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ADDED SERVICES TURN SUPERMARKETS INTO CENTERS

BY JIM MCCARTNEY

Cub Foods is adding QuickMedx health clinics to its stores.

Facing tough competition from Wal-Mart, Target and other discounters, grocery stores are increasingly adding such services as bank branches, pharmacies, fuel pumps, coffee bars, take-out food vendors and even in-store health clinics, beauty salons and spas.

“Wal-Mart and Target are getting into [grocery chains’] business by selling groceries, so they’re responding,” said Mike Scott, a retail broker at United Properties, a commercial real estate firm based in Bloomington, Minn. “They want to get as much under one roof as possible.”

As such, grocery stores themselves are becoming like little shopping centers, a development that leaves center owners with mixed feelings. The trend has forced developers to scale back their shopping center projects and made it tougher for landlords to lease space, says John Breitinger, general manager of retail investments at United Properties. The firm is general manager of a fund called Midwest Retail, which specializes in grocery-store-anchored shopping centers. Midwest Retail owns nine such centers in Minnesota, North Dakota and Wisconsin, and it has two under development in Lakeville, Minn., and Green Bay, Wis.

“It clearly takes away opportunities for us as a center developer,” Breitinger said. “If the grocery store is renting videos, offering dry cleaning services and selling flowers, it cuts into what we can do.”

Breitinger says that while he has tried to restrict this diversification of merchandise and services through restrictive-use lease clauses, the importance of supermarkets to his centers has restrained him from pushing too hard.

“There is always tension in negotiating exclusive-use clauses,” Breitinger said. “We want to limit them as much as we can, but the grocery stores really drive our development.”

The trend is the main reason that Midwest Retail’s new shopping centers have been scaled back to between 25,000 square feet and 30,000 square feet, significantly smaller than its older ones, which generally ranged from 40,000 square feet to 50,000 square feet.

Competition isn’t the only reason that grocery stores are adding services. They also want to cater to the demand for convenience from shoppers. Time-pressed consumers want to be able to accomplish several errands on one trip, Scott says. So if they can do their banking, pick up their drugs and get their stuffy nose checked out, all while they get their weekly groceries, that’s a big draw.

Grocery stores are thus bringing in the businesses they once might have operated next to in strip centers, observes Jim McComb, a Minneapolis-based retail consultant. Byerly’s, for instance, an upscale grocery store chain based in Minneapolis, has banking offices, a Northwest Airlines ticket office and a Caribou coffee shop in some of its new stores.

Banking was one of the first noncore services to be added to grocery stores.

Some grocery retailers built stand-alone stores so that they would no longer “have to worry about who their neighbors are,” Scott said. But many grocery store chains, such as Albertsons and Safeway, find themselves in financial trouble because of increased competition and the difficulties of integrating new acquisitions. That has also made it more difficult for them to finance their own projects, Breitinger says.

Cub Foods stores, one of the first grocery chains in the Twin Cities area to offer bank branches, recently opened a string of health clinics called QuickMedx in eight of its stores. The 120-square-foot QuickMedx kiosks, which sit on space leased from the grocery store, all have nurse practitioners and are open from 9 a.m. to 9 p.m. on weekdays, and 9 a.m. to 6 p.m. on weekends.

“This is really a new venture,” said Linda Hall Whitman, CEO of QuickMedx. “No one else around the country is doing it.”

QuickMedx clinics limit their treatment to about a dozen common illnesses, including strep throat, ear infection, pink eye, allergies, warts and flu. The company plans to double the number of maladies treated in the near future.

It is important to locate the clinics next to the in-store pharmacy, Hall Whitman says, so all of the Cub Foods stores that have clinics also have pharmacies.

“It’s about convenient and easy access,” she said, adding that the move seems, anecdotally, to have paid off for Cub Foods in increased customer traffic. Cub Foods is owned by Super Valu, a food retailer and wholesaler based in Eden Prairie, Minn.

“The majority of our patients are first-time pharmacy customers at the store,” she said, noting that patients can fill their prescriptions at any drugstore, but usually prefer to do it at the Cub Foods.

Since opening its first clinic two years ago, QuickMedx has served some 41,000 patients, about three-quarters of them new customers to the store. At $35 per visit, that breaks out to revenues of more than $1.4 million over that period.

QuickMedx has a busy year ahead, with plans to expand its treatments, launch a marketing campaign, improve its computer systems and open clinics at corporate sites and on college campuses. Once that’s accomplished, the company plans to look at rolling the concept into other states, Hall Whitman says. Other possible locations include airports and drugstores. Travelers are a good market for these services, she points out, because they don’t know where to turn when they get sick away from home.

“I had a woman who told me she was out of town and had strep throat, and ended up having to wait three hours and pay $500 to get it treated,” Hall Whitman said.

Meanwhile, supermarkets are diversifying in other ways. Albertsons, Safeway and discounters like Costco and Wal-Mart have introduced fuel pumps at their stores in recent years. Albertsons offers pharmacy services as well. The chain now has 1,562 supermarkets, 705 drugstores and 174 fuel centers, most of them in conjunction with each other.

“They want to catch the customer for whatever reason he needs to stop,” Scott said.

Banking was one of the first outside services to be added to grocery stores. TCF Bank opened its first such branch in a Cub Foods store in the Twin Cities in 1988. Now the Minneapolis-based thrift has joined Bank of America, Wells Fargo and U.S. Bank as a supermarket banker.

“The reason we like it is that the same people come in every week,” said TCF spokesman Jason Korstange.

Grocery store shoppers, like bank customers, are creatures of habit; they typically do their errands on a weekly basis. Though discounters like Wal-Mart and Target may get a lot of customers through their doors, the base of shoppers is not as regular or predictable, Korstange says.

Five years ago, TCF bought out Bank of America’s contract for branches at Jewel Osco stores in Chicago. Now TCF has 238 full-service supermarket bank branches, most of them in the Twin Cities and Chicago areas. The company opens about 20 to 25 branches inside supermarkets per year, mostly at Jewel stores (owned by Albertsons) and Cub Foods stores, Korstange says.

TCF posted $160 million in supermarket banking fees and other revenues from those stores, as well as booking some $1.5 billion in deposits and $369.4 million in consumer loans in 2002.

Return on investment is better for its supermarket branches than for its stand-alone branches, the company says.

TCF promotes itself in various ways, sometimes offering customers gifts through its supermarket landlords (free turkeys, for instance) for opening an account.

“We also have our representatives in the aisles talking to people, telling them about the special offers,” Korstange said. “You have to act like a retailer.”

St. Paul, Minn.-based Kowalski’s recently added a variety of outside vendors leasing space in its new, 48,000-square-foot store in Woodbury. Among them are Tejas Express (an offshoot of the Tejas southwestern cuisine restaurant in downtown Minneapolis), a Panino’s Italian restaurant, Starbucks and Juut SalonSpa, a full-service salon. Juut has salons in the Twin Cities and California, but never before in a grocery store, says owner David Wagoner. Right below the spa, which is on Kowalski’s second floor, is Wagoner’s Aveda shop, which sells hair and skin care products made from plant derivatives and serves as the check-in point for spa customers.

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