Meijer's Small Store Makes Expansion Easier

(MoneyWatch)  Meijer's driving reason for developing a new 102,000 foot store format in the Chicago suburb of Niles, Ill. - one that will be oriented toward food, health and beauty aids and pharmacy ?€" is to facilitate expansion by fitting into locations that would be impossible for the company's full-sized supercenters.

Meijer spokesman Frank Guglielmi said the new format, half the size of the company's typical supercenters, provides greater flexibility as the retailer looks into additional locations, particularly in the high-density environments that constitutes the Chicago market. Not long ago, Meijer launched a 156,000 square foot supercenter format that is about 12 percent smaller than the company average and designed to get it into some tighter spots than might have been possible with larger floor plans. The 156,000 square foot stores cut back on general merchandise relative to larger Meijer supercenters, said Guglielmi, reducing the space designed for shoes among other areas. Still, non-foods in that format are not reduced as much as will be the case in Niles.

The 156,000 square food Meijer stores "have done well," said Guglielmi. "A little different design can bring a store to a market that's more densely populated, and even to an urban-type area. It's no secret that Chicago is a densely populated area."

Chicago, Detroit, Cincinnati and Indianapolis are all metropolitan areas where Meijer competes and that have neighborhoods where finding the space necessary to operated a 200,000 square foot supercenter is difficult.

Real estate isn't the only consideration that Meijer faces in developing new stores. Shopping patterns can be a challenge, too. "We have people in Ohio, Indiana, Michigan and even Illinois who will drive 20 miles to a Meijer store, but if you get into Chicago or those densely populated areas, people only drive two or three miles to a store. This pilot gives us the flexibility to go into those densely populated areas," Guglielmi said.

Meijer refers to the new 102,000 square foot store concept as a pilot, and it's significant that the company applies that specific term. For years now, Meijer has developed new store formats leading up to defined prototypes. It has then rolled out additional stores and remodels using that prototype as a guide yet refining the format in almost every case, shrinking or shifting departments based on performance, demographics and store size. Thus, the term pilot indicates that Meijer looks at the new store format as a work in progress, both in the sense that it is something the retailer will reproduced in additional locations and will vary as occasion and geography suggest.

Meijer is interested in urban opportunities beyond Chicago. Currently, it is evaluating a location on Eight Mile Road in Detroit that would provide a little less than 200,000 square feet of store space. Guglielmi acknowledged the company's interest in the location, although he said the company was still in the due diligence stage of evaluation and couldn't say just what kind of operation Meijer might install in the space. He noted that, while smaller formats are important, the company remains committed to developing more full-range supercenters in the 200,000 square foot range where they are practical.

Meijer currently operates 189 supercenters and continues to open a handful each year. In 2007, Hank Meijer, the company's CEO and co-chairman, and Mark Murray, its president, told Retailing Today magazine that they planned to open about five stores a year for the next few years, then shift to 10 annually later. Since April, Meijer has opened four new supercenters in Michigan, Ohio and Indiana and plans to add a fifth in October, this a 200,000 square foot store in rural Hartland, Mich. The privately held company has been determined to grow within its means and, while a variety of formats remain on its agenda, a smaller sized store might turn out to be just the right vehicle to help accelerate expansion by creating more space-related opportunities and by keeping development costs in check.

Tomorrow: How a smaller Meijer fits in the competitive environment.