Friday, November 14, 2008

Retail Memo: Supervalu, Inc.-Owned Cub Foods Opening Second Store of its 'Neighborhood-Focused' Supermarket Format in Eagan, Minnesota USA

Neighborhood Food & Grocery Retailing USA

Supervalu, Inc.'s Stillwater, Minnesota USA-based Cub Foods supermarket chain opened its second smaller-format (for the retailer), neighborhood-oriented supermarket in Egan, Minnesota today.

The new 42,000 square foot Cub Foods neighborhood-focused supermarket is located at 1020 Diffley Road in the eastern part of the city. It's the food and grocery retail store anchor of the new Diffley Marketplace center just recently completed in Eagan, Minnesota, which has a population of about 64,000 residents.

Cub Foods, which originally was an independently-owned Minnesota supermarket company, was acquired by Supervalu, Inc. in 1980. There currently are 57 Cub Foods supermarkets operating in Minnesota's Minneapolis-St. Paul Twin Cities region.

At 42,000 square feet, the grocer's new neighborhood-oriented supermarket format, is considerably smaller than the average Cub Foods supermarket, which are 68,000 square feet.

The neighborhood-focused stores are still called Cub Foods. The retailer didn't create a separate name for the stores and it doesn't use "neighborhood market" in the name.

The smaller supermarket that opened today in Eagan, which is the second store of the design and the second supermarket in that particular Twin Cities region city, is specifically designed to be a neighborhood supermarket, according to the retailer. Both of Cub Foods' neighborhood-focused supermarkets are located in Eagan thus far.

The store uses warm colors and incorporates design elements from the local neighborhood into its look in order make the statement the store is the neighborhood residents' neighborhood supermarket, for example.

The neighborhood-oriented design also is more upscale than Cub Foods' standard 68,000 square foot supermarkets, which are full-scale superstores with a discount pricing emphasis.

"Customers will notice an original layout for the fresh produce section, offering an expanded and unique product assortment. The store will also feature a larger selection of frozen food items, a more substantial natural and organic foods section and a full-service floral department," a Cub Foods spokesperson told Natural~Specialty Foods Memo.

"Other amenities include a pharmacy, a large bakery and a full-service TCF Bank," the spokesperson added in describing some additional unique features of the retailer's neighborhood-focused supermarket format and new store, compared to its standard average 68,000 square foot Cub Foods superstores.

Scott Lichtenberg, the store director of the new Eagan East Cub Foods supermarket, tells Natural~Specialty Foods Memo, "The store has a strong focus on the fresh (in-store departments and product selection) side of the business, and our customers will notice many unique offerings. The store was designed and built to maintain the great Cub tradition of low prices and great values," along with being more upscale and neighborhood-oriented.

Although not a "small-format" grocery store (we define small format as between about 10,000 -to 25,000 square feet), the new Cub Foods format without a doubt is a "smaller-format" for the grocer. And at 42,000 square feet compared to 68,000 square feet (the average size of 55 of the chain's 57 supermarkets) it's a significant smaller footprint for the retailer -- 26,000 square feet less worth of significance to be precise.

Even more interesting is the specific focus on creating a "neighborhood" supermarket format, and doing so not only via the store's design but also using the neighborhood framework in choosing the store's departmental and category emphasis.

Small-format and neighborhood market trends

Cub Foods' focus in doing this fits well into two trends we've been writing about and have put a considerable editorial focus on since August, 2007. Those trends are the growing significance of small-format food and grocery stores as well as the trend towards neighborhood-oriented supermarkets.

Small-format stores, 10,000 -to 25,000 square feet, tend by their size and nature to be neighborhood-oriented food and grocery stores. Although that's not always the case, particularly with the hard discount formats like Aldi, Lidl, SuperValu's Sav-A-Lot and others that depending on the country they are located in (Aldi and Lidl are global, Sav-A-Lot is U.S. only) are often positioned to be a bit more regional than just "neighborhood" in terms of the customer base the retailers' want to attract. In other words, there is no rule small-format stores must be neighborhood-focused stores.

Neighborhood-oriented supermarkets however don't have to be small-format by our definition in terms of size. They are nearly always smaller than superstores though, per the Cub Foods comparison to its average store size -- 42,000 square feet compared to 68,000 square feet, for example.

Generally speaking, in the U.S. neighborhood-focused supermarkets (other than small-format) range from about 20,000 square feet to about 45,000 square feet. For example, Wal-Mart Stores, Inc.'s Wal-Mart Neighborhood Market supermarkets are in the 40,000 -to- 45,000 square foot range.

U.S. multi and single-store independent grocers, which are America's original neighborhood food and grocery store retailers and still hold majority distinction in that category in most states, are all over the place in terms of the sizes of their neighborhood supermarkets. The supermarkets range as small as 8,000 -to- 10,000 square feet to as big as 45,000 square feet. A good average seems to be about 15,000 -to 35,000 square feet for U.S. independents operating neighborhood and community-focused supermarkets.

Independent supermarkets need not be neighborhood-focused either. In the U.S. there are numerous multi and single-store upscale and discount format independents that are more regional in nature, for example. Gourmet, specialty and natural foods-focused stores are one example, as are large independent discount superstores as well as ethnic food markets.

A possible small-format future for Cub Foods?

Being a regional chain, we think its smart for Cub Foods to have created this neighborhood-focused, smaller -format banner or format because it allows the grocer to go into more locations in its market region, the Minneapolis-St. Paul region. With 55 of the average 68,000 square foot superstores in the market, finding more niche locations is key for such a food and grocery retailer.

We would suggest Cub look at adding "neighborhood supermarket" to the stores' title though. Perhaps: "Cub Neighborhood Supermarket." would be good, allowing the format to be differentiated from the discount store. along with using the name to reinforce the "neighborhood-focus" of the format and stores.

Urban Fresh by Cub

Additionally, since Cub Foods is owned by Supervalu, Inc., which is experimenting with its own small-format banner, "Urban Fresh by Jewel," at its Illinois-based Jewel supermarket chain, which operates supermarkets throughout Illinois and Indiana, it might be a good idea for the company to use this expertise to experiment with a small-format store with its Cub Foods chain. [Read this September 18, 2008 piece from Natural~Specialty Foods Memo for more information on "Urban Fresh by Jewel": Small-Format Food Retailing Memo: First 'Urban Fresh by Jewel' Small-Format Food and Grocery Market Opens Today in Chicago's Lincoln Park Neighborhood.]

Cub Foods' market area, Minneapolis-St. Paul Twin Cities, is an urban region anchored by two big cities, the Twin cities mentioned above. Both cities have vibrant urban cores, like Chicago where the first 15,000 square foot "Urban Fresh by Jewel" opened earlier this year.

Minneapolis-St Paul also also have other similarities to Chicago: All three are big Midwestern cities with a similar consumer culture, for example. Downtown Minneapolis and St. Paul, like downtown Chicago, also have a lack of food stores in the downtown core, as well as in a number of urban neighborhoods. These are all good criteria for a small-format store.

Cub Foods could even name the small-format store "Urban Fresh by Cub Foods." We would locate the first "Urban Fresh by Cub Foods" test store in downtown Minneapolis, which is a vibrant downtown in a vibrant city, has lots of upscale workers and residents, and increasingly is seeing more and residents moving downtown into new condominium projects. Since "Cub" means little (like a bear cub) a small-format store is a natural for the chain.

We even think Supervalu could adopt the basic "Urban Fresh by Jewel" format, which is an upscale format which features lots of fresh, prepared foods, specialty, natural and organic products, fresh produce and meat departments, wines and craft beers -- but also offers a good selection of basic food and grocery items at decent prices -- customizing and localizing the format a bit in design and merchandising for downtown Minneapolis. Localizing is always key.

It's food for thought.

After all, as we've been writing about since August, 2007, there's a small-format food and grocery retailing revolution going on both in the United States and globally. That size and format trend is ties to the neighborhood food retailing trend in the U.S.

It's our analysis the small-format and neighborhood-oriented food retailing "revolutions" will only gain steam because the current global financial crisis and recession are slowly forcing people to think smaller -- smaller homes, smaller cars, smaller bank accounts, smaller budgets and the like. This change to a smaller and more frugal lifestyle will result we believe in a growing popularity among consumers to shop at smaller grocery stores, assuming the pricing is as or near as good as it is larger stores and the product selection is of a limited assortment but still decent.

The majority of U.S. consumers will still shop at big stores like Wal-Mart Supercenters Costco and supermarket company superstores. But we think they will shift a significant portion of their spending to neighborhood-oriented markets because of the convenience, savings on gasoline and a desire for a more simple, easier shopping experience.

This is already happening with Aldi and Supervalu's Sav-A-Lot stores in the U.S., as well as in the case Trader Joe's specialty markets, which draw shoppers from as much as 40-50 miles away in many cases. Numerous competitive neighborhood-oriented supermarkets also have been reporting increased sales this year, particularly when gasoline was at an over $4 a gallon. It is about 40% less than that right now. But it will go back up.

Further, in the U.S. there is a trend towards people moving from the suburbs to big cities in many parts of the country. This trend and the resulting increased population in these cities -- Los Angeles, San Francisco, Chicago, Seattle, Minneapolis to name just five -- is and will create more demand for stores located in the urban centers that offer a good selection of both basic groceries and more upscale product selections, including specialty, natural, organic and premium, prepared foods.

Cub Foods also is doing a neighborhood-oriented thing with the opening of its second neighborhood-focused supermarket in the Twin Cities region city of Egan. The retailer is donate a half-ton (1,000 pounds) of non-perishable food items to Second Harvest Heartland Food Bank that serves residents of Eagan, Minnesota.

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