Mariano's Fresh Market boosting towns' sales tax numbers

Employees call midafternoon the quiet time at Mariano's Fresh Market in Vernon Hills, yet seven of the 13 main checkouts are open and humming.

“I can tell this store has been well received up here,” Chicago resident Melanie Lee said while browsing the dairy area. “The fact I have to take a number in that other section and it's 2 in the afternoon.”

Lee is temporarily staying in the area while flood damage at her North Side home is repaired. But she is familiar with the relatively new chain, shopping about twice a week at Mariano's on North Western Avenue, one of five stores in the city and suburbs — and more are pending.

“The produce department is what drew me in,” she adds. “And the prepared foods.”

Whatever the attraction, Mariano's, a subsidiary of the Milwaukee-based Roundy's Inc., has been on a roll since debuting in Illinois less than two years ago with a store near downtown Arlington Heights. The stores are sales tax generators for host towns, particularly Vernon Hills.

Since the chain's arrival, experts say, at least some competitors have adjusted their strategies to better attract and serve customers.

“Jewel and Dominick's have been upgrading and giving more space to prepared foods,” said George Rosenbaum, founder of Chicago retail consultant firm Leo J. Shapiro & Associates. “But the state of the art keeps getting pushed ahead of them and Mariano's is a pusher.”

Rosenbaum said Mariano's could have an effect on the two grocery leaders where they share trading areas. Anecdotal evidence of that came this week with the news that Dominick's in Vernon Hills will close after 33 years.

Otherwise the impact of Mariano's will be “fairly small” on those two, Rosenbaum said, and even less on other big hitters like Wal-Mart or Target, though smaller fresh food-oriented stores could feel the pinch.

Most consumers shop at two or three supermarkets, he added, and Mariano's is not likely to be their main food shopping place.

“People will continue to do their major food shopping at stores that have a broader selection of groceries and dry goods and non-perishables,” he said.

Still, the competition will only intensify. Roundy's, in documents related to its public stock offering last month, said the Chicago area presents “a compelling expansion opportunity” and it expects to open four to five stores per year over the next five years. Plans for a new store in Lake Zurich and in a converted Dominick's in Hoffman Estates became known last week, for example, and others have been proposed in Frankfort and Elmhurst.

Arlington Heights officials said the first Mariano's store that opened in July 2010 is still popular enough for police to direct traffic at times.

“Mariano's continues to generate significant sales. Their customer attraction has not wavered at all, even with the opening of Vernon Hills and Palatine (on Jan. 31),” said John Melaniphy III, the village's business and development coordinator.

The Vernon Hills store opened on Milwaukee Avenue and Gregg's Parkway last June as the second location. Until late fall, employees were shuttled from remote lots to keep the 280-plus space parking area open for customers while an adjacent parcel was secured.

The curiosity factor may have passed, but customers keep coming, making sales tax registers ring in Vernon Hills and cutting into neighboring Libertyville's share of the grocery store pie.

For the third quarter of 2011, the most recent figures available and the first full three-month period Mariano's operated in Vernon Hills, the village received nearly $248,000 as its share of sales tax in the food category, which includes grocery stores. That compares with about $81,000 for the third quarter of 2010.

During the same period in Arlington Heights, the amount the village received in the grocery category grew from about $448,000 in 2010 to about $507,000 last year.

Sales of specific stores are not released by the Illinois Department of Revenue and the grocer does not disclose customer counts or sales figures.

“From what we understand, Mariano's has made a very nice contribution to that category,” Vernon Hills Assistant Village Manager John Kalmar said. “They estimated in our discussions that they would do $25 million in annual sales. We're very pleased (with) their results to date.”

That's of note because the project was one of several retail incentive packages offered by village leaders to counteract the economic downturn. Only one was for new construction and went toward infrastructure and site work for Mariano's. The others were for renovation of vacant space.

The 15-year deal with Bradford Real Estate, the developer of the Shoppes of Gregg's Landing where Mariano's was built, calls for a sales tax rebate request of $955,000. The real dollar value is adjusted over time and could reach $1.5 million.

The village each year turns over 30 percent of the sales tax but the deal ends when the target amount is reached.

Mariano's full-steam-ahead start is encouraging to village leaders.

“Based on what it looks like over there, we'll pay off those incentives way ahead of schedule,” Trustee Thom Koch said.

Libertyville has seen the opposite impact. Sales tax in its grocery category dropped from about $153,000 in the third quarter of 2010 to about $97,000 for the same period in 2011.

“Obviously, people are going to check out Mariano's but I understand a lot of people returned to Jewel and Sunset (Foods),” said Heather Rowe, the village's economic development coordinator. She thought that factor could show up in fourth quarter figures.

Jewel is about a half-mile from Mariano's across Milwaukee Avenue.

Spokesman Mike Siemienis declined to discuss specifics of the Libertyville store but noted that, in general, Jewel has lowered prices on many produce items and various other goods.

“The grocery industry is very competitive,” he said. “We're just making sure our everyday price is competitive for our customers.”

Jewel is focusing on updating stores and providing good service and quality, he added.

As a private consultant a few years ago, Melaniphy in a retail study for Vernon Hills, recommended Roundy's as a company to pursue.

“They have done a terrific job in an environment where Jewel and Dominick's were the predominant players with 60 percent market share,” Melaniphy said. He also noted there have been changes of late with more competition entering the market.

Bob Mariano is the CEO of Roundy's and former chief executive of the Dominick's chain. His namesake offering has blended elements of traditional and upscale stores with a focus on customer service.

“Mariano's is filling a previously unmet need in the community with a store that offers exceptional perishables and prepared foods along with groceries at fair prices,” said Jon Hauptman, a partner with Willard Bishop Ltd., a supermarket industry analyst in Barrington. The company has worked with Mariano's in the past.

Hauptman said that while he hasn't noticed appreciable changes, Mariano's undoubtedly is “forcing other retailers to try and strengthen their game”.

Roundy's Inc. is the largest grocer in Wisconsin and operates 158 grocery stores, including 93 Pick 'n Save locations. It went public on Feb. 8. It reported a 2 percent increase in net sales in 2011 to more than $3.84 billion.