U.S. Bancorp Plans 200 New In-Store Branches, 170 with Grocery Chain

U.S. Bancorp has joined the new wave of banks planning a big push into supermarket banking.

The Portland, Ore.-based bank company said Wednesday that it plans to open about 200 branches in supermarkets during the next four years, 170 of which will be in Albertson's Inc. stores in Oregon, Washington, Idaho, and Nevada as part of an exclusive agreement.

The plan reflects U.S. Bancorp's new confidence that in-store banking can be profitable. It had gained confidence in the strategy by opening 32 such branches during the past two years.

The Albertson's agreement could also make it harder for other banks to develop big, in-store branch networks in the Pacific Northwest, since the deal locks up one of the region's biggest grocery chains.

"Customers are voting with their feet," said Kathy Haffner, vice president of the bank's in-store banking division.

Though the in-store sites numbered only 5% of U.S. Bancorp branches last year, Ms. Haffner noted, they accounted for 37% of its growth in households served. The company plans to spend $20 million to $25 million to open the new in-store branches, she said, and expects them to be profitable in 18 to 24 months.

Half the in-store branches are to be full-service, with five to six bankers and a teller counter; the rest will employ a single banker and will not handle teller transactions.

Ms. Haffner said that U.S. Bancorp, like other banks, is attracted to the relatively low cost of opening supermarket branches - $150,000 to $200,000 per site, compared to $1 million for a traditional branch - and the opportunity to see new prospects. About 20,000 people per week shop in a typical Albertson's store.

The bank plans to study ways to replace traditional branches with in- store sites. But closures of traditional branches are at least two years off. In the interim, the new in-store sites will supplement U.S. Bancorp's network of more than 600 branches.

U.S. Bancorp is especially interested in expansion in Nevada, one of the country's fastest-growing states. In the next two years, 32 in-store branches are to be opened in the state, more than doubling U.S. Bancorp's branch network there.

Observers noted that, with the Albertson's agreement, nearly every large grocery chain in the Northwest has found a bank partner. Safeway, for example, does most of its in-store banking in Washington with BankAmerica Corp.'s Seafirst subsidiary. The Seattle-based thrift Washington Mutual Inc. has an exclusive agreement with the Fred Meyer superstore chain.

This could be especially important for Wells Fargo & Co., which plans this year to move three-quarters of its California branch network into stores and has expressed interest in expanding the in-store approach to First Interstate Bancorp's non-California operations.

"Wells' strategy to come in here and open up a bunch of grocery store branches will be a little bit more difficult because it's already a penetrated market," said R. Jay Tejera, a bank stock analyst at Dain Bosworth Inc.

Ms. Haffner noted that U.S. Bancorp is finding it hard to open in-store branches in California and Utah, where it also has traditional branches, because the grocery chains in those states already have bank partners.

Albertson's works with Wells Fargo in California and First Security Corp. in Utah. It has 765 stores in 19 states and plans to have a bank branch in nearly every one. It ranks as the country's fourth-largest grocer in sales.

"Getting in certainly poses a challenge for our competitors (in the Northwest), just as it does for us in California and Utah," Ms. Haffner said.

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