From the Wal-Mart Annual Meeting, June 6, 2008
Eduardo Castro-Wright, chief executive of Wal-Mart, Inc.'s United States operations, confirmed a number of developments we've been reporting on about the mega-retailer's new small-format Marketside grocery stores, the first four which are set to open this summer in Arizona's Phoenix Metropolitan region--which is one of Tesco's current three key market areas, along with Southern California and the Las Vegas, Nevada Metropolitan region--for It's small-format Fresh & Easy combination basis grocery and fresh foods stores--on Friday at Wal-Mart's annual shareholder's meeting in Arkansas.
Castro-Wright said Wal-Mart's retail positioning in the Arizona market with the 15,000 square foot Marketside stores is primarily as a grocery shopping "fill-in" venue, along with being a store where shoppers can buy fresh, prepared foods for tonight's dinner and tomorrow's lunch.
Wal-Mart's theory behind Marketside for the Arizona market is that shoppers might shop at a Wal-Mart Supercenter once a month, shop its 45,000 square foot Neighborhood Markets supermarkets say every two weeks, and use Marketside--which will offer a limited assortment of grocery products and have a focus on fresh foods--for fill-in shopping, as well as for what will be its extensive selection of fresh, prepared foods made right in the store.
Wal-Mart currently has about 70 Supercenters in Arizona, ranging in size from about 170,000 square feet to 200,000 square feet, and is opening and building more. The mega-retailer also has about 20 of its 45,000 square foot Neighborhood Markets in the state, the majority of which are in the Phoenix area, with three more to be opened this year.
Additionally, the brawny big box retailer (and now small box too) from Bentonville (Arkansas)has a number of its discount format stores, which sell a limited assortment of grocery items including perishables in them, in the state. However, it isn't building more of these stores in Arizona. Rather, the focus is on more new Supercenters, Neighborhood Markets and now the Marketside stores. That's a pretty strong three-format food retailing strategy in a market.
As we've reported previously in Natural~Specialty Foods Memo, the Marketside stores also will have an in-store seating area next to the kitchen where the foods will be prepared, with room for about 10 people at a time, where customers can sit and eat-in. Take out will be the primary focus, and potential sales generator, for the stores' fresh, prepared foods offerings though.
This fill-in shopping strategy might not be the case in other market regions however. For example, in parts of Southern California and the San Francisco Bay Area (where Wal-Mart is scouting sites for Marketside stores), which are areas where Wal-Mart has relatively few Supercenters or Neighborhood Markets, the small-format Marketside stores could take on more of a primary and secondary shopping positioning focus, especially in higher density urban locations.
Castro-Wright wouldn't confirm or deny a question asked by a Natural~Specialty Foods Memo correspondent, which was: "Has Wal-Mart found any locations for the Marketside stores yet in Southern California or the San Francisco Bay Area that it's ready to announce?" The Wal-Mart chief said no; but our correspondent said he smiled when he gave the two word answer.
Castro-Wright said Wal-Mart doesn't talk much about its Marketside stores. He did confirm those first four stores will be opening this summer in the Phoenix Metro market, as we reported here though.
The Wal-Mart USA chief also confirmed the Marketside stores will offer a limited assortment of grocery items, even compared to its 45,000 square foot Neighborhood Market stores, and will put a major focus on fresh foods--produce, meats, perishables and especially the in-store fresh, prepared foods.
Castro-Wright offered the retailer's positioning for Marketside in a sentence: "The neighborhood market for busy people with a taste for fresh and delicious food."
"The intent is to capture more of the quick trip customers," he added.
This is a much different strategy than Tesco has with its Fresh & Easy grocery stores, which the retailer is positioning as primary, and to a limited extent secondary, neighborhood grocery stores for "everybody." In other words, while Wal-Mart seems intend to be happy if it can garner the "quick trip" and "fill-in" business, Tesco's strategy as we often discuss is to get as much of a shopper's food and grocery dollar as it can in its Fresh & Easy grocery markets.
Of course, Wal-Mart has a multi-format strategy--food and general merchandise Supercenters which average about 180,000 square feet, Neighborhood Markets of about 45,000 square feet,
Wal-Mart discount stores which sell lots of food and grocery products in them, ranging from 75,000 -to- 130,000 square feet, and now Marketside--while Tesco currently has a single-format food retailing strategy in the Western U.S.
Wal-Mart's Marketside stores though are intentionally striking at the heart of Tesco's two-pronged merchandising focus--a limited assortment of store brand and national brand basic groceries at everyday low prices, combined with fresh, prepared foods (and other fresh foods) produced at a central kitchen and shipped to the stores.
Marketside's fresh, prepared foods focus--which differs from Fresh & Easy's in that the foods will be prepared right in the store--could eat into the fresh, prepared foods focus of Tesco's, which is central to the Fresh & Easy stores positioning and merchandising. It's sort of a half grocery store, half fresh foods market, to put it simply.
We expect Wal-Mart to make a very big deal about the fact Marketside's fresh, prepared foods will be made in-store rather than at a central kitchen and shipped to the stores like is the case with Tesco's Fresh & Easy. One isn't superior to the other merely on the face of it though. For example, if Marketside's in-store fresh, prepared foods don't taste as good as Fresh & Easy's, the point of differentiation won't exist. Further, since Wal-Mart isn't known as a fresh foods expert retailer--they have brought some in for Marketside though--it will be interesting to assess the quality of the in-store prepared foods when the first Marketside store opens in Arizona.
However, American consumers generally show a preference for fresh, prepared foods made in-store vs. those prepared at a central facility and shipped to the stores, even if shipped daily. Although taste and quality--including no or few artificial preservatives, additives, colorings and the like--are what's key.
You can see this "super fresh" positioning for Marketside in that one sentence positioning statement though. And, of course, Wal-Mart is attempting to make that same statement in the Marketside logo, with the FRESH produce vertically stacked next to the text.
Where Tesco's Fresh & Easy (F&E) is more related to Trader Joe's in terms of its design, look and feel--both are fairly no frills, both use warehouse type shelves, F&E is modeling itself a bit on TJ's quirky look and feel--and to a certain extent merchandising--TJ's doesn't sell basic grocery items like Fresh & Easy does, nor are fresh, prepared foods a central part of its merchandising, but there are many similarities in the store brand and specialty focuses--we believe Marketside will be more kin to Safeway Stores, Inc.'s new "The Market" format, the first store of which opened on May 15 in Long Beach, in Southern California.
Safeway's "The Market" doesn't prepare most of its fresh, prepared foods in-store though. Rather, the fresh entrees and side dishes--which were developed at Safeway-owned Citron restaurant in Redwood City in the San Francisco Bay Area--are prepared at a central facility like Fresh & Easy's. The first (and currently only) store though, "the Market by Vons" in Long Beach, does have a wood burning hearth in it, which is used to bake fresh breads, pizzas and a few other prepared foods items in-store. We're told this will be a feature in all of the retailer's small-format "The Market" stores.
If anybody doubts there's a small-format grocery store revolution brewing in the U.S., they haven't talked to Tesco (world's third-largest retailer), Wal-Mart (world's and U.S.'s largest retailer) or Safeway (number three supermarket chain in the U.S.).
For that matter, they also haven't talked with SuperValu, the second-largest supermarket chain in the U.S. after Kroger Co. SuperValu has about 1,500 of its small-format (about 15,000 square feet) discount Sav-A-Lot grocery stores already in the U.S., and is opening more, including franchising more of them to independent operators.
There's also Germany's Aldi, which is one of the fastest-growing grocers in the U.S. Aldi USA currently has about 900 of its small-format (13,000 -to- 15,000 square feet) Aldi discount grocery stores in the U.S. and is building nearly 100 of the little price-impact grocery stores in America each year for the next five years. Members of the family who own Aldi International based in Germany also own Trader Joe's, which like Tesco's Fresh & Easy USA is based in Southern California.
Although Wal-Mart's Castro Wright wouldn't speak to it at the shareholders meeting or press conference after, we have it on pretty good authority "source-wise" that Marketside is a national strategy for the mega-retailer rather than merely a limited store test in one market--the Phoenix Metropolitan region.
This information is backed up by various commercial real estate agents we've talked with who have told us about Wal-Mart's looking for Marketside store sites in Southern California, Northern California, Nevada, Utah, the Pacific Northwest and elsewhere.
We are unable to confirm it yet, but we have two sources telling us the first of the four Phoenix Metro region Marketside stores could open as early as shortly before the July 4 Independence Day holiday. We continue to try to further confirm that information.
Wal-Mart isn't announcing any opening dates yet, as can be expected since the retailer has been very quiet, like Castro-Wright himself admitted at today's shareholders' meeting--about Marketside. Officially of course. However, that soon will be a moot point as summer is upon us.