Monday, January 14, 2008

Wal-Mart Confirms it Will Test New Small Store Format Later This Year

Wal-Mart confirms it will test a small-format grocery market later this year in Arizona. Our industry sources also provide us with some further insight regarding what Wal-Mart's 20,000 square foot 'MarketSide' stores might be like
Yesterday we reported on the Financial Times' report that Wal-Mart will open four small-format grocery markets in Arizona later this year. (Read that piece here, or see it below.) We also linked to a piece in the blog Natural~Specialty Foods Memo, which ran the FT report and added some of its own new information.

Wal-Mart's approximately 20,000 square foot stores, named "MarketSide," will be located in Arizona cities where Tesco either currently has or will soon have stores.

Today we did two things: First, we contacted Wal-Mart in an attempt to get a confirmation on the Financial Times' report. Second, we talked to a number of our sources, who have been giving us information on this story for awhile now.

First, a Wal-Mart spokesperson did confirm that the retailer will be "trialing and testing" a new format of stores later this year. And that the format "would be smaller than the retailer's current Neighborhood Market grocery stores," which are about 45,000 square feet. However, that's all the spokesperson would say. When asked about the FT story, as well as questions we posed from conversations with our sources, we recieved a polite no comment.

The Wal-Mart spokesperson told and the London Independent the same thing.

Second, we talked with a number of our sources today. Many of these sources are close to Wal-Mart in one way or another.

Here is what we feel comfortable enough to report, beyond the Financial Times story, thus far:

>We're told the four Arizona "MarketSide" stores are far more than a test, or pilot program. Further, that Wal-Mart plans to challenge Tesco not just in Arizona, but in California as well.
The Wal-Mart team that developed the "MarketSide" grocery store format, did so while being based in the San Francisco Bay Area for a number of months last year. We've been told by more than one commercial real estate source in the Bay Area that Wal-Mart representatives have met with commercial real estate people in the Bay Area--as well as in Southern California--searching for locations for the 20,000 square foot "MarketSide Stores."

>We have been told by a food industry source who has lots of involvement in the prepared foods arena, that Wal-Mart representatives talked extensively to a prepared foods product development consultant he knows, about store-brand prepared foods entree development and related products. He told us the consultant never ended-up doing any work for Wal-Mart, but felt the company was very serious about creating such a line of store brand prepared foods items. The consultant didn't know anything about new format developments until his conversation with out source.

>We talked to an executive for a major, national grocery manufacturing and marketing company in the U.S. This company obviously does business with both Tesco and Wal-Mart internationally. He wouldn't tell us the Wal-Mart executive's name (and we certainly didn't push him to tell us), but said he was recently asked by this executive how Tesco was selling some of it's products at such low prices at its Fresh & Easy stores thus far operating in California, Arizona and Nevada.

The grocery products' executive assured the Wal-Mart executive that Tesco wasn't paying (or getting any kind of rebate) any less than Wal-Mart for the goods. (We have no doubt that's true. In fact, based on Tesco's number of Fresh & Easy stores open in the U.S. and a logistics system that's just in its infancy, the products cost the retailer more in a gross cost manner than they do Wal-Mart.)

Our source further told us the Wal-Mart executive then told him that "When we open our small format markets we can easily under-price them (Fresh & Easy) on your products, and we won't have to lose money on the items like they (Tesco) are doing. (This conversation was sometime before the reports on Wal-Mart's new, samll format stores were made public.)

This source is a straight shooter. This comment to him from the Wal-Mart executive indicates to us--along with a number of other bits of information we have but aren't ready to publish just yet--that Wal-Mart's "MarketSide" stores are going to be similar in format, product selection and merchandising to Tesco's Fresh & Easy Neighborhood Market stores. They might not be
identical mind you, but similar.

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