Star Market to exit Kahala Mall

The supermarket chain said last week it also would close in Kaneohe

Star Markets Ltd. said yesterday it will close its store in Kahala Mall, its second closure announcement in little more than a week. Last week it disclosed that it is closing its store in Kaneohe.

Karl Wissmann, president and CEO of the 77-year-old grocery store chain, said Star has signed a letter of intent to sell its leasehold interest in the Kaneohe location to Walgreens.

The Kaneohe store, which had been at its location since 1962, will close by the end of February. Star's lease for 25,000 square feet at Kahala Mall expires in March 2007.

"The company's doing well financially, and quite frankly, after these stores are gone, we'll be doing better," Wissmann told the Star-Bulletin. Neither store was profitable, he said.

A total of 91 employees -- 41 of which work in Kaneohe -- will either be relocated to the remaining four Oahu stores or receive job assistance.

The company had been working with Kahala Mall management for several years on a lease renewal, but no agreement was reached.

"We had targeted that store over three years ago to do a renovation," said Wissmann. "Because we only had three years left on the lease, we wanted to negotiate early."

Star Markets was prepared to make a significant investment, he said -- at least $3 million. But the company and Kahala Mall management could not come to an agreement on a plan.

Ron Yoda, general manager of Kahala Mall, had said there are no immediate plans for the space Star Market will leave behind. He said the mall could seek another large tenant or divide the space for several restaurants or a food court.

"We're looking at a lot of different alternatives," said Yoda. "By March, we'll have a new plan. It's such a highly visible and major project, it's going to require closure of that space no matter what we do."

Yoda said he has been in talks with several other supermarkets, including those that specialize in gourmet and health foods.

"We've been talking to a lot of people all along," he said.

Star's latest closure announcement means its total number of stores will be reduced from 10 to eight.

Wissmann said the company will be focusing its resources on its remaining stores -- four on Oahu, three on Maui and one on Kauai.

Star's top-grossing store is its flagship on South King Street in Moiliili -- which was its first to open, in 1954.

In 2004, that store underwent a $2.5 million renovation that included a facelift to the 41,400-square-foot facility as well as an expanded deli, bakery, liquor and wine selection, and a new section of imported cheeses, a salad bar, olive bar and hot foods section.

More than 4,000 new health, nutrition and gourmet items were integrated into the newly renovated store.

Star Markets is planning a similar remodel of its Kihei store, targeting a completion date of early 2007. It will also upgrade the garden shop at its Moiliili store.

Star Markets still has stores at Kamehameha Shopping Center, Mililani Town Center and Ewa Beach Shopping Center, along with three on Maui and one on Kauai.

The loss of Star Market at Kahala Mall will be sure to upset a base of loyal customers in the neighborhood. The market has been there since the mid-50s, when the mall was known as Waialae Shopping Center.

Retail analyst Marty Plotnick said he's not surprised to hear about Star Market's closures.

He said Star Market was faced with a double whammy -- more competition from big box stores as well as the challenges of securing good real estate.

Local supermarkets are losing their market share to big-box stores like Costco Wholesale and Sam's Club, he said, where they can purchase more for the dollar.

Times Super Market, he said, was faced with the same predicament at Niu Valley Shopping Center five years ago -- it lost its customers to Costco in Hawaii Kai and had to exit its lease.

He said the Kahala Mall site is a big loss for Star Market.

"The buying power of Star is going to go down, because they'll be able to buy fewer palettes of items," he said. "You're going to reduce the number of locations and total square footage."

Local supermarkets are struggling to find a new niche, or a way to differentiate themselves from the big boxes.

Safeway, for instance, is remaining competitive by rolling out its "lifestyle" format store, with wood floors and more services in the seafood, meat, bakery and deli departments.

It has more organic produce and an expanded wine and floral section, along with a sushi bar and chef.

But the Safeway in Hawaii Kai will be in for competition when the expanding Costco nearby puts in its own deli.

Wissmann said Star Markets' strategy is to buffer its offerings with more healthy and gourmet products -- and to go upscale, but to continue offering low prices.

"We are going to continue to have hot ad prices for the ad shopper," he said. "We are going to continue to have a good selection of private label products."

Compared to Safeway, however, he said Star Markets is adding much more selection -- between 4,000 to 5,000 new items in remodeled stores.

Star Markets is also looking for new sites throughout the state, with a few prospects in mind, he said.

Walgreen's entrance to Kaneohe, meanwhile, will put it head to head with Longs Drugs at Kaneohe Bay Shopping Center. Walgreens did not yet confirm its plans for other sites on Oahu, though it is reportedly has plans for a site at Pearl Kai Shopping Center in Aiea and on Keeaumoku Street.

Star Markets was founded by Tsunejiro and Mika Fujieki in 1929 as a small mom-and-pop store called Kakaako Meat Market. The family business was run by John Fujieki Sr. and passed on to his son, John Fujieki Jr., Star Market's former president and CEO who in 2002 handed the reins over to Wissmann.