Kroger Takes on General Merchandise, Wal-Mart with Marketplace Stores

While Wal-Mart, Target and Costco make headlines for their success in selling food, Kroger has quietly maintained its invasion of their general merchandise territory by adding more of its marketplace stores.

In one of its latest moves, Kroger plans to knock down two existing 70,000 square foot supermarkets in Fort Wayne, Ind., and replace them with 126,000 square foot marketplace stores. The addition of two stores might not seem like an earth shattering development, but it's a pretty big investment in a recession and a move that will have significant ramifications in Fort Wayne retailing where Kroger will step up as a general merchandise competitor in a market where Wal-Mart has 16 stores, every one of them a supercenter.

And it's only one element in a major expansion. At the end of 2007, Kroger only had 35 marketplace stores. Today, it has 90, a company spokesman said. During a the conference call discussing that year's financial results, Kroger vice chairman Rodney McMullen said that most of an approximately two percent increase in store square footage planned for fiscal 2008 would be generated by marketplace renovations to and replacement of existing stores.

Beyond Fort Wayne, Kroger recently launched its first Middle Tennessee marketplace store in the town of Thompson Station, local reports state, and broke ground on its initial North Texas marketplace in the town of Frisco. The company opened its first marketplace in East Tennessee, and the first in its Atlantic Division, last year.

Kroger has been among the supermarkets most aggressively pursuing general merchandise sales. More than a decade ago, it purchased Fred Meyer, which operated supercenters in the Northwest long before Wal-Mart, Target and Kmart got around to trying the format. Kroger took a scaled down version of the supercenter that Fred Meyer had developed as an expansion vehicle and modified it to create its marketplace store concept.

For those not familiar, a marketplace store is a light version of a supercenter, and in fact is similar to a European hypermarket in that it has a higher proportion of food than general merchandise. And it is a bit smaller on average than either, with stores generally in the 100,000 to 125,000 square foot range. The other way it differs from either supercenters or hypermarkets is in its very limited selection of apparel. From the beginning Kroger has maintained that it doesn't want to be in the fashion business. Even in housewares, most of the products it offers are either designed for convenient replacement or to complement food, so coffee makers are usually pretty basic but chef quality woks might be offered if Asian food is popular at any give moment. Two areas where the marketplace concept is proportionately muscular are jewelry â€" where it includes Fred Meyer jewelry centers as independent in-store boutiques â€" and furniture.

Taking all things together, it looks as if Kroger is betting that it can develop a significant general merchandise business. That could help it keep customers out of supercenters and warehouse clubs while getting the company the additional margin general merchandise usually offers versus food.