Breaking Buzz - News & Analysis
Smaller format stores, except its soon to be shelved 'marketside by Walmart,' may be in at Walmart but Pleasanton, California-based Safeway Stores, Inc. is sticking with a single-format strategy - its"Lifestyle"format supermarkets, which average 43,000-55,000 square-feet, with some exceptions - and saying no to further development of its two-store small-format 'The Market' fresh food and grocery venture.
Safeway Stores' CEO Steve Burd confirmed yesterday what we've been saying in Fresh & Easy Buzz for well over a year - which is that Safeway's 'The Market' will not be a part of the grocer's retail format strategy going forward.
In a conference call yesterday as part of Safeway's reporting of its third quarter 2010 results, Burd said the grocery chain does not plan to build the two-store (Long Beach and San Jose, California) "The Market" into a chain of small-format stores.
Here's what the Safeway chief said:
"The good news is that we’re batting a thousand. We built two ['The Market'] stores and they both make money. I think there is no one else that’s created a store that small that can boast that kind of a batting average. At the same time when we went into the small store format we said that we weren't going to make it a big piece of our strategy unless we thought it represented a very significant opportunity. I would tell you that if you can’t build 300 of these for a company like us, then it’s not meaningful, say, over a five-year period.
"So, we think that we learned a lot from the smaller store and some of those concepts we are applying to our main fleet of stores. I think we might have communicated at the last Investor Conference or maybe in one of these earnings calls, we don’t see creating 300 small stores as a basic part of our strategy. Will we occasionally build a store that might be 20,000 square feet, I would say occasionally in some pretty unique circumstances, but we learned enough to conclude that for us it was not a new format that we were going to try to grow and make a big piece of our offering."
The San Jose, California 'The Market' format store - 'The Market by Safeway' - which opened in 2009 - is 21,000-24,000 square-feet. The Long Beach store - 'The Market by Vons' - which is in a building that previously was a standard Vons supermarket, is about 15,000 square-feet. It opened in May 2008.
While Burd didn't say at the most recent Safeway Investor conference earlier this year that "The Market" would not be a part of a multi-format strategy for the grocery chain going forward, he hinted at it at the conference, as he has in the past, at least for those of us who watch Safeway closely.
In fact, Burd spelled out the metrics required from the format in order for Safeway to go forward with it as early as the end of 2008
In December 2008 at that year's annual investor's meeting, eight months after the first "The Market" store in Long Beach, California opened, Burd said the results to date were less than thrilling, as we reported in this story - December 12, 2008: Competitor News: Safeway CEO Steve Burd Says Small-Format 'The Market' Is 'Good' So Far But Not 'Great;' But Must Be 'Great' in Order To Expand. His then assessment on the performance of the first small-format 'The Market' store eight months on was that it's: "good, not great."
At the 2008 meeting he said Safeway planned to open at least two more of the small-format 'The Market' stores in 2009.
However, the grocer opened just one additional store in 2009, the unit in downtown San Jose, California, and hasn't opened any additional stores in the format since then. We wrote about what was the then planned third store in this July 25, 2008 story: Breaking Competitor News: Safeway Stores, Inc. Plans to Open A Small-Format 'the market by Vons' Grocery Store in Downtown Los Angeles.
In December 2008 the Safeway CEO said once the additional two 'The Market' format stores are open, "Unless the results go from 'good to great' and we feel we can open 30 -to- 50 of these per year, it won't make enough difference for these stores to be more than an experiment."
As Burd said yesterday, Safeway may occasionally build a store in the 20,000 square-foot range. But providing his own question and answer in a sentence he qualified that rather clearly, saying: "Will we occasionally build a store that might be 20,000 square feet? I would say occasionally in some pretty unique circumstances."
'The Market" as a multi-store second format for Safeway Stores, Inc. is history.
We're told there are no plans at present to close either the San Jose or Long Beach stores though. As Burd said, they are making (some) money. In the case of the two, we can tell you this: The San Jose store is doing much better than the Long Beach unit.
In early 2008 Safeway had the Cornish & Carey commercial real estate team help it find five or six locations in the San Francisco Bay Area - the downtown San Jose site was one of the locations - for its "The Market" format, which it had only recently finished developing at the time. The firm and Safeway located the sites but the downtown San Jose location is the only one to be built and opened.
A key reason Safeway souoght out the locations was because in January 2008 Tesco announced its plans to open an initial 37 Fresh & Easy Neighborhood Market fresh food and grocery stores in Northern California - 19 in the Sacramento region and 18 in the Bay Area.
Safeway had first-hand experience with Tesco. United Kingdom-based Tesco was the first major chain in the world to establish a food and grocery e-commerce site and combine the online ordering element with home delivery. In the 1990's, when Safeway was interested in doing the same, it partnered with Tesco in Groceryworks, which was Safeway Stores' initial online/home delivery grocery service. The partnership didn't last long. The two chains parted ways and Safeway took the business in-house, which is where it remains today.
As a result of this first hand experience, along with the fact Tesco is a very respected global retailer, Safeway, which already had been considering a small-format of its own, ratched up the development process, creating 'The Market,' and sought out the various store locations in its home-turf San Francisco Bay Area, where it's headquartered, in part as a defensive move against Tesco, which was supposed to open the first Fresh & Easy stores in the region in early 2009. That never happened. Tesco now plans to open the first batch of its Fresh & Easy Neighborhood Market stores in the Bay Area in early 2011.
In the nearly three years since the first Fresh & Easy stores opened - there are currently 168 units; soon to be 155 after Tesco closes 13 stores by November 2, 2010 - Tesco has struggled with Fresh & Easy, losing hundreds of millions of dollars and is closing in on a billion dollar loss. The retailer says it will become profitable in its 2013 fiscal year, at which time it says it plans to have 400 of the 10,000 square-foot Fresh & Easy markets open and operating. But since its projecting a loss in the $250 million range for its fiscal 2010/11 year which ends in February 2011, that's going to be a tall order to achieve. [See: 13 Closing Fresh & Easy Stores List.]
Tesco's struggle with Fresh & Easy has no doubt played some part in Safeway's decision to drop 'The Market' from its future strategic plans, in our analysis, although Burd clearly laid out the metrics back in December 2008. It was a test - in fact a by-the-book test - and as is the case with tests, a decision has now been made.
Additionally, Safeway Stores' CEO Steve Burd is on the record as early as March 2008, saying at the time, as we reported in this story - March 12, 2008: Safeway CEO Steve Burd: 'I'm Not Particularly Worried About Tesco's Fresh & Easy Grocery Stores in California' - that Tesco's Fresh & Easy venture doesn't worry him much as a competitor.
The bottom line is Safeway doesn't really need a dedicated 15,000 square-foot store format in order to sell fresh-prepared foods; it does it just fine in its supermarkets. And if a particular urban location requires a smaller store, it can do a 20,000 square-foot version of its "Lifestyle" format, which "The Market" is essentially a smaller version of anyway.
In a series of stories so far this year we've offered a roadmap to where Safeway Stores, Inc. is going in terms of its format strategy: 43,000-55,000 square-foot "Lifestyle" format stores with expansive fresh food departments and a combination of price/value focused and more upscale food and grocery merchandising elements.
For example, read these three recent pieces from the blog:
>July 25, 2010: Safeway to Start Construction on New Pleasanton, California Flagship Store Soon; Thanksgiving 2011 Target Opening
>August 2, 2010: Safeway Unveils Plans For New 'Lifestyle' Format Store Designed to Fit Today's Berkeley, California Lifestyle
>April 8, 2010: The Branded 'Signature Cafe' in Safeway Stores' Soon to Open 'Social Safeway' in Washington D.C. Should Turn A Few Heads
Like Safeway with its 'The Market' fresh food and grocery store concept, Walmart is preparing to put an end to its 'marketside by Walmart' combination fresh food and grocery format, as it begins to launch a new generation of smaller format stores. [See - September 23, 2010: Revisting 'marketside by Walmart': Format As We Know it On the Way Out But Some or All Of the Four Stores Could Be Converted and October 13, 2010: Simon Says: Walmart U.S. CEO Outlines Smaller Store Strategy and Plans; Walmart to Offer Groceries Online in USA.
Safeway's 'The Market,' Walmart's 'marketside by walmart' and Tesco's 'Fresh & Easy Neighborhood Market' are all three very similar formats - all three are small-format stores that focus on fresh foods with limited assortments of groceries and perishables, for example - and all were launched at about the same time - late 2007 for Fresh & Easy, and mid-2008 for Safeway and Walmart's small-store ventures.
Time will tell if it's a positive development for Tesco to have its Fresh & Easy Neighborhood Market small-format fresh food and grocery chain as the remaining one of the three similar formats. But unlike Safeway and Walmart, Tesco doesn't currently have any other formats to fall back on in the U.S. should that development be a negative and not a positive one.
Related Stories:
March 5, 2008: New Details and Analysis About Safeway's Small-Format Summer SF Bay Area Surprise for Tesco's Fresh & Easy Neighborhood Market
March 12, 2008: Safeway CEO Steve Burd: 'I'm Not Particularly Worried About Tesco's Fresh & Easy Grocery Stores in California'
May 15, 2008: Breaking News: Safeway Opens its First Small-Format 'The Market' Grocery Store Today in Long Beach, California
June 5, 2008: Breaking News: Safeway Stores, Inc. Nearing Negotiation End-Game For its Second Small-Format 'The Market' Store Site; This One in San Jose, California
July 8, 2008: Southern California Market Report: Safeway Stores,'the market by Vons' Mass-Mails First Advertising and Promotional Flyer to Vons Club Card Members
June 6, 2008: More on Safeway's 'The Market' Format: 20-Year Food Retailing Industry Vet Offers Observations and Analysis on 'the Market by Vons,' Long Beach, CA
July 25, 2008: Breaking Competitor News: Safeway Stores, Inc. Plans to Open A Small-Format 'the market by Vons' Grocery Store in Downtown Los Angeles
January 30, 2009: Competitor News: Safeway Stores, Inc. Confirms Second Small-Format 'The Market' Unit to Be in San Jose, CA; Fresh & Easy Buzz Nailed it in June, 2008
Smaller format stores, except its soon to be shelved 'marketside by Walmart,' may be in at Walmart but Pleasanton, California-based Safeway Stores, Inc. is sticking with a single-format strategy - its"Lifestyle"format supermarkets, which average 43,000-55,000 square-feet, with some exceptions - and saying no to further development of its two-store small-format 'The Market' fresh food and grocery venture.
Safeway Stores' CEO Steve Burd confirmed yesterday what we've been saying in Fresh & Easy Buzz for well over a year - which is that Safeway's 'The Market' will not be a part of the grocer's retail format strategy going forward.
In a conference call yesterday as part of Safeway's reporting of its third quarter 2010 results, Burd said the grocery chain does not plan to build the two-store (Long Beach and San Jose, California) "The Market" into a chain of small-format stores.
Here's what the Safeway chief said:
"The good news is that we’re batting a thousand. We built two ['The Market'] stores and they both make money. I think there is no one else that’s created a store that small that can boast that kind of a batting average. At the same time when we went into the small store format we said that we weren't going to make it a big piece of our strategy unless we thought it represented a very significant opportunity. I would tell you that if you can’t build 300 of these for a company like us, then it’s not meaningful, say, over a five-year period.
"So, we think that we learned a lot from the smaller store and some of those concepts we are applying to our main fleet of stores. I think we might have communicated at the last Investor Conference or maybe in one of these earnings calls, we don’t see creating 300 small stores as a basic part of our strategy. Will we occasionally build a store that might be 20,000 square feet, I would say occasionally in some pretty unique circumstances, but we learned enough to conclude that for us it was not a new format that we were going to try to grow and make a big piece of our offering."
The San Jose, California 'The Market' format store - 'The Market by Safeway' - which opened in 2009 - is 21,000-24,000 square-feet. The Long Beach store - 'The Market by Vons' - which is in a building that previously was a standard Vons supermarket, is about 15,000 square-feet. It opened in May 2008.
While Burd didn't say at the most recent Safeway Investor conference earlier this year that "The Market" would not be a part of a multi-format strategy for the grocery chain going forward, he hinted at it at the conference, as he has in the past, at least for those of us who watch Safeway closely.
In fact, Burd spelled out the metrics required from the format in order for Safeway to go forward with it as early as the end of 2008
In December 2008 at that year's annual investor's meeting, eight months after the first "The Market" store in Long Beach, California opened, Burd said the results to date were less than thrilling, as we reported in this story - December 12, 2008: Competitor News: Safeway CEO Steve Burd Says Small-Format 'The Market' Is 'Good' So Far But Not 'Great;' But Must Be 'Great' in Order To Expand. His then assessment on the performance of the first small-format 'The Market' store eight months on was that it's: "good, not great."
At the 2008 meeting he said Safeway planned to open at least two more of the small-format 'The Market' stores in 2009.
However, the grocer opened just one additional store in 2009, the unit in downtown San Jose, California, and hasn't opened any additional stores in the format since then. We wrote about what was the then planned third store in this July 25, 2008 story: Breaking Competitor News: Safeway Stores, Inc. Plans to Open A Small-Format 'the market by Vons' Grocery Store in Downtown Los Angeles.
In December 2008 the Safeway CEO said once the additional two 'The Market' format stores are open, "Unless the results go from 'good to great' and we feel we can open 30 -to- 50 of these per year, it won't make enough difference for these stores to be more than an experiment."
As Burd said yesterday, Safeway may occasionally build a store in the 20,000 square-foot range. But providing his own question and answer in a sentence he qualified that rather clearly, saying: "Will we occasionally build a store that might be 20,000 square feet? I would say occasionally in some pretty unique circumstances."
'The Market" as a multi-store second format for Safeway Stores, Inc. is history.
We're told there are no plans at present to close either the San Jose or Long Beach stores though. As Burd said, they are making (some) money. In the case of the two, we can tell you this: The San Jose store is doing much better than the Long Beach unit.
In early 2008 Safeway had the Cornish & Carey commercial real estate team help it find five or six locations in the San Francisco Bay Area - the downtown San Jose site was one of the locations - for its "The Market" format, which it had only recently finished developing at the time. The firm and Safeway located the sites but the downtown San Jose location is the only one to be built and opened.
A key reason Safeway souoght out the locations was because in January 2008 Tesco announced its plans to open an initial 37 Fresh & Easy Neighborhood Market fresh food and grocery stores in Northern California - 19 in the Sacramento region and 18 in the Bay Area.
Safeway had first-hand experience with Tesco. United Kingdom-based Tesco was the first major chain in the world to establish a food and grocery e-commerce site and combine the online ordering element with home delivery. In the 1990's, when Safeway was interested in doing the same, it partnered with Tesco in Groceryworks, which was Safeway Stores' initial online/home delivery grocery service. The partnership didn't last long. The two chains parted ways and Safeway took the business in-house, which is where it remains today.
As a result of this first hand experience, along with the fact Tesco is a very respected global retailer, Safeway, which already had been considering a small-format of its own, ratched up the development process, creating 'The Market,' and sought out the various store locations in its home-turf San Francisco Bay Area, where it's headquartered, in part as a defensive move against Tesco, which was supposed to open the first Fresh & Easy stores in the region in early 2009. That never happened. Tesco now plans to open the first batch of its Fresh & Easy Neighborhood Market stores in the Bay Area in early 2011.
In the nearly three years since the first Fresh & Easy stores opened - there are currently 168 units; soon to be 155 after Tesco closes 13 stores by November 2, 2010 - Tesco has struggled with Fresh & Easy, losing hundreds of millions of dollars and is closing in on a billion dollar loss. The retailer says it will become profitable in its 2013 fiscal year, at which time it says it plans to have 400 of the 10,000 square-foot Fresh & Easy markets open and operating. But since its projecting a loss in the $250 million range for its fiscal 2010/11 year which ends in February 2011, that's going to be a tall order to achieve. [See: 13 Closing Fresh & Easy Stores List.]
Tesco's struggle with Fresh & Easy has no doubt played some part in Safeway's decision to drop 'The Market' from its future strategic plans, in our analysis, although Burd clearly laid out the metrics back in December 2008. It was a test - in fact a by-the-book test - and as is the case with tests, a decision has now been made.
Additionally, Safeway Stores' CEO Steve Burd is on the record as early as March 2008, saying at the time, as we reported in this story - March 12, 2008: Safeway CEO Steve Burd: 'I'm Not Particularly Worried About Tesco's Fresh & Easy Grocery Stores in California' - that Tesco's Fresh & Easy venture doesn't worry him much as a competitor.
The bottom line is Safeway doesn't really need a dedicated 15,000 square-foot store format in order to sell fresh-prepared foods; it does it just fine in its supermarkets. And if a particular urban location requires a smaller store, it can do a 20,000 square-foot version of its "Lifestyle" format, which "The Market" is essentially a smaller version of anyway.
In a series of stories so far this year we've offered a roadmap to where Safeway Stores, Inc. is going in terms of its format strategy: 43,000-55,000 square-foot "Lifestyle" format stores with expansive fresh food departments and a combination of price/value focused and more upscale food and grocery merchandising elements.
For example, read these three recent pieces from the blog:
>July 25, 2010: Safeway to Start Construction on New Pleasanton, California Flagship Store Soon; Thanksgiving 2011 Target Opening
>August 2, 2010: Safeway Unveils Plans For New 'Lifestyle' Format Store Designed to Fit Today's Berkeley, California Lifestyle
>April 8, 2010: The Branded 'Signature Cafe' in Safeway Stores' Soon to Open 'Social Safeway' in Washington D.C. Should Turn A Few Heads
Like Safeway with its 'The Market' fresh food and grocery store concept, Walmart is preparing to put an end to its 'marketside by Walmart' combination fresh food and grocery format, as it begins to launch a new generation of smaller format stores. [See - September 23, 2010: Revisting 'marketside by Walmart': Format As We Know it On the Way Out But Some or All Of the Four Stores Could Be Converted and October 13, 2010: Simon Says: Walmart U.S. CEO Outlines Smaller Store Strategy and Plans; Walmart to Offer Groceries Online in USA.
Safeway's 'The Market,' Walmart's 'marketside by walmart' and Tesco's 'Fresh & Easy Neighborhood Market' are all three very similar formats - all three are small-format stores that focus on fresh foods with limited assortments of groceries and perishables, for example - and all were launched at about the same time - late 2007 for Fresh & Easy, and mid-2008 for Safeway and Walmart's small-store ventures.
Time will tell if it's a positive development for Tesco to have its Fresh & Easy Neighborhood Market small-format fresh food and grocery chain as the remaining one of the three similar formats. But unlike Safeway and Walmart, Tesco doesn't currently have any other formats to fall back on in the U.S. should that development be a negative and not a positive one.
Related Stories:
March 5, 2008: New Details and Analysis About Safeway's Small-Format Summer SF Bay Area Surprise for Tesco's Fresh & Easy Neighborhood Market
March 12, 2008: Safeway CEO Steve Burd: 'I'm Not Particularly Worried About Tesco's Fresh & Easy Grocery Stores in California'
May 15, 2008: Breaking News: Safeway Opens its First Small-Format 'The Market' Grocery Store Today in Long Beach, California
June 5, 2008: Breaking News: Safeway Stores, Inc. Nearing Negotiation End-Game For its Second Small-Format 'The Market' Store Site; This One in San Jose, California
July 8, 2008: Southern California Market Report: Safeway Stores,'the market by Vons' Mass-Mails First Advertising and Promotional Flyer to Vons Club Card Members
June 6, 2008: More on Safeway's 'The Market' Format: 20-Year Food Retailing Industry Vet Offers Observations and Analysis on 'the Market by Vons,' Long Beach, CA
July 25, 2008: Breaking Competitor News: Safeway Stores, Inc. Plans to Open A Small-Format 'the market by Vons' Grocery Store in Downtown Los Angeles
January 30, 2009: Competitor News: Safeway Stores, Inc. Confirms Second Small-Format 'The Market' Unit to Be in San Jose, CA; Fresh & Easy Buzz Nailed it in June, 2008
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1 comment:
Why isn’t Safeway going for other strategies like Market Development? The US has been facing difficulties in Economic recovery as unemployment rate is still around 7% and GDP growth is still modest. The Number of jobs added in the month of February was 175000 which is less than expected.http://bit.ly/QNSdp6
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