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« February 2007 Table of Contents

Case Study: Location, location, location

Choosing correct customer base is as important as real estate

Grand Mart International Food specializes in seafood, particularly tilapia, squid and shrimp, for the Hispanic and Asian customers it caters to. Seafood departments typically account for 15 percent of overall gross store sales, says Young Lee, general manager of the Washington, D.C., supermarket chain.

With 18 stores in metro D.C. and Atlanta, the chain plans to open eight more in greater Chicago this year. The first opened in mid-December in Bedford Park, Ill. The next was scheduled to open in January in Melrose Park, Ill., and one is slated to open later this year in Naperville, a picturesque suburb 30 miles west of Chicago. The area is an underserved market, says Lee, with few competitors carrying Asian and Hispanic foods.

Deciding where to open new supermarkets is both an art and science mastered by those who can successfully predict profits from loads of data. So what about a market's locale makes it promising for a service-seafood retail operation?

First, say experts, new supermarket locations are determined by company strategy, perhaps a focus on low-price, a one-stop-shop or a focus on perishables.

Supermarkets seek convenient locations with dense populations within a 2-mile radius where they would face little competition, says David Rogers, president of DSR Marketing Systems in Deerfield, Ill., which specializes in retail-site selection. Once a company picks a location, it must determine whether the store can support a full- or self-service seafood department.

The first thing to consider, says Tom DeMott, a retail seafood veteran and COO of Encore Associates in San Ramon, Calif., is how much the department must sell in order to make money.

"Seafood departments should be contributing positively to the financials of the entire store," DeMott says. Some supermarket companies use seafood departments to attract customers, but don't necessarily make money on seafood. "You have an awful lot of retailers out there selling seafood in service-seafood departments that are losing their shorts."

To establish whether sales targets can be achieved, chains often pore over loads of demographic data.

One key is the percentage of affluent consumers in the area. Households earning less than $70,000 spent an average of $86 annually on seafood in 2005, compared to the national average of $113, according to a Bureau of Labor Statistics consumer-expenditure survey. Households earning at least $100,000 spent $208 annually on seafood, and those earning at least $150,000 spent $243.

"If you have a customer base concerned about going paycheck to paycheck and worried about whether to buy ground beef or chicken drumsticks and thighs for 99 cents, that's not your seafood customer," says DeMott.

Household education levels follow suit. In 2005, high school graduates spent an average of $94 annually on seafood, compared to the national average of $113. Those with bachelor's degrees spent $145 and those with graduate degrees spent $171, according to BLS data.

"Variables like education and income are positive because those are the segments of the population attempting to eat healthier," says Rogers. "Seafood and produce are the two lead departments on [eating healthier] and it's no accident they are probably the two best departments in Whole Foods."

The ethnic composition of the market is also extremely important, says Howard Johnson, president of H.M. Johnson & Associates in Jacksonville, Ore. Asian, Hispanic and African-American households all spend more than the national average on seafood: $259 for Asians, nearly 2.3 times the national average; $109 for Hispanics; and $121 for African-Americans, according to BLS data.

Anticipated store foot traffic is also important, says Neil Stern, senior partner at McMillan Doolittle, a Chicago retail-consulting firm. Nearly all shoppers almost always buy milk and bread, but a much smaller group is buying seafood. Since the seafood department is getting only a fraction of the shoppers, the bigger the base of overall shoppers, the better, says Stern.

Seafood consumption also tends to vary by geography. Northeast households spend the most at $158 and the West is second at $125, according to BLS data. Midwest households spend the least on retail seafood, $85.

But that's not the only data you should consider if your store is committed to opening in, say, Chicago, where the seafood-favoring Hispanic population is about 26 percent of the total, according to U.S. Census data. The Asian population is about 4 percent.

Yet, choosing store locations takes more than looking at Census data, says Rogers, because sites must be pinpointed to that 2- to 3-mile radius and the analysis often requires sophisticated software and expertise. Such information is only the first step to success. The store has to have effective merchandising, good service, a focus on cleanliness and knowledgeable counter staff.

In the mid-1990s, recalls Johnson, a QFC and Safeway operated across the street from each other in Bellevue, Wash. Safeway's seafood sales were so low the chain pulled the service department. For seafood consumers in the area, QFC was the place to shop, he says.

"I don't believe that there is a bad location for seafood," says Keith Kersten, president and CEO of Grace's Kitchen, a supplier of prepared foods and a former equity partner for the Byerly's chain. "If seafood is executed properly, it can be a destination for almost any place in the country, no matter what the demographics are."

Contributing Editor Lisa Duchene lives in Bellefonte, Pa.