Kmart's Pantry opens door to food revival

Discount Store News, August 4, 1997

The biggest story in food last year and in 1997 has been Kmart's Pantry department rollout. The 7,000-sq.-ft. department, featuring 5,500 skus of refrigerated, frozen and shelf stable foodstuffs, route bakery service, household cleaners and goods generally found in a home pantry, is being rolled out to 450 stores per year over a three-year period. The Pantry layout is part of Kmart's Big K format, which carries a remodeling price tag of $750 million. Even stores that are too small to accommodate the full Pantry treatment are getting expanded food presentations, so that each store offers more than a basic assortment of candy and snacks.

Kmart's Pantry rollout has many retailers perplexed over the company's commitment to such a huge investment in low-margin goods. Only Target has followed Kmart's lead, with a pilot test it calls The Market. At present, the program is not as broad as Kmart's, but Target's investigation of the concept shows that the reluctant food retailer is at least willing to test the waters. Most other discounters are preferring to dance along the edges of the food issue, hesitant to invest so much space and product to a low-margin category.

Target's The Market started with three sites last year, and 10 more are being added in '97. Unlike Kmart's Pantry, which includes various non-food items in the mix, Target's Market includes only food. The presentation does include shelf-stable, refrigerated and frozen foods. Although Target is in the early stages of Market's development, the retailer determined that a smaller presentation is better than a large one. Its initial test featured three layouts, the smaller of which is the one being rolled out (with modifications) to the new sites this year. Also unlike Kmart, Target is distributing product by itself, not seeking the assistance of its food distributors, Fleming and SuperValu.

Wal-Mart Supercenters will be debuting a new prototype layout this fall, possibly offering the market the next generation of supercenter design.

Kmart upgraded its own supercenter layout last fall, with the introduction of its units in the Virginia Beach, Va., market. The supercenters feature perishables up front, reversing the chain's signature back-of-store presentation. All stores will eventually be remodeled to this new design.

The supercenter industry will soon have a new, large competitor in its midst, the combined Fred Meyer and Smith's Food and Drug Centers. The combined entity will be a $7 billion company, about the same size as Meijer. The merged company, which will be known as Fred Meyer, will provide each segment of its new operation with economies of scale that will help reduce overhead costs, increasing its competitive position in each market. The new company will have 265 stores in 11 states.

One of the hottest trends in food retailing is meal solutions: prepared meals consumers can eat right away or heat up at home. Kmart and Meijer entered the arena with test programs. Wal-Mart at one time offered its own program called The Chef Meals on the Go, which was discontinued but could be revived in another form. Target also has a meal solutions program, as does Costco and most supermarket chains. These prepared meals programs are an important vehicle for food retailers because they meet consumers needs head on. Further development is required.

Chief concerns in food retailing include food safety and integrity, an outgrowth of the meal solutions phenomenon. Retailers, the Food and Drug Administration and the Agriculture Department have raised the issue of food safety related to the growing number of in-store food preparation programs that involve many people. As a result, food contamination issues have arisen, causing all involved to develop proper food-handling programs to ensure safe products. Some retailers are even including proper food-handling messages on the packages consumers take home, to further ensure the products are safe to eat.

Novelty candy remains one of the most popular children's snack treats on the market today. Candy manufacturers continue to offer new products and grow the market. Last winter, Hasbro, the No. 2 name in toys, acquired Cap Toys and will meld its fledgling novelty candy business into that of Cap's. Hasbro forwarded a handful of skus featuring some of its popular toys, such as Monopoly and Connect Four, in gum and hard candy, respectively.

The candy market has grown so much that the National Confectioners Association and the National Chocolate Association created the All Candy Expo, which debuted in May. The show was deemed a success by show attendees, many of whom claimed to make the All Candy Expo a must-attend show.

Food Productivity

Department size      1,624 sq. ft.
Sales per sq. ft.          $899.01
Turns                         6.77
initial markup              23.49%
Gross margin                30.46%