Operators Seek More of Omaha's Upscale Market Share

JON SPRINGER

IN OMAHA, where Warren Buffett built an empire behind shrewd investments and impeccable timing, food retailers are also moving to position themselves for fortune.

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In many recent cases, it's been conventional stores and specialty retailers rushing to fill a void for upscale shopping in Omaha, which despite a nationwide economic slowdown has pulled through with relatively low unemployment and a strong performance from its key agricultural industries.

According to Tucson, Ariz.-based Metro Market Studies, Omaha's grocery market share lead is split nearly evenly between Wal-Mart Stores, Hy-Vee and Bakers/Dillon, the latter a subsidiary of Cincinnati-based Kroger Co. Those three all emphasize price, selection and convenience, but aren't necessarily known for their upscale appeal. The Omaha metro area includes eight counties in Nebraska and Iowa and a population of around 800,000.

Wal-Mart, with a leading share of 17.6%, is particularly vulnerable to quality fresh programs, observers noted, and that has prompted activity among some small chains and independents to carve out a piece of the grocery market looking for “better” alternatives, even if that's a small piece of the market at present. The biggest recent statement in this regard was made by No Frills, a 15-store local chain which last fall opened a focused No Frills Fresh store, and is currently building a second.

As its name implies, No Frills has origins as a price-focused, warehouse-style grocery store, but has steadily added departments and services over the years. No Frills Fresh took over a 56,000-square-foot former Bakers site late last year and features expanded meat and produce departments. A second such store is currently under construction.

No Frills, along with another local independent, Bag 'N Save, acquired 11 Albertsons stores between them when that chain left town in 2004. Burt P Flickinger III, managing partner of Strategic Resource Group, New York, noted that both operators struggled some to make the kind of investments the former Albertsons required.

No Frills was acquired by a group of its executives in 2008.

“They've been the most aggressive supermarket out there, and they've come out with a more upscale concept,” Leigh Hoefener, an associate at CB Richard Ellis' Omaha office, told SN.

No Frills controls about 11.3% of the market, up from 10.4% a year ago as a result of the new store. The move helped it leapfrog over Bag 'N Save, which controls 11% of the market with 11 stores.

According to Hoefener, smaller grocers, including Patrick's and Wohlner's, have also made moves to capture an upscale shopper in Omaha's growing urban core.

Wohlner's in 2008 opened a 17,000-square-foot store in a new, mixed-use development at the site of the former Ak-Sar-Ben racetrack in Omaha. Later this year, Wohlner's plans to open a second store in another mixed-use development, Midtown Crossing, now going up on the East side of the city. Wohlner's specializes in fresh goods including store-made smoked sausages, a scratch bakery and cured meats, its third-generation owner, Mike Schwartz, told SN.

“I see the Bags N' Saves and the Hy-Vee's trying to push more individualized service and more quality too,” Schwartz observed of neighboring full-service grocery stores.

“What the smaller players have done in Omaha is brought some innovation,” Flickinger added. “They've long known that Wal-Mart's great weakness has been its fresh meat program and perimeter departments so they're putting a good effort against that.”

Overall retail store construction in Omaha was down by more than 50% in 2009 as the market moved to correct itself after years of rapid expansion, according to a report from Grubb & Ellis Pacific Realty, a local real estate services firm. But the report also noted that leasing momentum returned with a drop in vacancy rates toward the end of 2009, signaling the beginnings of a turnaround.