PRINT THIS STORY:

CHANGE TEXT SIZE:

EXTREME VALUE A WINNING STRATEGY AT SAVE-A-LOT

How do you keep from falling prey to the grocery industry’s discount category killers? Become one yourself.

Of course, Save-A-Lot CEO Bill Moran wasn’t worried about the Wal-Mart Supercenters of the world in 1977 when he opened his first off-price grocery store in the blue-collar town of Cahokia, Ill. They did not exist yet.

It was the supermarket chains of the era, and a sizable consumer niche that was not getting addressed that captured his interest.

“I felt some customers were not being served by conventional grocery stores,” said Moran, who remains CEO and president of the St. Louis-based “extreme value” retailer.

Moran saw something else, too: an opportunity to create a format that “would give independent nonchain grocers and other entrepreneurs a chance to compete against emerging mega-chains.” So he melded the two ideas and began expanding his Save-A-Lot concept.

The result was a fleet of about 1,250 franchisee- and licensee-operated stores in 39 states, with annual systemwide sales in excess of $4 billion and a capacity to eventually double the current store count.

At an average span of 15,000 square feet, Save-A-Lot units are modest compared to the 200,000-square-foot behemoths that rule much of the discount turf. And they are about a third the size of supermarkets. “Our smaller stores help shoppers get in and out quicker,” said Moran. “You save time and energy.”

You also save money — up to 40 percent, compared with conventional stores. A price sampling at the Dallas-area Save-A-Lot yielded bananas at 19 cents a pound, packs of Fairground thin-sliced meats at 19 cents each and 34-ounce bottles of Valentina Mexican Hot Sauce for less than a buck.

It doesn’t hurt that Save-A-Lot’s operations are fortified by Minneapolis-based parent Supervalu, the nation’s largest food wholesaler, with annual revenues in excess of $20 billion. Supervalu, which also owns Bigg’s, Cub Foods, Farm Fresh and Shop ’n Save, acquired Save-A-Lot when it bought out wholesaler-retailer Wetterau in 1993.

The deal apparently worked out well for both, says Chuck Cerankosky, a retail analyst at KeyBanc Capital Markets. “Save-A-Lot has good economies of scale, it’s a dedicated subsidiary with its own buying organization, it’s nonunion and entirely self-contained at warehouse and store levels,” he said.

Save-A-Lot’s so-called extreme-value approach targets households with annual income of under $35,000, a demographic representing about 44 percent of U.S. homes, the chain says. It can best serve its niche, it says, with an “edited” line of 1,250 basic grocery, meat and produce items that shoppers buy most often, versus the 40,000-plus products supermarkets carry.

Such abridgement allows company buyers to better track goods sales and negotiate lowest prices. A recent market study in St. Louis turned up a leading conventional grocer that carried 70 different sizes and varieties of mustard. Save-A-Lot carries one yellow and one brown-and-spicy mustard.

Like fellow discount grocer Aldi Foods, which has 700 similar stores in 26 states, Save-A-Lot keeps overhead low by locating in sub-prime real estate located primarily in second-tier shopping centers, says Cerankosky.

“In urban and rural environments either abandoned or ignored by conventional grocery chains, Save-A-Lot may be the only store in the market,” said Moran. The chain takes its good citizen role especially seriously in such retail-deprived areas, he says.

Despite its successful track record, the retailer is not averse to tweaking its model. It has built several ground-up stores in prime locations in new and existing markets, including relocations from neighborhood centers, says Dan Kimack, a company spokesman. The chain is also in the process of retrofitting stores with new exteriors and interiors, including brighter colors and new signage. Many Save-A-Lot licensees operate a single store; others own dozens, Kimack says.

In 2002 the retailer acquired the Deals — Nothing Over a Dollar chain. It used that chain’s procurement savvy to add everyday general merchandise, including $1 books, CDs and decorative items to the Save-A-Lot aisles. It thus created what Moran calls a “treasure-hunt experience.” Similarly, the 135 remaining Deals stores beefed up their own post-acquisition food offerings to include produce as well as refrigerated and frozen products.

Linda Flores, a regular at the Pantego, Texas, store, drives weekly from her east Fort Worth home seeking bargains at both Save-A-Lot and a Wal-Mart Neighborhood Grocery across the street. “Between the two, I can save almost $200 a month,” said the mother of four.

Save-A-Lot is one of the nation’s leading retailers for Banquet, Sara Lee and Totino’s products. “We also have tremendous volume when it comes to Save-A-Lot’s exclusive brands,” said Kimack. “We sell more than 16 million units of name-brand chicken pot pies and more than 40 million units of Save-A-Lot’s exclusive Wylwood canned vegetables annually.”

Save-A-Lot coexists with Wal-Mart, says Kimack. And like Wal-Mart, he said, “we have a laser-like focus on driving down costs from start to finish.” Save-A-Lot uses its own procurement economies of scale, despite being owned by Supervalu.

The chain, which has 16 distribution centers, continues to grow. It recently entered Minnesota, New Mexico and Wyoming, and increased its presence in the Dallas-Fort Worth area with the acquisition and conversion of 17 former Grocery Outlet stores.“We will continue to backfill in successful states like Florida, Kentucky and Ohio and in successful cities like Philadelphia, Chicago, New Orleans and Detroit,” Kimack said. “We have the capacity to double our store count.”

  — SM