September 17. 2012 2:00AM

Meijer plots entry into Wisconsin

By Andrew Weiland

  
Grand Rapids, Mich.-based retailer Meijer Inc. has already unveiled plans for three big-box grocery and general merchandise stores in the Milwaukee area, and retail real estate and grocery industry experts expect the company will open several other stores in the region.

Meijer plans to build a 191,000-square-foot store on Port Washington Road in Grafton, a 192,000-square-foot store at Highway 100 and Loomis Road in Franklin and a 157,000-square-foot store at 11123 W. Burleigh St. in Wauwatosa.

Meijer currently has about 200 stores in Michigan, Illinois, Indiana, Ohio and Kentucky. The company is just one of several retailers that have entered or expanded in the Milwaukee area grocery market in recent years including Costco, Walmart, Target and Woodman's.

Increasingly, people are shopping for groceries at large format discount stores instead of at traditional grocery-only stores, said Peter Glaser, first vice president of the Milwaukee office of CBRE. Meijer, Costco, Walmart and Target are a reflection of that trend.

"You're seeing a change in the way people shop," Glaser said. "The larger format retailers are seeing more of that (grocery) business now."

Southeastern Wisconsin is a logical expansion area beyond Meijer's current markets and the customers here are similar to the Midwestern customers that already shop at the company's stores, Glaser said.

In addition, retail real estate and grocery industry experts say Milwaukee-based Roundy's Inc.'s dominance of the Milwaukee-area grocery market has prompted competitors to come and try to grab market share here. A year ago Roundy's Pick 'n Save stores had about 57 percent market share in the Milwaukee area, according to John Kuhn, senior vice president of Siegel-Gallagher Inc.'s retail/investment group.

"That's huge," Kuhn said. "(Other retailers think they) should be able to get 10 or 15 percent of that."

Meijer needs to add several stores in the area to operate efficiently with its advertising, distribution and management costs, Kuhn said. Therefore the company is likely planning more stores in the area, he said. Locations in Racine, Kenosha, West Bend, Menomonee Falls, the western suburbs such as Delafield and Madison make sense, he said.

David Livingston, a Pewaukee-based grocery industry consultant, predicts that Meijer will open 20 stores in southeastern Wisconsin, including the Madison, Sheboygan and Manitowoc areas.

"They're not coming in here just to have two or three stores," Livingston said. "They're coming here to make a splash."

"It does appear they are interested in opening more than the three stores that have been announced," Glaser said.

Meijer could seek to acquire Kmart stores in the area, which it could convert to Meijer stores, Livingston said.

"A lot of those Kmarts are in good locations," he said. "They're just dead stores. Kmart would love to get out of them and be able to walk away."

Real estate sources also say that Meijer is considering sites in Kenosha County for a distribution center. Such a facility could serve its stores in the Chicago area and southeastern Wisconsin, Glaser said.

A representative for Meijer could not be reached for comment for this report.

Livingston has criticized Meijer's plans in Franklin saying the site lacks enough population density. However, he said the Grafton and Wauwatosa projects should be successful.

"I think Grafton is excellent," Livingston said. "(The Wauwatosa site is) a good location. They will do well. That area is strong for retail. It will be very impactful."

The addition of Meijer stores, plus new Walmart, Target, Costco and Woodman's stores that have opened recently or will open in the near future in the region, will impact existing grocery stores, Livingston said.

Roundy's has higher overhead costs for debt service, labor costs and rent costs than some of its competitors, which are able to offer lower prices, Livingston said. In the next couple of years the company will eventually have to close some of its Pick 'n Save stores in the region, he predicts.

"I'm sure it will be in double digits (for the number of stores that close) at some point," Livingston said. "There is only room for so much square footage in the market."

Roundy's is aware of but not focused on the increased competition that it is facing, said company spokeswoman Vivian King.

"It is a reality of the grocery industry," she said. "We will continue to focus on serving our customers."

With such a large market share already in the Milwaukee area, Roundy's in recent years has focused most of its growth efforts in the Chicago area where it has opened six Mariano's Fresh Market stores and will soon open another location in the city of Chicago.

Although it has added few stores in the Milwaukee area in recent years, Roundy's has done a good job of updating its existing stores, Glaser said.

"As a general rule if you haven't improved your concept over the years you are vulnerable," he said. "I think Roundy's has done an excellent job of updating their stores, probably knowing the competition was on the way. They have done a good job of re-positioning their stores."

In February, Roundy's went public offering 19.2 million shares of common stock on the New York Stock Exchange. The IPO launched at $8.50 per share. Recently, the company's stock was trading at $7.20 per share.

The Meijer stores will be price competitive with Walmart, but will offer a more upscale shopping environment similar to Target, but with better meat, bakery and produce offerings, Livingston said.

"They are a really good operator," Kuhn said. "It's a very clean store. It's probably closer to Target than a Walmart."

While the increased competition will hurt some existing grocery stores in the area, especially older stores at weaker locations, consumers will benefit from the influx of new stores, Kuhn said.

"I think it's good news for the consumer," he said. "I think on a lot of things we do pay more than people in other markets do. All of the competitors are going to have to be at the top of their game. They are going to have to provide the best shopping experience for their customers if they want to succeed."

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