Beyond the Big Box Store

With help from NCB, ShopRite’s Rich McMenamin found success by giving his Philadelphia grocery customers what nobody else would

Independent grocer Rich McMenamin has found a way to compete with Wal-Mart, club warehouses and big box retail stores, at least in his part of the world.

The owner-operator of two ShopRite supermarkets in northeast Philadelphia, McMenamin can sum up his strategy with two commandments:

1) Honor thy customer.

2) Find partners who understand thy business.

Those two mandates led McMenamin to modernize one supermarket and build a second in 2008 after discovering an untapped customer niche. He’s glad he did.

"The success of the new store has been tremendous," McMenamin says. "It’s the largest and newest supermarket in the area in the last 15 years, and people have responded well. Sales are significantly ahead of projections."

Using 25 years of grocery business experience, the cooperative power of Wakefern Food Corp. -- the nation’s largest warehouse distribution cooperative -- and the industry and financing expertise of NCB, McMenamin seized control of his business, and his future, by offering his customers what they couldn’t get anywhere else.

 

Looking for a boost 

Not so long ago, however, McMenamin was struggling. A former group vice president for Super Fresh Food Markets, he had purchased his first store in 1995 after Wakefern approached him "with an offer I couldn’t refuse," he recalls.

Built in 1987, the former ShopRite supermarket sat on Philadelphia’s Roosevelt Boulevard. It had once been operated as a corporate store and had sat vacant for a few years. In re-launching the business, McMenamin saw an opportunity to reach an under-served neighborhood. Even so, his first few years weren’t easy.

"It was a difficult area," remembers McMenamin. "We had a lot of senior citizens as customers and a high rate of store accidents and workers’ compensation claims."

Moreover, he was entering a very mature, capital intensive and highly saturated food retailing industry, where average after-tax net profit margins rarely reach above 1 percent. Like other independent grocers, McMenamin faced the threat of big box stores and national chains. If he was going to succeed, McMenamin would have to work hard, keep his eyes open and hope for a little luck.

 

A Passover revelation 

Looking for ways to turn things around at his supermarket, McMenamin realized the problem wasn’t what was in the aisles and on the shelves of his new store, but what wasn’t there.

A surge in the store’s business during Jewish holidays told McMenamin that his market’s area held a large Jewish clientele who sought kosher food, particularly during Passover and Rosh Hashana. (Kosher food is food that meets Jewish dietary laws.) That demand, he realized, spelled opportunity.

McMenamin changed his merchandizing strategy. He began expanding the store’s kosher offerings. He even spent time in Brooklyn, N.Y., studying kosher food preparation. In 2002, McMenamin expanded the store by 8,500 square feet. That allowed him to add a full-service kosher foods department.

The strategy worked. The store quadrupled the size of its Passover offerings. Jewish holiday shoppers from as far as 50 miles away began visiting the store, aware that a mashgiach, or supervising rabbi, worked on the store premises at all times. In 2007, ShopRite of Roosevelt Boulevard earned recognition as one of the city’s two best kosher stores in the Philadelphia Area Kosher Community Survey.

 

Building a second store 

By then, McMenamin had already decided to expand. He saw opportunity in building a second ShopRite supermarket and pharmacy about five miles to the southeast on Frankford Avenue. It would take four years to complete zoning approval, leasing arrangements and construction of the new store, called Morrell Plaza. During that time, McMenamin took a closer look at his Roosevelt Boulevard location. Worried that his new site might hurt business at the old store, with its outdated energy infrastructure, McMenamin determined the Roosevelt location needed a facelift.

All that, of course, took money. Fortunately, McMenamin had connections.

As a ShopRite Supermarket owner and operator, McMenamin is a member of Wakefern Food Corp., the nation’s fourth largest co-op with $7.847 billion in 2007 revenues. Wakefern supports its 44 members and their 200-plus stores with name-brand and private-label products, advertising, merchandising, insurance and other services. Those are benefits, McMenamin says, "that if I were an independent owner, I wouldn’t have the ability to access."

McMenamin could take his connections a step further. Wakefern has a long-time relationship with Washington, D.C.-based NCB. In fact, the cooperative bank’s loans to other ShopRite members continue to grow rapidly as they renovate, expand and build stores.

"Wakefern and NCB have been partners in financing ShopRite member growth for over 25 years," says Barry Silver, an NCB managing director. "The bank understands how entrepreneurs, unlike large grocery chains, can tailor their stores to the local community, and how these local Shoprite entrepreneurs fit into the hugely successful Wakefern cooperative wholesale program."

That link led McMenamin and Silver to discuss financing for the two Philadelphia stores. "I was impressed with Barry’s knowledge of the supermarket business," says McMenamin. "Since he does business with other Wakefern members, he understands the co-op system too. I felt very comfortable in that situation."

 

 

Geared toward customers 

Using $6.6 million in NCB financing, McMenamin constructed his new ShopRite of Morrell Plaza and remodeled his Roosevelt Boulevard store. He also got a $300 thousand revolving line of credit to help with operating expenses.

The 60,000 square-foot Morrell Plaza supermarket was completed in November 2008. Kosher food isn’t its focus. Instead, the store targets younger, working customers with children. Shoppers can find a sit-down area that offers pizza, hamburgers and more. At the new grilling station, store employees can prepare meals for customers who opt for take-out.

In its renovation process, the Roosevelt site adopted the décor of the new store. McMenamin also added a new kitchen and a prepared food section in the kosher department to offer time-pressed shoppers grab-and-go corned beef, fried chicken, salads and other fare. He expanded the bakery department too, putting more emphasis on birthday cake selection and decorating. The 65,000-square-foot supermarket and pharmacy operates with a modern energy management system to control the electricity flow for the store’s refrigeration needs. New energy equipment and fluorescent lighting have delivered "tremendous energy savings," McMenamin says.

"Rich McMenamin represents the entrepreneurial spirit that has defined Wakefern since its founding," says Joseph Colalillo, Wakefern’s chairman and CEO. "Our members are not only committed to remaining contemporary and competitive for the sake of their customers and communities, but to working with each other to build and grow the ShopRite brand."

 

Forward focus 

McMenamin’s expansion hasn’t ended all his challenges. His stores still face competition from nearby Super Fresh and Pathmark supermarkets as well as two Wal-Mart locations. "Wal-Mart is a threat to all supermarket operations," he says.

Even so, McMenamin remains confident. While the new store is surpassing expectations, the Roosevelt Boulevard location has continued to increase revenues and gross margins. More than 25,000 customers visit each store weekly. Combined, the two stores employ 475 people, most from immediate neighborhoods.

"It’s paid off for us," McMenamin says. "But the process of expanding can be extremely difficult. Financially, it’s important to deal with someone who understands the supermarket business and the ups and down that can happen, to help you through difficult times."

Having succeeded at his expansion efforts, McMenamin can add a third commandment to his business strategy: Continue to look ahead.

"When things settle down and we’re comfortable," he says, "we’ll be looking for opportunities to grow with a third or even fourth store in the Philadelphia area.

 

If your grocery business needs financing, contact NCB’s Barry Silver at (703) 302-1955 or bsilver@ncb.coop. Learn more about Wakefern and Shoprite at  http://www.shoprite.com/wakefern/