SAVE RITE IS WINNING WITH ITS WAREHOUSE FORMAT

Mark Hamstra

JACKSONVILLE, Fla. -- Winn-Dixie has never been known as an upscale food-shopping destination, but when the company decided to downscale its format in the Atlanta market two years ago, it apparently struck a chord with consumers.

The company attributed its comparable-store sales gains during several recent quarters at least in part to the success of its new Save Rite Grocery Warehouse stores. In the past two years the company has converted 43 locations in Atlanta to Save Rite, plus nine sites in Florida and eight locations in Mississippi.

The format is similar in concept to the Food 4 Less warehouse stores operated by Kroger, Cincinnati, and the Food Basics concept that Montvale, N.J.-based A&P operates in Canada and the New York area.

"They are high-volume, low-price-point concepts," said Andrew Wolf, analyst, BB&T Capital Markets, Richmond, Va. "It's a more basic supermarket -- higher volumes, lower prices and lower operating costs."

Save Rite appears to differentiate itself somewhat from traditional warehouse stores in its use of a bright decor package that masks any warehouse ambiance, although its focus on low price is readily apparent to consumers.

A recent pricing survey of the Atlanta market by Banc of America Securities, New York, found that when Winn-Dixie first converted its stores to the Save Rite banner in 2002, its prices for a sample basket of groceries were about 10% below those of Kroger and Publix, Lakeland, Fla., which are Winn-Dixie's traditional-supermarket rivals in the market. Wal-Mart Stores, Bentonville, Ark., which counts Atlanta as one of its most deeply penetrated major markets, offers prices that are another 10% below Save Rite.

However, Kroger's nationwide price-reduction strategy has since given it a slight edge over Save Rite, which is still considerably less expensive than Publix, according to the survey.

Joanne Gage, senior director, consumer and marketing services, Winn-Dixie, said the company drives most of its savings through the elimination of in-store services.

Although the stores occupy the same amount of physical space as the Winn-Dixies they replaced -- about 45,000 square feet -- they have been reorganized so that more floor area is devoted to displays of bulk items on pallets with a strong price message.

Packaged-meat cases have replaced the butcher departments, and other store services also have been scaled back. Service delis have been retained, however.

"We have pharmacies in some Save Rite stores, but you're not going to see photo finishing and things like that," Gage explained.

She said the stores have extensive baked-goods offerings, although no in-store bakeries. The stores also cut costs by eliminating baggers and carry-out services, she said.

Although Winn-Dixie's stores are already non-union, the switch to a warehouse format still reduces overall labor costs, analysts said.

"If you just stack it high and sell it cheap, you don't have to go in and service the aisles as often," said one analyst, who asked not to be identified. "You also have fewer people on the front end because you're eliminating services from the overall business."

The analyst also estimated that about 65% to 70% of the products offered through Save Rite are the same as those offered through Winn-Dixie, which helps the company save on procurement costs. Gage said individual Save Rite stores tailor their offerings somewhat to the local markets, and the chain has its own buyers based in Jacksonville and Atlanta. Save Rite stores are supplied through four of Winn-Dixie's 15 distribution centers.

Gage said the Save Rite stores offer a similar range of products to what is offered at Winn-Dixie, "but we may not have every size and flavor of every item."

The stores retain full produce departments, she pointed out.

In a recent quarterly earnings conference call with analysts, the company said the format gives it an alternative to roll out to lower-income areas, while other Winn-Dixies are being remerchandised to appeal to higher-income areas.

Gage said Save Rite seeks to appeal to a broad range of consumers, however, not just lower-income shoppers. She said Winn-Dixie seeks to position Save Rite as a more appealing destination than typical warehouse stores.

"They are attractive, very colorful stores," she said, noting that the brand's slogan is "Warehouse price. Supermarket nice."

"They are not drab warehouse stores," she said. "They want people to know that they are as nice as any supermarket, but they have pricing that is very similar to any other kind of low-priced warehouse store."