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Case Study: Low-income retail renovations

Self-serve strategy leads to profits at Boyer's Food Markets

Boyer's turned to a public-private program to increase
    its seafood offerings.
By Lisa Duchene
December 01, 2008

In the last couple of years, John Boyer and his staff have revamped Boyer's Food Markets, an independent chain of 17 grocery stores in rural northeastern Pennsylvania.

"We wanted to make the stores more convenient and meet the changing demands of our customers with more fresh foods," says Boyer. The vision was for new equipment and a new merchandising approach in the seafood departments.

To help finance the renovation costs, about a half-million dollars per store, Boyer found an ally in Pennsylvania's Fresh Foods Financing Initiative, a public-private program helping retailers offer more fresh foods like seafood in low-income areas where retail options often amount to convenience stores, dollar stores and fast-food outlets.

"[Seafood offerings] are pretty limited without a really good store," says David Adler, communications director for the Food Trust, the Philadelphia nonprofit that helped create the fund and is dedicated to broad access to affordable, nutritious food. Created in 2005 and reportedly the only one of its kind in the United States, the fund 
offers $120 million in financing for projects that will bring fresh food to underserved areas. State money totaling $30 million has been leveraged to secure $90 million in additional equity. The Food Trust also made its case to grocers that low-income areas are worth their attention by studying population density figures and local spending data to estimate that Philadelphia's inner-city communities represent about $50 million of buying power per square mile.

"[Seafood] is probably not something that's in a lot of these neighborhoods," says Adler.

At the Boyer's Food Markets store in Orwigsburg, Pa., for example, a 3,000-person town about 90 miles northwest of Philadelphia with an estimated median household income around $53,000, the seafood offerings were scattered among a limited service-seafood department and some frozen seafood found among the frozen meat. In the store's renovation, the department was reorganized so that all of the seafood was presented together in a self-service setup that allowed Boyer's to add variety.

Boyer's added more fillets, 
including salmon, haddock, flounder, tilapia and catfish as well as value-added items like crab cakes, stuffed shrimp, Cajun catfish, smoked salmon portions and deviled crabs, says Melissa Wilson, deli seafood merchandiser at Boyer's.

"We pretty much changed the whole way we went about displaying our seafood," says Boyer. "We've taken a department that was kind of an afterthought and made it into something that's a legitimate part of the business."

Since the Orwigsburg store was renovated in 2007, seafood sales have increased 22 percent. The store in Fleetwood, Pa., saw a 31 percent increase in sales following the completion of its renovation in April to late September 2008. Work on the Lansford, Pa., store wrapped up in the fall.

The Fresh Foods Financing Initiative helped Boyer finance the projects in Orwigsburg, Fleetwood and Lansford - three of Boyer's first four renovation projects - by making loans available at lower interest rates.

Boyer's seafood results are typical of stores that have tapped the fund to improve their perishables offerings, says Adler.

The fund has helped finance a variety of projects, from a small store in a North Philadelphia neighborhood that upgraded its refrigeration equipment in order to stock seafood to a 50,000-square-foot Shop Rite grocery store.

Once new or renovated stores open, the seafood departments do well, says Adler. "We've just seen pretty much across the board that seafood is really a draw in any of the neighborhoods where we've seen a store open," says Adler. "I think it's clear that seafood can do well in maybe more markets than people typically think."

While seafood departments in affluent areas can be profitable, so can ones in low-income markets whether inner-city neighborhoods or rural town s , despite the challenges.

Seafood is at a disadvantage in price-sensitive markets, especially in times when all consumers are trading down, says Tom DeMott, COO of Encore Associates in San Ramone, Calif. In inner-city markets, real estate and operating costs can be high. Providing security guards, for example, may be a necessary part of customer service, says DeMott.

"You can still operate successfully in an inner-city environment and many retailers have achieved that," says DeMott. Self-service is the key, he says. "You have to have pretty high sales - north of $600,000 weekly - and the right location to even consider a service operation. You need high-volume to support a service [department] and make that department economically viable."

DeMott advises retailers who are entering low-income markets for the first time to study the market and what competitors are doing, and take 4 to 6 feet of a self-service meat case and dedicate it to seafood. Offer 10 to 12 of the most popular items, including value-added items and frozen shrimp, with a close eye to moderate pricing. And then watch the weekly performance by SKU very carefully, he says.

"What we've done has proven itself," says Boyer. "This setup is doing better." Seafood is still a small part of the business, less than 5 percent of store sales, but the departments are profitable. "Going from service to self-service helped us reduce our shrink. It helped the numbers and gave the customers more options."

 

Contributing Editor Lisa Duchene lives in Bellefonte, Pa.

 

 

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