HOME WORK 2004-11-08 (2)

DENNIS BLANK / Additional reporting: Christine Blank

Supermarkets are opening up more space for home office products and co-branding with specialty retailers such as Office Depot and Staples. According to several industry sources, this has not been a hard decision because profit margins are high and product moves quickly.

Most supermarkets are adding some office supplies geared toward the home office worker, without "getting too deep into the category," said Charles Yahn, vice president of merchandising for Associated Wholesalers Inc. in York, Pa.

"More and more people are working out of their homes, so grocers are adding things you use in a home office, such as mailing packages, computer print paper and ink cartridges," Yahn said.

But one retailer is pushing more shelf space for computer paper and supplies rather than more traditional office products. "We have allocated more space for computer accessories," said Boyd Irving, category manager, Associated Food Stores, Salt Lake City. "Kids want more trendy items and temporary price reduction signs seem to work best in back-to-school items."

Driving this new trend is the creation of more home offices, and grocery chains become a convenient source of office supplies. "Home office is driving this growth," said Ted Rogers, national sales manager for stationery at 3M in Minneapolis. "There has been particularly good growth in grocery as people set up their computer in their home office, and they need things for their desk."

Rogers and others said that office supplies bring better price margins for supermarkets. "We are up front with everybody," he said. "We are not hiding anything. The prices are all relatively the same, whether it is for Wal-Mart [Stores], Target or the grocery chain."

In certain independents and small regional chains serving a low-income clientele, office products are not selling. "It has actually lost space in the last five years except for the back-to-school promotions," said Mark Werth, buyer, Grocers Supply Co., Houston. "Many are replacing that shelf space with the dollar store category because it is so easy for a dollar store to bounce up next to them. The dollar store category is eating up the office supply shelf space." Most of these same stores usually put up a stand-alone display in August and September for BTS supplies, he said.

Analysts are watching with interest a new pilot project in which Staples is selling its branded products in a half-dozen supermarkets of Smith's Food and Drug Stores, a division of Kroger, Cincinnati, in Las Vegas and seven in Salt Lake City. (See "Staples Bags Top Grocery Chains," Page 23.) In those sections, Staples sells its own brand of ink and toner cartridges, copy paper, binder clips, paper and several other products.

Staples also is replacing similar Office Depot sections in stores of Ahold's Stop & Shop Supermarket Co., Quincy, Mass. Meanwhile, Albertsons, Boise, Idaho, is apparently continuing with its co-branding relationship with Office Depot, although executives at any of the supermarket retailers involved could not be reached for comment.

While adding some office items, most grocers are integrating the office products into their already-established stationery sections, rather than making home office a separate destination department, Yahn said.

At some Florida stores of Publix Super Markets, Lakeland, Fla., for example, home office is part of the entire stationery set, typically four linear feet of supplies, including computer paper and a variety of mailing envelopes.

However, Rogers said another strategy is stand-alone impulse displays that are up for short periods such as Christmas and back-to-college promotional efforts. "If you get out there in front of somebody with a secondary display, you will pick up good margins," Rogers said. "It is a high-impulse item and is selling faster than grocery stores believe."

Supermarkets offer excellent opportunities for "exploiting the tie-in with other products," said Tom Johnson, vice president of the retail sales division for scissors manufacturer Acme United Corp. in Overland Park, Kan. As an example, he said that a bottle of glue could be given away when consumers buy kitchen scissors strategically placed near the turkeys at pre-Thanksgiving sales.

Major supermarket chains have added more shelves, often dedicating an entire aisle to office and school supplies.

"They are certainly expanding category and footage way beyond what you would normally see in supermarkets," said Al Jones, senior vice president, procurement and merchandising for Imperial Distributors, Auburn, Mass. "You see people doubling linear footage, expanding to both sides of a full aisle," Jones said.

In some cases, grocers are testing larger office items, such as file cabinets, lamps and ready-to-assemble office furniture, Jones added.

Distributors said supermarkets have gone back to the basics in this department, selling items such as notebooks, pencils and pens, instead of branching out into slower moving items.

At the same time, some chains are trying to be the source for all school items. At larger Publix stores in Florida, for example, the chain is carrying protractors, several types of glue, and other less frequently used office and school supply products, devoting 16 to 20 linear feet to the section.

Consumers are attracted to buying school supplies and stationery products at discount stores and food markets because it is convenient, said Lori Conley, marketing director, school products, MeadWestvaco, Stamford, Conn. "Grocers are capitalizing on frequent trips from consumers who have their school supplies list in hand," Conley said.

Another trend is that consumers are buying higher quality school products, Yahn said. "Our upscale lines did better than our cheap ones. While the consumer is looking for value, they want better products," he said.

However, many grocers and mass merchandisers are offering the basic items at extremely low prices, just to get back-to-school shoppers in the door. "Target ran 70-count theme books, 10 for a dollar," Jones said. To compete, most chains are moving to overseas purchasing of paper goods and other office and school products, because they can buy them at a much lower cost than in the U.S., he said.

While newspaper ads offering low prices on theme books and other items may get people in the door, grocery chains are aware that the back-to-school shopper will also buy many of their other general merchandise items.

"Back-to-school is now less about paper and pens, and more about anything that it takes to stock an apartment or dorm room," Jones said, noting that dishpans, silverware, clothing and electronics are now included in back-to-school sales.

To snare the shopper who is setting up house -- or a college apartment -- for the first time, some distributors are grouping products together and selling it for one price. "You might see a 100-piece set of assorted products that you set up your kitchen with," Jones said.

Rogers said that upscale chains such as Trader Joe's and Wild Oats are "considering doing an in-and-out," a stand-alone display that would be sold through in two weeks in heavy traffic areas.