"This is a hybrid between a traditional supermarket and a value operator," said John Tedesco, senior vice president of Valu King. "We won't carry every cereal in every size, but you'll see brands you recognize."
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BROOKLYN, Ohio -- Inside a former Tops Market at Ridge Park Square shopping center, Giant Eagle Inc. is testing a new supermarket concept it hopes to replicate elsewhere in Northeast Ohio.
The just-opened Valu King store aims to appeal both to budget-minded shoppers as well as those who like fresh produce and other perishables.
Mixed in with store brands like Valu Time, Food Club and Top Care are limited-quantity closeouts, a meat counter and deli offerings and even a cheese counter.
"This is a hybrid between a traditional supermarket and a value operator," said John Tedesco, senior vice president of Valu King, during a recent tour of the Brooklyn store.
"We don't have the variety that you'll find in your typical supermarket, but we do have name brands. We won't carry every cereal in every size, but you'll see brands you recognize."
If Valu King thrives, it will do so by taking shoppers away from its many local competitors: Marc's, Aldi, Save-A-Lot, SuperKmart, Walmart Supercenter, BJ's Wholesale Club, Sam's Club -- even Giant Eagle.
Around the nation, other supermarket chains are also experimenting with smaller, scaled-down stores as a way to save costs and build market share.
Wakefern Food Corp.'s ShopRite stores "are some of the highest-volume supermarkets in North America," with sales of about $1.1 million to $1.2 million per week, said retail consultant Burt P. Flickinger III, managing director of Strategic Resource Group in New York.
ShopRite operates more than 220 stores in six states but none in Ohio.
Wakefern's PriceRite is a chain of 40 smaller, no-frills stores that the company says draw 15,000 to 18,000 customers a week. Flickinger said the stores generate $425,000 to $750,000 per week. None are in Ohio.
"When PriceRite comes to Northeast Ohio and Cleveland, Akron and Canton, that's going to be a real problem for a number of retailers," he said.
The Kroger Co.'s Food 4 Less stores generate between $450,000 and $900,000 per week, depending on location, he said. None are in Northeast Ohio.
Food Lion's Bottom Dollar Food, which has three stores in Youngstown, can generate $150,000 to $225,000 per store per week, Flickinger said.
British grocer Tesco PLC, the world's third-largest retailer, entered the U.S. in 2007 with small supermarkets called Fresh & Easy Neighborhood Markets.
The company now operates 185 stores along the West Coast, with more planned.
Walmart Stores has de-emphasized its regular discount stores to focus on opening more big-box Supercenters and smaller Neighborhood Markets, although none of these small stores are in Ohio.
Its Neighborhood Markets, which average 42,000 square feet, are the size of a typical grocery store. And new Walmart Express stores are about one-tenth the size of a typical Supercenter.
"The primary focus of these stores is grocery, so they would compete directly with the new Giant Eagle concept, (Tesco's) Fresh & Easy and stores like Aldi," said Robert Antall, a retail consultant and managing partner of Consumer Centric Consulting LLC in Shaker Heights.
"For Walmart, these concepts are not a way to offer lower prices (I don't know their pricing but I suspect it will be quite good), but a way to compete in larger cities and to compete against convenience stores and other smaller neighborhood grocery concepts," he said via e-mail.
"These small Walmart concepts are still in the experimental stage and will evolve depending upon the findings of their tests. Thus far Walmart Express stores have exceeded Walmart's expectations, becoming profitable in less than 12 months, which was a surprise."
If Valu King catches on and expands, it could also end up pulling customers away from namesake Giant Eagle stores, Flickinger said.
The company now has 122 stores in Ohio: 117 Giant Eagles, four Valu Kings and one Market District. Last month it closed its Brecksville store and opened a larger 24-hour store in next-door Broadview Heights.
Representatives from Dave's Markets, Heinen's Fine Foods and Marc's all declined to comment on Valu King.
Customers respond favorably to concept
When Giant Eagle opened its first Valu King prototype in Eastlake in December 2008, the Pittsburgh grocer wasn't sure how consumers would respond.
The first Valu King was smaller, both in physical size (28,000 square feet) and the number of items it sold (mostly staples, meats, produce and beauty items).
Its cheese, deli and meat items were cut elsewhere and sold prepackaged, to save labor costs.
"People like Valu King," said Eastlake Mayor Ted Andrzejewski. "The prices are very competitive, and now that it's expanded, they have a nice deli, fresh-cut meat, fresh fruits and vegetables. I think they've added more name-brand products.
"I go there every two weeks after I get paid, and I bring my own bags."
"Once people get used to it, they take their own bags and those that go in there for half a dozen items don't mind" paying another five cents for a bag, he said.
The Eastlake store did well enough that Giant Eagle opened a second one, in Ravenna, in July 2009.
The 45,000-square-foot Brooklyn Valu King that opened May 20 is the seventh one in the chain and the fourth in Ohio.
"We're actually looking at three or four more stores in Northeast Ohio," said Tedesco, the Valu King senior vice president. He would not say where.
Flickinger said Giant Eagle has been opening Valu Kings close to bustling Walmart Supercenters, where they can appeal to fixed- and limited-income shoppers who don't want to shop big-box stores and wait in long lines to check out.
"It's also a checkmate chain retail strategy," he said.
"The more stores that Giant Eagle can acquire, the fewer [available] stores for Marc's, the fewer stores for Bottom Dollar, and the fewer stores for PriceRite" to come into Northeast Ohio.
Because landlords of empty former Tops and Rite Aid stores are so desperate for more high-traffic anchor tenants, Giant Eagle has been able to get leases for 10 to 15 cents on the dollar, he said.
Store sells limited-quantity items
Inside the Brooklyn Valu King, the first thing shoppers see after they grab their carts is the produce section, with rows of iceberg lettuce (68 cents a head) and a crowd gathered around to shuck ears of corn (10 for $2).
"This is the biggest difference between this Valu King and the one that opened in Eastlake," Tedesco said. He estimated that there are 160 to 180 items in produce, including about a dozen organic items.
He said the 33-cents-a-pound price for bananas and the 74 cents for a dozen large Food Club eggs would be the everyday low prices, not the sale price.
Shoppers can buy packaged cheese or step up to the 20-foot cheese counter and order slices or chunks to go.
Alongside the Cheerios, Rice Krispies and Froot Loops are Food Club brand Peanut Butter Crunch, Coco Loco and Fruit Frenzy.
Tedesco pointed out the refurbished freezer cases and produce displays, saying the company saved money by not buying brand-new.
Like Marc's, Valu King sells limited quantities of items that manufacturers have discontinued or changed the labels on, such as TGIFriday's Sizzling Chicken or Steak Fajitas Skillet Meals for $3.99 a bag.
As with its parent company, Valu King's prices vary by store and number of nearby competitors.
Last week, for example, Valu Time canned corn, green beans and sweet peas were 49 cents at the Brooklyn store but 57 cents at the Eastlake and Ravenna stores.
Iceberg lettuce was 79 cents a head in Brooklyn, but 99 cents a head in Eastlake and Ravenna.
Valu Time lighter fluid was $2.49 in Brooklyn but $2.79 in Eastlake. Valu Time sugar was $1.99 in Brooklyn and $2.19 in Eastlake and Ravenna.
And value packs of boneless New York strip steaks were $7.99 a pound in Brooklyn but $6.99 a pound in Eastlake.
Also, unless customers bring their own bags, they'll have to pay 5 cents for each yellow plastic bag -- and bag their own groceries on a counter at the back of the store.
Reduced labor costs let chain charge less
Like Aldi and Costco, Valu King cuts labor costs by putting full cardboard cases directly on the shelves, instead of paying people to unpack, price and stock each item individually.
"The highest single cost of a grocery store is the cost of labor," Tedesco said. "So if we lower the cost of labor, we can pass on the savings."
He characterized Valu King as a non-union grocer, because unlike at Giant Eagle, many of its workers are not represented by a union.
Giant Eagle, Dave's Supermarkets, Heinen's Fine Foods, Acme Fresh Markets, Fisher Foods, Sparkle Markets and some independent grocers like Zagara's Marketplace are union-represented stores.
Local non-union grocers include Aldi, Marc's, Save-A-Lot, Super Kmart, Super Target, Walmart Supercenters, and Buehler's.
Robert Grauvogl, president of United Food & Commercial Workers Local 880, said: "Local 880 represents key Valu King employees and applauds Valu King for developing a concept that will create more full-time jobs that pay the living wages and good benefits that are commonly found in more traditional union grocery stores.
"We welcome Valu King as it rolls out a new low-price format to compete with other no-frills stores."
Giant Eagle spokesman Dan Donovan agreed that the union represents "certain full-time Valu King team members," but he declined to clarify who or how many. The company said it is private about its employee information.
Local customers check out new retailer
The ultimate test of any grocer is how customers respond. Tedesco expects shoppers to go to Valu King first and then fill in whatever they're missing at other stores.
"They've got good vegetables and stuff, but other than that, Marc's has better variety and it's not as crowded," said Ruben LaFontaine of Cleveland, who shops at Marc's, Sam's Club and Super Kmart.
"Any type of red meat, I would not purchase here, because my mother likes the ground beef at Sam's Club," he said. "Giant Eagle's right down the street from us, but they're too expensive."
Rosa Ragone, who drove in from Strongsville to check out the new store, said: "It's pretty nice, but we'll see how long these prices will last."
She didn't like the idea of paying 5 cents a bag, so she asked for cardboard boxes instead. "I'll know next time, because I won't pay for their bags," she said.
"It's going to give Marc's competition. I just bought watermelons there for 5 bucks, and they're $2.69 here, so every kid's going to get a watermelon," she joked.
Susanna Toerek of Brooklyn said that despite the big crowds and jammed parking lot, she liked what she saw.
"I found a lot of cheaper things compared to other stores, so I'm definitely coming back, because these days you need to pinch every penny," she said.
"I didn't know we needed to bring our own bags, because it wasn't advertised. I have tons of bags at home."
B.J. Isaacs of Parma, who shops at BJ's Wholesale Club, Acme, Aldi and sometimes Giant Eagle, doubted Valu King's prices would stay as good as they were during the first week.
"I'll come back a few more times to see, but they don't have everything here, so you still have to go somewhere else," he said.
Joe "the Coupon Guy" Daugirdas, who teaches classes on saving money with coupons, said he shops regularly at the Eastlake Valu King.
"Their produce is priced better than their regular Giant Eagle stores," he said via e-mail. "No double coupons, but they do take coupons... I just cherry pick the best deals at Valu King."
Rantall, the Shaker Heights retail consultant, said: "The old adage of convenient locations is much less of an advantage today when shoppers can go to a Super Walmart and buy everything from tires to TVs and groceries at low prices.
"The remaining grocers have had to find a competitive response," he said. "Chains like Heinen's found that they could be successful with a concept that focused on customer service and quality rather than trying to compete on price.
"It appears to me that Giant Eagle is trying to find a way to be more price competitive yet offering a wide selection of fresh foods as opposed to predominantly prepackaged processed foods.
"The concept sounds promising, however the proof will be in their ability to execute their strategy. A lot of good ideas never live up to their promise."
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