Breaking Buzz & Analysis
Tesco-owned Fresh & Easy Neighborhood Market is currently developing a 2,000 square-foot version of its 3,000 square-foot 'Fresh & Easy Express' convenience-oriented food and grocery market, according to multiple sources familiar with the project.
Fresh & Easy is constructing a prototype of the 2,000 square-foot store inside a space it controls near the 10,000 square-foot Fresh & Easy Neighborhood Market unit in Los Angeles' Eagle Rock Neighborhood.
El Segundo, California-based Fresh & Easy Neighborhood Market used that very same space to build a mock-up of its 3,000 square-foot 'Express' format stores, of which their are currently about 10 units, all in Southern California.
The new 2,000 square-foot market, called an F2 in Fresh & Easy speak - the 10,000 square-foot stores for example are referred to internally at Fresh & Easy as F10's, the 3,000 square-foot stores F3's, and the handful of 7,000 square-foot markets the grocer operates are F7's - is basically a scaled-down version of the 3,000 square-foot stores, according to sources who are familiar with the project.
For example, current plans call for smaller refrigerated, frozen food and produce cases than in the 3,000 square-foot stores as a way to compensate for the reduced square footage, according to our sources. Some types of cases and shelving also could be eliminated for the same reason, our sources say.
Neither Tesco or its Fresh & Easy Neighborhood Market chain have announced the development of the 2,000 square-foot stores. This is the first time Tesco's plans for a smaller version of the 3,000 square-foot 'Fresh & Easy Express' store is being reported.
Analysis
The first question any food and grocery retailing analyst or grocer worth his or her salt should ask upon reading this report is: 'Why a 2,000 square-foot version of what already at 3,000 square feet is a very small-format grocery market.?
The answer to that question, according to our sources (and to our reporting and analysis of Tesco and its Fresh & Easy chain for five years on) - and it's what we said was the primary driving force behind the 3,000 square-foot 'Express' format in our stories about the stores last year - is that Tesco's Fresh & Easy is searching for ways to reduce its new store development and opening capital cost while still growing its store count.
Since launching its California-based small-format fresh food and grocery chain in 2007, Tesco has always said it will break even financially with Fresh & Easy - which lost about $245 million in its most recent fiscal year and has lost about $1.5 billion over its five year history - by achieving scale, which means opening numerous stores over a short period of time.
For example, from 2006 to 2010 Tesco said it still planned to have at least 500 stores in four-to-five years, on its way to 1,000 stores over an about six or seven year period, which would be 2013-end-to-2014. It said this despite the fact it's paused opening new stores for many months at least three times in Fresh & Easy's five year history. The most recent period being at present.
But in 2011, not long after he took over as CEO of Tesco in March of last year, Philip Clarke said the United Kingdom-based retailer planned to open just 400 Fresh & Easy stores, which would allow Tesco to break even with its U.S. grocery chain by the end of its 2013 fiscal year, which ends February 2013.
Not many months later Clarke and Tesco changed those plans, saying instead of the 400 Fresh & Easy units needed to break even by the end of fiscal 2013, it had figured out a way to do so with just 300 stores.
But then earlier this year Clarke and Tesco pushed back Fresh & Easy's break-even time to the end of its 2014 fiscal year, at which time the retailer says it will then break even with Fresh & Easy Neighborhood Market. Tesco kept - so far - the 300 store number as the number of Fresh & Easy units needed to break even by the end of the 2014 fiscal year.
There are 199 Fresh & Easy stores in California, Nevada and Arizona.
Tesco's 2014 fiscal year-end is about two years away. That means it will have to build and open 101 stores between now and then to reach 300 units, which Clarke and company say is needed to break even at that time.
But Tesco has essentially stopped opening Fresh & Easy stores, with the exception of one or two here or there.
Instead, the retailer has embarked on a cost-cutting campaign of limited sorts with Fresh & Easy, which begs another key question any industry analyst or grocer should ask: "How can Tesco open 101 stores in two years - which is half as many as it's opened over the last five years - when beginning a couple months ago it essentially stopped opening new Fresh & Easy stores?
In fact, even if Tesco were opening Fresh & Easy stores at its high-point-pace, it would be near physically and logistically impossible, and not very smart, to open 101 stores in two years, particularly considering the continued poor performance of the California-based grocery chain and its need to reduce costs and raise margin at it to even come close to breaking even with Fresh & Easy
The answer to the question, as it pertains to the micro small-format store prototype being developed, isn't that Tesco is going to open 101 2,000 square-foot grocery markets - the format in development. For example, it's opened just 10 or so of the 3,000 square-foot Fresh & Easy Express stores in the year or so since the first unit was opened.
There are numerous reasons why they won't do so but here's a simple reason why if they do it won't help: The best 10,000 square-foot Fresh & Easy stores do about $150,000 in average weekly sales, and there aren't many of those units. That would mean the best of the 2,000 square-foot stores would do - at best - about 40,000 in weekly sales. If scale, as in growing sales by growing store-count, matters, 101 2,000 square-foot stores, even if they all were stellar performers, which they won't be, doesn't add up to a whole lot of annual sales when one looks at the big picture.
But hopes and dreams of reduced capital costs without considering the fundamental question - can 2,000 square-foot grocery stores operated the way Fresh & Easy operates them make any money - it appears spring eternal at Fresh & Easy Neighborhood Market.
Therefore, the Tesco-owned chain is developing a smaller version of its 3,000 square-foot 'Express' store, shaving 1,000 square feet off the store size.
Perhaps Tesco hopes it can "shrink" (in terms of store size) rather than grow (recall those days of a 1,000-store chain) its way to break-even with Fresh & Easy.
But size does matter. And a 2,000 square-foot grocery market, like all small formats - including 3,000 and 10,000 square-foot grocery stores - are fraught with problems when it comes to making money. Just ask Walmart - the now folded 'marketside by Walmart' stores and its fledgling small-format Walmart Express, which despite being 15,000 square-feet is having economic struggles endemic to many small-format grocery stores, particularly those run by chains without a history of operating such stores.
Or ask Safeway CEO Steve Burd, who put an end to the California-based supermarket chain's 'The Market' format (10,000-14,000 square-foot grocery markets ) after just two test units has been opened and operated for about one-year each. Both stores, in Long Beach and San Jose, California, remain open but Burd killed further development of the format over two years ago.
According to our sources, at present there isn't a set date for when - or if - the first 2,000 square-foot Fresh & Easy store will open. However, our sources say, Fresh & Easy already has a number of locations for the stores scouted out, although much of the grocer's real estate team was fired last Wednesday, which is an important indication of the future of Fresh & Easy Neighborhood Market's new store development plans.
Those plans: Little to nothing going forward for the rest of this year in terms of acquiring new store sites - there are already dozens of Fresh & Easy sites that have been sitting fallow for as long as four-to-five years - and opening new Fresh & Easy stores.
[Editor's Note: Fresh & Easy Buzz is an independent Blog, and is not affiliated with Tesco, Tesco's Fresh & Easy Neighborhood Market, or any of its competitors. No member of the Fresh & Easy Buzz editorial team has ever or currently works for Tesco or its Fresh & Easy Neighborhood Market chain.]
Showing posts with label small format grocery stores. Show all posts
Showing posts with label small format grocery stores. Show all posts
Wednesday, August 1, 2012
Saturday, July 30, 2011
First 4,000 Sq. Ft. Fresh & Easy Neighborhood Market 'Express' Store Set to Open in Los Angeles' San Pedro Community This Year
Breaking Buzz
We broke the news in this January 23, 2011 story [Tesco's Fresh & Easy Neighborhood Market Looking For Locations For New, Smaller-Format 4,000-to-5,000 Square-Foot Stores] that Tesco-owned Fresh & Easy was developing a 4,000-5,000 square-foot edited version of its about 10,000 (selling space) square-foot Fresh & Easy Neighborhood Market stores and looking for locations in Southern California to test the concept.
We've now discovered what will likely be the first smaller-format Fresh & Easy store to open. That unit, in Southern California, will be a 4,000 square-foot store at Sixth and Gaffey Streets (here) in San Pedro, which is a community in and around Los Angeles' harbor area and home to the Port of Los Angeles.
Fresh & Easy Neighborhood Market currently plans to call the 4,000-5,000 square-foot stores Fresh & Easy Neighborhood Market "Express," according to our sources, to differentiate the smaller units from the flagship (10,000 square-foot) Fresh & Easy Neighborhood Market stores, which it currently has 176 of in California (127 units), Metro Las Vegas, Nevada (21 units) and metro Phoenix, Arizona (28 units)
As we reported in January of this year, the Fresh & Easy "Express" format stores will essentially be a smaller and edited version of the 10,000 square-foot Fresh & Easy grocery markets. They will also borrow a couple elements from the United Kingdom-based retailer's Tesco Express (about 2,500-3,000 square-feet) convenience-style stores, which it operates in the UK and elsewhere in Europe.
Fresh & Easy Neighborhood Market has applied to the State of California for an off-sale beer and wine license for the 4,000 square-foot store at the San Pedro location, something we've verified through California's Alcohol Beverage Control Department.
Additionally, a hearing regarding Fresh & Easy Neighborhood Market's application for the beer and wine license is scheduled for September 21 of this year, according to a City of Los Angeles notice we recently reviewed.
In our January story we reported that among the current potential smaller store sites Fresh & Easy Neighborhood Market is looking at in Southern California include at least three locations in Orange County, along with more than one site in Los Angeles and nearby Santa Monica.
According to our sources, assuming it doesn't run into any objections in obtaining the beer and wine license for the store along with incurring other types of delays, Fresh & Easy CEO Tim Mason and his senior staff would like to open the 4,000 square-foot "Express" store in San Pedro around mid-November of this year, although as we always say about new store opening dates at Tesco's Fresh & Easy, they are fluid and dynamic. If the store doesn't open this year, it will open in early 2012, our sources say.
We reported in this December 10, 2010 story [Fresh & Easy Neighborhood Market CEO Tim Mason Says 70 New Stores Possible in Los Angeles Area] that Tim Mason, who since then has become the deputy CEO of Tesco as well as CEO of its El Segundo (Southern) California-based Fresh & Easy Neighborhood Market chain, told members of the Valley Industry & Commerce Association of the San Fernando Valley at a meeting that Fresh & Easy was looking to open up to 70 new stores in the Los Angeles area.
"We've identified 70 opportunities [new store locations] in Los Angeles", Mason told a meeting of the Valley Industry & Commerce Association of the San Fernando Valley (VICA) on December 9, 2010. "If we can open those 70 opportunities, that will be 1,400 jobs, as well as 300 construction workers per-site. We’re eager to invest and we want to get on," he told the group.
Tesco's Fresh & Easy has opened three stores in Los Angeles County so far this year; in Long Beach, San Dimas and Walnut Park. A few additional new Fresh & Easy stores are set to open this year in Los Angeles County, including in Long Beach, which isn't far from San Pedro. In addition to Long Beach, Tesco has other Fresh & Easy stores near San Pedro, in Harbor City and Signal Hill., for example.
On July 12 of this month Mason said in a speech he gave at Town Hall Los Angeles that Fresh & Easy was still looking at opening those 70 stores, saying as he did in December 2010 that part of the grocer's ability to do so is predicated on it not being bogged down with numerous local government regulations and objections by community and neighborhood groups.
Some of the 70 Los Angeles-area locations Fresh & Easy has identified are, like the San Pedro unit, in the 4,000-5,000 square-foot range and, like the store in San Pedro, will be "Express" units rather then flagship Fresh & Easy Neighborhood Market stores, although the 10,000 square-foot fresh food and grocery market remains Teco's primary format focus in the U.S.
Tesco's primary focus with Fresh & Easy will remain on the current 10,000 square-foot format stores, adding the smaller "Express" units as an adjunct or secondary format.
We'll have more on Fresh & Easy Neighborhood Market's "Express" smaller store initiative soon in Fresh & Easy Buzz. Stay tuned.
Sunday, January 23, 2011
Tesco's Fresh & Easy Neighborhood Market Looking For Locations For New, Smaller-Format 4,000-to-5,000 Square-Foot Stores
Breaking Buzz
Tesco has developed a smaller-format version of its Fresh & Easy Neighborhood Market fresh food and grocery store - in the 4,000 square-foot -to- 5,000 square-foot range, compared to Fresh & Easy's 10,000 square-foot -to- 12,000 square-foot size - and is currently looking for potential locations for the smaller footprint stores in Southern California, where it's considering opening the first few of the smaller stores, and in Northern California, Fresh & Easy Buzz has learned.
The smaller stores are an addition to and not a replacement for the current 10,000 square-foot -to- 12,000 square-foot Fresh & Easy markets.
We don't have all the details on the new format as of yet.
However, based on what we've learned so far, the smaller format is essentially an edited version of the existing Fresh & Easy format.
The 4,000 square-foot -to- 5,000 square-foot stores would offer basically the same product category assortment as the 10,000 square-foot -to- 12,000 square-foot stores do but in a limited way, based on the fact the smaller stores will be about half the size as the existing Fresh & Easy markets are. Think of the smaller stores as essentially offering a limited assortment of the current Fresh & Easy store product assortment and mix, with perhaps a couple other minor tweaks here and there.
El Segundo, California-based Fresh & Easy Neighborhood Market's real estate team is currently looking at sites for the 4,000 square-foot -to- 5,000 square-foot stores primarily in Southern California and secondarily in Northern California.
Further, we're told both urban and suburban retail store sites are being looked at by Tesco's Fresh & Easy for the new, smaller stores, which could have the "Express" name attached top them.
For example, among the current potential smaller store sites the fresh food and grocery chain is looking at include at least three locations in Orange County, along with more than one site in Los Angeles and nearby Santa Monica.
According to our sources, one of the reasons Tesco's Fresh & Easy is considering opening the smaller stores is because Tesco's business model has restrictions on the amount of capital used to purchase and lease store locations. This is one reason, for example, there aren't 10,000 square-foot -to- 12,000 square-foot Fresh & Easy stores in Southern California cities like Santa Monica or regions like West Los Angeles, which have among the highest retail commercial real estate costs in Southern California.
In contrast, according to our sources, by being able to build or lease locations in the 4,000 square-foot -to- 5,000 square-foot range, Fresh & Easy Neighborhood Market can get into these desirable cities and neighborhoods because the rental and purchase costs for stores half the size of the existing Fresh & Easy markets in places like Santa Monica and West L.A., and elsewhere where retail real estate costs are similar, generally fit into the business model Tesco has set for Fresh & Easy when it comes to the amount of capital available for buying and leasing store locations.
Tesco's Fresh & Easy Neighborhood Market has been working for some time to come up with a way to adapt the current product offering (about 4,500-5,000 SKUs) in the 10,000 square-foot -to- 12,000 square-foot Fresh & Easy markets to a smaller format store, such as those we're reporting on in this piece, according to a source in a position to know such information.
The existing Fresh & Easy stores carry about 4,500-5,000 SKUs. Many independent grocery stores in the 4,000 square-foot -to- 5,000 square foot range carry 5,000 (and far more) SKUs.
Fresh & Easy Neighborhood Market could easily fit the same number of SKUs it currently offers in the 10,000 square-foot -to- 12,000 square-foot stores in the 4,000-5,000 square-foot units simply by narrowing the store aisles, using higher shelving, and reducing the amount of product facings it gives each item in the store. Sources tell us though that the smaller stores will offer a limited assortment of the current Fresh & Easy store mix rather than doing what we describe above.
The primary but not only reason Fresh & Easy Neighborhood Market has developed the smaller store format is because it wants to create more flexibility within Tesco's property capital allocation model, described earlier, which will then allow Fresh & Easy to open stores in these desired but so far unobtainable locations and still be within its property budget.
The smaller stores are Fresh & Easy's answer to this situation, according to the source, who says the first of these smaller stores should come on line this year in Southern California first, then later in Northern California.
Tesco has developed a smaller-format version of its Fresh & Easy Neighborhood Market fresh food and grocery store - in the 4,000 square-foot -to- 5,000 square-foot range, compared to Fresh & Easy's 10,000 square-foot -to- 12,000 square-foot size - and is currently looking for potential locations for the smaller footprint stores in Southern California, where it's considering opening the first few of the smaller stores, and in Northern California, Fresh & Easy Buzz has learned.
The smaller stores are an addition to and not a replacement for the current 10,000 square-foot -to- 12,000 square-foot Fresh & Easy markets.
We don't have all the details on the new format as of yet.
However, based on what we've learned so far, the smaller format is essentially an edited version of the existing Fresh & Easy format.
The 4,000 square-foot -to- 5,000 square-foot stores would offer basically the same product category assortment as the 10,000 square-foot -to- 12,000 square-foot stores do but in a limited way, based on the fact the smaller stores will be about half the size as the existing Fresh & Easy markets are. Think of the smaller stores as essentially offering a limited assortment of the current Fresh & Easy store product assortment and mix, with perhaps a couple other minor tweaks here and there.
El Segundo, California-based Fresh & Easy Neighborhood Market's real estate team is currently looking at sites for the 4,000 square-foot -to- 5,000 square-foot stores primarily in Southern California and secondarily in Northern California.
Further, we're told both urban and suburban retail store sites are being looked at by Tesco's Fresh & Easy for the new, smaller stores, which could have the "Express" name attached top them.
For example, among the current potential smaller store sites the fresh food and grocery chain is looking at include at least three locations in Orange County, along with more than one site in Los Angeles and nearby Santa Monica.
According to our sources, one of the reasons Tesco's Fresh & Easy is considering opening the smaller stores is because Tesco's business model has restrictions on the amount of capital used to purchase and lease store locations. This is one reason, for example, there aren't 10,000 square-foot -to- 12,000 square-foot Fresh & Easy stores in Southern California cities like Santa Monica or regions like West Los Angeles, which have among the highest retail commercial real estate costs in Southern California.
In contrast, according to our sources, by being able to build or lease locations in the 4,000 square-foot -to- 5,000 square-foot range, Fresh & Easy Neighborhood Market can get into these desirable cities and neighborhoods because the rental and purchase costs for stores half the size of the existing Fresh & Easy markets in places like Santa Monica and West L.A., and elsewhere where retail real estate costs are similar, generally fit into the business model Tesco has set for Fresh & Easy when it comes to the amount of capital available for buying and leasing store locations.
Tesco's Fresh & Easy Neighborhood Market has been working for some time to come up with a way to adapt the current product offering (about 4,500-5,000 SKUs) in the 10,000 square-foot -to- 12,000 square-foot Fresh & Easy markets to a smaller format store, such as those we're reporting on in this piece, according to a source in a position to know such information.
The existing Fresh & Easy stores carry about 4,500-5,000 SKUs. Many independent grocery stores in the 4,000 square-foot -to- 5,000 square foot range carry 5,000 (and far more) SKUs.
Fresh & Easy Neighborhood Market could easily fit the same number of SKUs it currently offers in the 10,000 square-foot -to- 12,000 square-foot stores in the 4,000-5,000 square-foot units simply by narrowing the store aisles, using higher shelving, and reducing the amount of product facings it gives each item in the store. Sources tell us though that the smaller stores will offer a limited assortment of the current Fresh & Easy store mix rather than doing what we describe above.
The primary but not only reason Fresh & Easy Neighborhood Market has developed the smaller store format is because it wants to create more flexibility within Tesco's property capital allocation model, described earlier, which will then allow Fresh & Easy to open stores in these desired but so far unobtainable locations and still be within its property budget.
The smaller stores are Fresh & Easy's answer to this situation, according to the source, who says the first of these smaller stores should come on line this year in Southern California first, then later in Northern California.
Thursday, January 13, 2011
Today's Target-Zellers Deal and 'The Neighbourhood Market'-'P Fresh' Food & Grocery Markets Connection
Analysis/Commentary
Readers of Fresh & Easy Buzz know we frequently report on, write about, and analyze Minnesota-based retailer Target Corp., particular as it pertains to its fairly new fresh food and grocery initiative, "P-Fresh.
"We're avid and aggressive "Target Watchers."
Our coverage of Minneapolis-based Target includes an ongoing research project in which we've been tracking, identifying, reporting on and writing about the growth of the chain's in-store "P-Fresh" food and grocery markets, which the retailer has been adding to many of its 1,500-plus discount format stores in the U.S., beginning in 2009.
Target Corp. has two retail formats: Its discount stores, which are the majority of its units, and its SuperTarget format stores, which are similar in size to a Walmart supercenter and include a full supermarket inside, like Walmart's supecenter format.
Target, which is the second largest retailer in the U.S. after Walmart Stores, Inc., currently has "P-Fresh" fresh food and grocery markets inside about 350 of its U.S. discount format stores, and plans to add the markets to another 400 units this year. And, as we pointed out here in 2010, California is the leading U.S. state in terms of the number of its discount stores, out of the 350, Target has added the "P-Fresh" units inside of over the last nearly two years. Over 100 of the 350 "P-Fresh" units are in California.
Because we're avid and aggressive "Target Watchers" here at Fresh & Easy Buzz, the retailer's announcement today that it's buying leasehold interests in up to 220 Zellers discount store locations in Canada, for $1.85 billion, didn't come as a surprise to us in the least bit.
Zellers is a discount/mass-merchant store format that's similar to Target's discount store format.
Target CEO Gregg Steinhafel said in a statement today the retailer plans to open 100 -to- 150 stores across Canada in 2013 and 2014.
It will renovate some of the Zellers locations, at an estimated cost of more than $1 billion, he said. Other Target stores in Canada will be built from-the-ground-up. Target announced its plans to enter Canada last year. [You can read today's announcement from Target Corp. here. Zellers' parent company, Canada's Hudson's Bay Company (HBC), also issued a statement on the deal today here.]
No surprise
Why weren't we surprised by today's announcement? Because Target Corp.'s interest in Zellers, which is owned by Canada's oldest company, Hudson's Bay Company (HBC), isn't a recent phenomenon. Target looked into acquiring the entire Zellers chain, and had talks with HBC's management at least as far back as 2006-2007.
The discussions between the Target Corp. and HBC/Zellers folks obviously didn't result in a deal back then for a number of reasons. One reason being Target Corp. determined at the time that the timing wasn't right for it to either enter Canada or make such a major acquisition. Target announced its plans to enter Canada last year.
However, the relationships formed at that time continued, right up until now. And although no deal was done back then, Target didn't walk away from its research on and investigation in Zellers empty-handed.
Zellers' 'The Neighbourhood Market'
One of the things Target executives found interesting when they toured Zellers stores, was that the general merchandise retailer was testing a concept in a few of its stores called "The Neighbourhood Market," a fresh food and grocery store-within-a-store.
Zellers, which first tested its in-store markets in 2000-2001, currently has "The Neighborhood Market,"which ranges in size from about 5,000 -to- 10,000 square-feet depending on the particular store its in, in 90 of its discount stores, located in a variety of provinces in Canada. [Click here to see the locations of the Zellers stores with "The Neighbourhood Market".]
The Canadian retailer's policy over the last few years has been to add the food and grocery markets inside every new discount store it builds and every existing store it remodels, which is something is started doing in 2002.
Readers of Fresh & Easy Buzz know we frequently report on, write about, and analyze Minnesota-based retailer Target Corp., particular as it pertains to its fairly new fresh food and grocery initiative, "P-Fresh.
"We're avid and aggressive "Target Watchers."
Our coverage of Minneapolis-based Target includes an ongoing research project in which we've been tracking, identifying, reporting on and writing about the growth of the chain's in-store "P-Fresh" food and grocery markets, which the retailer has been adding to many of its 1,500-plus discount format stores in the U.S., beginning in 2009.
Target Corp. has two retail formats: Its discount stores, which are the majority of its units, and its SuperTarget format stores, which are similar in size to a Walmart supercenter and include a full supermarket inside, like Walmart's supecenter format.
Target, which is the second largest retailer in the U.S. after Walmart Stores, Inc., currently has "P-Fresh" fresh food and grocery markets inside about 350 of its U.S. discount format stores, and plans to add the markets to another 400 units this year. And, as we pointed out here in 2010, California is the leading U.S. state in terms of the number of its discount stores, out of the 350, Target has added the "P-Fresh" units inside of over the last nearly two years. Over 100 of the 350 "P-Fresh" units are in California.
Because we're avid and aggressive "Target Watchers" here at Fresh & Easy Buzz, the retailer's announcement today that it's buying leasehold interests in up to 220 Zellers discount store locations in Canada, for $1.85 billion, didn't come as a surprise to us in the least bit.
Zellers is a discount/mass-merchant store format that's similar to Target's discount store format.
Target CEO Gregg Steinhafel said in a statement today the retailer plans to open 100 -to- 150 stores across Canada in 2013 and 2014.
It will renovate some of the Zellers locations, at an estimated cost of more than $1 billion, he said. Other Target stores in Canada will be built from-the-ground-up. Target announced its plans to enter Canada last year. [You can read today's announcement from Target Corp. here. Zellers' parent company, Canada's Hudson's Bay Company (HBC), also issued a statement on the deal today here.]
No surprise
Why weren't we surprised by today's announcement? Because Target Corp.'s interest in Zellers, which is owned by Canada's oldest company, Hudson's Bay Company (HBC), isn't a recent phenomenon. Target looked into acquiring the entire Zellers chain, and had talks with HBC's management at least as far back as 2006-2007.
The discussions between the Target Corp. and HBC/Zellers folks obviously didn't result in a deal back then for a number of reasons. One reason being Target Corp. determined at the time that the timing wasn't right for it to either enter Canada or make such a major acquisition. Target announced its plans to enter Canada last year.
However, the relationships formed at that time continued, right up until now. And although no deal was done back then, Target didn't walk away from its research on and investigation in Zellers empty-handed.
Zellers' 'The Neighbourhood Market'
One of the things Target executives found interesting when they toured Zellers stores, was that the general merchandise retailer was testing a concept in a few of its stores called "The Neighbourhood Market," a fresh food and grocery store-within-a-store.
Zellers, which first tested its in-store markets in 2000-2001, currently has "The Neighborhood Market,"which ranges in size from about 5,000 -to- 10,000 square-feet depending on the particular store its in, in 90 of its discount stores, located in a variety of provinces in Canada. [Click here to see the locations of the Zellers stores with "The Neighbourhood Market".]
The Canadian retailer's policy over the last few years has been to add the food and grocery markets inside every new discount store it builds and every existing store it remodels, which is something is started doing in 2002.
Pictured above: A "P-Fresh" in-store food and grocery market, located in a Target discount store in California. Pictured Below: An in-store "The Neighbourhood Market," in a Winnepeg, Canada Zellers' store. Note: Take a look at the near-identical departmental circular ceiling signs, at the top in both photographs. Kissing cousins.
The in-store markets, which are located in the front of the stores, offer a limited assortment of fresh foods - produce, meats, baked goods, dairy/deli, prepared foods - and shelf-stable packaged food and grocery items, just like Target's "P-Fresh" and Tesco's 10,000 square-foot Fresh & Easy Neighborhood Market stores in the U.S., the first of which opened in November 2007. There are currently 156 Fresh & Easy stores in California, Nevada and Arizona. The Tesco Fresh & Easy stores are freestanding units, however, not stores-within-stores, like Target's and Zellers' concepts are.
Zellers had its "The Neighbourhood Market" concept inside a number of its discount stores in Canada well before 2007 (by 2003-2004), however. In fact, word is Tesco did some scouting around in Canada, as well as the research it did in the U.S., prior to creating Fresh & Easy Neighborhood Market.
Fact: Tesco's original name for the chain was "Fresh & Easy Community Markets." But the United Kingdom-based retailer changed "Community" to "Neighborhood" sometime in 2006-2007.
Observation: If you're wondering why Zellers uses the British spelling and French English-usage spelling of "Neighbourhood," rather than using the North American spelling, "Neighborhood," a little research into the origins of Zellers parent company, Hudson's Bay, which is Canada's oldest company and the largest general merchandise retailer in the country, among other things, will make the choice of spelling clear. Also: Although English is the majority language, Canada officially remains a dual (English-French) language nation.
Kissing cousins
Target opened its first "P-Fresh" in-store markets in mid-to-late 2009.
Zellers has been adding its "The Neighbourhood Market'" to its department stores at a fairly rapid pace over the last few years. It has the markets in 90 of its discount stores so far. [Click here to see a list of Zellers stores that include the fresh food and grocery markets.]
Target executives first saw Zellers' food and grocery concept up-close a few years ago. Also keep in mind that Minnesota, where Target Corp. is headquartered, is really close to Canada.
Target created its "P-Fresh" concept and initiative - a fresh food and grocery store-within-a-store inside their Target discount format stores - in late 2008 and launch it in 2009. The "P-Fresh "stores" are much larger than Zellers' in-store markets, nearly three times the size. Both retailer's markets feature the same product categories. Target though offers a much more extensive number of SKUs than does Zellers. But the model is identical.
Additionally, Target's in-store "P-Fresh" signage and related graphics look very close to what Zellers uses - and it was first, remember - with its "The Neighbourhood Market."
Armed now with the information in this story, If you go visit a Target discount store in the U.S. that has a "P-Fresh" inside, then go visit a Zellers store in Canada, with a "The Neighbourhood Market" inside - we bet you'll see the connection - and perhaps even say: "Kissing cousins, they are."
The deal
Target is a better overall retailer, including in the food and grocery segment - although Target has plenty of room to get better at grocery merchandising - than Zellers is.
Target's format and stores are also much better overall.
Zellers has been remodeling some of its discount stores in Canada over the last couple years. But many consumers in the country feel the retailer has become outdated, both in how the stores look and how they are merchandised. And the rapid growth of Walmart-Canada has taken a toll on Zellers, which before Walmart headed north from the U.S. was the first-choice of many Canadian shoppers. In many parts of Canada, Walmart-Canada has made Zellers the second...or even third choice for many Canadian shoppers.
Under the terms of the deal, Target plans to make payments to HBC/Zellers for the leases through 2011. Zellers will sublease the sites from Target and keep running stores under its own banner "for a period of time," Target and HBC/Zellers said in the statements today. A good translation of "for a period of time" is: Once Target takes over all of the Zeller's stores out of the 220 it intends to in the 2013-2014 time period, the Zeller's chain and banner will cease to exist in Canada or anywhere else.
In our analysis the deal is a good one both for Target and for HBC/Zellers. Canadians travel to the U.S. regularly because of the close proximity of the two countries. After all, you can drive from parts of Canada into parts of the U.S. - like Minnesota - faster than you can fly from the west coast to the east coast. Many are very familiar with Target.
And, of course, we aren't suggesting Target wants Zellers for its in-store food and grocery markets. They are merely part of the package. It's a back story - and a connection not mentioned in any of the many stories being published on the deal.
Kissing Cousins united
Lastly, now that you know about the Target-Zellers in-store fresh food and grocery market connection, we're betting you know what we're going to tell you next?
Well... It's simply that Target's "P-Fresh" fresh food and grocery markets are going to be in all or most of those up to 150 stores it plans to open in Canada in 2013-2014, including the Zellers stores it takes over, along with any stores it builds from scratch.
And now you know...'The rest of the Target Corp.-HBC/Zeller's deal story.' Or at least the back story, as it pertains to food and grocery merchandising and retailing.
Friday, October 15, 2010
Safeway Shelving 'The Market' Small Store Format; Won't Be Part of its Strategy Going Forward
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
Sunday, February 17, 2008
Tesco's Fresh & Easy Venture in the USA, and the Ironic Challenge to its Food Retailing Dominance at Home in the UK
Tesco, parent company of Fresh & Easy Neighborhood Market in the U.S., is not only the third-largest retailer in the world in terms of sales volume, it's also far and away the number one retailer at home in the United Kingdom, with an impressive 30% share of all the food and grocery products sold in the country.Number-two Asda (owned by Wal-Mart, Inc.), number-three Sainsbury's, Morrison's, the UK's fourth-largest food retailer, the Co-op, Waitrose, Aldi, Lidl (both German-owned chains) and a few others split up the remaining 70% of the market share. That's a lot of retailers to fight over that 70% pie. In other words, Tesco stands alone in its dominance of the UK food retailing market. Currently it does.
We use the word "currently" in the above sentence, because despite Tesco's present status as the dominant food retailing market share leader in the UK, a serious challenge is being waged against the retailer's market share ownership.The grocery chains primarily waging that battle are Wal-Mart-owned Asda, Morrisons, and the two German grocers, Aldi and Lidl, which operate small-format, no frills, limited assortment discount stores throughout Europe. (Aldi operates its small-format discount stores in the U.S. as well. It also owns Trader Joe's in the U.S.) It's the two small-format discount grocery chains, Aldi and Lidl, we focus on in our piece today.
The Aldi and Lidl grocery stores in the UK average about 15,000 square feet. The stores design is basic and no frills, but attractive. The product mix is similar for both Aldi and Lidl: a mix of private label (about 60% -to- 65% of what they sell) and national brand grocery products (about 35 to- 40% of what the stores' sell.)Both German-based chains put a major focus on price, and offer a limited assortment of basic grocery items. The stores also offer a small selection of higher-end specialty foods and grocery products at hot, discount prices. In the UK, the stores are called "downmarket" supermarkets in the industry.
Aldi's and Lidl's stores' in the UK may sound a bit familar to you. In a number of ways--store size, the limited assortment basic grocery products' offering with a focus on low price, specialty items offered at disount prices, for example--Tesco's Fresh & Easy small-format grocery stores in the U.S. are similar to the German "downmarket" stores in the UK.There are differences however. Unlike Aldi and Lidl, Fresh & Easy in the USA has a second focus in its stores--which is an extensive selection of fresh, prepared foods. All three--Aldi, Lidl and Fresh & Easy sell fresh produce and meats. The Fresh & Easy stores also are somewhat more upscale in design, but not much.
Tesco also has a small-format grocery store in the UK called Tesco Express. It's similar to Fresh & Easy in the USA in many ways. However, unlike Aldi and Lidl in the UK--which focus on selling groceries for as cheap as they can, Tesco Express in the UK offers more mid-range prices, and is more upscale in its positioning and store design.
The Tesco irony: While Tesco if trying to get its fledgling small-format Fresh & Easy Neighborhood Market venture off the ground in the U.S.--and is garnering lots of attention for launching a small store competitive challenge in California, Arizona and Nevada to large-format supermarkets like Safeway, Ralphs' Wal-Mart Supercenters, Albertsons and others--its large supermarkets and even larger hypermarkets (along with its smaller Express stores) are about to get the biggest challenge they've seen to date. That challenge is coming from Aldi and Lidl--the German invaders--both of which have embarked on massive growth plans in the UK, designed to take market share from Tesco.
Aldi plans to open at least 50 new no frills, small-format discount grocery stores a year in the UK for the next few years. By the end of 2008, Aldi should have a t least 400 of the discount grocery markets in the UK. The German grocer says it plans to build at least 1,500 total stores under this fast-growth plan.
Tony Blain, Aldi's UK managing director in charge of buying, recently said the German grocer could very well have a store in every town in the UK in the next 15 -to-20 years. Blain also said Tesco is the most vulnerable UK chain in terms of Aldi's growth plan. "If you've got someone with 30% of the market [Tesco], you can assume most of our growth is going to come from that," he says.
Aldi also has launched a massive growth initiative in the U.S. The grocer recently announced that beginning this year, it will build about 100 new stores a year in the USA over the next five years. The grocer already has almost 900 Aldi small-format, discount grocery markets in the U.S. The stores are located in the Midwest and eastern portions of the country.
Lidl also has been building and opening its no frills, small-format discount grocery markets in the UK at a fast pace, and plans to not only continue but to excelerate that new store opening pace. the grocer currently has more than 450 stores in the UK and has said it plans to double that amount in the next few years.
Tesco is very worried about these two German invaders and their no frills, little discount grocery stores. So concerned is giant Tesco that it's set up its own version of a mock German small-foramt grocery store in an old warehouse facility in the UK which is owned by Tesco's founder.
Tesco is using this mock Aldi or Lidl to test merchandising strategies and related concepts. It's also highly believed in UK grocery industry circles that Tesco is using this mock store--like they did in the U.S. in developing the Fresh & Easy format--to create its own version of a small-format, no frills discount grocery store on the order of Aldi and Lidl.
The key to Aldi and Lidl's success in the UK and elsewhere throughout the world is that the grocers use a super low-cost model across the board. The retailers first try to find the cheapest sites to build their stores, and often buy empty retail buildings at a discount and then remodel the buildings to fit their store formats.
Since the store-format is small (average 15,000 square feet), it also costs less to build (or remodel an existing building) than the typical supermarket, which can range from 35,000 -to- 70,000 square feet, or a hypermarket, which is anywhere from 100,000 -to 200,000-plus square feet.
The small-format stores' require less shelving, refrigeration cases, checkout stands and the like. Additionally, because the stores' are no frills in design, the design costs also are lower than those of an even semi-upscale supermarket. Further, the small-format stores are low-overhead: less montly fixed costs for energy and water use for example, lower property taxes and more.
Aldi and Lidl also are able to extend their respective low-cost models to the all important area of labor. The no frills, discount grocery stores often have no more than 4 or 5 employees working in them at any given time.
Store employees multi-task, stocking shelves when not running the cash register, doing clean-up work when needed, and working in mutiple departments, unlike larger-format supermarkets, which have seperate produce department and meat department clerks, for example. Aldi and Lidl store managers also are working managers. They stock shelves, work at the checkstands and do other day-to-day tasks, along with managing store operations and employees.
Lastly, the two German discount grocers employ this super low-cost model in product buying. Private label grocery product development plays a major part in operations and merchandising. And both grocers are very good at it. The retailers' obtain the lowest cost of goods possible from suppliers, have extremely cost-effective packaging operations, and cut-costs aggressively throughout the entire supply chain.
Aldi and Lidl also buy lots of national brand grocery products and non-foods items on an "in-and-out" basis at steep disounts. (Aldi even makes key buys on items like small appliances, gas energy generators and other hard goods, and sells them a super-low prices.) The grocers' agree to buy scores of truckloads of an item from a supplier in return for getting a very low cost. The retailers' then create massive displays of these items in their stores and sell the goods for low prices, making only a small gross margin, but selling a huge volume of product.
Both grocers--especially Aldi--have recently increased the amount and variety of specialty, gourmet, natural and organic grocery items they sell in their UK stores as well, as a way to reach more upper-end shoppers.
The stores' offer these items a deep disounts. For example, Aldi recently offerred fresh, whole Canadian Lobsters for sale at about 40% less than the UK's leading supermarkets. There was a stampede of shoppers to Aldi stores to buy the Lobsters, which the grocer sold out of in a couple days. Aldi recently was said to offer the best quality food items among all grocery retailers in a UK consumer survey.
So, as British food retailing invader Tesco struggles to achieve success with its new, small-format Fresh & Easy grocery store venture in the highly competitive Western U.S. market, two German invaders--Aldi and Lidl--are posing a major challenge to the British-based, global retailer's dominance at home in the UK.
The irony of that fact is, Aldi and Lidl are launching their respective challenges against Tesco with small-format grocery stores, which are similar in a number of ways to the Fresh & Easy grocery markets Tesco is using to launch its competitive challenge against U.S. home-grown, larger-format supermarkets with.
Tuesday, February 12, 2008
Wal-Mart's New Logo For It's 'Marketside' Small-Format Grocery Stores Unveiled
As we've reported before, Wal-Mart, which is the world's largest company and retailer, is preparing to open three or four small-format grocery stores called Marketside in the Phoenix, Arizona metropolitan region this summer.
Pictured above is Wal-Mart's Marketside grocery store logo. The logo was published this week on the U.S. Patent and Trademark Office Website as part of a filing by the retailer. This is one of the first published looks at the Marketside logo.
The 15,000 square foot Marketside stores are similar in size and format to Tesco's Fresh & Easy grocery markets. Tesco has 43 Fresh & Easy stores to date in Arizona, Southern California and Nevada.
The Wal-Mart Marketside stores will be located very close to a number of Fresh & Easy markets in the Phoenix, Arizona suburban region. The three or four mini-Wal-Marts are just the start; more will be coming, likely including in California.
Natural~Specialty Foods Memo, which has been writing about small-format grocery stores and Wal-Mart's Marketside format development for some time, has a piece today on the Marketside logo--along with offering additional information on the store format, including information we haven't read elsewhere.
Global number-one retailer Wal-Mart is really firing a competitive shot at Tesco, the third largest retailer in the world, with its Marketside development. Although Wal-Mart says it isn't the case, the petite grocery stores are an obvious target against Tesco's Fresh & Easy Neighborhood Market stores.
Wal-Mart, which recently became the number one food retailer in the U.S., with about a 20% national market share, isn't about to let Tesco steal share away from it in the USA if it can help it. The small-format Marketside stores are a direct development in that regard, no matter what Wal-Mart says.
In the United Kingdom (UK), where Tesco is the number one retailer (food and general merchandise), it and Wal-Mart, which owns the number two Asda chain, are battling hard as well. Wal-Mart-owned Asda recently launched a major expansion program, aimed directly at trying to take market share from Tesco.
What is developing then is a cross-Atlantic retail battle royal between the world's number one--Wal-Mart--and number three--Tesco--retailers. In the U.S., it's Tesco's Fresh & Easy vs. Wal-Mart's Supercenters, Neighborhood Markets (45,000 square foot supermarkets) and now Marketside, a format which looks very similar to Fresh & Easy. [Note: Wal-Mart created its Neighborhood Market format many years ago. We wonder if they are steamed that Tesco used "Neighborhood Market" as half of their U.S. retail store name, Fresh & Easy Neighborhood Market?]
In the UK, both Tesco and Asda operate at least five different formats respectively. Tesco is the leader in small-format food retailing in the UK with its Tesco Express stores. The U.S. Fresh & Easy stores were modeled after Tesco Express to a large extent. Asda doesn't have a small format grocery store in the UK. However, perhaps Wal-Mart will enter the segment in Britain with a version of its new Marketside format?
The competition between these two mega-retailers is only going to get hotter; especially this summer when the first Marketside grocery stores open in the Phoenix, Arizona suburbs. At least three of the stores are within a short distance of existing Fresh & Easy grocery markets in the region. That should be interesting.
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