Thursday, June 14, 2007

Ukrops and its Future

I have to admit that when I first moved to Chesterfield almost thirty years ago I came from Northern Virginia (Loudon County) where you basically had Safeway, A&P and later Giant. Even back then Ukrops was considered a higher end store and most of its business was generated from the middle class and up in the Richmond area. I have always been impressed with Ukrops operations and the level of service it provides both inside its stores and to the greater Richmond community. Lets face it, anybody who was anybody was shopping at Ukrops.

Yesterday I was out and about and tuned into to Mac's show on WRVA 1140 and listened in on what I determined was a prediction for Ukrops demise. The contention is that Ukrops will not survive given the change in consumer patterns and the change in Richmond demographics. You see way back it was Richmonders shopping at Ukrops who for the most part grew up here. Now with the growth rates in population in the area continuing to rise and for the most part from outside the region, Ukrops is an unknown. It is not a national player on the grocery landscape and upon arrival most lean towards a familiar "brand" mentality. As new residents assimilate into our consciousness they learn more and more about the charm of Ukrops.

Charm. Thats pretty much a luxury these days. Ever gone into a Walmart, ever? Then you can easily see a "big box" with little charm. Talk about a nightmare. However, in the end thats what Ukrops is facing going forward. Big box retailers want a slice of the pie in terms of the grocery segment and they are a big force. Target is expanding its grocery square footage, Walmart is moving towards more Supercenter formats and replacing its old smaller units and then you have the grocers in Kroger and Food Lion. Kroger has done the best at re-creating itself. Its high end feel stores like Rt. 60 in Midlothian are leaps and bounds ahead of its first stores it opened in the Richmond area. But again, in the end we have to look at how we have gotten here.

Remember, Safeway was here, Farm Fresh was here, Welcome, Inc. ( which I think was a Krogeresque experiment in late 80's) A&P was even here way back and all of these are a distant memory. All the while Ukrops has endured and continued to build its local style brand.

The contention that Ukrops will not survive is a bit pre-mature. It is true that its market share has been decreasing but on a store by store comparison has it really?. The company still generates more sales per store than any traditonal grocer: (they did close one store)

Ukrops : 22m per unit
Kroger: 20 million per unit
Food Lion: 11 million per unit
(overall sales by number of stores)

A traditional Target does about 12 million in total sales and a Walmart can do over 30, which includes all of its catagories and services.

A closer look at determining whether a company is facing demise is how much it is costing them to generate the revenues they are producing. Obviously, Walmart is a winner here thanks to China. Sorry thats another story! But Ukrops is generating increasing sales in areas where others are not thanks to area facilities like the bakery operation in the West End as well as the grills on site that are producing high quality food at reasonable pricing if compared to eating out in restaurants. Mind you this was a play that Ukrops moved into with great criticism by the industry because it was a new, untradtional thing. Ukrops was as we say in technology a "first-mover" in Richmond to do this and it has paid off. Kroger is spending huge sums of money to compete in the area and they are close behind Ukrops in sales , but have already put their stores in the high end corners of the market often by nearby Ukrop stores and are now looking for the secondary areas which will not generate the same level of sales.

One thing that I think Mac touched on during his show was to the point. When you consider the current state of tax policy, wages, cost of living increases in the area that does not play toward Ukrops favor. Ukrops has traditonally been known to be a little more expensive, though my wife insists that not actually true depending upon what you are shopping for, and lets face it when life is good and theres gas in the tank with no worries and money in your wallet you go for service. Edge Ukrops. However, as taxs go up, gas prices climb, people worry about property tax issues (if your elderly being able to actually pay them going forward) you think less service and more value. People will force themselves into the stores like Walmart that they adhore because of the value that they may get and fact is have to get in order to maintain their quality of life. I agree with Mac on his point about tax policy issues in that government is forcing the hand of homeowners, especially the elderly and retired on limited income, to make choices that seem completely unfair. Its a huge dilemma.

In the end, I am not concerned about the future of Ukrops. They are a model for private business in how you grow, slow and steady. I am not worried that they closed a store or may close another because thats simply is a part of managing your business. Kroger has closed plenty nationwide as it has grown and takes a market approach to each of its areas. Another aspect you have to consider is how much land Ukrops may own across the area that they have not developed yet. You can bet the Krogers and the Food Lions are heavy into leasing in the centers they are in while Ukrops has the edge in the market and contacts to get in on some of the better real estate transactions. All of that goes to the health and financial stability of a company.

Now, I took some heat yesterday and got some emails about my call for a Wegmans or Whole Foods at Watkins Centre on Rt 60/Rt288. My point was simply for that development to bring in something new as a draw. If that were to happen, that would create a pickle for Ukrops in the Midlothian area and Kroger could take a hit at its Rt 60 unit as well. I have not heard too much from the Ukrops on the Watkins Centre publically, but you would think that such a project would have a direct impact on its Sycamore Square unit. So stay tuned they may have some plans we are all unaware of. Also keep in mind that both Wegmans and Whole Foods ARE more expensive than anything here but they back it up with great quality and selection. Ukrops continues to evolve within their industry and I see no reason why they will not survive in the market as it stands today.

If their sales per unit growth or sales per square foot began to decline over the course of the next few years then that would be a major concern for the grocer. That said however, they have what virtually every company seeks ; Brand Recognition.


Bill Garnett said...

You failed to mention that Ukrops’ “Christian friendly” approach means their stores are closed on Sunday and that they don’t sell beer or wine.

Local religious Southern Baptist demographics help Ukrops in this regard.

The industry trend has been towards longer open hours – Wal-Marts are open 24/7. Ukrops has a large capital investment sitting unused, and fresh food sitting, over their Sunday closings. We have gone from Blue Laws to 24/7 in a generation – the trend may not bode well for Ukrops in its current model.

Bill said...

J. Scott**
I agree with the other comment to an extent. Except that what is discounted is Ukrops is doing more sales per square foot and STILL is closed on Sunday and does not sell beer/wine.
Some of the competition out there is indeed open ten more hours a day during the week and then open virtually 35 hours more on the weekends and still do not do the business Ukrops does.
The arguement could be made that its pricing though. It may be customer (ie at Ukrops we are "guests" not cuntomers) counts is maybe the better number which of course are probably not released by Ukrops.
Blue laws should not frighten anyone. Northerns still have them in Jersey and places in New York and further north and they are coming here in droves. Most people get that. The beer is probably a different story.
Don't discount the stores focus on Quality. There are always many people in there Sunday nights working as the product is brought in for the new week. Their focus on inventory control is the best in the region hands down and the loss numbers are some of the lowest in the industry. Your local Walmart deals with alot of theft issues in addition to loss of product under normal conditions.

SoccerMom said...

I saw in the paper concerning this and I have to admit I have shopped at Ukrops for over twenty years now, but also shop at Target, Walmart, and Kroger. I think like most people theres not one place that gets all right. I think you will get alot of people using all, well maybe not Food Lion, for different things. I will say though that going to Ukrops with kids is a heck of alot easier than any of the others and Walmart is the worst.
Weird thing is people all have the same thing to say about how bad Walmart is but everybody still goes there.

Anonymous said...

UKRAPS is like the VA Tech football team,overrated!!!

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