot has actually increased,” he noted. “They made a very smart change in strategy — they are not slowing down new-store openings, but actually picking them up, but the stores are a more productive size, and it brings their strongly branded, fresh-food focus to more markets.”
He noted that he expected Whole Foods to continue to experiment with a variety of sites and locations, just as the company has experimented with its range of offerings.
John Mackey, co-CEO of Whole Foods, noted that the company is continuing to seek a wide variety of sites throughout the country, and continues to see the potential for 1,000 locations in the U.S.
—M.H.
Trader Joe’s doubles its growth rate
Trader Joe’s is accelerating its new-store growth, to the apparent delight of consumers around the U.S.
“People travel a lot, and they talk to their friends, and Trader Joe’s has very good buzz,” one industry observer told SN.
One observer said Trader Joe’s has established growth targets “that, for many in this industry, would not seem achievable but which the company has been able to reach or exceed because of strong leadership and commitment to the company’s business philosophy.”
Company officials could not be reached for comment.
Each Trader Joe’s location is presented to consumers as a neighborhood market so each is different, though all have the same merchandise assortment, the same consistent everyday prices and the feel of all other Trader Joe’s, sources said.
“Trader Joe’s is able to achieve something that’s extremely difficult to do,” one observer told SN — “to continually reinforce the company brand and culture so that the brand and customer remain consistent, which also means the organization does a good job policing itself and keeping the ship on a steady course.”
Trader Joe’s has been owned since 1979 by the Albrecht family trust of Germany — the same trust that owns Aldi, though the two businesses operate completely separately in the U.S.
Trader Joe’s prefers to lease its locations, though the company is open to buying if it can get the right spot, one industry executive said.
About a third of Trader Joe’s stores were built from the ground up, with two-thirds operating out of existing buildings.
Aldi, WinCo
Aldi looks west to become a national player
With more than 1,200 stores east of Kansas City, Mo., and in Texas, Aldi is turning its attention westward in an effort to become a coast-to-coast operator.
The company, whose U.S. arm is based in Batavia, Ill., said it expects to open 650 new stores in the next five years — with plans for approximately 130 new stores per year on average, up from a pace of 80 stores annually.
According to one industry source, Aldi’s biggest challenge in California could be consumers’ unfamiliarity with the hard discount approach — a limited assortment with low pricing that’s heavy on private label — which is mostly unknown there, despite the presence of a small number of Save-A-Lot locations.
But unlike Fresh & Easy Neighborhood Market, the Tesco-operated company that tried to introduce a new convenient small-store format into California, Arizona and Nevada but failed to catch on with consumers, “Aldi is much clearer in what it stands for, and it doesn’t have to build economies of scale from scratch in terms of buying,” the source told SN.
Aldi is already growing aggressively in the Houston market, where it opened its first store just over a year ago and was scheduled to open a 17th location there May 1. The company also was scheduled to break ground this month on a new 650,000-square-foot distribution center and regional office in Rosenberg, Texas, a Houston suburb.
“We’re ramping up our expansion to meet growing demand for Aldi from customers across the country,” Aldi co-president Jason Hart said. “We’ve successfully entered new markets such as Houston and expanded our presence in competitive markets like South Florida and New York City. We believe that great quality can be affordable.”
At the end of 2013 Aldi was operating 1,227 stores in the U.S., with estimated sales of $8 billion. The chain is owned by Aldi Group, Mulheim, Germany, the same trust that owns Trader Joe’s, though the two companies operate completely separately.
The company prefers to own its stores — “to build them as clones, in a standardized fashion,” an industry observer noted. “However, to create scale in new areas, especially densely populated regions like South Florida, it is also moving into existing strip malls.”
—E.Z.
WinCo brings its discount banner to Texas
WinCo Foods, that other juggernaut from Boise, Idaho, is growing steadily across the West.
Though it is very selective and careful in its planning and execution, “we are very aggressive at looking,” Michael Read, SVP, public and legal affairs, told SN — with further expansion in Utah and entries into Colorado and New Mexico possible, though some years away, he added.
With close to 100 stores by year’s end, WinCo contemplates annual expansion of about 10% going forward, Read said.
In the short term, the company will continue to focus its Texas growth plans in the Greater Dallas-Fort Worth area “because that’s a very large market,” Read said.
WinCo is also on the lookout for additional sites in the Phoenix market — where it plans to open a 1-million-square-foot distribution center later this month, Read noted. It entered the Phoenix market a couple of years ago and operates four stores there, including one that opened last year in Gilbert.
“We like Dallas-Fort Worth and Phoenix because our economic research tells us those are markets with the demographics we like and annual grocery dollars and competitive activity where we see real opportunities for a discount grocer like WinCo,” Read explained.
WinCo has essentially reduced its footprint to a range of 85,000 to 88,000 square feet, down from about 92,000 square feet “because we decided we can do the same things within a slightly smaller space,” he said.
“But we could build larger or smaller, as the situation calls for,” he added, noting the company opened a store in Bremerton, Wash., in mid-2012 that’s 58,000 square feet and a 78,500-square-foot store in Ventura, Calif., last year. “We’re not wedded to one size, and we’re always scratching our heads to figure out different ways to do things,” he noted.
Given its generally large footprint, acquisitions are rare, Read noted, though WinCo has opened stores in units formerly occupied by Costco, Home Base and Mervyn’s, he pointed out.
The company owns approximately 90% of its store base, he added.
Industry observers predict that, as Mariano’s approaches 50 stores, it could become the No. 2 operator in Chicago, behind Albertsons-owned Jewel-Osco, with a market share approaching 20%.
And although the chain is expanding into new markets — it opened its first store in Kansas earlier this year and plans to open its first Atlanta stores this summer — more than 75% of its new-store development will take place in existing markets across the Southwest.
“Our real estate plan will be more conservative, and place a greater emphasis on existing market expansion while slowing the pace of openings in markets west of the Mississippi River in the near to medium term,” said Craig Carlock, president and CEO, in a conference call with investors after announcing plans to shutter three newly opened locations in Sacramento, Calif., and one in Houston. “We believe this approach will allow us to better control occupancy costs, leverage existing market data to improve sales forecast and improve productivity among our new class of stores prior to making incremental market investments.”
Mariano's, Sprouts
Mariano’s ramps up quickly in Chicago
Mariano’s is on the verge of becoming a major player in the Chicago market.
When Safeway decided to sell off its Dominick’s stores earlier this year, Mariano’s jumped in and picked up 11 stores. With five additional stores previously scheduled to open this year and 13 existing stores, Mariano’s expects to end the year with 29 stores.
The company also plans to open a new Metro Market location in Madison, Wis., this year.
Bob Mariano, chairman of Roundy’s Supermarkets, Milwaukee, which operates the upscale Mariano’s stores, said he’s not particularly concerned with market share.
“We focus on our customers,” he told SN earlier this year. “If we continue to focus on the things that have made us successful — providing a highly differentiated food shopping experience with extraordinary perishable offerings under an umbrella of exceptional customer service — then market share will take care of itself.”
Roundy’s operates 148 conventional stores — encompassing 93 Pick ‘n Saves, 25 Copps stores and three Metro Markets in Wisconsin and 27 Rainbow Foods in Minneapolis — and began opening Mariano’s stores in 2010. It had 13 Mariano’s stores in operation there when the Dominick’s opportunity arose and has opened seven of the former Dominick’s, for a total of 20.
The company said the 11 acquired Dominick’s stores — for which it paid $36 million in cash — are expected to contribute sales of about $700,000 a week, or approximately $300 million this year, “and at maturity and after being fully remodeled in two to three years, we expect the 11 stores to perform like our other Mariano’s,” he said, “generating sales of approximately $850,000 to $950,000 a week per store.”
The chain recently opened its largest location, an 80,000-square-foot, two-story supermarket in the Ravenswood area on Chicago’s North Side. Among the amenities are a wine bar, a Todds BBQ restaurant, live music, and indoor and outdoor seating areas.
Roundy’s leases all but two of its store locations. The company prefers to build stores, “though the Dominick’s acquisition made sense,” a company spokesman explained, “as these were locations we were familiar with and considered to be in prime locations that fit in well with our expansion plans for the banner.”
—E.Z.
Sprouts balances rapid growth in new, existing markets
Sprouts Farmers Market is maintaining one of the fastest growth paces in the industry, and doing it with new-store construction, at least for now.
The Phoenix-based chain of fresh- and natural-focused stores is planning new-unit growth of 13% to 14% per year, with up to 24 new stores planned this year on top of the 171 it already operates. The company has 60 sites approved for the coming years.
“All new stores are performing well, and our reception by the Kansas market has been impressive,” said Doug Sanders, president and CEO, in a recent conference call with investors.
He said the company sees a lot of opportunity for growth in the Southeast, where analysts have pointed out that Atlanta could be a hub for growth in other markets.
“The real estate availability in the Southeast is more plentiful than what we’re seeing in the California market at this time,” Sanders said. “As a company, we only operate in nine states today, so there is quite a bit of opportunity for us from a growth perspective, and we see the Southeast as an avenue for that growth for the next several years.”
The company is eyeing the potential for 1,200 stores across the country, with additional expansion planned for the Pacific Northwest in addition to its growth in the Southeast.
Kate Wendt, an analyst at Wells Fargo, San Francisco, said in a recent report initiating coverage on Sprouts that the company’s relatively low-cost store development model — about $87 investment per square foot, compared with $248 per square foot at Whole Foods Market — helps Sprouts achieve good returns quickly on its new stores.
“A common question we receive from investors is whether we think Sprouts, Whole Foods and Natural Grocers [by Vitamin Cottage] can all achieve their 1,000-plus store targets,” Wendt wrote in the report, citing Trader Joe’s as another rapidly expanding specialty chain in the space. “Our view is that there is in fact room for all of these players, given the significant shift in consumer preferences, which we expect to continue, and the considerable room for market-share gains from traditional grocery.”
—M.H.
The Fresh Market, SN INSIGHT
The Fresh Market refines its growth plan
After stumbling in an ambitious growth plan that saw The Fresh Market expand from its core markets in the Southeast across the country to Texas and California, the Greensboro, S.C.-based company is rethinking its expansion.
While it still plans to open about two dozen stores in 2014 — slightly more than the 22 it opened last year — the company is now focusing more on the Southeast and boosting its site-selection analytics.
“They stubbed their toes a lot going to Houston and California, and they admitted mistakes were made — whether it was their own ambition, or bad real estate decisions,” said Andrew Wolf, a Boston-based analyst at BB&T Capital Markets. “But their core business is still a growth business.”
He said he believes the company could be successful in both Texas and California, if they open in the right markets — generally upscale suburban or smaller markets where they can avoid direct competition with upscale operators or chains like Whole Foods.
Chuck Cerankosky, an analyst at Cleveland-based Northcoast Research, said he expects The Fresh Market to become more disciplined about new-store openings, while remaining aggressive in terms of new-store count.
“They are probably the most rapidly growing company, based on new stores as a percent of their total,” he said. “That’s riskier because one or two location miscalculations is going to be much more visible than one or two mistakes at Whole Foods.
“The other thing to consider at The Fresh Market is that they do quite a bit less volume per store than a lot of other chains, so the number of stores to get the sales needle moving needs to keep going up, and that puts an even higher premium on being able to select the correct locations.”
—M.H.
SN INSIGHT
SN limited the chains on this list to 15 of the fastest-growing food retailers in terms of unit count from among its list of the Top 75 Retailers and Wholesalers in North America, which SN published in January.
A few operators that have been expanding their unit count primarily through acquisition — such as Albertsons, Bi-Lo Holdings and SpartanNash — are not on the list, nor is Dollar General, the rapidly growing dollar store chain. While Kroger Co. did grow its unit count primarily though the acquisition of Harris Teeter, that chain itself has been carrying out an aggressive growth plan.
Another company whose growth is relatively small in terms of unit count but is impactful nonetheless is Wegmans Food Markets, the Rochester, N.Y.-based chain that has unveiled plans to open two stores in the Richmond, Va., market.
“When Wegmans opens a store, it’s like the equivalent of three supermarkets, based on the volumes,” noted Andrew Wolf, an analyst at BB&T Capital Markets.
Also not included on this list were many of the fast-growing chains whose parent companies are not on the Top 75 list, such as Mrs. Green’s Natural Markets and Natural Grocers by Vitamin Cottage, whose growth was explored previously in SN.
—M.H.
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