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SUPER SUPERMARKET

High-end Wegmans as beloved by its landlords as by its customers

BY FRAN LeFORT

Carin Kopp lives in Kings Ferry, N.Y., near plenty of supermarkets, but she drives more than 10 miles each way to buy her groceries at a Wegmans in Auburn.

“Whenever I get into another market I always grumble,” she said. “They never have enough lines open, and often their produce isn’t as good. And I just love the customer service at Wegmans. It’s consistent.”

In an age when time-pressed consumers are less willing to travel long distances to buy essentials, Wegmans Food Markets is bucking the trend. The draw for grocery stores is typically less than a three-mile radius. But a Wegmans is likely to pull in customers from as far as 20 miles away.

Upon stepping into one of the chain’s stores, a customer might see why. About half of the Ithaca, N.Y., store — a newer, larger format — contains produce, an artisan bread and pastry shop, sushi and coffee bars, and a two-level, 200-plus seat restaurant.

In its 90-year history, Wegmans, whose sales rose 9 percent last year to $3.3 billion, has grown from one produce pushcart in Rochester, N.Y., to a 67-store chain operating in four Northeast and mid-Atlantic states.

With many of its stores averaging between 120,000 and 130,000 square feet today, compared with about 75,000 square feet 20 years ago, Wegmans is proving that bigger is sometimes better.

The large Wegmans stores allow for a lot more variety and excitement, says Matthew P. Casey, owner of Clark, N.J.-based Matthew P. Casey & Associates, a grocery market and real estate research firm.

“For example, their cheese department probably has five times more variety of cheeses as their next closest competitor,” Casey said. “You don’t need to go to the local bakery, because the Wegmans bakery is better. You don’t need to go to the Chinese restaurant, because they have a Chinese buffet.” The chain’s cleanliness and service are hard to match, he adds, because “they’re not afraid to bulk up on labor hours.”

Wegmans caters to families with small children. It offers sanitizers for germ-laden shopping cart handles, candy-free and family-magazine-only checkout aisles, and, in some stores, free balloons and sitters.

High ends, midprice means
For all this, Wegmans customers aren’t paying higher prices, says Michael Baker, principal of Syracuse, N.Y.-based Independent Retail Research. In the central New York market, for example, both Wegmans and Wal-Mart offer Lays potato chips for $2 a bag and a gallon of fat-free milk for less than $2.

“I sometimes fall into the trap of calling it a high-end store, but it’s really not, in terms of its price,” Baker said. “If you took a whole bunch of prices, the average price level is not going to be as low, but you don’t really pay a significant premium. I don’t really know if there is a grocery store around that can improve on it.”

With Wal-Mart taking the lead on low prices, the ability to meet consumer demand is critical to building loyalty and maintaining success in the grocery sector, says C. Britt Beemer of Charleston, S.C.-based America’s Research Group. “The broad selection is a core strength for Wegmans,” Beemer said.

Because the stores are so big, in fact, one of Wegmans’ main obstacles is space limitation. A facility with parking for at least 800 vehicles requires about 15 acres.

“It’s a challenge in the Northeast to get five or seven acres for a supermarket,” said Douglas C. Steiner, president of Steiner

Equities Group, a Roseland, N.J.-based retail, office and warehouse development firm. “They need a whole lot more, and it makes it that much more difficult to find the right location for them.” Wegmans is among the anchors of two New Jersey Steiner Equities power centers in Manalapan and Bridgewater.

With space constraints becoming more of an issue, especially in the more densely populated areas where Wegmans is starting to expand, the real estate team is pressed to become more resourceful and creative. Of late, the chain has been redeveloping obsolete manufacturing facilities. In Williamsport, Pa., for instance, Wegmans demolished a century-old boiler factory to put up one of its stores, and a multitenant industrial plant gave way to a Wegmans unit in Buffalo, N.Y.

The retailer prefers to buy land and build, though in many cases it leases because of the scarcity of sufficiently large spaces, says Ralph Uttaro, Wegmans’ senior vice president of real estate. Freestanding sites work just as well as shopping centers, he says. “We are a strong enough draw that we don’t necessarily rely on other tenants to bring in traffic.” Even so, Wegmans’ preferred co-tenants are Barnes & Noble, Borders Books, Home Depot Expo and Kohl’s.

Wegmans does not like to be a co-anchor with a supercenter, Uttaro says, though he notes that in a project under way in Mount Laurel, N.J., the chain is doing just that with Costco, for the first time. “Although we compete with them, this is a very large project, and they, like us, draw customers of the same type from a long distance,” he said. “So our feeling is that we would rather be in the same center to benefit by the draw rather than locate a mile away from them.”

Slow hand
Wegmans aims to grow slowly and methodically, so it is not likely to overheat. The chain opened just two stores this year, one in Sterling, Va., in February, and the other in Ocean Township, N.J., in November. Including the one in Mount Laurel, Wegmans plans to open three more by the end of next year. The other two will be in Fairfax, Va., and Hunt Valley, Md.

“That’s our strategy for the next two to three years, Uttaro said. “The reason we don’t want to open more than that is because we spend a lot of time hiring and training people. A lot of them are skilled positions.” Wegmans seeks sites with populations of at least 50,000 within a three-mile radius and where yearly household income exceeds $80,000. The company is now targeting the densely populated mid-Atlantic region, Uttaro says.

From a developer’s standpoint, Wegmans is a “dream tenant,” according to Steiner. “We think they’re the best in the business. Their real estate group is really smart and very empowered and very honest, and I think those qualities are rare these days.”

Uttaro describes Chairman Robert B. Wegman and President Daniel R. Wegman as being hands-on managers who look at every site before signing off on any real estate deal.

Industry observers agree that Wegmans private status allows it to pursue a long-term strategy rather than being hindered by the quick-profit demands of shareholders.

“If you’re privately owned you’re freer to experiment,” said John Haake, owner of ESH Consulting, a Troy, Mich.-based market research firm.

One of the company’s significant investments is in its private label, which includes everything from spices to organic foods.

“I’ve noticed in their dry goods they have a lot of Wegmans brand merchandise, more than a lot of stores, which probably means they have a lot of profit margin there,” Haake said. “I think they tend to stock more of their own brands, and those are very good.”

Courtney Ritter, a shopper from Ithaca, seems to think so. “Except for cereals, I buy the Wegmans brand,” she said. “I think sometimes the off brands are a little cheaper quality, but the Wegmans brand is consistently good.”

One thing Wegmans will need to keep an eye on as it expands into new areas is merchandising to specific customers, says Haake.

“In some areas where there are more ethnic groups and customs, in your large metropolitan area, you have to make sure you merchandise to the area you serve,” Haake said, noting this has not been something the chain has had to grapple with in upstate New York. But “Wegmans can do it.”

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