‘Extra’ format key to Smart & Final’s future

West coast retailer Smart & Final could be heading East soon thanks to big plans for a warehouse club-like concept called Extra it believes has nationwide potential for more than 1,250 stores.

Smart & Final laid out its growth strategy and strong same store sales performance recently in a filing with the Securities and Exchange Commission as it prepares to sell shares to the public. The retailer, which bills itself as the “non-club, club store,” operates a total of 247 stores, including 195 Smart & Final stores, 81 of which are the company’s larger format Extra concept and 114 of which are in what the company calls its legacy format.

The Extra stores are about 27,000-sq.-ft., compared to the legacy stores which measure about 17,000-sq.-ft. feet. The big difference from a merchandising standpoint is an emphasis on perishables and household items at the Extra stores which offer around 14,500 SKUs compared to the 10,000 SKUs in the company’s traditional stores. Overall, the company generates nearly a third of its sales from private brands. The company’s value proposition revolves around providing an easy-to-shop, no-frills, environment that is smaller than a typical warehouse club, yet offers a larger assortment with prices comparable to clubs and discount stores on a mix of standard and bulk-sized products.

Most of the company’s Extra stores have come from relocations and conversion of existing stores. It is a strategy that has yielded solid sales growth in recent years with same stores sales increasing 4%, 6.7% and 9.5% in 2013, 2012 and 2011, respectively. Total sales last year were about $3.2 billion.

Going forward the company is looking at organic growth with plans to open six new stores this year on top of the seven locations it has already opened. Plans call for 20 new Extra stores next year. The company contends it has an opportunity to open more than 180 new Extra stores in the six western states in which it currently operates. The company also commissioned a report from customer analytics firm Inalytics which show the broader U.S. market has the potential to support more than 1,250 additional Extra stores. The company also plans to continue the store conversion process with 14 conversions of large legacy store planned this year. Stores deemed not suitable for conversion will be candidates for relocation.

In addition to converting stores to the Extra format, Smart & Final expects to drive growth by further expanding private label sales, introducing bulk foods, enhancing its offer of natural and organic products and increasing sales for ready-to-eat offerings.

Secondary growth opportunities for the company include expansion of its reduced assortment, no frills cash and carry concept that offers about 9,500 products geared toward food service. With 52 units in operation currently, another three planned for this year and next. Smart & Final is also part of a joint venture that operates 13 stores in Northwestern Mexico and believes Mexico represents an attractive long term opportunity.

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