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[10 comments]

Former Dominick's Boss Proves You Can Go Home Again

December 3, 2013

Back in the 1990s when Bob Mariano, current chairman, president and chief executive officer of Roundy's, ran Dominick's Finer Foods, the chain was the market leader in the Chicagoland area and had a national reputation for having some of the best supermarkets in the U.S. He did so well that Safeway came knocking and eventually acquired the chain in 1998. Mr. Mariano left Dominick's and moved to Wisconsin to run Roundy's.

While Mr. Mariano left Chicago, it was rumored for years that he was looking to move back into the market. The talk proved true when Roundy's opened its first upscale Mariano's Fresh Market stores in Arlington Heights and Lakeshore East in 2010. At the time, a company press release said the new concept would "reflect old-world adherence to quality and personal service, blended with Mariano's signature approach to supermarket innovation."

When Safeway announced it was looking to sell off Dominick's assets in October, many assumed Mr. Mariano would be beating a path to secure some of the chain's best locations.

Now comes word that Roundy's has reached a deal to buy 11 Dominick's from Safeway. The company expects to close on the locations by the end of the month.

"This acquisition is transformational in terms of Mariano's expansion plans in the Chicago metropolitan area, allowing us to open 11 additional stores in 2014 in prime locations with great market demographics," said Mr. Mariano in a statement. "These key locations will seamlessly integrate into and complement our existing base of 13 Mariano's locations as well as our five additional 2014 Mariano's locations now under construction."

FINANCIALS:     [NYSE:SWY] [ ]

Discussion Questions:

What will Mariano's need to do to become the top supermarket chain in the Chicago market? Where is the chain likely to face its greatest challenges?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How likely is Mariano's to grow to become the top supermarket chain in the Chicago market?

Comments:

They need to start making money if they want to become the top supermarket chain in Chicago. The great challenge will be finding a way to raise prices without a corresponding decline in sales or operations. With the company so heavily leveraged in debt, a rise in interest rates could be harmful. Growth has been fueled with borrowed money and not cash on hand.

There is an onslaught of new Meijer, Walmart and other stores opening in Chicago. Companies with deep pockets. Mariano's really needs for Jewel to fail to help ensure their future. One direction might be for them to separate themselves from their failing parent company and do their own IPO.

David Livingston, Principal, DJL Research

Gotta say, I was quite impressed with Mariano's when I visited. Really nice buildout and reasonable prices. I think the fact that he's sort of a hometown hero carries some real weight with consumers. Several folks have been quite excited to see him return to the area with this new concept, and with Dominick's leaving that does open up room in the market for another grocery.

My husband works at Trader Joe's in the area and Mariano's has got them panicked. I always thought Trader Joe's was bulletproof, but I guess not.

'gafpromise'

Mr. Mariano is a proven market leader. He knows Chicago and the upper Midwest, and he knows food retailing. He simply needs to follow his instincts, surround himself with great talent, and continue to make wise decisions and Mariano's will once again soar to the top.

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Eric Chester, Keynote Speaker, Author, Reviving Work Ethic, LLC

Mariano's is a great store and I am thrilled to have them expand in the Chicago area. Safeway destroyed what Bob Mariano had built with Dominick's Fresh Stores. Jewel stores are tired and boring, but they enjoy incredible loyalty here in Chicago. Mariano's will need to promote its advantages.

I am concerned about the drag of the parent company's issues up in Wisconsin battling against Walmart and Woodman's affecting their ability to do what is right for Mariano's. Walmart is still a threat in Chicago as well with their Supercenters and Neighborhood Markets which could come here as well. Walmart is low price and low quality. More shoppers want things that Mariano's and Whole Foods can offer.

'TP1012'

Keep the model pure.

You can't talk to a Mariano's shopper who isn't delighted with the experience. David has a point with the economics, and you certainly get the feeling that shoppers are getting "more than their money's worth," which implies Roundy's/Mariano's isn't getting enough to cover costs. But I'm not sure that's true. With no data to back it up, my intuition says Mariano's has figured out how to actually make profits from the typically high margin/high waste/low or no profit perimeter departments. That would go a very long way toward covering the cost of the service and the grand piano player.

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Ben Ball, Senior Vice President, Dechert-Hampe

Bob Mariano is one of the top Grocery Executives/Merchants in the U.S. Put him in the league of Dave Dillon at Kroger and the Wegmans tandem of Danny and daughter, Colleen.

Mariano's will win the allegiance within a tight market area of their stores in very quick fashion. Then, it is only a matter of time to get to a scalable position to capture ever greater market share.

Safeway didn't have the chops to permit the flexibility needed to pull away from too many centralized decisions from California. They are some of the smartest merchants, but the centralization made decisions for a large, remote market like Chicago to be too ponderous.

Mariano's going to knock it out of the park. And, it offers the expansion chips that Roundy's was seeking.

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Roger Saunders, Managing Director, Prosper Business Development

Bob Mariano is a very fine retailer with a greater love for Chicago than Wisconsin and a heavy debt load. David Livingston's analysis appears accurate.

A rise in the interest rates would reduce Mariano's performance flexibility and he would go after the only traditional supermarket chain left in Chicago, is the faded, jaded but once highly rated Jewel chain.

Who does he have to out excel in his quest to the top? If "top" implies "largest" chain I don't see that happening as things are now. If "top" implies "best," Mariano will likely win that spot. But cash-rich Walmart and Meijer will fight Mariano to become the largest supermarket chain in Chicagoland.

The unknown: If some completely new-type of retail system (are you listening Jeff Bezos?) invades the Chicago market and is supported by cash-rich funds and/or advanced technology, then all bets are off. Thus Mariano's greatest challenge in the "foreseeable future" is sufficient cash to create innovative upper movement and sustainability.

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Gene Hoffman, President/CEO, Corporate Strategies International

What some may not realize is that Mariano's is really two stores integrated seamlessly under one roof. It straddles the low end (Walmart/Meijer) when it comes to staples and basics at very competitive prices, but also straddles the high end (Sunset/Whole Foods) when it comes to their many specialty and high-end items, top notch meats and unusual produce at premium prices.

Shoppers in some areas are willing and able to pay for artisan cheeses and breads and specialty meats and expensive coffees, but are not interested in paying too much for apples and half and half and national brand packaged items, such as paper towels and laundry detergent. Those shoppers are like me.

I think this balance is why Mariano's is unique to the area and that the margins on their high-end help them with the staples pricing. Bob knows the area so he understands where this balance of thrift and luxury will best succeed. Location is absolutely key for Mariano's. I am thrilled that one of the closing Dominick's nearby to our house is becoming a Mariano's.

'Liatt'

I agree with Gene that Mariano's is not likely to be the largest in terms of number of locations or volume, but I do expect on a per-store basis, it will be one at the top. I admit to not being the grocery shopper at our house but when I do have to shop, I enjoy their stores.

On a personal note, I was surprised to see that Dominick's in Bannockburn was not included. Perhaps it was because the parking lot was too small for the typical volume that Mariano's is generating.

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Steve Montgomery, President, b2b Solutions, LLC

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