Supermarket banks started the decade as a novelty; six years and more than 3,000 branches later they are one of the most visible signs of the changes sweeping the personal financial services industry. In California, Wells Fargo has built a supermarket network of more than 700 branches and in-store kiosks; Bank of America has 200 supermarket branches. Smaller networks have been built by, among others, Fifth Third, NCBC, and NationsBank, while SunTrust, First Chicago, Star Bank, and Michigan National Bank, along with a host of others, are experimenting with the concept. By 2000, one in ten US bank branches will be in supermarkets.

The reasons for the boom are obvious. Supermarket banks offer clear benefits to supermarkets and customers, as well as to banks. The supermarket gets rent from the bank and increased customer loyalty, while customers can bank at a branch that is open seven days a week until 9pm, and do their shopping at the same time. But the trend is mainly driven by what the banks get out of it. Compared with a traditional branch network, a well thought-out supermarket network has incredible economics (Exhibit 1). A high-performing supermarket bank employee can sell 50 percent more...