Monday Morning Java

Wal-Mart Moving Closer With its New 'Small Mart' Format Development

The Financial Times is reporting today that Wal-Mart has recently registered two new trademarks, the names "City Thyme" and "Field and Vine," to be used for unspecified "retail grocery store services."

As Natural-Specialty Foods Memo (NSFM) has reported, Wal-Mart has a team of executives based in San Francisco, California, which has been researching and developing two new small format, convenience-type retail stores for the last few months. The first is an upscale, convenience-oriented grocery store featuring fresh, prepared food, basic grocery items and other offerings. It's a format similar to Tesco's Fresh & Easy Neighborhood Markets, the first of which will open on November 8 in six Southern California cities.

The second format is a small footprint health & wellness oriented store which would sell natural products, health and wellness items and have an in-store health clinic as part of the store's features. We call these two formats in development by Wal-Mart "Small Marts."

We've heard from some industry observers based in San Francisco a few weeks ago that the "City Thyme" and "Field and Vine" names were being tossed around by the Wal-Mart team developing the upscale convenience-type grocery store "Small Mart" format as possible names for the stores. However, we didn't have enough confirmation or comfort-level to write about it at the time. In fact, we aren't saying we think at this point those will be the names of the potential "Small Mart" upscale convenience grocery. In fact, the names could be being registered by the chain to be used as in-store department names in their Supercenter or Neighborhood Market format stores for example.

We will go out on a limb however and say we believe Wal-Mart hasn't decided on these names for its still in development "Small Mart" upscale convenience grocery format--but that they want to protect the names in case they decide to use one or both of them for these stores. Both recently trademarked names to have the ring of "freshness" to them in terms of potential names for a grocery market with fresh foods central in its retail positioning. "City Thyme" might be a good name for an urban, upscale convenience-type grocery market, while "Field and Vine" has a certain resonance for a suburban version of the format.

Speaking of California, where the Wal-Mart team is developing the new "Small Mart" format stores and where Tesco is building dozens of Fresh & Easy stores, the Financial Times also is reporting that Wal-Mart is building two of its 42,000 square-foot Neighborhood Market grocery stores in the Coachella Valley, a fast-growing desert region about 100 miles east of Los Angeles. The first store, in the city of Coachella, is expected to open sometime next year. The second store will be in La Quinta and is likely to open near the end of 2008

One of Tesco's first six Fresh & Easy stores opening on November 8 is in Hemet, a city in this region. Tesco also has more stores in the pipeline for the desert region, including stores likely to be in either Coachella or La Quinta (or both), as well as in the well known desert city Palm Springs.

The La Quinta and Coachella stores will be the first Wal-Mart Neighborhood Markets in California. This is a major development for Wal-Mart in that for the last few years it's major strategic focus and initiative has been to build as many Supercenter stores in California as it can. This hasn't been easy however as many communities in the Golden State (north and south) have blocked Wal-Mart from building Supercenters in their cities. This includes numerous outright zoning bans on stores of a certain square footage (read Wal-Mart Supercenters) that sell food along with general merchandise items.

These so called "big box" zoning laws have been passed in cities and counties in Northern, Southern and Central California. Additionally, in cities and counties where such bans don't exist, numerous city and county governments and citizen's groups have (and are) objected to Wal-Mart's plans to build a Supercenter in their area and have organized anti-Supercenter groups which are lobbying against the stores as well as in some cases filing law suits to stop Wal-Mart from building the Supercenters . Wal-Mart owns lots of land and has lease options on numerous properties where they have yet to be able to build Supercenters in California.

We see Wal-Mart's building of the two 42,000 square-foot Neighborhood Market stores in a couple ways. First, in part it's a realization on the retailer's part that they need more than a "Supercenter strategy" for California, which is the state with the largest retail market in the U.S. The chain isn't anywhere near where it wanted to be five years ago in the state in terms of the number of Supercenter stores either built and operating, under construction, or in the development pipeline.

For example, Wal-Mart currently has only 31 Supercenters in California--the largest state and market in the U.S.--while it has 151 in Florida, the third largest state in the U.S. The zoning bans, municipal government and citizen oppositions, and the fact that it takes a very long time for a Wal-Mart Supercenter store's building plans to get through the approvals process in California, has left the retailer nowhere near its goals currently in the state.

Additionally, Wal-Mart is concerned about the Tesco competitive threat with its ambitious Fresh & Easy Neighborhood Market initiative in California and other parts of the Western U.S. (Fresh & Easy stores currently are being built in Nevada and Arizona in addition to Southern California. Tesco also has stores planned for Northern California in 2008 and is planning on sunits in other western states for next year and beyond.)

The decision to build some Wal-Mart Neighborhood Market stores in California is in part a strategic move to see how the format will do in the state--and if successful use as a way to increase Wal-Mart's food and grocery market share. It's also a way to test the market in advance of the possible launch of the "Small Mart" upscale convenience grocery format.

With a "four-format strategy"--conventional Wal-Mart stores which sell a limited assortment of grocery items, Supercenters, Neighborhood Markets and the new "Small Mart" upscale grocery format (stores of 10,000 to 15,000 square-feet)--the chain would have a far better chance to be a significant player in California's food and grocery sales market. It would also make a statement to Tesco that Wal-Mart plans on not ceding any share of the state's grocery market--groceries, fresh food, natural products and more--to its Fresh & Easy stores.

We're watching the "Small Marts" and related developments closely and will have more news and information for our readers very soon.