Natural Foods Merchandiser

Pique customers' interest with in-store banks

moneyBranch banks are as commonplace in conventional grocery stores as the Starbucks at the entrance.

Tucked into 400-square-foot corners or announcing a larger presence at the store entrance, there are 8,000 to 10,000 in-store branches in the United States, estimates Scott Johnson, senior vice president of Financial Supermarkets in Cornelia, Ga. Branch banks provide additional revenue to grocery stores with the rent paid for the space, and they offer customers another service and another reason to come into the store.

"These days, most large retailers don't want to open a store without one," Johnson says.

Customers would be hard-pressed to find a place to cash a paycheck or make a deposit in a naturals store.
But while conventional grocers are focusing more and more on natural and or?ganic products, their natural-food brethren don't seem anxious to make any similar crossovers. The stores own juice bars and espresso stands, but there's nary a branch bank in sight. Customers would be hard-pressed to find a place to cash a paycheck or make a deposit in a naturals store. The closest they might come are ATMs.

There are no branch banks in any of Austin, Texas-based Whole Foods Market's nearly 200 stores, and none in Boulder, Colo.-based Wild Oats Markets's 110 stores. Nor are there branches in smaller chains with 10 to 25 stores.

"There are some [individual stores with banks] out there, but it's not prevalent," says Tom Tucker, executive vice president of sales and marketing for retail bank consulting firm IBT Enterprises in Norcross, Ga. "We haven't built any. We've had discussions with banks," about opening branches in a naturals store. But with competition bearing down, branch banks could be a natural fit for naturals businesses, experts say.

"Could I get a financial institution going into an organic store?" Tucker asks. And answers: "I bet I could find partners right and left." Historically, space—or lack of it—has been the primary issue.

Natural food stores "started growing up almost as food stands," Tucker says. "By and large, they started as smaller stores with smaller square footage. They only had room for what they were doing."

The average conventional supermarket has about 40,000 square feet, Tucker says. In contrast, Wild Oats stores average 20,000 square feet, though the newer stores average about 30,000 square feet, according to spokeswoman Sonja Tuitele. "That's space we need to provide our products rather than forgo space to put in a branch bank," she says.

Tuitele says she can't recall discussions about branch banks ever coming up in strategic planning meetings. "I don't know if we've ever been approached, but we probably would decline."

More than a matter of space, it's a matter of philosophy, says John Moore of Brand Autopsy marketing consulting in Austin, Texas. "Natural food stores don't want to complicate the business. They want to concentrate on food, on being better grocers rather than being a better business."

But Financial Supermarkets' Johnson argues that branch banks provide an additional service that offers the customer another reason to come into the store and be loyal to it.

"At the drop of a circular, it's not unusual for grocery store customers to go to the competition," he says. "If [the branch in the store] is the customer's financial institution, they're more likely to go to that store." And Johnson dismisses the idea that space has to be a deal-breaker. While the average space for a branch bank is 400 to 500 square feet and can be as large as 1,100 square feet, it can be as small as 100 square feet, he says.

Grocers have little else to do but provide the space, banking experts say. Consulting firms such as IBT and Financial Supermarkets evaluate the store and then market it to a financial institution that would be appropriate for the particular store. Banking services also are geared to the store and its customers. The bank or consulting firm is responsible for building the space and training the employees, not only about the bank's policies and procedures, but also the store's. Branches usually are open six days a week, and most have extended hours to accommodate store customers.

Banks pay the grocer rent for the space and sign a five-year minimum lease. "The retailer doesn't pay anything," Johnson says.

Banks such as TCF Bank and US Bank, both based in Minneapolis, have branches in conventional supermarkets across the country.

Neither Johnson nor IBT's Tucker sees obstacles or challenges unique to natural food stores. "If you've got space, and you've got traffic, the type of store doesn't matter," Johnson says.

Tucker sees unique opportunities in specialty stores. He points out that branch banks are beginning to be built in Hispanic grocery stores, for example.

"There is a place for a financial institution in any kind of specialty offering."
"There is a place for a financial institution in any kind of specialty offering," Johnson says. "It's a matter of trying to match the demographic with the product. There are a lot of ways to design a branch."

From the banking industry's perspective, natural food stores offer customers who are "more consistently bankable. They may be slightly more financially capable," as Johnson carefully puts it.

Many natural food stores are built in upscale urban areas and cater to customers with higher incomes who are willing to pay more for organic milk and lettuce produced by small, local farms. It follows that a branch bank in a store in an upscale neighborhood might offer more than just check cashing and deposit services. Instead, it might focus on financial planning, "wealth management, private banking, consultative services," Tucker says.

For their part, banks must understand retail as well as the customers they're likely to encounter. Just as the retail industry is concentrating more on natural and organic offerings, "the banking industry is going green, too," Tucker says. "As a nation, we're more aware of it."

It's an opportunity whose time has come, the experts say.

Kemper Isely, a co-owner of Lakewood, Colo.-based Vitamin Cottage Natural Grocers, says he has consistently refused to install ATMs in any of the chain's 25 stores in Colorado and New Mexico, and there won't be ATMs in any new Vitamin Cottage stores, either. "I disagree with the fees charged to customers," he says.

And although Isely says he's never been approached about a branch bank in a store, "I'd consider it if the space was there, if the right situation occurred."

While Isley says he doesn't intend to make Vitamin Cottage stores any bigger, a branch bank would "help pay overhead with our rent. I can't think of why a bank would be a detriment to your business."

He pauses for a moment, and, tongue planted only partly in cheek, says with a laugh, "I'll have to talk to my real estate agent about our next store. "It's actually not a bad idea."

Jane Hoback is a Denver-based writer and editor.

Natural Foods Merchandiser volume XXVIII/number 9/p. 64-65

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