MARKET SHIFTS BY LARGE CHAINS CREATE OPPORTUNITIES

ELLIOT ZWIEBACH

LAS VEGAS - Bigger is no longer better - smaller is.

That was the message delivered by David W. Schoeder, principal in The Food Partners, Washington, D.C., at the National Grocers Association convention here. According to Schoeder, a recent shift in corporate thinking could see more multi-regional operators begin exiting some markets during the next 18 to 24 months, creating opportunities for independents.

Instead of looking at more national growth, many supermarket retailers are narrowing their focus to concentrate on markets where they can achieve a positive return on their investment, Schoeder said. "The idea is to retain the pick of the litter," he explained. "They've determined that they're willing to operate and invest in Designated Marketing Areas where they can be No. 1 or 2 and exit DMAs where they cannot."

The idea of operating only good locations rather than expanding for the sake of numbers is the approach operators of alternative formats have used over the years to become a potent industry force, he pointed out, "and now the major supermarkets are following suit by deciding they want to operate only good stores and moving on if they can't achieve that.

"It's like playing a game of chicken. The multi-regional operators in a given market are trying to make a decision on whether to stay and wait for opportunities to arise from decisions by other operators or to exit and rationalize their square footage, and whoever blinks first creates an opportunity for the others in that DMA."

According to Schoeder, that approach should provide opportunities for independent operators who are already strong and getting a good return on their investments.

"Supercenters and alternative formats get close to 50% of a market and the major chains get about 20% to 25%, which leaves up to 25% of the market for independents, who have the ability to differentiate themselves with the recipe that got them that 25%, which is not a bad place to be. And if you look at it, there's probably another 5% to 10% you can garner if you continue to invest and differentiate your stores and provide consistent product and service levels" at a time larger operators are getting out, he said.

However, if a regional operator is already a strong force in a given market, "then you have to assume he will get better if he decides to stay there," Schoeder told independents in the NGA audience. "So you need to accelerate your capital spending to maintain the market position you have, so that when others begin heavy pruning in your area, you will have the opportunity to grow."

Schoeder congratulated independents for their ability to survive and remain competitive. "You proved to be a lot tougher competition than a lot of very smart money thought," he said.

In other comments:

o Schoeder said store size may shrink in the next few years. "Smaller-sized stores that are more convenient and more manageable and that don't require people to drive long distances is where the industry is going," he said.

o "Whole Foods and Trader Joe's will be the most fierce competitors out there," Schoeder said. "They will take some of your best sales and best grosses, so you need to give your customers a reason to stay and shop with you by having an equivalent product offering at competitive prices."