the plan: Design a similar type format that would discourage Super Valy--and anybody else--from attempting to penetrate the Memphis market.
It's working, but there's an unexpected twist. While no major outside competitor has tried to plant roots in the region, the super warehouse store format developed by M&H is causing the very seismic upheaval it was designed to stop any competitor from creating. Megamarket is its name and it's taking Memphis by storm.
But not everyone is applauding. Particularly upset are local independents, most of whom are supplied and serviced by M&H. The way they see it, locking horns with Megamarket is not markedly easier than tangling with the likes of Cub. M&H, however, believes the long-term impact will be beneficial.
"The independents' niche is based essentially on convenience, service and stamps," says Peter formanek, executive vice president, retailing. "Recognizing this, we went all out in the months prior to Mega's opening to help these operators refine their niches. And in many cases, it actually lead to increased sales."
Meanwhile, M&H's entry into the super warehouse store arena carries deep ramifications for the nation's third largest voluntary wholesaler. Currently the franchisor of some 950 Piggly Wiggly supermarkets in 21 states, M&H is shooting to establish a coast-to-coast network of stores before the end of the decade. And it recognizes that the average Piggly Wiggly, as well as the typical independent it supplies, are the type of units that have come under increasing pressur from one-stop superstores and low price warehouse stores. The addition of Megamarket to its arsenal of formats represents a pivotal weapon in M&H's push for new marketing areas.
Clearly, Megamarket's relatively low development costs, larger inventory capacities and high volume capabilities make the format ideal for independents to build and operate. But M&H, while citing a long-term commitment to franchising the concept, has until now kept Mega in Memphis and uder corporate control to make absolutely certain that the early success was not a fluke. that strategy may reek of conservatism, but M&H didn't grow into a $2.6 billion conglomerate by making hasty decisions.
Whether Mega can raise the same clamor outside Memphis will be put to the test next month, when Peter Gregerson, owner and operator of alabama-based Warehouse Groceries, Inc., opens the first of three former Liberty supermarkets he recently acquired from the Montesi family. Ranging in size from 60,000 square feet to 74,000 square feet, the stores, located in Birmingham, will be converted to the Mega concept, supplied by M&H and introduced over a three month span. Million Dollar goal
While M&H will have to wait to find out if Mega will be a viable vehicle for its independents, there is no doubt that the format is causing profound change in the shopping habits of Memphis consumers. Mega I, which was developed by extracting elemets of existing super warehouse store formats and combining them with innovations conceived by the wholesaler's in-house design staff, was introduced last September at the site of a gutted conventional store. Since then, M&H has built one such unit from scratch, and another is slated to open in mic-June.
Mega II, which at 66,000 square feet is more than 40% bigger than Mega I, is currently generating closer to three-quarters of a million dollars a week in sales after only four months in operation. that's right in line with M&H's first-year projection, leading management to believe that Mega II will ultimately reach the $1 million a week mark.
To accomplish that goal, Mega II must continue to pull in the more than 20,000 shoppers a week it currently attracts. the store is located in a fast-growing community within 15 minutes of most of Memphis and M&H is hoping to draw a continually larger share of the quarter of a million people who live within seven miles of the store.
To attract those shoppers, weekly institutional ads, produced in-house, run in the city's leading newpaper. These are supplemented by 30-second radio and television spots highlighting Mega's low prices and top-notch quality.
Indeed, Mega does fit the mold of today's hottest format, providing low prices, high quality, full variety and hands-on service, all in equal doses.
Price is reflected in the comparison ads, which promise savings of up to 20%. Quality is highlighted everywhere, with particular emphasis on perishables. For variety, Mega features an extensive non-foods selection in its close to 20,000 items. Service permeates the entire store, from personal check cashing to custom cutting of beef by the store's 32 butchers.
Despite a payroll of more than 250 and wage rates that are union-scale, Mega II's high volume has helped the store maintain a labor to sales ratio of about 7%. The goal, says Formanek, is to get it down to 6%, a key factor in keeping overall margins significantly lower than rival stores. However, M&H knows that the profits lie in the storehs perimeter departments and a concerted effort is being made to keep grocery sales at its current level of 46%.
If imitation is the gratest form of flattery, then Super Valu must be pleased at Mega's resemblance to the Cub format, starting at the store's entrance. As in Cub stores, shoppers travel down a "Wall of Values" stacked with some 180 manufacturer deal items that are constantly rotated. throughout the store, the emphasis is on national brands, with private label and generics representing a paltry 600 items. The aisles, 92 feet long and slit down the middle to double the number of endcap displays, run perpendicular to the bank of 20 double-belted checkouts and four express lanes.
Non-foods, on the other hand, is extensive, ranging from a reading center to greeting cards to stationery supplies. together, general merchandise and health and beauty aids account for 4.5% of total store sales. 'Let them Eat Cake'
Where Mega truly distinguishes itself is in perishables, beginning with produce where some 230 items, mostly bulk, are displayed under direct lighting and rotated around the clock. The deli, where lunchmeat is pre-sliced and pre-stacked for cost-efficiency, features a fresh pizza counter that's been selling an average of 4,000 pizzas a week.
if sales per square foot is your thing, consider this statistic: By emphasizing six to eight high turnover items and pricing them 25% lower than the competition, Mega is generating more than $45,000 a week out of a 6-foot seafood section.
The bakey, the last department before the checkouts, is Mega's showcase. Primarily a scratch operation, it has a doughmaker that cranks out 3,200 rolls per hour and the oven capacity is a remarkable, albeit optimistic, two million cookies per day. Shoppers help themselves to rolls and bagels from self-service dispensers located across from the counter. A bright red neon sign in script invites customers to the bakery with the simple message: "Let the Eat Cake."
Meanwhile, the success of Mega II has prompted M&H to reinvest heavily into Mega I. Presently in a 46,500 square foot location in downtown Memphis, the prototype will move a few blocks away in Mid-July to the site of a former Montesi supermarket which, at 72,000 square feet, better fits the Mega concept.
While M&H insists that its mission is not to increase market share, but rather to prevent the infiltration of price-impact formats in Memphis by outside competitors, there's no denying that the company's hold on the city has been strengthened due to Mega's success. More important is that as formats continue to splinter off from the conventional mode, M&H has armed itself--and the independents it services--with a powerful weapon to compete against the chains.