The concept of supermarkets and banks sharing retail space is decades old, but the growth of supermarket branching in recent years has surprised even some of its most ardent supporters.

"We're seeing explosive growth," said John W. Garnett, president of International Banking Technologies, an Atlanta-based consulting firm that specializes in supermarket branching.

Consider:

Since 1993, the number of in-store branches in the country has nearly doubled, to 3,708, according to the firm.

Nearly 50 banks have at least 10% of their branch network in supermarkets. Ten of those have at least 30%.

BankAmerica Corp., one of the most active banks in the field during the past year, says it is opening about seven supermarket branches a week.

Even experts who work in supermarket branching and have an interest in promoting it have underestimated its appeal.

Two years ago, for example, National Commerce Bank Services, the Memphis-based rival of International Banking Technologies, estimated that 5,000 supermarket branches would open by 2000. Last year, however, the firm, a unit of National Commerce Bancorp., ratcheted that number up to 7,500. Now it expects 8,500 to 9,000.

"There was really no momentum until the past five years," said Douglas Ferris, president of National Commerce Bank Services. "Obviously, that has changed."

What has also changed, particularly in the past year, is the size of the deals that large banks are signing with their supermarket partners. In the first six months of this year alone, three banks inked deals to open 200 or more branches inside single supermarket chains.

By far the biggest of those deals involves Wells Fargo & Co., which last summer announced it would nearly double its supermarket network by opening 450 branches in Safeway stores in several western states.

Wells' announcement came just months after NationsBank Corp. had announced a pact to put 240 branches in Winn-Dixie stores in Florida. And at the end of February, U.S. Bancorp in Portland, Ore., said it would install 200 supermarket branches, most of them in Albertson's Inc. stores.

"Until this year the biggest deal was for 30 branches - now it's 300," said Amy Swanson, assistant vice president at National Commerce Bank Services. "In a very short time frame, players that heretofore were on the sideline have jumped in in a very big way."

One reason for the sweeping deals is that there are fewer supermarkets out there to team up with.

"These banks want to marry the partner before the partner picks somebody else," Ms. Swanson said.

Why is this growth happening now?

As early as 1971, about 55 supermarket branches existed. Ten years later, the number was still under 200.

The late-1980s saw some growth, but not by much more than 100 branches a year - less than one-sixth the average annual growth in this decade.

Early versions of the in-store branch faltered for several reasons, experts said.

First, the early supermarket branches were merely check-cashing outfits that never proved profitable. In the 1980s, these evolved into branches owned mainly by the newly deregulated savings and loan associations, which used them to sell CDs to generate quick deposits.

The fortunes of many of those branches were naturally tied to the S&L industry, which was decimated in the late 1980s and early 1990s.

Success has come only in this decade, with the third generation of in-store branches. These offer a full range of commercial banking services, including lending and investment services.

And the evolution continues.

"I see the fourth generation on the horizon," said Mr. Garnett of International Banking Technologies. At these branches, "routine transactions will be delivered through technology - smart ATMs and video banking," he said. The branches will have fewer employees, he said, and they "will concentrate on being sellers rather than tellers."

Mergers and interstate banking are spurring the growth of supermarket branching, as banks seek new ways to retain old customers and capture new ones.

"Banks have realized they have to make some radical changes with the way they do business," said Tim McEwan, project director at Atlanta-based Carlson Financial Services Retail Group, which is half-way through a contract to build 500 supermarket branches for Wells Fargo.

"M&A is not over yet," he added, but banks "are looking very seriously at how else they can stretch their retail network to go after new customers."

It's hard to dispute the logic behind supermarket branches. They cost less to build ($250,000, versus $1 million or more), turn a faster profit (typically in 12 to 18 months, versus at least three years), and are profitable with lower deposits (about $3 million versus $10 million.)

What's more, supermarket branches give the bank entree to thousands of potential customers who might never visit a regular branch. About 20,000 to 30,000 people each week visit a typical supermarket.

In addition, customers seem to like the store branches - not just for their handling of routine banking tasks, but also for more complex needs.

A conversation overheard last year at a supermarket branch led to a $1 million loan, said J. Alton Wingate, chief executive of Financial Supermarkets Inc.

A branch employee approached some shoppers customers who were talking about building a doctor's office, said Mr. Wingate, whose Cornelia, Ga., firm brought NationsBank and Winn-Dixie together this year.

"That's what you call being in the right place at the right time," he said.

Union Bank of California was among the first in the state to make significant headway in supermarkets, opening five in-store branches in Ralphs Grocery stores in early 1990.

The $28 billion-asset bank now has 40 supermarket branches, in three supermarket chains, and plans to open 18 more within the next 24 months.

"Bankers become shoppers and shoppers become bankers - there's great synergism, but you don't realize that until you're in business together," said Linda L. Odenath, senior vice president at Union.

San Francisco-based Wells Fargo has understood that in a big way and is apparently betting the future of its branch network on supermarkets.

At the end of 1994, 4% of its branch network was in supermarkets. Just two years later, that figure is 23%, not including the supermarket branches gained from the First Interstate Bancorp merger.

Daphne Larkin, a Wells spokeswoman, declined to specify the bank's plans for the future except to say, "expansion, expansion, expansion."

But supermarket branching isn't for everyone.

Mr. Ferris of National Commerce said he could think of at least 10 to 15 banks that have pulled their branches out of stores. A Dallas-based institution, Equitable Bank, gave up on the idea last year, after trying to make it work for seven years. One of its branches in a Hypermart store took in only $2.7 million in deposits in that time. The bank blamed its problems in part on name recognition.

Stephen J. Miller, a vice president at $48 billion-asset National City Corp. in Cleveland, said it has heard some complaints from supermarket customers that bank employees were too aggressive. Proper training is a key to success in store branches, he and others said.

"You have to know when to approach people when they're shopping and when not to," he said.

Other keys to success: choosing the right supermarket partner, hiring and training people for a retail rather than a banking environment, and avoiding a one-size-fits-all approach to installing the branches.

Convinced now of the viability of the concept, many banks are finding that there aren't many more major supermarkets to team up with. What was once a buyer's market for the banks has become a seller's market for the supermarkets.

"It seems like every week I get a bank coming in here asking us what is available," said Gary R. Morton, senior finance coordinator of Albertson's Inc. The Boise, Idaho-based supermarket chain has arrangements with 30 banks in 17 states, he said.

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