Sizing Up Food Retailing's Small-Store Format Battle

Store formats, like new products, can suddenly become hot. That's exactly what's happened with small-store concepts, which were all but ignored by supermarkets until recently. You might like them, or not, but you had better at least consider launching them if you're a food retailer.

Safeway and Wal-Mart are the latest to jump into the fray, a reaction to the trail blazed by Tesco's Fresh & Easy Neighborhood Market last year (see story, Page 1). Other retailers with a stake in this competition include Giant Eagle, Ukrop's, Hy-Vee, Trader Joe's, Sobeys, A&P and Fresh Market.

In some ways it's a wonder this trend didn't happen sooner, given all the reasons why small makes sense. The advantages of such concepts include proximity to local markets, a quicker shopping experience, less fuel per consumer trip, new store development options for retailers, solutions for recycling older units and low break-even points.

Yet not all small stores are created equal. Operators are taking a wide range of approaches, from high-end to downscale. Perhaps the most important wrinkle is that many are targeting concepts around fresh and prepared foods.

Safeway just unveiled the first unit of its small format, called The Market, which opened in a former Vons store in Long Beach, Calif. The 15,000-square-foot outlet is taking a foodie approach, with an assortment including prepared foods sold under the World Cuisine label developed at Safeway's Citrine restaurant concept.

Wal-Mart's reduced-size entry, the 20,000-square-foot Marketside, is expected to launch later this year in the Phoenix area. It seems that Marketside will be more than a shrunken version of the retailer's Neighborhood Market grocery store concept. Plans call for Marketside to mount a big presentation of prepared foods, including in-store foodservice and seating, and a branding effort that plays up fresh foods and de-emphasizes a Wal-Mart connection, according to an article in the Financial Times. It remains to be seen if Wal-Mart can develop enough credibility in prepared foods to succeed, but it is apparently pulling out all the stops.

Finally, the concept that started the ball rolling, Fresh & Easy, is undergoing a makeover of sorts just months into its launch in the United States. Tesco temporarily put its expansion on hold and just announced it will introduce about 250 own-brand products to Fresh & Easy stores in the next few months, including fresh-prepared ready meals and ready-to-grill meats. Fresh & Easy operates more than 60 stores, each about 10,000 square feet. The only sure thing is that Tesco has the funds to keep it going for some time.

Small-format retailing is probably in version 1.0 right now, marked by an exciting growth period. As the concepts get refined and tested, conventional grocers will have to weigh long-term viability in deciding how much capital to commit. This may be a retailing category with legs, but it definitely won't yield success for all players. The trend could also max out sooner than expected.