FEATURE: Alternative Formats: Breaking with tradition
Many in the traditional retail grocery sector have become increasingly concerned about what have been popularly called alternative formats. The classification would include supercenters, wholesale clubs, dollar stores, limited-assortment stores, convenience stores, and drug stores, and even specialty stores that sell food and beverage items are also being lumped under the category of alternatives.
The reality, though, is that the classification "alternative" is becoming increasingly insufficient as a descriptor for the impact many of these players are having in food retailing. With so many choices of where to fill their basic food, beverage, and grocery shopping needs, consumers are clearly taking advantage of all of their options -- and the indications are that they'll do more optioning in the future.
Today's consumer would just as soon drive to a 7-Eleven for cold beer and snacks as she'd stop by a supermarket, supercenter, or drug store. Or she'd as easily turn to a dollar store for cold cereal and milk as she would a Wal-Mart. It might not be her top-of-mind choice, but today's consumer can even buy a case of carbonated soft drinks at a Home Depot, and all kinds of candy and snacks at Staples or Toys "R" Us.
The fallout: Some types of stores are winning shoppers and market share, while other classes of stores are losing. "My message these days is that 'value retailers' -- clubs, supercenters, dollar stores, and limited-assortment stores -- are winning today," says Todd Hale, v.p., ACNielsen, who closely follows channel developments for the giant information company based in Schaumburg, Ill.
According to ACNielsen, shopper penetration levels within the grocery, mass merchandising, and drug store channels are at or near 100 percent of U.S. households. This saturation situation sets the stage for an intense market share battle ahead among the divergent channels and competing operators.
Although the traditional grocery channel holds a distinct advantage over others in the area of shopping frequency, that hold is loosening. Hale points out that in 2004 the average household made 69 trips to the grocery channel -- six fewer trips than in 2001.
With rapid store expansion, dollar stores, supercenters, and warehouse clubs continue to post increases in the size of their shopper bases by drawing more shoppers -- and over time, more shopping trips.
The grocery channel still maintains a commanding share position in food categories, and has strong share positions in HBC and nonfood categories. However, drug stores and Wal-Mart are achieving greater year-to-year sales growth than supermarkets are. And other retailers, like clubs and dollar stores, have been leveraging the frequency power of fast-moving consumer-packaged goods to drive their store traffic, build basket rings, and nibble away at trips that might otherwise go to the traditional grocery channel.
Herewith, an analysis of the strengths, weaknesses, and future prospects of the major nontraditonal channels: the supercenters, mass retailers, warehouse clubs, dollar stores, and limited-assortment operators that are challenging grocers' holds on their markets at every turn.
Supersize me
Supercenters are now shopped by 54 percent of households in the United States, according to ACNielsen research.
For the past decade Wal-Mart has been reducing its number of traditional discount stores while opening supercenters at a rapid pace, to the point that by January 2004, its roster of supercenters had caught up with and then surpassed the company's number of traditional discount stores. Wal-Mart currently operates in excess of 1,600 supercenters in the United States. Its growth in the sector is expected to continue despite growing opposition from labor and antigrowth community activists. Wal-Mart is projected to have 3,100 supercenters up and running by 2010, which is feasible, since two-thirds of Wal-Mart's current supercenter fleet is located in just 15 Southern states.
It might seem like it at times, but Wal-Mart's not the only player in the segment. Target Corp.'s divestiture last year of its upscale Marshall Field's department store and mid-priced Mervyn's divisions was expected to provide more investment dollars and management attention to its supercenter concept, called SuperTarget. While management says it remains committed to its 10-year-old supercenter concept, the 130 SuperTargets in existence today represent only about 14 percent of Target's total square footage. Going forward, the company says SuperTarget will constitute one-third of net new square-foot expansion.
Meijer, based in Grand Rapids, Mich., is a 71-year-old retailer credited with pioneering the supercenter concept in the early 1960s. Its current 163 stores average between 200,000 to 250,000 square feet. Industry experts applaud the privately held retailer for its nimbleness in being able to compete with relative upstart Wal-Mart. While Meijer eliminated about 190 management jobs in early 2004, the grocer's fresh food and produce departments remain superior to that of its mass merchandiser competitors, note observers, and the $12 billion chain takes a back seat to no one when it comes to value pricing.
Last year the retailer revamped two stores near its headquarters, and in April of this year Meijer debuted a new prototype in Holland, Mich., designed by New York-based Rockwell Group, a noted hospitality industry designer.
The new look, which will be rolled out to all stores eventually, features larger deli sections with expanded gourmet offerings, enlarged bakery and cheese departments, and a redesigned wine department featuring an upscale-looking hardwood floor.
With the new design, Meijer appears to be trying to distinguish itself from the trendy Target, as well as the low-price Wal-Mart competition, by beating its rivals on product assortment and store ambience.
For Troy, Mich.-based Kmart, expansion of the supercenter concept isn't in the offing. Since its Chapter 11 filing two years ago, the chain has been reducing the size of its supercenter division. It closed 12 Super Kmarts in 2002 and another 57 in 2003, leaving approximately 50 Super Kmarts concentrated in the Midwest, near its home state of Michigan.
Overall, another 1,300 supercenters are projected to open this year. Market leaders will explore more categories, locations, and formats to continue to grow market share and share of wallet.
While still formidable, the format is no longer feared as invincible, however. The price/value and one-stop-shopping positioning of the supercenter format still holds sway with many consumers, but the "supersizing" of traditional discount stores into supercenters has opened the door for a variety of niche value players, most notably dollar stores and limited-assortment grocery outlets, to grow.
Reduced mass
With the closure of more than 600 Kmart stores over the past three years, and the continued conversion of Wal-Mart Division 1 stores into supercenter formats, the traditional mass retail channel continues to decline in terms of store counts, household penetration rates, and shopping frequency. However, both Wal-Mart and Target continue to expand the food and beverage offerings in their traditional discount stores. Wal-Mart has renovated a traditional discount store in Oxnard, Calif., for example, by adding about 45,000 square feet, much of it to be devoted to frozen foods, dairy, eggs, and general grocery items that the store didn't carry before. The cereal aisle, for example, has been increased from eight feet to 40 feet. Nevertheless, the writing appears to be on the wall: Wal-Mart will have less than half its current complement of traditional discount stores by 2010.
Club rules
Despite mergers and acquisitions that have reduced the field to just four major players, the warehouse club channel continues to be one of the fastest-growing retail channels in the United States.
"Consumers who shop the channel love to shop these stores, and shoppers have turned into club chain 'evangelists,' singing the praises of this format to their relatives, friends, business associates, and complete strangers," says Doug Bennett, client director for ACNielsen.
The current performance and future outlook for the channel are both strong, asserts Bennett. There were about 1,200 warehouse clubs as of the end of 2004. Combined sales were about $93 billion, a 10 percent increase over the prior year. Revenue has grown 36 percent over the past four years. A key indicator of the health of this channel is the fact that comparable-store sales remain healthy.
Sales at warehouse clubs come mostly from upper-income households that can afford the annual membership fees and can also afford to buy "supersized" packages.
Clubs were one of the first alternative formats to challenge the grocery channel. Club shoppers still make frequent trips to grocery stores, but their purchases at the latter tend to be for fill-in shopping or to buy small packages of products that are available only in large sizes or multipacks at the warehouse club.
There's some debate over the future growth potential of the concept, however. Many observers say the market is saturated with clubs and that growth will thus have to come from expansion of ancillary in-store services and even higher-end product lines. (Case in point: For Mother's Day, Sam's Club was offering a 3.7-carat pink diamond pendant valued at close to $1 million.) Of prime concern to warehouse club operators is what will happen as the channel's key consumer group (baby boomers) ages, their household size shrinks, and they become empty nesters. Will they still have any need to shop at clubs?
The region with the greatest density of warehouse stores is the Pacific, with one store for every 88,000 households. "Assuming that each of the respective regions can support that same density of stores, we would expect 300 additional club stores to open across the country -- almost two-thirds of these stores would fit into the central part of the U.S.," explains Bennett. While admitting that the future of clubs is far from certain, Bennett insists, "Across the U.S. the market is far from saturated for this channel."
Costco, an Issaquah, Wash.-based company whose legacy dates back to the original creator of the "club" store concept in the United States -- Price Club -- leads the pack in terms of annual revenue, with $47 billion in sales. Costco drives higher revenue with a much smaller store count vs. No. 2 Sam's Club, a division of Wal-Mart. The stores are volume factories: Costco's average sales per unit are $122 million, 65 of its clubs generated $150 million last year, and 11 units topped $200 million in sales.
Costco operates in 36 states, with a major concentration on the West Coast. The company's success is attributable to its ability to generate sales from consumer members while continuing to focus attention on the business customer.
Costco also excels in merchandising high-end and big-ticket merchandise, minimizing turnover that improves operating margins, and continuing to grow its service and Web site businesses. And it's a crack fresh-food merchandiser compared with its channel brethren, doing a particularly admirable job in the meat department.
While Costco has both its consumer and business customer bases well in hand, Wal-Mart's Sam's Club, in 48 states, admitted in 2003 that it had lost focus on the business customer, and since then has rededicated itself to serving those members better. Wal-Mart now reports that results have improved as a result of this renewed focus on taking care of business: The club chain recently boasted that "small business [customers]. . .spend as much as 50 percent more than regular customers."
Meanwhile, No. 3 player BJ's Wholesale Club, based in Natick, Mass., has been looking to drive sales among families. It's testing new concepts to target foodservice professionals.
BJ's total revenues for fiscal 2004 were up 10.2 percent to $7.22 billion, while net income increased 11.1 percent to $114.4 million. With clubs in 16 East Coast states and concentrations in New York and Florida, The chain credits food merchandising and growth of private brands for its success. The company is now investing heavily in in-store food preparation areas, delis, and both procurement and merchandising of food categories. BJ's modified its procurement to buy produce direct in mid-2004 to improve quality. In addition, late in 2004 the chain opened two test stores that target foodservice professionals in the metro New York area.
In 2005 the retailer is continuing that strategy, adding between 12 and 15 new clubs, mostly in existing markets. Other elements of the strategy going forward include developing private brand products, and shifting some general merchandise categories to seasonable distribution, to focus on stable food categories. BJ's says it also wants to improve the treasure-hunt experience for its consumer shoppers.
At the annual shareholder meeting earlier this year, Wedge reiterated those themes, adding that the club would add 20 pharmacies in the current fiscal year, as well as eight gas stations.
A club of an altogether different stripe is Los Angeles-based Smart & Final, with just $6.7 billion in annual sales. The format is more of a hybrid in that its size is smaller, it doesn't charge membership dues, and it focuses much more of its attention than its counterparts do on serving foodservice businesses. The company operates in four U.S. states, with a heavy concentration in California, and in a handful of international markets.
In for a dollar
The dollar store channel, comprising retailers like Family Dollar, Dollar General, Dollar Tree, Fred's, and 99 Cents Only Stores, continues to expand, mostly through new store openings. While these low-price, limited-assortment retailers are entrenched among low-income households, they're now shopped by 67 percent of U.S. households, according to ACNielsen.
Dollar stores have been chipping away at consumables sales at traditional retail formats in core categories such as canned/dry goods, household paper, and cleaning products, as well as in some personal care and HBC categories.
Some of its players are also getting more aggressive about food. Nashville, Tenn.-based Dollar General has been adding freezers and refrigerated cases to its 7,500 stores over the past year and a half. (Frozen food is one of the fastest-growing categories in dollar stores, according to ACNielsen, albeit off a small base.) The chain is also experimenting with a larger, 18,000-square-foot format called DG Market, which has a product mix that's 50 percent grocery and includes meat, deli, dairy, baked, and frozen foods.
Just as grocery stores attempted to repel advances on their turf by the warehouse club channel by offering club packs -- to mixed degrees of success -- many traditional grocers are now fighting dollar stores' incursions with aisles of dollar-priced merchandise.
The challenges for supermarket operators with dollar stores-within-stores, however, are in continued execution, keeping the mix fresh, and margin erosion of products in other areas of the store. Giant club packs didn't stop the growth of the warehouse club industry, and dollar sections in supermarkets alone are not likely to impede Dollar General or Family Dollar.
Knowing their limits
A recent FMI report on consumer behavior indicated that 5 percent of shoppers visit limited-assortment stores such as Save-A-Lot and ALDI.
With more than 1,150 stores, St. Louis-based Save-A-Lot is the leader in the burgeoning limited-assortment market. President and c.e.o. Bill Moran founded the first Save-A-Lot store in 1977 in Cahokia, Ill.
The company became a subsidiary of Supervalu in 1993, when the Minneapolis-based wholesaler-retailer acquired rival Wetterau. Supervalu officials have apparently been smart enough not to get in the way of a good thing: Although Save-A-Lot is a wholly owned subsidiary of Supervalu, it operates its own distribution centers and is self-procuring and self-distributing. Save-A-Lots typically merchandise about 15,000 SKUs.
Predating Save-A-Lot by one year is Germany-based ALDI, the international retailer that has come close to perfecting a formula for limited-assortment private label products at low prices. ALDI, which debuted in the United States in southeastern Iowa, now operates over 700 stores in 26 states, primarily from Kansas to the East Coast.
Best known by consumers as the grocer that, as a cost-cutting measure, makes them rent shopping carts and purchase shopping bags, ALDI is also one of the few retailers that's probably formidable enough to keep Wal-Mart executives up at night. ALDI's busy store in Rogers, Ark. -- the heart of Wal-Mart's home turf -- is a thorn in the side of the world's largest retailer.
The reality, though, is that the classification "alternative" is becoming increasingly insufficient as a descriptor for the impact many of these players are having in food retailing. With so many choices of where to fill their basic food, beverage, and grocery shopping needs, consumers are clearly taking advantage of all of their options -- and the indications are that they'll do more optioning in the future.
Today's consumer would just as soon drive to a 7-Eleven for cold beer and snacks as she'd stop by a supermarket, supercenter, or drug store. Or she'd as easily turn to a dollar store for cold cereal and milk as she would a Wal-Mart. It might not be her top-of-mind choice, but today's consumer can even buy a case of carbonated soft drinks at a Home Depot, and all kinds of candy and snacks at Staples or Toys "R" Us.
The fallout: Some types of stores are winning shoppers and market share, while other classes of stores are losing. "My message these days is that 'value retailers' -- clubs, supercenters, dollar stores, and limited-assortment stores -- are winning today," says Todd Hale, v.p., ACNielsen, who closely follows channel developments for the giant information company based in Schaumburg, Ill.
According to ACNielsen, shopper penetration levels within the grocery, mass merchandising, and drug store channels are at or near 100 percent of U.S. households. This saturation situation sets the stage for an intense market share battle ahead among the divergent channels and competing operators.
Although the traditional grocery channel holds a distinct advantage over others in the area of shopping frequency, that hold is loosening. Hale points out that in 2004 the average household made 69 trips to the grocery channel -- six fewer trips than in 2001.
With rapid store expansion, dollar stores, supercenters, and warehouse clubs continue to post increases in the size of their shopper bases by drawing more shoppers -- and over time, more shopping trips.
The grocery channel still maintains a commanding share position in food categories, and has strong share positions in HBC and nonfood categories. However, drug stores and Wal-Mart are achieving greater year-to-year sales growth than supermarkets are. And other retailers, like clubs and dollar stores, have been leveraging the frequency power of fast-moving consumer-packaged goods to drive their store traffic, build basket rings, and nibble away at trips that might otherwise go to the traditional grocery channel.
Herewith, an analysis of the strengths, weaknesses, and future prospects of the major nontraditonal channels: the supercenters, mass retailers, warehouse clubs, dollar stores, and limited-assortment operators that are challenging grocers' holds on their markets at every turn.
Supersize me
Supercenters are now shopped by 54 percent of households in the United States, according to ACNielsen research.
For the past decade Wal-Mart has been reducing its number of traditional discount stores while opening supercenters at a rapid pace, to the point that by January 2004, its roster of supercenters had caught up with and then surpassed the company's number of traditional discount stores. Wal-Mart currently operates in excess of 1,600 supercenters in the United States. Its growth in the sector is expected to continue despite growing opposition from labor and antigrowth community activists. Wal-Mart is projected to have 3,100 supercenters up and running by 2010, which is feasible, since two-thirds of Wal-Mart's current supercenter fleet is located in just 15 Southern states.
It might seem like it at times, but Wal-Mart's not the only player in the segment. Target Corp.'s divestiture last year of its upscale Marshall Field's department store and mid-priced Mervyn's divisions was expected to provide more investment dollars and management attention to its supercenter concept, called SuperTarget. While management says it remains committed to its 10-year-old supercenter concept, the 130 SuperTargets in existence today represent only about 14 percent of Target's total square footage. Going forward, the company says SuperTarget will constitute one-third of net new square-foot expansion.
Meijer, based in Grand Rapids, Mich., is a 71-year-old retailer credited with pioneering the supercenter concept in the early 1960s. Its current 163 stores average between 200,000 to 250,000 square feet. Industry experts applaud the privately held retailer for its nimbleness in being able to compete with relative upstart Wal-Mart. While Meijer eliminated about 190 management jobs in early 2004, the grocer's fresh food and produce departments remain superior to that of its mass merchandiser competitors, note observers, and the $12 billion chain takes a back seat to no one when it comes to value pricing.
Last year the retailer revamped two stores near its headquarters, and in April of this year Meijer debuted a new prototype in Holland, Mich., designed by New York-based Rockwell Group, a noted hospitality industry designer.
The new look, which will be rolled out to all stores eventually, features larger deli sections with expanded gourmet offerings, enlarged bakery and cheese departments, and a redesigned wine department featuring an upscale-looking hardwood floor.
With the new design, Meijer appears to be trying to distinguish itself from the trendy Target, as well as the low-price Wal-Mart competition, by beating its rivals on product assortment and store ambience.
For Troy, Mich.-based Kmart, expansion of the supercenter concept isn't in the offing. Since its Chapter 11 filing two years ago, the chain has been reducing the size of its supercenter division. It closed 12 Super Kmarts in 2002 and another 57 in 2003, leaving approximately 50 Super Kmarts concentrated in the Midwest, near its home state of Michigan.
Overall, another 1,300 supercenters are projected to open this year. Market leaders will explore more categories, locations, and formats to continue to grow market share and share of wallet.
While still formidable, the format is no longer feared as invincible, however. The price/value and one-stop-shopping positioning of the supercenter format still holds sway with many consumers, but the "supersizing" of traditional discount stores into supercenters has opened the door for a variety of niche value players, most notably dollar stores and limited-assortment grocery outlets, to grow.
Reduced mass
With the closure of more than 600 Kmart stores over the past three years, and the continued conversion of Wal-Mart Division 1 stores into supercenter formats, the traditional mass retail channel continues to decline in terms of store counts, household penetration rates, and shopping frequency. However, both Wal-Mart and Target continue to expand the food and beverage offerings in their traditional discount stores. Wal-Mart has renovated a traditional discount store in Oxnard, Calif., for example, by adding about 45,000 square feet, much of it to be devoted to frozen foods, dairy, eggs, and general grocery items that the store didn't carry before. The cereal aisle, for example, has been increased from eight feet to 40 feet. Nevertheless, the writing appears to be on the wall: Wal-Mart will have less than half its current complement of traditional discount stores by 2010.
Club rules
Despite mergers and acquisitions that have reduced the field to just four major players, the warehouse club channel continues to be one of the fastest-growing retail channels in the United States.
"Consumers who shop the channel love to shop these stores, and shoppers have turned into club chain 'evangelists,' singing the praises of this format to their relatives, friends, business associates, and complete strangers," says Doug Bennett, client director for ACNielsen.
The current performance and future outlook for the channel are both strong, asserts Bennett. There were about 1,200 warehouse clubs as of the end of 2004. Combined sales were about $93 billion, a 10 percent increase over the prior year. Revenue has grown 36 percent over the past four years. A key indicator of the health of this channel is the fact that comparable-store sales remain healthy.
Sales at warehouse clubs come mostly from upper-income households that can afford the annual membership fees and can also afford to buy "supersized" packages.
Clubs were one of the first alternative formats to challenge the grocery channel. Club shoppers still make frequent trips to grocery stores, but their purchases at the latter tend to be for fill-in shopping or to buy small packages of products that are available only in large sizes or multipacks at the warehouse club.
There's some debate over the future growth potential of the concept, however. Many observers say the market is saturated with clubs and that growth will thus have to come from expansion of ancillary in-store services and even higher-end product lines. (Case in point: For Mother's Day, Sam's Club was offering a 3.7-carat pink diamond pendant valued at close to $1 million.) Of prime concern to warehouse club operators is what will happen as the channel's key consumer group (baby boomers) ages, their household size shrinks, and they become empty nesters. Will they still have any need to shop at clubs?
The region with the greatest density of warehouse stores is the Pacific, with one store for every 88,000 households. "Assuming that each of the respective regions can support that same density of stores, we would expect 300 additional club stores to open across the country -- almost two-thirds of these stores would fit into the central part of the U.S.," explains Bennett. While admitting that the future of clubs is far from certain, Bennett insists, "Across the U.S. the market is far from saturated for this channel."
Costco, an Issaquah, Wash.-based company whose legacy dates back to the original creator of the "club" store concept in the United States -- Price Club -- leads the pack in terms of annual revenue, with $47 billion in sales. Costco drives higher revenue with a much smaller store count vs. No. 2 Sam's Club, a division of Wal-Mart. The stores are volume factories: Costco's average sales per unit are $122 million, 65 of its clubs generated $150 million last year, and 11 units topped $200 million in sales.
Costco operates in 36 states, with a major concentration on the West Coast. The company's success is attributable to its ability to generate sales from consumer members while continuing to focus attention on the business customer.
Costco also excels in merchandising high-end and big-ticket merchandise, minimizing turnover that improves operating margins, and continuing to grow its service and Web site businesses. And it's a crack fresh-food merchandiser compared with its channel brethren, doing a particularly admirable job in the meat department.
While Costco has both its consumer and business customer bases well in hand, Wal-Mart's Sam's Club, in 48 states, admitted in 2003 that it had lost focus on the business customer, and since then has rededicated itself to serving those members better. Wal-Mart now reports that results have improved as a result of this renewed focus on taking care of business: The club chain recently boasted that "small business [customers]. . .spend as much as 50 percent more than regular customers."
Meanwhile, No. 3 player BJ's Wholesale Club, based in Natick, Mass., has been looking to drive sales among families. It's testing new concepts to target foodservice professionals.
BJ's total revenues for fiscal 2004 were up 10.2 percent to $7.22 billion, while net income increased 11.1 percent to $114.4 million. With clubs in 16 East Coast states and concentrations in New York and Florida, The chain credits food merchandising and growth of private brands for its success. The company is now investing heavily in in-store food preparation areas, delis, and both procurement and merchandising of food categories. BJ's modified its procurement to buy produce direct in mid-2004 to improve quality. In addition, late in 2004 the chain opened two test stores that target foodservice professionals in the metro New York area.
In 2005 the retailer is continuing that strategy, adding between 12 and 15 new clubs, mostly in existing markets. Other elements of the strategy going forward include developing private brand products, and shifting some general merchandise categories to seasonable distribution, to focus on stable food categories. BJ's says it also wants to improve the treasure-hunt experience for its consumer shoppers.
At the annual shareholder meeting earlier this year, Wedge reiterated those themes, adding that the club would add 20 pharmacies in the current fiscal year, as well as eight gas stations.
A club of an altogether different stripe is Los Angeles-based Smart & Final, with just $6.7 billion in annual sales. The format is more of a hybrid in that its size is smaller, it doesn't charge membership dues, and it focuses much more of its attention than its counterparts do on serving foodservice businesses. The company operates in four U.S. states, with a heavy concentration in California, and in a handful of international markets.
In for a dollar
The dollar store channel, comprising retailers like Family Dollar, Dollar General, Dollar Tree, Fred's, and 99 Cents Only Stores, continues to expand, mostly through new store openings. While these low-price, limited-assortment retailers are entrenched among low-income households, they're now shopped by 67 percent of U.S. households, according to ACNielsen.
Dollar stores have been chipping away at consumables sales at traditional retail formats in core categories such as canned/dry goods, household paper, and cleaning products, as well as in some personal care and HBC categories.
Some of its players are also getting more aggressive about food. Nashville, Tenn.-based Dollar General has been adding freezers and refrigerated cases to its 7,500 stores over the past year and a half. (Frozen food is one of the fastest-growing categories in dollar stores, according to ACNielsen, albeit off a small base.) The chain is also experimenting with a larger, 18,000-square-foot format called DG Market, which has a product mix that's 50 percent grocery and includes meat, deli, dairy, baked, and frozen foods.
Just as grocery stores attempted to repel advances on their turf by the warehouse club channel by offering club packs -- to mixed degrees of success -- many traditional grocers are now fighting dollar stores' incursions with aisles of dollar-priced merchandise.
The challenges for supermarket operators with dollar stores-within-stores, however, are in continued execution, keeping the mix fresh, and margin erosion of products in other areas of the store. Giant club packs didn't stop the growth of the warehouse club industry, and dollar sections in supermarkets alone are not likely to impede Dollar General or Family Dollar.
Knowing their limits
A recent FMI report on consumer behavior indicated that 5 percent of shoppers visit limited-assortment stores such as Save-A-Lot and ALDI.
With more than 1,150 stores, St. Louis-based Save-A-Lot is the leader in the burgeoning limited-assortment market. President and c.e.o. Bill Moran founded the first Save-A-Lot store in 1977 in Cahokia, Ill.
The company became a subsidiary of Supervalu in 1993, when the Minneapolis-based wholesaler-retailer acquired rival Wetterau. Supervalu officials have apparently been smart enough not to get in the way of a good thing: Although Save-A-Lot is a wholly owned subsidiary of Supervalu, it operates its own distribution centers and is self-procuring and self-distributing. Save-A-Lots typically merchandise about 15,000 SKUs.
Predating Save-A-Lot by one year is Germany-based ALDI, the international retailer that has come close to perfecting a formula for limited-assortment private label products at low prices. ALDI, which debuted in the United States in southeastern Iowa, now operates over 700 stores in 26 states, primarily from Kansas to the East Coast.
Best known by consumers as the grocer that, as a cost-cutting measure, makes them rent shopping carts and purchase shopping bags, ALDI is also one of the few retailers that's probably formidable enough to keep Wal-Mart executives up at night. ALDI's busy store in Rogers, Ark. -- the heart of Wal-Mart's home turf -- is a thorn in the side of the world's largest retailer.