Small Store Stands Meijer to Counter Kroger Marketplace, Among Others

Last Updated Jul 7, 2009 11:27 AM EDT

If retail success is based, as the saying goes, on location, location, location, then it's important to fit in a suitable spot, something that Meijer has recognized and Kroger realized some time ago.

Now, though, Meijer's move to develop a smaller store concept in the Chicago suburb of Niles, Ill., could give it the jump on Kroger in a critical market.

The new Meijer will focus on those categories that supermarkets typically operate but with a general merchandise operation that is scaled back in contrast to its supercenters yet expanded in comparison to grocery stores. The Niles format will make up a bit for its lesser stock of everyday general merchandise by allotting an extensive space to seasonal items. "There will be a seasonal pad and some other general merchandise," said Meijer spokesman Frank Guglielmi. "As far as the specifics, we're still at the beginning of the development process but, obviously, we're talking about a smaller part of the store as you look at square footage dedicated to general merchandise."

In the end, the new Meijer format sounds a lot like Kroger's Marketplace stores. They were derived from a small-store format developed by Fred Meyer â€" an upscale supercenter operator that is and has been separate from Meijer -- as an expansion vehicle in Arizona, well away from the chain's traditional Pacific Northwest trading area. Although a separate operation, Fred Meyer once shared information with Meijer, but that is before Kroger acquired it in the late '90s.

Initially, Marketplace stores only appeared as replacements for existing supermarkets. Over the past few years, though, Kroger has been building Marketplace stores from the ground up. Today, the company devotes most of its capital spending to reworking supermarkets to that format.

The fact that Kroger has been able to convert supermarkets to Marketplace stores is an important point. Supercenters not only need more store space but additional parking lot acreage to function. Marketplace stores â€" and, it would seem, the new Meijer format â€" require a smaller lot to sustain a volume of customers and sales that exceeds those of a traditional supermarket but doesn't reach the level of a supercenter. So, they can operate in more places at a lower cost. They also can share shopping centers with retailers that wouldn't co-habitate with a supercenter, providing another measure of flexibility and, potentially, neighbors good at drawing crowds.

Kroger doesn't operate Marketplace stores in the Chicago area. It focuses on its Food-4-Less discount supermarket operation there. With its new format, Meijer could discourage Kroger from expanding Marketplace into one region and hone operational efficiency in a store concept it also has the ability to establish in areas where Kroger is building out the format. Maybe even Cincinnati, where Kroger runs Marketplace stores and is headquartered.

Beyond the Midwest, many food retailers, including Wal-Mart and Safeway, are running and testing new smaller store formats designed in part to give them additional location flexibility. And Target's new discount store format, one that incorporates perishable food including produce and meat, also can be regarded as a smaller store alternative to supercenters. Given all the activity, Meijer's small-store test is timely and perhaps even a necessary study in how to operate reduced scale formats. The alternative is waiting around as competitors perfect them then trying to play catch up if they take off, which wouldn't be a pleasant situation.