Grand Rapids, Mich.-based Meijer Inc. is finally about to make its much-anticipated entry into southeastern Wisconsin. The addition of Meijer seems sure to shake up the region’s already highly competitive grocery market.
“They are blitzing the market with more square footage than the market can absorb,” said Pewaukee-based grocery industry analyst David Livingston.
Meijer has more than 200 stores throughout the Midwest, and now is ready to open its first Wisconsin stores. Meijer will open stores in Grafton and Kenosha in June and in Oak Creek and Wauwatosa in August. The company also plans to open stores in Waukesha and Sussex in 2016. Meijer also recently obtained approval for a store in Greenfield. In 2017, Meijer plans to open a store in West Bend, city officials announced recently. Also, Meijer eventually plans to open a store in Sheboygan, where the company earlier this year acquired Memorial Mall.
Meijer stores include full grocery and general merchandise departments. The company is entering southeastern Wisconsin as the region’s grocery industry has become increasingly competitive. Walmart, Sendik’s, Woodman’s and others have added numerous stores in the region in recent years.
Even more competition is on the way, besides Meijer. Costco plans to add two more stores, in New Berlin and Menomonee Falls. Whole Foods will add a store in Wauwatosa. Fresh Thyme Farmers Market will enter the market with stores in Milwaukee and Brookfield.
In addition, the area’s Target stores have increased their grocery offerings in recent years.
In a region with modest population growth, the combination of so many additional grocery stores, plus the pending addition of Meijer and other planned stores, has put a strain on market leader Pick ’n Save, a brand of Milwaukee-based Roundy’s Inc.
Pick ’n Save’s market share in southeastern Wisconsin has fallen from about 65 percent in 2006 to about 35 to 40 percent today, Livingston estimates. Roundy’s says it has 42 percent market share in the Milwaukee area.
In addition to the increasing number of competitors in the region, Pick ’n Save faces challenges that include a high level of debt, high labor costs for its unionized workers and rental costs, because it typically rents its space, Livingston said.
Last year, Roundy’s closed three Pick ’n Save stores in the area: a store at 810 E. Green Bay Ave. in Saukville; a store at 8120 W. Brown Deer Road in Milwaukee; and a store at 11111 W. Greenfield Ave. in West Allis. The closure of the three stores resulted in the loss of 226 jobs.
“These stores were EBITDA (earnings before interest, taxes, depreciation and amortization) negative, and we acted accordingly to best position our existing store base for future growth and improved returns,” Roundy’s chairman and chief executive officer Robert Mariano said in the company’s fourth quarter earnings call.
Fox Bros. Piggly Wiggly moved into the former Pick ’n Save store in Saukville, but vacated its previous location nearby at 835 E. Green Bay Ave. Fox Bros. also opened a Piggly Wiggly store in Hartford late last year.
Roundy’s also recently announced that it will close the Pick ’n Save store at 2210 Rapids Drive in Racine. The store closure will put 65 employees out of work.
“You can’t run low volume or low sales stores perpetually,” Livingston said. “At some point you have to cut the line and let them go.”
Roundy’s reported adjusted net income from continuing operations of $3.5 million in the fourth quarter of 2014, down from $5.8 million in the fourth quarter of 2013. For all of 2014, the company reported an adjusted net loss from continuing operations of $2.07 million, down from adjusted net income from continuing operations of $27.8 million in 2013.
In its report on the fourth quarter of 2014, Roundy’s said, “same-store sales continue to be negatively impacted by competitive store openings in our Wisconsin markets.”
“For the full year of 2014 we experienced seven competitive (grocery store) openings in our Wisconsin markets. The outlook for this year, 2015, is for 13 competitive store openings in the Wisconsin markets, including five supercenter openings and eight conventional (grocery store) openings. Ten of these openings are expected to be in the Milwaukee metropolitan market, and the majority of them will be summer and fall openings,” Mariano said in the fourth quarter earnings call. “We will be very proactive, not reactive, in regard to new competitive openings. We will continue our process improvements initiatives in 2015 with a goal of operational excellence across all banners.”
Meijer stores, typically about 192,000 square feet in size, are similar to Walmart stores, with large grocery and general merchandise departments, Livingston said. Meijer differentiates from Walmart by offering higher quality perishable grocery items, he said. Meijer will differentiate itself from Pick ’n Save by offering lower prices.
“Meijer knows Roundy’s is vulnerable and can’t fight back,” Livingston said. “(Pick ’n Save) can’t lower prices (because of debt, labor and real estate costs). Meijer knows they can push (Pick ’n Save) over the edge.”
The region’s grocery market will not feel a significant impact from the opening of the first Meijer stores, Livingston said. But over time, as all of the planned Meijer stores open and other planned stores, such as the Costco stores in Menomonee Falls and New Berlin, also open, the region’s grocery market will face a significant shift in market share, he said.
Livingston predicts that Roundy’s market share in southeastern Wisconsin will shrink to about 18 to 20 percent, levels that will be matched by Walmart and Meijer. Sendik’s, Piggly Wiggly and Woodman’s will each have about 10 percent market share, he predicts.
“Customers are going to love it,” Livingston said. “They are going to have all kinds of good places to shop.”
The competition in the region’s grocery market is much tougher than it was about 15 years ago, when most of Roundy’s competitors were weakened by struggling parent companies, Livingston said. Walmart, Target, Meijer and Costco are much stronger competitors.
“These companies are huge compared to Roundy’s,” Livingston said. “Now (Roundy’s) is the little guy.”
While stymied by increased competition in Wisconsin, Roundy’s, which went public in 2012, has turned to the Chicago area for growth. The company opened its first Mariano’s grocery store in the Chicago area in 2010 and now has 31 locations in that region, according to the 2015 Roundy’s Fact Book. The company says it plans to expand to 45 to 50 Chicago area locations over time, including five planned new stores this year and five new stores in 2016.
“They are a Chicago company now,” Livingston said.
In southeastern Wisconsin, Roundy’s may have to close more stores as the competition continues to grow. Livingston predicts about half of the Pick ’n Save stores will close. Roundy’s has 90 Pick ’n Save stores, most located in southeastern Wisconsin.
“Many of their existing stores are in good locations and will survive,” Livingston said. “(But) about half of their locations are redundant. I think about half of the (Pick ’n Save) stores will close over time. I don’t know how long that is going to take. I think they need to get rid of about half of their stores to get their sales per square foot to a reasonable level.”
One of the few new stores planned by Roundy’s in southeastern Wisconsin is an 85,000-square-foot, two-level Metro Market grocery store that will be built on Oakland Avenue in Shorewood. It will replace the Pick ’n Save store on that street.
