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Frozen food at membership clubs: limited selection, great prices.

Frozen Food at Membership Clubs: Limited Selection, Great Prices

At B.J.'s Wholesale Club in East Rutherford, New Jersey, recent frozen food attractions included 48-ounce Michael Angelo's deluxe calzone at $7.89 and 53-ounce Stouffer's classic lasagna at $7.75.

If you didn't feel that hungry, other frozen items at the deep discount operation were more accommodating: four-packs of Budget Gourmet dinners for $5.76, and nine Sabatasso's 9.6-ounce deep dish pizzas for $7.76: eat one tonight, save the rest for other days.

Membership clubs are the fastest-growing retail phenomenon in the United States. Sales last year totaled $23.2 billion, up 34% from $17.25 billion in 1989, and projections this year are for another 27% increase, to $29.5 billion. All that business will be generated by about 530 outlets this year.

Less than four million people belong to membership clubs, usually at a fee of $25, but they spend a lot. Between 25% and 30% of the club members are "wholesale," buying goods for resale at restaurants or other outlets, but they account for 60-70% of the volume - which explains, among other things, the emphasis on foodservice packs.

Membership clubs typically operate stores of at least 100,000 square feet, but with limited assortments of goods - the average number of SKU's is 3,500 vs. 20,000 to 30,000 in a supermarket, and that will usually include things like appliances, clothing and automotive supplies that a supermarket wouldn't carry. A lot of items move in and out fast; if you find a cheap microwave oven one week, it won't be there the next.

Frozen food SKU's at membership clubs average 125. Doesn't sound like much, but frozen items account for 37% of the perishables area, and perishables claim 47.9% of sales in all foods and sundries, according to James M. Degen & Co. The same research firm breaks down the average SKU's of FF as 22% dinners, 17% meat, 15% poultry, 11% seafood, eight percent each fruits/vegetables and desserts, five percent pizza and three percent juices.

But the mix of frozen food is changing, said Gerald P. Guerin, president of Monterey Marketing, Inc., Pacific Grove, Calif., a brokerage specializing in the membership club market. For example, more clubs are establishing in-store bakeries, and that means that baked goods are moving from the frozen to the fresh section - "An in-store bakery will sell seven times as many pies as a freezer." Gaining prominence, Guerin said, are convenience foods aimed at individual members.

A number of items are being designed specifically for membership clubs, he told Quick Frozen Foods International, as opposed to the straight foodservice packs that have dominated the market. Clear Springs Trout Co., Buhl, Idaho, for example, is "entering the water" with membership club packs. Colonial Beef Co., Philadelphia, Pennsylvania, had already developed portion-controlled meat products in cryovac trays (You can see the meat from both sides), and Marie Callender, Los Angeles, Calif., has been putting up frozen versions of its restaurant entrees.

One of the fastest-growing frozen categories at membership clubs is Mexican foods, Guerin said - "It's eclipsing our best dreams." He expects other ethnic foods, especially Oriental, to be next. Italian pasta dishes will continue to be strong, he predicts. So will pizza; but the emphasis will be on smaller sizes, and there will be challenges from other snack items such as calzones and bagel bites. "The catch-all is that a product needs to be hand-held, microwaveable, individually wrapped and resellable," he quipped.

"Resellable" means that wholesale members as well as "group" (really individual) members can use the product. "The challenge is to make it as convenient as possible, to pick up both the wholesale member and the consumer," Guerin said. Thus the need for items like individual pre-portioned lasagnas in a six-pound tray pack. Individual portions in large packs are especially popular in places like Florida, with its large senior citizen population, he told QFFI.

Most of the membership club business is done by the Big Four: Sam's Club (formerly Sam's Wholesale Club), owned by the Wal-Mart discount chain, Bentonville, Arkansas; Price Club, the first operaton of its kind, based in San Diego; Costco, a fast-growing chain out of Kirkland, Washington; and Pace, based in Aurora, Colorado, but acquired last year by Troy, Michigan-based Kmart. Actual 1990 and anticipated 1991 sales volumes for the Big Four are $6.5 billion ($8.2 billion) for Sam's, $6.2 billion ($7.5 billion) for Price Club, $4 billion ($5.7 billion) for Costco and $3 billion ($3.8 billion) for Pace.

Price Club (named for the Price brothers, Sol and Robert, not for low prices, as one might assume) opened its first outlet in 1976. Originally, the concept was aimed strictly at wholesale members and a few well-heeled individuals, but the reach of membership clubs has expanded since then. Even so, the membership fees (intended to screen out deadbeats, rather than to contribute significantly to club income) encourage only those with money to spend to join up.

"This is yuppie heaven," The New York Times quoted a Price Club member in Gaithersburg, Maryland. But only for yuppies with a lot of room in their homes, and freezers. An attempt to start a membership club in Manhattan flopped, the Times said, because the "lack of storage space in New York apartments and the relatively small size of families make New Yorkers less than ideal customers for bulk-food stores." Those who do have the room, or the extra mouths to feed, can slip across the Hudson River to B.J.'s.

The Northeast generally is the only region of the United States that is relatively virgin territory for membership clubs. In the West, South and even the Midwest, they have been springing up like mushrooms - creating concerns that they might oversaturate the market. So far, that hasn't happened - competing stores in the same areas have created more business, rather than cannibalizing existing business, and weekly sales volume per store increased last year for all of the Big Four (from $2 million to $2.17 million for Price Club, $910,000 to $1.07 million for Costco, $680,000 to $940,000 for Pace and $760,000 to $840,000 for Sam's.

Still, there may be a slowdown coming. Price Club's per-store volume is expected to slip this year to $2.13 million, while those for Pace and Sam's will grow modestly to $980,000 and $900,000. Only Costco is forecast to have a substantial increase, to $1.31 million. Moreover, even one of the frozen food suppliers - Sabatasso Foods, Inc., Santa Ana, California, which was named vendor of the year for 1989 by Sam's Wholesale Club - is seeing limits to growth.

"The industry will reach maturity sooner than the prognosticators say it will," opined Tom Caron, spokesman for Sabatasso's parent company, Tony's Pizza Service, Marshall, Minnesota. While Guerin may still see wide-open growth (as did the investment firm Goldman Sachs of New York, in a financial study two years ago), "that's Gerry's opinion," as far as Caron is concerned. Continued growth in club store openings doesn't prove anything, he told QFFI: "There will be too many gas stations in a town before they stop building gas stations."

Another factor that could slow membership club growth is competition from conventional supermarkets and discount stores. In the Times story, it was disclosed that a ShopRite near B.J.'s actually charged less (40 cents vs. 60 cents) per pound for Uncle Ben's converted rice, and came close to matching B.J.'s (at 17 cents an ounce vs. 16 cents) on Cheerios. Both charged 89 cents a roll for Bounty paper towels. On the other hand, B.J.'s was way, way below ShopRite on Stouffer's lasagna - 11 cents an ounce vs. 23 cents.

Of course, those ShopRite prices were apparently deal prices in most cases - not everyday prices. And membership clubs aren't content to sell on price alone: they merchandise goods. One method is in-store demonstrations - in its 1989 vendor of the year award, Sam's cited Sabatasso for having put on 4,776 demonstrations. The award also cited redesigned packs for improved presentation, outstanding participation in new club outlet openings, and participation in the 1989 and 1990 Sam's year end meetings. Result: a 31% increase in sales over the year.

To appeal more to ordinary consumers, some membership clubs are offering full-line pharmacies and optical centers - both high mark-up departments. Goldman Sach's study saw an increasing "tilt to retail" in club operations, and this is reflected in the tilt towards frozen convenience foods as well as in-store bakeries and deli departments in many stores. It doesn't even take convenience packs: assuming enough freezer space, a consumer can easily use a four-pound pack of Mrs. Paul's fish fillets ($7.25 at B.J.'s) - just eat them a few at a time over weeks.

Some categories haven't caught up to the trend. What's an average consumer going to do with a three-pack of Superior frozen corn or peas, when that's three 2.5 pound packs, even if the price is an attractive $5.93 at B.J.'s? Ditto a four-pound Green Giant almond chicken at $11.97. Still, that kind of thing goes great with foodservice distributors - like Janice Crouse of Elite Cuisine Distributors in Miami, who told the Times she buys her supplies as needed at a Costco outlet and thereby doesn't have to take up her own freezer space.

The variety of frozen food available at membership clubs may increase if club stores themselves get bigger. Guerin said the latest outlets tend to be 130,000 square feet instead of 100,000 and that "as individual purchases of frozen foods go up, they'll add freezers when sales reach a certain level." A lot of QFF companies that aren't already selling to membership clubs are really keen on doing so, he added.

Guerin revealed that his company has invested six years and $1 million in software in developing a sophisticated tracking system for frozen food in membership clubs. Any product can now be tracked for sales by location and variety; the brokerage can tell, for example, whether there's a preference for sausage calzone in Chicago vs. cheeze calzone in Boston, and target each market accordingly.

Because turnover is so rapid at membership clubs - two or three turns a month, more in larger units - suppliers really have to keep on the ball to avoid out-of-stocks. And the clubs, in turn, can't afford to waste limited freezer space "carrying things they shouldn't be carrying in the first place."
COPYRIGHT 1991 E.W. Williams Publications, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
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Title Annotation:Frozen foods in North America
Author:Pierce, J.J.
Publication:Quick Frozen Foods International
Date:Oct 1, 1991
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