K.H. Thomas Associates - BranchLocation.com

Grocery Store Banking On A Steady Decline
By Richard Burnett, Associated Press
Posted on Mon, Mar. 28, 2005

ORLANDO, Fla. – Charles Hall finally pulled his bank out of the supermarket aisles and back to being "a real bank," five years after finding supermarket banking fell short at the checkout counter.

For the president of First National Bank of Central Florida, the idea of having branches in stores such as Wal-Mart was a money-loser. It picked up some customers, but deposits and profits languished.

Since divesting its 20 store-based branches in Florida, the Winter Park-based bank has reversed its fortunes, turning millions in losses into profits.

"At one point, we only had one full-service branch, and the rest were in stores," he said. "But it just wasn't working for us. So we went through a transformation that changed the whole scope, direction and emphasis of the bank."

First National is not alone in its decision to pull out of grocery stores.

Since its days as banking's next big thing, supermarket branching has fallen off, according to a report last year by the TowerGroup, a financial research firm based in Needham, Mass.

After peaking to almost 8,000 retail outlet branches in 1999, there has been a slow, steady decline, with about 6,500 branches in 2004, the report said.

Banks are turning to their own stand-alone "bricks and mortar" branches.

Why did supermarket banking lose so much favor? Some experts blame it, in part, on the Web.

"It is no coincidence that the dropoff in supermarket branching activity came on the heels of the Internet banking boom," said Jim Eckenrode, a TowerGroup analyst and executive, in the report.

Supermarket branches were created as a convenience for customers. The Internet, however, has proved to be even more convenient, he said.

Still, not everyone is ready to abandon the concept.

And there is evidence that such branches cost less to start, become profitable faster than standalone branches and help banks enter new markets more quickly, according to TowerGroup.

SunTrust, Central Florida's largest bank, has become a fan of in-store branches since its 2004 buyout of Memphis-based National Bank of Commerce. Regarded as one of the winners in supermarket banking, the Memphis bank had opened branches in many Wal-Marts throughout the Southeast since 2003.

SunTrust has continued that effort, opening nine Wal-Mart branches in Florida - five of them in Central Florida - since late last year. The bank expects to have 31 such branches open by year's end.

All have performed well in terms of new accounts, deposits, loans and other measures, bank officials said.

"When we stepped in National Commerce's shoes, we set specific goals for the in-store branches," said Larry Stewart, executive vice president of retail banking for SunTrust's Florida operations. "And we have met every one of those projections for the ones we have opened so far."

But SunTrust acknowledged there are unique challenges to branches at Wal-Mart, where customers typically want "fast-food" type service and run the gamut in their income levels and financial needs.

Such challenges were evident on a recent afternoon at the "Wal-Mart MoneyCenter by SunTrust Bank" in Ocoee's Wal-Mart Supercenter.

Several staffers fielded queries about new accounts, service fees, savings rates and other issues from Wal-Mart customers.

One woman tried to open a new account but was turned away because of blemishes on her check-cashing history. Two others asked about CD rates and went on their way.

Another customer, Elizabeth Strickland of Ocoee, said she wanted to close her existing SunTrust account because the monthly fees were too high.

The branch manager stepped in, asked Strickland a few questions and then set her up in a free checking account with no fees. The former account apparently had outdated terms.

"I just found out this was here," Strickland said as she left the branch. "And I didn't even know they had accounts without fees. I usually just come here to shop for groceries, but this is really convenient."

But despite the convenience, many banks have found that in-store branches are too much work for too little return, said Ken Thomas, a Miami-based bank consultant and publisher of BranchLocation.com.

Deposits at store-based branches range from $6 million to $12 million, compared with $25 million to $40 million at stand-alone branches, he said.

"They are generally lower-deposit branches," Thomas said. "And that's why demand for them is decreasing."

The results of shifting away from retail branches have been dramatic for First National Bank of Central Florida. Deposits have more than doubled to $232.4 million since 1999, when it started closing in-store branches.

Today, 20 years after its inception, the community bank has returned to its roots, with about a half-dozen full-service branches in metro Orlando and another in the works for downtown.

"In-store branching may work for a large bank such as SunTrust which already has a large base of customers," said Hall, First National's chief executive. "But for us, it was just too difficult."

Other large banks, however, are also backing away from supermarket banking. In its consolidation with the former SouthTrust, Wachovia recently said it would close 16 branches in Central Florida, half of which would be supermarket branches.

Officials cited high overhead costs, extra opening hours and difficult customer service issues.

"If someone chooses that strategy, we respect it," said Marshall Vermillion, Wachovia's Central Florida market president. "It's just not one of ours."