New TNS Retail Forward Study Looks at What We've Called the Small-Format Grocery Store Retail Revolution in America and Quantifies Our Analysis

As regular Natural~Specialty Foods Memo (NSFM) readers know, in August, 2007 we first suggested there was emerging the beginnings of a small-format grocery store retailing revolution occurring in the United States, in which major grocery chains were more-and-more getting into the game by creating and launching stores ranging in size from about 10,000 -to- 25,000 square feet, which is what we in the main define as small-format.

[Do a key-word search in the search box at the top of the blog using phrases such as small-format grocery retailing revolution, small-format grocery stores, small-format food retailing, Small Marts, small-format revolution, small-format stores, small-format food stores and small-format price-impact stores, (one phrase at a time of course) to get a sampling of those pieces. We also suggest reading through the NSFM archives for more pieces.]

We've sited the success in the U.S. of German Retailer Aldi, with its over 850 small-format, price-impact Aldi USA grocery stores, SuperValu, Inc.'s success with it's growing Sav-A-Lot small- format discount grocery chain, the Trader Joe's phenomenon, with the rapid-growth and high demand all over the U.S. for its specialty grocery stores, which now number well over 300, and the entrance into the Western USA by Tesco, with its small-format, convenience-oriented Fresh & Easy Neighborhood Market grocery stores, as examples of this growing small-format grocery store revolution.

And that's not all. From August, 2007 to the present we've also sighted as evidence of a small format grocery store revolution in America, the fact that mega-retailer Wal-Mart has developed its very own small-format grocery store, it's 15,000 -to- 20,000 square foot Marketside banner, the first stores of which are set to open in the Phoenix, Arizona Metropolitan region this summer.

Additionally, we've reported on and written about Safeway Stores, Inc.'s planned intrance into the small-format grocery store segment. Safeway plans on opening four or five 15,000 -to- 25,000 square foot combined grocery and fresh and specialty foods-oriented grocery stores this summer in the San Jose region in the San Francisco Bay Area.

Other players in this small format revolution we've written about include Pennslyvania-based Wawa Food Markets, which operates hundreds of hybrid small-format grocery markets-convenience stores in the Eastern USA, supermarket chain Hy-Vee, which recently opened its first small-format grocery store in Lincoln, Nebraska, supernatural grocery retailer Whole Foods Market, which has created Whole Foods Express, it new small-format store of about 20,000 square feet, the first of which is set to open soon in a remodeled former Wild Oats Market building in Boulder, Colorado.

These players are just the tip of the small-format grocery store retailing revolution in the USA of which we've reported on, written about and analyzed here in Natural~Speciatly Foods Memo.

Lastly, we've also written about the fact that the original small-format food retailer, the local independent grocer, continues to thrive in Americaby building and operating small-format grocery stores. That independent is in fact the model in many ways for the small-format revolution being created by this larger, chain operators.

International small-format grocery store revolution

Further, we've also said there's an international small-format grocery store revolution occurring. Many of the players are the same--with a few more added--internationally.

Tesco, with its rapidly-growing Tesco Express hybrid grocery store/convenience store chain and German grocery chains Aldi and Lidl are leading the international small-format grocery retailing revolution.

France's Carrfour, the second largest retailer in the world, is becoming a major player in the international small-format grocery store revolution as well, especially in Asia.

And of course, many other smaller players, as is the case in the U.S., are part of the growing small-format grocery store revolution throughout parts of the globe.

New TNS Retail Forward small-format grocery store study

It's seems we were somewhat on track beginning nearly ten months ago when we proclaimed a small-format grocery store revolution was occurring in the U.S., as well as in many other parts of the world.

A new study just released by the well-respected market research firm TNS Forward's Columbus, Ohio office says consumers are ready and willing to shop at small-format grocery stores that feature convenience in shopping and fresh, prepared foods.

The study also includes a caution which we use frequently in our pieces here at NSFM, which is that the jury is still out as to whether small-format grocery stores in general will meet consumer expectations, satisfy their needs as a primary or even secondary shopping venue, and provide a return on investment for the stores' owners.

The study also hits on three key points we make often about small-format grocery stores:

>Research: The study says food retailers considering a small-format grocery store strategy must monitor and analyze shopper needs, attitudes and expectations well in advance of launching a small-format store or chain.

>Localism: The report says paying attention and focusing on local (region and neighborhood) culture (and cultural differences) and demographics is key in launching any small-format grocery store venture.

>Partnering: The research study says retailer's launching a small-format grocery store venture need to seek input from grocery, fresh foods and consumer packaged goods suppliers and partners, as they have national knowledge as well as local experience, among other reasons for doing so.

The above three aspects of small-format grocery store retailing, which we summarize as research, localism and partnering, are themes we've been including in out numerous pieces on the small-format grocery store retailing revolution occurring in the U.S. and in other parts of the world for months.

U.S. Consumer attitudes about small-format grocery stores

The TNS Retail Forward study says 64% of U.S. shoppers surveyed said they would either definitely or probably shop at a small-format grocery store. [Based on our own research and some others we think that number is a bit higher.]

The study also notes consumers surveyed indicated the combination of the small-format (convenience), combined with fresh, prepared foods offerings is a compelling offer for "the time-pressed shopper."

Jennifer Halterman, a senior consultant at TNS Retail Forward and the primary author of the study says, "The small-store trend is part of an ongoing evolution in the retail food sector, and we expect more players to throw their hats into the ring."

We agree completely with the latter part of her quote--that more retailers are throwing, and getting ready to throw, their small-format grocery store retailing hats in the ring. I

In fact, we invite Ms. Halterman--and our readers--to stay tuned over the next couple of weeks as we will be reporting and writing about some new entrants into the small-format grocery store retailing revolution who nobody else has reported on yet. In fact, look for one or more of those fresh pieces later today, along with lots of upcoming analysis in the weeks ahead.

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.

Retail Memo: A Peak Inside a New Trader Joe's Store

On Friday, February 1, a new 13,000 square foot Trader Joe's market will open in the Kercheval Avenue business district in Grosse Pointe City, Michigan, a wealthy city of about 7,000 people in Wayne County, Michigan.

Grosse Point City, often referred to by locals merely as "the city," is a suburb of Detroit, and is about 8 miles from the motor city. It's one of six similar-sized cities--Grosse Pointe Farms, Grosse Pointe Park, Gross Pointe Shores , Grosse Pointe Woods and Lake St. Clair--that are located literally right next to each other in Wayne County. The region is often collectively called "The Pointes."

These six wealthy Detroit suburbs together should make for a healthy market for Trader Joe's and its eclectic selection of specialty and natural foods and products.

Trader Joe's stores are small-format, but are packed with everything from fresh produce and meat departments, wine and craft beers areas, to extensive selections of perishables, frozen foods and fresh, prepared foods, along with shelves of specialty, ethnic, gourmet, natural and organic gorcery products. About 75-80% of the grocery items in the stores are branded under Trader Joe's various private labels. The new Grosse Pointe City TJ's even has an in-store food sampling kiosk where shoppers can taste all kinds of foods and beverages.

Amy Salvagno, a writer for G& G Newspapers, a Michigan chain of publications that serves readers in many cities in the area, got a peek inside the yet to open store, and has a piece in today's paper about what she saw.

We like the piece--it's interesting, descriptive, consise and fairly brief--so decided to share it with our readers. You can read Ms. Salvagno's article here.

Trader Joe's, which is headquartered in Southern California and owned by the German retailer Aldi, currently has about 300 stores in the U.S. All Trader Joe's banner stores are in the USA.

The specialty grocer is expanding rapidly, building and opening new stores throughout the country, from California to New York, and nearly everywhere in between. The grocer is so popular in fact that numerous cities and neighborhood groups, such as those in Albany, New York and Nashville, Tennessee to site just two examples, have launched sophisticated lobbying campaigns to try and convince TJ's to open stores in their towns.

Trader Joe's is the leader in what we've termed the small-format food retailing revolution in America. It's quirky stores, full of specialty, natural and organic products, do so well in part because they make shopping fun. Store associates wear funky tropical island-print shirts, and all the in-store signs are hand-produced works of art, done with colored chalk on black or green chalkboards, rather than ink on paper signs like most grocery stores. All Trader Joe's stores have at least one--and often more than one--employee who's only job is to hand-create in-store product signs.

Trader Joe's private-label branded products also are a big hit with customers. They love the product names, quality, varieties and prices. And of course, TJ's famous "Two-Buck-Chuck" line of $1.99 bottle wines, which have won many awards over wines that cost ten-times the price, are another big hit with shoppers.

The specialty grocer also extends its fun-filled merchandising philosophy to its new store grand openings. The new Grosse Pointe TJ's grand opening, like all new store openings, will begin with a Hawaiian lei cutting (rather than a traditional ribbon) ceremony at 8:45 in the morning. As store officials cut the lei, a live band will play tropical music for those in attendance. Employees will, of course, be dressed as if they just returned from a tropical island vacation.

The grand opening fun also features clowns and face-painting for the kids, lots of free food and drink, and tons of free ballons and stickers, for both real children and children at heart.

Retail Memo: Wal-Mart and Safeway Stores Could 'Box' Tesco in With New Small Format Stores

Analysis & Opinion: The small format food retailing revolution has just gotten even hotter in the Western U.S, with Wal-Mart Inc.'s plans to open its new MarketSide stores in Arizona. And in California, Safeway Stores continues with its plans to open new, small format stores in the San Francisco Bay Area. Meanwhile, Tesco is being pretty quiet about the new developments, but continues to open a Fresh & Easy Neighborhood Market store nearly every other week.

The news that mega-retailer Wal-Mart will build four (to start) 20,000 square foot grocery markets named "MarketSide" in the Phoenix, Arizona metropolitan region adds new, additional competitive pressures to Tesco's Fresh & Easy Neighborhood Market small format stores.

These Wal-Mart "Small Marts," which at 20,000 square feet are about 5,000 to 7,000 square feet bigger than Fresh & Easy stores but half the size of the retailer's Wal_Mart Neighborhood Market format, are likely to be similar in format to British grocer Tesco's small format grocery markets.

Based on what we currently know--from published reports and additional information from our sources--the small format stores will offer a mix of basic groceries, prepared foods, and specialty items. This mix is similar to Fresh & Easy's. At this point, we aren't sure what else the "MarketSide" stores will merchandise, but are rather sure they will feature some version of this basic grocery, fresh foods mix, along with whatever else the stores will sell.

As out readers know, we reported recently that Pleasanton, California-based Safeway Stores, Inc. has secured leases in the San Francisco Bay Area region of San Jose for five new, small format stores the retailer plans to open later this year. While we don't yet know the name of these Safeway small format stores, we have fairly good information they too will offer a mix of basic groceries and prepared foods.

Neither of these developments are good news for Tesco's Fresh & Easy. Just two months ago, Fresh & Easy stood as basically the lone food chain pioneer in this hybrid small format, basic grocery/fresh foods merchandising arena. Had this remained the case, Fresh & Easy would have had plenty of time to rollout its numerous planned stores in California, Arizona and Nevada, perfected its format, and not had to share the media limelight with two powerhouse, US-based retailers--Wal-Mart and Safeway--as they are having to do now.

This won't be the case however. Wal-Mart's initial opening later this year of four stores in Arizona, all four in areas where there are Fresh & Easy stores, and Safeway's opening later this year of five stores in the San Jose region in Northern California, will put a competitive check on Tesco. (Tesco plans to start opening Fresh & Easy stores in Northern California later this year. The grocer also will build a distribution center in Stockton, in Northern California, to serve up to 50 stores in the region it wants to build in the next two years.

Both Wal-Mart and Safeway are major retail brand names. Safeway, which is based in Northern California, will have a major marketing advantage with its small format stores against Fresh & Easy. Safeway also already has all the supply-chain and marketing infrastructure in place to serve these new, small format stores. The grocer operates about 300 supermarkets in Northern California, including numerous stores in and around San Jose. It's corporate headquarters is about 30 miles from the San Jose region. It also has a distribution facility nearby.

Wal-Mart already has a number of Supercenters in Arizona, including in the Phoenix region where it will open the small format "MarketSide" stores. The chain, like Safeway has all of it's logistics in place, to say the least. As the world's largest company and retailer, Wal-Mart will have no problem matching Tesco on selection, price and marketing muscle. Arizona also is one of the best food markets for Wal-Mart. Opening it's first small format stores there is, in addition to going head-to-head against Fresh & Easy, a smart move in general for the retailer.

Like a game of chess on a chessboard, Wal-Mart and Safeway have the ability to box Fresh & Easy in: Wal-Mart in Arizona (to start) and Safeway in Northern California (to start). Safeway also has numerous supermarkets (over 400) in Southern California, where its Vons' stores are the number two food dollar market share leader, just behind Kroger Co.'s Ralph's. Further, the grocery chain also has a retail presence in Nevada.

Safeway already is looking to Southern California to possibly locate some of the new, small format stores, and can do so easily as it has the same fully-developed infrastructure it has in Northern California. (Safeway has this fully-developed supply-chain ability for the entire Western USA. For that matter, for the entire USA.)

Wal-Mart can go anywhere. The mega-retailer actually developed the "MarketSide" stores in the San Francisco Bay Area, where a team of executives spent months developing the format. Expect stores in Northern California (urban and suburban stores), Southern California and elsewhere. The global giant knows no geographical--or supply chain--limitations.

So, just a couple months ago, the United Kingdom's biggest grocer was sitting alone on top of the small format, hybrid grocery/prepared foods format in the U.S. Today, just a blink of the eye later, there are two major competitors--the world's biggest retailer, Wal-Mart, and the number one food retailer in the Western USA, Safeway.

The result of these two retail players getting into the game in the Western U.S. means Tesco's mission has just become even harder than it already was. Creating a completely new enterprise--Fresh & Easy, a new format, supply chain and all else, is hard enough in and of itself. For Tesco to now operate and grow the venture with Wal-Mart and Safeway on its heels will be in many ways an even bigger challenge that those original red-coated British invaders faced when they tried to rest the former colony away from a bunch of upstart Americans who wanted their own, sovereign country.

Tesco is good though, and they shouldn't be discounted. They've built their Tesco Express small format chain into the best in Europe. But Wal-Mart and Safeway are equally good, especially in their food retailing homeland. Of course, Wal-Mart isn't the most nimble of food retailers. It will be interesting to see if the mega-retailer can make the transition from big box, mass food retailing to small format, niche retailing. They've done so to a certain degree with their 45,000 square foot Neighborhood Market format. However, at best they have thus far earned a B- with that format.

Wal-Mart has just hired a veteran of UK food retailing, Jack Sinclair, to run its U.S. grocery operations. Sinclair isn't just any veteran of UK food retailing. He spent many years with Tesco, and knows the British retailer's operations (including small format) well. For those who think Wal-Mart is merely dabbling with the "MarketSide" format and stores, the hiring of Sinclair should lay those thoughts to rest.

Safeway has become as nimble a retailer that exists in the U.S. (and internationally for that matter) these days. The grocer has turned its retail business around with its upscale Lifestyle format. It continues to innovate with the format with its new stores, adding new departments and in-store features.

Safeway also has what is perhaps the most successful premium and organic store brand in the business today, with its O' Organics grocery and fresh foods brand. Think we might see some O' Organics brand products in the new, small format Safeway stores?

Safeway also owns an upscale restaurant in the San Jose area, and has been using it to develop innovative, fresh prepared foods items which we believe will find their way into these new, small format markets. The small format store business isn't something Safeway just thought of. The grocer started a research project targeting Tesco's Fresh & Easy venture at least two years ago, and has been working on its small format development program for at least that long.

As we've been writing about here for nearly six months, there is a small format food store revolution happening in the U.S.--and in Europe and Canada. Doing battle are not only Tesco, and now Wal-Mart and Safeway Stores, but a host of others. German grocer Aldi plans on building as many as 100 of its no frills, price-impact, small format grocery stores a year in the U.S. for the next few years. The retailer already has nearly 900 of the little, no frills discount grocery stores in the country. Aldi also owns California-based small format specialty grocer Trader Joe's, which is another major competitor for Fresh & Easy.

Giant Eagle supermarkets also is building more of its Giant Eagle Express small format stores, which are similar to a Fresh & Easy Neighborhood Market store.

Whole Foods Market, Inc. will open its prototype Whole Foods Express later this year in a former Wild Oats store in Boulder, Colorado. Look for these Express stores from Whole Foods to have lots of fresh, prepared foods items, especially grab-and-go, high-quality but convenient offerings. Also, don't be surprised if some of these Whole Foods' Express stores pop-up in California, one of the supernatural grocers best markets--and one of its top target regions for store development and growth over the next five years.

There's much more going on in this small format revolution. [You can read many of the pieces we've done by typing-in the key words: small format, small format revolution, small format retail food stores, small format grocers, Small Marts, Fresh & Easy and similar phrases in the search box at the top of the blog. Type just one phrase at a time in though. Also use the tags at the end of this piece as search words.]

Meanwhile, the small format revolution's battlefield is becoming a bit more complex--and more intense--for Tesco's Fresh & Easy.

Wal-Mart and Safeway, independently, are flanking the British grocer from two sides--Wal-Mart in Arizona, Safeway in California. We will see one or both of these retailers converge on the middle--Nevada--soon as well. Of course, the big battle, and the big market, is California, south and north. It's a state of nearly 40 million people, which is bigger than most European countries. We suggest you'll see Tesco, Wal-Mart and Safeway battling it out with small format stores in California beginning later this or in early 2009.

The revolution has just started though. Don't rule Tesco's Fresh & Easy out. But don't underestimate Wal-Mart and Safeway either, especially when it comes to not wanting to loose food dollar market share in their home country--and in Safeway's case, on it's home turf.

This revolution won't likely be televised. But we will continue to report on it and write about and analyze it here for our readers. Stay tuned.

Retail Memo: Breaking News: Wal-Mart to Open New Small Format Grocery Stores in Arizona

The "Small Mart" food retailing battle is enjoined: Wal-Mart will open its first, new small-format grocery markets in Arizona later this year, and do battle with British retailer Tesco's Fresh & Easy Neighborhood Market stores, the first of which opened in Arizona a little over a month ago.

As our readers know, we've been reporting on, writing about, and analyzing the small format retail food store revolution in the U.S. for the last six months or so. A major part of that reporting has been about Wal-Mart's small grocery store format development, which a group of the retailer's key executives worked on for a number of months last year in San Francisco.

(Type in the keywords (one set at a time) Wal-Mart, small marts, small format stores, small format revolution, in the search box at the top of the blog and you can read our numerous pieces on the topic.)

Our (much bigger) friends at the Financial Times have also been covering the Wal-Mart small- format grocery store story and its developments.

The Financial Times is reporting in tomorrow's edition that Wal-Mart will open small-format grocery markets named "MarketSide" in Arizona later this year, going head-to-head with Tesco's Fresh & Easy Neighborhood Market stores in that market.

The new "Small Marts" are about 20,000 square feet in size, a 10th of the size of the retailer's Supercenters, but about 5,000 to 7,000 square feet larger than Tesco's Fresh & Easy stores, which average about 13,000 to 15,000 square feet.

The Financial Times reports Wal-Mart has secured leases on four properties south-east of Phoenix for the 20,000 square foot "MarketSide" grocery stores. Some of these locations are only a mile away from Fresh & Easy store locations in the region.

According to tomorrow's Financial Times, the stores should open this summer. That fits with what our sources have been telling us. They're predicting a July-August opening, although they didn't have the exact store locations.

The logo for the "MarketSide" stores, which is filed in documents with the various municipal planning departments in Arizona, is a stylised tomato, egg and grape topped by Wal-Mart's signature blue star. The lettering is in green.

The logo obviously connotes freshness. We've been reporting in our stories for the last few months that the small-format stores would offer extensive prepared foods selections, like Fresh & Easy stores do, and believe the logo--along with other information we have--reinforces our belief.

We've also reported, as has the Financial Times, that as a result of its San Francisco team's development work, Wal-Mart trademarked the names "City Thyme" and "Field & Vine." We reported these were two of a number of store names the retailer was considering for its new small-format grocery stores, and still believe that to be the case. However, obviously they didn't use either of those names--or any of the others they were considering.

The Financial Times suggests some industry analysts think the retailer might be going to use these names on a new private label line of prepared foods or grocery products (or both) for the new, "MarketSide" stores.

We agree with their analysis. Both names fit well with the "MarketSide" logo described above--and both evoke freshness and naturalness. One of our sources also told us in late December that he was told by someone he trusts that a Wal-Mart executive was talking to a couple of natural foods-oriented companies about private label product "opportunities."

All four of the Wal-Mart "MarketSide" store sites are street-corner properties that were formally occupied by drug stores, the Financial Times reports.

The locations of the four Arizona stores are: Mesa: 7561 E Baseline Road, Gilbert: 910 E. Elliott Road, Chandler: 950 N McQueen Road, Tempe: 838 W Elliott Road.

Fresh & Easy currently has five stores in Arizona, and many more are set to be opened this year. Three of the Arizona Fresh & Easy grocery markets are located in Mesa, one is in Chandler, and the fifth and newest store is in Scottsdale. That market, which is at 10781 N. Frank Lloyd Wright Blvd., opened three weeks ago before the Christmas holiday. Tesco has plans to open stores in Gilbert and Tempe soon.

In addition to its Supercenter grocery and general merchandise stores, and it's basic Wal-Mart stores, the retailer also operates its Neighborhood Market format. These stores are essentially what they sound like: basic, full-line supermarkets. The stores are about 48,000 square feet and sell a complete selection of grocery store items in a somewhat smaller space than a superstore.

Last week, Wal-Mart announced it hired British grocery retailing veteran Jack Sinclair to head its food retailing business. Sinclair worked as an executive for Tesco for many years, as well as being a former exec for UK Safeway, which is now part of the Morrisons' chain.

Sinclair knows Tesco well, and has been observing its launch of the Fresh & Easy Neighborhood market stores in the Western USA closely. Upon hearing of his hire, we knew it would be a go for Wal-Mart's small-format stores. The fit was just too tight for it not to happen.

The development of and decision making process to go forward with the "Small Marts" hasn't been easy within Wal-Mart. And until recently it wasn't a lock that the mega-retailer would go forward with the program. However, the world's largest retailer doesn't want the world's third-largest retailer, Tesco, to steal market share from it on its home turf--the USA.

Tesco and Wal-Mart, which owns the UK supermarket chain Asda, are battling for market share in Britain, Tesco's home turf, so--the battle is now fully-enjoined on both sides of the Atlantic.

Editor's Note: We're following this story closely, and will have some further information and developments to report as we are able to talk with our sources on Monday. Additionally, we're working on an analysis piece about how Wal-Mart's decision to finally join the small retail food store format revolution will impact the other retail players already in the game. Stay tuned.

Retail Memo: The Small Format Revolution Continues to Heat Up

German food retailer ALDI is planning a major expansion of its small format, no-frills, price-impact supermarket chain in the U.S. The small format food retailing revolution in the USA is growing fast at both ends (low and high) of the food retailing spectrum, as well as in the middle. Where is it going? How fast will it get there?

ALDI USA's small format, limited assortment supermarkets (above) have about 15,000 square feet of retail selling space. The small format grocery stores are attractive but basic in design.

As our regular readers are aware, we've been writing about what we believe is nothing short of a small format food retailing revolution taking place in the U.S. It's not that small, neighborhood-style grocery stores haven't existed in the U.S. forever--they have. Rather, the reason we're calling it a small-format food retailing revolution is do to the scale of what's occurring, how fast it's happening, and the involvement of two large international retailers--Tesco and ALDI--who are leading the charge.

The catalyst for this so called small-format food retailing revolution is British grocer Tesco, which launched it's first Fresh & Easy Neighborhood Markets stores in Southern California and Las Vegas, Nevada in mid-November, and in Arizona three weeks ago. Tesco has opened nearly 30 of the small format grocery markets in just a little over a month. The retailer plans to have 200 of the stores open by the end of 2008, and up to 500 stores in the U.S. in five years.

In addition to Southern California, Nevada and Arizona, Tesco will begin opening Fresh & Easy grocery markets in Northern California next year. Further, as we've reported and written about here, the grocer is looking for store sights in New York, Florida and Chicago, along with land to built a distribution center on near Chicago.

Fresh & Easy grocery markets average about 10,000 to 13,000 square feet. They're a hybrid basic neighborhood grocery store and semi-upscale prepared, fresh food retailer. We describe the store format as low-price leader, limited format grocery store meets Trader Joe's.

Price-point is a big focus on the basic grocery side of the operation. The stores' thus far opened have lower retails on national brand (a limited selection though) grocery items than traditional supermarkets like Ralph's, Von's, Stater Bros. and others in their trading regions. In fact, the prices are more in-line with the deep-discount limited assortment and warehouse format stores in Fresh & Easy's current operating areas.

On the fresh, prepared foods side of the business, Fresh & Easy offers a wide variety of ready-to-eat, ready-to-heat and grab-and-go prepared foods. These range from basics like mac n' cheese and meat loaf, to more high-end offerings like Beef Tips in Burgundy Sauce and upscale, ethnic prepared foods featuring Indian, Asian and other cuisines. The stores' even sell fully-prepared complete meals that come with dessert and a bottle of wine. The prices on the prepared foods, which are all branded under the Fresh & Easy private label, are very reasonable.

In addition to the basic grocery items and prepared foods, the stores' offer fresh produce, fresh meats, other perishables and a selection of specialty and natural grocery items. About 65% of the items in the grocery markets' are private label, including fresh milk and eggs, and about 35% are national brands.

Aldi to expand its small format, no frills, limited assortment supermarkets

German food retailer ALDI was operating in the U.S. long before Tesco even thought about and created its Fresh & Easy Neighborhood Markets concept and venture. Unlike the big splash--and rapid store opening strategy--Tesco made in the U.S. with Fresh & Easy, ALDI USA's venture has followed a low-key, low-publicity, gradual-growth model.

The international food retailer first entered the U.S. market in 1976 with a handful of stores in southeastern Iowa. Today, nearly 32 years later, the international grocer with stores in 18 countries, is a major player in U.S. food retailing.

ALDI USA currently operates over 850 stores in 26 states, and is ranked as the country's 24th highest grossing (sales) supermarket chain. The stores' are located from the Midwestern USA (Kansas, Iowa, Illinois) to the Eastern Seaboard. (you can view a map of all 26 states ALDI USA has stores in here. When you get to the linked page, go to "What is ALDI and click where it says "view a map of where we operate and divisional offices."

The German grocer's U.S. supermarkets not only are small format (they average about 15,000 square feet), limited product assortment, and price-impact focused, they're also totally no-frills. The stores' design is attractive but bare bones. If customers want to use a shopping cart they have to pay 25-cents to do so. Aldi USA stores also charge for paper and plastic grocery bags, and encourage shoppers to bring their own reusable grocery carriers. The chain's retail positioning can be summed up as "Less is More."

The small format stores' sell their own branded private label grocery items almost exclusively; with the exception of a handful of national brands, which they primarily offer only on an in-and-out basis. The grocer uses sku rationalization to its fullest, constantly evaluating categories and items and adjusting store category and item assortments. The no-frills markets offer fresh produce, fresh meats, perishables, frozen foods and non-food items, all based on that same limited-assortment merchandising philosophy.

The no-frills markets carry a total of slightly over 1,000 items across all categories. Low-price is the prime category-wide focus of the small format stores. In their trading areas, the stores' generally undercut all food retailing formats on price, including Wal-Mart, warehouse stores, and other deep discounters. ALDI supermarkets have the reputation as being the low-price leader stores in the communities they operate in.

Bring on the revolution: ALDI USA's slow growth model is about to change

With 850 stores in the USA, ALDI is considered a major food retailing player based on any score card one uses. That it is 24th in the U.S. in gross sales is impressive considering its stores are a third or more smaller than today's average American supermarket.

But the small-format, price-impact grocer is about to explode on the American food retailing scene in an even bigger way. ALDI USA just announced it is going to excelerate its new store building program in the U.S. from about 20-30 stores per year, which is it's current rate, to as many as 100 stores a year beginning next year. Additionally, the small-format grocer is going to enter Florida and Rhode Island for the first time next year, and is planning a major new expansion into Texas in 2009.

With stores in Texas and Florida, the grocer will be entering two of the most competitive and lucrative states for food retailing in the U.S., as well as establishing a retail presence in the number two and three largest states in the country respectively.

It might be televised, but the small format revolution is real

ALDI USA's rapid growth plan is predicated on the huge success the grocer has had with its 850-plus store chain. It, along with others like Supervalu Inc.'s Save-A-Lot small format, price-impact chain, have proven not only the viability but success of the format at the lower-end of the food retailing spectrum.

Of course, the international grocer isn't a stranger to high-end, small store format food retailing in the U.S. either. It owns the fabulously successful Trader Joe's specialty grocery chain, which is expanding rapidly into new markets in the U.S. as well.

We don't think it's an accident Tesco positioned it's Fresh & Easy grocery markets as a combination price-impact, specialty and prepared foods hybrid market. They saw the success of no-frills, small format operations like ALDI USA , Save-A-Lot and others--as well as the success of Trader Joe's on the higher, specialty end. In part, this influenced Tesco to craft a format they believe can serve both customer demographics--price-conscious, basic grocery shoppers tired of huge superstores, and time-pressed consumers who are looking for specialty-oriented and convenient prepared foods at not out of this world prices. Like we said earlier, it's low-price, limited assortment grocery market meets Trader Joe's.

Of course the jury is still out on Fresh & Easy. They just opened their first stores last month after all. However, Tesco's plans are to have as many as 500 stores operating in the U.S. in five years. As such, Fresh & Easy isn't an experiment. Rather, it's a full-fledged venture.

Onward small format food retailing revolution

We see what we are calling the small format food retailing revolution going full-steam ahead. As we've reported recently, Safeway Stores, Inc. is currently negotiating with real estate interests in the San Jose, California area of the San Francisco Bay Area for locations to build five stores of a new and yet unnamed small format food retailing venture. The stores will be about 20,000 square feet, and it's believed will offer a wide variety of fresh, prepared foods in addition to groceries and other offerings.

We've also written much about Wal-Mart's research into two small store formats--one a small footprint grocery/food market and the other a small format health and wellness-oriented store, which would include a health clinic in-store. The mega-retailer had a team of executives working on the concepts in the San Francisco Bay Area for a number of months earlier this year. We expect some announcements as to what they might--or might not--do in terms of their small format retailing plans by early next year.

Other retailers like supermarket chain Giant Eagle are testing the small format food retailing waters. The chain, which operates primarily superstores and conventional supermarkets, has opened two Giant Eagle Express stores. The grocery markets are about 15,000 square feet and feature a mix of basic groceries, fresh produce and meats, and upscale offerings, including prepared foods, along with specialty, natural and organic groceries. The express markets also offer some standard convenience store items and have fueling pumps next door.

Further, supernatural grocer Whole Foods Market, Inc. plans to open a small format, convenience-oriented prototype store early next year in a former Wild Oats store in Boulder, Colorado. The grocer is currently remodeling the store into its Whole Foods Express prototype format. The express store will offer lots of prepared foods, especially convenient grab-and-go items. It's also expected to have a limited assortment of natural and organic groceries, fresh produce and meats. An in-store cafe also is likely.

Other food retailers are looking closely at the small format concept and thinking about whether or not it's something they should experiment with. And of course, the original small format food retailer, the neighborhood independent grocer, is smiling and thinking perhaps he was right all along.

We also must mention Pennsylvania-based Wawa Food Markets, which is the prime chain store innovator in the U.S. in terms of mixing convenience store-type retailing and more upscale grocery and specialty store merchandising into a single format.

For decades, Wawa has been successful in building a large chain of such hybrid stores throughout the eastern U.S. The retailer also is one of the early pioneers in offering quality prepared foods offerings in a convenience store setting. Its also one of the first chains to include larger than average grocery and perishables sections in its convenience stores, offering basic groceries at a decent price, compared to the normal convenience store retail prices in the category.

Hold on to your shopping carts folks. We're just seeing the beginnings of a small format food retailing revolution. The format's success on the no-frills, price-impact end is proven--and growing. Success stories like Wawa Food Markets and Trader Joe's--and the initial popularity of Tesco's first Fresh & Easy stores--are beginning to suggest that the small format hybrid food store concept also could become a big success at the middle-to-higher end of the spectrum as well.

Which retailer will be next to test the small format store retail waters; be it low-end, high-end, in the middle, or some combination of all three? We'll let you know. And, if you know of one--do let us know.

[To read numerous stories on the small format food retailing revolution search the blog using key words: Fresh and Easy, Fresh & Easy Neighborhood Markets, Small Marts, The Invasion of the Small Marts, Whole Foods Express, Whole Foods Market, Giant Eagle Express, Wawa Food Markets, Safeway Stores, Inc. and Small Format Food Retailing.]