HORNING IN IN BUFFALO

CHRISTINA VEIDERS

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BUFFALO, N.Y. -- This territory is shaping up to be a battleground in health and beauty care.

So far, the two dominant supermarket chains in the region -- Tops Markets, an Ahold subsidiary based here, and Wegmans Food Markets, based in Rochester, N.Y. -- appear firmly in control of the mass HBC business.

These two chains have secured a dominant share of the all commodity volume in HBC, according to sources familiar with the market. This is true despite the fact that alternative formats are moving into Erie County in mass.

Officials at both Tops and Wegmans declined to comment on merchandising strategies in their HBC departments or the new HBC competition in Buffalo. All sources interviewed by SN for this report asked to remain anonymous.

Wal-Mart, the latest threat on the scene, opened its newest store just a few months ago on Transit Road in Williamsville, a thriving suburb west of the city. It now has three stores in the metro Buffalo area.

"It's going to be the corner from hell for somebody," one source said of the emerging competition near the intersection of Transit and Maple roads.

At the intersection, about a half mile down the street from Wal-Mart, is a Tops Super Center, a Kmart and a Fay's Drug. Tops will close this unit and use it as a warehouse facility. It will move down the road to a new store located near a site where a Target new discount store is expected to open in October. Minneapolis-based Target, new to this market, plans to build four stores in Buffalo.

Meanwhile, Wegmans also will open a new store close to the Target, a half mile from the intersection. All six retailers will be heavily competing for HBC dollars within one or two miles of each other. Drug chains have also moved into the area over the last few years. Walgreens, one of the most recent entries into the market, has four locations in the city. Rite Aid has grown to 51 stores. CVS has 21 units. Fay's Drugs, which is said to be aggressive with its advertising, numbers 34 stores. However, the proliferation of drug stores has not cut into the HBC volume generated by the supermarket chains here, sources said.

"Food stores are leading [in HBC]. The drug stores aren't doing much. It's mainly mass and grocery," said one sales executive.

This was confirmed during an SN tour of various store formats in the area prior to the Easter weekend, April 4 to 6. Stores were empty and quiet when SN visited Fay's, Rite Aid and CVS units. These stores had smaller sections, a somewhat limited selection and higher prices in an analysis of the shampoo/conditioner section conducted at stores in the market.

A deep discounter, Vix, which is owned by Tops Markets and uses some of the chain's buying clout to source goods, has eight stores in Buffalo and is considered a factor. This was evidenced upon visiting a new Wegmans' Market Cafe store on Losson Road in the developing suburb of Lancaster.

To the rear of the HBC department, a large display with two shopping carts filled with about 40 HBC items was set up comparing prices. A sign displayed enlarged cash register tapes with the Vix cart totaling $153.65 and Wegmans tallying $146.61, a $7.04 savings over Vix prices. A sign over the display read: "Wegmans' Health and Beauty Care Deep Discount Too!"

Vix is a low-price leader. However, it is tougher for the deep discounter to be as competitive as it was eight years ago when deals were more prevalent, compared with today's contract pricing, a source pointed out. The retailer has a huge selection of HBC. Its shampoo aisle in a store on Transit Road in Williamsville runs more than 100 linear feet and contains more than 800 stockkeeping units.

"Vix is strong in Buffalo and may be a factor. People here have a discount mentality and believe if they shop at Vix they will get it cheaper. Wegmans is trying to let them know they won't," said a source.

Two other supermarket chains in the area -- Jubilee Foods, based here, a Fleming Cos. retailer, and Quality Markets, Jamestown, N.Y., a division of Syracuse-based Penn Traffic Co., with nine and 14 stores, respectively -- aren't considered contenders in HBC. Their selection is limited and the HBC departments are merchandised as a convenience along two aisles.

Some have speculated that the Buffalo market, with a declining population of 966,296 people in Erie County and a sluggish economy, can't support four food retailers.

"With mass merchandisers like Target coming into our market, they are forcing smaller retailers out. In the long run the market will be either have two or three players. Right now it's a battle between Jubilee and Quality to see which one of those two will remain," a source said.

In looking at the HBC departments at Tops and Wegmans, both chains demonstrate a strong commitment to nonfood. Some give Wegmans a slight edge in terms its aggressiveness in merchandising and running promotions. But Tops has greater coverage in the market with 28 stores, compared with Wegmans' 8 units.

"They are both being competitive and doing the right thing," said a source. "They are both competing with Wal-Mart and being successful doing it. They are not losing market share. Although they may not be gaining it either, they are keeping customers inside their stores. To do so, it is requiring Tops and Wegmans to be on top of their game," a source added.

To stay on top of their game, the chains are putting more pressure on manufacturers for greater support. Some say Wegmans was largely responsible for having Procter & Gamble run its zero coupon test in this area where one statistic showed coupon redemption here 40% higher than the national average.

Also, to stay on top, the chains may be working on smaller margins than they have in the past.

The following profiles are based on observations in several of Tops' and Wegmans' new stores, and provide some insight into how the chains are merchandising HBC.

Wegmans: Power Winging It

Wegmans entered the Buffalo market in mid-1970s after Tops broke ground in Wegmans' back yard in Rochester.

Its first store was opened on Dick Road. Although it now has eight stores, all with pharmacies, it is expanding its coverage, with four more units expected to open this year, according to sources.

Besides the Losson Road location, SN visited a unit at 5275 Sheridan Drive in Williamsville. Wegmans' units are about 100,000 square feet, including its Market Cafe. The HBC department occupies about 1,500 square feet with a dozen 48-foot aisles. Departments can't be missed, located in the front and center of the store near the cash registers.

Wegmans has strong dedication to nonfood in terms of its pricing strategy, assortment, merchandising and promotions. It strongly practices category management in the department, sources said.

As indicated by banners over departments like HBC, pricing is said to be the "lowest" in town. The chain is considered a

high-low price promoter. Sources said Wegmans has been most successful with its shoppers club program, pricing items below shelf-tag prices when customers use their cards. This program is favored by manufacturers because their promotional investments are based strictly on consumers buying their products.

Wegmans and Tops both rely on their weekly ads and circulars to drive volume.

The Wegmans units are well merchandised, with power wings favored and some corrugated shippers placed on the floor.

The Losson Road store featured three six-shelf power wings on the end of the department's back aisles. At the front of the HBC section were three permanent endcaps of fragrances, cosmetics, bath products and gifts. A video of Cover Girl cosmetics was playing on one of the endcaps. The cosmetics section included all the mass market players, with products set on the traditional beauty wall.

Neither Wegmans nor Tops has a clean floor policy. SN counted 12 small corrugated shippers in Wegmans' section. Shippers are manned by the manufacturers and the chain may receive some extra promotional funding to get the shippers on the floor, sources said.

Opposite the pharmacy, a handwritten blackboard message, similar to the signs over its fresh produce, described various vitamins under the headings of "Fat Soluble," "Water Soluble" and "Minerals."

Tops: Pushing Variety

Tops Markets has three store formats in the area: 80,000-square-foot supercenters; 100,000-square-foot international stores, and 55,000-square-foot country stores.

SN visited four locations: two supercenters, one located a mile from Wegmans' Losson Road store on French and Transit roads in Lancaster, and one new store in north Buffalo on Amherst and Grant streets, and an international store on Maple and Bailey in Amherst.

There are presently 28 Tops stores in Buffalo, and 14 of them have pharmacies. The chain is expected to open two new locations this year, and it is said to be constantly remodeling and updating older stores.

Tops' HBC departments vary slightly in size, with larger departments about 1,800 square feet, with products merchandised on about 200 linear feet of aisle space. Like Wegmans, HBC is partly located at front and center of the store near the cash registers. There are also four aisles that run to the back of the store opposite the meat department.

The chain also is dedicated to nonfood. Departments offer a wide variety and selection. Its pricing is mainly everyday low price, with some high-low promotions as well.

Category management is practiced at Tops, but not as extensively as Wegmans, sources said. However, about two years ago Tops began testing a 30-inch-wide slanted shelf program in its HBC section. Since then, Tops has rolled out the slanted shelf concept to all stores. The shelves require less inventory and give a better presentation.

Only certain categories are set on the shelves: cough and cold, allergy, headache remedies, first aid, toothpaste, toothbrushes, stomach remedies, eye care and bandages. It does not work for all products, especially bottles.

Tops also uses end aisle power wings and large endcaps to feature HBC. Both chains use HBC and general merchandise as profit generators. Margins are said to generally run 25% to 30% on most noncommodity type items.