Analyst On Grocers' Hurdles

Jacksonville, FL-based Winn-Dixie filed for bankruptcy last February and has since announced 326 store closings, leaving it with 587 units. "I expect them to definitely come out with another round of closings," says Wachovia Securities supermarket analyst Bryan Hunt. "They need so much capital to fix their asset base, so when they do come back [from bankruptcy], they're going to struggle immediately."

Hunt and other industry observers spoke during a panel on the grocery industry that focused primarily on the marketshare traditional supermarkets have lost to emerging players in the sector, like discount and convenience stores, as well as high-end chains. In 1988, traditional supermarkets accounted for 90% of food sales, but now they only have half of the market, according to Hunt. "Every channel you look at is outpacing traditional supermarket growth," he says.

But traditional grocers aren't sitting on their laurels. They are adding organic sections and technologies such as self-checkout and pay-by-touch to their stores. Chains like Safeway are also rolling out renovated prototype units to attract shoppers.

Consolidation, like last month's announced acquisition of Albertsons by Supervalu, will also help the sector because the weaker chains will be weeded out, Hunt says. "We think the industry is more dynamic than it is a dinosaur," he says.

Earlier at the conference, speakers focused on a variety of chains with big growth plans.

Best Buy, in particular, is launching several new concepts to attract customers that don't already shop at its 733 superstores, even though they plan to add 75 to 80 of those units in the US this year. The Minneapolis-based retailer has opened one 5,000-sf Studio D, in Naperville, IL, which targets women ages 25 and older, offering digital imaging services, such as scrap-booking. Escape, with one 5,000-sf store in Downtown Chicago, targets men ages 24 to 29 who are looking buy the newest technological gadgets before they are mass marketed. Finally, Eq Life, with three units in the Minneapolis area, markets tech products that promote healthy lifestyles.

Dana Cohen, a Banc of America retail analyst, says Chico's FAS, of Fort Myers, FL, has plenty of room to grow with its Soma lingerie concept. There are currently 15 stores in the chain with plans to open an additional 20 this year. It has room to grow, even in the presence of sector-leader Victoria's Secret, Cohen says. "Department stores still haven't gotten their act together in the lingerie area," she says. "They keep saying they will, but to date, they have not."

The panel also highlighted Ashley Furniture, an Arcadia, WI-based chain that currently has 220 units and is planning an additional 100 per year. "If you haven't heard of these guys, you're going to hear about them a lot more," says Michael E. McCarty, president of Simon Property Group's community and lifestyle centers division.