April 06, 2004

Supermarkets Getting More Banks

U.S. Bancorp. The Minneapolis bank plans to open 160 branches this year in Safeway and Vons stores in the Southwest.

Lettuce and loans: Supermarket branch banks bounce back

Last update: April 6, 2004 at 6:42 AM
Lettuce and loans: Supermarket branch banks bounce back
Chris Serres, Star Tribune
April 6, 2004SUPERMKTS0406

His business card says "Personal Banker," but Vong Soudaly arrives at a Byerly's supermarket in Maple Grove each morning prepared to perform the duties of a supermarket clerk.

By 9:30 a.m. on a recent Tuesday, the U.S. Bancorp employee already had helped an elderly woman untangle a row of shopping carts, guided a man in a business suit to the salad bar and given driving directions to a shopper searching for a nearby department store.

Soudaly's goal is to get his face -- and the U.S. Bancorp logo on his shirt -- in front of as many shoppers as possible. "If you can engage people, there is a chance they will bank with you," he said.

The supermarket bank branch, which fell out of favor with many banking executives a decade ago, is making a comeback. And banks such as U.S. Bancorp are betting big that hard-charging young employees like Soudaly will make them as profitable as traditional branches with brick facades and drive-up teller windows.
U.S. Bank employee Vong Soudaly gives away "free samples."

This year, banks nationwide will open an estimated 750 supermarket branches, more than any year on record, according to Financial Supermarkets Inc., a firm based in Cornelia, Ga. that provides consulting services to banks opening store branches.

And no single financial institution in the country is expanding as aggressively into supermarkets as U.S. Bancorp. The Minneapolis bank plans to open 160 branches this year in Safeway and Vons stores in the Southwest. The expansion will increase U.S. Bancorp's total number of supermarket branches nationwide by 28 percent to 450 branches by January 2005.

"For a decade now, the focus has been Internet banking and ATMs," said Alton Wingate, chief executive of Financial Supermarkets. "Now it's supermarket branching, full steam ahead."

Bank analysts say low interest rates have been the key factor driving the renewed push into stores. As interest rates have fallen, so too has income from consumer and business loans. To maintain profit margins, banks have intensified their search for so-called "cheap deposits" -- checking accounts that cost banks virtually nothing because they pay no interest.

By opening a branch in a supermarket, banks have convenient access to thousands of potential customers. A large supermarket can attract 20,000 shoppers a week. In addition, a supermarket branch is easier to open and less expensive to operate than a traditional branch.

TCF Financial Corp., a regional bank based in Wayzata that has 237 of its 400 branches in supermarkets, found it could open a supermarket branch for roughly one-sixth the cost of building a traditional one. As a result, TCF said it can generate a profit on a supermarket branch within 22 months, vs. 36 months at a normal branch.

Chuck Stroup, senior vice president in charge of in-store branching at U.S. Bancorp, said, "It's a great way to reach your customers, and it's the easiest way to earn a quick return."

But a quick return does not always translate into stable, long-term profits, bank analysts warn. Supermarkets are great locations to raise deposits and to cash checks, but they can be a poor venue for selling the sort of sophisticated bank products, such as mortgages, investment services and insurance, that generate the largest profits for banks. Disappointed by low returns, several major banks slowed or halted their expansion into supermarkets in the late 1990s.

"The conventional view has been, for at least five years now, that supermarket branching doesn't work," said Tony Plath, a finance professor at the University of North Carolina at Charlotte. "Generally speaking, people don't want to talk about life insurance or mutual funds when they're holding a bag of lettuce and tomatoes."

In addition, supermarket chains can be unpredictable partners. Each year, the big chains shed their worst-performing stores, and their bank partners have little say in the matter. Most banks rent their space, and have no more rights when a store closes than a hot-dog stand located in a supermarket parking lot.

"Any bank that partners with a supermarket loses some autonomy," Plath said. "You can have a branch full of great people and the next day they will be on the street without a job, for reasons that are beyond [a bank's] control."

But executives at U.S. Bancorp and other local banks are convinced they can make in-store branches work, primarily by staffing them with aggressive salespeople who are willing to step out from behind a teller line and talk to customers.

TCF, which opened its first supermarket branch in 1988, trains employees at its Cub Foods branches to walk the aisles and pitch banking products. The TCF employees choose their departments carefully. For instance, they will pitch home mortgages in the pet food section because people who own pets often own homes. Yet they usually avoid the cosmetics and meat sections, where customers are usually so focused on reading labels on the items that they aren't in the mood to talk finance, said Lynn Nagorske, president of TCF.

"The concept won't work if you run [supermarket branches] like traditional branches," Nagorske said. "You've really got to get out in front of people."

Zelda Patrick of Maple Grove said she never considered opening an account at TCF until a banker approached her in the supermarket aisle and offered her a $50 gift certificate. After hearing the banker's pitch, Patrick decided it would be easier to bank at Cub Foods, where she already shops once or twice a week, than the traditional branch near her home.

"It's all about convenience," said Patrick, a mother of two children who runs a bridal design company in Maple Grove. "My husband works. I work. It's boom, boom, boom. If I can do two things at the same place, then it makes sense."

The Bank of Elk River operates branches in Wal-Mart stores in Elk River and Maple Grove. Each of the employees who works at these branches must memorize the Wal-Mart floor plan, so they will know how to direct customers who need help. On rainy days, Bank of Elk River employees will carry umbrellas over their patrons in the parking lot.

"We look for salespeople here," said Tammy Andrews, marketing director at the Bank of Elk River. "You can teach people banking, but you can't change a personality."

Chris Serres is at [email protected]

Posted by Craig at April 6, 2004 07:15 PM