COMMUNITY ASSISTANCE 2004-02-09 (1)

Christina Veiders

CLEVELAND HEIGHTS, Ohio -- The 47,000-square-foot Zagara's Marketplace, which opened in June 2002, illustrates what can be accomplished when an independent grocer works closely with city planners to improve the community with an enhanced retailing shopping experience.

It helped that the project got a boost from the local mayor, Ed Kelly, who at one time worked at the old Zagara's store a few blocks away from the new $12 million location on Lee Road here.

John Zagara, who is president of Zagara's Marketplace, said Kelly recognized what a small, family-run independent is up against when competing with stores five times its size. Zagara's grandfather, Charles, established the business in 1936. Talks to develop a larger, new location began in 1995.

Zagara found the land, which one source described as blighted. The property consisted of an abandoned post office, several commercial buildings and five occupied residential houses. The area needed upgrading. Zagara said he couldn't amortize the purchase of the land, the building note or the equipment in the first seven years without financial help from the city.

Kim Steigerwald, assistant director of planning and development for Cleveland Heights, said Zagara came to them with a "pretty ambitious acquisition plan and through some pretty creative financing we helped to pull it off."

Through a Tax Incremental Financing plan, the city issued bonds to buy the $2 million parcel of land for Zagara and leased it to back to him for nothing. The city financed the purchase of the property at a much lower interest rate than Zagara could have done.

Steigerwald said that TIF legislation allows the city to take 75% of the real estate taxes that Zagara pays on the property to pay off the bond debt. The other 25% of the property taxes goes to other uses such as school taxes.

The deal will run for about 10 years. When the debt is paid off, Zagara will own the property.

"It saves John an enormous amount in interest. Instead of John holding that $2 million in extra debt service at a higher rate of interest, we own the land, we lease it back to him for nothing and he pays the taxes. We get the tax money back to pay off the debt service and at the end of 10 or 13 years, John gets it [the property] back," explained Steigerwald.

The result of the project has been an increase in the commercial and residential value of properties in the area. It also has attracted interest in new commercial development, said Steigerwald, who is now working on the city's second TIF for a residential developer.

"You know the process is always complicated the first time," she commented. "But doing it with John just made it much simpler. He's just a super guy to work with and it's a great economic development tool."

Architect Dan Saleet, who worked on the project through ADA Architects, Lakewood, Ohio, credited Zagara for getting the project off the ground and pulling the team together. "He [Zagara] had us work directly with the city and people who lived in the neighborhood to help design the store and make it friendly with the community. We pulled in the fabric of the neighborhood to make the store look like a small series of shops on Lee Road."

The result is a showcase food store with a carefully chosen design that complements the Cleveland Heights neighborhood, which is made up of well-kept houses built in the 1920s and '30s.

The exterior of the store features two towers that add height and drama to the store. The architects carefully chose different types of material -- cedar, brick facade, stone, masonry, copper bay windows -- to blend in with the surrounding neighborhood. Store windows feature painted art work of vegetables, fruits, cakes, pies, and wines and spirits.

"We built a store that looks like it has always been here," said Zagara. "It's a store that blends in with the architecture of the neighborhood."

According to Zagara, the interior has "a timeless, classic look," highlighted by soft, comfort colors of yellow, green and brown. The floor is a patchwork, basket-weave design that uses different wood tones to distinguish sections of the store. Lighting, which spotlights aisles, gondolas and endcaps, became an important element of the store.

Service-Oriented Provider

Zagara's is big on service. Customers can check out within five to seven minutes. The retailer makes sure all 10 registers are operating full-time and maintained by a bagger. It hires 35 to 45 high school students each week on a rotating basis and some handicapped personnel to make sure the store is well served. It also offers drive-up, parcel pick-up of groceries.

Zagara described his store as upscale with "very competitive prices." It is known for its selection of specialties, which include four-foot sets of olive oils, vinegars, marinades, sauces, pasta and special dressings.

Fresh produce, which contributes 13% to 17% to sales, is also a customer draw. Zagara procures most of its produce from the Cleveland Terminal Park and sends a truck there about five days a week. Produce and meats are anchors for the store. Zagara is also concentrating on expanding its selection of natural meats -- poultry, pork and lamb.

With 30,000 square feet of selling space, the store also features a small cafe that is serviced by a deli, a leased-sushi operation, and a wine and liquor department. The store contains about 80,000 stockkeeping units of grocery items.

Zagara said sales are running between $17 million and $18 million a year. He hopes to increase that to over $20 million a year. "We need to continue the transformation process of getting people to leave the big chains," he said.

Positioning itself on competitive prices, specialty items and service, Zagara believes he can compete with Giant Eagle, Tops Friendly Markets, an Ahold banner, and Heinnen's, another local upscale operator, as well as alternative retailers such as Costco.

Zagara said he was minimally affected when price wars heated up between Giant Eagle and Tops last year. "We've never thought it is a pricing game," he said. "I think quality and service mean more to my customers than competitive pricing."

Zagara announced last month that it had signed on as an IGA retailer mainly to replace the "Best Yet" private-label brand it lost when Fleming went out of business last year. IGA is using the same food processor that made the Best Yet brand so by merchandising IGA's private label, Zagara says he can still maintain the same quality private label for his customers.

Zagara said he doesn't believe in just one primary supplier anymore. He has since gone to Supervalu, Minneapolis, as a supplier for grocery, dairy and frozen foods.

At 39 years old, Zagara, a former accountant, said his goal is to make his store better than it is today. "My goal is to continue improving it, building sales but also providing more services and a better shopping experience."

As for any future development projects, Zagara said, "I can't imagine opening another store today because of the labor availability [Zagara's is a unionized store]. To redevelop something from scratch again and not have a labor base, I think that would be really difficult."

Zagara also is planning on running his own show over the long term. "I spent the last five years developing this site and this store and I am not interested in letting someone else take over to reap the rewards."