Supermarkets increase combo-concept efforts; Arizona: hotter than ever - Special Report - Kroger Co., Fry's Marketplace; Albertson's Inc. Osco/Sav-on Div.; Wal-Mart Stores Inc., Neighborhood Market Stores

DSN Retailing Today, Nov 11, 2002 by Doug Desjardins

Arizona has become a center for supermarket operators testing new or updated general merchandise formats that are intended to make them more competitive with supercenter operators in general and Wal-Mart in particular. Like Wal-Mart, Albertson's and Kroger are developing portfolios of stores they can use to compete by adjusting their approach to the specific needs of various markets.

With supermarkets, combo stores and drug outlets, Albertson's is taking a multiformat approach to markets in the West with Albertson's/Sav-on and in Chicago with Jewel/Osco. Kroger can incorporate Fred Meyer, a variety of supermarket banners, its new marketplace format and its established price/value grocery operation, Food4Less, in a combination, as regional conditions suggest.

Of course, Wal-Mart has supercenters, discount stores and a grocery store format, Neighborhood Market, which it applies in tandem. How Wal-Mart will eventually position Neighborhood Market is a question that haunts food retailing and one the company itself may yet be determining as it rolls out more stores to new, diverse markets.

Indeed, while multibanner operations are long established in the supermarket industry, operating multiple formats is more novel and, as it is presently being attempted, not a way of doing business. Yet, what food retailers are learning about operating multiple formats in the current environment is sometimes being applied in dramatic style, as when Kroger reconstituted its Fred Meyer stores as Fry's Marketplace units in Phoenix. While the strategy is under development, at least some of the stores already are available for Inspection, and the latest innovations of Albertson's and Kroger are best viewed in Arizona.

FRY'S MARKETPLACE

PHOENIX -- In June 2000, Kroger Co. announced plans to convert 17 of its Fred Meyer supercenters in Arizona into a new concept called Fry's Marketplace. The idea was to integrate the stores under the banner Fry's Food and Drug, a regional grocery chain that's a household name in the state.

Fast forward to October 2002 and the conversion is now complete. The new stores are smaller than most supercenters--ranging in size from 80,000 square feet to 100,000 square feet--but feature a merchandise mix comparable to larger rivals. Most of the stores are located in the sprawling and intensely competitive Phoenix market, where Wal-Mart operates nine supercenters.

DSN Food Retailing traveled to Arizona last month to check out Fry's Marketplace. The store we visited is in a residential area of Tempe, just 10 miles south of Phoenix. It features the usual amenities designed to drive customer traffic and repeat visits, including a full-service bank and a one-hour photo shop. It also has a large Blockbuster Video outlet next door that can be accessed from inside the store, a welcome convenience in a city where the temperature routinely tops 110 degrees in the summer.

The grocery section occupies the middle of the store and features the usual merchandise mix with signage in a southwestern motif. Fresh foods are given ample space, with huge counters in the back of the store dedicated to bakery items, seafood and fresh meat.

The pharmacy center is located at the front of the unit, making it convenient for customers to drop off prescriptions when they enter the store and pick them up on their way out. Standard personal care items, such as hair care products and cold remedies, are located in the aisles just beyond the pharmacy counter.

About one-third of Fry's floor space is dedicated to its general merchandise operation. Not surprising, outdoor living products are given prominent play, with a huge section of patio furniture, plants and gardening supplies located in front. A large selection of plants also is on display outside the front of the store.

The store has just about everything you would find in a typical supercenter. There's a large section dedicated to toys and hardware toward the rear of the sales floor, along with home products and small appliances. Consumer electronics are located at the front in a store-within-a-store called "That's Entertainment." Books, greeting cards and paper products also are in ample supply.

One thing that sets Fry's Marketplace apart from the typical supercenter is a short supply of apparel. The store stocks a few standard items, such as socks and T-shirts, but nothing that would make it a destination for clothing shoppers.

Kroger has not announced any future expansion plans for Fry's Marketplace, but the stores could become a model for the company to introduce multidepartment stores in new markets under regional banners. Leveraging the strength of its locally established nameplates is part of Kroger's strategy outside of the price/value market, where its Food4Less operation is prominent. Kroger still hasn't signaled where it might next develop something similar to Fry's Marketplace, but has spoken of the current operation with satisfaction.

As in Arizona, the marketplace format is one the company is likely to use in conjuncture with others, as it does with Fry's supermarkets in the Phoenix area. At the moment, the marketplace concept remains an asset Kroger can leverage as needed when it finds an opportunity to blow out general merchandise.