If Kroger Pattern Remains, Gourmet Expansion May Roll

Kroger has opened one of it Fresh Fare stores in Dayton, which could be an interesting development if the retailer pursues the same pattern of growth with that format as it did with its marketplace concept.

Marketplace was developed on the periphery of the Kroger universe, in this case territories ranging from Arizona to Utah, and, when largely perfected, was introduced close to home in Ohio and a reasonable distance from the company’s Cincinnati headquarters. After a little more tweaking, basically to see if it functioned as well as a ground-up store format as it did as a remodel, Kroger began to seriously expand marketplace, an effort that now occupies the bulk of the company’s capital spending.

Fresh Fare has had a long genesis, going back to a test in Kroger’s California-based Ralph’s division that launched in the late ‘90s. Kroger moved Fresh Fare to Michigan in 2004 for further trial and refinement, not as far from Cincinnati but still in a market that operates in a degree of isolation from the company’s mainstream. Kroger opened its first Ohio Fresh Fair in Cincinnati in 2008, simultaneously debuting the format in the Atlanta suburbs to some kudos and criticism. Thus, the Dayton unit becomes the second operating in the company’s Cincinnati division.

The growth pattern demonstrated by Fresh Fare isn’t all that makes is interesting. The store itself is a departure from the kind of operations that Kroger has been running lately. After years of seeing sales erode to Wal-Mart, Kroger decided early in the decade to invest in lowering prices on everyday grocery and perishables items while developing new formats that could expand its non-foods sales, including marketplace and food & drug. By doing so, Kroger didn’t challenge its supercenter rival as much as take the next place up in the price/service ladder. It was just a little more expensive but offered more traditional supermarket services. The strategy proved a success, as Kroger and Wal-Mart basically established supremacy right in the middle of the food retailing market, with Wal-Mart having a little more appeal to working class consumers and Kroger to the more price-conscious element of the middle class.

One result was that a lot of supermarket chains decided to go upscale. The move was risky, as many supermarket operators who have tried to do so have had mixed results, but, today, Safeway, Supervalu, Delhaize and A&P are all among the supermarket operations that have added some combination of enhanced deli, meat, bakery, seafood, natural foods and/or produce in some or all of their stores. On the supercenter front, Target and Meijer also have developed programs that took into consideration developments in the middle of the market where the number one and two food retailers in the United States used their store counts and buying efficiencies to reign.

Fresh Fare is a decided Kroger step in the upscale direction. Walk into the Dayton Fresh Fare and you’ll find a Murray’s Cheese department, developed in conjuncture with the famous Manhattan specialty shop, as well as a butcher’s that features dried aged beef and a produce department offering rare and exotic fruits and vegetables.

Another thing Kroger has in common with Wal-Mart is its willingness to take its time testing and tweaking a store concept, something Wal-Mart has done with Neighborhood Market, which is now subject to a Latin-version test in the Phoenix market. Yet, while Wal-Mart lately has been trying out small and ethnic formats, Kroger now is threatening food retailing’s gourmet sector, one that so many retailers have sought as refuge, and many successfully. If the company is on the verge of launching the kind of major expansion it has underway with marketplace, Kroger could profoundly alter the balance in the gourmet supermarket arena, one that already is hurting in the recession and that has a smaller consumer base to draw on, but one that could see renewed expansion in an economic recovery.