BANKS SEE DIMINISHING RETURNS ON RETAIL SITES

STEPHANIE LOUGHRAN

WILLIAMSVILLE, N.Y. -- Tops Friendly Markets here is one of the latest retailers planning to expand its in-store banking operations, but some analysts said the future of such partnerships could be limited.

Tops, a division of Ahold USA, Chantilly, Va., recently revealed that it would provide financial services in at least 70 of its stores in New York and Ohio beginning next year.

Earlier this month, the Buffalo News reported that Tops would open its own brand of in-store banks in a partnership with Toronto-based Canadian Imperial Bank of Commerce. That decision led M&T Bank, Buffalo, N.Y., to pull its branch offices out of eight Tops units, according to the report.

CIBC declined to comment on its partnership with the supermarket chain, and Tops also declined to comment.

While industry officials agreed that in-store banking can provide growth opportunities for both banking company and retailer by creating customer loyalty, cross-merchandising possibilities and another way to provide one-stop shopping, some officials polled by SN said supermarkets and banks don't always go together.

"The trend is that most traditional banks have found it hasn't worked out," said Arnold Danielson, chairman of banking consulting firm Danielson Associates, Rockville, Md.

He said supermarket banks' main problem is that the customers whom banks make the most money on -- upper-class businessmen -- do not conduct their banking at supermarkets.

"It's not terribly appealing to a certain customer," he said.

The success of in-store bank branches is a "mixed bag," said Frank Dilenschneider, senior vice president in charge of retail network management for PNC Financial Services Group, Pittsburgh.

"The line between success and failure is pretty thin," he said. "The point of it is that you cannot just set up a bank in a grocery store and expect success."

For the partnership to work, Dilenschneider said banks and retailers must form a cooperative relationship where bank employees understand the grocery business and grocers want to grow with their banking partner.

"We want to build an alliance with a grocer where store manager and bank branch manager make a team to make it more fun, interesting and create promotional opportunities," said Dilenschneider. "We don't want to be seen as just a tenant."

The banking company operates 33 in-store branches in retailers like Giant Eagle, Pittsburgh; Giant Food Stores, Carlisle, Pa., and Genuardi's Family Markets, a division of Pleasanton, Calif.-based Safeway. The PNC official said the banking company plans to add more than 10 in-store branches across the PNC network during the next year.

Retailers who talked to SN had a positive view of in-store banking.

"We think customers like it, and it offers banks a low-cost investment into a new market," said a source at Balls Food Stores, Kansas City, Kan., which operates 29 stores under the Hen House Market and Price Chopper banners.

Balls' 10 in-store financial service locations, the source said, offer additional draw to the store, added convenience and "alleviate pressure on the front end with check-cashing."

Mike Flaherty, store manager at a Sudbury Farms supermarket, a banner under Wellesley, Mass.-based Roche Bros. Supermarkets, said in-store banks provide "one-stop shopping and local community involvement. I don't know of any downside."

According to research by Norcross, Ga.-based International Banking Technologies, an in-store banking service provider that designs facilities and trains banks on how to properly market their services in retail settings, approximately 8,100 in-store bank branches operate in supermarkets and supercenters today. They account for roughly 10% of all bank and credit union branch locations.

However, John Nicola, senior vice president of sales for IBT, said the trend for in-store banking opportunities is leveling off.

"Many of the locations that were available in supermarket locations have been taken already by in-store partners," he said. "Inventory has reduced over time with the buildup in the mid-1990s."

In addition, Nicola pointed out that mergers and acquisitions in the banking and food retailing industries have also affected growth.

Gary Shaivitz, senior vice president, market planning and strategy, Allfirst Bank, Baltimore, also said growth for bank locations inside supermarkets is varied. "Some are cutting back, while others are expanding," he said.

He said Allfirst, which has in-store branches in retailers like Weis Markets, Sunbury, Pa., is "looking to still [build] them in certain situations," like to use an in-store branch to retain customers in a busy area.

Despite varying reactions, banks' low-cost investment ($250,00 to $300,000 compared to $1.5 million to $2 million investment in a traditional branch) and supermarkets' opportunity to generate revenue in a small amount of square footage will keep the union from going away.

"While it's disappointing to most, it's probably going to stay with us," Danielson said, pointing out that supermarkets concentrate on generating maximum revenue per square foot. "They're not worried about how well [a bank] does once it's in there."