Small-Format Food Retailing Special Report: SuperValue's No Frills, Discount Sav-A-Lot Chain Looking For Big Growth in Two Eastern U.S. States

SuperValu, Inc.'s no frills, small-format discount Sav-A-Lot grocery chain plans to expand its store count significantly in Connecticut and Rhode Island in the eastern United States, Natural~Specialty Foods Memo (NSFM) has learned.

Commercial retail real estate expert Anne O' Neal tells NSFM that SuperValue's Sav-A-Lot is looking for multiple new store sites in both states.

The small-format Sav-A-Lot stores, which average about 13,500 -to- 18,000 square feet, are no frills, limited assortment deep discount stores. The SuperValu, Inc. Sav-A-Lot division currently operates about 1,180 of the small-format discount grocery stores nationwide in the U.S.

Some of the Sav-A-Lot discount grocery stores are operated corporately by SuperValu, Inc., while others are franchised to independent operator groups. SuperValu supplies those independent operator groups from its wholesale division, as well as providing marketing and retail merchandising support through its various corporate divisions. Most recently SuperValu, Inc. has been making a major push in the U.S. to open new, corporately-owned and operated no frills Sav-A-Lot discount grocery stores.

Three new Sav-A-Lot stores will open in the two states this year, with more on the way. According to Ms. O'Neal, Sav-A-Lot is looking for new store location sites in value shopping centers in Connecticut and Rhode Island. The grocery chain is represented in the region by Oxford Real Estate.

Sav-A-Lot likes to locate its small-format, no frills discount grocery stores next to other format discount stores in the shopping centers it selects.

Additionally, the discount food retailer looks for locations that have a population of about 35,000 within a three mile area, with an average household income of about $45,000.

SuperValu, Inc.'s major competitor in small-format discount retailing currently is Aldi USA, the U.S. division of Germany-based international discount grocer Aldi International.

Like Sav-A-Lot, small-format Aldi, which operates no frills, discount stores of about 15,000 square feet, is growing fast. Aldi plans to open 100 new stores in the U.S. this year--far more than Sav-A-Lot will open--including moving into the lucrative and highly populated state of Florida this year.

Aldi currently operates about 900 of its small-format discount grocery stores in the U.S.--in the Midwest, Mid Atlantic and eastern USA regions. In addition to Florida, Aldi USA is moving heavily into other southern U.S. states, with future plans to enter other new regions in the country with its stores.

While SuperValu's Sav-A-Lot currently has a store count lead of nearly 300 stores on Aldi USA, that is changing. In addition to opening 100 new stores this year, Aldi USA plans to open nearly 100 new stores a year for the next four to five years in the U.S.

The current poor U.S. economy, with both soaring gasoline prices and fast-rising food prices, is driving more consumers to small-format, no frills discount grocery stores like Sav-A-Lot and Aldi. As a result, these retailers are capitalizing on this trend, growing their respective store counts significantly in the U.S., along with entering new regional markets.

Of course, the small-format grocers also face heavy competition from discounters like Wal-Mart, with its Supercenters and Sam's Club stores, Costco Wholesale, warehouse grocery chains, and numerous other price-impact food and grocery retailers.

However, the no frills smaller-format stores, which require far less monthly rent, have far lower energy costs than the big box discount stores, and require fewer-employees to operate, could be at a competitive advantage because this reduced overhead allows the grocers to sell product for less without hurting margins as much as it does many of the bigger-format discount grocers for the above reasons, along with a few others.

Low fixed operating costs and labor are in part what's allowing these small-format discounters to thrive and grow currently in the U.S.

As we've said, there's a small-format food retailing revolution going on globally, particular in the developed west where the big supermarket and big big box discount store formats have dominated food and grocery retailing for decades. Sav-A-Lot and Aldi are just two of the many retailers that are creating and growing the U.S. version of this revolution in food retailing. Does (store) size matter? It appears it does. But in this case, small can be as powerful as big.