AHOLD'S 'FRESHGO' CUTS GIANT DOWN TO SIZE

LYNNE MILLER

ROCKVILLE, Md. -- Ahold USA has launched a fresh-foods concept here that seeks to profit by maximizing the strengths of two diverse subsidiaries: Giant Food and U.S. Foodservice.

Indeed, restaurant-style prepared meals are the centerpiece at "freshgo by Giant," as the 17,000-square-foot prototype is called. It also includes meat and seafood, produce, a pharmacy and 10 abbreviated aisles of grocery. Specialty goods are featured in the form of sushi and smoked fish, officials said.

U.S. Foodservice, acquired by the Chantilly, Va.-based international retailer in March 2000, is the primary supplier for freshgo, and marks the first significant effort by Ahold to combine Giant's dominance of the local marketplace with the product quality and logistics know-how of the food-service distribution company.

Officials with the 180-store supermarket chain told SN they are counting on freshgo to succeed and said more "neighborhood-type" stores are expected to open in 2001. According to David Zwartendijk, Giant's director of new ventures, small stores present opportunities, reflected in market research showing consumers like shopping them.

"A store format of 10,000 to 15,000 square feet allows us to go to where most people live," Zwartendijk said. "From a real estate perspective, it opens a lot of opportunities for us. From a financial standpoint, we hope the mix will allow us to do what we need to do -- increase our sales and profits."

Company officials are billing the store, which is about a third the size of a regular Giant unit, as completely different from their traditional outlets. The Landover, Md.-based retailer used the small space to create a hybrid "part restaurant, part food store" in a suburban, upper middle-class professional community. Giant hopes the blend of meals, groceries and a pharmacy will appeal to convenience-seeking customers -- and open the door to more stores planned for the Washington, D.C., Baltimore and Annapolis, Md., markets.

In the meals area, cold, ready-to-heat dinners, including lasagna and veal osso bucco, are packaged in microwave- and oven-safe containers and displayed in two island cases, grab-and-go style. Those single-serving meals range from $4.99 for boneless chicken breast with a couple of side dishes, to $15.99 for the osso bucco.

Setting price points can be a learning experience even for an experienced retailer. When the store opened in early December, the meals section featured a single serving of veal chops, priced in the mid-$20s. Officials quickly realized they couldn't sell veal chops at that price in a store setting, so they discontinued the item, said a store-level source.

Now the high-end meals top out at $15.99, and the most popular meals range in price from $4.99 to $8.99, the source said.

In a separate area, the local lunch crowd picks up sandwiches, soups and other items in the cafe, which is staffed. The cafe has 10 tables, a countertop with barstools and two microwaves for customers to use if they wish to heat up their meal for in-store dining. The cafe will have cyber flair when two computers providing Internet access are set up, said store manager Jack Eaton.

A significant portion of the prepared items comes from U.S. Foodservice, as well as regional specialty suppliers. So, while there's no baker rolling dough in the store's bakery, the merchandise includes an assortment of products supplied by vendors with well-known names, including the Chesapeake Bay Bagel company, which delivers bagels fresh to the store every day. They're sold individually in self-serve bins.

Freshgo is also the first store in Giant's chain to offer several varieties of cheesecakes from the Cheesecake Factory Bakery, Eaton said. Based in Calabasas Hills, Calif., the Cheesecake Factory is a national chain of casual restaurants with a bakery production facility that produces cheesecakes and other baked goods for the restaurants and other food-service venues. At freshgo, the company's cheesecakes are sold whole in display cases.

"We tried to partner with suppliers who are best in practice to make sure we get the best quality in the store." said Zwartendijk. "We ensure freshness at the store."

Outsourcing is becoming a more common option for delivering fresh meals to supermarket customers, a practice helping retailers keep labor costs down, said one industry observer.

"The [prepared-foods] trend will increasingly be towards outsourcing production," said Bob Goldin, executive vice president of Technomic, Chicago, a food-industry consulting and tracking firm. "Costs have been a real profit drain."

Not all of freshgo's foods are prepared outside. Salads and other dishes are assembled on the premises, Zwartendijk said. Here, the retailer is emphasizing the combination of elements under one roof.

Freshgo appeals to a broad base of customers, from elderly shoppers who don't cook, to young, dual-income couples with children. "The common thread is these people are time starved," he said.

Giant is wise to give customers more than one reason to visit the store, Goldin added.

"Fresh-meals stores are not destinations," he said, though freshgo's mix "certainly brightens the prospects for success. A small grocery store with a big fresh-foods [section] -- I think it has a little more possibility."

Giant joins other retailers who in recent years have launched smaller-format stores that emphasize meal solutions. They include "foodsource by Clemens," by Clemens Markets, Kulpsville, Pa.; "Fresh Ideas, Kings," by Kings Super Markets, Parsippany, N.J.; and "GU Fresh Market," by Wayne, N.J.-based Grand Union Co., among others.