PREEMPTIVE STRIKES

CHRISTINA VEIDERS

The family-owned and operated Big Y in New England is on the hunt.

The Springfield, Mass.-based retailer is pursuing an offensive strategy designed to gain advantage over the competition and check encroachment into Big Y markets in western Massachusetts and southern Connecticut.

Now in its 70th year of operation, Big Y is not resting on past laurels. With sales of $1.2 billion, the 56-store chain, including two freestanding liquor stores, is aggressively building new ground-up, $10 million to $15 million stores. It is also fine-tuning existing concepts and experimenting with new ones.

This month, Big Y debuted its 30,000-square-foot Fresh Acres, a new organic/natural format that spotlights fresh and local produce in a farmers' market setting. Prior to opening the store, located in a shuttered Big Y store in Springfield, Charles D'Amour, president and chief operating officer of the regional chain, described Fresh Acres as a unique shopping experience, calling it "an old-fashioned market with a contemporary flair," in a local press report. (See related story, Page 14.)

The campaign to expand Big Y's World Class Markets began in the '90s when D'Amour then told SN, "These new geographic areas will not only enhance our overall market penetration, but also strengthen our position as one of the leading supermarket chains in the region."

The company then proceeded to roll out stores in Worcester and West Springfield in Massachusetts and throughout Connecticut in Plainville, Monroe, Naugatuck, Windsor, Manchester, Norwich and Tolland.

More new stores are on the drawing broad for 2007, including stores in Wilbraham, Mass., and Bethel and Old Saybrook, Conn.

The D'Amour family declined to be interviewed by SN for this profile, stating the timing was not right. However, the timing may not be better given Big Y is celebrating 70 years in business, and may enjoy some advantage given the uncertainty faced by its two biggest competitors in New England - Shaw's and Stop & Shop.

New England Competitors

Shaw's, West Bridgewater, Mass., which is ranked second in market share in New England including Massachusetts and Connecticut behind Stop & Shop, according to the Griffin Report of Food Marketing, is undergoing evaluation by Supervalu, the retailer's new owner.

Amsterdam-based Ahold, which owns Stop & Shop, is completing a strategic review of its overall operations. European trade reports have suggested Ahold was in merger talks with Delhaize Group. Among Delhaize's holdings is Hannaford Bros., Scarborough, Maine, ranked fifth in Massachusetts behind Big Y. Such a merger would drastically alter the balance of the New England food retail landscape, perhaps giving Big Y an opportunity to gain more stores through Federal Trade Commission-forced antitrust divestiture if such a deal ever went through.

Hannaford has been expanding in the Bay State, according to observers. The everyday-low-price operator stated it can go up against Stop & Shop, which is now transitioning to EDLP, beginning with produce.

"Everything is up in the air [in New England]," noted one observer. "The big factor is Hannaford. They are looking to buy everything and anything they can. They are a big expansion factor in New England and Massachusetts."

Schenectady, N.Y.-based Price Chopper, Wakefern-supplied ShopRite stores and A&P also go up against Big Y in specific Connecticut and Massachusetts towns.

"The greatest challenge for Big Y is the marketplace keeps changing and competitors keep growing as more people are selling food," said Chris Flynn, president of the Massachusetts Food Association, Boston. "It is no secret to anybody that in order to remain competitive you continue to have to adjust and retool yourself."

Observers noted that Big Y is doing just that while it pursues a block-and-tackle strategy in its real estate development.

"Big Y has developed a roadblock strategy," said Burt P. Flickinger III, managing director of Strategic Resource Group, New York, "against both in-market unionized competitors and out-of-market non-union competitors who look to expand more aggressively in southern New England or potentially enter the region for the first time."

Ellington Scenario

Big Y's newest superstore in Ellington, Conn., a 60,000-plus-square-foot unit that opened in August, is such a case in point.

Ellington, located about 20 miles from Hartford and Springfield, is a small, rural town of nearly 15,000 people with a median household income of $69,000. The median age, 38.5, is fairly young. When Big Y won approval for its store in 2004, situated on 180,000 square feet of a farmer's field on Route 83, the town didn't have any big-box restrictions in place as it has now. Today, no one can build a store larger than 30,000 square feet without receiving a vote from 75% of the planning commission members, said Town Planner Robert Phillips. The local Planning and Zoning Commission is further revising its plans for future development.

At the time Big Y got approval for Ellington, another unnamed supermarket chain - some said it was Stop & Shop - was also trying to get the go-ahead to build on a 27-acre tract of land on Route 83. Planning and Zoning rejected the proposal due to traffic congestion, according to a press report.

The Ellington site is attractive for Big Y because there is no competition in the immediate vicinity. When Big Y moved in, the only supermarket in town, Ellington Supermarket, situated a quarter mile down the road from the new Big Y, closed after 20 years in business. Drawing new residents mainly from Hartford, the town is growing. "Ellington is growing very fast and there are a tremendous number of subdivisions going on," Phillips told SN.

Next to Big Y's site, which will soon sprout a McDonald's restaurant, is an 80-100-unit housing project now in its final stage of development. The 2,500- 3,000-square-foot homes start at $300,000.

Big Y's World Class Market in Ellington is beautifully designed and fixtured with distinct boutique departments that Big Y has always been known for such as its Paw's pet center, Baby Land, The Bath and Body Place, best-seller book section and eat-in cafe.

Ellington is distinct in that the store features an enlarged produce section integrated with organic fruits and vegetables as well as an area devoted to local produce.

Matt D'Amour is the store manager. The Grand Opening flier notes he is also an Ellington resident. He told the local press that produce is an "impact department" at the Ellington store.

The store also touts its ready-meals such as Salisbury steak, chicken parmigiana, meatloaf, roasted pork and turkey with gravy merchandised near an International Food Court area that features a deli, open-hearth baked pizza, a sandwich shop and eat-in cafe. The store is designed to appeal to young suburban professionals with busy lifestyles.

"Every store we build, we try to learn from our previous store and make adjustments," Matt D'Amour told the local media.

At the Ellington store as well as at Fresh Acres, Big Y is using a new 30-foot-wide air door entrance that can stay open year-round for easy access.

A site now under construction in Bethel, Conn., located outside of Danbury in the southwest corner of the state, demonstrates Big Y's market saturation strategy.

Big Y will be the anchor on a 15.6-acre site of a new 100,000-square-foot shopping plaza on Route 6 where the retailer is building a 65,000-square-foot World Class Market. The closest competitor is another Big Y World Class store less than five miles away in neighboring Newtown, which has undergone a surge in high-priced residential building. A new Target is located half a mile away from Big Y's new construction on Route 6. The only other nearby supermarket is Caraluzzi's, an independent who has been in business 57 years. Earlier this year owner Anthony Caraluzzi told SN they intended to have strategies in place six months prior to Big Y's opening to fight the impact of the chain.

"We are a very aggressive independent. We are not a niche marketer," said Caraluzzi, who is supplied by Bozzuto's, Cheshire, Conn. "We want customers' business so we will work closely with our buyers and the sales department and develop a strategy in how we will compete with Big Y."

Bethel is a rural/suburban town of approximately 18,000 people where many people commute each day to Stamford, Westchester and even New York City. The town is growing, but at a slower rate than in the past, according to town statistics. But the town is surrounded by communities that are home to families with high incomes.

Gary Giblen, senior vice president and director of research, Brean Murray Carret & Co., New York, said southern Connecticut offers Big Y lots of opportunity. "There are plenty of locations in underserved communities with reasonable incomes and enough diversity of people who are interested in good food, and people who cook as opposed to people who just want white bread," he said.

Big Y does not march lightly into new locations. The company spends years in research and planning, looking at demographics, competition and environmental conditions, among other factors. A real estate broker for the Bethel deal said Big Y's modeling formula is complex, and its goal is to have enough population for getting $2,000 in grocery sales per person per year.

Non-Union Shop

Big Y is also a non-union retailer, which is a big advantage over larger competitors.

"Big Y has about a 7.5-cent on every dollar of sales cost advantage over Shop & Shop, A&P, Wakefern-ShopRites and other legacy unionized operators," Flickinger said. He credits the D'Amour family for using this cost advantage to reinvest in store remodels and aggressively build new stores.

Big Y's jump into Walpole, Mass., outside of Boston, in 2003 had several observers scratching their heads. Reports indicate the store is probably not meeting D'Amour's expectations. "It's doing OK, and I am sure the D'Amour family would like it to do more," one observer said.

While Big Y secured a prime location three miles from the Gillette stadium in Walpole, the competition, especially from Hannaford and Stop & Shop, has been intense, said industry observers. The question is, what will Big Y ultimately do in the eastern part of the state?

"Eastern Massachusetts is cutthroat," one observer said. "What Big Y sees now in Walpole is what they are up against. In western Massachusetts the competition isn't as steep, and Big Y is firmly established."

"Walpole was a surprise," Flickinger said. He noted that Stop & Shop had a new prototype in town and Roche Bros. had a state-of-the-art store close by the time Big Y moved in. "They wanted to do a little Gen. MacArthur island-hopping and extend their reach," he said, and they thought they could get away with it by being a low-cost operator and highly promotional.

According to Flickinger, Big Y's entry into Walpole resulted in an overstored market and the competition has made it "excruciatingly painful for Big Y to approach profitability."

Big Y hasn't faltered much in its recent past. In fact, observers praised Big Y as a tightly managed, efficiently run company that invests heavily in technology and isn't afraid to experiment with new ideas that provide shoppers with value-added services.

Flynn said one of Big Y's greatest strengths is its strong family management team. "Even though they have grown substantially, they are still a family-run company with great employees. That is the key in keeping up their high levels of service."

Consultant Bill Bishop, president of Willard Bishop, Barrington, Ill., pointed to Big Y's exceptional variety in merchandise and its card-based loyalty programs as standout contributions by a food retailer.

"When I talk to customers, they love the place," Bishop said. "They love the attention Big Y pays to the community, and they do a lot with kiddie care centers."

Several independent competitors interviewed for this story praised Big Y for running very clean, attractive-looking stores. The D'Amour family is said to be buttoned up, close to the vest and very focused on satisfying their customers.

"They don't just blast something out there because everyone else is doing it," said Kevin Hargis, technology chair, Ogden Associates, Morristown, N.J., who has worked with Big Y on software training of frequent-card data analysis.

Lately, the company is concentrating on healthy eating with its Living Well, Eating Smart campaign that highlights the benefits of health-oriented foods in the store. It recently hired a dietitian to answer shoppers' food and nutrition questions on its website, BigY.com.

Adding pharmacies is also integral to Big Y's growth strategy as it rolls out more new stores with pharmacies.

Big Y is aggressive when it comes to high/low promotional strategies. It is known for its many versions of buy-one, get-one-free sales, which can be costly for the retailer as it tries to capture long-term shopper loyalty.

"Big Y's consumer is so darn loyal in their conditioning to the high/low strategy," one source said. "If a Big Y consumer walks in and sees something for $2.29, and they know they can get it at Hannaford for $1.99, I don't think they will leave the store."

Observers said they are waiting to see Big Y's response when Stop & Shop goes EDLP throughout its stores.

C&S Wholesale Grocers, Keene, N.H., has been Big Y's main distributor. Flickinger said Big Y may want to revisit self-distribution as it sees its self-distributing competitors come up with a better cost advantage. "There are advantages for self-distribution, particularly for non-unionized operators that far outweigh outside distribution," he said.

"You can't be a really low-price operator and use C&S," Giblen said. But it's fine for Big Y because they have chosen to concentrate their efforts on store expansion for now, he said.

Another potential concern for Big Y is the union. The union shadows chains like Big Y, Flickinger said. "The key goal for organized labor is to unionize chains like Big Y within the next few years. You have enlightened new leadership in the union both at the local and international levels. They realize privately held chains in unionized markets are the best candidates to successfully organize."

For now, Big Y is concentrating on securing growth markets that will be the envy of the big publicly traded food chains in the future. Such investment in new markets, however, is putting extra strain on Big Y's profitability. But Flickinger noted, with attractive 20- and 30-year lease options on Big Y's sites, the operating options on Big Y leases are worth more than the operating value of their stores.

"What Big Y is doing is investing in share growth now and locking up the best real estate sites for the future. In turn, it is building business and blocking the competition."