Deep discount garners interest outside of dollar store realm

DSN Retailing Today, Sept 23, 2002 by Mike Duff

From the competitive point of view, however, dollar stores may have more to worry about from other major food distributors than Wal-Mart. These food distributors, through their retail divisions, are developing extreme discount food/dollar store hybrids designed to flourish in neighborhood settings.

Fleming's hybrid operation, Yes!Less, already operates in 17 locations and has maintained a steady effort toward refinement and maturity. In the company's second quarter conference call, executives emphasized that Yes!Less' comparable store sales advanced 56.6% over the prior year. As a result, Fleming is shifting Yes!Less from test status into rollout.

Mark Hansen, Fleming's chairman and ceo, characterized Yes!Less as "a very exciting, low-cost growth vehicle." He said the testing process had been extensive; Yes!Less units had been tried in a variety of circumstances with rural, county seat and urban locations in the mix.

"We wanted to test the facilities in a lot of real estate configurations and competitive environments," Hansen said. "The idea was to battle test it and also to work out some of the nuances of how these formats really cohabitate"

Fleming had to get its feet wet to determine how best to marry the general merchandise and food ends of the business, and learned by doing so, Hansen said.

"If you look at the dollar store industry, there are two or three selling platforms. Some are defined prices, like everything for a dollar or everything for 99 cents, others are even multiples of a dollar. Then how do you flip that into a limited assortment [grocery] store where you are doing discreet pricing by SKU? You might have canned corn for 28 cents, where a dollar store environment might lead you to three for $1," Hansen said. He added, "The other thing we really had to get some experience with was perishables. Our perishables performance in these stores was better than we expected. As a result, we had to make some changes in fixturizations, particularly about expanding produce."

Fleming plans to roll out Yes!Less on a franchise basis, focusing expansion plans on the existing independent supermarket operators it serves as a distributor. Hansen said it would be premature to discuss actual sites, though tests occurred in Texas and Louisiana. The company's direction, though, is set.

"Clearly we are signaling to our operators and also, of course, our shareholders, that we are moving beyond the development phase. Certainly, 56% same store sales growth year over year is a strong indication that the consumer is enjoying the experience, and we've really made some headway here," he said. "We have a lot of pent-up demand where people are essentially waiting for this format, but we didn't want to bring it out before it was ready."

Neal Rider, Fleming's cfo, added that low fixed costs were a definite attraction both to Fleming and potential franchisees that are looking for an expansion vehicle. "It's a strategy that allows a significant top-line growth with very little capital," he said.