Dominick's wants slice of the high-end market

...For Dominick's and its owner, Pleasanton, Calif.-based Safeway Inc., the nation's third-largest grocery chain, the store serves as the bookend to four years of troubles that included the closing of a dozen stores here and an ill-fated effort to sell the Chicago chain.

But the now 100-store chain and its parent are taking a risk that the “lifestyle” format will enable them to buck the continuing consolidation of the grocery industry as supercenters and specialty stores take market share from the traditional grocer.

Dominick's hopes to remodel as many as 25 of its stores into the new format this year. Work has begun on the store at Roosevelt Road and Canal Street and is expected to begin soon at the store on Division Street and Clybourn Avenue. The company says it is developing plans for a new store in the Lincoln Park area.

By 2013, estimates are that only 40 percent of food sales will be made by traditional grocers, compared to the current 52 percent, according to a study by Willard Bishop Consulting in Barrington and The Food Institute, an Elmwood Park, N.J., trade association. Twenty years ago, 90 percent of food sales were in traditional grocery stores.

Many people believe the grocery industry is on the cusp of a sea change as shopping for staples shifts to the supercenters and wholesale clubs.

“People have got to eat,” said Leonard Teitelbaum, a food industry analyst with Merrill Lynch. “But the grocery industry is going to consolidate to the point where there are a few mega chains and a lot of little stores.”

Teitelbaum said he and many inside the industry are betting that thousands of smaller stores that offer a more limited selection will begin opening in coming years.

“The question is who's going to raise their hand to fill the role,” said William Bishop, president of the consulting firm.

“I think there is no question that there is going to be an increased number of small stores in the marketplace. A lot of those stores will look and feel like a convenience store, but folks in the industry will take a long time to call them that,” he said.

One of the nation's two largest drugstore operators, Deerfield-based Walgreen Co. or CVS Corp., of Woonsocket, R.I., could step up to fill the role, Bishop suggested. Both are increasing the number of food items they sell in a bid to boost customer traffic.

Another possible contender is British retailer Tesco PLC, the world's fifth-largest retailer. It operates four different sizes of stores, including one that it plans to bring to the United States next year. Tesco has fought Wal-Mart's Asda unit to a standstill in the United Kingdom.

Bishop said Tesco Express, a 3,500-square-foot store that is about the size of a White Hen or 7-Eleven, offers a complete shopping experience, albeit in a smaller space. And a primary emphasis is prepared food products called “ready meals,” which many people think Americans increasingly seek.

“In the U.S. we have been singularly unsuccessful at translating that into a business,” Bishop said.

Studies by Retail Forward, a consulting company based in Columbus, Ohio, show that people are buying items that are quick and easy to prepare because they do not want to slave over a hot stove.

More important for the grocery industry is that 62 percent of shoppers say they regularly seek fresh-prepared main courses.

Dominick's Keprta believes there is room for a store like his chain's newest. “We think we can take market share in this space from competitors,” he said.

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