PLAYING WITH THE BIG BOYS

BARBARA MURRAY

Are club stores, which charge consumers $30 to $45 a year for the privilege of shopping, hurting Center Store? Yes, but so are other channels, from chain drugstores to the local Staples, say experts.

According to the National Grocers Association, Reston, Va., Center Store sales have declined by about 20% in the grocery channel in the past 15 years as alternative formats, such as the membership warehouse club store, have grown.

Center Store goods, except possibly laundry and cleaning products, are not what the club stores hammer on to get people to come in; yet, grocery items, including Center Store, are said to account for 60% to 70% of cash register sales.

Fred van Roie, grocery, dairy and frozens buyer for D'Agostino's, Larchmont, N.Y., says the best ways to compete against a club in Center Store goods are:

Emphasize variety, specialty or gourmet items

Offer the most popular club or family pack on a regular basis

Offer others on an in-and-out basis.

The three leading club players, Costco, Sam's Club and BJ's Wholesale, had combined sales of more than $57 billion last year. Costco and Sam's focus on the top two or three items in a category, while BJ's provides larger selections.

Costco operates more than 335 locations worldwide with total sales in its most recently concluded fiscal year of more than $30 billion. Average store size is 129,000 square feet. Costco's main competitor is Sam's Club, a division of Wal-Mart Stores, Bentonville, Ark. It has more than 470 stores and posted $24.8 billion in revenue for fiscal year 1999. Sam's also claims more than 40 million cardholders, and recently reported that Sam's same-store sales were up by 9.9% in the fiscal year that ended Jan. 31, 2001. Next is BJ's Wholesale Club, Natick, Mass., with 110 stores and $4.1 billion in sales. Smart & Final, Los Angeles, has 218 club stores with sales at the end of 1999 of $1.8 billion.

Going to a warehouse club is "a very polarizing experience," according to Don Stuart, partner in Cannondale Associates, Wilton, Conn. Some people love it, and treat shopping in a club store as an adventure. Others, who just want to get in and out quickly, dislike the club store experience, where stock rotates frequently.

"I know I'd like to get customers to pay $45 a year as members," said van Roie, of D'Agostino's. "For us to make that much, we'd have to sell more than $1,000 in groceries."

Associated Wholesale Grocers, Kansas City, Kan., has come up with a strategy to compete against supercenters and clubs, and has 137 wholesale clubs competing with the 840 stores it supplies in a ten-state area. Ten best practices to build your price image, said Bill Lancaster, vice president, corporate sales, for the company, include: TPRs, a frequent shopper program, daily specials, store brands -- which should be positioned aggressively; big packs, price comparisons, multiple pricing, BOGOs, half-price sales, and special event sales, such as truckload sales and parking lot sales.

Targeting ethnic trade is also a good idea, since most clubs, like supercenters, have more homogenized, mainstream items in all categories.

Patti Councill, a spokeswoman for A&P, the parent company of Waldbaum's, said "we follow our own strategies, to provide value and to appeal to our customers, but we do augment this strategy" with store manager input regarding the competition. Adding club packs or promoting 24-can deals on cat food would be a regional approach, rather than being up to an individual store manager, she said.

Blurring is going on, as the club stores are trying to appeal to more people. "Clubs have to remember what brought them to the dance. The more they try to increase freqency and penetration, the more they will start to look like grocery stores and lose their point of difference," Stuart said.

In a Costco Wholesale unit in Brookfield, Conn., visited by SN on Jan. 26, displays are changed often and goods are in-and-out, encouraging shoppers to buy on the spot or risk losing out. Fresh items were being sampled, and there was a greater emphasis on jumbo frozen shrimp and cheesecake than canned or packaged items, which were in the back of the store.

Club stores are not as broad or as deep in Center Store products as the conventional supermarket. When Cannondale Associates compared club stores to grocery stores, in suburban markets where clubs are found, grocery stores devoted twice as much space to cereal and soups, and nearly four times as many linear feet to cookies and crackers.

The length of the shelves were pretty similar, Stuart said. But as far as variety of items measured by shelf feet, much more is found at the grocery store.

Still, Stuart thinks the clubs have an opportunity to build up the Center Store to generate more traffic. People shop in grocery stores more often, 1.8 times per week, or about 89 annual trips, versus fewer than 30 times a year at club stores. Other estimates have placed the club shopper in the store only 9 times a year.

Grocery stores beat club stores in penetration, too, Stuart says. More than 90% of the population shops grocery stores. Club penetration varies according to region, but it's much lower. Grocery's advantage: frequency ofthe trips and the channel penetration.

Wal-Mart's new format, the Neighborhood Market, is causing concern among other retailers because it's Wal-Mart's attempt to capture the one- or two-person household, said Steve Gregg, a distributor of Hispanic food in the Dallas, Texas, area, where there are six of the new, smaller format stores. "Wal-Mart is going to capture every segment," said Gregg, accounts director for Cyclone Enterprises, Houston. So far there are 19 Neighborhood Markets open, in three states, with about the same number planned for 2001.

"I don't think grocery needs to hang it up by any stretch, because they do have a huge traffic advantage," continued Stuart. "Clubs will have a tremendously difficult time increasing the frequency of shopping. They maybe able to increase penetration a bit, but, because they offer cans of soup in 86-ounce sizes, they are not for everybody. And, if you don't have that type of need, you won't go there that frequently."

The strategic customer for clubs is young moms looking for diapers. Grocery strores will sell at or below cost on formula and diapers, Stuart said, because that shopper is such an important customer.

In cereal, the drawback, or advantage depending upon need, is that you have to buy at least twice as much and it costs only 5% less.

On Jan. 22, SN visited a BJ's Wholesale Club and a Waldbaum's supermarket, both located in the same shopping center in College Point, Queens, N.Y.

In BJ's, the Center Store product displays started in the front end with candy and snacks. Signs were large and clear directing shoppers to other Center Store categories such as juice and frozen, farther back in the store.

Among the first items was a pallet of Poppycock Butter Cashew Popcorn Clusters, 24-ounce, with a price of $4.99 marked on a sign dangling from overhead. Past the television sets, jewelry and furniture was a pallet display of the private label Berkley & Jensen Cheese Crispits, $3.99 for 21 ounces; Homa pistachio nuts, 18 ounces for $4.99; and Planters Seasonuts Variety packs of three flavors in one-pound cans shrink-wrapped together for $5.99.

Cereal came next: giant boxes of Rice Chex, $5.99 for a Twin Pack of 31 ounces, and Cheerios, which were $5.79 for a 35-ounce box. Honey Nut Cheerios were offered at $6.29 for 49 ounces, but there was not a large selection. In Waldbaum's, there was a profusion of cereal brands, and Honey Nut Cheerios were offered at $5.49 for 27 ounces.

In BJ's, General Mills' Milk 'n' Cereal Bars were $6.59 for an 18-count variety package containing Honey Nut Cheerios, Chex and Cinnamon Toast Crunch.

Candy was lined up on pallets in the front end, heading toward the right hand wall. Next to that, big clear plastic jugs of Planters Spicy Party Mix with Peanuts were $6.99 for 49.5 ounces.

Giant bags of Doritos, marked SuperSize at $3.79, were being plucked from industrial-sized Metro racks. Cans of Utz cheese balls, almost knee-high, were $4.99 for 37 ounces. Many other snacks ranged off to the right on the aisle leading back to the frozen and fresh food departments.

Frozens has a total of 130 doors. The first frozen section, labelled "Breakfast," contained four doors of giant boxes of Texes Toast, Krusteaz, Toaster Strudel, Ore-Ida French Toast Sticks, and Eggo waffles.

Waldbaum's is also located in this center, in a unit of about 60,000 square feet. On sale were Cheez-Its, $1.99 for a 1-pound box, with a sign marked "Inventory @ $3.59," and Keebler Wheatables at the same price.

In Waldbaum's cat food section, Fancy Feast was two cans for 99 cents, compared to the 24-can deal offered at BJ's for $8.99. On another visit Feb. 4, Waldbaum's had Fancy Feast at a discount comparable to BJ's for a purchase of 24 cans. And, it had "Club Pack" cookies in clear plastic cases, piled near the produce section.

In Waldbaum's baby aisle, Pampers Baby Dry Size 4 Jumbo diapers were 42 for $11.99, but, a shelf talker pointed out that joining the store's Baby Bonus Club will pay customers $20 in cash each time they spends $200 on any baby products with the frequent shopper card.