We recently welcomed the Village Super Market Inc. (VLGEA) into The Value Line Investment Survey.   The company operates a 26-store chain of supermarkets in New Jersey and eastern Pennsylvania under the ShopRite name.  The average store size is approximately 57,000 square feet.  Stores of this size allow Village to offer specialty departments ideal for one-stop shopping including pharmacies, natural and organic departments, ethnic and international foods, and home meal replacement.  Meanwhile, Village is the second largest member of Wakefern Food Corporation, the nation’s largest retailer-owned food cooperative.  The ownership interest in Wakefern provides Village with economies of scale in purchasing, distribution, advanced retail technology, and advertising associated with larger chains.  It also entitles Village to a portion of Wakefern’s profits in the form of patronage dividends.

Village competes directly with regional and local supermarket chains, warehouse clubs like BJ’s Wholesale Club Inc. (BJ) and Costco Wholesale Corp. (COST), supercenters like Wal-Mart Stores Inc. (WMT - Free Wal-Mart Stock Report), as well as drug, and convenience stores.  Other major competitors include:  The Great Atlantic and Pacific Tea Company “A&P” (GAP), Whole Foods (WFMI), Safeway Inc. (SWY), Weis Markets Inc. (WMK), SUPERVALU INC. (SVU), and Winn-Dixie Store Inc. (WINN).

In an effort to gain and retain consumer loyalty Village offers the ShopRite Price Plus card and the co-branded ShopRite credit card.  The Price Plus provides its customers with discounts on merchandise, with further benefits from on-line coupons.  Rather than having to clip paper coupons, customers can now save on-line coupons to their Price Plus card and receive the discount in the store.  ShopRite also introduced an application for smart phones that allows shoppers to review store circulars for discounts, create and edit shopping lists, and essentially put the power of ShopRite.com into the palms of their hands, regardless of where they are.

Further draws to the stores come from a wider range of pharmacy offerings.  Last year, ShopRite began selling a 90-day supply of over 300 generic drugs for $9.99.  And more recently in fiscal 2010, the company added a 30-day supply of certain generics for $3.99, and free generic diabetes drugs and antibiotics.

The business environment in which the Village operates may firm up in the 2011.  The company believes that the recent disinflationary environment will come to an end at some point.  Nonetheless, consumers will likely continue to be cautious in their spending habits.  Many have been trading down to lower-priced goods, increasing their use of coupons, and buying more items on sale.  These activities will probably continue to weigh on Village’s bottom line.  However, the worst of the economic sloppiness is likely in the rearview mirror.  And offerings like the Price Plus card should help to keep consumers coming through ShopRite’s doors.  Despite the difficult economy over the past few years, the company has been successful in raising its top-line volume consistently, but it may take some time for the bottom line to begin registering decent growth.  Still, in the meantime, stockholders would benefit from an attractive dividend yield, and stable stock price.  Since our October review, the stock price has advanced roughly 10%.  And at present, it is trading approximately 20% above its 200-day moving average.  Interested accounts may wish to be patient, as a more attractive entry point could present itself in the near term.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.