A FOUNDATION TO BUILD ON

PAT NATSCHKE LENIUS

Successful nonfood destinations are being built on solid marketing ground. Knowledge about customer demographics, competitors and even natural barriers have become key criteria for expanding nonfood areas, determining the product mix and presenting the right image.

This has become especially important in recent years as the strategic goals retailers have for general merchandise and health and beauty care have changed. Where before the primary goal

was to use nonfood categories to increase profits, more retailers are seeing them as a way to expand their customer base and build store loyalty.

Shaw's Supermarkets, East Bridgewater, Mass., sees its in-store banking, dry-cleaning service and Arrow pharmacies as a convenience for customers and as a tool for building loyalty, according to Bernard Rogan, company spokesman.

Prior to introducing in-store pharmacies in its new stores through a franchise agreement with Arrow Corp., Farmington, Conn., both Shaw's and Arrow conducted research indicating that the same customers who appreciate in-store banking, dry-cleaning and one-hour photo service are likely to be interested in an in-store pharmacy, he said.

"We want to think they will make us their supermarket of choice. We try to provide our customers with the amenities," Rogan stated.

In building one-stop departments, retailers must weigh such factors as customer income and spending, age, ethnicity, purchase patterns and shopping perceptions. Sophisticated computerized ZIP code software systems, developed by the greeting card companies, make it possible for retailers to micromarket the product mix to a specific demographic group.

"You have to know your clientele. The mix in a store in a high-income area will be different from a low-income area in terms of price points offered and actual products offered," said Todd Holmes, marketing manager for supermarkets at Ambassador Cards, Kansas City, Mo.

In addition to formal demographic studies, local knowledge of the marketplace is shared, he said.

"Sometimes demographics may not take into account what the local salesperson or retailer knows about the area. Then we can adjust. The next step is to feed our information into our Prophet market analysis program and come up with the correct mix based on demographics," Holmes said.

In addition to all of the above, there is the competition to consider. That is what Pay Less Supermarkets, Anderson, Ind., did when it instituted a 30-minute photo finishing service, said Dick Sizemore, nonfood merchandiser.

"Often we can just see what is a draw. We saw that a lot of retailers were offering one-hour photo finishing, and that seemed to be a draw, so we thought we could go one better and have 30-minute photo finishing," he said.

Pay Less has an exclusive arrangement with its partner in 30-minute photo finishing, CPI Fox Photo, Sizemore said.

The 30-minute photo finishing service is offered in three of Pay Less' flagship stores. Photo finishing from the other stores is funneled over to the three flagship units for developing. The other smaller stores still have 24-hour photo service, he said.

In response to mass merchandiser competition entering its market, Strack & Van Til Supermarkets, Highland, Ind., has made the whole baby category, including related general merchandise such as accessories and toys, a destination department in its stores, said Joe Kolavo, general merchandise and HBC buyer.

"We decided the whole baby category was important to us for future growth and expansion of our customer base. People such as young couples with babies make decisions as to where they will shop for the next few years," he said.

Supervalu, Minneapolis, which supplies Strack & Van Til with both general merchandise and HBC, conducts surveys of customers to determine demographics, such as average age of customer, and to learn about areas that need improvement, he said.

"We used Supervalu's information as a resource, but our decision was not based solely on that. There are some areas where our stores are located such as Valparaiso and Schererville [Ind.] that are faster-growth areas, with a lot of young couples moving into the area. We don't want them buying diapers for the first three years at Wal-Mart. We felt it was really important to get them accustomed to shopping at our stores," Kolavo said.

The well-publicized Baby Club category destination program tested at Abco Markets, Phoenix, by the American Greetings Research Council was chosen based on demographic information from Spectra Marketing Systems, Chicago.

The data indicated that the customers who purchase the most baby care products are more affluent and educated than the general population, and demand higher-quality merchandise. This, combined with references to the 1990s as the decade of a second baby boom, point to the baby category as a viable destination department.

The Spectra research also indicated that consumers who buy the most baby care products have small families. About 40% have only one child, and about 37% have two children. A third of these families have annual household incomes above $50,000, and more than half of the families have annual incomes above $35,000. More than 75% of the biggest buyers of baby goods are between the ages of 25 and 44.

Ray's Food Place, Brookings, Ore., decided to test a nonfood destination department following a marketing meeting of its key management personnel in which they tried to determine what can be done in the years ahead to attract more customers to the stores, given the new formats and competition to be faced, according to Dan Van Zant, general merchandise and HBC supervisor.

"We are working on putting together a low-end value center format within our store," he said.

The section of low-priced items will be merchandised from a 24- to 36-foot gondola.

The stores operated by Ray's

Food Place are spread out about a 1,000-mile radius, from central Oregon to northern California, covering a "huge" demographic area, he said.

"We find this section would appeal to customers primarily interested in price, so we will test it in a price-driven format -- one of our box-store formats. We operate five of those type of units. If it is successful there, we will test it in one of our conventional units in an area that serves a large number of elderly and retired people," Van Zant said.

An expanded section of children's books is likely to have the most success in a store that operates in an area with many young families, according to Bob Lutz, national sales manager at Western Publishing Co., Racine, Wis.

The primary customer is a mother between the ages of 18 and 40 who is buying books for a child between the ages of 1 and 10. The Golden Books brand name has 97% brand awareness among consumers, Lutz said.

A little more than a year ago, Western Publishing developed a kiosk display program for its Golden Books, intended to move more children's books through the supermarket channel, Lutz said.

Food stores account for only a 6% unit market share of children's books, compared with a 43% unit market share for mass merchandisers, according to research quoted in a Western Publishing brochure.

The four-sided, 4-foot-square, pallet-size mobile kiosk holds about $2,000 worth of merchandise and can deliver $1,600 to $1,800 in profit per turn, Lutz said.

The books carry a gross margin of 45% to 50% and are high-impulse items, he said.