Wal-Mart is following the lead set by Tesco by testing a smaller, neighbourhood supermarket concept in the US, and the retail giant is not the only grocer to be moving in this direction. Ben Cooper reports.
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As a rule of thumb, most things in the US are bigger than in Europe. This was certainly always the case for food stores, the giant American supermarkets and warehouse clubs providing, quite literally, an ample illustration of the tendency stateside for supersizing.
However, there is a growing trend in US food retailing towards smaller-sized supermarkets, and the interest being shown in this area by an increasing number of companies suggests US shoppers may be less concerned with size than they once were.
Interestingly, the initial catalyst for this trend appears to have come from Europe. Last year, Tesco chose not to launch in the US with a large-scale supermarket format, but with the smaller concept, Fresh & Easy, where the emphasis is on fresh foods and convenience. Tesco now has around 80 Fresh & Easy stores in the US, located in Arizona, California and Nevada.
In the US, food superstores can range from around 50,000 sq ft up to 100,000 sq ft and bigger, and the prevailing trend over the past 20 years has been for bigger and bigger outlets, as consumers have looked to consolidate shopping trips.
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By GlobalDataHowever, figures from the Food Marketing Institute in the US suggest that new supermarkets have tended to be smaller, with a median size of 47,500 sq ft for a new store in 2007. The Fresh & Easy stores are around 10,000 sq ft.
The daddy of the US food retailing sector, Wal-Mart, has responded to Tesco’s move by developing its own concept along similar lines called Marketside. Wal-Mart’s official line is that it is testing the Marketside format – four stores in Phoenix, Arizona due to open next month – and it would not comment on recent reports that it is set to roll out the format in southern California.
If as expected Wal-Mart does roll out a smaller concept, it would be easy to see it as a move by the world’s largest retailer to counter an incursion onto its home patch by one of its global competitors, were it not for the fact that other US food retailers are also launching or looking to launch similar concepts.
Both Safeway, in California, and Supervalu, with its Urban Fresh outlet in Chicago, have opened smaller formats, while Giant Eagle opened its first Giant Eagle Express store in Pittsburgh last year. Natural and organic specialist Whole Foods Market is also reported to be looking at the idea of smaller stores.
At the same time, US consumers are also doing more of their shopping in discount supermarkets, suggesting that they are increasingly happy with smaller stores with a more restricted range, if they provide other advantages. In the case of the likes of Aldi and Save-A-Lot, this is price; with Marketside or Fresh & Easy it is more likely to be convenience and product mix.
While there is clearly some momentum here, the imponderable is the degree to which US consumers at large will take to these new formats, and move away from ‘one-stop’ shopping. While Fresh & Easy has grown quickly, expansion has been halted while some adjustments are made to the concept, and analysts have suggested that progress has not been quite as rapid as the British retailer’s PR has suggested.
“I know many of the UK analysts were very bullish on the prospects in the US and many US analysts were very bearish on Tesco’s prospects,” Karen Short, retail analyst at FBR Capital Markets Corporation, tells just-food. “The reality is the truth probably lies somewhere in the middle. I don’t think the stores are doing anywhere near some of the early projections that were put out by UK analysts and the reason for it is it’s the wrong market. I understand it would have been a bigger bet, but I would have thought Fresh & Easy would have had a much bigger opportunity in the Northeast. It surprises me that they chose the markets they did.”
Short contends that location is the all-important factor regarding the viability of these new-style supermarkets. For this reason, she believes the pilot project Supervalu is running in Chicago may be a better test of consumer popularity. “That to me makes more sense because it’s a dense urban market and you’re offering a wider array of prepared food that’s catering to convenience,” Short says.
The question of targeting the stores at the right market undoubtedly goes to the heart of the question of the long-term viability of such smaller supermarkets. While Short questions the location of the first Fresh & Easy outlets, other analysts have suggested the demographic targeting has not been well thought through.
John Heinbockel of Goldman Sachs said in a recent roundtable discussion hosted by the US trade newspaper, Supermarket News, that Fresh & Easy “is not as demographically targeted as we thought it would be. Right now they’re saying, ‘We want the Whole Foods customer, and we want the Trade Joe’s customer, and we want the Aldi customer… rather than saying, ‘this store will be skewed toward this particular demographic in this neighbourhood’”.
While Short sees Fresh & Easy’s entry into the market as a catalyst for the trend towards smaller supermarkets, she believes the greater emphasis consumers are placing on prepared foods is also a driving factor.
Moreover, the quality improvements made in this area are driving sales and could also help to sustain the smaller-format supermarket concept. “Our development on prepared foods, heat-and-eat, restaurant meal replacement [products] has been way behind the UK. Grocery stores now are only now coming out with an equivalent of what Waitrose would have had years ago.”
However, while growing interest in prepared foods and better quality may spur further growth in smaller supermarkets, Short suggests the current economic climate and reduced disposable income may hinder development.
With that in mind, as John Heinbockel contended in the Supermarket News roundtable, the most important trend in smaller-format food retailing in the US currently may not be not the proliferation of Fresh & Easy type concepts but the growth of hard discounters.
