Tuesday, March 11, 2008

Tesco's Fresh & Easy Surpasses Competing Phoenix, Arizona Area Small-Format Grocers in Total Store Count...But Not in Sales and Market Share

Although it's first units in the Phoenix, Arizona Metropolitan and East Valley region only opened a little over three months' ago, the number of Tesco's Fresh & Easy Neighborhood Market small-format, convenience-oriented grocery stores has now surpassed those of four other grocers who operate smaller-format style grocery markets in the region.

Since December 7, 2007, 15 Fresh & Easy grocery stores have opened in the Phoenix Metro and Easy Valley region counties of Maricopa and Pinal. And, as we reported last week, the grocer has plans to open at least another 10 Fresh & Easy grocery markets in the region this year. [You can view the location of the two counties on the Arizona county map above.]

The other four grocers in the region who operate smaller-format grocery stores are: Wal-Mart's Neighborhood Market, which currently has 13 locations in the area; A.J's Fine Foods, which is the upscale banner of Arizona-based Basha's (14 stores); locally-headquartered Sprouts Farmers Market, which currently operates 14 stores in the region; and specialty grocer Trader Joe's, with 10 of its small-format specialty grocery markets in the area.

When it comes to market share however, Tesco's Fresh & Easy isn't number one in the Phoenix region, despite having the highest store count of the five operators. Maricopa and Pinal counties combined have the most people of any region in Arizona.

Local industry analysts tell us its a close market share battle between Wal-Mart's Neighborhood Market, A.J's Fine Foods and Trader Joe's, for the top three slots in terms of market share and gross annual sales.

Most peg Wal-Mart's 45,000 square foot Neighborhood Market as number one, with A.J's Fine Foods very close behind as number two. A.J's stores are upscale. The markets' sell an extensive assortment of specialty, gourmet and natural foods, including in-store homemade prepared foods. They are about the same size as the Wal-Mart Neighborhood Market stores, which are more basic supermarkets. Since both grocers have 14 stores in the region, they offer a good match-up.

Most local analysts put Trader Joe's in a near-tie for second place among the five smaller-format food retailers, even though it only has 10 stores in the region, compared to Fresh & Easy's 15, Wal-Mart's (Neighborhood Market) 13, and A.J's and Sprouts' 14 Phoenix Metro and East Valley area stores.

Trader Joe's stores average about 10,000 square feet. However, nationally in the U.S., the specialty grocery stores do double the sales per-square foot as the supermarket industry average.

Sprouts Farmers Market is right in the ball game, according to local industry analysts. They say the numerical differences between Sprouts' and the others aren't that significant however. It's Sprouts' that Tesco's Fresh & Easy is likely to first surpass if it improves sales in its existing stores, along with the addition of the new stores as they come on line this year.

Tesco's Fresh & Easy Neighborhood Market currently comes in fifth place in this five smaller- format grocer horse race, according to the local analysts. The local industry analysts suggest the 10,000 square foot -to- 13,000 square foot Fresh & Easy grocery stores are doing about half the sales per-square foot as the 10,000 square foot Trader Joe's stores are doing in the region.

The local analysts also tell us they believe Wal-Mart's Neighborhood Market and A.J's Fine Foods also are doing close to 50% more per square foot on average than the 15 Fresh & Easy grocery markets are. Lastly, they estimate the Sprouts Farmers Market stores are doing at least 25% higher sales per-square foot than Tesco's Fresh & Easy Neighborhood Market stores are at present.

Sprouts Farmers Market stores sell natural and organic foods, groceries and non-foods products. At about 25,000 square feet in size, they are sort of a mini-Whole Foods Market. Sprouts puts an emphasise on offering natural and organic products at lower retail prices than Whole Foods. The stores also have in-store cafes and dining venues, and offer lots of healthy prepared foods items to go.

In fairness to Tesco's Fresh & Easy, it's the new grocer on the block in the Phoenix Metropolitan and East Valley region. As mentioned earlier, its first stores in the area have only been opened a little over three months. Half of the stores on average have only been open for a month. As a result, we believe the stores' overall success or failure shouldn't be taken too seriously until the beginning of next year. In our analysis, that should have given the retailer enough time to have either made a good go of things in the region, or not.

Of course, between now and January, 2009, competition is only going to heat up in the Phoenix Metro region. Locally-based Sprouts Farmers Market plans to open at least one more new store in the area this year. Additionally, Wal-Mart is opening a 14th Neighborhood Market in the region this year, as is Trader Joe's.

Wal-Mart also plans on opening four or five of its brand new, small-format "Marketside" grocery stores in the Phoenix Metro region this summer. The region will be the debut area for the new stores, which will average about 15,000 square feet -to 20,000 square feet, and offer a selection of basic groceries, lots of fresh, prepared foods, fresh meats and produce and other grocery products.

The "Marketside" stores, which look to be very similar to a Tesco Fresh & Easy, will be located in neighborhoods in the Phoenix Metro region which are fairly close to where a number of the existing Fresh & Easy stores are currently located.

Combined with its current 13 (and one more on the way), 45,000 square foot Neighborhood Market stores, the initial four or five "Marketside" stores will give the mega-retailer 18 or 19 smaller-format stores in the Phoenix Metro and Easy Valley region, to compete with Tesco's planned total of at least 25 stores in the area by the end of this year.

Wal-Mart also has a number of Supercenters in the Phoenix area, and is building more in the region. Arizona is one of the retailer's top 5 markets in the U.S.

And, of course, we're only discussing five grocers that operate smaller-format stores in the Arizona region. The area's grocery market share leaders are Safeway Stores, Inc., Basha's, with its Basha's banner supermarkets. Add in Albertsons, Costco Wholesale, Whole Foods Market, Inc., Sunflower Farmers Market, Wal-Mart's Sam's Club and a few others--including some very aggressive ethnic retailers and independents--and you get one very competitive retail grocery market. In fact, some analysts say it might currently be the most competitive market in the U.S.

We do have one question though: Does the term "possibly over-stored" come to anyone else's mind besides ours?


Anonymous said...

I have a Fresh & Easy, Trader Joes, AJ's and Sprouts all within a five mile radius of where I live and work. Want to know why this Valley of the Sun Resident shops at Fresh & Easy? Simple, price, price and price. I get more "bang for my buck" than I ever did at any of those other places. With gas nearing the $3.50/gallon price point, value has taken primary consideration. Hopefully, they keep up the excellent job providing variety and service to keep earning those repeat visits from folks like me...

Anonymous said...

Are you by chance the same Tim Swearingen who works for Fresh & Easy Neighborhood Market?