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VOL. 126 | NO. 181 | Friday, September 16, 2011

Grocery Shakeup

Schnucks’ departure sign of changing market

By Andy Meek

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Despite facing stiff competition in Memphis from discount chains and department stores that have wedged rows and rows of cheap grocery offerings into their inventories, The Kroger Co. is feeling good about its position here.

Rebecca Scott searches for produce in the grocery section of Super Target, 475 N. Germantown Parkway in Cordova. Target has enhanced and expanded its stores’ grocery selections.
(Photo: Lance Murphey)

That’s partly because this weekend Kroger expects to take four of the Schnucks stores it bought in a deal announced Sept. 2 and will reopen them as Kroger stores.

Those four stores getting a reboot that’s expected to occur this Sunday are locations at 1761 Union Ave.; 9025 U.S. 64; 1232 E. Shelby Drive; and 3926 Goodman Road.

Kroger spokesman Joe Bell said if all goes well, four additional former Schnucks stores would reopen under the Kroger banner Sept. 24. Those store are at 7735 Farmington Blvd.; 799 Truse Parkway; 576 S. Perkins Road; and 2942 Kirby Whitten Road.

“This is where we’ve gone in and reset the shelves, filled them up and Kroger-ized them as best we can,” Bell said. “And by that I mean things like new checkout lanes and computer systems, so they can all communicate and we can do business.”

Those stores doing business again is a consequence of a deal that radically altered the retail landscape in Memphis. The deal involved St. Louis-based Schnucks selling nine of its Memphis-area stores to Kroger, which is reopening eight of them as Kroger stores and closing the ninth location it bought.

Schnucks’ departure from Memphis was reflective of the area’s unique retail landscape, at least as far as grocery options go.

Schnucks spokeswoman Lori Willis said this kind of deal is not occurring in any other Schnucks market areas. When Schnucks closed its Cordova store in August 2010, the company specifically pointed to intense competition around it as the reason.

And the company wasn’t just referring to competition from other traditional grocery stores.

About that Cordova location, Schnucks chairman and CEO Scott Schnuck said the company was facing “increasing pressure from five competitors within a two-mile radius, including two supercenters.”

Randall Kessler shops with son Brian, 14 months, at Cordova’s Super Target. With Schnucks leaving Memphis, grocers like Target and Kroger are looking for more market share.
(Photo: Lance Murphey)

So-called “superstores” from the likes of Target Corp. and Wal-Mart Stores Inc. pose a particular threat, given their scale and their ability to offer customers items like electronics and home decor as additional reasons to open their wallets.

Still, Kroger’s spokesman said his company has some special advantages.

“Kroger’s been selling groceries for 128 years,” Bell said. “This isn’t new to us. Competition makes you stronger. Makes you better at what you do. We feel we can compete with just about anybody in this market or any market with the offerings we’ve got and the experience we have in the food business.”

And yet the competitors keep circling. Target, for example, recently finished refining its presence in Memphis as part of a major overhaul of its company footprint. The Minneapolis-based retailer pursued a $1 billion renovation company-wide of about 340 existing stores in 2010, the effects of which are now visible here.

Earlier last year, Target applied for beer permits and is now selling beer at a handful of its Memphis-area stores. It’s also rolled out major grocery sections in its stores, among expansions of other departments.

“During the second quarter, we completed an unprecedented 180 remodel projects … and we expect to deliver approximately 140 more remodels by the end of the third quarter,” said Target Corp. president and CEO Gregg Steinhafel during the retailer’s second quarter presentation to analysts Aug. 17.

Target’s chief financial officer Doug Scovanner gave more clarity on the company’s direction – particularly related to groceries – during an industry presentation earlier this month in New York City. He pointed to grocery items as giving Target more of a chance to be an all-in-one retail destination for shoppers.

Beyond the major chains, the pie is fragmented further still by specialty options like Miss Cordelia’s and City Market, both Downtown, and Germantown’s and East Memphis’ Fresh Market and Whole Foods, the latter of which packs a wide selection of natural and organic products into its 25,000-square-foot facility.

“Shopping with us is more than just a trip to the grocery store, it’s an experience!” Whole Foods announces on the website for its 5022 Poplar Ave. store. “We carry a wide selection of Fair Trade coffees, environmentally-friendly body care items and cleaners, compassionately raised meats, fresh sustainable seafood, organic produce and organic dairy. We offer products from local farmers and artisans, as well as items for special diets.”

Fresh Market, which has a Memphis store at 835 S. White Station Road and a Germantown location at 9375 Poplar, conveys a similar theme on its website, offering “the atmosphere of an old world European market, all under one roof, where you can visit an array of departments: our old-style butcher shop and fish market, bakery, produce and floral stands, and delicatessen.”

Before City Market signed its lease in August 2010 at the corner of Main Street and Union Avenue, owner Hamida Pirani told The Daily News her store would have the look and feel of a market that offers freshly prepared food with a local and international flair, as well as grocery staples such as milk and eggs.

She also said it would be priced to appeal to a broad section of Downtown.

Schnucks’ departure was a reflection of all that robust competition in Memphis – and it signals more change still to come.

Bell said that in the next two to three years, Kroger would look at going back and remodeling the new local stores it’s acquired.

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