Retail Memo: The Small-Format Grocery Store Revolution Marches On: Hy-Vee, Inc. Testing A Small-Format Grocery Store in Lincoln, Nebraska

As our regular readers know, we've been writing extensively about and offering analysis on what we term the small-format grocery store revolution among major food and grocery retailers in the U.S. We also refer to it as 'The invasion of the Small-Marts.' [If you type in small format grocery stores, small-format food retailing, small-format revolution and Small-Marts(one at a time of course) in the search box at the top of the blog, or search through our archives.

The major grocery retail players in this growing small-format grocery retailing revolution in the U.S. are: Aldi USA, the U.S. division of German grocery chain Aldi, which currently operates almost 900 10,000 square foot -to- 15,000 square foot discount grocery stores in the Midwestern and Eastern U.S. (27 states); Save-A-Lot, the small-footprint, limited assortment discount grocery store division of SuperValu, Inc.; and specialty grocer Trader Joe's, which is owned by Aldi.

Additional major small-format retail players include: Wawa, which operates hundreds of hybrid small-format grocery-convenience stores in the Eastern U.S.; Giant Eagle Supermarkets, which operates a handful of Giant Eagle Express small-format grocery stores and is building more, and Tesco's Fresh & Easy Neighborhood Market, which has opened 59 small-footprint grocery markets in the last four months in Southern California, Arizona and Nevada and plans to build at least 150 more stores in the next two years.

Other key players in the small-format grocery store revolution include: Whole Foods Market, Inc., which is getting ready to open its first Whole Foods Express store in Boulder, Colorado; Wal Mart, Inc., which will open at least four of its new, small-footprint grocery stores called Marketside this summer in the Phoenix, Arizona Metropolitan region; Safeway Stores, Inc., which plans to open five new, small-format grocery markets in the San Jose region of the San Francisco Bay Area this summer, and a couple others.

To this fast-growing list, we can now add West Des Moines, Iowa-based Hy-Vee, Inc. to the list of major grocery retailers entering the small-format food retailing world in the U.S.

Employee-owned Hy-Vee, which operates 223 supermarkets in seven Midwest states and had 2007 gross sales of $5.6 billion, is planning to test a small-format grocery store in the city of Lincoln, Nebraska, which is among other things home to the University of Nebraska. The small-footprint grocery market will go into a neighborhood where the retailer already has an existing supermarket but is closing this week.

Hy-Vee's small-format grocery store will average about 20,000 -to- 25,000 square feet. The store will offer a more limited selection of grocery and fresh food items than the chain's larger supermarkets do but will still merchandise all of the basic categories contained in its larger stores: dry grocery, fresh produce, fresh meat, dairy, perishables and the like, according to Richard Jurgens, Hy-Vee's CEO. In other words, the store will contain all the regular categories --including some specialty and natural foods, but just have a more limited assortment, which is the case with all of the major players--to one degree or another--in the small-format grocery retailing game.

The grocery chain, who's motto is "Where there's a helpful smile in every aisle," says its been studying different format options for some time, looking for concepts that would allow it to serve different neighborhoods which have different needs. The neighborhood where the first small-format grocery market will be located is called University place. It's near the University of Nebraska and contains a mix of students, faculty and University employees, along with residents who live in the neighborhood but work elsewhere in the city.

Hy-Vee, founded in 1930, is still finishing the design of the small-format grocery store, according to Jurgens. He says the retailer will provide further information soon. After the design in finalized and signed off on in the next month to six weeks, the grocery chain plans to submit the plans to the city of Lincoln, and once they are approved it will set the construction and grand opening schedule, Jurgens says.

CEO Jurgens says the retailer sees value in creating smaller-format grocery stores with limited assortments as part of its food retailing format arsenal. "It was important for us to come up with a format that would be intriguing, practical and successful. We think we've found one," he says.

The existing supermarket in the University Place neighborhood in Lincoln is set to close this Sunday. However, a new, much larger Hy-Vee supermarket will open just 2 miles away in about two weeks, Jurgens tells us. However, the grocer is still anxious to get the new, small-format market completed and approved so the grocer can serve the neighborhood more directly by having in store right in the heart of it.

Expect the Lincoln, Nebraska University neighborhood small-footprint market to offer a decent selection of specialty, natural and organic groceries (in addition to the limited assortment of supermarket basics), along with fresh, prepared foods, to fit the neighborhood's demographics, which includes a high percentage of college educated residents.

We haven't been able to find out the name--if it exists yet--of Hy-Vee's new small-format grocery market concept. However, we plan on keeping our ears out for it.

At 20,000 -to- 25,000 square feet, the Hy-Vee small-format concept is a bit larger than most of the others mentioned in the beginning of this piece. Aldi, Save-A-Lot, Trader Joe's. Wawa, Giant Eagle and Tesco's Fresh & Easy small-format stores all average about 10,000 -to- 15,000 square feet. However, Wal-Mart's Marketside, Safeway new small-footprint markets, and Whole Foods Express are all respectively about 15,000 -to-25,000 square feet, as we've reported before.

Ironically--or perhaps by design-- 20,000 -to- 25,000 square feet is about the average size of the neighborhood independent grocery store in America today. (Many range from 25,000 -to-about 35,000 square feet as well.) And, there are thousands of thriving small-format multi-store and single-store independents across the USA operating these smaller neighborhood grocery stores in the communities in which they live and work. It's these independents, really, who are the catalysts of the small-format grocery retailing revolution among major retail players currently happening in the U.S.