business

Coborn's Inc., the growing rural Minnesota grocery chain based in St. Cloud, will enter the Twin Cities market next month through its acquisition of online shopping service SimonDelivers. But is its real plan to deliver more than online shopping?

Some experts wonder whether privately owned Coborn's has bigger metro-area ambitions -- such as eventually buying Rainbow grocery stores.

Many consumers welcomed Coborn's announcement that next month it would rebrand the defunct SimonDelivers as CobornsDelivers, but local grocery experts were puzzled. They questioned the wisdom of the deal because stand-alone online grocery shopping businesses -- those not affiliated with individual brick-and-mortar stores -- have yet to become profitable anywhere.

And that started speculation about what was really on the minds of the Coborn family, which holds the top three executive positions at the 87-year-old employee-owned firm. (Chris Coborn, the CEO, and Mark Coborn, the executive vice president, are the great-grandsons of founder Chester Coborn; Chairman Dan Coborn is Chris' father and Chester's grandson.)

But the Coborn family isn't talking, except to say through a spokesman that the company has no plans to do business in the Twin Cities except as the operator of CobornsDelivers. It will continue to operate its 34 existing stores largely in central Minnesota and on the periphery of the metro area, while simultaneously trying to reclaim the 19,000 SimonDelivers customers and rebuild the SimonDelivers staff.

A Trojan horse?

Some observers wonder whether that's really the plan. One theory is that Coborn's, a well-financed, 6,000-employee firm with nearly $1 billion in annual sales (and growing at slightly better than 5 percent annually), is pursuing an Internet Trojan horse strategy in the Twin Cities.

Coborn's real goal, under this theory, may be to build brand-name awareness in the Twin Cities through SimonDelivers as a prelude to opening stores here, perhaps through the acquisition of stores from Rainbow Foods. That's plausible, because Rainbow has been losing market share in the Twin Cities, and its parent company, Roundy's, has expressed interest in selling parts of its business, according to analyst David Livingston of DJL Research in Waukesha, Wis.

"The Rainbow stores would give Coborn's a way into the Minneapolis market," Livingston said.

"Coborn's might have no plans to do that now, but they might in a year or two."

Weighing against the Trojan horse theory: Coborn's would face stiff competition in the Twin Cities because its stores are not much different from those of Cub Foods, experts say.

And the SimonDelivers acquisition may be less about generating profit for Coborn's than about gaining new volume-purchasing discounts from grocery suppliers.

By selling to 19,000 online customers, the new CobornsDelivers might boost Coborn's purchasing volume to the point that the firm saves more on buying grocery store products than it loses on an unprofitable Internet grocery-shopping business.

"I don't think Coborn's can make money with a strictly online business," Livingston said. "But Coborn's and Simon together might give them better buying power that would lower the cost of goods in all stores."

Coborn's runs a small-scale online shopping business out of a handful of its stores, which it says is profitable. But the company acknowledges that no standalone Internet grocery business has become profitable.

A strong rural presence

While Coborn's has no history in the Twin Cities, its stores are well-known in much of the rest of Minnesota, from Albertville to Hastings, and from Park Rapids to New Prague. In some Minnesota communities, Coborn's is the only grocery game in town. In Princeton, its smaller competitor closed three years ago, according to the Princeton Union-Eagle.

But in Little Falls, where Coborn's also has outlived smaller competitors, it in turn suffered a noticeable, if temporary, decline in business last year when a Wal-Mart Supercenter moved into town and sold groceries, shopper Mary Warner of Little Falls recalled. Coborn's responded by expanding its offerings in salads, video rentals and natural foods and by adding an adjacent Ace Hardware store that was accessible through Coborn's, she said.

"Coborn's tends to survive the Wal-Mart influx," Livingston said. "And in some markets they are the premier independent retailer."

'No one in their category'

Coborn's stresses its roots as a family-run business, which its website traces to 1921, when Chester Coborn opened a produce market in Sauk Rapids, Minn. Last month, CEO Chris Coborn was given the Minnesota Grocers Association's 2008 Outstanding Grocer Award; the association noted that Coborn started in the family business as a grocery bagger and stock clerk.

"There's no one in their category," said Jamie Pfuhl, president of the Minnesota Grocers Association in St. Paul. "They've been selling goods for 87 years in a lot of rural communities rather than the metro area. They're very customer-service oriented, so that their stores are very much a one-stop shop, with a drugstore, video department and banking branch. They're also quite diverse, with their own grocery, pharmacy, convenience and liquor stores."

Being private and family-controlled can be an advantage for a grocery operator, said Dale Riley, president of Minnetonka-based Fresh Seasons Market and a former executive at Byerly's, Lunds, Kowalski's, Rainbow and Supervalu. "They don't have to answer to Wall Street, so they can be nimble and still have a goal in mind," Riley said.

"They also will have a cost advantage over SimonDelivers, because of the amount of grocery products they already buy, which brings down their cost of goods. The question will be: will it be enough?"

Steve Alexander • 612-673-4553