Going Rural: First Three Smaller-Format 'Walmart Express' Stores Will Be in Small Town Arkansas

News/Analysis

Walmart Stores, Inc. said today it will open its first three smaller-format "Walmart Express" stores in its home state of Arkansas, in the small towns of Gentry, Prairie Grove and Gravette.

The first of the three stores, the unit in Gentry (population 3,100), is scheduled to open in May at the earliest but likely no later than July.

"Walmart Express" is a new format for Walmart, as we've previously reported, although it will incorporate elements of the chain's "Walmart Neighborhood Market" format and its "Neighborhood Market by Walmart" 20,000 square-foot prototype store, which has been open for a couple years in Rogers, Arkansas, near the retailer's headquarters in Bentonville.

According to Walmart spokesman Steve Restivo, the world's largest retailer plans to start construction on its first small-box Express format store, in Gentry, on March 16. The store will be about 14,500 square-feet.

Construction on the other two Arkansas "Walmart Express" stores, in Prarie Grove and Gravette, both which are near Gentry, is scheduled to begin around the end of March or early April, according to Walmart. The two stores will be about the same square-footage as the Gentry unit.

Prarie Grove has a population of about 3,113. Gravette's estimated population is 2,300. The population figures are based on U.S. Census Bureau numbers for 2010.

The "Walmart Express" format stores are food and grocery focused, as we've previously reported, and will also carry a selection of general merchandise items.

Similar to a typical neighborhood grocery market of about the same size, the center (core-of-the-store) of the "Walmart Express" stores will offer grocery items on shelving, comprising 10-12 aisles. The perimeter and back of the Express format stores will feature fresh produce, meats, frozen foods and perishables.

Although Walmart didn't confirm it, as we've previously reported, the Express format stores will also offer a selection of the retailer's "marketside" private brand ready-to-eat and ready-to-heat fresh-prepared foods, as part of an in-store deli configuration of some sort.

The stores also will have in-store pharmacies, something we've previously reported would be the case.

Additionally, according to our sources, Walmart will likely use the "Walmart Express" stores as pickup points for its Walmart.com online retail operation, as it's currently doing in selected other format stores. Shoppers would be able to order anything available on Walmart.com and then pick it up at a "Walmart Express" store. Think of the process as similar to what Sears has been doing in and with its small-format "catalogue stores, particularly in rural communities, for decades.

Not all of the "Walmart Express" stores will be in the 15,000 square-foot range. Depending on the location, some will be up to 30,000 square-feet, which is something Walmart U.S. president Bill Simon confirmed recently. Some also will be smaller, such as those in highly dense cities. Simon has said some of the stores could be as small as 5,000 square-feet.

Earlier this year Walmart said it plans to open 30-40 of the small-format "Walmart Express" stores in 2011.

As we've previously reported, Walmart Stores, Inc. has acquired numerous locations in California which it has slated for the smaller stores. We've identified a dozen such locations in Southern and Northern California thus far.

Walmart also plans to open the smaller food and grocery-focused stores in metro Chicago, Washington D.C. and New York City, along with other part of the U.S.

Additionally, based on source information we have, one or more of the existing four small-for "marketside by Walmart" format stores in four metro Phoenix, Arizona cities - Gilbert, Chandler, Mesa and Tempe - will likely be converted to the "Walmart Express" format down the road. The four Arizona "marketside by Walmart" stores range from 15,000-17,000 square-feet

"Walmart Express" is positioned as both an urban and rural (and in some cases suburban) format, according to Walmart.

The fact Walmart has chosen to open the first three units in fairly rural small towns demonstrates the retailer is serious about attempting a rural strategy with the smaller stores. The fact it chose three towns in Arkansas, all which are fairly close to its Bentonville headquarters, is no surprise. All three towns are within 35 miles of Bentonville.

Many observers and analysts are rushing to say how Walmart's latest small-format move will be a killer application for the retailer, alongside its supercenters.

However, many of these same analysts said the same thing when Walmart launched its "Walmart Neighborhood Market" format (the stores average about 42,000 square-feet) in the 1990's, and did so again when Walmart launched "marketside by Walmart" (at first called just "marketside") in 2008.

To date the neighborhood market supermarkets have been at best mediocre performers, evidenced not only by various metrics but also by the fact that in two decades Walmart has opened only about 200 of the 42,000 square-foot supermarkets in the U.S.

"Marketside by Walmart," the retailer's first small-format experiment can basically be judged to be a failure. As we've previously reported, none of the four stores have hit targeted average sales of $75,000-to-$100,000 per-week, which Walmart determined was the absolute minimum needed to break even. Just one of the four stores is averaging over $60,000 (but well under $75,000) a week. The other four are in the $45,000-$55,000 range in average weekly sales. All four stores are losing money. We've seen the numbers.

Walmart isn't opening any additional "marketside by Walmart" stores. It has 50-year leases on the four Arizona units. (47 years remaining.) The most-likely scenario, as noted earlier, is that one or more of the stores will be converted at some point to "Walmart Express" stores. Just one of the stores, the unit in Gilbert, Arizona, is suitable from a demographic perspective to convert to Walmart's Supermercado de Walmart Latino grocery store format. However, the store is really too small from a physical and carrying-capacity aspect to do so, in our analysis.

The upshot: The jury is still out on how well Walmart Stores, Inc. can do smaller formats in the U.S. (it does them well in Mexico, for example,), particularly when the focus of the smaller-format stores is fresh food and groceries.

A number of the "Walmart Express" locations in Southern and Northern California we've identified are near Tesco-owned Fresh & Easy Neighborhood Market stores. From what we've been learning, the Express stores will be much less upscale and much more price-impact-oriented (although not a hard-discount format) than the "marketside by Walmart" format and stores are, as well as offering a much broader selection of basic groceries than "marketside" does. (Think an edited version of the "Neighborhood Market by Walmart" supermarkets' SKU assortment when it comes to product selection.)

The upshot: Things are going to get even more interesting in highly competitive California when the first batch of "Walmart Express" stores start opening. Stay tuned.

Related Stories

February 22, 2011: Walmart Stores, Inc. Announces the Name For its New Smaller-Format Food & Grocery Stores: 'Walmart Express'

February 22, 2011: The Name Game: Satire Columnist Earl Grey Smells A 'Neighborhood-Express' Conspiracy Involving Tesco and Walmart

January 10, 2011 story: Walmart 'Gets Real' With Smaller-Format Grocery Store Initiative in California; First Stores On Tap

January 11, 2011: 'The Insider' - A 'New York State of Mind': 'The Insider' On Walmart, Apollo Global Management, Tesco's Fresh & Easy and the NRF in New York City

October 13, 2010: Simon Says: Walmart U.S. CEO Outlines Smaller Store Strategy and Plans; Walmart to Offer Groceries Online in USA

October 12, 2010: 'The Insider': Live-Blogging Walmart Stores' 17th Annual Meeting For the Investment Community

September 20, 2010: About Today's Walmart Stores, Inc. Smaller Stores Media Frenzy: We Scooped it On July 6, 2010

July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store

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

September 29, 2008: Special Report: Wal-Mart, Inc. Studying Second Small-Format Food and Grocery Store Concept; the 'Bodega' or Modern Version of the Corner Grocery Store

Walmart Stores, Inc. Announces the Name For its New Smaller-Format Food & Grocery Stores: 'Walmart Express'

Bill Simon, president and CEO of Walmart U.S., said today during a conference call in which Walmart Stores, Inc. reported its fiscal year 2011 fourth quarter financials, that the Bentonville, Arkansas-based global retailer has decided on a name for its new smaller-format food and grocery-focused stores. The name: "Walmart Express."

The "Walmart Express" name will be used for the smaller-format stores, which will range up to about 30,000 square-feet, which we've reported on and written about extensively in Fresh & Easy Buzz, in both urban and rural markets, Simon said today.

The head of Walmart's largest division, Walmart U.S., also said today that the first "Walmart Express" stores are set to open in the second quarter of this year, just a few months from now.

As we've previously reported, Walmart has secured numerous locations for the smaller-format, food and grocery-focused stores in California, including in both the southern and northern parts of the Golden State.

For example, in this January 10, 2011 story: Walmart 'Gets Real' With Smaller-Format Grocery Store Initiative in California; First Stores On Tap - we reported on specific locations Walmart has obtained in California for its smaller-format stores. We also reported in our piece that Walmart is preparing to open the first batch of its smaller-format stores soon, which Walmart U.S. president and CEO Bill Simon confirmed today, saying: "The development of our small format is progressing ahead of schedule. We expect to open our first 'Walmart Express' stores in the second quarter [of 2011]" [Also see - July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store; and September 20, 2010: About Today's Walmart Stores, Inc. Smaller Stores Media Frenzy: We Scooped it On July 6, 2010.]

Since publishing our story in early January, we've learned about and additional 10 locations in Southern California that Walmart Stores has acquired for its smaller-format stores. We've agreed with the Southern California commercial real estate source that provided the information to us not to list the locations of the stores just yet.

In addition to California, Walmart has acquired locations, has sites in the pipeline and has further plans to acquire locations for its "Walmart Express" smaller format stores throughout the U.S., including in major urban regions like Chicago, Washington D.C., New York and elsewhere.

Additionally, along with urban area, Walmart plans to open the smaller-format food and grocery stores in suburban and rural regions of the U.S., which is something we've previously reported, and that Bill Simon confirmed today.

Simon also said today that he and Walmart Stores, Inc. is disappointed with the sales performance of Walmart U.S. for the fourth quarter. "Our 1.8 percent comp decline for the fourth quarter didn’t meet anyone’s expectations. They certainly didn’t meet mine. Period," Simon said today.

Walmart Stores, Inc. reported a 1.8% decline in comparable store sales at Walmart U.S. for the 13-week period ended Jan. 28, 2011. On a slightly brighter note, comparable sales for Walmart's Sam's Club wholesale club division increased 2.7 percent, excluding fuel sales, for the same period.

Below is a summary of the financial metrics Walmart Stores, Inc. reported today for its fourth quarter:

• Walmart reported diluted earnings per share from continuing operations (reported EPS) of $1.41. This compares to $1.261 per share from continuing operations last year. Fourth quarter underlying diluted EPS from continuing operations was $1.342.
• Reported EPS from continuing operations for the fourth quarter included tax benefits of $243 million, or approximately $0.07 cents per share.
• Consolidated operating income for the fourth quarter was $8.0 billion, up 7.3 percent from last year.
• Net sales for the fourth quarter were $115.6 billion, an increase of 2.5 percent from last year.
• Walmart U.S. comparable store sales declined 1.8 percent in the 13-week period ended Jan. 28, 2011. Sam's Club comparable sales, without fuel, increased 2.7 percent for the same period.
• Full year reported EPS from continuing operations was $4.18, compared with last year's EPS of $3.731.
• Full year underlying diluted EPS from continuing operations was $4.072.
• Consolidated operating income for the full year was up 6.4 percent to $25.5 billion.
• Net sales for the full year were $419 billion,an increase of 3.4 percent.
• The company leveraged operating expenses for the quarter and the full year.
• Return on investment (ROI) for the fiscal year ended Jan. 31, 2011 remained strong and stable at 19.2² percent. Walmart ended the year with strong free cash flow of $10.92 billion.
• For the year, the company returned a record $19.2 billion to shareholders through dividends and share repurchases.

[You can view Walmart Stores, Inc.'s full financial release here. Click here to view the full-transcript of Walmart's Fourth Quarter Fiscal Year 2011 Earnings Call.]

Fresh & Easy Buzz will have additional news and analysis on Walmart's new "Walmart Express" smaller-format food and grocery store initiative upcoming soon. In the meantime...

Follow the story in Fresh & Easy Buzz: Walmart's New Smaller-Store Initiative

July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store]

September 20, 2010: About Today's Walmart Stores, Inc. Smaller Stores Media Frenzy: We Scooped it On July 6, 2010

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

October 13, 2010: Simon Says: Walmart U.S. CEO Outlines Smaller Store Strategy and Plans; Walmart to Offer Groceries Online in USA

October 11, 2010: Walmart to Outline its Urban-Focused Smaller-Format Grocery Store Plans Wednesday; What Might Be In-Store?

October 12, 2010: 'The Insider': Live-Blogging Walmart Stores' 17th Annual Meeting For the Investment Community.

January 10, 2011: Walmart 'Gets Real' With Smaller-Format Grocery Store Initiative in California; First Stores On Tap

January 11, 2011: A 'New York State of Mind': 'The Insider' On Walmart, Apollo Global Management, Tesco's Fresh & Easy and the NRF in New York City

Readers: You can read additional stories about Walmart, including its smaller-format development at (by clicking on) the following links - 20K Neighborhood Market by Walmart prototye, California, Wal-Mart, Walmart, Walmart in California 2011, walmart small store strategy, Walmart Stores marketside by Walmart, Wal-Mart, Wal-Mart format innovation, Wal-Mart hybrid supercenters, Wal-Mart Marketside, Wal-Mart Modesto CA, Wal-Mart Supercenter, Wal-Mart's new Supercenter prototype, Walmart, marketside store brand, brand marketside, Walmart Stores Inc. Use the 'Older Posts' 'Newer Posts' links at the bottom of the linked pages for more pages/stories.

Walmart 'Gets Real' With Smaller-Format Grocery Store Initiative in California; First Stores On Tap

Walmart in California - 2011
Breaking Buzz - Plus Analysis

Bentonville, Arkansas-based Walmart Stores, Inc., the largest retailer in the world with annual sales approaching half-a-trillion dollars, is taking the first concrete steps to turn its plans to open smaller and small-format food and grocery stores in California into reality.

Southern California

Walmart, which also happens to be the top seller of food and groceries in the United States, has bought a 32,000 square-foot building in Downey, California, which it plans to most-likely convert into a version of its 20,000 square-foot (selling space) 'Neighborhood Market By Walmart' prototype food and grocery store, which it's been testing in Rogers, Arkansas for the last couple years, Fresh & Easy Buzz has learned, although the store could have a different name.

The building, at 12270 Paramount Boulevard in Downey, is currently occupied by Alin's Party Depot, which sells a variety of party-oriented consumer goods. The retailer lost its lease on the building last year and is set to close and vacate the store at the end of this month.

Northern California

In addition to the Downey location in Southern California, Walmart is close to either purchasing or signing a lease for a vacant 30,000-32,000 square-foot building at the other end of the state, in Northern California. The location, at Highway 65 and Second Street in Lincoln, California near Sacramento, formerly housed an independent supermarket, Rainbow Market.

Tesco has plans to open a store in Lincoln, perhaps as early as the end of this year. The locations is at Lincoln Boulevard and Sterling, and isn't too far from the site Walmart is preparing to acquire.

Fresh & Easy Buzz has been reporting on Walmart's plans to open smaller-format grocery stores in California, including in the northern part of the state, since late 2007, when the blog was started. Most recently, in this July 6, 2010 story - Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store - we offered details and analysis about the retailer's plans in Northern California for 2010-2011, based on information provided by our sources.

Three months after we published our story, Walmart announced in October 2010 it's plans to open 30-40 smaller and small-format food and grocery stores, but not any more of its 'marketside by Walmart' format stores, in the U.S., as a test. So far the retailer has announced or confirmed plans for smaller stores in metro Chicago, Washington D.C. and New York City - but not California. Walmart has so far received approvals for the stores in Chicago.

However, as we said in our July 2010 piece, and are reporting today in this story, smaller format food and grocery markets from Walmart Stores, Inc. are coming to California - and soon.

In the July 2010 story we also reported that Walmart has been searching for numerous sites for the smaller-format stores, most being in the 20,000-30,000 square-foot range, throughout Northern California, with a focus on the Sacramento region, parts of the Northern Central Valley, and the San Francisco Bay Area.

The Sacramento region has been getting a particular focus from Walmart and its local commercial real estate firm since the summer of 2010.

According to our sources, among the specific Sacramento-area locations Walmart is looking closely at, in addition to the former Rainbow Market in Lincoln, include a former Nugget Market store at Florin Road and Greenhaven Drive in Sacramento, and two vacant Albertsons supermarkets, one at 6184 Sunrise Mall Road and the other at 6454 Tupelo Drive, in the Sacramento suburb of Citrus Heights. Nugget Markets is a local chain based in Woodland, California, which is about 12 miles from Sacramento, and located next door to Davis, home of the University of California at Davis campus.

Walmart is also close to agreeing with landlords for other locations in the Sacramento region, as well as in parts of the San Francisco Bay Area, where the retailer has a near-zero food and grocery retailing presence in terms of market share.

Speaking of Davis, California, our sources also tell us Walmart has a potential interest in the small-format Davis IGA Market in the university city should its owners, the Delano family, have to sell or close the store. The Delano family closed five of the seven stores they operated in Northern California late last year, as we reported on in November. See - November 29, 2010: Veteran Grocer Harley DeLano's 'DeLano IGA Markets' Chain On the Verge of Closure in San Francisco Bay Area; and November 30, 2010: DeLano's IGA Markets Closing Five Stores in San Francisco & Marin County; Fairfax, Davis Units to Remain Open (For Now). The Davis IGA Market is in a moderate income neighborhood and is the only grocery store in what is the eastern part of the city of about 60,000 residents.

The Delano's own the Fairfax and Davis stores under a different ownership structure than they did the San Francisco Bay Area markets they were forced to close, which is why the two units remain open. However, Kroger Co., which leased the store buildings to the Delano's, has filed a lawsuit seeking over $1 million in back rent from the grocers. As such, it's not clear if the father and son team will be able to keep the Davis and Fairfax stores open.

Downey 'smaller-mart' store format

Based on the information we've been able to obtain thus far, we aren't 100% sure (nor are we sure Walmart knows itself) what the precise format of the Downey, California smaller-format grocery store will be.

However, according to our research and information, it likely will be a version of the Rogers, Arkansas 'Neighborhood by Walmart' prototype store (pictured above and below), which includes an in-store pharmacy, fresh bakery, and cafe/deli/prepared foods department, as well as offering fresh produce, meats and a strong but limited selection packaged food and grocery items.

For those of you reading this who haven't seen the Rogers' prototype store, think of the format as a smaller version of Walmart's Neighborhood Market supermarkets, which average about 40,000 square-feet, but with smaller in-store departments and fewer grocery SKUs, along with some significant design and merchandising differences.

Based on the building's 32,000 square-feet, depending on the sizes of the back-room area and the in-store pharmacy (if it includes one, which is most-probable), we estimate the smaller-format Walmart store to be, in terms of selling space, in the 20,000-30,000 square-foot range. This fits well with the selling space area of the Rodgers, Arkansas prototype store, as well as with the smaller and small-format size stores Walmart said in October 2010 it planned to focus on. [See - October 13, 2010: Simon Says: Walmart U.S. CEO Outlines Smaller Store Strategy and Plans; Walmart to Offer Groceries Online in USA and October 11, 2010: Walmart to Outline its Urban-Focused Smaller-Format Grocery Store Plans Wednesday; What Might Be In-Store?]

Not long after the Alin's Party Depot party goods' store vacates the building in Downey at the end of the month, Walmart plans to start renovations on it, likely opening what will be the retailer's first smaller-format food and grocery store in California before the end of 2011.

Tesco's Fresh & Easy - Downey

Tesco opened its first small-format (about 10,000 square-foot) Fresh & Easy Neighborhood Market store in Downey, at 8320 Firestone Boulevard (Downey and Firestone), on April 7, 2010. [See - March 29, 2010: Tesco's Fresh & Easy Set to Hit 150-Plus Store-Count Mark on April 7.]

The Walmart smaller-store location at 12270 Paramount Boulevard is just minutes away from the 8320 Firestone Boulevard Fresh & Easy Neighborhood Market store, as you can see here.

The smaller-format Walmart food and grocery market will be at least twice the size of the Fresh & Easy store and, although it won't be a 'marketside by Walmart' format or banner store like the four in metro Phoenix, Arizona, the "smaller-mart"will carry a full-selection of Walmart's'Marketside' private brand fresh food and fresh-prepared foods products, according to our information.

Tesco's Fresh & Easy - Sacramento

The Sacramento area, along with the San Francisco Bay Area are the two key major market region focuses for Tesco in Northern California, where it plans to start opening its first batch of stores in a couple months. none of the first stores set to open are in the Sacramento area. [See - December 27, 2010: First Look at the Pacifica, California Fresh & Easy Neighborhood Market Store, One of the First Opening in Northern California in Early 2011 and December 14, 2010: Fresh & Easy Neighborhood Market to Open 5800 Third Street 'Flagship' Store in San Francisco Later in 2011 Than Originally Announced, for example.]

The Sacramento market region is a major focus for Tesco's Fresh & Easy though. In addition to the original 19 planned store locations the retailer announced in the region in January 2008, Tesco recently added five new Sacramento-area future Fresh & Easy Neighborhood Market locations to its Northern California store portfolio, as we reported here - November 22, 2010: Tesco's Fresh & Easy Neighborhood Market Plans Five New Stores in Northern California's Sacramento Region.

Based on what we know at present, Tesco won't open the first Fresh & Easy stores in the Sacramento area until, at the earliest, late 2011. More probably, based on what we know right now, an early 2012 date is in the cards.

Walmart's target cities and types of neighborhoods for its smaller-format stores in the Sacramento region look to be in many cases the same ones as Tesco's for Fresh & Easy, based on our research and reporting.

Walmart in California - 2011

Although we expect Walmart to open just a handful of smaller-format food and grocery stores in California this year, if those initial stores do well, we could see dozens of the "smaller marts" open in the Golden State in 2012, particularly in parts of Southern and Northern California, like Los Angeles and the San Francisco Bay Area, where Walmart has had trouble gaining approval for its supercenters, along with struggling in some instances to get city and county government approvals for discount format stores it wants to convert into hybrid supercenters.

The smaller-store stores Walmart will open in California starting this year aren't upscale food and grocery markets, nor will they be located in high-income neighborhoods. Instead, the stores are targeted to lower-to-upper-middle-income shoppers, and will be in cities with moderate income levels in the main, which is the strategy Tesco is following with its small-format Fresh & Easy stores.

In addition to its smaller-store initiative in California, which is fast on the way from concept to reality, Walmart also has other major initiatives set for California beginning this year, including new supercenter openings, development and growth. [See - May 6, 2010: Going Smaller & Getting 'Hybrid': Walmart's Smaller Supercenter in Vacant Retail Buildings Strategy Began in 2008, as an example.

Fresh & Easy Buzz will be covering Walmart in California - as well as elsewhere in the U.S. and globally - extensively this year, as we have since 2008. Look for the header - 'Walmart in California - 2011' - like the one at the top of this story, for extensive coverage of the largest food and grocery (and overall) retailer in the U.S,. in the largest state in the U.S. - California - throughout 2011.

Walmart's Four 'Marketside by Walmart' Stores Set to Be Closed Soon Never Came Close to Weekly Sales of $100,000

Arizona Market Region Report - News & Analysis

In a September 9, 2010 story - Walmart Plans to Close Arizona 'marketside by Walmart' Stores, Dump Format By Year-End or Early 2011 - we broke the news Walmart Stores, Inc. would be dumping its 'marketside by Walmart' small-store fresh food and grocery format, including closing the four existing stores in Arizona.

We followed the September 9 story up with a piece on September 23 - Revisting 'marketside by Walmart': Format As We Know it On the Way Out But Some or All Of the Four Stores Could Be Converted - in which we reported Walmart was discussing potentially converting some or all of the 'marketside by Walmart' stores into a different small-format, most likely the version of its 20,000 square-foot 'Neighborhood Market by Walmart' prototype it plans to roll out to the tune of about 30-40 stores in 2011. [See - October 13, 2010: Simon Says: Walmart U.S. CEO Outlines Smaller Store Strategy and Plans; Walmart to Offer Groceries Online in USA]

The reason for the follow-up story in late September was because not only has 'marketside by Walmart' been neglected for over a year by Walmart Stores, Inc. - for example one of the managers of the four stores in Arizona is and has been running two units at the same time since early this year - but a decision as to whether or not to close all the stores or try to salvage one or more by converting to the new small-format the retailer plans to roll out next year has been up in the air.

On Wednesday, October 13, Walmart U.S. president and CEO Bill Simon confirmed half of our early September 2010 report at the retailer's annual investment community conference, saying the Walmart Stores' does not plan to expand 'marketside by Walmart' beyond the current four stores, commenting the retailer has learned a great deal from the stores and has been able to create a multi-million dollar fresh foods brand, 'marketside,' which it's selling in its Walmart supercenters and Neighborhood Market supermarkets, based on operating the stores. Simon didn't announce plans to close any of the stores or convert them to another small store format at the conference however.

It was the first time a Walmart Stores' executive has said publicly that the retailer would cease any further development of 'marketside by Walmart.' Earlier this year Walmart said publicly it wouldn't open any additional 'marketside by Walmart' stores this year - but did not say it wouldn't do so beyond 2010.

Based on the information we have at present, it's remains most probable Walmart will close all four of the Arizona 'marketside by Walmart' stores by the end of December and no later than the end of January 2011 or convert some or all of the four stores into a new small-format.

Average Weekly Sales: 'marketside by Walmart' Stores

None of the four 'marketside by Walmart' stores have or are doing even close to $100,000 in weekly sales, according to our excellent sources. The four metro Phoenix area stores are located in Gilbert, Tempe, Mesa and Chandler, Arizona. All four stores opened in May 2008.

The Gilbert unit has been doing the best of the four, averaging about $68,000 a week in sales, our sources say.

The other three metro Phoenix 'marketside by Walmart' units are all doing below $50,000 a week in sales, our sources say.

They estimate the Chandler, Arizona store is averaging $48,000-$49,000 in weekly sales; the Mesa unit $33,000-$35,000; and the Tempe store about $40,000 weekly.

Two of the stores are in the 15,000 square-foot range. The other two are between 16,000-18,000 square-feet. According to the most current FMI (Food Marketing Institute) statistics, the average U.S. supermarket has sales-per-square-foot of $11.35. All four stores have been and are doing way below the $11.35 per-square-foot industry average.

In our analysis, these average weekly sales numbers make it unlikely that Walmart will put a different small-store format in any of the current four 'marketside by Walmart' stores when it closes them at the end of this year or in early 2011, although the retailer may believe a different format can make a go of it at the locations.

We'll have more for you very soon. Stay tuned.

'Marketside by Walmart' - Follow the Story Below

>December 21, 2009: Wither Walmart's Small-Format 'marketside' Stores and Format?

>January 9, 2010: Walmart's 'marketside': What's 'In-Store' for 2010?

>September 9, 2010: Walmart Plans to Close Arizona 'marketside by Walmart' Stores, Dump Format By Year-End or Early 2011

>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

>July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store

[For a selection of additional past stories on Walmart's 'marketside' and 'marketside by Walmart' click here and here.]

Simon Says: Walmart U.S. CEO Outlines Smaller Store Strategy and Plans; Walmart to Offer Groceries Online in USA

Walmart U.S. president and CEO Bill Simon outlined Walmart Stores, Inc.'s smaller store strategy and plans this morning at the retailer's annual conference for the investment community in Bentonville, Arkansas.

In addition, Walmart said today it plans to start offering packaged food and grocery items on its Walmart.com e-commerce website in the coming year.

Below is what Simon said in his talk this morning about the smaller-format stores and Walmart's "Three format" strategy:

"Over the next few years, we will introduce new formats to help us enter new markets.

"Walmart U.S. will move toward a three-format portfolio, which will drive expansion to urban markets and small towns, as well as fill in gaps in existing markets," Simon explained.

"The large format is our supercenter, which sells a broad assortment of groceries and general merchandise.

"We have integrated efficiencies into our supercenter design that have allowed us to decrease the average square footage for our supercenter format.

"The medium (store) format, between 30,000 and 60,000 square feet, will be based on the needs of an individual market.

"The small format, which is less than 30,000 square feet, will be targeted to urban markets and small towns."

Simon stressed in his talk this morning that although he believes there's room for "hundreds" of the smaller format stores in the U.S., Wal-Mart plans to open just 30 -to- 40 of the smaller stores in its 2012 fiscal year, as it tests the formats.

Walmart's head of U.S. operations also confirmed Walmart's plans to open the smaller format (and likely some medium) stores in Southern California and Northern California, as well as in Chicago and New York. Other major regions and cities are part of the plan as well. He didn't offer a specific laundry list of regions and cities but said "yes" to all of the above. [See - October 11, 2010: Walmart to Outline its Urban-Focused Smaller-Format Grocery Store Plans Wednesday; What Might Be In-Store? and July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store] [Also see the column linked in the paragraph below.]

Simon also joked about liking the two musical numbers - "My Kind of Town (Chicago is)" and "New York, New York" - both of which were performed by the "Walmart Choir" during last night's conference kick off and dinner. Read what our 'The Insider' columnist had to say about it yesterday - October 12, 2010: 'The Insider': Live-Blogging Walmart Stores' 17th Annual Meeting For the Investment Community.

That announcement should surprise many of the equity analysts in the audience, who are among those who've recently been suggesting prior to today, like they did when 'Neighborhood Market' was launched in 1998 and again in 2008 with 'marketside,' that Walmart will build hundreds and even thousands of the smaller format stores. The proof will be in the pudding.

Walmart's track record with smaller stores - it's opened about 181 of the 39,000-42,000 square-foot Neighborhood Market supermarkets since 1998 and just four 'marketside by Walmart' units (about 15,000-18,000 square-feet) since 2008 - is less than stellar. Walmart U.S. is making the right decision to start slow, based on its track record with smaller format stores.

That Walmart plans to take a slow and cautious approach with its smaller store strategy and plans is good news for Tesco's Fresh & Easy Neighborhood Market. Were Walmart to go aggressive with the launch, opening a hundred or more stores over say a two year period of time, particularly in California where Tesco is putting most of its emphasis, the United Kingdom-based retailer would be under even more pressure than it already is under with its small-format Fresh & Easy venture.

Walmart plans to open 185 -to- 205 new stores in the next fiscal year, compared with 153 stores in the current year, but with the same increase in square footage, 11 million, and similar capital expenditure, $7.5 billion to $8 billion, Simon said.

Simon tied Walmart's U.S. supercenter strategy into its new, smaller store plans. And supercenters - new units and discount store conversions - remain Walmart's primary retailing - including food and grocery - format and growth instrument going forward in America, without a doubt.

"We also are allocating capital to continue converting discount stores to supercenters, which add no square footage, but are expected to increase sales," Simon said today.

"Of the 155 to 165 supercenters we will add next year, 45 to 50 will be new units, with the remainder conversions. Simon said U.S. supecenters now average about 180,000 square-feet.

"Neighborhood Markets will make up the bulk of the medium format stores, and there will be some pilots of the small store format included in next year's plan."

By the end of Walmart's current fiscal year, more than 550 U.S. stores will have been remodeled, Simon said today, adding that Walmart U.S. plans to remodel more than 500 stores next fiscal year.

"Remodeling costs will be lower next year, due to changes in design and schedules. The time to remodel a store will decrease by 40 percent, and with fewer disruptions, traffic and sales will improve sooner,"he said at today's investor conference.

"We are very excited about the additional growth opportunities that we have in the United States. We will have growth in geography, growth in formats and growth in multi-channels."

A key point noted by Simon this morning is that capital expenditures for Walmart U.S. next year will be flat when compared to the current year, as will square footage growth. But stores and sales are projected to grow, he said.

Simon commented that Walmart believes it can and should be grabbing a bigger share of U.S. consumer dollars, including food and grocery purchases, particularly from lower-income shoppers.

Consumers earning less than $70,000 a year account for 68% of Wal-Mart's U.S. customers, Simon said today, adding that its store remodels of the last couple years and the use of more-simplified product offerings have helped the retailer attract more affluent shoppers.

However, he said Walmart has lost ground with its lower-income customers, which the retailer is working hard to turn around adding-back SKUs and new merchandise and focusing its promotions on overall shopping basket value and savings rather than putting an emphasis on just a few items.

What Simon is referring to is the fact that some of Walmart's middle and lower-income customer base has been shopping other formats like dollar stores and deep-discount grocers, as well as cherry-picking among numerous retailers, over the last couple years, driven in large part by the recession, rather than being as loyal as they've been in the past to Walmart, particularly when it comes to grocery shopping.

"In this environment [poor economy, high unemployment] we should be thriving," Simon said in his talk, adding that while its true the economy is causing pain for Walmart's lower-income consumers, that posed an opportunity to gain market share by making its offering more appealing and getting them back.

America's Next Online Grocer: Walmart of course

Walmart also announced at the conference today it will begin offering packaged food and grocery items on its Walmart.com website in the coming year, which it's referring to as a pilot project.

Fresh & Easy Buzz first reported Walmart would do so in early 2009 on our Twitter.com feed (which you can view at the top/right) and have mentioned it in the blog a number of times since. It's been a long time coming, in fact.

The food and grocery products will be shipped to homes and business addresses by postal carriers like Federal Express, just as clothing, books, furniture and everything else ordered via the website is.

Online ordering with pick-up at selected stores via Walmart's "Pick Up Today" program will also be an option. Walmart is expanding its "Pick Up Today" and related "FedEx Site to Store" program to additional U.S. regions, including the San Francisco Bay Area and metropolitan Chicago, Phoenix and Washington D.C., along with expanding the program in general. See here for details.

Direct home grocery delivery isn't part of Walmart's plans. The retailer already offers a selection of non-food packaged goods like household cleaning products and laundry detergent, along with pet foods, on Walmart.com.

Our 'The Insider' columnist nailed the online grocery offering announcement ahead of today's conference in his column yesterday - October 12, 2010: 'The Insider': Live-Blogging Walmart Stores' 17th Annual Meeting For the Investment Community.

[Editor's Note: Fresh & Easy Buzz will be offering additional coverage and analysis (including a follow-up column by 'The Insider') on Walmart's smaller store and "three format" strategy and plans, it's online grocery plans, international initiatives, and more. Stay tuned.

Related Stories:

October 12, 2010: 'The Insider': Live-Blogging Walmart Stores' 17th Annual Meeting For the Investment Community

October 11, 2010: Walmart to Outline its Urban-Focused Smaller-Format Grocery Store Plans Wednesday; What Might Be In-Store?

July 6, 2010 story - Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store

September 20, 2010: About Today's Walmart Stores, Inc. Smaller Stores Media Frenzy: We Scooped it On July 6, 2010

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

April 25, 2008: Going Smaller: Wal-Mart Might have Found A Solution or Two to Much of the Opposition to its Mega-Supercenter Stores in the USA

June 27, 2008: Wal Mart Has Created A New, More Upscale Supercenter Store Design Prototype; Submitting Plans For the Stores Selectively in U.S.

September 15, 2008: Wal-Mart Expanding its Discount Store-to-Supercenter Conversion Program As Part of its Strategy to Grab Even More Food and Grocery Sales Market Share

February 11, 2009: Tesco's Fresh & Easy Isn't the Only Food & Grocery Retailer With its Eyes on Bakersfield: Wal-Mart's Bakersfield Push and Central Valley, CA Strategy

May 6, 2010: Going Smaller & Getting 'Hybrid': Walmart's Smaller Supercenter in Vacant Retail Buildings Strategy Began in 2008

Walmart to Outline its Urban-Focused Smaller-Format Grocery Store Plans Wednesday; What Might Be In-Store?

News & Analysis

Bentonville big box brawler Walmart Stores, Inc. is set on Wednesday (October 13) to present an overview of its food and grocery retailing-focused strategy and plans to open smaller-format stores in various U.S. urban regions, including: Los Angeles (and metro Southern California); San Diego; the San Francisco Bay Area; Chicago; New York City; Boston and possibly a few others.

Additionally, Walmart CEO Bill Simon said on September 15 at the Goldman Sachs Retail Conference that it's possible the smaller-format stores could also be used in suburban (fill-in) and rural areas as part of the retailer's overall USA strategy.

Fresh & Easy Buzz played a key part in kicking off what has been considerable discussion in the industry and media about Walmart's urban smaller-store food and grocery-focused retailing strategy, when we reported in detail in this July 6, 2010 story - Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store - about the retailer's plans. Late last month a number of major publications reported what was essentially our July story. [See - September 20, 2010: About Today's Walmart Stores, Inc. Smaller Stores Media Frenzy: We Scooped it On July 6, 2010.]

In addition to announcing a version of the about 20,000 square-foot (can range from 20,000 -to- as much as 40,000, depending on the site) small-format 'Neighborhood Market by Walmart' prototype store mentioned in our story above, we expect Walmart to describe at least one medium-format and possibly a third smaller-format it plans to use as part of its urban (and as Simon noted at the Goldman conference, potentially suburban fill-in and rural) smaller-store food and grocery retailing strategy and plans.

The second smaller-format could be a flexible-format food and grocery-focused store. That flex-format would range from a low of about 5,000 square-feet to about 20,000 square-feet. The smaller range would be for very dense urban neighborhoods, think Manhattan and San Francisco, for example, where not only is space at a premium but so too is the per-square-foot cost of retail/commercial space.

We've discussed this flexible square-footage smaller-format store in the past in Fresh & Easy Buzz, often referring to it as an American version of a bodega. This is appropriate terminology because Walmart has borrowed, and will continue to borrow, extensively from its Mexico operations, where the company operates store formats ranging from under 5,000 square-feet to over 100,000 square-feet. Walmart is the number one food, grocery and general merchandise retailer in Mexico.

Walmart on Wednesday will also talk about its new flexibility in terms of size as it pertains to its supercenters, which remain the retailer's primary retail weapon of choice in the U.S. As we've been reporting and writing about since 2008, although (store) size still matters at Walmart, when it comes to its supercenters, which average about 180,000 square-feet (the average size has come down by about 10,000-15,000 square-feet in the last couple years), Walmart is no longer as dogmatic about achieving that "average size" as it has been in the past.

For example, in 2009 Walmart opened its first supercenter in Modesto, California, in what was a vacant big box building the retailer renovated. The supercenter is 98,000 square-feet total, with about 75,00-85,000 square-feet of selling space. The smaller supercenter has been doing extremely well since it opened last year.

Due in large part to the success of the Modesto smaller, "hybrid" supercenter, which offers a full selection of fresh foods and groceries and all the other general merchandise departments featured in the bigger supercenters in a edited fashion, Walmart acquired two vacant big box stores in Southern California early this year, which it's renovating into smaller supercenters (70,000-80,000 square-feet of selling space), modeled on the Modesto unit.

Walmart has also been building and proposing some built from-the-ground-up supercenters in the last two years, which are much smaller than traditionally has been the case.

For example, in Patterson, California, which is about 15 miles from Modesto, Walmart is proposing a below average-sized 158,000 square-foot new construction supercenter, at Sperry and Ward avenues, in the city of about 35,000. The location is an open-space area along busy Interstate 5, which connects Northern and Southern California The Patterson City Council votes to approve or deny the store on Tuesday night. The city's mayor, Becky Campo, says it's likely the majority of the council will vote in favor of the store's construction at tomorrow night's meeting. A new supercenter opening this month in Reno, Nevada is even smaller.

These two pieces, along with building new supercenters and the to be announced smaller-store strategy, are key to Walmart's U.S. food and grocery retailing strategy.

An additional key piece of the retailer's U.S. food and grocery retailing strategy is its ongoing expansion (square-footage) at many of its discount format stores, which Walmart essentially isn't building anymore, in which its adding fresh foods and groceries, converting the stores into a "hybrid" supercenter. (We call both the smaller supercenters in renovated vacant buildings and the discount store conversions "hybrid" because they are modifications on the basic supercenter format model.)

Since 2009 Walmart has added square-footage and the equivalent of a full-service supermarket inside numerous discount format stores in the U.S. And in a number of cases, where it either hasn't been able to add square-footage because none is available adjacent to a particular discount store, or it's unable to get governmental approval to do so, Walmart has been adding fresh foods and expanded grocery selections in the discount stores anyway, reducing other department sizes to make room. The discount format stores average about 100,000-130,000 square-feet, so there's plenty of space to do so. And it creates a store format similar to the Modesto hybrid.

A most recent example of this is the remodeled store in Oceanside, California near San Diego, where Walmart reduced the store's electronics department considerably in size, along with shrinking some other departments, in order to add the fresh food and grocery space. [See - September 21, 2010: Fresh & Easy Neighborhood Market and Walmart Create A September New Grocery Store Rain Storm in Oceanside, California]

[Read the seven stories linked below for background on: (1) the smaller super-center in vacant big big box program; (2) the flexible-size new design supercenter program; (3) the discount store conversions and adding of fresh foods and groceries; and (4) smaller-format, small-store strategy.]

>July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store

>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

>April 25, 2008: Going Smaller: Wal-Mart Might have Found A Solution or Two to Much of the Opposition to its Mega-Supercenter Stores in the USA

>June 27, 2008: Wal Mart Has Created A New, More Upscale Supercenter Store Design Prototype; Submitting Plans For the Stores Selectively in U.S.

>September 15, 2008: Wal-Mart Expanding its Discount Store-to-Supercenter Conversion Program As Part of its Strategy to Grab Even More Food and Grocery Sales Market Share

>February 11, 2009: Tesco's Fresh & Easy Isn't the Only Food & Grocery Retailer With its Eyes on Bakersfield: Wal-Mart's Bakersfield Push and Central Valley, CA Strategy

>May 6, 2010: Going Smaller & Getting 'Hybrid': Walmart's Smaller Supercenter in Vacant Retail Buildings Strategy Began in 2008

Walmart's plans and Tesco's Fresh & Easy

Walmart's smaller-store plans will strike directly at the heart of the two key market regions Tesco has laid out going forward for its Fresh & Easy Neighborhood Market chain, Southern California, where it has over half of its current 168 stores (soon to be 155 after it closes 13 units by November 2, 2010; see 13 Closing Fresh & Easy Stores List ), and Northern California, which it plans to enter in early 2011 and, along with Southern California, put the majority of its focus on for the next two years. [See - October 5, 2010: Philip Clarke's Early Welcome to America: Tesco Logs $151 Million Half-Year Loss For Fresh & Easy Neighborhood Market]

In Los Angeles and parts of Southern California, as well as in the San Francisco Bay Area, Walmart is looking at various versions of strategic plans similar to what it recently announced for Chicago. Below (in italics) is what Walmart USA CEO Simon said about the retailer's Chicago plans at the September 15, 2010 Golden Sachs conference:

"Many of you heard and read about our Chicago announcement a month or so back. After a lot of time and energy, much of it not successful in urban areas in the US, we took a different approach with Chicago, working very closely with Mayor Daley and his team. And I respect them greatly for this effort.

"We have been able to reach an agreement with the City, the City Council and all the constituents in Chicago. And there are a lot of them. (For any of you who know how that whole thing works, please explain it to me one day. I think that would be a big help.) We do believe there is an opportunity for us to grow in Chicago, and the announcement we made talked about several dozen stores over the next five years and after.

"[After] years and years of City Council votes of 64 to nothing against us, we've had three approvals in the last six weeks from the City Council, and we are very, very optimistic about Chicago, and particularly about our opportunities in urban markets.

"We will be adding at least 12,000 jobs in the City, and at a time when jobs are a premium, we offer this, in addition to the savings it will offer our customers in the City of Chicago. There will be about 10,000 Wal-Mart associates and about another 2000 construction trade jobs that this will generate [in Chicago].

"We will have to be a little creative with formats, more so than we've been in the past. There is not a lot of big, empty lots that we can build 200,000 square-foot Supercenters in, nor do we want to anymore. So we will have a mix, a healthy mix, of Supercenters and small formats, including our grocery format, neighborhood market and smaller formats.

We have lots of learnings around the world from Wal-Mart in small formats. Our group in Mexico and Central America, Latin America operates small formats very well and very profitably, and we are going to beg, borrow, steal and learn from them as quickly as we can, because it is important for our urban strategy."

Fresh & Easy Buzz has learned Walmart representatives have had discussions of varying degrees with representatives of the cities (and mayors) of Los Angeles, San Diego, San Francisco, San Jose and a few others, in which the topic of discussion has been about the retailer's interest in opening numerous stores of different sizes, mostly smaller-format, in these cities and the surrounding suburban fringes.

The California cities, all historically previously pretty cool to Walmart in general, have a renewed interest in the retailer because of the agreement Walmart reached with the City of Chicago and the UFCW union, which agreed not to stand in the way of the stores opening. As an example, the mayors of Los Angeles and San Francisco, both Liberal Democrats, have friendships with Chicago Mayor Daley, a Democrat, as well as having strong respect for his governance of the city.
The fact Walmart is talking about smaller, urban-style stores has also peaked the interest of these California municipal officials and their representatives, as this is the first time Walmart representatives have approached them with such a conceptual idea. In the past it's been all about big box supercenters. We're calling it the Chicago model.

Additionally, there's the cold, hard economic facts: Like Chicago, these economically hard-pressed California cities and others are looking for private sector help to develop inner-city neighborhoods, new businesses to create jobs, and additional retail stores to bring in sales tax monies. The deal Walmart struck with the City of Chicago, where Walmart has so far had two new stores approved by the City Council (there's one Walmart discount store in he city) offers all these elements.

Walmart has already been acquiring, and continues to search for, retail space in California for these smaller-format stores, as we first reported back in July. [July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store.] A number of the sites it's obtained and continues to look at are vacant retail buildings, along with from scratch sites.

This means once Walmart pulls the trigger on the smaller store strategy, it won't take it long to renovate and open the first batch of stores, which include the Northern and Southern California focus, where the small-format stores will go in both urban and suburban cities. And there's considerable rural opportunity in California, especially in the north, as well.

Based on our reporting, we also expect Walmart might eventually locate some of its smaller-format stores in metropolitan Las, Vegas, Nevada and the metro Reno region in northern Nevada, although the regions aren't at the top of its priority list right now.

Metro Las Vegas is one of Tesco's four regions with Fresh & Easy Neighborhood Market, along with Southern California, metro Phoenix, Arizona and California's Central Valley.

There are currently 27 Fresh & Easy stores in metro Las Vegas. After Tesco closes the six units by November 2, that will leave 21 stores in the region.

Tesco also has plans to open Fresh & Easy stores in the Reno area as part of its Northern California launch. The Reno-area stores won't likely open any sooner than late 2001 or early 2012, based on our information.

Walmart could also use some of the smaller-format stores as infill in the metro Phoenix, Arizona Market, including replacing some or all of its four 'marketside by Walmart' small-format fresh food and grocery stores. Those four stores are in the Phoenix suburbs of Mesa, Chandler, Gilbert, and Tempe.

Additionally, two sources, both in good positions to know, recently told us Walmart plans to remodel many of the existing 39,000-42,000 Neighborhood Market supermarkets in Arizona that aren't fairly new or weren't remodeled in the retailer's last cycle in the state. This makes sense in light of the about 20,000 square-foot 'Neighborhood Market by Walmart' prototype Walmart's been testing in Rogers Arkansas and the differences it has compared to the existing format. Some of Walmart's newer neighborhood market supermarkets in Arizona are named 'Neighborhood Market by Walmart," although they are in the 35,000-40,000 square-foot range.

Tesco currently has 34 small-format Fresh & Easy Neighborhood Market stores in metro Phoenix, Arizona. After the closure of the six, it will bring the total store-count down to 28. Walmart is the number one food and grocery market share leader in metro Phoenix and all of Arizona, followed by Kroger's Fry's, Safeway, Albertsons, and Basha's. Tesco's Fresh & Easy isn't in the top 10.

This means once Walmart pulls the trigger on the smaller store strategy, it won't take it long to renovate and open the first batch of stores, which include the Northern and Southern California focus, where the small-format stores will go in both urban and suburban cities. And there's rural opportunities in California, especially in the north, as well. For example, there are numerous smaller cities where a supercenter won't work but a smaller-format store will.

U.S. food and grocery is about to get even more interesting - and competitive - with Walmart's decision to expand its format portfolio and square-footage, and go after U.S. urban markets. Stay tuned to Wednesday.

Revisting 'marketside by Walmart': Format As We Know it On the Way Out But Some or All Of the Four Stores Could Be Converted

News & Analysis

In this September 9, 2010 piece - Walmart Plans to Close Arizona 'marketside by Walmart' Stores, Dump Format By Year-End or Early 2011 - we reported that Walmart Stores, Inc. will end its small-format 'marketside by Walmart' format and close the four stores in Arizona, either by the end of this year or in early 2011, and discussed and offered analysis on the issue. The stores and format were called 'marketside' until the retailer added "by Walmart' to the name in 2009.

Since we reported and published the piece, we've learned about some additional thinking and discussion at Walmart, involving the four 'marketside by Walmart' stores, which range in size from a little over 15,000 square-feet to about 18,000 square-feet.

Although the 'marketside' fresh food and grocery format as we know it now is going away, Walmart is considering not closing some or all of the four stores, and instead converting them to one or more different formats.

Here's what we know right now:

Even though the 'marketside by Walmart' stores are smaller than Walmart's 20,000 square-foot 'Neighborhood Market by Walmart' prototype store in Rogers, Arkansas [See our July 6, 2010 story - July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store], Walmart Stores' is considering converting some or all four of the 'marketside' stores, which are in Gilbert, Chandler, Mesa and Tempe, Arizona, into a slightly scaled-down version of the 20,000 square-foot 'Neighborhood Market by Walmart' format and store. Based on what we know today, this is the most likely option of the three we're laying out in this piece.

Second, Walmart could replace one or more of the 'marketside by Walmart' units with a smaller version (a true bodega) of its 'Supermercado de Walmart' Latino format stores.

Walmart has a couple of these stores in Metro Phoenix. However, the stores are in renovated Walmart Neighborhood Market stores that, like this one in Phoenix, are 39,000-42,000 square-feet. All four of the 'marketside by Walmart' stores are less than half that size, which is why it would have to be a smaller, hybrid version the the current 'Supermercado de Walmart' units open and operating in Arizona.

Walmart has been working on such a smaller format though. It also operates such stores - in the 15,000 square-foot range, and even smaller - in Mexico. So it wouldn't be a stretch at all. The demographics, however, are only decent for a Hispanic format store in two of the four cities/neighborhoods where the 'marketside' stores are located. Therefore, it would only make sense to convert one, and maybe two, of the 'marketside by Walmart' stores into a Latino consumer-focused store, as described above.

Lastly, Walmart could put a new, "corner grocery store" (our term) type of format it's been working on into one or more of the four 'marketside by Walmart' stores in Arizona. Think of it as an "American" bodega. Walmart first started developing this format, both Latino and non-Latino consumer-focused versions, two years ago. Read our report: September 29, 2008: Special Report: Wal-Mart, Inc. Studying Second Small-Format Food and Grocery Store Concept; the 'Bodega' or Modern Version of the Corner Grocery Store.

What we know about this format is that it's more focused on basic groceries than Walmart's 'marketside' format is, less upscale and, although it offers some prepared foods, isn't fresh-prepared foods-focused like the 'marketside by Walmart' format is.

We don't know conclusively at this point in time what Walmart is going to do with the four Arizona 'marketside by Walmart' stores. But, based on our most recent information, our analysis is it's likely the retailer will retain at least two, and perhaps all four of the stores, converting the format. A key reason - but far from the only reason - for this is because Walmart Stores, Inc. has long-term leases on the four buildings the stores are housed in.

Further, it's our analysis, based on what we know today, the most-likely format to replace 'marketside' in one or all of the four Arizona 'marketside by Walmart' stores, is a slightly scaled-down, smaller version of the 20,000 square-foot 'Neighborhood Market by Walmart' format.

For example, the 20,000 square-foot prototype store in Rogers, Arkansas includes a pharmacy and fairly good-sized in-store deli. These two departments could be reduced in size, along with shrinking the overall footprint of the 20,000 square-foot store a bit, and then dense up the core of the store, and the format as it is, with just the changes described above, could easily fit in the four 'marketside by Walmart' boxes (the stores.)

Walmart should announce the fate of the format and the four stores at its upcoming analysts meeting in October. We're further reporting the story, and will probably have something additional before then. Stay tuned.

Also, read our December 21, 2009 story: Wither Walmart's Small-Format 'marketside' Stores and Format? And our January 9, 2010 piece - Walmart's 'marketside': What's 'In-Store' for 2010? They offer a good, integrated road map to the present.

Walmart Plans to Close Arizona 'marketside by Walmart' Stores, Dump Format By Year-End or Early 2011

The History - and End - of Walmart's 'marketside by Walmart' Format and Stores in Five Acts

Act 1: The beginning

We've been watching, reporting on and analyzing Walmart Stores, Inc.'s 'marketside by Walmart' (originally called just 'marketside') four-store chain of small-format food and grocery stores since before the stores were opened in four cities in Metropolitan Phoenix, Arizona in October 2008, nearly two years ago. [Read a selection of our stories here. Click the 'newer posts' link at the bottom of the linked page for additional stories.]

Act 2: The beginning of the end

On December 21, 2009, we reported in this piece - Wither Walmart's Small-Format 'marketside' Stores and Format? - that Walmart Stores, Inc. had eliminated its Web Site for the four then 'marketside' (now named 'marketside by Walmart') small-format grocery and fresh foods markets and replaced it with a single Web Page introducing the company's new line of 'marketside' store brand food products, which are named after the fresh foods-focused format stores in Arizona.

As you can see in the piece linked above, we further suggested in the story that 'marketside by Walmart's' days were numbered.

Act 3: The curtain is closing

On January 9, we followed up our December 21, 2009 piece with a story titled: Walmart's 'marketside': What's 'In-Store' for 2010? At the end of the piece we offered three predictions about the 'marketside by Walmart' format and stores and its 'Marketside' brand, which Walmart is using on packaged fresh-prepared foods, pre-packaged fresh produce, fresh salsas, packaged breads and baked goods, along with using to brand some of its supercenter deli departments.

Below (in italics) is the prediction we made in the story regarding the 'marketside by Walmart' format and stores. It just happens to be prediction number one:

Walmart will keep the four Arizona 'marketside by Walmart' stores open in 2010. It will do so in part to serve the research and development function we mention above. Walmart won't open any new small-format 'marketside by Walmart' stores in 2010 though, either in Arizona or elsewhere in the U.S.

So far - nine months into 2010 - our prediction is correct. Walmart hasn't opened any additional 'marketside by walmart' stores this year, nor has it closed the four Metro Phoenix, Arizona stores...yet.

Act 4: Enter the replacement format

In early July of this year, we published this story - July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store - in which we not only broke the news Walmart Stores, Inc. is looking for sights in Northern California for the 20,000 or so square-foot 'Neighborhood Market by Walmart' format and grocery store its been experimenting with in Rogers, Arkansas, but also said, based on information we obtained, that Walmart would eventually be closing the four Arizona 'marketside by Walmart' stores, shelving the format, and replacing it (the format not that actual four stores) with a final version of the 'Neighborhood Market by Walmart' prototype store.

Here's what we said (in italics) in the July 6 story:

Walmart Stores, Inc. currently has no plans to open any additional Marketside by Walmart stores - anywhere - including in Northern California. In fact, the retailer still holds leases on two sites in Southern California, one in San Diego and another in nearby Oceanside, but has no plans to open them as Marketside by Walmart stores. Construction at both locations, vacant retail buildings, has never been started, nor are there any plans to do so in the near future.

It's our analysis that Walmart is likely to replace the Marketside by Walmart format with some final version of the 20,000 square-foot Neighborhood Market by Walmart prototype, in terms of not opening any additional Marketside stores, and eventually close the four stores in Arizona, or replace one or more with the 20,000 square-foot prototype. It's important to note that the 20,000 square-foot prototype store in Rogers, Arkansas remains a work in progress in terms of not being cast in stone as the final format product, just like the name Neighborhood Market by Walmart might not end up being what it's called.

Act 5: The End is Near

Walmart's small-format 'marketside by walmart' has gone from withering in December 2008, to beginning to die on the vine in early January 2010, to starting to show signs of rot a little over two months ago, in July 2010, according to our chronology of reporting.

And now, the end is coming very soon for the four 'marketside by walmart' stores and the format.

Based on information we've obtained, Walmart Stores, Inc. plans to announce the closing of the four Metro Phoenix 'marketside by Walmart' stores - which are located in the cities of Gilbert, Chandler, Mesa and Tempe - before the end of December 2010, and no later than in the first quarter of 2011.

Yes, Walmart's small-format, Tesco Fresh & Easy Neighborhood Market-like, fresh food and grocery-focused small-format experiment will soon come to an end.

Currently, based on our information (and as we said in our July 2010 story), the format replacement for 'marketside by walmart' is the 20,000 or so square-foot 'Neighborhood Market by Walmart' prototype store in Rogers, Arkansas. Walmart continues to tweak the format, by the way.

Additionally, Walmart will continue to remodel and build its larger (average 40,000 square-foot) Neighborhood Market supermarkets, a few of which have had name changes to 'Neighborhood Market by Walmart' on a selective basis thus far.

So there you have it. Walmart's four 'marketside by Walmart' stores, which all opened on October 4, 2008, will soon be history, along with the format. The history of Walmart's 'marketside by Walmart' in five acts, as reported on and analyzed by Fresh & Easy Buzz.

But, like the story of the mythical 'Phoenix' (appropriate since the four 'marketside by Walmart' stores happen to be in Metro Phoenix, Arizona) rising out of the ashes, not only has a brand name - 'marketside' - for fresh-prepared foods, pre-packaged produce, fresh salsas, and fresh-baked breads, rolls and a cookie, along with a brand name for store deli/prepared foods departments - been born out of the small-format stores, but so too has a new format - the 20,000 or so square-foot 'Neighborhood Market by Walmart' prototype, which is rising out of what will soon be the ashes of the 'marketside by Walmart' format and stores.

Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store

Breaking News - Plus Analysis

Walmart Stores, Inc. is currently searching for numerous future store sites in Northern California, with a focus on existing vacant retail buildings, for its 20,000 square-foot Neighborhood Market by Walmart prototype format, which it's been testing in a store in Rogers, Arkansas near corporate headquarters in Bentonville for about a year, Fresh & Easy Buzz has learned.

In addition to its Northern California focus, Walmart is also scouting for sites for the smaller-format stores in northern Nevada, in other selected urban regions in the west, and at urban locations on the east coast and in the Midwest, particularly in Chicago, where it recently announced a major development initiative in partnership with the city and Mayor Richard Daley, in which Walmart will invest tens millions of dollars to develop numerous stores (multiple format, big and small) on Chicago's south and west sides.

The 20,000 square-foot prototype store in Rogers, Arkansas - which is essentially a smaller, hybrid version of Walmart's 40,000 square-foot Neighborhood Market format, mixed with some of the elements of its Marketside by Walmart fresh food and grocery format, four stores of which the retailer's been operating in Metropolitan Phoenix, Arizona since October 2008 - currently goes by the name Neighborhood Market by Walmart, as do at least two converted Neighborhood Market stores (both are 40,000 -to- 45,000 square-feet though); one in Naples, Florida and the other in Plano, Texas. However, according to our sources, Walmart has not yet decided if the 20,000 square-foot prototype will end up being called Neighborhood Market by Walmart, or if it will choose another name for it.

Walmart is searching for an initial 10 locations for the new concept, 20,000 square-foot Neighborhood Market by Walmart prototype format in the Sacramento Metropolitan region, and for about the same number of store sites in the San Francisco Bay Area, according to two Northern California-based commercial real estate sources in a position to know about the search.

According to our sources, Walmart is looking for at least three initial locations in Sacramento, with the other seven store sites being in the surrounding suburbs, including in Elk Grove, where Tesco's Fresh & Easy Neighborhood Market has two future store sites - one at Bruceville Road and El Grove Boulevard, and the other at Elk Grove Florin Road and Calvine Road. This mix is subject to adjustment and change.

Interestingly, Southern California-based Smart & Final is planning to open its first Henry's Farmers Market food and grocery store in Elk Grove in late August. [See here.]

Tesco's Fresh & Easy has had 19 publicly confirmed store locations in Northern California's Sacramento/Vacaville Metropolitan region since February 2008. Ten of the store sites are in Sacramento. The other seven are in the suburbs. Two of the stores are in Vacaville, which is about a 30 minute drive from Sacramento, and is located about mid-way between Sacramento and the Bay Area. [See - February 28, 2008: News & Analysis: Tesco's Fresh & Easy Confirms 19 Store Locations for the Sacramento-Vacaville Region in Northern California]

The search for store locations for the 20,000 square-foot prototype format, currently going by the name Neighborhood Market by Walmart, in the San Francisco Bay Area includes a mix of urban and suburban locations, including in the south Bay Area near San Jose, in the East Bay, as well as in San Francisco, and elsewhere in the nine-county region of about 7 million residents.

Tesco's Fresh & Easy has 18 confirmed future store locations in the San Francisco Bay Area. Those store sites were announced in February 2008 as well. Click here to read our most recent - and past - coverage on Fresh & Easy Neighborhood Market's plans in Northern California, including in the nine-county Bay Area.

Walmart is hoping to find some of the Northern California locations this year, and could announce, or at least confirm, its plans for the 20,000 square-foot stores before the year is out.

Fresh & Easy Buzz has visited the 20,000 square-foot new concept Neighborhood Market by Walmart store in Rogers, Arkansas. It differs from the traditional 40,000 square-foot Neighborhood Market format (about 152 existing stores at present) in a number of key ways, although its apparent to us it's where the inspiration and structural basis for the prototype comes from.

First, the 20,000 square-foot prototype store is more compact, but doesn't have a crowded look or feel to it. Second, the store's sight lines (lower but with fairly high-profile gondola shelving in order to hold plenty of SKUs) and overall interior design are an improvement over the traditional Neighborhood Market stores, in our analysis.

Additionally, the department graphics - green in color - in the 20,000 square-foot prototype store are colorful and pop when you set your eyes on them. The theme "Save Money Live Better," is used throughout the store.

The prototype store also features both full-service and self-service checkout lanes.

Lastly, the 20,000 square-foot prototype Neighborhood Market by Walmart store in Rogers, Arkansas has a service seafood counter, a deli/prepared foods department under the "Marketside" brand, am in-store cafe, and features a substantial offering of natural and organic food and non-food products, in addition to conventional national brands, and lots of private label SKUs, across all departments and categories.

We've been reporting and offering analysis for the nearly three-year existence of Fresh & Easy Buzz that in order for Walmart to have a significant presence in the food and grocery retailing space in Northern California it must have a multi-format and multi-square-foot strategy.

The retailer initially began exploring this strategy in late 2007/early 2008, when it located a number of potential sites in Northern California for its small-format (16,000 -to- 20,000 square-foot) Marketside by Walmart fresh food and grocery stores (originally named just Marketside). However, in 2009 Walmart put the opening of any new Marketside stores on hold, and began creating the 20,000 square-foot Neighborhood Market by Walmart prototype, the first and only store of its size currently being the one in Rogers, Arkansas.

There are currently four Marketside by Walmart stores in Metro Phoenix, Arizona. All four stores opened in early October 2008.

Walmart Stores, Inc. currently has no plans to open any additional Marketside by Walmart stores - anywhere - including in Northern California. In fact, the retailer still holds leases on two sites in Southern California, one in San Diego and another in nearby Oceanside, but has no plans to open them as Marketside by Walmart stores. Construction at both locations, vacant retail buildings, has never been started, nor are there any plans to do so in the near future.

It's our analysis that Walmart is likely to replace the Marketside by Walmart format with some final version of the 20,000 square-foot Neighborhood Market by Walmart prototype, in terms of not opening any additional Marketside stores, and eventually close the four stores in Arizona, or replace one or more with the 20,000 square-foot prototype. It's important to note that the 20,000 square-foot prototype store in Rogers, Arkansas remains a work in progress in terms of not being cast in stone as the final format product, just like the name Neighborhood Market by Walmart might not end up being what it's called. [For some background see - December 21, 2009: Wither Walmart's Small-Format 'marketside' Stores and Format? and January 9, 2010: Walmart's 'marketside': What's 'In-Store' for 2010?]

As we've reported and offered analysis on frequently in Fresh & Easy Buzz, Walmart has embarked on a strategy to increase its market share, which is minimal, in Northern California in three key ways.

First, it's converting as many of its Division I discount format stores - just as its doing throughout the U.S. - as it can in the region into hybrid supercenters, adding anywhere from 30,000 -to- 56,000 square-feet of additional space to the stores as part of a complete remodeling, and using that added space for fresh foods and groceries.

Additionally, following on the heels of the opening of its first-ever smaller-format, hybrid supercenter in Modesto, California in 2008, which is located in an about 90,000 (less selling space than that though) square-foot building, which formerly held a discount warehouse supermarket and a drug store, Walmart has been and is searching for similar sized - in the 75,000 -to- 1000,000 square-foot range - vacant big box stores in Northern California that it can remodel and turn into edited versions of its Supercenters, like it did with the Modesto store on McHenry Avenue in the city of 205,000, in Stanislaus County [See - May 6, 2010: Going Smaller & Getting 'Hybrid': Walmart's Smaller Supercenter in Vacant Retail Buildings Strategy Began in 2008]

Lastly, Walmart is proposing numerous new supercenters in Northern California, including in the Sacramento region - one is planned for Elk Grove in the southern part of town in fact - the Northern Central Valley (Stockton, Modesto, Merced regions), the Bay Area (in a limited way though because approval is difficult to get) and elsewhere.

The reason Walmart needs a multi-format and multi-square-footage strategy in Northern California is for two primary reasons: (a) obtaining approval for mega-supercenters is extremely difficult in the region (some cities and counties even have ordinances banning the big stores) and (b) the geographical (density) limitations in key cities like San Francisco, Oakland, San Jose, Sacramento and a couple others make locating and 100,000-plus square-foot supercenters (and even 75,000 square-foot units) nearly impossible. Therefore, focusing on a food and grocery- centric format like the 20,000 square-foot (or slightly bigger or smaller) Neighborhood Market by Walmart prototype is key for Walmart to become a grocery retailing player in the Northern California, as well as in numerous other similar places in the U.S., region.

Selected Related Stories from Fresh & Easy Buzz:

April 25, 2008: Going Smaller: Wal-Mart Might have Found A Solution or Two to Much of the Opposition to its Mega-Supercenter Stores in the USA

June 27, 2008: Wal Mart Has Created A New, More Upscale Supercenter Store Design Prototype; Submitting Plans For the Stores Selectively in U.S.

May 6, 2010: Going Smaller & Getting 'Hybrid': Walmart's Smaller Supercenter in Vacant Retail Buildings Strategy Began in 2008

September 15, 2008: Wal-Mart Expanding its Discount Store-to-Supercenter Conversion Program As Part of its Strategy to Grab Even More Food and Grocery Sales Market Share

November 19, 2008: Competitor News: Wal-Mart Lowering Prices on Holiday Items and Staples; New Formats Coming; Online Grocery Sales; Hundreds of New Stores FY 2009-2010

October 5, 2008: Wal-Mart's Marketside is More Than the Sum of the Parts of its Other Formats; While Time and Consumers Will Judge, We See the Format As A Stategic Fit

October 6, 2008: 'The Promotional Pundit:' How Wal-Mart Can Use its Supercenters to Create Customers For its New Small-Format Marketside Stores in Arizona

November 21, 2008: Breaking News: Wal-Mart Stores, Inc. Names New CEO to Replace Lee Scott; USA Chief Castro-Wright Elevated to Vice Chairman Effective Immediatly

February 11, 2009: Tesco's Fresh & Easy Isn't the Only Food & Grocery Retailer With its Eyes on Bakersfield: Wal-Mart's Bakersfield Push and Central Valley, CA Strategy

May 16, 2009: Competitor News: Wal-Mart Clears First Major Hurdle For Proposed Mega-Distribution Center in Merced, CA; Chain's Regional Strategy Moving Forward

October 3, 2008: Wal-Mart Opens First Four Small-Format Marketside Fresh Food and Grocery Stores Tomorrow Morning in Gilbert, Chandler, Mesa and Tempe, Arizona

December 21, 2009: Wither Walmart's Small-Format 'marketside' Stores and Format?

May 20, 2010: Welcome to Discountopia USA

Stories thus far in our on-going 2010 Northern California Market Special Report Series:

June 26, 2010: Tesco Planning to Announce in July When First Northern California Fresh & Easy Neighborhood Market Stores to Open

June 14, 2010: Newly-Named Whole Foods Market CO-CEO Walter Robb Comes Full Circle With the Opening of the New Store in Mill Valley CA

June 5, 2010: Sprouts Farmers Market Opens First Northern California Store in Sunnyvale; Strikes Up Partnership With Local Non-Profit Farm

May 29, 2010: Going Rural: Fresh & Easy Neighborhood Market to Build First Store in Los Banos, California

May 28, 2010: First Phase of Fresh & Easy Neighborhood Market-Anchored Condo Development in San Francisco's Bayview Set For Completion in June

April 19, 2010: Tesco Debating Whether to Launch Fresh & Easy Into Northern California This Fiscal Year... or Wait

May 9, 2010: A Whopping 15 of Whole Foods Market's 41 New Stores in Development are in California - And Nine of The 15 Are In Northern CA

May 8, 2010: Sprouts, and Likely Henry's to Beat Fresh & Easy to Northern California Despite it's Big Head Start

May 6, 2010: Going Smaller & Getting 'Hybrid': Walmart's Smaller Supercenter in Vacant Retail Buildings Strategy Began in 2008

[Readers: Click here and here to read about Fresh & Easy's Buzz's extensive reporting and analysis on Tesco's Fresh & Easy-Northern California, as well as on the Northern California market in general.]