While the giants in California are in a race to locate branches in supermarkets, the largest Midwest players have been slow to join the game.

In general, small banks and thrifts have been the early pioneers here, while the large regional banking companies have continued building traditional branches.

Some Michigan banks have been in supermarkets for years but have no more than 20 to 30 branches. In Ohio, Fifth Third Bancorp has been in stores for 10 years and now has 90 such branches.

Minneapolis-based Norwest Corp. has only a handful of supermarket branches. Crosstown rival First Bank System, which has been exploring alternatives to its traditional branch network, said it plans to increase its 18 grocery branches to 30 by yearend. Both Minneapolis giants have been bested by TCF Financial Corp., a midsize thrift that has more than 30 supermarket branches.

Defining the trend, the Midwest's largest regional bank has been one its smallest supermarket players. First Chicago NBD Corp. has only 31 bank offices in grocery stores.

But BankAmerica Corp. could push First Chicago to change if it decides to branch aggressively into the Chicago market. Along with San Francisco rival Wells Fargo & Co., BankAmerica has been one of the most active companies in this retail niche, and observers believe if it chooses to get into the Midwest market in a big way it could easily change the face of banking here.

"It's definitely going to be something to watch," said consultant Amy Swanson, of National Commerce Bank Services.

BankAmerica announced last fall it would install 170 ATMs in Jewel-Osco stores in the Chicago area. It opened branches in two Joliet, Ill., supermarkets a few weeks ago, and plans to open another two in the area by the end of the month. The bank has made it clear that it wants to be a retail player in Chicago, and since it purchased a one-bank commercial lender, Continental Bank Corp., in 1994, supermarket banking may be its best foothold.

Tom Heidel, a consultant with International Banking Technologies of Atlanta, said there are two reasons supermarket banking hasn't grown as quickly in the Midwest as it has on the West Coast:

*Branching laws have been more restrictive in the Plains states. Illinois, for instance, was a unit banking state until 1976. That meant each company was only allowed one bank.

*The only banks that opened grocery locations in the past tended to be the small ones that weren't perceived as threats to the growing regional companies.

"It's kind of one of those things: Nobody else is doing it or nobody is doing it to the extent that it has an adverse effect on your market," said Mr. Heidel.

Actually, the Chicago area has had supermarket banking since the 1970s, but most of the small players had bad experiences with it early on, said Donald Ross, senior vice president of retail banking for St. Paul Bancorp.

Mr. Ross said small thrifts opened branches, but most withdrew. St. Paul, a Chicago thrift that has the most supermarket branches in the area - 17 - began in 1988, and discovered, almost by accident, that it could be a viable business.

Midwest banks differ in their motivations. Some, as First Chicago has stated, are looking for ways to market themselves while avoiding the cost of new brick and mortar branches. Supermarket offices cost about three- quarters less than a traditional branch, bankers say.

Other bankers, such as Robert Ernst, senior vice president of Fifth Third Bancorp, find that in-store branches complement the traditional branch system. Growth has been much stronger at the Cincinnati bank's supermarket sites - deposit growth is 10% higher and loan growth is 12% higher. But there are no plans to dismantle the bank's brick and mortar.

Midwest bankers continue to be cautious. Although Banc One Corp. has opened in-store branches across the country, it has decided not to jump feet-first into Chicago. Before BankAmerica signed its pact with Jewel- Osco, the supermarket chain had been negotiating with Banc One.

Stanley Calderon, chief executive of Bank One Chicago, said Jewel would have required a substantial number of banks in its stores. Banc One wasn't prepared to commit to such a rapid expansion, he said.

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