MILWAUKEE — Roundy's Supermarkets here said last week it plans to enter the Chicago market with 10 to 12 stores over the next three years — a move industry observers believe has an excellent chance for success.
Their optimism is based as much on the presence of Robert A. Mariano, Roundy's chairman and chief executive officer, as on the fading presence of Safeway-owned Dominick's there and other competitive factors.
Mariano is a Chicago native who worked at Dominick's for 26 years, including three years as president and CEO, before the chain was sold to Safeway in 1998.
In an interview with SN last week, Mariano said he's enthusiastic about the prospect of running stores in Chicago.
“We're excited about the opportunity to operate [the first store] in a great neighborhood and about the opportunity for us to grow there and for our people to grow. And we see it as an opportunity to bring some people back into the fold who used to work with me at Dominick's.”
David Livingston, managing partner in DJL Research, Pewaukee, Wis., said he expects Roundy's to actively recruit “the very best store directors and department managers that once made Dominick's great.”
He also said he expects Roundy's management to thrive in Chicago. “This group has a chip on its shoulder and is ready to deal out a bit of punishment to Dominick's, and the employees they recruit out of Dominick's will rally behind them.”
Bill Bishop, principal at consulting firm Willard Bishop, Barrington, Ill., said Roundy's is more likely to succeed in Chicago than previous new entries. “When Eagle came into Chicago, or A&P or Kmart, it was almost amusing to local merchants how much those out-of-town operators didn't understand the brands, packaging and cuts of meat Chicago shoppers prefer,” he told SN.
“But that won't happen with Roundy's because of the Chicago experience of Mariano and his management team. And since 80% of the risk for a new entry is a lack of familiarity with local tastes — a risk Roundy's has eliminated — it should do well.
“This is a great move for Roundy's, and a logical one as well for a dominant player in Milwaukee that's located less than 100 miles away from Chicago. And Bob has a wonderful relationship with the city of Chicago, so he's well positioned to pull this off.”
“Mariano will take this move very personally, and he won't let it fail,” Livingston said. “Like a kid playing a sport with his parents watching, Bob will be showing off in front of his hometown crowd in Chicago, so you know he's going to give it 110%.”
Livingston said he believes the timing is right for Roundy's to succeed in Chicago because Safeway has been scaling back on its Dominick's operations and Jewel-Osco is going through a transition under its new owner, Supervalu.
According to another industry observer, who lives in Chicago, “Bob Mariano knows the Chicago market, and the market knows him, and that will give Roundy's more credence.”
Two prominent out-of-town operators — Byerly's and Marsh — expanded into Chicago in recent years, only to leave fairly quickly.
“Byerly's was undermined by its real estate decisions,” Bishop said, noting that the chain opened two stores there in the 1990s, one in Highland Park that was in an upscale neighborhood and one in Schaumberg that was not.
In the case of Indianapolis-based Marsh, the company opened an attractive store in Naperville, Ill., in mid-2005 that closed a year later, Bishop said, “because the company was struggling at the corporate level, and it was probably unrealistic to worry about a single store in a Chicago suburb.”
“People here are very parochial, and they like to see Chicago people running Chicago businesses,” according to the Chicago-based observer. “So when chains from other cities come here with the attitude that Chicago shoppers can now get the best of what Minneapolis or Indianapolis has to offer, that doesn't really impress anyone — besides which, those companies didn't have the right locations and they didn't cater to local tastes.”
Asked about industry reports that Willis Stein, Roundy's Chicago-based parent company, is interested in selling the chain, Mariano told SN, “I am not aware of any such discussions.”
Livingston said he believes Roundy's investors have already gotten their money back, “so they can afford to take some risks, and this is a risk worth taking.”
Roundy's first Chicago location — scheduled to open sometime in 2008 — will be a two-story, 80,000-square-foot store with rooftop parking. It will be located in a densely populated urban area near DePaul University in the city's Gold Coast section — about a mile from Lake Michigan and two miles northwest of the Loop — on the site of the New City YMCA, in an area with a broad diversity of shoppers.
Roundy's operates 153 stores, encompassing 96 Pick 'n Saves in Wisconsin and Illinois (including one Metro Market in downtown Milwaukee); 26 Copps in Wisconsin; and 31 Rainbow Foods in Minnesota.
Mariano told SN that Roundy's has not yet determined the name for the Chicago stores, though it will not be any of those it uses elsewhere. “The stores will have a new name because of the type of stores they'll be,” he said.
While the stores will focus on fresh — similar to the Metro Market — “they will be more like a next-generation version of the Metro store in terms of product offerings and customer service because of what we've learned there,” Mariano explained. “The Chicago stores will go beyond what we're doing at Metro.”
Observers told SN the area surrounding the initial store site features an array of supermarket competitors, including Dominick's, Jewel-Osco, Whole Foods, Trader Joe's, Sunflower Market and Treasure Island. Livingston said they all generate high volumes from relatively small sites, including what he said was the No. 2 Trader Joe's in the Midwest region.
“All the stores there are high volume and overperforming, with Whole Foods doing $790,000 a week out of a 30,000-square-foot building,” he noted.
With Dominick's announcing plans to close 14 stores in April, Mariano told SN Roundy's “might be interested” in acquiring some of them.
Bishop said Roundy's would be a logical buyer if Dominick's were to decide to leave the Chicago market altogether. “Dominick's is being held back by its legacy costs, so for a company like Roundy's, coming in with a clean slate would be a good thing.”