Discount grocers find high-income clientele

PHILADELPHIA – Vicenza Cerrato stood in the bread aisle of a Giant supermarket and squinted at a receipt itemizing the stash she had just bought down the street at Bottom Dollar Food, a low-frills grocer that opened a few months earlier.

The 83-year-old retired cardiology technician ruthlessly monitors what she spends on food, despite living with her husband in North Wales, a Philadelphia suburb where average household income is $107,000. Because her daughter has been out of work for two years, whatever money Cerrato can save on meat, bread, and produce goes to her.

“I haven’t gone to Giant since some of these stores opened,” Cerrato said, referring to its extreme-low-cost competitors in her ZIP code, which include a nearby Costco and Aldi.

“I just bought chicken legs I would have bought at Giant,” she said of her Bottom Dollar spree on a recent Tuesday morning. “I just bought celery I would have bought at Giant.”

Stagnant or declining incomes, combined with the availability of affordable commercial real estate, are enticing cut-rate grocers to expand even into middle-class communities where conventional supermarkets have long reigned supreme.

The corporations opening these smaller, cheaper stores sense growth potential in the declining purchasing power of U.S. consumers.

Save-A-Lot, Aldi and Bottom Dollar, known in the industry as extreme-discount grocers, sell cheaper goods than large-scale supermarkets by cutting back on overhead and name-brand products, opting for small stores, employing few clerks and stocking much less merchandise.

These types of stores, one industry analyst explained, have been successful for years in lower-income neighborhoods such as urban “food deserts,” where they operated with little to no supermarket competition.

But the post-recession economy is making them more appealing to a broader base of consumers, serving as a “catalyst” for expansion, said Jonathan P. Feeney, who follows Supervalu Inc., Save-A-Lot’s parent company, and the food industry for Janney Capital Markets.

The recession created a cache of vacant commercial properties in communities where there is a “higher level of frugality among all kinds of people,” Feeney said.

The North Wales Bottom Dollar, notably, is next to an empty Linens ’n Things, which went out of business.

On the move is Save-A-Lot, which has said it would like to open as many as 160 stores nationwide this year.

Its publicly traded parent company, Supervalu, is not devoting similar resources to opening as many new conventional supermarkets, such as Acme Markets Inc., which are highly concentrated in the suburbs. Acme’s sales have fallen by $600 million in the past four years.

Aldi, whose North Wales store is a two-minute drive from the new Bottom Dollar, wants to open 100 more stores this year, according to Tom Fangras, director of regional operations for the privately held company.

Bottom Dollar has also targeted the suburbs in its chase of increasingly parsimonious middle-income shoppers. Since October, it has opened 13 stores in the Philadelphia region alone – all but one are in the suburbs – with more on the way.

“I think we’re all feeling the economy over the past two or three years,” said Don Ciotti, Bottom Dollar’s director of operations for the Northeast region. “Everybody’s looking to save money, and certainly our monthly food bill is one way to do that.”

All three chains approach their business in a way that diverges from the megastore approach that has characterized suburban supermarket retailing over the last decade.

Rather than stock tens of thousands of different items in stores 50,000 square feet or larger, these chains operate in relatively small buildings with small staffs, few cashiers and sizable assortments of store-brand merchandise.

Aldi, for example, sells almost entirely its own brand merchandise, with some national-brand offerings as an enticement.

Owned by the same German investors who own Trader Joe’s, Aldi says its stores cater to value-oriented shoppers even in booming economic times. Its 10,000-square-foot store in North Wales, for instance, dates to 1994.

“We have stores in all different areas,” Fangras said. “Anywhere from urban, suburban and rural. And the exciting thing about our business is that we really do well in all of those areas.”

At Bottom Dollar, the hope is that by offering 65 percent national-brand merchandise and 35 percent store-brand groceries, it will lure value-conscious suburbanites.

“When you look at Aldi and you look at Save-A-Lot, and then you look at where we fit in, there really isn’t someone playing in that spot,” Ciotti said.

Bottom Dollar’s stores have no produce refrigerator in the back room. Boxes of fruit and vegetables go straight to a refrigerated walk-in display at the front of the store, where they are opened and placed on shelves.

A subsidiary of Delhaize America, owner of the Food Lion chain, Bottom Dollar’s in-store brand is Hannaford.

A 32-ounce bag of Ore-Ida Tater Tots was selling recently at Bottom Dollar for $2.68, compared with $1.98 for the same size of Hannaford Tasty Taters. At Giant, store-brand Tater Bites were $1.99.

A 16-ounce box of Hannaford Saltines was 79 cents, compared with $2.38 for Nabisco Premium. Giant-brand saltines were $2.19 with a bonus card, while Nabisco’s were two for $5.

Jeff Metzger, publisher of Food Trade News, said the expansion by Bottom Dollar into suburbia reflects the sustained hardship brought on by the poor economy.

“Since the economy has gone south, and has remained flat,” Metzger said, “there’s a whole mind-set of thrift out there.”