KMART IS TESTING PANTRY FORMAT TO SEE IF IT TASTES LIKE PROFITS

Elliot Zweibach

FORT WAYNE, Ind. -- Kmart Corp. is testing an increased focus on food and other consumables as a major customer draw in a new Pantry section at six discount stores here. The Pantry, introduced in June, is part of a test of a new Kmart format that emphasizes expanded consumables, a new layout, stronger visual presentations and greater use of tonnage displays.

The move will undoubtedly create additional consumables competition for supermarkets around the country.

The Kmart section includes some perishables, including milk, and some baked goods, including bread -- both of which have been offered at other Kmart units. With the expansion of testing to two other markets this month, frozen foods will be offered for the first time in Kmart history. The Pantry -- located at the front of the stores here just to the right of center -- doubles the amount of space devoted to food from 4,000 square feet at a traditional Kmart to 8,000 to 9,000 square feet. It also gives the department a stronger visual look, said Shawn Kahle, vice president of corporate affairs. According to Don Spindel, a securities analyst with A.G. Edwards & Sons, St. Louis, Pantry sections feature expanded selections of the high-turnover items that Kmart already features in its stores. "But the section locates them all in one place, which makes it easier to shop, creates adjacencies, presents the merchandise in a more visually exciting manner and increases the frequency of shopper visits," he said. Floyd Hall, chairman and chief executive officer of the Troy, Mich.-based discounter, told analysts last week the new format is attaining "substantial gains in sales and gross margins." If subsequent tests in two additional markets "continue to be positive," Hall said Kmart will take the best elements from each test and roll out a new prototype, including the Pantry sections, to 400 discount stores in 1996 and 400 more in 1997. According to Kahle, the new format will be tested in another market area beginning this week and in a third region before the end of the month. However, she declined to pinpoint those locations. "By December, we should have a good sense of how ambitiously we want to go with the new store format," Kahle said. She said the Pantry concept has helped increase overall shopper traffic at the stores here "because Pantry draws customers in and creates a higher level of shopper frequency, which boosts total consumer sales." To get the additional square footage for the extra selling space the Pantry occupies, Kmart had to take space from other departments, Kahle explained, "and we've found that, in doing so, we've gotten sales volume increases in other departments where the floor space has decreased. "For example, we took a small amount of space from women's fashions but saw double-digit sales increases in that department at the test stores." The three tests are being conducted in stores of various sizes, "and by the time the second and third tests are over, we will have tried the Pantry concept in the equivalent of 85% of our store layouts," Kahle said.

Some analysts questioned the outlook for this concept. According to Rick Church, an analyst with Smith Barney, New York, Kmart has used the Pantry concept in the past, and he said he believes the sales increases the sections experienced were driven by unsustainably high advertising rates. "The results don't suggest to me that Pantry should be rolled out to other stores," he said. Wayne Hood, an analyst with Prudential Securities, Atlanta, said Kmart intends to test different advertising levels and different combinations of media in each of the three test markets to determine which mix works best. Spindel noted Kmart is determined to move ahead with this format if tests prove successful.

According to Spindel, the new Kmart format, with its stronger food presentation, is part of the company's core-store strategy. "Depending on what happens with the ongoing tests in the next three months, Kmart is prepared to aggressively roll out stores with the Pantry concept to a significant number of locations," he said. "And if it can justify the expense of retrofitting that many stores, then banks and other financial institutions will make the money available for its cash needs."