Wednesday, Nov. 27, 2013 12:01 am
Grocery stores galore
Supermarkets flood Springfield
At first glance, it should be a matter of simple mathematics.
If there are x number of mouths to feed in any given city, then that city should support y number of grocery stores. The industry rule of thumb, according to David Livingston, a Milwaukee-based grocery store consultant, is one store for every 10,000 people.
Then there is Springfield, which is seeing a supermarket boom of epic proportions.
The city, including “island” municipalities such as Jerome, is now home to at least 21 supermarkets, and that’s not counting small stores such as Food Fantasies or Country Market on Wabash Avenue. Assuming none of the existing stores close, two proposed ones are built and Hy-Vee finishes one now under construction, Springfield will have roughly one supermarket for every 5,100 residents.
So much for rules of thumb.
“It does sound a little off,” Livingston allows. “Even up my way, I’ve been hearing about Springfield.”
Livingston attributes the boom to Hy-Vee, which threatens to change the Springfield supermarket-scape with a mammoth store on MacArthur Boulevard that will consume 90,000 square feet, nearly twice the median size of American supermarkets. It is scheduled to open next spring.
“Hy-Vee coming into the market, that’s a very significant event,” Livingston said. “They’re extremely difficult to compete with. … Honestly, the other competitors are going to have to step it up if they want to compete with Hy-Vee.”
That might explain why Schnucks, perhaps responding to rumors that Hy-Vee was coming, remodeled both of its Springfield stores in 2011, shortly before Hy-Vee made plans official. Both stores got demonstration cooking stations, upscale flooring and other improvements, and it wasn’t a cookie-cutter proposition.
The cheese counter at the Montvale store, for instance, is bigger and offers a greater selection of cheeses from around the world than the store on Sangamon Avenue. The Montvale store, unlike its counterpart on Sangamon Avenue, has a sushi counter, despite Midwesterners’ notorious resistance to eating raw fish.
The tailoring of store features to specific parts of town is hard evidence that supermarkets these days pay close attention to the shopping habits of consumers who made an average of 1.7 trips to a supermarket each week in 2012, spending an average of $35 on each visit. Margins have always been razor thin. The after-tax profit margin for grocery store chains last year was 1.5 percent; since 1984, the margin has dipped below 1 percent at least eight times, and it has never reached 2 percent.
It’s a hypercompetitive industry that relies on high volume, with more than $153 in sales for every hour of labor. Median weekly sales for U.S. supermarkets last year reached more than $318,000, or more than $16.5 million on an annual basis. On a per capita basis, Americans last year spent more than $2,265 on food to eat at home, up nearly $550 per person since 2003.
And in Springfield, at least, our shopping options just keep growing.
A building boom
Sprucing up existing stores is one thing; building new ones seems a much bigger investment, or gamble, considering the level of competition, thin profit margins and fickle tastes of an eating public that at once demands variety, quality and low prices.
It isn’t hard to guess why Hy-Vee is investing in Springfield. The store now under construction on MacArthur Boulevard is nestled next to Leland Grove, the area’s wealthiest community, and is more than 1.5 miles from the nearest supermarket. For people without cars, the location qualifies as a food desert, which the federal government defines as a non-rural area where more than 500 people who don’t drive live more than one mile from a supermarket.
The notion of a grocery store on MacArthur Boulevard isn’t a new idea, notes Mike Farmer, director of the city’s Office of Planning and Economic Development. Kroger, National, Avenue Food Shop – Farmer easily rattles off the names of stores on MacArthur Boulevard that have come and gone over the past 30 years or so.
“All of those grocery stores went away, but the people who live there didn’t leave,” says Farmer, who attributes the current building boom to pent-up demand. “I think we’ve been underserved for a long, long time.”
Assuming that every square foot of the new Hy-Vee is devoted to sales, the store will generate weekly sales of $919,800 based on the national average of $10.22 in sales for every square foot of selling area. That’s $47.8 million a year, or $717,000 in after-tax profit if the store meets the national average.
“What they’re really saying is, ‘Can we take share from the rest of the guys who are operating here?’” says Jim Hertel, managing partner for a food retailing consulting firm based in Barrington, Ill. “ ‘We’ve beaten these competitors in other markets, and we can do it in Springfield as well.’ Hy-Vee is a successful operator in a lot of places that look an awful lot like Springfield.”
Then there are companies that build stores next to existing supermarkets.
Aldi sets up shop near Walmarts.
“You ever see those water buffaloes and they’ve got those little birds on their backs?” Livingston says. “That’s Aldi. They’re like a little parasite: You brought all these customers into the area, we’re going to take advantage. It’s just natural. Aldi doesn’t want the highest-volume retailer being on the other side of town.”
Hertel, who doesn’t like the term “parasite,” says that Aldi has figured out how to appeal to middle to upper income households with annual incomes of between $75,000 and $100,000.
“They (Aldi) are an extreme value retailer that has taken full advantage of the Great Recession in a way that few other retailers have,” Hertel says. “They’re not after the down-market shopper. They’re after the people who are after a good value in food.”
If not a water buffalo, Walmart, which went into the grocery business about 20 years ago, is the proverbial gorilla. Groceries account for more than half of Walmart’s sales, and the New York Times last spring reported that the chain accounts for 20 percent of non-perishable grocery sales in the United States and 15 percent of sales for meat, produce and other perishable goods.
Schnucks, which has proposed stores on West Monroe across the street from a County Market, and at the intersection of Singer Avenue and Dirksen Parkway, a quarter-mile from a Shop ’n Save, appears eager to do battle with entrenched stores. Schnucks officials could not be reached for comment, so their strategy is not obvious. In any event, supermarket chains that go granular in analyzing where to build stores typically are not eager to share their homework.
“Every one of them (supermarket chains) will have a real estate department,” Hertel says. “That real estate department will be balancing things like, not only where the population is today, but where will it be in three to five years.”
It’s an equation, Hertel says, that involves land costs, labor markets and traffic studies.
“Food retailing is a very local business,” Hertel says. “It’s a pretty rigorous analysis.”
Quincy-based Niemann Foods, which operates Save A Lot on Clear Lake Avenue and County Markets in four Springfield locations, isn’t shying away. Aided by $2 million in tax increment financing to help pay construction costs, the company last spring opened its newest County Market at the intersection of Second and Carpenter streets, within reach of downtown and medical district residents.
The store features an upper tier dining area, a coffee shop and plenty of ready-to-eat food. Gerry Kettler, Niemann Foods spokesman, says that opening the new store was a simple matter of giving customers what they want.
“Before we went there, that was considered by the community itself to be a food desert,” Kettler said. “There is a lot of churn in the Springfield market right now. We’ve had a long-term presence in Springfield. We’re absolutely in it for the long haul. There’s no question.”
While the number of supermarkets in Springfield may seem like a glut, it’s nothing compared to a century ago, when the city boasted 230 grocery stores, according to 1913 city directories. No two had the same name, and most were known by the name of the proprietor.
South Side Grocery on South Grand Avenue. Anton Yanks on Peoria Road. John W. Bunn and Co. on East Adams Street. It was a tremendously inefficient way to supply food to the masses, with each shopkeeper a Lone Ranger when it came to securing goods on the wholesale market and reselling them. But the number of grocery stores grew even higher.
By 1932, there were 378 grocery stores in the capital city, one for every 190 residents; there was one store for every 226 residents in 1913, five years after Henry Ford invented the Model T.
“It’s not a surprise,” says James Mayo, a professor emeritus of urban planning from the University of Kansas who has written a book on the history of American grocery stores. “It mainly has to do with the automobile.”
The rise of the automobile coincided with a centralization of wholesale distribution in the grocery business that took hold throughout the nation in the 1920s and 1930s. Small, typically independent stores survived in densely populated areas where cars weren’t needed, Mayo says. Meanwhile, new stores sprang up that bought wholesale goods in bulk, taking advantage of collective buying power, and shoppers in search of bargains could drive.
In Springfield, the phenomenon came in the form of Clover Farm stores, a chain that came to dominate the city’s grocery trade by the advent of the Great Depression.
Everything was fresh, the Clover Farm company boasted, because anything that wasn’t in demand at one location was sent to another where demand was high before goods could grow stale. Based in Pennsylvania, Clover Farm also assured shoppers that shopping at a chain was really buying local.
“The owners and managers of Clover Farm stores are local men, taxpayers and good citizens,” the Beaver County Times, a Pennsylvania newspaper, proclaimed in an edition published one month before the stock market crashed in 1929, when consumers weren’t accustomed to chains. “Supervisors of the company assist grocer members in arranging their stores in the most attractive, efficient and sanitary manner. Goods are so arranged that they will sell most readily with the least attention of the owner.”
The buy-local message, in all-capital letters, was repeated in the same edition in one of several fawning stories, none of which included a “paid advertisement” disclaimer.
“CLOVER FARM STORES ARE OWNED AND OPERATED BY RESIDENTIAL PROPERTY OWNERS AND TAXPAYERS WHOSE PROFITS ARE KEPT IN CIRCULATION IN THEIR OWN TOWN.”
By 1932, Springfield, which had no chain stores just a decade or so earlier, had no fewer than 30 Clover Farm stores in addition to two dozen Fisher Grocery Co. stores (aka Piggly Wiggly) and nine Kroger Grocery and Baking Co. stores. That same year, Humphrey’s Market opened on South 15th Street. It is now the city’s last remaining independently owned one-stop-shop supermarket where shoppers can find bread, produce, meat, canned goods, dairy products, frozen food, paper towels, plastic bags, hot prepared food and much more.
View Springfield grocery stores in a larger map
“We’re very proud of the fact that we’ve been able to continue business on the southeast side of Springfield,” says Hope Humphrey, whose grandparents opened the store where she’s worked all her life. “We’ve followed trends and tried to stay current with our customers’ needs. … We’ve had such longevity. It has been a struggle.”
In truth, the grocery business has long been a struggle, evidenced by newspaper ads dating back 50 years or more placed by grocers who always emphasized prices that were never quite low enough for some consumers. Consider a boycott of Kroger and National stores in Springfield by a group called Women Against Soaring Prices (WASP), which drew a reported 250 fed-up shoppers to an organizational meeting in 1966, according to a brief newspaper account. Two years later, the Illinois State Journal announced the death of old-school neighborhood groceries.
“The old general store or the cracker-barrel store seems to have been fairly well swallowed up by the advance of progress,” said a writer for the paper. “With the advent of automation, computers and push-buttons, the small independent grocer, who once scooped up flour or pickles from a barrel has been swept up into the glamorized world of chain stores and supermarkets.”
Humphrey admits to a bit of nervousness as she ponders the opening of Hy-Vee and plans for even more stores. While the buy-local mantra sounds good and wholesome, it can easily be forgotten when a big-box competitor puts toilet paper or some other staple on sale, Humphrey allows.
If Humphrey’s Market has an advantage, it is in the realm of customer service and where-else-are-you-going-to-find-it. Take turduckens, for example. Humphrey’s didn’t sell the holiday delicacy consisting of a boned chicken stuffed into a boned duck stuffed into a boned turkey until a half-dozen or so years ago, when a customer asked for one. Sure, the store’s butcher said, and, after a bit of research into turduckens, Humphrey’s sold a grand total of one that year. Last year, the store sold 30, and Humphrey expects to sell even more this holiday season.
“It grows every year,” Humphrey says. “You’re making a customer happy.”
At Country Market on Wabash Avenue, Liz Havens, whose family has been in the grocery business since the 1960s, also counts on unique offerings such as Amish eggs, game and local meats to keep customers coming. Like Humphrey, she acknowledges concern at the number of supermarkets sprouting up. Unlike Humphrey’s Market, however, Country Market is already doing business in the shadow of a chain store, with a Shop ’n Save less than two blocks away, not far from Schnucks, and Havens is well aware of Hy-Vee.
“I am worried,” Havens says. “It’s just a fact of life: They’re all going to be within a three-mile radius.”
But chain stores don’t give away candy to kids at the cash register, nor do customers at big stores know the checkout clerk by name and vice versa. Bottom line, Havens says, her customers already shop at big supermarkets for some things, but they keep coming back to Country Market.
“We might get hit a little at first (by Hy-Vee) because it’s new and cool and everybody will go there,” Havens said. “We have good, loyal customers. I don’t think Hy-Vee is going to take them away from me.”
Contact Bruce Rushton at email@example.com.