Meijer finds right combination for Midwest - combination food/discount store chain - Discount Industry Annual Report: Part 2: Merchandising & Productivity

Discount Store News, July 17, 1989

Meijer Finds Right Combination for Midwest

GRAND RAPIDS, Mich. -- In its quiet, low-profile fashion, Meijer has grown into a mammoth food and general merchandise chain with 47 food and general merchandise stores and five discount stores in Michigan and Ohio. DSN estimates Meijer's sales hit $3 billion last year.

Privately held Meijer, which evolved from a small grocery store opened in 1935, refuses to release sales figures. But some sales estimates range as high as $3.5 billion, said Douglas Tigert, a marketing professor at Babson College, Wellesley, Mass.

Last year, Tigert studied the four 208,000-square-foot Meijer stores in Columbus, Ohio, and concluded that sales per store are approaching $100 million. At maturity, the Columbus stores are capable of sales volume in the range of $115 million to $120 million apiece, Tigert predicted.

As a chain, Meijer sales volume runs about $65 million a week, equivalent to $3.3 billion annually, estimated Robert Potter, president of Local 951, United Food and Commercial Workers union. Potter represents 21,000 Meijer store employees in Michigan. Meijer employs a total of 34,000, including 6,000 UFCW employees in Ohio.

Stores average 600 rank and file workers and 30 managerial employees, Potter said.

Meijer has to be profitable, Potter said, because its pays union wages that are 20 percent to 30 percent higher than non-union discounters pay, yet "it never cries poor mouth during contract negotiations."

Expansion at a cost of about $18 million per store is another indicator of profitability, Potter said.

Meijer will open four more combination stores in 1989, including three in Michigan this September, and five in 1990.

Its new prototype runs about 230,000 square feet in size, Potter said, including about 15,000 square feet for leased shops, such as shoe repair, beauty shop and bank branches.

In its conservative fashion, Meijer is land-banking future store sites five years out, Tigert said.

Meijer owns four store sites in Dayton, Ohio, Crain's Detroit Business, reported last month in an article on Meijer, and probably will build there next year. It is considering expansion into Toledo, Ohio, and Indiana, perhaps South Bend.

Indianapolis is another probable market for Meijer, Tigert said.

Meijer opened its first combination store in 1962, the same year Carrefour opened its first hypermarket in Europe, Tigert said. The marketing professor considers Meijer a full-fledged hypermarket, although the company refers to its units as "combination stores."

In the Columbus stores, food occupies about one-third of the selling space but accounts for about 56 percent of sales, Tigert said. General merchandise accounts for about 46 percent of sales from two-thirds of floor space.

Food produces sales per square foot of $900, Tigert estimates, and general merchandise, $300, for a blended figure of $480.

Gross margins on food are 14.6 percent, Tigert estimates, and 25.3 percent on general merchandise.

"Meijer is extremely profitable," Tigert said. Crain's estimated 1988 profits at $54 million, down from $56 million in 1987, Tigert said.

Including depreciation, the cash flow available for expansion runs about $150 million a year, he said.

Chairman of Meijer Inc. is Fred Meijer, son of the founder, Hendrik Meijer, a former barber and foundry worker who emigrated from Holland in 1907. Meijer pays no dividends to stockholders but instead retains earnings to help finance expansion.

Last October, Forbes magazine included Meijer on it list of the 400 wealthiest men and women in America. It calculated his net worth to be at least $350 million.

In 1988, assets of Meijer Inc. totaled $1.08 billion, Crain's estimated, and longterm debt was $357 million.

Meijer's 1987 return on $516 million in equity was in the range of 9 percent to 11 percent, Tigert said. "Meijer has traded a higher return for low margins, high quality and faster growth," Tigert said.

PHOTO : At this Meijer store in Columbus, Ohio, groceries occupy about one-third of the total

PHOTO : selling space, yet account for about 56 percent of sales, producing sales of $900 per

PHOTO : square foot.