Retailers Debut Small-Format Experiments

MARK HAMSTRA

GENTRY, Ark. — “Small” is a relative term.

Wal-Mart Stores' first small-format Walmart Express store that opened here last week, for example, while only about a tenth the size of one of its supercenters, isn't much different than many of the local small-town supermarkets found throughout the country, according to observers.

Walmart Express will be tested in both small-town and urban sites.

At 15,000 square feet, it's much larger than the small-format convenience-store-style stores that many supermarket companies have been experimenting with, and also larger than most limited-assortment stores like Aldi and Save-A-Lot, and dollar stores. It's also larger than Fresh & Easy, the Tesco-owned chain that has been struggling to gain a foothold in the West.

“Comparing it to Fresh & Easy, it's much more like a traditional U.S. supermarket,” said Natalie Berg, global research director at London-based Planet Retail, and one of the first outside of Wal-Mart to tour the store before it opened. “It's much more brand-led, and much more package-led, with a limited offering of perishables.”

The store, she said, was designed to fulfill three types of trips: quick trips, fill-in trips and stock-up trips, although she said that with about 11,000 to 12,000 SKUs, the store could easily serve as a weekly stock-up destination for a full grocery shop. It also includes a pharmacy.

In a presentation to analysts, Bill Simon, president and chief executive officer, Walmart U.S., said Walmart Express and another small-format test, Walmart on Campus, “are our way of trying to reach our customer and deliver our brand by bringing the Walmart promise to the customer instead of having the customer come to us.”

At Walmart Express, he said, “We'd like it to deliver the same experience that a supercenter can deliver, only in 15,000 square feet.”

Although the assortment is smaller than its own Walmart Market (formerly Wal-Mart Neighborhood Market) and typical full-sized supermarkets — which average about 45,000 square feet and carry about 40,000 SKUs — Walmart Express is actually seeking to extend its variety beyond the walls, Berg of Planet Retail explained. Signs throughout the store emphasize Wal-Mart's “site-to-store” service, which allows customers to order products online and pick them up at the store.

Although Berg noted that Walmart Express has relatively little in-store signage overall, “There's a lot of communication about site-to-store.”

Pricing, she said, parallels that of the company's supercenters, which she noted could present margin challenges for Wal-Mart as the company seeks to expand into more urban areas. The first Walmart Express locations have opened in Gentry and Prairie Grove, Ark., and another is schedule to open this week in Ridgefield, N.C.

The company also plans to test the stores in Chicago this year, with up to 20 locations planned by the end of the current fiscal year next January.

“Overall, I was impressed,” Berg said of the Gentry location. “There are some concerns about profitability — it will take several of these to equal the profitability of a supercenter — but they will take their time rolling these out.”

Michael Duke, Wal-Mart's CEO, said the company views the Walmart Express concept as having potential “longer term, over a strategic period of time.”

“If you look at the way Wal-Mart has built formats in the U.S., we've been patient,” he said, citing the several years of testing and tweaking that preceded more rapid rollouts of the first supercenters and now the midsized Walmart Markets, which the company recently began ramping up. “So, I think in terms of the Walmart Express — it's a test, and it will take a period of time.”

Wal-Mart's new format comes almost three years after a limited test called Marketside debuted in the Phoenix market. That format relied heavily on prepared foods and had a more upscale feel than typical Wal-Mart stores.

Jim Hertel, managing partner at Willard Bishop LLC, Barrington, Ill., said the new format “offers a possibility of squeezing into white spaces where they otherwise might not be able to go.”

“In downtown Chicago, there's not a place to put a 150,000- to 200,000-square- foot supercenter. It creates real estate opportunities for them.

“In some sense, this is something that they have to get right, because they are going to be running out of places to locate what they know works, which is the supercenter format.”

Testing C-Store Ideas

In some ways Wal-Mart's Marketside experiment was more like some of the current tests under way with even smaller formats by traditional supermarket operators like Williamsville, N.Y.-based Tops Friendly Markets, which in December opened a freestanding convenience store emphasizing prepared foods called Tops Fresh Xpress; and Giant of Carlisle, Pa.'s two-store test of Giant To Go, another c-store with a prominent prepared food offering.

Other recent small-format experimentation by traditional supermarket operators includes the following:

• United Supermarkets of Lubbock, Texas, last month opened its first freestanding convenience store, United Express.

• Cincinnati-based Kroger Co. is planning to open one of its Kwik Shop convenience stores on the parking lot of a Dillons supermarket — another of Kroger's own banners — in Newton, Kan., later this month. That test follows the opening in 2009 of a hybrid Dillons supermarket c-store in Greensburg, Kan., and some scattered tests of placing pharmacies in Kroger-owned convenience stores.

Several other supermarket operators have conducted limited tests of small-format stores, such as Lakeland, Fla.-based Publix Super Markets with its Pix convenience-stores, and some have made bigger commitments, such as Giant Eagle, Pittsburgh, which has enjoyed success with its incorporation of the GetGo c-store chain.

For many of these stores, the emphasis has been on creating outlets that function as satellites of their traditional stores, tethered to their full-sized siblings via fuel-discount programs and other cues, such as private labels and decor patterns.

John Persons, senior vice president of operations at Tops, said the company has made an effort to ensure that its c-stores are complementary to its traditional supermarkets. In addition to the West Seneca, N.Y., Tops Fresh Xpress location that opened as a freestanding unit in December, the company also has five more traditional c-stores called simply Tops Xpress on or adjacent to Tops parking lots in the region.

The company has another Tops Xpress planned for later this year in Hamburg, N.Y., but could consider additional Fresh Xpress outlets where the local demographics warrant a more extensive fresh-food offering.

“It depends on the neighborhood,” Persons told SN last week. “If it calls for more of a traditional type c-store, that might be what we do. We start with the base of the Tops Xpress, and we might skew it a little toward the Fresh Xpress, or we might skew it a little toward the traditional c-store, depending on what the neighborhood calls for.”

The Fresh Xpress format, he said, was designed to offer customers both an assortment of typical convenience items like chips, soft drinks and beer, as well as convenient meal solutions for breakfast lunch and dinner.

Fresh prepared food offerings at the Tops Fresh Xpress include eight varieties of breakfast sandwiches; bagels; six variety of subs (in two sizes); three types of wraps; burgers; salads; tacos; pizza in 14-inch and 9-inch varieties or by the slice; eight varieties of entrees (two at any given time); chicken wings; and nachos.

The prepared foods offering is supplied by wholesaler J. Mills, which delivers partially prepared product to the store to be finished off to order by Tops employees. At least one extra person is dedicated to prepared foods at the Tops Fresh Xpress, Persons explained. Equipment at the Tops Fresh Xpress includes a Southern Store Fixtures Prep Table, Turbo Chef Oven, a walk-in cooler, a reach-in storage cooler and a freezer.

The store measures 1,600 square feet, vs. 1,200 square feet for the Tops Xpress format without the prepared food area.

“The difference of Tops Fresh Xpress is a shift away from the traditional convenience-store mix toward more grab-and-go dining,” Persons explained. “We are trying to cater to people who are time-starved, and maybe want to pick up something for breakfast, lunch or dinner while they are making that fuel stop.”

The store closely mirrors the design elements of new and remodeled traditional Tops supermarkets, which helps identify it as being part of the Tops system, Persons explained.

“On the exterior of the building, the Tops name is exactly the same as a regular Tops store, so it is unmistakable as being part of the Tops chain,” he told SN. “It also uses the same gas bonus points program, which people understand is part of Tops' offering.”

He said the company is seeking additional locations for its c-store formats.

“We are pretty happy with what we've seen in West Seneca, and we have a number of other sites we are trying to work on to see if we can try to build more such stores, although no deals have been struck as of yet,” Persons explained.

“We are trying to make sure these are complementary to our Tops stores in the metro area, so it might be a little fill-in niche between stores,” he explained. “If we have a Tops that does not have a fuel center, we are looking for sites nearby that can accommodate a fuel center.”

United Express

Similarly, United Supermarkets wanted to leverage its strength in prepared foods when it created its first United Express c-store format, its first stand-alone convenience store and the first store it has designed completely in-house. The 3,100-square-foot store is on a 12-acre tract where the company said it plans to develop a full-sized supermarket in the next three years.

The company already operates three small-format stores called A Taste of Market Street that offer grab-and-go fresh and prepared fare from its Market Street supermarkets, and additional c-store-type outlets in conjunction with some parking-lot fuel centers.

“A Taste of Market Street was originally intended to showcase many of the fresh prepared offerings available in our Market Street stores,” said Chris Bridgford, director of fuel and convenience operations at United. “United Express merges that concept with the traditional c-store.”

About 35% of the space is devoted to prepared foods, he said. Offerings include salads, cut fruit, fresh sandwiches (both hot and cold), yogurt and parfaits, casseroles and breakfast burritos, all supplied by the company's Market Street stores

In the past few weeks, United Express also added a limited number of fresh produce SKUs, Bridgford said.

“The store is a testing ground for us, and we may indeed modify our product offerings based on what our guests say they want,” he explained. “We have devoted more space to grocery than would be considered normal for a c-store, for a couple of reasons. The first is location — there's not much grocery available close by.

“Secondly, this store really serves as a precursor to the full-size store that will eventually be built behind it, so it's really an interim solution for us in some ways.”

Like the Tops Xpress stores and the Walmart Xpress locations, United also seeks to tie the c-store visually into its traditional stores in the market.

“The awning, which stretches across the entire front of the building, and the logo above it are the most obvious connections to our traditional United locations,” Bridgford explained. “The color palette also helps create the United feel.”

Giant To Go

Giant of Carlisle opened its second Giant To Go convenience store last month in Manheim Township, Pa., a 4,000-square-foot location that also emphasizes convenient meal solutions.

“We gained valuable insight from our first Giant To Go location, and this new Giant To Go will deliver an expanded fresh variety of food coupled with all the traditional convenience-store offerings,” said Sean Michael, the store's manager, in a prepared statement.

The store is designed with three distinct shopping areas: Meals to Go, Groceries to Go, and Snacks to Go.

Among the prepared food offerings are rotisserie and fried chicken, a salad bar and a new sub-sandwich program with a self-serve toppings bar. It also includes a self-service espresso and cappuccino machine, fresh sushi, breakfast sandwiches, oatmeal and hot soups.

The store's fuel center is also tied to the chain's Gas Extra Rewards program.

Hertel of Willard Bishop pointed out that the success of such small-format models emphasizing fresh and prepared foods hinges on having a high level of traffic.

“Doing a really good job in a fresh prepared food environment means you have to have the velocity,” he said. “It is a virtuous cycle — if it is continuously fresh, it generates high appeal and it has a positive spin on it.”

He said he believes the best small-format stores are those focused on price, citing Keasbey, N.J.-based Wakefern Food Corp.'s PriceRite format as an example of a high-impact, small-format store.

“What that tells me is that there are an awful lot of folks who are responsive to a price message in a small format, and can sacrifice on some selection if they have the price right,” he said. “That's something that Aldi and Save-A-Lot have been able to demonstrate for years.”