Small-Format Food Retailing Memo: Independents Help Fuel Small-Format Food Retailing Revolution in the U.S. By Reinventing the 'Corner Grocery Store'

A 1920's corner grocery store in the United States.

The Return of the corner grocery store

As regular Natural~Specialty Foods Memo readers are aware, a year ago we started writing extensively about what we've deemed to be a revolution in small-format grocery store retailing internationally and in the United States.

[Click here to read a sampling of some of our stories on the topic. Also do a search in the box at the top of the blog. Search terms: small-format food retailing, small-format food retailing special report, small-format grocery stores, international small-format food retailing revolution, small-format food retailing memo, independent grocer memo.]

In the U.S., this small-format food retailing revolution continues to grow. In fact, in just the last year hundreds of new small-format food and grocery stores have opened throughout the U.S., despite the poor state of the economy.

That's evidence--along with a few other criteria like the fact giant retailers like Wal-Mart, Tesco, Aldi, Safeway and SuperValu all are committed to small-format store development-- to us it's a trend, rather than a mere fad.

SuperValu, Inc. is even extending its involvement in small-format food and grocery retailing beyond its discount Sav-a-Lot chain, into its Jewel supermarkets division. This fall it will open the first store of what are likely to be many "Urban Fresh by Jewel" stores, which are 15,000 square foot specialty food and grocery stores with an emphasis on fresh and specialty products. The first "Urban Fresh by Jewel" small-format market will be in Chicago.

We've identified the food retailing chain leaders in this revolution as no frills discount grocer Aldi USA (with around 900 stores), the U.S. division of Germany-based Aldi International; Supervalu, Inc.'s no frills, discount Sav-A-Lot chain (about 1,600 stores); specialty grocery chain Trader Joe's (300 stores) Tesco's Fresh & Easy Neighborhood Market (currently 67 stores and growing fast) Safeway Stores, Inc., with its new small-format "The Market" stores; Wal-Mart with its soon to open first four Marketside stores; and numerous others.

Independent grocers, America's original small-format grocers, also are putting a renewed focus on opening small-format grocery stores, especially in urban neighborhoods and in the down towns of suburban and small cities. We call this phenomenon the "new corner grocery store." The phrase is more metaphorical to describe the phenomenon rather than literal to mean a small grocery store right on the corner, although that applies as well.

And it's not just experienced and independents currently operating supermarkets and grocery stores that are opening these new small-format "new corner grocery stores." For the first time in decades, we are seeing numerous entrepreneurs, some with food retailing backgrounds, others with restaurant backgrounds (and some with both), along with entrepreneurs from other walks of professional life, starting to open small-format grocery stores throughout the U.S.

Just like the big chains--where the small-format grocery stores range from no frills, deep discount markets like Adli's and Sav-A-Lot's and combination basic grocery and fresh foods stores like Tesco's Fresh & Easy, Safeway's "The Market" and Wal-Mart's Marketside, which will open this fall in the Phoenix, Arizona region, to natural and specialty format stores like Trader Joe's and others--these independents also are opening up a variety of formats of small-format grocery stores. These markets range from upscale fresh, specialty and natural foods stores, to modern versions more basic grocery stores modeled after the corner grocery store of the past. Hence the title we are giving them: the "new corner grocery store."

Although in our analysis the small-format food retailing revolution is still in its infancy in the U.S. (and in many parts of the world as well), it is beginning to have positive effects on numerous cities and towns throughout the U.S., as well as on consumers.

Not only are the stores serving shoppers in locations often previously underserved, but the small-format grocery store revolution is starting to have a positive effect on urban, suburban and small town down towns because many of the grocery stores being opened in such areas are going into buildings which were either previously empty or rundown. In other words, grocers are improving these buildings and thus the neighborhoods in these communities, providing a higher and better use for the existing buildings and therefore the community as a whole.

This morning we read a story in the Rutland (Vermont) Herald newspaper about three independents and how they are making a go with three small-format grocer stores in three different towns in Vermont.

Those grocers--Bellomo's Market in Rutland, West Street Market in Proctor, Vermont, and California Fruit Market--are three excellent examples of independents who are helping to create this small-format food retailing revolution in the U.S. by reinventing what we call the "new corner grocery store."

Read the story, "Owners around town revitalize small-scale retail," written by Bruce Edwards here.

It's not easy competing with the big chains for independents regardless if they operate huge supermarkets or small-format food stores. However, the fact is small-format independent food and grocery stores are in a growth mode rather than in decline in the U.S.

The ingredients for success for independents, as well as chains, are the same in the main regardless of store size. Those ingredients include creating a niche and them communicating it in all a retailer does, providing excellent customer service, operating clean stores regardless of the format, and a handful of other essentials.

Small-format grocery stores do offer a couple interesting particulars for retailers however.

First, because of the smaller size, the overhead--monthly rent, energy costs, labor--are less. For independents this means fewer barriers to entry, as it costs millions to open a new supermarket of say 40,000 square feet or more.

Second, it is easier to focus on a particular niche or niches in a small-format food and grocery store. By sheer virtue of its smaller-size, a retailer is focusing on a narrower niche--neighborhood residents, gourmets, natural and organic foodies, for example--which all things being equal should allow for easier focus in merchandising, marketing and operations.

Lastly, small-format stores allow for a strategy that doesn't have to force a retailer to directly compete against the big chains. For example, a corner grocery store can focus on being a fill-in, secondary and even tertiary, store for neighborhood residents. Additionally, by creating a natural-organic and specialty niche, the small-format store can brand itself as the place to shop for affordable "quality" foods for example.

Again, creating a niche, executing and communicating it aren't any easier with a small-format grocery store. But by virtue of the smaller physical size it can allow a retailer to do so more economically and in a tighter fashion.

It's our analysis that chains like those mentioned earlier are opening small-format stores in large part because they figured this fact out. Of course, it is something many independents have know all along in the U.S.--which accounts for the fabulous success of the independent food and grocery retailing segment overall in America.

We're observing the beginnings of the emergence of the "new corner grocery store" in the U.S. This time around though it's being conducted as much by big chains as it is by independents.

Therefore, independents in this current food retailing revolution will have to be even more competitive than they have been in past campaigns and battles. Of course, that is something independents as a segment have shown they can do time and again in the United States.