NEW STORES PLANNED FOR INNER CITY

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A former Jewel Food Stores executive has teamed with fellow Harvard Business School graduates to launch a national grocery chain in low-income urban neighborhoods.

Chicago-based Delray Farms would fill a void in inner-city areas that have been abandoned by major supermarket chains and are poorly served, in many cases, by independent grocers, said John A. Shields, a Delray co-founder and former CEO of First National Supermarkets, Cleveland.

Mr. Shields-along with Stefan L. Kaluzny, a former management consultant with Bain & Co., San Francisco, and Constantine S. Mihas, a former McKinsey & Co. consultant in Chicago-is combing the West and South sides or hard-to-find real estate suitable for grocery stores.

If all goes according to plan, the company hopes to open its first store in Chicago this fall.

"There has developed an underserved element in the Chicago urban community, but until we have a store open, there's not much for us to talk about," said Mr. Shields, who also spent 17 years working for the Chicago area Jewel chain and was director of marketing for its South Side stores.

Delray officials declined to comment on their marketing plans.

Jewel, a subsidiary of Utah-based American Stores Co., shut 10 of its city supermarkets last July, leaving holes in many poorer Chicago neighborhoods.

Nine of those units are being converted to American Stores-owned Osco Drug stores, which will offer a limited selection of produce, dairy products and frozen meat, a Jewel spokeswoman said.

The lease rights to the other shuttered Jewel stores were assumed by West Side independent grocer Leamington Foods.

According to a marketing document obtained by Crain's Chicago Business, Delray has "closed a private sale of equity securities and is currently purchasing and developing locations throughout the Chicago metropolitan area."

Shareholders include the three founders as well as senior executives from national retail chains and other public companies, though the latter weren't named in the document.

Delray is still fine-tuning its format, but Mr. Shields said the stores will likely be about 10,000 to 12,000 square feet and offer wide selections of fresh fruit, vegetables, meat and seafood.

The average size of the supermarkets closed by Jewel was 25,000 square feet, which the food retailer deemed too small to operate profitably. New Jewel/Osco prototypes in the suburbs run about 65,000 square feet.

Pamela Fairclough, director of the New York-based Community Food Resource Center's supermarket project, said Delray's stores should be big enough to be profitable.

"Twelve-thousand square feet is going to give you a pretty broad selection," she said. "That's still a decent-size [urban] supermarket."

That size works for Chicago-based Moo & Oink, said Secretary-Treasurer Mort Levy. The food retailer operates two South Side stores and plans to open a West Side location next month.

However, it can be difficult to assemble parcels that large in many city neighborhoods. One site can involve many landlords with varying motivations to sell. Then there's the red tape, running from the local alderman's office to City Hall.

Urban America is familiar turf for Mr. Shields, who received national attention for opening or remodeling nine grocery stores in low-income Cleveland neighborhoods while running First National, a $2.1 billion company. Despite high crime rates, largely unskilled work forces and scarce sites, First National pumped about $28 million into inner-city Cleveland in about five years.

Mr. Shields, 51, resigned from First National last September. He told a Cleveland reporter at the time that the company's Dutch parent, Ahold, wanted him to move to New England to run its larger East Coast operations.

Mr. Veverka is an associate editor for Crain's Chicago Business.

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