GM/HBC

Changing consumer needs, combined with ever-increasing competition from mass merchandisers, drug chains and category killers, are causing supermarket retailers to rethink and reallocate space in their GM/HBC departments.

Such retailers as Kroger Co., Cincinnati; Albertson's Inc., Boise, Idaho; and Supervalu Inc., Eden Prairie, Minn., are either supplanting some traditional departments with those more in tune with the needs of their consumers, or repositioning entire sections within their floor plans. This is being done both as remodeling in existing stores or reconfiguration of space allocation in new stores.

The escalation of health-related departments has been especially significant in this movement of SKUs and merchandise. The natural products industry, which includes personal-care products, dietary supplements and herbal offerings (as well as natural and organic food and beverages), has experienced double-digit growth every year since 1992, according to industry analysts.

In one Kroger supermarket in Savannah, Ga., the video rental department recently was eliminated to make room for expansion of the natural products and herbal supplement sections. These are located adjacent to the in-store pharmacy, providing Kroger with an expanded area encompassed by a whole-health banner that the company is developing chainwide.

"We are deeply committed to this product section," says Susie Brower, regional public relations manager for Kroger. "It will be huge in all our new stores and all our remodeled stores."

Kroger already had planned to increase the space allotted to its whole health section, but was spurred on by a growing demand from consumers for such products, Brower says. "It's more like a health foods store inside the Kroger. The idea is to have it all together. There's no ceiling to the market for natural and whole foods, organic products and herbal supplements."



A similar concept is being introduced into new and remodeled stores by Furrs Supermarkets Inc., Albuquerque, N.M. The "New Plaza Market" concept includes drive-through pharmacies, expanded OTC and HBC merchandise and in-store nutritionists.

"This is a very competitive business," says Tom Dahlen, Furrs president, CEO and chairman. "To continue to maintain our market leadership, we can't stand still."

Lund Food Holdings, Edina, Minn., literally took the reallocation of existing space to another level. The company converted second-floor office space being used by store managers in its Lake Street supermarket in uptown Minneapolis into a 3,300-square-foot health center. The Loft, as it is called, includes the Fairview HealthWise Center, which has treatment rooms for massages, physical therapy, and acupuncture, and classrooms where experts share information on traditional and alternative health-related issues, remedies and treatments; a Sola Squeeze juice bar; and a Living Wise whole health department that combines natural and organic GM/HBC products with wellness services.

"In general, Lunds offers a lot more natural and organic SKUs than most stores," says Bea James, Lunds' whole health manager. "We've seen a dramatic increase in weekly sales in this area throughout the chain."

Lund Food Holdings, which operates seven Lunds and 11 Byerly's stores in the St. Paul-Minneapolis area and a Byerly's in St. Cloud, Minn., has added nearly 6,500 new natural, organic and whole-health-related products this year, and currently carries about 8,400 such products overall. The items are integrated throughout the store, as op-posed to being segregated in a natural products section. This decision was done to attract the widest range of consumers, James says.

"We don't want to target just those people who come in specifically for natural and organic food, beverages and OTC and HBC products. We want to expose all of our customers to these products," James says. "We're finding that, in all of our stores, the growing demand by consumers and the expansion of these SKUs is going hand in hand."

The Loft, which opened in September, could be expanded to other Lunds and Byerly's stores if the demand is there, James says.

"When you see that a large segment of your local population is well aware of whole health, natural and organic, as is true in the Twin Cities, it certainly makes sense to expand those sections in your store to attract those consumers," according to James. "But, again, our intention is to offer healthy products throughout all of our stores to all of our customers."

Albertson's says it has seen space reallocation translate into higher sales.

In some stores, it moved the pharmacy into a corner location accessible via its own street entrance, which has resulted in sales increases as high as 23%. Albertson's will probably add fuel centers adjacent to some drugstores in the future to take advantage of high-volume consumer traffic, according to Gary Michael, chairman and CEO.



ccessibility and high-volume traffic also were factors in the decision to include a 2,000-square-foot Cub Express convenience store within the 85,000-square-foot Cub Food & Drug supermarket that opened in West Omaha, Neb., in June. A division of Supervalu, the Cub Express has 2,500 SKUs, its own entrance from both outside and inside the supermarket, a separate register, and its own parking spots in the main parking lot.

In some cases, supermarket retailers are tracking space allocation changes in competitive formats before committing to similar changes. Walgreen Co., Deerfield, Ill., for example, has started to phase out liquor departments from most of its nearly 3,000 stores nationwide, replacing them with convenience food, HBC or photo centers.

"We feel we can make much better use of that space with other categories more core to our business," says Michael Polzin, a Walgreen spokes-man. "There are some areas where we are going to sell liquor. But we're expanding our photo department and OTC health items, such as vitamin supplements."

Monthly sales figures at supermarkets in Japan have fallen for about two consecutive years, which has forced local retailers to go out of the box to find ways to attract customers.

Daiei Inc., Tokyo, Japan's number one supermarket chain, has been talking with Fast Retailing Co., which runs Uniqlo, a chain of popular clothing stores, about opening its clothing outlets in Daiei markets. That is part of Daiei's strategy to rent out more than 10% of its total floor space to tenants during the current fiscal year, which runs through February 2001.

to-Yokado Co. Ltd., Tokyo, another of Japan's leading supermarket chains, has rented out space in its new Koto Ward store to Tokyu Recreation Co., which will operate an eight-screen cinema complex with a total seating capacity of 1,600.

Some reallocation concepts are less a matter of replacing existing departments with new ones and more a matter of coordinating the efforts of several sections into one destination location. One idea currently being tested relates to birthday/celebration purchases. Household expenditures typically range up to $150 for children's celebrations, while such milestone events as anniversaries, annual holidays, engagement parties and even Super Bowl festivities can cost $300 to $400 per occasion, according to "Birthday/Cele- bration Best Practices Consumer Research Report," released by the General Merchandise Distributors Council (GMDC) at its GM Marketing Conference in Orlando in June.

Even if the birthday/celebration category related to these festive occasions is only 1% of all the multi-categories–including such GM items as paper goods, utensils, balloons, flowers, candles, disposable cameras, film and party favors–it adds up to billions of dollars annually, according to GMDC.

Several supermarket chains currently are testing various birthday/celebration concepts under the auspices of GMDC.