Business & Economy
It wasn’t that long ago when banks inside a grocery store were a novel idea.
This story ran Oct. 11, 1992. Excerpts are reprinted here.
Inside the Fiesta Mart on Blalock Road, just to the left of the talking mechanical monkey and the Delicious Red Apple display, First City Texas bankers casually take deposits and hand out cash for a line of waiting customers.
Fiesta Chairman Donald Bonham would like to see more bankers plying their trade in his grocery stores. First City operates branches in five Fiesta stores, and he says the offices provide a convenience for his customers as well as one more reason for them to shop at his stores.
But the 20 other Fiesta Marts are not likely to get bank branches anytime soon. First City has an exclusive contract to provide banking services in Fiesta stores, and because of its financial problems it is in no shape to open new branches. Meanwhile, Bonham is prohibited from recruiting another bank.
“We found ourselves in a very bad situation with that (contract),” Bonham says.
Fiesta’s contract problem is one of a myriad of unusual situations that has stunted the growth of grocery store banking in Texas. Two grocery stores that want to add bank branches are blocked by old agreements. Banks that want to expand into more stores face grocers who don’t want them. And banks that have access to stores but are still unsure of the business keep many supermarkets void of branches.
One of bankers’ oldest fears about grocery store branching — that customers would be offended by banking in the comparatively flashy environs of supermarkets — has dwindled as the lines have grown, according to bank branching consultants.
In a Randall’s Flagship store in one of Houston’s more affluent neighborhoods, First Interstate Bank of Texas customers line up amid the din of carts smashing into carts and loudspeaker pleas for customer assistance at the registers.
In Texas, Houston is the only city with a significant number of grocery store branches, and the numbers have not been growing. Most of the grocery store deals in the past few years involved failed thrift branches that banks bought and then, in many cases, closed. The fallout from some of those deals has tied up stores and made expansion difficult.
First Interstate has embraced grocery store branching more heartily than any other Texas financial institution. It acquired the bulk of its 33 Randall’s branches in June 1991 when it took over the failed Commonwealth Federal Savings Association.
Eight of the Commonwealth Randall’s branches closed within two months of the failure because they were close to existing First Interstate branches or in cities where First Interstate had no other presence.
Chip Carlisle, executive vice president of community banking at First Interstate, is a fan of grocery store branching. The cost of opening a store branch runs about 10 percent to 15 percent of the cost of a new brick-and-mortar branch.
He says the offices are cheaper to run than free-standing branches because the bank doesn’t have to pay utility bills, and the branches use parttime employees and fewer of them. Marketing comes cheap because a good percentage of his potential customer base walks by the branch routinely, making mass advertising unnecessary.
But First Interstate, which with one exception has all its grocery store branches in the Houston area, is finding it hard to expand the business into other Texas cities. Grocery stores in which the bank would like to install branches either are prohibited from taking its business or are not interested.
In Dallas, the Tom Thumb grocers that have the biggest chain in the city have been cool to proposals for bank branches. The company recently hired a consulting firm to look at adding branches, but feeling no pressure from competitors, it never signed up a bank.
“Nobody in Dallas does it,” says Jim Stiles, chief financial officer at Tom Thumb. “We’ve just never seen fit to go forward with it.”
Kroger Co. would love to have a bank open branches in its Dallas stores, says Bill Parker, president of the Dallas marketing area for Kroger.
“We’ve got a huge desire,” Parker says. “I’ll take one the first day I can get it.” Parker came from Memphis, Tenn., where he says large branch networks in stores were great draws.
But Kroger will not get a bank in any of its Dallas stores for at least a year, he says. An old contract Kroger signed with a now-defunct savings and loan — a contract now held by a company that operates automatic teller machines — prohibits the store from putting in competing machines.
Parker says he has discussed store branching with several interested banks, but none wants to open a branch next to a competitor’s ATM. Affiliated Computer Systems operates teller machines in all 55 of Kroger’s Dallas-area stores.
The five-year contract expires in October 1993, and Parker says he expects to sign up banks for full-service branches soon afterward.
In San Antonio and Austin, where H.E. Butt Grocery Co. dominates the markets, bankers are even less likely to find store partners. Consultants who have tried to recruit H-E-B say the stores’ owners are not interested in adding bank branches.
H-E-B officials had no comment.
Many Texas bankers are still leery of grocery store branching, says Bill Strunk, a local banking consultant who has helped several small banks find store slots. Some bankers fear the branches could only gather deposits rather than generate loans, which would push down profits, he says. Many still consider store branching an experimental business.
NationsBank, which has a contract that allows it to put branches in Houston-area Kroger stores, is moving into the business very cautiously. The bank closed 12 of the 19 branches it purchased through the failed University Federal Savings Association because they were too close to existing NationsBank branches. NationsBank recently agreed to add two more store branches in Houston, and officials say they will monitor the performance of those locations before committing to store branches in other cities.
Coastal Banc Savings tried store branches once, four years ago, and its leaders are in no hurry to get back into the business. Coastal shut its five store branches after taking over a failed institution with free-standing branches. Manuel Mehos, chairman of Coastal, says he is not convinced store branches make good business sense.