March 20, 2007
As the Michigan Grocery Chains Turn
The one thing you can say for certain about the Michigan grocery business is it certainly isn’t boring. In fact, if it gets any less boring it may take a scorecard to keep up.
Farmer Jack is continuing to tank and its stores (the current count stands at 66) have been put up for sale by The Great Atlantic & Pacific Tea Co. (A&P), although the chain has refused to comment. Among those listed as possible suitors for individual locations is Grand Rapids-based Spartan Stores.
Speaking of Spartan Stores, the wholesaler/retailer announced yesterday it has entered into an agreement to buy 20 retail grocery stores, two fuel centers and three convenience stores, from G&R Felpausch Company, another Michigan-based chain.
Spartan’s acquisition, which the company expects to close in the first quarter of 2008, comes on the heels of it buying 16 D&W Food Centers last year.
Craig Sturken, chairman, president and chief executive officer of Spartan Stores, said in a press release, “Sustained profitable growth through prudent retail acquisitions is a component of our ongoing and core business strategy… The Felpausch stores serve many communities where we currently have no retail presence. They also provide an outstanding geographic fit with our current retail store footprint, while providing expansion into central Michigan.”
While Spartan is busy getting bigger and Farmer Jack is looking to start getting busy, Meijer has been actively looking to differentiate itself from grocery competitors, including the number one perceived threat – Wal-Mart’s Supercenters. Among the company’s recent initiatives are the introduction of the U.S.D.A. certified Meijer Organics line, its “Outside the Mainstream” local musical artist promotion program, a partnership with The Nature Conservancy to point consumers to non-invasive plant varieties, a “price drop” program on 5,000 items last July, and a test of RFID-tagged shopping carts to better understand, for example, how to move consumers more quickly through the checkout.
Discussion Questions: What’s your take on the goings on in Michigan’s grocery industry? What chain story do you find most interesting and why?
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I am not in the grocery or food business but I am in the marketing business. There is no difference between any of the “big box grocers” such as Wal-Mart and Meijer and the Farmer Jacks and Krogers of the world. And I am sure no different than any other market in the U.S. that has a Publix, Albertsons, Ralphs, Vons or Winn Dixie. The value proposition for me goes well beyond stocked shelves, good product selection and quality produce. What I value most is superior service and a knowledgeable staff. Shopping at Farmer Jack is like going into a vast warehouse like Home Depot where you cannot find any help. There is a Farmer Jack a stones throw away from my home. I’d much rather jump in my car and drive to a family-owned (which Farmer Jack once was) operation such as Holiday Markets for a much better experience. There are others in the region as well, such as Busch’s. On a national level, it’s Trader Joe’s.
Everyone is talking about how troubled the Michigan grocery industry is! Wake UP everyone, we are talking about a state that has large grocery store operations run by companies still based in Michigan. How often can you still find that in the United States? We are talking about a market, minus the Farmer Jack and Kroger stores, that performs very well. There is more to Michigan than Detroit.
As the 2nd largest metro area in Michigan, West Michigan Grand Rapids Metro area is swiftly approaching the population of Metro Detroit. Grand Rapids is transforming from an industrial town to a medical/science research city with a large medical campus in the downtown area. This brings in jobs with higher pay levels and more customers who are willing to shop at more upscale grocery chains. D&W has already had an upscale niche in Grand Rapids metro, but Meijer has never been looked at as a downscaled store in Grand Rapids either.
Spartan Stores has developed very clean models for grocery stores…their layouts are clean, their technology is supreme and the product selection is outstanding…it can be compared to Strack and Van Til in NW Indiana who also operates outstanding independent grocery stores.
Spartan Stores caters to the needs of Michiganders…and this is especially evident in Western Michigan with D&W. D&W has many stores which feature Starbucks, in store cafeterias and organic groceries. Based on a recent visit to Grand Rapids, I could barely find a seat to eat at D&W at lunch time, so these are highly successful.
Let’s not also forget Spartan’s Family Fare (Grand Rapids/Holland), Tom’s Markets (Traverse City) Harding’s Market (Kalamazoo area), and Glen’s Markets (NW Michigan). Their stores are constantly renovated, they carry exclusive Michigan products and they have great customer service. Based on my vacations in Northwest Michigan, some of the small town grocery stores run by Spartan have more innovative store design and technology than many of the Big 3 Supermarket operators…everything from innovative lighting, to superior POS systems to unique product selections.
Harding’s Market should especially be noted for having 2 stores, Wayland, MI and Kalamazoo West Main, that have outstanding interior design and merchandising concepts…they rival Safeway, Kroger, Meijer, and Supervalu. The Harding’s on West Main actually has U-Scan.
Meijer, also based in West Michigan, is a forward thinking company as well. Their store design concept, especially in the late 1990s, was extremely unique and possessed qualities of today’s supermarkets and hypermarkets long before Wal-Mart Supercenters were being rolled out. Meijer was also one of the first retail chains to bite the bullet and switch to NCR Unity POS in the mid 90s…with flat panel LCDs, keyboards, full monitors at the registers and thermal printers.
In my opinion and as a customer, I would prefer if many national retailers would view the operations of companies such as Meijer and Spartan and implement that into our national chains!
The Michigan grocery industry structure is unstable because (1) the #1 local industry, automobile manufacturing, is declining while no high-paying new business is taking its place and (2) significant local players who’ve lost money for years keep getting subsidized. For example, if Farmer Jack was not bankrolled by A&P, its doors probably would have closed already. Fewer grocery players would mean more business and less competition for each of the remaining players.
Spartan seems to be growing for the sake of growing. They may end up in trouble some day buying all these low volume marginal stores while the competition continues to expand. The Felpausch stores were marginal at best after getting hammered by Wal-Mart and Meijer. Most likely, some of those stores will close.
The Farmer Jack locations that can be salvaged will most likely split up among several players, such as Kroger, Spartan, Spartan independents, and Nash Finch independents. Meijer has tried to copy Wal-Mart and has dummied down their operations without much success. Wal-Mart and Kroger seem to be the primary beneficiaries. Aldi continues to expand as well.
The decline of the Farmer Jack chain in Michigan is a tale of little investment by the owners. The stores are mostly outdated and small and don’t always stock the right mix of items. Kroger, Meijer and Wal-Mart have changed and dominated the landscape in grocery retailing with larger better stocked stores that meet the consumers needs in the market. The Borman family must be sad to see what has happened to their franchise!
Speaking as a Michigander (and a recently returned one at that) I see huge opportunity in the market. Although we have a variety of options, those options tend to fall within narrow, not well-differentiated bands. We also tend not to have some of the distinct upscale opportunities available in other parts of the country. Some of that may be due to the economy in Michigan. Part is due to simply not developing the market. The economy does have some strength in various areas (e.g. Western Michigan) and offers some interesting segments that have not been well developed (again, in Western Michigan the opening exists for higher end, health oriented grocers given the large and significantly growing healthcare workforce). While Meijer does offer some points of difference, and a Wal-Mart Supercenter is nowhere to be found, that isn’t sufficient. Consolidation may help Spartan’s strength, but Spartan (or another grocer) needs to use that strength to reach those underserved segments of the market with higher margin sales potential.
Michigan’s grocery industry is held back by an outdated store base, but more importantly, the economic devastation that auto industry layoffs have wrecked upon the consumer there is the bigger story. All but the high-end retailers in Michigan have been impacted, particularly the home improvement-related trade. Unfortunately for Farmer Jack’s, their own execution and merchandising issues only compound the damage being caused by external, economic forces in their trading area.
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I am not in the grocery or food business but I am in the marketing business. There is no difference between any of the “big box grocers” such as Wal-Mart and Meijer and the Farmer Jacks and Krogers of the world. And I am sure no different than any other market in the U.S. that has a Publix, Albertsons, Ralphs, Vons or Winn Dixie. The value proposition for me goes well beyond stocked shelves, good product selection and quality produce. What I value most is superior service and a knowledgeable staff. Shopping at Farmer Jack is like going into a vast warehouse like Home Depot where you cannot find any help. There is a Farmer Jack a stones throw away from my home. I’d much rather jump in my car and drive to a family-owned (which Farmer Jack once was) operation such as Holiday Markets for a much better experience. There are others in the region as well, such as Busch’s. On a national level, it’s Trader Joe’s.
Everyone is talking about how troubled the Michigan grocery industry is! Wake UP everyone, we are talking about a state that has large grocery store operations run by companies still based in Michigan. How often can you still find that in the United States? We are talking about a market, minus the Farmer Jack and Kroger stores, that performs very well. There is more to Michigan than Detroit.
As the 2nd largest metro area in Michigan, West Michigan Grand Rapids Metro area is swiftly approaching the population of Metro Detroit. Grand Rapids is transforming from an industrial town to a medical/science research city with a large medical campus in the downtown area. This brings in jobs with higher pay levels and more customers who are willing to shop at more upscale grocery chains. D&W has already had an upscale niche in Grand Rapids metro, but Meijer has never been looked at as a downscaled store in Grand Rapids either.
Spartan Stores has developed very clean models for grocery stores…their layouts are clean, their technology is supreme and the product selection is outstanding…it can be compared to Strack and Van Til in NW Indiana who also operates outstanding independent grocery stores.
Spartan Stores caters to the needs of Michiganders…and this is especially evident in Western Michigan with D&W. D&W has many stores which feature Starbucks, in store cafeterias and organic groceries. Based on a recent visit to Grand Rapids, I could barely find a seat to eat at D&W at lunch time, so these are highly successful.
Let’s not also forget Spartan’s Family Fare (Grand Rapids/Holland), Tom’s Markets (Traverse City) Harding’s Market (Kalamazoo area), and Glen’s Markets (NW Michigan). Their stores are constantly renovated, they carry exclusive Michigan products and they have great customer service. Based on my vacations in Northwest Michigan, some of the small town grocery stores run by Spartan have more innovative store design and technology than many of the Big 3 Supermarket operators…everything from innovative lighting, to superior POS systems to unique product selections.
Harding’s Market should especially be noted for having 2 stores, Wayland, MI and Kalamazoo West Main, that have outstanding interior design and merchandising concepts…they rival Safeway, Kroger, Meijer, and Supervalu. The Harding’s on West Main actually has U-Scan.
Meijer, also based in West Michigan, is a forward thinking company as well. Their store design concept, especially in the late 1990s, was extremely unique and possessed qualities of today’s supermarkets and hypermarkets long before Wal-Mart Supercenters were being rolled out. Meijer was also one of the first retail chains to bite the bullet and switch to NCR Unity POS in the mid 90s…with flat panel LCDs, keyboards, full monitors at the registers and thermal printers.
In my opinion and as a customer, I would prefer if many national retailers would view the operations of companies such as Meijer and Spartan and implement that into our national chains!
The Michigan grocery industry structure is unstable because (1) the #1 local industry, automobile manufacturing, is declining while no high-paying new business is taking its place and (2) significant local players who’ve lost money for years keep getting subsidized. For example, if Farmer Jack was not bankrolled by A&P, its doors probably would have closed already. Fewer grocery players would mean more business and less competition for each of the remaining players.
Spartan seems to be growing for the sake of growing. They may end up in trouble some day buying all these low volume marginal stores while the competition continues to expand. The Felpausch stores were marginal at best after getting hammered by Wal-Mart and Meijer. Most likely, some of those stores will close.
The Farmer Jack locations that can be salvaged will most likely split up among several players, such as Kroger, Spartan, Spartan independents, and Nash Finch independents. Meijer has tried to copy Wal-Mart and has dummied down their operations without much success. Wal-Mart and Kroger seem to be the primary beneficiaries. Aldi continues to expand as well.
The decline of the Farmer Jack chain in Michigan is a tale of little investment by the owners. The stores are mostly outdated and small and don’t always stock the right mix of items. Kroger, Meijer and Wal-Mart have changed and dominated the landscape in grocery retailing with larger better stocked stores that meet the consumers needs in the market. The Borman family must be sad to see what has happened to their franchise!
Speaking as a Michigander (and a recently returned one at that) I see huge opportunity in the market. Although we have a variety of options, those options tend to fall within narrow, not well-differentiated bands. We also tend not to have some of the distinct upscale opportunities available in other parts of the country. Some of that may be due to the economy in Michigan. Part is due to simply not developing the market. The economy does have some strength in various areas (e.g. Western Michigan) and offers some interesting segments that have not been well developed (again, in Western Michigan the opening exists for higher end, health oriented grocers given the large and significantly growing healthcare workforce). While Meijer does offer some points of difference, and a Wal-Mart Supercenter is nowhere to be found, that isn’t sufficient. Consolidation may help Spartan’s strength, but Spartan (or another grocer) needs to use that strength to reach those underserved segments of the market with higher margin sales potential.
Michigan’s grocery industry is held back by an outdated store base, but more importantly, the economic devastation that auto industry layoffs have wrecked upon the consumer there is the bigger story. All but the high-end retailers in Michigan have been impacted, particularly the home improvement-related trade. Unfortunately for Farmer Jack’s, their own execution and merchandising issues only compound the damage being caused by external, economic forces in their trading area.