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    Finding the Sweet Spot

    The buzz-generating Giant Eagle Inc. has done it again.

    The buzz-generating Giant Eagle Inc. has done it again.

    Already creating a stir in western Pennsylvania, Ohio, West Virginia and Maryland with its growing GetGo convenience chain and its generous fuelperks! reward program, upscale supermarket operator Giant Eagle is looking to strengthen its competitive position with Giant Eagle Express. The 14,000-square-foot neighborhood store combines GetGo's gas and convenience items with Giant Eagle's photo and DVD rental services, free WiFi, high-quality fresh meats, full-service deli counter, produce, an in-store bakery, prepared foods, touch-screen kiosk to custom order breakfast sandwiches, subs, salads, soups, and other fast foods and drive-in pharmacy.

    Opened May 4 in Harmar Township, Pa., the Giant Eagle Express is a 24-hour neighborhood grocery store "that provides fresh, convenient and affordable groceries and meal solutions to customers with on-the-go lifestyles," said Brett Merrell, the retailer's marketing vice president.

    Giant Eagle Express provides the retailer an opportunity to serve areas the larger supermarket format could not, Merrell said. "As we collect customer feedback on the initial location, we will continue to enhance the concept and evaluate potential locations for additional sites."

    Giant Eagle Express clearly targets traditional convenience customers, as well as food and drug shoppers who stock up their pantries at super centers or warehouse clubs and go to c-stores for fill-in shopping, said Burt P. Flickinger III, managing director, Strategic Resource Group, a New York City-based business strategy consulting firm that works with retailers and consumer goods companies.

    "The customers Giant Eagle is getting at Express and GetGo are customers it was losing to other c-store competitors," Flickinger added.

    The combination of Giant Eagle Express, GetGo and Sheetz Inc.'s stores has made western Pennsylvania one of the best and most competitive gas and convenience markets in the country. "Many convenience operators will study the Pittsburgh market and take those lessons and make their operations better in the states in which they compete," he said.

    To some, Giant Eagle Express is one of the first responses by a U.S.-based retailer to the pending invasion of giant British retailer Tesco PLC, which is building its own grocery/convenience store hybrids in the western United States. As many as 300 Tesco Fresh & Easy stores may open in California, Nevada and Arizona within a year as the U.K. retailer brings its unique combination of private label, organic and fresh food to U.S. shores.

    To others, the Tesco connection to Giant Eagle is even tighter. According to unconfirmed reports, Giant Eagle has a share-group type arrangement with Tesco. (Giant Eagle would not discuss its relationships with other retailers.) Al Meyers, senior vice president for Columbus, Ohio-based consulting firm TNS Retail Forward, called both Tesco's Fresh & Easy concept and Giant Eagle's Express store as examples of "new one-stop shops" that feature edited assortments, simplified choices and new combinations of products and services to meet the needs of a changing customer base.

    With its upscale supermarkets, GetGo convenience stores and now its new Express hybrid concept, Giant Eagle appears to be positioning itself in a unique "sweet spot" for fulfilling consumers' needs for convenience and healthy, quality product offerings.

    Getting Along With GetGo
    With Giant Eagle Express still only one-unit strong -- although indications are the retailer plans to quickly expand the concept -- a more immediate concern to many c-store operators is Giant Eagle's growing GetGo kiosk and c-store business, now at 128 locations. GetGo's strongest pull: the fuelperks! program, which gives Giant Eagle supermarket shoppers significant discounts on gasoline purchases. For every $50 spent inside Giant Eagle's 226 supermarkets or GetGo c-stores, Giant Eagle Advantage cardholders receive 10 cents off a gallon of gasoline. There is no limit on how large the discount may grow. Up to 30 gallons of gasoline can be purchased at a time. (Gasoline, Giant Eagle and GetGo gift card purchases are excluded.) Larger GetGos typically have 16 pumps.

    Consultant Flickinger notes GetGo's strength at the pump. "The Shapira family, which operates Giant Eagle, is very smart about hedging the commodities market and is buying fuel at prices to compete with integrated oil companies," he said. "They are making a little bit of money on gas, even though it is a high demand driver."

    Dan Pastor, Giant Eagle's vice president of fuel stations and convenience stores, is quick to point out that customers "earn" their discounted fuel prices. "The fuelperks! program is designed to reward customers for their loyalty in meeting the appropriate purchase requirements in participating Giant Eagle supermarkets and GetGo fuel and convenience locations," he said. "As customers shop for their grocery and nongrocery items, they are earning fuelperks! rewards."

    But the 4-year-old GetGo chain's appeal goes beyond motor fuels. Along with traditional convenience merchandise, many GetGo sites offer GetGo Kitchen's prepared foods and custom sandwiches, made with gourmet cuts of meat and bread baked daily on site. The stores also sell Krispy Kreme doughnuts.

    A store in Butler, Pa., sells blended smoothies and a number of Giant Eagle branded products, including more than 10 freshly brewed blends of Market District coffee, and offers café seating with plasma TVs and WiFi access.

    A GetGo in Wilkinsburg, Pa., which opened a year ago, features more than 100 produce items, a 12-foot meat section featuring packaged chicken, turkey, ham steak, bacon, pot roast, hamburgers, bratwurst and more; a 16-foot mini dairy with nearly 400 products, and baby and pet departments.

    "With the GetGo concept, we strive to break through conventional c-store parameters by delivering fresh foods and convenience offerings that truly allow our time-starved customers to get in, get out and get going," said Pastor. "We are in the advantageous position of being able to utilize the brand equity and operational expertise associated with our Giant Eagle supermarket banner. Our combination of fresh foods, quick in-and-out convenience and high quality fuel offered at a competitive price allows us to differentiate ourselves from the competition in our markets."

    Convenience store competitors have taken note. "The whole concept is strong," said one gas/c-store operator who competes against GetGo in a handful of markets in Pennsylvania. "They are doing a good job of promoting their c-store offer, sampling sandwiches at the pump."

    What's more, they have a huge grab-and-go selection -- at least 12 feet of salads and other prepared foods, he noted. "They are discounting their foods, offering $1.99 6-inch subs, which is near cost for many of us."

    But Giant Eagle's Pastor says that inside the store, Giant Eagle has worked diligently since November 2004 to maximize operating efficiencies and invest the cost savings into reducing everyday prices on thousands of in-store items. "To date, our efforts have generated more than $120 million in annualized customer savings," he said.

    Flickinger added that Giant Eagle's supermarket legacy ends up driving more customers from the pumps into the GetGo stores.

    Going forward, GetGo will be a strong profit center for Giant Eagle, predicted Flickinger. "Plus, it limits Wal-Mart's ability to come in with gas centers and limits the expansion of Sheetz, Sunoco Aplus, Mobil on the Run and strong regionals that have a very good business balance between gas and convenience, such as the new NOCO stores."

    As the Pennsylvania c-store retailer told CSNews, "GetGo's retail strategy in the store is excellent and they have good execution. I wish I knew the nicks in their armor better!"

    One weapon in Giant Eagle's arsenal: A big chain-sized wallet to pay impressive prices for valuable real estate for their new GetGo stores, which measure from 1,895 to 4,500 square feet, some with car washes.

    According to this competing retailer, in one Pennsylvania market GetGo recently purchased a piece of land for a c-store for a sum more than four times the amount this c-store operator typically pays in that market. (Giant Eagle does not disclose real estate purchase prices.)

    Regardless of how much GetGo pays for real estate, the Pennsylvania c-store retailer concedes that the chain is very competitive. "They have that strong group of Giant Eagle customers who go for the gas discounts, backed up at the gas pumps two or three deep at times."

    Still, this c-store operator finds ways to compete with Get Go. "We do pretty well," he said. "They have a lot of GetGo locations in Giant Eagle lots that are not very convenient to get to. Our strength is our execution, locations, and having an efficient, clean facility."

    In the end, he said, "I don't think our everyday c-store user is their primary customer. We have our loyal customers who are in the store two or three times a day. They have the grocery store shopper who wants to use their fuelperks! At 10 or 11 a.m., they have the stay-at-home mom, which is an excellent part of the c-store business, but an incremental part of our business."

    Pastor describes GetGo's customers as "time-stressed and in need of quick meal solutions. Our job is to provide attractive meal solutions that will allow them to refuel their bodies and vehicles and get on with their busy days."

    Fan of fuelperks!
    One of these customers is Barri Jones, a 47-year-old single mother of tween twins who lives in Upper Arlington, Ohio, an affluent suburb of Columbus. She estimates she buys 90 percent of her groceries from her local Giant Eagle. "I can get products I can't get in other supermarkets, like their no-hormone, organic meats. If I call the store manager, I know he will call me back."

    But the fuelperks! program, she says, keeps her loyal. "I drive past two other supermarkets to shop at Giant Eagle," Jones said. "I know the food will be worth it, but the fuelperks! program helps get me there."

    She typically fills her tank once a week, and builds up her fuelperks! discount. "It's all a game," she laughed. "I buy gift cards for birthdays and other occasions at Giant Eagle, so I get even more fuelperks! It's nice to be able to do that."

    Jones said she receives 3 cents off a gallon of gasoline, simply by using the Giant Eagle Advantage card. But not every gasoline purchase Jones makes is at a GetGo. "On occasion, if I don't have fuelperks! to spend, and I need gas, I'll go to the most convenient location. Recently, it was a Shell that was competitively priced."

    She acknowledges that her total grocery bill is higher at Giant Eagle, and hasn't figured out if the extra money she pays is offset by the fuelperks! discount. "Giant Eagle prices on core items are slightly higher. Other products are in line with Kroger, though, it's the only alternative I have, except Wal-Mart, which is a free-for-all and I hate shopping there." Giant Eagle's upscale offering may also explain Jones' higher total bill.

    A perception by some that Giant-Eagle subsidizes its GetGo concept with higher-than-normal grocery prices at supermarkets is unwarranted, noted Dan Donovan, a GetGo spokesman, who went into more detail on the retailer's cost-savings and price-lowering efforts. "We have lowered prices on commonly purchased groceries items four separate times since November 2004, and brought savings to customers of more than $120 million annually," he said. "Also, we sell 314 generic prescription medications for $4 in our Pennsylvania pharmacies."

    GetGo isn't a big competitive concern for Convenient Food Mart, said John Call, president of the Painesville, Ohio-based chain. Call said that Convenient Food Marts are more foodservice-focused, neighborhood stores with a very different offer than GetGo, which still reflects its parent company's grocery store heritage.

    "They do have some impact," he allowed. "There are only so many Hershey candy bars being consumed today."

    Call feels that Convenient Food Mart's strengths are GetGo's weaknesses, and vice versa. "If someone in our neighborhood wants a rotisserie chicken, he'll to Convenient Food Mart to get it."

    Yet, Call acknowledges that GetGo represents "a great competitor with many more assets to deploy, new freestanding stores and physically good-looking units."

    The longtime c-store industry veteran is quick to add that his perception -- based on the stores he competes with -- is that GetGo stores are ancillary to the company's grocery business.

    However, Giant Eagle certainly appears to be building its c-store business in both size and scope. It has opened 128 locations in just four years, and Pastor insists the retailer is following a strategy for evolving the GetGo concept from gas kiosks into full-service convenience stores. "To meet our goals of being a first rate convenient retailer, we must continue to think outside of the c-store box. We are continually testing and refining our food offerings in regard to both quantity and selection by incorporating different items including produce, dairy and selected meats. We also continue to try new things with convenience, whether it's imple- menting video rental kiosks or offering retailer gift cards."

    Giant Eagle appears as well-positioned as any retailer in the U.S. to meeting the needs of today's changing consumer with a multi-format strategy of full-line upscale supermarkets, its new hybrid Giant Eagle Express and its GetGo convenience stores.

    We continually evaluate opportunities to expand the GetGo concept with on-site locations nearby a Giant Eagle supermarket and with larger, stand-alone locations," said Pastor. "We will continue to find areas within the markets we serve to bring customers great high-quality offerings and convenient access for their fuelperks! redemptions."

    More Online: Read our interview with a loyal GetGo customer under Bonus Content.

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