Meet Mariano's

It’s hard for me to be enthusiastic about the prospect of grocery shopping, which I consider a chore more tedious than folding laundry. So when my editor asked me to visit a Mariano’s Fresh Market prior to writing this article, I cloaked myself in a steely skepticism, preparing to be unimpressed despite the hefty hype heaped upon the upstart Chicago-area chain in the press and social media. 

 

Tucking away my innate cynicism for the sake of journalistic objectivity, I walk into Mariano’s South Loop store on a Saturday afternoon with an open mind and an open notepad. A full-service coffee and gelato bar greet me upon entry. Not intending to linger long here, I accept the clerk’s offer of a free tasting of the Italian-style ice cream. Four tastes later, I am sitting down with a $1 mini cup of coconut gelato in the adjacent dining area, below a sign announcing free WiFi. 

 

I’ve suddenly become Alice—downing the metaphorical “drink me” bottle and preparing to slide down the rabbit hole. That’s the power a crowd-pleasing gateway product such as authentic gelato can have on the unsuspecting.

 

Upon entering the grocery store proper, I’m confronted by an immense produce section, brimming with organic edibles and exotic fruit and veggie varieties—many grown by area suppliers. The vibe of a European farmer’s market is unmistakable. I see a fresh juice and smoothies counter. Opposite this is a sushi bar providing custom-made orders. A nearby fresh oyster bar beckons. 

 

I turn the corner and witness a ginormous meat service counter boasting 30 varieties of sausages, Black Angus beef and house specialty kabobs. I turn 180 degrees to find an extensive bakery showcasing custom cakes, cookies, cream puffs, breads and house specialty cupcakes. I catch the wafting aroma of stone-baked pizzas coming out of an imported Italian oven that sits next to a sandwich bar. Heading there, I pass a wine-and-cheese station and sample aged Gouda that washes down smoothly with a mouthful of complimentary wine. 

 

Steps away is a soup bar featuring Manhattan clam chowder and Tuscan white bean and kale; its salad-bar sister, tantalizing with pasta primavera and a medley of olives, catches my eye. Before I even discover the sit-down wine bar north of me, I’ve already indulged in generous samples of hot sauerkraut, chocolate-covered almonds and, to clear my palate, Honeycrisp apples.

 

Another left turn makes me aware that I haven’t even perused the traditional grocery aisles yet, and there are nine of them, wide and tall and neatly organized from shelf to shelf. Most memorable is the “Tastes of the World” aisle, stocked with countless imported goods and ethnic foods. Elsewhere, I see name-brand products in addition to three series of house brands: Roundy’s Select (premium, higher-priced items); Roundy’s (average-priced selections); and Clear Value (competitively priced wares). Many aisles have shelves that are top-lit with LED strips to make products pop with illumination, while lower shelves often benefit from larger price tags for increased visibility. Overhead, jumbo signage spotlights sales items and key promotions. I also pass a walk-in beer cooler with major brands and craft brews, a colorful floral department and yet another sit-down dining area.

 

The store’s 18 checkout lanes are each buzzing with activity as paying customers enjoy a live pianist plinking away rhapsodically on an electric piano. Before departing, I see a hand-written black easel announcing upcoming events such as “How to bluff your way through wine,” sauce sampling and $1 oysters. 

 

And I sigh with the acknowledgement that living in the South suburbs, a long drive from the nearest Mariano’s, can have its drawbacks.

 

Mariano’s didn’t get to this elevated state of making instant positive impressions on consumers by accident. Milwaukee-based parent company Roundy’s Inc. and chairman and CEO Bob Mariano had carefully orchestrated the concept behind and rollout of its growing fresh-market chain long before the first Mariano’s opened in July 2010 in Arlington Heights, Ill. 

“Our market research indicated that customers were shopping multiple supermarkets each week because there was no one store that fulfilled their grocery needs,” says James Hyland, vice president of investor relations and corporate communications for Roundy’s Inc. “They were looking for high-quality perishables including organics, great hot foods and conventional grocery assortment, too. This presented the opportunity for Mariano’s to create an experience where we could consolidate trips for our customers by giving everything they needed under one roof.”

 

And the market demographics and competitive landscape made it ideal for Mariano’s entry: The Chicago market is the third-largest U.S. metropolitan market, with above-average demographics supporting greater spending on higher-margin quality and healthy offerings. 

 

Mariano’s main competitors include organic retailer Whole Foods Market, Windy City mainstay Jewel-Osco, discounters such as Aldi, and big-box players such as Walmart, Target and Costco. 

 

Insiders posit that Mariano’s has been a big hit thus far due to the pedigree of its chairman and CEO—who was employed by rival Dominick’s (which, parent company Safeway announced in October, will exit Chicago by 2014) for almost 30 years and served as that grocer’s CEO until Safeway Inc. purchased the chain 15 years ago.

 

Based on its PR focus and statements to stockholders, Roundy’s is clearly putting its eggs in the Mariano’s basket, despite the fact that the fresh-market chain makes up less than 8% of the company’s total stores. Roundy’s holdings consist of 162 midrange grocery stores in Illinois, Wisconsin and Minnesota, including Pick’n Save, Rainbow, Copps and Metro Market. 

 

Mariano’s has 12 locations across the Chicago area, with a 13th slated to open in suburban Wheaton by year’s end and five more on tap for 2014. Roundy’s is bullish on its fresh-market prospects, stating recently that it may ultimately surpass its projected goal of 30 Mariano’s in the Chicago market. So far, there have been no announced plans to branch out into other markets.

 

Experts have speculated that Roundy’s may purchase select Dominick’s locations being sold off to gain greater traction in the Chicago market. It’s also rumored that it may spin off Mariano’s by selling it or holding a secondary public offering to prevent the strong-performing chain from being weighed down by its underperforming sister chains. 

 

Roundy’s, which enjoyed $3.9 billion in revenue in 2012, has a current market cap of approximately $378.5 million. While its stock price (as of mid-October) has remained close to the $8.50 it fetched on its IPO opening day back in February 2012, Roundy’s second-quarter financial results posted in June showed that the company’s net sales decreased 1.7% (to $980.3 million) and net income dropped 28.6% from the previous quarter. 

 

The good news from that report is that average weekly net sales per store for all Mariano’s locations for the quarter were slightly more than $1 million. Compare that to the approximately $385,000 national average in median weekly sales per supermarket, based on 2011 Food Marketing Institute data.

 

Mariano’s formula for success involves promoting the convenience of one-stop-shopping with the pampering milieu you’d expect from a visit to Nordstrom. 

 

“We’re not a ‘discount’ grocery store. We’re not a ‘specialty’ grocery store. We’re something altogether unique,” says Hyland. “We exceed shoppers’ expectations for price and selection. We place a premium on not just customer service, but the customer experience. We make a gourmet statement in a relaxed and welcoming environment. We want our customers to feel empowered to try new foods and to experiment and be creative in the kitchen without worrying that their wallet will take a hit.”

What Neil Stern, senior partner at Chicago-based retail consulting firm McMillanDoolittle, admires about Mariano’s is its ability to combine superb customer service, outstanding quality in perishables and prepared foods, and low prices in the grocery channel. 

 

“If they can pull this off, it makes them very unique in the market,” says Stern. “They are really not asking shoppers to give up very much by shopping there, which has certainly expanded their market and customer reach.”

 

Mariano’s is also capitalizing on the trend toward freshness and quality in grocery that began about 10 years ago, says Michelle Barry, CEO of Seattle-based research firm Centric Brand Anthropology.

 

“The quality trend used to be something people believed was only followed by affluent suburbanites or urban shoppers,” Barry says. “But we’ve seen a pattern of intensified interest from many households in fresh foods when it comes to global or ethnic cuisine, as well as more sophisticated foodservice offerings—which are all areas Mariano’s is pursuing.”

 

Today’s shoppers seek some level of control over their shopping experience, Hyland says. 

 

“They yearn for meaningful interactions at retail and want real connections with the stores they shop, not passive experiences. That’s why we built Mariano’s the way we did,” he says. “We’ve transformed grocery shopping from a chore to a destination.”

 

Jon Hauptman, partner with Willard Bishop LLC, Barrington, Ill., says Mariano’s attracts shoppers who are looking for a better fresh experience than they can find at traditional supermarkets, such as Chicago mainstays Jewel and Dominick’s, or at low-price operators such as Super Target or Walmart. 

 

“And they’re able to keep these shoppers coming back by delivering on the fresh experience through great assortment and attentive service in deli, bakery, meat and produce,” Hauptman says, “while also providing shoppers with budget-stretching options in each of these fresh departments.”

 

Hauptman points out that, while some area chains offer strong quality and/or service (e.g., Whole Foods Market and The Fresh Market stores) and others provide solid value (e.g., Aldi, Meijer and Walmart), no single area retailer gives the shoppers the best of both worlds under one roof. 

 

Indeed, Mariano’s entry into the grocery channel over the past three years has forced a repositioning of several other supermarkets (including Dominick’s), underscoring how much of an effect the chain has had, says Steve Montgomery, president of b2b Solutions, Lake Forest, Ill.

 

“Some (competitor stores) have closed and others were forced to change how they did business by upgrading their stores, customer service and more,” says Montgomery. 

 

What particularly distinguishes Mariano’s from its competitors is its ability to deliver on more components of the value equation than other retailers in the marketplace, Hauptman says.

“Mariano’s offers special low-price values across the store. Each fresh department offers at least one to three low-price value options, giving shoppers the impression that they don’t have to sacrifice their budget to take advantage of high-quality perishables,” he says. “They also have one of these values in every center-store aisle, giving consumers a reason to shop the center store intensively. ”

 

And the chain recognizes the importance of national-brand-equivalent private-label items, as well as economy store brands, to allow shoppers to choose budget-friendly options in different categories. 

 

“While upmarket retailers in other parts of the country often say that their shoppers don’t want store brands, Mariano’s recognizes that all shoppers—even affluent ones—are looking to save money where they can, and Mariano’s gives them the options to do so,” says Hauptman.

 

Actually, Mariano’s appeals less to particular demographic segments than shopping occasions, says Barry.

 

“They’re often driving people into the store who are after special occasions, be it a dinner party, birthday celebration or a romantic dinner for two on a Tuesday night,” Barry says. “There’s a subset of shoppers who are willing to spend more money because high-quality food is more important to them, true. But even millennials, who often have very little money to work with, are loyal Mariano’s shoppers. They’ve got a strong brand and a great loyal following.”

 

Mariano’s further stands out because it emphasizes “theater” better than other stores in the market, Hauptman says.

 

For example, at his local Mariano’s, “they have a permanent cooking demonstration area right near the entrance,” he says. “This makes a strong impression very early in the shopping flow. In the first minute of entering the store, shoppers will see something appealing and interesting.”

 

And there’s a clear expectation on the consumer’s behalf that Mariano’s staff know what they’re doing, Barry says. 

 

“There’s a level of expertise demonstrated that’s generalizable enough to the mainstream. That’s often a hard line to walk. They do a good job of simplifying fairly sophisticated departments and making them accessible to anybody,” she says.

 

What’s more, Mariano’s is exceptional at “telling really good stories,” Barry says.

 

“Storytelling is more than just offering words and signs. It’s creating the right context of what a food smells, looks, feels and tastes like. It requires a lot of different elements to tell that story, but Mariano’s does so through design, a clean environment and the right communications through their people,” she says.

 

Nothing in life is perfect—not even the seemingly perfect fresh-market grocery blueprint. Like its competitors, Mariano’s will undoubtedly tweak its approach and have to adapt to changing market conditions.

 

Hauptman, for example, believes Mariano’s will continue to evolve its design to improve traffic flow on the fresh side of the store by possibly incorporating wider aisles and checkout lanes and reconfigured displays that can comfortably accommodate more shoppers than in the chain’s early stores. 

“I would also imagine that Mariano’s may eventually look into smaller versions of their current store footprint to fit into appealing, space-constrained sites. They could leverage the power of the Mariano’s brand and apply it to a somewhat smaller store,” Hauptman says.

 

Tim Powell, principal and c-store practice lead with Chicago-based Technomic Inc., predicts that Mariano’s will need to adopt different menu items and stay ahead of culinary trends to outpace its adversaries. “It is a very innovative store, but [mass supermarkets] will be quick to copy,” says Powell.

 

Barry suggests one area Mariano’s could improve on is stocking and promoting an even greater diversity of global foods, which is expansive now but could be even bigger and better.

 

“I don’t really expect them to shift their strategy, but they will likely continue to evolve as food trends change,” says Stern. “They have been very methodical in how they’re entering the market and opening stores. The only thing that might change would be an acquisition of an existing chain to accelerate their growth.”

 

While much of what Mariano’s excels at can only be admired from a distance by c-store operators, who are limited by space, resources and the demands of convenience-oriented consumers, many experts believe some of the grocer’s successful strategies can be adopted.

 

For example, c-stores can emulate Mariano’s focus on attentive service and fresh, family-friendly products and solutions, Hauptman says. 

 

“Regardless of the department, Mariano’s offers an expert who can help the shopper make an educated decision,” he says. “And Mariano’s provides value-added options that make meal preparation easier for families with children. These are all areas which would be somewhat fertile ground for c-store operators.”

 

Barry says the c-store channel as a whole seems to believe it has mostly been immune to the latest trends around quality and freshness, “but that’s increasingly not the story anymore. Even when people shop for certain occasions at a c-store, they have these expectations of freshness and higher quality distinctions, even in those locations.”

 

Barry believes c-stores can distinguish themselves in foodservice, as Mariano’s has done, by offering at least one high-quality edible item and building on its reputation. 

 

“If a c-store could do one thing really well, what would it want to be famous for? They could do a really great brat, or the best gelato bar in town, or the best slice of pizza. To know that you can walk in that door and get a really great sandwich no matter what and get back out quickly while you’re filling up on gas—that’s a game changer,” says Barry. 

 

However, there’s little to no fresh food credibility or innovation right now in the c-store channel, despite the fact that consumer food culture is rapidly changing, she says.

 

“[Convenience retailers] need to get out of the commodity-driven, low-quality, low-price mindset. Yes, people want fast and convenient, but they also want more choice and higher quality,” says Barry.

 

Barry also points to a clear sense of “pride and ownership” exuded by Mariano’s employees, “which is something that’s seriously lacking in the c-store channel. Most (convenience retail workers) don’t have a level of expertise about what they are selling and lack a sense of pride working in that environment.”

 

Powell admits that c-stores do not have the labor or the experience to become a Mariano’s overnight. “But they should [look to Mariano’s] as a best-in-class example of food safety, presentation, staff friendliness and flexibility,” he says.