LEEANN CHIN GOES OVER TO THE RAINBOW 2004-05-03 (2)

LYNNE MILLER

MINNEAPOLIS -- Leeann Chin, the quick-service Chinese restaurant chain that's a hometown favorite here, is pulling out of Lunds and Byerly's stores, where it had takeout operations for more than a decade, and is getting established in the delis of select Rainbow Foods stores.

The restaurant company worked out a five-year agreement with Roundy's, the Pewaukee, Wis.-based parent company of Rainbow Foods, a 31-store Twin Cities chain, to open and operate Leeann Chin restaurants on a small scale in the delis of specific stores. Two are scheduled to open in July in the suburbs, Bloomington and Maple Grove, Minn., with 10 more planned for later this year. Depending on layout, some stores will offer in-store seating.

While Leeann Chin's units will take up just 300 square feet in the delis, they will offer the full menu available at the company's freestanding restaurants. Associates who serve dishes to customers will be Rainbow employees, while the cook and manager working in the back will be restaurant employees.

Installing the restaurants will not require any significant expense, since the installations will be incorporated into remodeling projects already scheduled, said Dale Riley, vice president and general manager, Rainbow.

Leeann Chin will replace an existing Chinese takeout operation at the Bloomington store. Officials thought Maple Grove would be a good location, since there are no freestanding Leeann Chin restaurants in the immediate area, Riley said. Leeann Chin "is a very recognized brand in the Twin Cities," Riley told SN. "When people see that we've formed a relationship, it'll be an additional offering they can find within our stores, hopefully an additional traffic and sales builder."

Riley, who joined Roundy's in 2003, became familiar with the Leeann Chin supermarket business model -- and Steve Finn, chairman and chief executive officer of Leeann Chin -- during his long tenure at Byerly's. In fact, Riley helped establish the partnership between that chain and Leeann Chin in 1992, when he was president of Byerly's. There are now 14 restaurants operating at Byerly's and Lunds stores throughout the Twin Cities.

"We love working with him, and he really understands our business, and understands the mutual benefit of the business," said Finn. "When I read in the newspaper that Dale had been appointed to run Rainbow, I called and congratulated him. I told him the contract with Byerly's was expiring, and asked if there was any interest in doing business."

The opportunity to work with a larger company appealed to Leeann Chin, and terms of the new agreement offered an advantage the restaurant chain didn't have with Lunds, Finn said. There, Leeann Chin was prohibited from putting its freestanding stores within a three-mile radius of any supermarkets. The agreement with Rainbow does not contain such a clause, so the restaurant chain's future growth will not be restricted.

By the end of the year, Leeann Chin is expected to have 57 stores in Wisconsin and Minnesota.

For Lunds, discontinuing the agreement with Leeann Chin creates an opportunity to partner with a new food-service operator. The retailer has been exploring different options, and intends to make an announcement soon, a spokeswoman for the Edina, Minn.-based retailer told SN.

"We'd like to make a seamless transition," said Michelle Croteau, spokeswoman for the chain. "We're looking to introduce another innovative food strategy that customers will like as much as, or more than, Leeann Chin. We feel it's been a great partnership. When it was first introduced, it was innovative. No other grocery retailer had anything like that in the Twin Cities. We have seen a decline in sales in the last few years. It was time to offer something different for customers."

Industry observers offered mixed opinions of the likely impact of the agreement. Since it acquired the Rainbow stores last year, Roundy's has been working to revitalize them. One observer familiar with Twin Cities food retailing told SN he believes the Leeann Chin deal is likely to help the Rainbow chain's image.

"It will bring them up a notch with consumers," said David Livingston, managing partner with DJL Research, also in Pewaukee.

In the meantime, shoppers who are loyal to Lunds and Byerly's can count on the company partnering with a high-quality operator to replace Leeann Chin, he added. "Lunds has very high standards," Livingston said. "They're not going to accept anything mediocre."

However, another industry observer familiar with supermarket food-service operations questioned the benefits the deal is likely to offer. He suggested it could be challenging for Leeann Chin to create money-making destinations inside the supermarkets.

"At best, it's a slight positive," for Rainbow, said Robert Goldin, a partner with Chicago-based food-service consulting firm Technomic Inc. "I don't think supermarkets have enough traffic. You don't have the traffic that you do in a freestanding [restaurant] location. Why go there vs. going to a freestanding location?"