« February 2007 Table of Contents
Case Study: Location, location, location
Choosing correct customer base is as important as real estate
By Lisa Duchene
February 01, 2007
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
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
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
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
"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,
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,