Tesco's Fresh & Easy Neighborhood Markets stores have been all over the media in the past few months, including here at Natural~Specialty Foods Memo (NSFM). Far less attention and coverage (virtually none really) has been given to Pittsburgh, Pennsylvania-based Giant Eagle, Inc.'s new Giant Eagle Express store format and its first (and currently only) store which opened in Pittsburgh, Pennsylvania in May of this year.
The Giant Eagle Express stores are a hybrid, upscale neighborhood grocery and convenience store. Sound familiar? The Pittsburgh store which opened in May is about 13,000 square-feet and features a large, fresh prepared foods selection, basic and specialty groceries, fresh meats, fresh produce and in-store service deli and bakery departments featuring upscale offerings.
The prototype express store also has an in-store cafe with free wireless internet service, a drive-through pharmacy and an automobile fuel service area outside, branded with the GetGo gas banner, and physically separated a bit from the Express market.
Privately-held Giant Eagle had 2006 sales of $6.5 billion. The family-owned retailer is the 22nd largest food retailer in the U.S.. The chain operates 156 corporately-owned supermarkets and 69 franchised stores. Giant Eagle also operates 128 traditional convenience stores under the GetGo banner.
In addition to the Giant Eagle banner, which the majority of the chain's supermarkets fly under, the retailer also has the Market District banner. The stores under this relatively new format are upscale supermarkets focusing on fresh foods and specialty, ethnic and natural foods offerings. There currently are two Market District stores, one in Pittsburgh and another in Bethel Park, with more planned. Giant Eagle supermarkets, convenience stores and now the upscale Giant Eagle Express stores, are located in Pennsylvania, Ohio, West Virginia and Maryland.
The Express store(s) are positioned to be more than upscale, infrequently shopped stores. Rather, by combining a decent assortment of basic groceries and non-foods along with the more upscale prepared foods, fresh produce and meats, and specialty offerings, the retailer wants to be a regular shopping stop for busy consumers.
Bret Merill, Giant Eagle's marketing vice president, describes the Express store(s) as "the contemporary neighborhood grocery store that provides fresh, convenient and affordable groceries and meal solutions to customers with on the go lifestyles." The Pittsburgh Giant Eagle Express, which is open 24 hours a day, 7 days a week, currently offers the same retail prices on groceries and similar goods that Giant Eagle supermarkets do, and the company says they plan on maintaining this policy.
Giant Eagle says they have a great deal of enthusiasm about the Express format and plan on opening more stores soon. Chain executives included the drive-through pharmacy as they want to compete with traditional drug stores as well as fill what they believe is a gap in the food retailing market between large supermarkets (most recently built Giant Eagle supermarkets are between 80,000 and 90,000 square-feet for example) and traditional convenience stores. (The chain's GetGo traditional C-store format stores range from about 2,000 square-feet to 5,000 square-feet.) Noted food industry consultant Willard Bishop recently made a similar point in a report saying his research shows there's a place between the evolving supermarket and evolving convenience store, noting that consumer lifestyles are driving shoppers towards more fresh and prepared foods.
The Giant Eagle Express store(s) share much in common with UK-based Tesco's Fresh & Easy Neighborhood Markets, which the British retail chain is launching in the Western U.S. The first six Fresh & Easy stores will open on November 8. (You can read more here.) In fact, Giant Eagle executives have said Tesco's Fresh & Easy retail initiative in the U.S. was a major motivator to them in designing and building the Express format.
This isn't suprising as Tesco's U.S. initiative is notable for a number of reasons. First is the fact the Fresh & Easy retail operation is a from-the-ground-up startup for the retailer. Before now Tesco had no operations at all in the U.S. The retailer has built a huge distribution center and other infrastructure in Southern California, as well as designing and having numerous stores already under construction at the same time, with many more stores in the development pipeline.
This major store building effort is the second reason the Tesco initiative is notable. Their currently are 100 Fresh & Easy stores either being built or under development. Further, the retailer plans at least 500 stores in the next five to six years. Long term plans call for Fresh & Easy to be a "Starbucks like" concept with a critical mass of stores in regions throughout the U.S. Tesco has said they want to create a $6 billion dollar in annual sales division with Fresh & Easy over the next 10 to 12 years.
Lastly, Tesco is the world's third largest retailer and a very successful one at that. When the global Tesco creates an initiative like Fresh & Easy, not only does it get attention--but the initiative is usually well researched like the Fresh & Easy format was, and thus is ultimately a success.
In addition to Tesco and Giant Eagle Whole Foods Market, Inc. is in the process of converting a former Wild Oats store in Boulder, Colorado into a new prototype upscale convenience-type format called Whole Foods Express. Sounds familiar doesn't it? The Whole Foods Express format also puts an emphasis on fresh, prepared foods, especially quality grab-and-go type items. The store also will feature a limited selection of natural and organic products sold in the chain's supernatural format stores. In-store features such as bakery, cafe and an eat-in area also are planned, according to industry sources and Whole Foods people we have talked to. Expect to see some other features as well based on the concept of convenient shopping without compromising the Whole Foods quality brand.
The world's largest retailer, Wal-Mart, is watching this "small mart" store development trend closely, especially Tesco's Fresh & Easy initiative. We coined the term "small marts" when we reported in August/September that Wal-Mart has a high-level team living and working in San Francisco developing two small format convenience-type stores. One is a small footprint upscale food store like Fresh & Easy and Giant Foods Express, and the other is a similar small size health and wellness format store which in addition to selling these type of items would also have health clinics in-store.
In this September 6, piece, The Invasion of the Small Marts: Will There Be a Small Format Revolution By U.S. Retailers, we discuss Wal-Mart's planning process as well as Whole Foods' initiative, and Tesco's Fresh & Easy Neighborhood Markets. We also discuss the fact that California-based retail chain Safeway Stores is researcher the "small mart" concept, especially Tesco's Fresh & Easy operation, and is planning on developing their own convenience-oriented upscale stores depending on the relative success of Tesco, according to CEO Steve Burd. We also offer an analysis in the piece on the format concept in the U.S. and the relative merits of its success and potential for growth.
Meanwhile, Giant Eagle has its first Express store open and is actively looking to open more throughout its market regions. From what we hear the Pittsburgh prototype store is doing well. We're told by local shoppers and industry observers that the upscale fresh foods like the Panini and other gourmet sandwiches, ready to eat complete meals, salads and other fresh offerings including baked goods, are selling well--and taste good.
These same observers also told us the store's cafe sees lots of activity including business people and others taking advantage of the free wireless internet service and using their laptop computers as they drink their cappucinos or lattes and enjoy the cafe's fresh baked muffins. Most also said the basic and specialty grocery selection was rather good for a store its size and that the retail prices were fairly reasonable. You can read some comments from Pittsburgh-area residents who have shopped at the Giant Eagle Express store here.
One unique opportunity we believe Giant Eagle has going for it--and is taking advantage of--with its Express format is the ability to co-brand with its other operations. For example, the drive-through pharmacy is named "Giant Eagle Pharmacy" like the pharmacies located inside its Giant Eagle supermarkets. The store's outside fuel station is branded as a GetGo fuel station like those included with its traditional convenience stores.
Lastly, the natural and organic foods area in the Express store(s) is branded as "Nature's Basket," the brand Giant Eagle uses to designate natural and organic offerings in its supermarkets. This "co-branding" is done tastefully and in an understated manner so it doesn't overpower the primary brand which is Giant Eagle Express. Giant Eagle is a long-time, popular retailer in its market area with strong retail brand equity which we think will fit well in the way it's being used in the Express format store.
As we're seeing with Tesco, Giant Eagle, Whole Foods and potentially Wal-Mart, Safeway and others, this neighborhood market/convenience-type retailing format is beginning to get some attention in the U.S. Although Tesco has yet to open a Fresh & Easy store, the expectations are high. Tesco isn't new to this format globally however. They operate many "Tesco Express" stores in Western and Eastern Europe.
The question is if the format will go over well in the U.S. This question can be answered in part with a yes based on the fact that Pennsylvania-based Wawa Food Markets has been very successful for decades with its upscale convenience store format. Wawa opened their first store in 1964 and adopted an upscale format for their stores some years later. Today Wawa, the pioneer in upscale convenience-oriented grocery retailing, has 500 stores located in five states.
There are a number of qualitative differences between the Fresh & Easy, Giant Eagle Express, Whole Foods Express and Wawa stores. However, the principal of upscale, convenience-oriented fresh foods and grocery retailing is the same--and Wawa has demonstrated it can be extremely successful and not just in upscale demographic regions and neighborhoods.
Giant Eagle and Whole Foods are just testing the waters. Tesco is going flat out with its Fresh & Easy stores. Wal-Mart is making a major research and development effort into its upscale, convenience format--an initiative we believe will come to fruation soon with an announcement of a prototype store for each of its two "small mart" formats. This relatively new format story is just beginning.