Wal-Mart to Open Two More New 'Neighborhood Market' Stores in the Phoenix Metro Region; Still On-Track to Open New Marketside Stores This Summer

Wal-Mart, Inc., the world's largest corporation and retailer as well as being the number one national grocery sales market share leader in the U.S., plans to open two more of its approximately 45,000 square foot Wal-Mart Neighborhood Market supermarkets in the Phoenix, Arizona Metropolitan region this year and next.

Both of the new Wal-Mart Neighborhood Market supermarkets will be built in the city of Chandler, which is a suburb of Phoenix, and has about 240,000 residents. The Phoenix Metropolitan region of which Chandler is a part, is a contiguous metropolitan area, in which one city essentially runs into the next.

The two new store sights are at the southwestern corner of McQueen and Warner roads and at the northwestern corner of Chandler Blvd. and Cooper Road, according to Delia Garcia, a Wal-Mart spokeswoman. The stores also will be open 24 hours a day.

Tesco has Fresh & Easy Neighborhood Market stores located nearby the two new Wal-Mart Neighborhood Market locations.

The Wal-Mart Neighborhood Market format supermarkets, which are smaller than the average new supermarket being build by most U.S. retail grocery chain's today which average about 55,000 -to- 65,000 square feet, feature a complete range of food, grocery and non-foods' offerings, with a special focus on fresh produce and meats.

The produce, deli and bakery departments (above) inside a Wal-Mart Neighborhood Market supermarket.

Despite being about 10,000 square feet smaller than the average new supermarket being build today across America, Wal-Mart's Neighborhood Markets' still compare with the variety and product range selections these competing supermarkets offer.

The smaller-sized, neighborhood-oriented supermarkets are a part of the giant retailer's multi-format retail strategy, which includes its huge Supercenters, which average about 185,000 square feet and offer a complete selection of food and groceries as well as products in every category imaginable, its Wal-Mart basic discount stores, which on average are about 90,000 -to- 100,000 square feet and sell a limited selection of grocery products and perishable goods but no fresh meats or produce, and its soon to be opened brand new Marketside small-format (about 15,000 -to- 20,000 square feet), convenience-oriented grocery stores.

The first four or five Marketside stores, which Wal-Mart corporately says aren't designed to counter Tesco's small-format 10,000 -to- 13,000 square foot Fresh & Easy Neighborhood market grocery stores, but were indeed developed primarily for that purpose, are still on track to open this summer in the Phoenix Metro area, according to a Wal-Mart executive who asked we not use his name.

Wal-Mart currently operates nine of its 45,000 square foot Neighborhood Market supermarkets in the Phoenix/Easy Valley region. Additionally, three new stores are set to open soon. As a result, with the two new stores set for Chandler, that will bring the total number of Wal-Mart Neighborhood Market format supermarkets in the area to 14.

The Phoenix Metro region was one of the initial test market regions for Wal-Mart's Neighborhood Market smaller-footprint supermarket when the retailer created the format about seven years ago. Arizona also is one of the top three or four-best market regions regarding overall per-capita sales in the U.S. for Wal-Mart.

Tesco currently operates 17 of its average 10,000 -to- 13,000 square foot basic grocery and fresh foods-oriented Fresh & Easy grocery markets in the Phoenix/East Valley region. The retailer plans to open as many as 15 more of the grocery stores in Arizona before the end of this year.

Wal-Mart has been opening numerous new Supercenters and Neighborhood Markets in Arizona for the last couple years because it is one of the retailer's best U.S. market regions, as we mentioned above.

The region also is one of the fastest-growing areas in the USA. There's a demographic population shift in the U.S. from regions like the Eastern USA, to the sunbelt states like Arizona. Additionally, since Arizona shares a border with Mexico, it's growth is further being increased by immigration (documented and undocumented) from nearby Mexico.

Hispanics make up about 34% of Arizona's population, based on the latest data available from the U.S. Census Bureau, and it's the fastest growing ethnic group in the state.

Therefore, these are the primary reasons for Wal-Mart's strong growth and store expansion in the state, and especially in the Pheonix Metropolitan/East Valley region, where most of the state's population is concentrated.

In other words, the focus of Wal-Mart's Arizona expansion has little to do with any cause or effect from Tesco's big push into the state with its Fresh & Easy stores.

The one exception is the new Wal-Mart Marketside small-format grocery store venture. Based on extensive research and good sources, we believe the primary reason for creating the format was to serve as a check on any possible sales effect from the Fresh & Easy stores, which thus far hasn't occurred in the Phoenix Metro market, according to numerous sources, as we reported and laid out here on Wednesday.

We also believe Wal-Mart has increased it time-table for building and opening more of its 45,000 square foot Neighborhood Market stores in the region based on Tesco's entry--and rapid new store building program--into the market with its Fresh & Easy stores.

It's no mere coincidence that a number of these new supermarkets are being located not too far away from a Fresh & Easy grocery store. In addition, the four -to- five new Marketside grocery markets set to open in the region are all close to existing Fresh & Easy stores.

Regardless of the primary reasons for, or Wal-Mart's Phoenix Metro region growth strategy origins and timetables, the effect of the mega-retailer's actions in the market region will end up putting a retail "squeeze" effect on Tesco's Fresh & Easy Neighborhood Market grocery stores.

Here's why: First, Wal-Mart is super-popular in Arizona and especially in the Phoenix Metro/East Valley region. Its the only grocery retailer who is currently challenging local market share leaders Bashas' and Safeway Stores, Inc. for their respective market share dominance. Those two supermarket chains have been in the regions for decades before Wal-mart even entered with its first Supercenter. It's also the only grocery retailing player who has these two chains worried. In other words, the Wal-Mart brand is popular and solid in Arizona.

Second, Wal-Mart has opened a number of its mega Supercenter stores in the region in the last two years. These stores which average about 180,000 square feet and often are as big as 225,000 square feet, devote nearly 100,000 square feet of their space to food and grocery products in many cases. The Supercenter concept has proven to be a popular primary grocery shopping venue in Arizona, with many shoppers leaving their former supermarkets to shop at the stores. The Wal-Mart Supercenters have already started to create a tipping of the retail format shopping balance in the region.

Third, add to the Supercenter factor, the "Wal-Mart Neighborhood Market effect." The reason Wal-Mart is in the process of completing the building of three new Neighborhood Market supermarkets and planning to built two more in the region, is that because unlike is the case in many other parts of the U.S., the stores are doing very well in Arizona, particularily in the Phoenix Metro region. Along with the Wal-Mart Supercenters, they're taking market share away from Bashas' and Safeway.

Lastly, enter the new, small-format Marketside banner grocery stores. Combined with the Supercenters and Neighborhood Market supermarkets, these new 15,000 -to- 20,000 square foot, convenience oriented grocery stores will give Wal-Mart one more strategic bullet in its food and grocery retailing arsenal in the market region.

For example, the Supercenters serve a more regional or larger geographic area strategy. It takes shoppers coming from miles around the mega-stores to make them successful. As a result, there are just so many of the big-box stores Wal-Mart can open in a given market region; and the retailer has been pushing that envelope already in the Phoenix Metro area.

However, the 45,000 square foot Neighborhood Market supermarkets allow Wal-Mart to extend its retail brand--and number of stores--because the population requirements needed to make these stores successful are far-lower than those of a Supercenter. In part that's why they are named Neighborhood Markets. Therefore, Wal-Mart can use these stores as an in-between strategy, adding them in a neighborhood they think will work for this format but not a Supercenter.

Now, along comes Marketside, an even smaller-format grocery store at about 15,000 square feet than the Wal-Mart Neighborhood Market supermarkets are at about 45,000. The stores also will have some added twists, such as lots of fresh, prepared foods. Look for mini health and wellness centers in the stores possibly as well.

The addition of the Marketside format will allow Wal-Mart to fill a third niche as they warrant, which is the ability to pop a "little" Marketside grocery store in neighborhoods the retailer doesn't thing a Wal-Mart Neighborhood Market will do that well in but a Marketside grocery store might. The reasons for this could range from population size to demographics.

This combination of three formats for Wal-Mart in the Phoenix/Easy Valley market region in Arizona has the potential to really put the squeeze on Tesco's Fresh & Easy grocery stores in the market which currently aren't performing very well anyway.

There is a "Wal-Mart Effect" in every region where the giant retailer goes in the U.S. That's one of the reasons so many communities do everything they can to keep the retailer's Supercenters out of their respective towns and neighborhoods. The main opposition argument to the stores is that they hurt local businesses, which includes regional and local chain-owned supermarket stores.

Based on our analysis, the Phoenix Metropolitan/East Valley region is shaping up to be just about the most competitive grocery retailing region in the USA. Since this is Tesco's number-two most important target market for its Fresh & Easy Neighborhood Market grocery stores (Southern California which is nearly as competitive is number one), Tesco will have to sharpen its pencils, make some changes in the Fresh & Easy format, its merchandising, marketing and operations, if the retailer wants to succeed in this highly and increasingly competitive grocery market, in our analysis.