Green Grocers
Local Investors with No Grocery Experience Opened Rock Island Country Market Last Year. How Can They Survive Against Wal-Mart and Hy-Vee?
Story by Jeff Ignatius, Managing Editor
River Cities' Reader

Article Posted Wednesday, April 07 2004 ~ 10:04am

http://www.rcreader.com

The Rock Island Country Market is an anomaly. While new grocery stores tend to be between 60,000 and 70,000 square feet and located in population centers and along major roadways, this 30,000-square-foot store is tucked away on Rock Island’s 24th Street, more residential than commercial.

In other words, this isn’t the type of store that should work in today’s grocery market.

But a group of five investors – four of them local – bought the store during the bankruptcy proceedings of Milan-based Eagle. Rock Island Country Market is the only one of the 10 Eagle locations in the Quad Cities – which closed last year – that has re-opened as a grocery store.

And the investors have so far been pleased with the store’s performance.

People “started coming in when the doors opened,” said Tim Baldwin, one of the owners and a partner in the Rock Island firm eServ. “In fact, we had a hard time keeping them out when we were closed. … That store is an important place.”

The owners only closed the grocery, at 2252 24th Street, for four days in October. The quick turnaround paid off. David Tennant, another owner, said that although the store opened in October, it is nearly matching the traffic count and revenue volume – a little less than $1 million in sales a month – that the old store was doing “before it started to slide” because of Eagle’s bankruptcy.

“We were fortunate to have wound up with that store,” Baldwin said.

The success of this relatively little store shows that while there are nearly 30 grocery stores in the Quad Cities, there are clearly population pockets that don’t have easy access to the size and modern amenities of a Wal-Mart Super Center or a newer, spacious store. The locally owned Rock Island Country Market is also proof that neighborhood grocers can still survive.

Closing the Gaps

The closure of the Eagle sites leaves 27 grocery stores in the contiguous Quad Cities – including 12 in Davenport, four in Moline, three in Rock Island, and one in Bettendorf. (See map.)

That might make Davenport seem grocery-rich, but even it has some glaring holes. The loss of the Eagle at 405 East Locust Street means that the closest grocery store for residents on the city’s east side is at 1823 East Kimberly Road.

Bettendorf is presently served by only one grocery store, a Hy-Vee at 2900 Devils Glen Road.

Southwest Moline and southeastern Rock Island have a hole with the loss of the Eagle at 750 42nd Avenue.

And while Rock Island would seem to be doing nearly as well as Moline, it has three relatively small grocery stores, while its neighbor to the east has a Wal-Mart Super Center.

“No question Rock Island is underserved,” Baldwin said.

Some of those Quad Cities grocery gaps will be filled – in the long run. A Schnucks grocery is scheduled to open in Duck Creek Plaza in Bettendorf next year. And Hy-Vee plans to remodel the Moline Eagle store at 750 42nd Avenue this summer, although an opening date has not been set, according to Ruth Mitchell, Hy-Vee’s assistant vice president for communications.

Those will certainly alleviate the situations in Bettendorf and the southern Rock Island/Moline border, although they won’t address the holes in western Rock Island and eastern Davenport on both sides of Locust Street.

But progress often comes slowly. While the local investors in Rock Island Country Market worked to minimize the time their store was closed during the transition from Eagle, grocery chains are far more methodical.

JoeVan Foods, at 1421 Kimberly Road in Bettendorf, closed in 2001, and a big section of Bettendorf will have been without a nearby grocery store for four years when Schnucks opens next year. The new store “is monumental,” said Decker Ploehn, Bettendorf’s city administrator. Groceries have been “sorely lacking in this end of town.”

And Hy-Vee will likely take its time replacing its older stores. In addition to the Moline Eagle property, Hy-Vee purchased the Bettendorf store at 2701 Devils Glen Road. “Our plan is to move from our current store into the newer facility,” Mitchell said.

Hy-Vee in 2002 bought the Milan movie-theatre building and will demolish it this spring, she added. A new store will be built there to replace the current Milan Hy-Vee, and it’s scheduled to open in mid-2005.

Aside from Rock Island Country Market and the two stores purchased by Hy-Vee, it seems unlikely another grocer will move into those vacant Eagle buildings any time soon. The East Moline store at 4150 Archer Drive seemed at one time a good bet, but the prospects there have dimmed. Hank Gordon, president of Nevada-based Laurich Properties (which purchased the East Moline property), said a grocery store for the site would be “our first choice,” but currently his firm is negotiating with three companies that would use the property for other purposes. No grocery-store operator is presently negotiating with the company.

A lot of variables go into choosing a site for a grocery store. Mitchell said important factors include where people live and work and the transportation infrastructure that serves an area. Hy-Vee also looks at from what areas its existing stores draw, and the age of its current facilities.

The re-development of Duck Creek Plaza – including a Home Depot store – was a major element of Schnucks’ decision to come to the Quad Cities. “They want to be close to other stores,” Ploehn said. “They want to be close to where people are coming naturally.”

But not necessarily other grocery stores. Schnucks scrapped plans for a store at Kimberly Road and Division Street because of its proximity to a Wal-Mart SuperCenter.

And, of course, demographics – such as income – are important, too.

All that leads to a situation in which grocery stores tend to locate where there’s the largest population growth – generally the outlying areas.

Rock Island would love to see a grocery store either near the intersection of Blackhawk Road and 30th Street or somewhere along 11th Street south of 31st Avenue. Rock Island City Administrator John C. Phillips said the city is hopeful it can get a large commercial development at the Blackhawk Road site. The prospects will improve with the widening of Blackhawk in a few years.

As for 11th Street, it has good traffic and a good income profile, Phillips said, but transportation access is problematic. “We’ve had difficulty getting a large grocery operator to take a serious look at it,” he said.

And then there’s the Hy-Vee on 18th Avenue in Rock Island. The store is old and cramped, and there’s no obvious way to expand or remodel it at the current site. Mitchell said her company is looking at its options for bringing that store to the chain’s current standards but declined to discuss them.

“We Really Weren’t Interested in the Property”

That left the Eagle store as the largest and best grocery option in the city. So the City of Rock Island went out of its way to facilitate keeping that store on 24th Street open. “This is really important to us,” Phillips said. “We had so many people thank us.”

The city agreed to give the owners half of the city portion of sales taxes generated at the store for five years. The city estimates the benefit at $65,000 a year, while the owners expect it to be closer to $50,000 annually. (Baldwin said the store should generate between $10 and $12 million in sales each year.)

Baldwin and Tennant own 70 percent of the store. Two other owners – Baldwin’s eServ partner Pat Sherman and Ben Eastep – are local investors, and Jewel Brown is a Chicago businessman who has experience in the grocery business.

As Eagle went through bankruptcy, the business partners were looking for real-estate opportunities. “We weren’t really interested in the property,” Baldwin said of the Rock Island site.

But after exploring Eagle properties in Geneseo and East Moline, the partners recognized “the site itself to be a fairly decent business proposition,” Baldwin said. “Once you took out the overhead that Eagle had been taking out of it [to support the central warehouse], it was profitable.”

After looking at the store’s historical performance, the investors realized that outside market forces – such as the opening of the Wal-Mart SuperCenter in Moline – “don’t seem to affect that store,” Baldwin said. “The reason we believe that is where it’s located. … We’re pretty convinced our market is right there.” It is truly a “community grocery store.”

Baldwin’s experience with the City of Rock Island was certainly one factor in the site’s favor. When he started eServ in 2000, and when eServ later moved from The District to Blackhawk Road, the city helped out. “We knew these dollars were available, and they’d work with you,” he said.

“We went to Rock Island first before we even made a final bid,” Tennant said.

Rock Island Country Market ended up receiving a $100,000 loan from Rock Island’s revolving-loan fund, a $350,000 loan from the Bi-State Regional Commission, a $15,000 façade-improvement grant, and the five-year sales-tax rebate from the city.

The buyers sought the assistance because the margins are so low in the grocery business, Baldwin said, and also because in the short term “we anticipated a lot of hidden costs and some time for the word to get out.”

And there certainly are competitive disadvantages to operating a single store. While grocery chains can spread the cost of advertising among their stores, Rock Island Country Market stands alone. “They’re buying top-of-mind awareness a hell of a lot cheaper than we are,” Baldwin said.

But so far the results have been encouraging. “We’ve been happy,” Baldwin said. “We anticipated sinking money into that place through the end of last year and into this year.” Instead, it’s been nearly self-sustaining.

Tennant and Baldwin said they’re confident the store can be profitable without the city rebate in five years because of its growth potential and because they’ll continue to shave costs. When they bought the property, they said, their priority was getting it open quickly. Now they’re going back and looking at ways to improve efficiency.

For instance, Eagle paid $800 a month for its dumpster, while Rock Island County Market pays $250 a month.

Rock Island Country Market also uses Central Grocers, a co-op that serves 260 stores and allows the store to remain reasonably competitive. Unlike the Eagle store, which paid a fee to the company for its warehouse, Central Grocers’ cut is built into its prices. By using the co-op, shelf prices are roughly 10 percent lower at Country Market than they were at Eagle, Baldwin said.

The co-op also helped get Rock Island Country Market open so quickly. “They sent busloads of people here,” Baldwin said, along with $150,000 in groceries, Tennant added.

The store is also trying to cater to niche markets. The store added a large low-carb section and has expanded its ethnic-food offerings. Online shopping might be added soon, along with a salad bar. “We’re trying to zoom in and respond as if we’re a small, hometown store,” Baldwin said.

And they’re also applying general business principles to the whole operation. Department heads are being told “to act as if they’re business owners,” Baldwin said, and they’re given incentives for their departments’ performance.

Tennant said roughly half of the Country Market employees had been working at Eagle before the chain shut down its stores. Because of the Eagle situation, “we found the best-qualified employees. … The market was saturated,” he said.

One key difference between Eagle and Rock Island Country Market is that the new store is not a union shop. But the owners said they match Hy-Vee, their primary competitor, by offering comparable wages, incentive plans, and health insurance.

In fact, Hy-Vee provided the blueprint for this locally owned grocery store, its owners said.

“We basically just duplicated what Hy-Vee is doing,” Baldwin said.