Food sales will help supercenters become a dominant format of the future - Food Merchandising - Editorial

Discount Store News, March 7, 1994 by Don Longo

A new 150-page research report by food industry consultant James Degen verifies what Food Merchandising has been saying for the past year: "The future of the supercenter industry looks very positive. All of the major supercenter operators have announced significant growth plans for new units. And the entry of Target into the concept provides added impetus, concept visibility and competition."

Degen has established a strong background in marketing and consulting. He annually publishes The Club Locator and is a special contributor to DSN's Club Business, a bi-weekly newsletter covering the global warehouse club industry. His new report is the first comprehensive overview of the emerging supercenter industry.

"We believe that the interest in and acceleration of the supercenter concept that has been fueled by Wal-Mart and Kmart owes much to the success of the membership warehouse clubs," writes Degen. "Clubs provide economic proof that a diverse merchandise mix, targeted at two distinctly different customer groups can be highly successful. Millions of consumers and small business owners pay $25 a year for the privilege of spending hours each time they drive to and visit a cavernous, drab warehouse, to spend many times more than what they planned, for merchandise many acknowledge they don't need or can't realistically consume."

This experience has taught general merchandise retailers two valuable lessons about adding food for profitable growth, according to Degen.

"First, discount retailers have seen the impact that offering food, particularly perishable foods, can have on traffic, average expenditures per visit and repeat visits. The club industry exploded when it expanded membership privileges to group (consumer) members and added extensive food departments, particularly in-store bakeries, fresh meat and expanded produce."

We all know that food increases traffic. Consumers visit discount department stores, on average, about twice per month to buy food; supermarkets are visited six times per month. Degen notes that "food offers discount retailers an opportunity to raise same store sales, remodel/relocate/reintroduce low performing units, and improve profitability."

Secondly, their experience with clubs showed discount retailers ways to work with vendors to take the cost out of distribution and increase distribution efficiencies. "The system works to service the food and sundries needs of Sam's Clubs; why not Wal-Mart Supercenters?" Degen asks.

Supercenters will be successful because they offer consumers two primary benefits: one-stop shopping (proven by the experiences of chains like Fred Meyer and Meijer), and value through low prices (which results from discounters' inherent lower costs and high quality name brand reputation).

As warehouse club growth slows to a more modest, rational pace (see cover story, page 6), supercenters will replace clubs as the main threat to supermarkets. Because supercenters attract so much more traffic than a typical discount store, it is probably economically feasible for a supercenter to generate an acceptable return on investment because additional sales on the general merchandise side will offset even a break-even food business.