Opening up
Sep 1, 2008 12:00 PM, By Lauren Shepherd
At Pleasanton, Calif.-based Safeway Inc., meanwhile, the company said in its first-quarter earnings report that it expects to spend $1.70 billion to $1.75 billion on capital expenditures in 2008 and will open 20 to 25 new stores in its “lifestyle” format, which features fresh and prepared foods and more upscale products. Last year, the company spent about $1.77 billion on capital expenditures and opened 13 new stores. Beyond opening new locations, Safeway is focused on remodeling its existing store base as lifestyle stores. The company plans to remodel 250 to 255 stores this year, on top of the 253 lifestyle remodels it completed in 2007. Currently, the company operates 1,740 stores and had annual sales of $42.3 billion in 2007.
Both Eden Prairie, Minn.-based Supervalu Inc. and Winn-Dixie Stores Inc., which is headquartered in Jacksonville, Fla., are in the middle of remodeling programs as well and most of their capital expenditures are dedicated to those initiatives.
Supervalu, which operates 2,475 supermarkets and has annual sales of about $44 billion, is still digesting locations it inherited from Albertsons Inc. The company acquired over 1,100 stores as part of a consortium of companies that purchased Albertsons for $17.4 billion in early 2006. A Supervalu spokesperson said many of the former Albertsons locations are “not up to standard.” The company is attempting to reach its goal of remodeling 80 percent of its now-expanded store base in seven years. Overall, Supervalu will spend $1.3 billion in its retail capital program in fiscal 2009, which began March 1. In fiscal 2008, the company remodeled 141 stores. It expects to remodel 165 in fiscal 2009.
Winn-Dixie, which operates 520 grocery stores predominantly in the Southeast, also expects to spend the majority of its capital expenditures on remodeling its stores in 2008. The company remodeled 20 stores in 2007 and plans to remodel 75 stores this year and each year in the future, according to its third-quarter earnings report. In a quarterly conference call with analysts and investors in March, CEO Peter Lynch said the remodeling program is “progressing on plan.”
“We're moving efficiently to update, revamp and reenergize the conditions of our stores across the entire fleet,” Lynch said. “As we move forward with the program, we'll have an increasingly strong store base from which to compete, leverage the strength of our brand and increase sales per square foot over the long term.”
Even London-based Tesco PLC's Fresh & Easy Neighborhood Market chain is getting back into the store-opening game. Tesco, which premiered the Fresh & Easy concept in the United States last year with 61 stores in California and the Southwest, stopped opening stores for 12 weeks starting in late March “to allow the business we've created to settle down a bit,” according to a statement from Fresh & Easy chief marketing officer Simon Uwins. However, at the beginning of July the company resumed opening stores with a new location in Manhattan Beach, Calif.
Opening new stores with a smaller footprint — Fresh & Easy stores come in at roughly 10,000 square feet rather than the typical 40,000-square-foot supermarket — can be a challenge and the break in store openings made some analysts question whether the chain could succeed, particularly given the difficult environment in the initial markets. “There's some experimentation with the smaller store,” says Elliott Olsen, chairman of Minneapolis market research company Dakota Worldwide Corp. But he adds, “it's something that's very difficult to chain.” Consumers, he says, are typically used to more variety. Still Tesco says its U.S. chain is performing well so far.
Perhaps surprisingly, the one chain reporting slower development is the world's largest retailer, Bentonville, Ark.-based Wal-Mart Stores Inc. In June Wal-Mart said it was cutting its capital spending forecast for fiscal 2009 and slowing construction of new Supercenters, which sell groceries as well as consumer products, clothing and electronics. The company said it would open 140 Supercenters in 2009 instead of the 170 it had initially projected. The retailer said it now expects to spend $13 billion to $15 billion, down from its previous estimate of $13.5 billion to $15.2 billion for the year.
But even though the company is slowing its Supercenter growth, it has said it plans to open a new smaller-format food store called “Marketside.” The first store is slated to open in Phoenix in the fall of 2008 and will likely focus on more premium items, like prepared foods.
The other big discounter that dabbles in groceries, Minneapolis-based Target Corp., is ramping up growth of its own supercenter concept, SuperTarget. Target has said it plans to have SuperTarget represent a larger percentage of square footage growth going forward. SuperTargets stock groceries, prepared meals and household staples. There are now 182 locations in 21 states.
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