WISE BUYS UNIT DRIVES LOSS LEADER IN BIG WAY

LISA SAXTON

CORUM, N.Y. -- At the grand opening of its newest unit here, retailer Wise Buys constructed the world's largest cereal display ever, using 100,800 10-ounce boxes, or 4,200 cases, of General Mills Cheerios.

The display was 80 feet long, 20 feet high and 40 feet wide. It was built under a giant tent in the parking lot. At 88 cents a box, Wise Buys reported selling 30% of the boxes during the 10-day promotion in November.

That's the kind of colossal loss-leader merchandising that is having an impact on supermarket sales of crucial categories, here and in other major markets across the country.

Sinew Corp., which operates the Wise Buys new store and 27 other retail outlets under the Cheap John's banner on New York's Long Island, is a good example of the nontraditional formats taking selective bites out of supermarket grocery department volumes in today's economic climate.

Sinew Corp.'s stores -- typically spanning about 30,000 square feet -- are not supermarkets, owner Ira Rubenstein is quick to point out. But the company's retailing strategy hinges on deep-discounting important supermarket staples, such as cereal, to attract food shoppers before they go to nearby supermarkets.

"We're a hybrid operation. We carry a lot of grocery items, but only on an in-and-out basis," said Rubenstein in an interview with SN after the store's grand opening here.

"We're a combination retailer. We have a supermarket grocery part, with some dairy products, too, but also have general merchandise that you would find in a mass merchandiser, such as a Woolworth," he said.

In fact, if one had to label them, the Wise Buys and Cheap John's formats could most accurately

be called general merchandise outlets that rely on the major supermarket categories -- typically represented by a total of 150 to 200 items each week -- as traffic builders.

The stores are also avenues for grocery manufacturers to promote their products in a bigger way than they usually get a chance to at most supermarkets.

Take that massive Cheerios promotion. Rubenstein said he wasn't attempting to make money on the cereal sold in the Wise Buys grand opening display. What he was after was customer traffic into his higher-margin general merchandise aisles. (The remaining 70% of the 100,800 boxes was distributed among his other stores, still to be sold at a loss.)

"We look to create differences in the marketplace, things that nobody else is doing," said Rubenstein. "It lends a lot of credibility to us as a retailer. Because nobody else has this many boxes of Cheerios, customers think that, if we own this much product, we must have the right price. This must be the place to be."

It also means that, at the very least, in 10 days Wise Buys took sales of 30,240 boxes of Cheerios away from local supermarkets.

"We do the same thing with all our food items, as well as our detergents and paper towels," said Rubenstein. His stores handle only commodity-type items in the grocery area, steering clear of low-turn specialties.

"Any customer coming into our store knows that they're going to get a detergent cheap for any given visit, but it may not be the same detergent each month.

"This type of promotion is excitement to us; it brings the customer in, it gives them a big savings, and it lends legitimacy to our whole operation, because we always use nationally branded product that we're selling cheaper than anyone else.

"We don't look to make any big money on the grocery items. If we make the turns, we're happy. We make our money in the general merchandise."

The key is making the grocery savings so attractive that shoppers stop at his stores before moving on to the supermarkets.

"Our whole goal is to create an environment that encourages frequent shopping," Rubenstein explained. "And you have to offer the customers enough reason to come into your stores every week.

"Price alone isn't enough unless they can spend enough money," he added. "If we're offering them enough product so they can spend $10, then even at 30% off, they're only saving $3. Our targeted average sales in Wise Buys is $25, because we feel a customer has to save $5 to $7 on their purchase to make it worth their while, to go out of their way to come in before they go shopping in the supermarket."

And, so far, he said, it's been working. Wise Buys features about 250 pallet slots of groceries, with 40 to 50 of them changing every week.

"If we have 250 pallet slot locations, we have to be changing even it if means switching it from store to store. A customer won't come back if you just keep offering the same product this way, over and over again."

While the pallet merchandising is a technique favored at club stores, Wise Buys' grocery section has tiled floors and ceilings like a retail store. Shoppers have to walk the entire grocery area before they can enter the general merchandise section, which Rubenstein said is merchandised "more like a regular retail store."

The dairy section, comprised mostly of staple items such as milk and eggs, is at the end of the customer traffic pattern, on the far side of the store from the groceries.

Rubenstein said his in-and-out grocery strategy allows him to get manufacturers involved in major promotions, without relinquishing control of his grocery assortment.

"Supermarkets are so locked in with all of these vendors. They depend so much on the extra-income side of the buy, they can't afford to alienate any one vendor.

"We don't depend on the extra promotional monies. We don't play the extra-income game. The best part of our system is we don't have to have any of their product, while a supermarket has to have Cheerios on the shelves," he said.