STACK 'N SELL

Lucia Moses

When customers enter a Saar's Market Place store, the bargains are hard to miss. They're stacked high on endcaps, on pallets and in four-foot sections in aisles, spotlighted by "Green Tag Extra Value" signs.

"We want the whole floor to say 'Deals,"' said Rich Ziegler, buying director for the 10-store group, headquartered in Oak Harbor, Wash.

Slap extra-low prices on "category killers," then promote them hard: That's how Saar's has been able to set itself apart from other independents, value-oriented chains and mass merchants. Owner Greg Saar wouldn't share numbers, but said that since applying these principles to the center of the store, year-over-year sales have shown "great growth."

The story started five years ago when Bob Meyers, then Saar's new director of retail operations, began looking at which items drove most of the sales in a given category. He bought a truckload of pasta, and promoted it heavily. Within a year, he drove about 70% of sales in the category to five stockkeeping units.

"So all of a sudden, it became apparent we didn't need all these other things," he said.

Meyers applied the process of reducing SKUs and selecting "category killers" to other categories, such as olive oil, olives and peanut butter. Today, Saar's has 25% to 30% fewer items than it once did: A large store measuring 45,000 square feet has 24,000 to 28,000 SKUs. About 70% of its Center Store categories have at least one heavily promoted item.

"We basically try to bring value to every category in the center of the store," Saar said.

Good relationships with suppliers, strong displays, and trial and error -- not cutting-edge software -- are at the core of the strategy. Saar's identifies the items it believes it could sell at a price below that of the big chains operating in the area, such as Kroger, Safeway

and Albertsons, and at least close to Wal-Mart Stores. It doesn't matter if the item is a second-tier national brand, controlled brand or private label, as long as customers perceive it as being of good value.

Saar's gets the price down in a variety of ways: going directly to the manufacturer, and negotiating a lower price for a long-term promotion; buying discontinued items, or buying large quantities through its wholesaler, Associated Grocers of Seattle, which licenses the Market Place format; and distributing them among the stores. Depending on the mode of procurement, some promotions are short term, while others like pasta have been sold at a low price for years.

What differentiates Saar's from other retailers that price everyday items competitively with mass merchants is the excitement it brings to displays. About one-third of Center Store is devoted to promotional space. In most of those aisles, shoppers will see everyday items on one side. The other side of the aisle is broken into four-foot shelving sections, each holding the "killer" item from each category displayed opposite it. Often, the promoted item is cascaded to the floor for visual impact.

"When they look down the aisle, they know something's going on," Meyers said.

With highly consumable items priced low, and stacked against walls and in bays and aisles, Saar "keeps stores looking pregnant," said Bill Young, president and general manager of AG Seattle's 44-store Market Place group. "He keeps so much merchandise, it just looks like it's going to burst open at the seams. What he achieves through this is, he ends up having a huge basket of groceries at a very reasonable price."

Sale items reflect each store's distinct customer base, so no two are identical. A store with a Hispanic shopper core will showcase ethnic-brand flour and thinly sliced meat, while one serving an African-American community will emphasize smoked meats and pork, Young said.

"Greg spends a lot of time in the stores," Young said. "There's nothing he enjoys more than talking to the customers."

In some cases, categories that had been nearly nonexistent became new revenue sources. Honey rarely budged until Saar's got a deal on pallets of private-label honey bears, and sold them for 99 cents a bottle.

"We got to the point where in 10 stores, we were selling six to seven pallets a month," Saar said. Olive oil went from a trickle to a gush after Saar's lowered the price range to $3.99 - $5.99 per quart, depending on the cost.

There have been flops, though. Ziegler remembered the time a promotion featuring jumbo packs of diapers failed to move shoppers, and "it took forever to get rid of a truckload."

Though shelf space is limited to make room for more promotions, Saar's devotes a lot of it to Western Family Foods, Tigard, Ore., since it's another differentiator. While the Private Label Manufacturers Association, New York, estimated private label's share of dollar sales in all supermarkets was 16.3% in 2003, at Saar's, the share is more like 26% to 29% of dollar sales, the company stated.

"We're one of its biggest supporters, and it's pretty well established with our customers," Ziegler said.

All these tactics work because Saar's already had a low-price image. Also, it's big enough to buy directly from manufacturers and has built strong relationships with its suppliers, Meyers said.

Trimming the number of items in the store also was easy because Saar was a longtime advocate of cutting slow sellers. While the store received trade dollars, he said, "We never banked on promotional support as part of our balance sheet."

Reducing SKUs didn't hurt the store's image with customers, either, according to Buzz Dailey, a broker representing Western Family, which Saar's uses as its private label. "They have the image of having a large selection, but they actually reduce the selection based on what's moving in the stores," he said.

The effort to cut SKUs puts Saar's "sort of on the leading edge of what more people are going to be doing," said Bill Bishop, president of Willard Bishop Consulting, Barrington, Ill. Cutting SKUs without affecting the profit mix is a delicate balancing act, he cautioned. "They can't be radically reducing gross profit dollars."

Fuller's Market Place, another member of the Market Place group, credited Saar's methods with helping it to grow total-store volume at one of its four Washington state stores, said Al Nelson, chief operating officer there.

Fuller's significantly reduced SKUs and lowered prices on key items six months ago, usually second-tier products. It displayed the items along a wall in the front of the store, on end caps and in the aisle. The low prices teach the customer, "I can always take care of the dominant category killer-type items," Nelson said, and "We encourage them to buy it with the size of the display."

Saar's said its practices have allowed it to grow sales and average transaction size, even as the big surrounding chains have grown more competitive. The stakes will increase in the next couple years, however, when Wal-Mart is expected to convert five area stores to supercenters. Saar said he plans to stick to his plan, while expanding the promotional strategy to other departments, such as wine.

He has reason to be confident. During a recent visit to Bentonville, Ark., Meyers visited a Wal-Mart store that featured the same kinds of large displays he has in his own stores.

Said Meyers, "It's probably a good idea if they've done it."

Saar's Market Place

Founded: January 1988

Headquarters: Oak Harbor, Wash.

Trade area: Puget Sound

Key personnel: Greg Saar, owner; Bob Meyers, director of retail operations; Dave Anderson, operations director; Rich Ziegler, buying director; Brian Robertson, meat director; Kevin Borrel, produce director.

Number of stores: 10

Store size: 25,000 to 53,000 square feet

Format: Associated Grocers of Seattle's Market Place format. Promotes a value image that focuses on high consumables, big packs, Western Family and value brands in grocery.

Source: company