Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, July 11, 1993 TAG: 9307090067
SECTION: BUSINESS PAGE: B-1 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Long
He spent 17 years in the grocery wholesale and retail business with Malone & Hyde, several of those years at its Salem division.
And he's been with the bank for a decade, joking that he was hired on the threshold of bank deregulation because no industry is less regulated than food.
NBC Bank, which will open Friday at six Western Virginia Kroger stores, has been abandoning traditional branches in favor of "super money markets."
Perhaps because of this background, the bank encourages business by hiring only "BVA" people.
Garrott seeks workers who are "bright, verbal and attractive" even if they majored in art history or music. NBC will teach banking to employees who have "people skills."
"You can't staff nontraditional branches with traditional bankers," Garrott said.
"We know Kroger, we know banking, we know grocery stores," said William R. Reed Jr., NBC vice president for retail banking. And it has hired employees who know Roanoke.
That includes James O. Beckner II, who once ran the Roanoke Valley Kroger outlets for Dominion Bank. Dominion's successor, First Union National Bank, closed them as unprofitable last month.
NBC already runs 41 super money markets in Kroger stores in Memphis, Nashville, Knoxville and Johnson City, Tenn. With six more now in Virginia, NBC is the largest supermarket-banking company in the nation.
It is down to 14 traditional branches, having closed seven others because they are less successful for NBC than their supermarket counterparts.
Clearly a bank with a successful niche, NBC also owns a subsidiary that has advised 73 other banks on how to operate about 220 supermarket branches throughout the country.
It advised Dominion when it opened its Western Virginia Kroger stores, Reed said.
But if NBC is an unusual bank, it still has achieved high honors in traditional ways.
NBC ranks No. 1 on the 1993 honor roll of Keefe, Bruyette & Woods Inc., a New York investment and brokerage company that recognizes banks that "have been able to post successive annual increases in reported earnings-per-share over at least the past 11 years."
NBC captured first place with an 18.5 percent compound growth rate in earnings per share. (The only other Roanoke Valley bank in the top 10 is Central Fidelity, rated seventh with 12.3 percent.)
Henry J. Coffey Jr., bank industry analyst for J.C. Bradford & Co. in Nashville, called NBC "one of the most profitable banks in the South" and "an utterly phenomenal institution with a very strong credit culture."
NBC, Coffee said, is "a solid company."
During the first quarter, its return on assets was 1.61 percent, and its return on equity was 18.04 percent. That compares with industry goals of 1 percent and 15 percent respectively for these common accounting measures of earning power.
Yet it is a relatively small bank, until now confined to Tennessee, with assets of $2.5 billion. By contrast, Dominion was worth $8.9 billion when it was sold to First Union, which now has assets of $71 billion.
Ben Jenkins, president of First Union National Bank of Virginia, said giving up the Kroger Money Markets "was absolutely the right decision" for First Union.
The branches First Union closed last month are at Lakeside Plaza, Tanglewood Mall, Cave Spring Corners, Lake Drive Plaza and Blacksburg. In addition, NBC will pick up a branch at the Ridgewood Farms store, which Dominion vacated some time ago.
"They lacked the size and mass for us to get a proper return," Jenkins said. First Union has closed perhaps up to 50 supermarket banks it acquired in mergers throughout the Southeast.
"They are capital intensive, expensive to operate and transaction intensive," according to Jenkins. That means most of those people standing in line were cashing checks, an unprofitable transaction, instead of taking out loans or buying annuities.
"If we could get them to break even," he said, "we would have chosen not to exit."
Supermarket banks are full-service branches, he said, so they are expensive. Yet "we were unable to get the deposit size."
The Money Market branches, he said, might have had $3 million to $5 million in deposits. Jenkins said a typical traditional branch averages $27 million to $28 million, a figure he expects to rise to $30 million by the end of the year.
Supermarket branches grow in a satisfactory manner at first, Jenkins said, but seem to reach a saturation point. "We were unable to generate the sales and consistent growth," Jenkins said.
"I suggest they just watch us, and maybe they'll learn something," was Garrott's response.
First Union and other large banks have closed supermarket stores without even trying to run them, Garrott said. He had anticipated First Union would do the same in Roanoke.
"We're not doing this because we intend to fail," Garrott said. "We've not failed in a single instance. We've done very well at it."
Garrott said surveys show that 85 percent of shoppers choose a supermarket based on convenience, not on price. And virtually everyone banks at a handy branch near home or work.
People don't like to shop or to bank, seeing them as burdensome chores, Garrott said. But it's doubly convenient for them to combine those necessary functions in a single stop.
NBC surveyed Kroger shoppers in Tennessee last year.
The data, analyzed by Hill & Knowlton Inc., showed that 71 percent thought in-store banking service was "very important" to them.
Sixty-two percent said banking was the most important extra service at Kroger. The pharmacy, ranked second, was cited by 22 percent.
The most important reasons for using in-store banking were "one-stop shopping convenience" and "extended hours." More than half used the bank two or three times a week.
The services they used were check cashing, 78 percent; checking deposits, 71 percent; savings deposits, 50 percent; automated teller machines, 41 percent; credit cards, 29 percent; car loans, 24 percent; certificates of deposit, 16 percent; mortgages and personal loans, both 14 percent; home equity loans, Individual Retirement Accounts and money markets, all 11 percent; credit lines, 10 percent; safe-deposit boxes, 9 percent; and savings bonds, 8 percent.
NBC's own surveys of credit and deposit business show little difference between supermarket and traditional branches.
More than 60 percent of customers said they used the extended evening and Saturday hours. NBC will be open from 10 a.m. to 7 p.m. weekdays and 10 a.m. to 4 p.m. Saturdays.
Reed said NBC has supermarket branches in Tennessee with as much as $30 million in deposits and $17 million in loans.
The 41 Kroger branches in Tennessee together have deposits of $480 million and loans of $280 million. Reed described them as full-service branches. Only the location and the extended hours make them different from traditional branches.
But NBC will bring some new aspects to supermarket banking in Roanoke.
Reed said its automated teller machines will have color screens and faster speed than people in the area are accustomed to. NBC also will offer telephone transfer between accounts.
And its ATM will be free. People can access every other bank in town without charge.
Safe-deposit boxes will be added at Cave Spring, Tanglewood and Vinton, where space is available for them.
Reed said some special promotions also will be announced when the banks open. One will involve free transfer of equity lines at lower interest than generally available.
Reed said staffing is the key to a successful supermarket branch, along with the value of the products offered and willingness to support streamlined services. He said a bank must offer great value, great people and convenience.
NBC will have 22 people working at the five Roanoke branches and another four at Blacksburg. The Roanoke workers include four people transferred from Nashville and Memphis.
Reed said nine of the 26 employees formerly worked for Dominion Bank. A high percentage, he said, are college graduates with sales experience. One was an insurance claims adjuster accustomed to working with people.
Reed described all of them as bright, good communicators and attractive in the sense that they look like professional bankers.
Employees are being trained in all phases of financial services.
NBC won't have tellers, Reed said. Generalists working at the counter can cash a check, handle a deposit, make a loan or provide a CD. Employees can make loans in 30 minutes, take mortgage applications and sell mutual funds or annuities.
The supermarket is just like Main Street, Reed said, with its pharmacy, fish store, restaurant, deli, butcher shop and professional bank. "It's a small community in one building."
Reed said Garrott guided NBC into supermarkets because he knows the dynamics of the grocery business. "He knew if we could get in the store, we would do a lot of business."
Its first Kroger bank opened in 1985, moving NBC into consumer business from its former emphasis on commercial customers.
People shop in a supermarket, usually one near their homes, for convenience. They like automated teller machines inside the store, he said, because that's where it's busy and safe.
Reed said one goal is to remove check cashing from the counter as much as possible so the counter can be used for sales.
People in supermarket banks cash no more checks than they do in traditional branches, Reed said. They use the machines for cash or their telephones from home for transfers.
Entering Virginia because of its durable relationship with Kroger, Reed said NBC has long-range plans for further expansion.
NBC will open its seventh Western Virginia branch next year in the new Kroger store now under construction at Crossroads Mall.
After that, Reed said, NBC will look for one or two other Roanoke locations "underserved by Kroger" for traditional branches. He expects one of them to be downtown to reach office workers.
The bank also will install a private banking office, again probably downtown.
If its venture in Virginia and Roanoke is successful, Reed said, NBC will look at other Kroger stores throughout Virginia, Tennessee, North Carolina and West Virginia for continued expansion.
If the Roanoke banks work out, he said, it will set a pattern for cities in other states.
Garrott said he has every reason to believe Kroger customers, including people who patronized Dominion's Money Markets, will be happy to see the new supermarket stores.
"We will work hard to earn their business," Garrott said.
Memo: ***CORRECTION***