A CAPITAL IDEA

ROSEANNE HARPER

WASHINGTON -- The Daily Market, a company that has launched two compact fresh-meal stores by the same name here, intends to open as many as 10 more similar units in the nation's capital by this time next year.

The first stores -- both under 2,000 square feet -- have evolved from neighborhood Italian specialty stores into "fun, up-to-the-minute meal stores serving the customer who wants restaurant-quality food to take home or to the office," according to Phil Masiello, co-owner of The Daily Market.

Masiello is a grocer who transplanted himself into the entrepreneurial realm of the meal-store market. He was formerly director of bakery and fresh foods for 50-unit Star Market Co., Cambridge, Mass., and also held the post of vice president, food production, at Sutton Place Gourmet Markets, Rockville, Md.

He and his business partner, Steven Krane, acquired the two Italian specialty Prego Gourmet Markets last spring and officially unveiled them as The Daily Markets last month.

The outlets, in prime downtown Washington locations near DuPont Circle, sport a complete reset and renovation, plus a colorful new logo and name that reflects the owners' vow to intercept busy consumers with the meals they're looking for as often as every day -- if not even more frequently.

The core of The Daily Market concept is turning high-margin, fresh, prepared food quickly in a small amount of space. Deliveries of fresh, never-frozen entrees; sides; and salads are made to the stores daily by a carefully developed network of vendors, Masiello added. There is no in-store preparation of food, with the exception of some custom sandwiches and panini. Bringing product in not only saves labor, but also ensures consistency, Masiello said.

And the food's consistency and quality bring customers back, he said, adding that probably due to their locations, The Daily Markets have a well-above-average number of customer visits -- 14 to 15 -- per week, as indicated in customer surveys.

"That means some people are in here twice a day," he said.

Accordingly, cases are remerchandised for each meal occasion as the day goes on. "In the morning, the cases are filled with bagels, muffins, breads and other breakfast items, but by 11 a.m., we're putting lunch items in that case. Then, later in the afternoon, we merchandise it for dinner."

In that way, the company is capitalizing on the stores' smallness to generate big sales and profits, he explained.

"We've found that bigger is not necessarily better. Big is good if you're selling dry groceries because you can buy better, but that's not true with fresh food; it just means more shrink.

"We went to New York and looked at how some stores are maximizing sales in a small space. In fact, if we could cut 400 feet out of these stores, we would. Our sales would continue and we'd have a better gross margin," he said.

So far, the formula is working. At one of the stores, sales have zoomed up 50% since Masiello and Krane took the reins. The other one has seen a 38% rise in sales. "And they're profitable," Masiello said with enthusiasm, although he declined to reveal how profitable.

The ready-to-eat and ready-to-heat items are sold from just 16 feet of self-service and service cases. The service case shows off heaped platters of salads and entrees. Next to it is the self-service case, which holds single-serving salads, sides and entrees, and meals consisting of an entree and two sides on sectioned, dual-ovenable plates with dome tops.

Seared salmon on a bed of couscous with grilled vegetables, for $6.99, has proved to be a customer favorite. Some other favorites are grilled chicken breast with mango papaya salsa, $3.99, and roasted turkey breast with wild rice, corn and orzo, $5.99.

Side dishes are sold by the pound. Some examples are potatoes au gratin, $4.99 a pound and grilled vegetables, $5.99 a pound.

Five or six entrees, five side dishes and six or seven varieties of salads are offered daily and the menu is rotated every two weeks.

There's also a conventional deli counter, offering sliced meats and cheeses and sandwiches made to order. A fresh juice and smoothie bar just inside the entrance anchors the food displays, and can be seen through the window.

The small size of the stores also works for giving the customer time-saving convenience, Masiello said.

"In our surveys, if there was one surprise it was just how much customers value their time," he said. Getting in and out quickly was noted as a top priority by customers who participated in the surveys.

That is why 80% of the products at The Daily Markets are merchandised for self-service. The two cash registers in each store will soon be supplemented with two additional remote registers, Masiello added.

As Italian markets, the stores carried a mix that was at least 50% dry grocery products, including a large assortment of imported olive oils, vinegars and pastas. Now, The Daily Markets feature high margin fresh food in 90% of their selling space. The only dry goods are bottled beverages and snack items such as chips and crackers and cheese.

The total transformation from neighborhood ethnic market to neighborhood meal store came only after months of research, which besides two extensive customer surveys, involved a lot of tweaking and reshuffling, Masiello said.

The entrepreneurs knew that by changing the character of the stores -- which now shows no vestiges of the Italian market -- they could have lost the original clientele; but they didn't.

The surveys, which were in the form of an extensive questionnaire developed by a market research consultant, showed that 90% of the original customer base has been retained, Masiello said.

He attributes that to seeking customers' opinions about the changes; and it also must have helped that Masiello and Krane made the former owners minor partners in their new company when they bought the stores.

The profile of the locations is what made Masiello and Krane jump at the chance to acquire the Prego markets. That profile, they hope, will serve them well as the attempt to expand. "We believe the best locations for our concept are the ones that intercept people on their way to or from work," Masiello said.

The next store, a 1,400-square-foot one, will open later this fall in the Cleveland Park section of Washington. Like DuPont Circle, that area is described as urban-residential. To Masiello and Krane, that means office clientele for lunch and neighborhood clientele for breakfast and dinner.

Later on in the company's evolution, they will take The Daily Market to the suburbs, "but by then, a lot of people will already know us, because they've been getting their lunch at our downtown locations," Masiello said.

"We're taking the Starbucks approach to creating awareness by first opening a lot of small stores in urban areas. It's less expensive to do it that way because you have huge walk-by traffic in the city. You don't have to worry about parking. You can get them in the door with an A-frame sign outside. Then, if your quality is good and your offering is right, they'll come back," he said.

"The breakfast and dinner crowd is already surrounding us [at the present locations], but our lunch business is made up of people who commute in from the suburbs."

He pointed out that it takes a lot more marketing to launch an unknown business in the suburbs just because of the geographical hurdle that must be surmounted to get the first wave of customers into the store.

The plan, after they establish an identity in downtown Washington, is to open 50 to 60 Daily Markets in the Washington-Baltimore area in the next two years. Masiello said franchising is not in The Daily Markets plans at this point.

The keys to successful expansion, he said, lie in developing easily replicable systems and finding reliable managers. In hiring associates, the owners are more interested in the prospective employee's personality and interests than in his retail experience.

"We can teach people systems, but you have to start with someone who's enthusiastic, who likes to talk to people. If I can't shut a person up during an interview, he's just as good as hired," Masiello said.

Including the juice/smoothie bar, 90% of The Daily Market's space is devoted to fresh items, deli meats and cheeses, and freshly prepared ready-to-eat and ready-to-heat selections. Some fresh entrees, sides and salads are delivered in bulk for repacking in-store, while others are prepackaged.

"A couple hundred pounds" of fresh, prepared food is brought into each store each morning and a couple hundred pounds are sold each day at each store, Masiello said.

While the smallness of the facility may be great for turning product and keeping shrink down, the smallness of the deliveries could be a stumbling block in sourcing. But that's not so for The Daily Market, thanks to a lot of legwork ahead of time, Masiello said.

It sounds slightly implausible that he could get everyday delivery of restaurant quality food in such variety, but Masiello said it's happening. He claimed a person need only come into the store, look at the variety, and sample the quality, to see that it's true.