BJ's Craving Bigger Piece of Supermarket Pie

(MoneyWatch)  BJ's has made itself the most food oriented of warehouse club chains and a competitor to supermarket, a position the company plans to use to its advantage in the recession.

In a March 4 conference call, newly appointed CEO Laura Sen spelled out a BJ's strategy for turning the recession into an opportunity. She said the company's major priority is to continue taking market share at the expense of supermarkets. The company expects the market share gains to come from its leveraging of perishables, which enjoyed a 13% comparable store sales increase in the fourth quarter, part of an 11% comp advance for food overall.

While it once had forecast margin improvement for 2009, BJ's now plans to hold margins flat to cope with the possibility of deflation, more price competition and consumers who are reluctant to purchase what they don't need. Or, in other words, to cut prices and run more promotions when necessary. By pushing perishables, BJ's has offset negative comparable store sales in some general merchandise categories as consumers decided to forgo, put off or scale back purchases of jewelry, furniture, DVDs, apparel and domestics.

Even in the recession, BJ's expects food and other consumable products to drive a five to seven percent comp increase next year with a four to six percent increase in revenues and an eight percent decrease in earnings per share. Sen said the company has an immediate goal of becoming its customers' "first stop for grocery shopping, with supermarkets being used for fill in. From that perspective, the opportunity for market share gain is tremendous."

The whole picture isn't rosy. BJ's saw a softening in rate of membership renewals in the fourth quarter, which could force it to engage in even more price cutting and bargain promotion, and that could cut deeper into margins and earnings. BJ's membership includes many lower income consumers with big families and small restaurant operators who may need convincing before they drop the requisite $45 on membership.

Still, BJ's is outperforming just about every major retailer in the United States right now, Wal-Mart included. If it can hold the line on margins and memberships, BJ's will emerge from the recession as among the strongest propositions in retailing, which will make things interesting because the regional East Coast chain has an aging leadership that's been with it since its inception or very nearly so, and it has been identified as a takeover target in the past.