PUBLIX STREAKS TOWARD 1,000-UNIT THRESHOLD 2004-02-09 (2)

Mark Hamstra

LAKELAND, Fla. -- Publix Super Markets here has been one of the fastest-growing supermarket operators in the country for the last several years, aggressively opening stores while the national, publicly financed supermarket companies have cut back on new construction.

Publix, which operates 806 stores in Florida, Georgia, South Carolina, Tennessee and Alabama, added 67 supermarkets to its total last year and plans to open another 200-plus stores in the next few years as it pushes to have more than 1,000 stores by 2007.

While it is continuing to employ a variety of flexible store designs to pursue fill-in opportunities in Florida, where it has more than 600 locations, Publix also is expanding into new regions. It has successfully grown to become the No. 2 player in Atlanta, and it is now seeking to replicate that success in the Nashville, Tenn., market, where in 2002 it acquired seven stores from Albertsons.

"Tennessee is clearly a new market, but they still have the same structural advantages, being nonunion and having Kroger as a union competitor," said Andrew Wolf, analyst, BB&T Capital Markets, Richmond, Va. "They have the same risks whenever they enter a new market, and they've got to be able to transfer the things that define their culture."

Publix could not be reached for comment on this article.

As a family-controlled company, Publix also operates without the burden of Wall Street's never-ending pressure to grow earnings. When it entered the Atlanta market, for example, Wolf said the company's status as a privately owned company allowed it to stay the course there even as its profits slipped.

About 27% of Publix's shares are owned by its 123,000-plus employees, but the company is controlled by the founding Jenkins family, including Howard, chairman, and Charles, chief executive officer. They still operate the $16.7 billion chain as though it's a local, community-based business, observers said.

"I think the reason they can achieve new market entries is that they have really tight merchandising that understands the consumer, and they have really good customer service," Wolf explained. "You give people very good merchandising and very good service, and you are well positioned as a grocer."

Publix supports its store network with eight distribution centers, including seven in Florida and one in Georgia. It was not clear how the company would supply its new stores in Tennessee, which are about 250 miles from its distribution center near Atlanta.

Although trade reports have circulated about Publix moving into Texas and Louisiana through the acquisition of supermarkets there, Wolf of BB&T said such an effort might hinge on how thin the company is willing to spread its resources as it prepares to launch an aggressive expansion effort in Tennessee.

Real-estate professionals in the Southeast said Publix's approach to site development is among the most advanced of any big-box retailer in the region.

"I think they have a highly intelligent, well-oiled machine as far as their real-estate department is concerned," said Doron Valero, president and chief operating officer, Equity One, a shopping mall developer based in North Miami Beach, Fla., that owns 45 Publix-anchored sites in four states. "They pick up good sites, and they have a great development/construction department.

"Everybody wants to work with them," he added. "They are in great shape as far as their credit-worthiness."

One key aspect of Publix's growth has been its flexibility in terms of adapting its format to a variety of sites, Valero said.

"They can do a two-story building in a downtown area, and if they have to, they will put a garage on the roof," he said. "They are very flexible with the structure of the store. They have 27,000-square-foot models and 64,000-square-foot models."

Valero and others in the Florida real-estate business said despite the chain's ubiquitous presence in the Sunshine State, Publix still has plenty of room to add new stores.

"They surprise me all the time," said Beth Azor, president, Terranova Corp, Miami, a developer with about 20 Publix-anchored shopping centers. "They are very creative. I think there could be lots of opportunities for them in South Florida. They've been looking at areas where they don't have so much exposure, and they are trying to get their stores in those markets."

Azor said developers are eager to work with Publix because of its professionalism and its reputation for attracting customers.

"They still operate like they're a small company," she said. "They make quick decisions, they don't put the property owners or developers through a lot of bureaucracy, they understand real estate, and they understand the needs of property owners."

In addition, she said, mall owners can charge $2 to $3 more per square foot for properties located next to a Publix supermarket because of its ability to drive traffic.