NEWS FOCUS STOP, SHOP AND REFINANCE Banks find supermarket sites are convenient, low-cost settings

(Milwaukee Sentinel & Journal; 01/05/98)

Customers are getting more than corn flakes, butter and eggs at grocery stores these days.

They are opening checking accounts, taking out auto loans even applying for mortgages at Pick 'n Saves, Kohl's and Cub Food Stores, SuperSaver, Sentry Foods and Piggly Wiggly stores statewide.

Supermarket bank branches started in the 1970s as a novelty. Today, with more than 6,000 branches nationwide, they are one of the most visible signs of changes sweeping the personal financial service industry.

"Grocery store banking has been the fastest growing distribution channel for financial services since 1994," said Tom Hidell, chief operating officer of the International Banking Technologies in Atlanta, an in-store bank consulting firm.

Locally, many major banks have some sort of presence at a grocery store. Milwaukee-based Guaranty Bank recently an- nounced that it will build four supermarket branches in 1998, giving the company 18 such sites in the state.

The growth in grocery store branches is part of the trend toward convenience in which mega-supermarkets offer everything from full take-out meals to health care and financial services, Hidell said. In-store branches, for example, allow customers to do their banking until 8 or 9 most evenings.

For banks, supermarket locations are an affordable alternative to stand- alone branches. The typical grocery store branch costs about $200,000 to construct, compared with about $1.5 million for a free-standing site, banking experts said.

"We can easily open five grocery store sites for every one free-standing site," said Doug Levy, president of Guaranty Bank.

In addition, grocery store sites usually require smaller staffs: two full- time employees vs. eight to 10 for a stand-alone branch, Levy said.

And grocery store branches are profitable. For example, a high-performing supermarket bank employee can sell 50% more checking accounts, 40% more consumer loans and 100% more credit cards per month the average branch banker, Hidell said.

"Grocery store branches are more profitable because they are exposed to 15,000 to 20,000 customers (a week) that currently don't do business in their bank," Hidell said.

One banker described having a grocery store location this way: "We're the only bank in this town of 20,000 that has a supermarket in our lobby."

At Guaranty, about 50% of the bank's new business is generated by its supermarket branches, Levy said.

Fourteen of Guaranty Bank's 30 locations are inside grocery stores. When it opens its four new locations during the first quarter of this year, Guaranty will surpass Tri City National Bank, which has 15 grocery store sites.

Henry Karbiner, president of Tri City, with locations inside the Pick 'n Save Mega Mart stores, said its supermarket branches account for 40% of new customers and 50% of "our retail transactions."

Grocery locations make sense because people have busy schedules and need the convenience, Karbiner said. "We're open 70 hours a week, every day until 8 p.m."

Minneapolis-based Norwest Bank is easing into the grocer market in this area. In addition to its teller-staffed supermarket branches, Norwest was the first in Wisconsin to offer interactive kiosks in grocery stores, where customers can deal with a bank teller via video monitors, said J. Lanier Little, regional president of Norwest Bank for Wisconsin and Illinois.

Norwest opened a location in Grafton at a Kohl's SuperSaver in August, with an ATM machine and two video-teller machines. The machines, which allow the customer to talk to a teller through a microphone or headset, cost $10,000 each.

Norwest is considering opening two more such sites in Milwaukee and one in Appleton, as well as two free-standing branches in Mequon and Menominee Falls this year.

Minneapolis-based TCF Financial Corp. is using its bank branches to increase its presence in the Milwaukee area. TCF has four grocery store sites locally, with plans to open another early this year. Of the company's 230 offices nationwide, 60 are supermarket branches. Last month, TCF National Bank Illinois agreed to acquire and operate 76 bank branches in Chicago-area Jewel/Osco stores.

In the Milwaukee area, TCF has branches in Pick 'n Save stores in Cudahy and Racine and in Cub Foods stores in Greenfield and West Allis, said Tim Bailey, chief executive officer of TCF.

"We stress convenience, and our grocery store locations offer convenience for our customers," Bailey said.

Wisconsin-based banks are following a national trend. Supermarket bank branching grew 35% during 1997, according to International Banking Technologies.

By year-end 1997, there were 6,443 bank branches in U.S. supermarkets, up from about 4,788 in 1996 and more than double the 3,142 in 1995.

Memphis-based National Commerce Bank Services predicts the number of in- store bank branches will hit 7,500 in two years.

"Convenience is the main reason for the growth, so I would suspect the trend will continue as more people work and have busier days," said Walt

Heller, a spokesman for Progressive Grocer magazine.

Supermarket banking does have a downside for the banks. Perhaps the biggest mistake a bank can make is not recognizing that supermarket banking must be run by employees with retail experience.

"The employees for a grocery store branch have to be familiar with the retail environment because its more of a sales position," Hidell said.

A grocery store bank employee can't be passive.

"They have to go out and meet the customers and bring them into the location and tell them what the bank can do for them," Hidell said. "At a stand- alone branch, the customer is typically telling you what you can do for them."

Kenneth Hemauer, a banking analyst with Robert W. Baird in Milwaukee, said it remains to be seen whether more customers will look to in-store branches for services other than cashing checks and depositing money.

Typically, supermarket locations are used for deposits and quick withdrawals but not much else, Hemauer said.

"I view them as in-between an ATM and branch bank," Hemauer said.

Hidell said some customers might believe that the smaller grocery store site can't provide all the basic services that a stand-alone branch can.

"But that's changing. People are warming up to the concept and that is evident by the growth in the segment," he said.

"We stress convenience, and our grocery store locations offer convenience for our customers."