EXPANDING FROM WITHIN

CHRISTINA VEIDERS Additional reporting: PAT LENIUS

It's major league retailing when a supermarket creates a nonfood destination.

In implementing this strategy, grocery chains are going directly against the competition -- specialty stores and mass merchandisers -- in protecting their nonfood turf by establishing a presence outside the food business.

"Today's retail environment has made it necessary for supermarkets to create expanded nonfood sections. The competition from other trade classes is slicing the pie all the time, making it more difficult for us to get our market share," said Wayne Gresl,

director of nonfood at Copps Corp., Stevens Point, Wis.

"When we can develop these destination departments, we're more or less securing that market share," he said. Norm Carpenter, general merchandise director at Rosauers Supermarkets, Spokane, Wash., explained that general merchandise is "no longer the quick and easy impulse sale" of the past because mass merchandisers now dominate the retail landscape and are pulling consumers into their stores more frequently.

"We used to live off the fact that the customer was in our stores two to three times a week. Now consumers visit those other outlets at least every two weeks or weekly. Consumers perceive those other outlets as offering a greater variety or a price advantage compared with us," he said.

"There is such a proliferation of other formats devoting so many square feet to these [nonfood] categories," he added.

Dale Eichenlaub, general manager at L. Friedman Inc., Butler, Pa., said, "Competition has forced retailers to expand a number of nonfood departments. Our customers want it. The expansion also is being done to help our profitability."

Over the last several years, chains have targeted core nonfood categories to become destination departments or store-within-a-store formats. Examples include Pathmark's 72-foot self-service cosmetics aisle in its 2000 store formats, Hy-Vee's beauty care departments, Giant Eagle's entertainment centers and photo and film services, Smitty's Super Valu Entertainment Marketplace, H.E. Butt's reading centers, Big Y's pet care centers, Raley's Kitchen Shoppe and Pay Less Super Market's Photo Express centers, which develop film in 30 minutes.

Even pharmacy and video have been developed as important destinations by some operators.

In explaining why a pharmacy is an appropriate destination for supermarkets, Barrett Moravec, pharmacy director at Abco Foods, Phoenix, said, "Most people choose a pharmacist just like they would choose their own doctor. That enables the pharmacy to develop their own following. It enables it to pull people into the store who might have been loyal customers with the competition."

L. Freidman's most recent expansion has been in video, Eichenlaub said. "This was done in response to the competition and the need and demand for one-stop shopping. It provides us with the opportunity to bring customers into our stores twice."

Some observers say the destination concept within supermarkets evolved first in food, and now is moving into nonfood.

"There is a reason stores have put in all those specialty foods and expanded their wine departments. They are moves to make a destination department," said Carpenter of Rosauers.

Caleb Mason, director of corporate marketing at Konica Quality Photo, Portland, Maine, who has been working with chains such as Giant Eagle and Hannaford Bros. to develop a photo/film presence, views competition from fast-food chains such as McDonald's leading to destination concepts in food retailing.

Realizing they were losing sales in fast-food items, "the leading supermarket chains set out to reverse that trend by offering those products themselves, such as premade sandwiches, pizza, salad bars. That was the beginning of it," Mason said.

In moving destinations into nonfood, the greeting card companies have been the most avid proponents of the concept and have executed it at retail with greatly expanded card departments that combine partyware and gifts. Michael La Fortune, vice president of supermarket sales at American Greetings, Cleveland, pointed out how greeting card departments have grown from 24-foot runs set 20 years ago to many departments that now boast 1,800 to 2,400 square feet and contain from 100 to 400 linear feet of products.

A few examples of greeting card destinations include Giant Food and Smith Food & Drug Centers, supplied by Ambassador Cards; King Soopers and Dominick's Fresh Store format, supplied by American Greetings; and Price Chopper Supermarkets, supplied by Gibson Greetings.

The card companies have even gone beyond the destination department itself into total store integration and category destination programs to further build customer loyalty. Kort Masteller, retail merchandising consultant at American Greeting, Cleveland, points to what food retailers have done in the produce and bakery departments in creating visually exciting displays.

"We refer to it as retail theater," he explained. "We are trying to do that within the card department and create retail theater with card and noncard items that are equally as appealing as on the food side."

Although descriptions vary on what constitutes a destination department, most executives agree that its main objective is to attract a repeat and loyal following.

"To put it simply, a destination category like baby and toys has to be something that causes a customer to drive by a competitor and come to your store instead," said Andy Raab, vice president at Strack & Van Til Supermarkets, Highland, Ind.

There are essential criteria in creating these nonfood attractions. One key element is space, often the retailer's most valuable asset.

"In our area we've always known destination departments would enhance our sales in a given category. However, space limitations within a store have always tied our hands from doing it in other areas," explained Wayne Gresl, director of nonfood at Copps Corp., Stevens Point, Wis. The chain has been successful in creating greeting card destinations. "The criteria for a destination department in simple terms is a department that offers the customer everything they would possibly need," said Gresl. He claims that goal has been achieved in the greeting card department, especially in the chain's Appleton, Wis., store, which opened last year with a 150- to 200-foot card department.

"The department fills all card customers needs, including a 24-foot party supply section with an expanded selection and variety that appeals to a wider audience," Gresl said. In addition to the basic everyday selections, the department features several different types of alternative cards. Besides finding more dedicated space and offering a broad product mix, other key components of the destination department are choosing the right category for the store's demographic mix and competitive position; creating a unique identity for the department with signage and fixtures, and supporting it all with promotions.

"A destination department needs to have an identity that is unique to the product category and have the visual attributes that go with it," said Mason of Konica. "For supermarkets, they aren't dissimilar to malls where within this one place you have all these clearly defined stores." Masteller of American Greetings said the process is not "the cookie-cutter approach of years ago." Individual stores within the chain may create their own unique approach for a destination department. In order for any of these departments to get off the ground, retailers interviewed emphasized the importance of upper management support.

Gresl of Copps Corp. said that in the grocery trade, when upper management is enthused about nonfood, it sends a strong signal throughout the organization that nonfood is considered an essential part of the overall business.

Strack & Van Til created a 12- to 16-foot vertical baby aisle set, which it considers a destination section with a mix of general merchandise, baby formula, food and diapers. "When you look at the overall mix, we've increased sales substantially double-digit, yet we didn't loss any gross profit overall by covering the lower baby food and diaper grosses with sales in the general merchandise items," Raab said.