Store Brands Reign at KVAT's New Discount Retail Food Format

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August 12, 2009

By Maureen Azzato

Flexibility, thought leadership and innovation led executives at KVAT to create a new and unique store format -- Super Dollar Discount Foods -- to better serve the needs of its large and growing low-income customer base.

Based in Abingdon, Va., the operator of 94 Food City stores and 11 Super Dollar Discount Foods, has maintained market leader position against the likes of Wal-Mart and Aldi by listening to its core customer, and expanding on its highly respected and growing portfolio of stores brands.

When KVAT entered the store brand business in 1995, it had several hundred items and less than 5 percent market penetrations. Today, the company has more than 6,000 items and commands a resounding 27 percent penetration in dollar sales, according to President and CEO Steven C. Smith, whose father founded the chain in 1955.

Operating in rural coal mining areas of Virginia, Kentucky and Tennessee, 50 percent of KVAT's customers have household incomes of less than $40,000, Smith told attendees at the recent Private Brands Summit in New York City, hosted by the Food Marketing Institute.

"That's one of the reasons we developed the Super Dollar stores," said Smith, who added that he too grew up in the coal fields of southwest Virginia. "We grew up understanding some of the challenges our consumer have, and over the years have been price focused. When we developed the Super Dollar Discount Foods program it gave us an extra opportunity to serve our consumer."

The company has a four-tier store brand program with its economy brand, Valu Time, anchoring the relatively new Super Dollar format. Meanwhile, its Food Club value brand is positioned as a national brand equivalent, while World Classics is its premium brand. In addition, KVAT also has a niche brand, Full Circle organics.

At Super Dollar stores, Valu Time's 1,000 SKUs get prime retail shelf space in every section of the store, according to Richard Gunn, executive vice president of merchandising and marketing.

The format's success hinges on maintaining a limited assortment of less than 8,000 items (excluding greeting cards), operating in stores that average 20,000 square feet and can be run with low overhead, rent and labor.

Some categories, such as soup, feature only store brands, although the stores do feature extremely limited manufacturer brands in some categories. The near exclusive focus on store brands yield 33 percent lower transaction costs. The average item ring at Super Dollar is $1.50 compared to Food City's $2.25, Gunn said.

Most Super Dollar Discount Foods stores were developed in stores vacated by competitors who exited the market. If the location doesn't support a Food City, it is typically ideal for a Super Dollar store," Gunn explained.

"This also gives Food City a great exist strategy," Gunn said, adding that the company no longer pays to haul store equipment away when a Food City is shuttered. Instead, the location and equipment can be refurbished and recycled into a Super Dollar store.

"We use Super Dollar as offense and defense against [Wal-Mart] super centers and limited assortment stores," Gunn said.

In addition to packaged foods and non-foods, Super Dollar features a significant selection of fresh produce with bulk merchandising and attractive spillover displays.

Super Dollar stores also feature regional "legacy brands" KVAT has acquired over the years, which carry tremendous customer loyalty, according to Smith. The locally manufactured brands -- such as Kay's Ice Cream, Lay's Classic Meats and Terry's Classic Snacks -- "create an emotional connections with our consumers.

"We've added another layer to our corporate brands that gives us differentiation," Smith said. "In our televisions commercials we make sure customers know they can only get these [legacy] brands at Food City or Super Dollar."

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