Retailers in Southwest Prepare to Face New Competition

SN STAFF

Even as supermarket operators are preparing to face less of one formidable competitor, they are gearing up to face a new one.

Bentonville, Ark.-based Wal-Mart Stores said this year it would slow its pace of supercenter development somewhat, to no more than 170 in each of the next three years. That should bring relief to some traditional supermarkets, but at the same time food retailers in the Southwest are gearing up to face massive British retailer Tesco, which is slated to roll out 100 small-format stores focused on fresh, prepared foods in its first year of business.

Supermarket industry executives contacted by SN sounded eager to see what the mighty Tesco would have to offer in the way of competition.

As he shared his thoughts about Tesco with SN, Jack Brown, chairman and chief executive officer of Stater Bros. Markets, began singing, “The Battle of New Orleans,” a 1960's-era song by Johnny Horton, which concerns itself with how the Americans withstood the “bloody British” when they invaded New Orleans in 1814. “We plan to open our management meeting in July with that song,” he explained.

“Just as we spent more than two years studying Wal-Mart before they entered our area, our people have been studying Tesco, and we've put together a game plan.”

He said he believes that with a 12,000-square-foot format, Tesco is likely to be more competition for Trader Joe's, Smart & Final or Bristol Farms than for traditional supermarkets.

“We will miss any sales of milk or bread if we lose it to Tesco, but our defense will be wines, where we sell four-packs that give customers 10% off the price; a wide assortment of cheeses and gourmet crackers; and over 400 natural and organic items.

“We've been here a long time, but we're not complacent. We anticipate 19 Fresh & Easy stores in our market area, and we will be there when Tesco opens its first store to see if there's anything there we haven't anticipated. And if our customers want it, whatever it is, then we will offer it.”

Al Plamann, president and CEO of Unified Western Grocers, Los Angeles, said he thinks traditional supermarkets are prepared to face Tesco's Fresh & Easy concept, which will highlight fresh and prepared foods.

“Safeway, for example, has been working on its lifestyle stores for several years, Kroger has Fresh Fair and some of our independent retailers have been putting more emphasis on prepared foods as well,” he said. “With its smaller footprint, Tesco may be a more rapid solution for consumers who want to get in and out quickly, so it might work best in more urban areas. I've seen their Express stores in the U.K., and where those stores operate, restaurants suffer. But I think there will be a testing period to see how well Tesco can satisfy the demand for fresh in its locations.”

Mike Proulx, president, Bashas', Chandler, Ariz., said he doesn't foresee a big impact from Tesco right away.

“Tesco has announced it will open 27 locations in Arizona, which would affect about 20% of our stores,” he told SN. “But so far, we've seen only three to five locations where remodeling is taking place in existing vacant buildings, so the impact in the beginning will be much, much less.”

Over the long term, he added, “We are concentrating on the things we can control in our differentiated formats, including fresh, quality perishables, clean stores and exceptional customer service.”

Robert Miller, CEO of Albertsons LLC, Boise, Idaho, which will compete with Tesco in the Phoenix market, said he is “interested to see what Tesco does.”

“We've been working hard to improve all of our fresh departments, with better quality and better selection. We're working on the overall strategy, which involves motivating our associates to feel good about working for us and taking care of customers — all the things you need to do to be successful competing with everybody, we think, is the answer.

“We'll see what they look like when they open. Time will tell.”

WAL-MART'S SLOWDOWN

As far as Wal-Mart's slowdown in supercenter development, most supermarket executives contacted by SN said they foresee little benefit, as they already compete extensively with the company's supercenters.

“There are a lot of Wal-Marts open that we are competing with, and this doesn't change that,” said Miller. “Wal-Mart is a fact of life, and you'd better run good stores that give people a reason to shop there, and that means good perishables, good service and all the things you can do to offset the substantial price advantage that they have.

“If there's less coming, that's great. But we compete with Wal-Mart in every market, and those aren't going away.”

Jeff Maurer, president of Pierce's Supermarkets, Baraboo, Wis., said his region is still expecting a lot of supercenter development this year.

“I don't believe the Wal-Mart slowdown affects us a lot, because all of our stores are already competing with a Wal-Mart,” he said. “Wal-Mart is supposed to open 76 stores in Wisconsin this year — it won't affect our business, but I think it will change the landscape of Wisconsin. It's going to mean more fallout from independents — the ones that can't survive that kind of competition. We're already seeing a decline in independents due to acquisitions and consolidation. We're going to see even fewer now due to the competition.”

Rich Niemann Jr., CEO, Niemann Foods, Quincy, Ill., pointed out that each Wal-Mart supercenter that opens is still a threat.

“I'll believe it when I see it,” he said of Wal-Mart's slowdown in development. “Like they say, politics is local — and competition and competitive development is local too. From a supermarket operator's standpoint, if you have a new supercenter in your town, that's all that matters — it doesn't matter what the shareholders are hearing.

“You have to stay differentiated and know what you're trying to be and stick to it.”
— Reporting by Elliot Zwiebach, Jon Springer and Mark Hamstra

Tesco Eyes Hispanic Shoppers

ELMWOOD PARK, N.J. — British retailer Tesco appears to be targeting Hispanic shoppers with the Fresh & Easy Neighborhood Market it is planning to roll out in the Southwestern U.S. later this year, according to a recent report by consulting firm Willard Bishop and The Food Institute, based here.

“They have identified some store locations in what we have characterized as Hispanic neighborhoods, particularly in Arizona,” said Jim Hertel, managing partner at Barrington, Ill.-based Willard Bishop. He made his comments during a recent presentation of Willard Bishop's annual “Future of Food Retailing” report, which gauges the competitive landscape for food retailing.

“One of the things that Tesco might have tapped into is an existing behavior among Hispanic shoppers, which is really focused on regular, frequent shopping trips, and a high degree of focus on fresh produce,” he said. “We know that in the best Hispanic-oriented supermarkets, perishables are 70% of store sales, compared with 50-50 in a traditional supermarket. So it almost seems that by building stores in Hispanic neighborhoods, they have identified that that particular format has particularly good odds of success within that target group.”

Tesco has said it plans to open about 100 of the “Fresh & Easy” stores in its first year, supplied from a massive distribution center it is building in Riverside, Calif. The stores are expected to be relatively small by supermarket standards — about 12,000 square feet — with a focus on perishables and prepared foods. As previously reported in SN, Tesco also has mailed fliers in both English and Spanish to local residents where stores are being developed.

“One of the things that is very compelling about the Tesco proposition is this idea of being fresh and local and a neighborhood kind of market, and that certainly fits with a Hispanic shopping lifestyle,” said Hertel.

Bill Bishop, chairman of Willard Bishop, noted that Tesco's level of consumer research has been “enormous.”

“We've been amazed, from talking to some of the researchers who are on the edge of this, at the investment in consumer research and consumer needs, which goes well beyond what grocery usually does,” he said. “Time will tell what the implication and what the ROI of that investment is going to be, but it has been an unprecedented inquiry into the way consumers want to be served.”

Hertel also noted that small-format stores in general may be gaining steam in the industry, citing Giant Eagle's experiments with its Express formats.

“Food retailers who have been operating 60,000-square-foot stores may be operating with sales that are more appropriate for a 25,000-square-foot store,” he said.
— M.H.