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

Safeway Stores, Inc. chairman, president and CEO Steve Burd (pictured above) offered an approximate eight month assessment of the chain's small-format store test, "the market by Vons", in Long Beach, California, which opened in May of this year, last Thursday during a meeting with analysts at Safeway headquarters in Pleasanton, California (San Francisco Bay Area.)

Burd's assessment thus far of the single test store of the grocer's "The market" format: "good, not great," Burd said on Thursday.

He said the Long Beach store is doing well but isn't setting the house of Safeway on fire, essentially.

Burd says Safeway will open at least two more of the small-format "The Market" stores next year. One of those two stores will be in a converted retail building, the other will be a built from the ground-up store, Burd said.

We believe the new construction store will be at this location in San Jose, California or this one in downtown Los Angeles, or both. which we broke the news on and wrote about earlier this year.

Burd said at the meeting that 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."

Burd's saying this about "The Market" shouldn't come as a shock to anybody, especially regular readers of Fresh & Easy Buzz. We've been writing all along since first reporting last year on Safeway's small-format development that it's an experiment and a test for the supermarket chain, which operates about 1,750 supermarkets under various banners in the U.S. and Canada, and is now ranked as the number four retailer of food and groceries in the U.S., after Wal-Mart, Kroger Co. and Costco.

Safeway's food and grocery retailing focus will continue to be on its Lifestyle format supermarkets. Burd said the company has nearly completed converting all of its supermarkets into its Lifestyle format, which combines discount retailing with a more upscale flair. The supermarkets are customized (we call it mass customization), ranging for being fairly mainstream to being super upscale, depending on the demographics and other criteria of the particular community and neighborhood the store goes into.

Burd also said at the analysts meeting that Safeway will further step-up its value proposition beginning early next year when it will make additional price cuts across all categories on numerous items in its supermarkets.

He also said the aggressive promotional programs, which even include the fresh, prepared and specialty foods categories in the stores, will continue and probably intensify beginning early next year.

Burd said Safeway "will survive" the recession in better shape than some of the price operators who are thriving now. "Recessions are temporary, and strong companies weather the downturns better than weaker companies," he told analysts.

"Some people on Wall Street have questioned whether we have the right strategy for a recession. But we believe you build a strategy to create long-term shareholder value, not to deal with a recession," Burd said.

So far he appears to be correct as Safeway has been doing fairly well despite the recession, thanks though in large part to the fact the grocer recognized the economic downturn early in 2008 and rapidly began expanding its value proposition.

CEO Burd told analysts that Safeway projects 2009 earnings per share of $2.34 to $2.44 and non-fuel ID sales growth of 2% to 3%.

"We believe that, despite all the price investments we plan, we will still be able to expand operating margins," Burd commented.

Reader Resource

Links to some past stories on Safeway's "The Market" from Fresh & Easy Buzz:

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 25, 2008: Breaking Competitor News: Safeway Stores, Inc. Plans to Open A Small-Format 'the market by Vons' Grocery Store in Downtown Los Angeles...

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...July 16, 2008: Former NBA Great Earvin 'Magic' Johnson is Working His Business Magic in Urban, Inner City Neighborhoods; We Offer An Idea For Tesco's Fresh & Easy... 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

Breaking Competitor News: Safeway Stores, Inc. Plans to Open A Small-Format 'the market by Vons' Grocery Store in Downtown Los Angeles

Safeway Stores, Inc. plans to open the second or third (see our June 5 report about a potential "the market by Safeway" store in downtown San Jose, California here) store of its small-format (15,000 square foot) "The Market" grocery stores in downtown Los Angeles, Fresh & Easy Buzz has learned.

As we mentioned in our May 15 piece when we were one of the first publications to report on the upcoming grand opening (which Safeway kept under wraps) of Safeway's first small-format store, "the market by Vons," in the Belmont Shores neighborhood in Long Beach (Southern) California (the inside of which is pictured at the the top), the grocery chain had plans to also open "The Market" small-format food stores in urban locations. [Read our report on Safeway's plans to open a "the market by Safeway" in a new high-rise residential development in downtown San Jose in the San Francisco Bay Area here.]

We haven't been able as of yet to determine the precise location of the "market by Vons" store slated for downtown Los Angeles. We have some strong leads from sources but aren't ready to report a location until we are able to further confirm it.

For decades, downtown Los Angeles has been what is termed a "food desert," meaning that the vast urban downtown has been without food and grocery stores that offer a decent selection of basic groceries and fresh foods, especially fresh produce, at affordable prices.

Although the downtown is still underserved by such grocery stores, it's beginning to change primarily as the result of lots of new residential development that's been occurring in the city's urban core in recent years.

For example, a year ago this week, Southern California-based Ralphs supermarkets, which is a banner owned by Kroger Co., opened one of its first new Fresh Fare format supermarkets in what was then a brand new residential loft development in downtown Los Angeles.

The one-year old downtown Los Angeles upscale Ralphs Fresh Fare supermarket at 645 West 9th Street, which isn't a small-format grocery store but rather is a 50,000 square foot urban giant, was the first full-service supermarket to open in downtown Los Angeles in decades.

The Ralphs Fresh Fare stores are more upscale than the Ralphs conventional supermarkets, hundreds of which are located throughout Southern California. And as the "Fresh Fare" name implies, the stores feature an expanded selection of "fresh" foods, including produce, meats, dairy and fresh, prepared foods. The stores also have a greater selection of natural, organic and specialty food and grocery items than conventional Ralphs supermarkets do.

Although Tesco's Fresh & Easy Neighborhood Market is based in Southern California and has stores in Los Angeles, the grocery chain has yet to open one of its small-format (10,000 -to- 13,000 square foot) combination basic grocery and fresh foods markets in downtown Los Angeles. Based on our sources, who are good, Tesco's Fresh & Easy currently doesn't have any downtown Los Angeles stores in the new store opening pipeline either.

Ralphs, and now Safeway Stores, Inc. with its small-format "market by Vons" future downtown Los Angeles store, aren't the only grocers looking to the city's urban core for new business.

Hispanic consumer-focused, family-owned Southern California-based Liborio Market has opened a couple new supermarkets in downtown Los Angeles recently.

Liborio Market opened its first store in Southern California on February 6, 1966 in Los Angeles with $1,400 of initial capital, which was the collective savings of Enrique J. Alejo, Jr., Enrique B. Alejo, Sr., Randy M. Alejo, Berta Alejo and Nancy Alejo. The first store1,200 sq. ft. and had only $800 in beginning inventory, according to members of the family-owned grocer.

Liborio Market currently operates 9 full-sized supermarkets in Southern California, Nevada and Colorado. Two of those 9 supermarkets are in downtown Los Angeles. (five of the 9 stores are in Southern California where the grocer is headquartered.) One of the stores is in Las Vegas, Nevada. The remaining three supermarkets are located in Colorado: one each in Colorado Springs, Aurora and Commerce City.

Although the grocer's stores focus on Latino customers, the downtown Los Angeles stores also offer basic food and grocery items in order to reach the many non-Hispanics who live in the downtown neighborhoods. All of the Liborio Market supermarkets have full-size fresh produce, meat and grocery departments, along with having in-store bakeries and fresh, prepared foods departments.

The majority of the new residential growth in downtown Los Angeles is coming from younger professionals, who are moving into the numerous new multi-unit residential loft, apartment and high-rise condominium developments that have been built in the downtown core in recent years, and continue to be built despite a bit of slowing do to the credit crunch and the poorU.S. and California economies.

These young, mostly college educated professionals are moving to downtown Los Angeles for a variety of reasons, including to be closer to the office buildings where they work, to enjoy the excitement of the urban core, which is becoming an arts and restaurant and club mecca, and for a variety of other personal and professional reasons.

Downtown Los Angeles, as is downtown San Francisco and San Jose in Northern California, is luring numerous retired baby boomers in there late fifties to mid-seventies into the new, upscale lofts and condos rising throughout the city's urban core.

Many retired baby boomers who've lived in the suburbs for decades now find themselves with their children grown and out of the house, retired from their primary careers and perhaps working as consultants or in other second full-time and part time careers (or merely retired), as well as being "house rich" from twenty to thirty years of built-up equity as a result of historically fast-rising California housing values.

Many are "cashing out" and leaving the suburbs for urban centers such as Los Angeles' for a variety of reasons, ranging from desiring a simple change of lifestyle, to being able to be in the center of the city where they can drive less and walk to restaurants, cafes, restaurants and art galleries, for example.

Safeway's fairly upscale "The Market" format food and grocery stores, which feature fresh, prepared foods, fresh produce and meats, along with a selection of basic and natural and specialty food and grocery items, fit this "new urban" lifestyle well, although in the case of downtown Los Angeles, where the majority of residents are still low-income, the store's price points as they currently are in the Long Beach store, will need to come down if the store is going to cater to all levels of income in the downtown Los Angeles neighborhood where it is located.

However, since urban living usually means shopping more frequently because often residents in the urban core walk to the store or take public transportation, the fact that elements of the small-format "The market" format strores are designed for that type of shopping could make it a success in downtown Los Angeles.

Safeway has positioned its "The Market" format stores for "fill-in" shopping since the grocery chain also operates hundreds of full-size supermarkets in Southern California and elsewhere in the United States.

Therefore, unlike Tesco's Fresh & Easy Neighborhood Market, which the retailer has positioned to appeal to all consumers and wants to be used by consumers as a primary shopping neighborhood grocery store, Safeway can live by design with only attracting a certain segment--generally higher income--of consumers. In fact, that's the strategy behind the small-format, fairly upscale "The market" format stores.

To look at it in a related way, Safeway is using a multi-format food retailing strategy, with its "The Market" stores as secondary and tertiary shopping venues (its supermarkets being primary), while Tesco is using a single-format strategy currently, with its small-format Fresh & Easy stores designed to appeal to all shoppers and to be primary and to a limited extend secondary grocery shopping venues.

As we've reported previously, Safeway plans both a suburban and urban strategy in locating its small-format "The Market" food and grocery stores. [The name of the stores depends on the supermarket banner the retailer operates in a given market region. For example, it operates the Vons banner in Southern California. Therefore the stores are called "the market by Vons." In Northern California it uses the Safeway banner. Therefore those stores will be called "the Market by Safeway.]

The future store in downtown Los Angeles, along with the potential store in downtown San Jose we reported on here, demonstrates Safeway plans to put as much emphasis--at least thus far--on urban locations as it does on suburban ones. This makes sense because urban neighborhoods, regardless of demographics, are seriously underserved by quality food and grocery stores.

Tesco's Fresh & Easy realizes this trend as well, which is why it's mixes an urban and suburban store location strategy into its mix in California, Nevada and Arizona.

Small-format food and grocery stores are the ideal urban format. You will see even more urban stores from Safeway and Tesco's Fresh & Easy, as well as from other food retailers; not just in California but throughout the United States.

It's taken the grocery retailing industry a long time to see the potential of urban stores, and the changing suburban to urban demographics have helped that realization along in the last few years. However, numerous major grocery chains and independents are now seeing the potential of opening small-format stores in the city core. In fact, we see opening urban small-format grocery stores of various formats as being on of the top initiatives of the U.S. food and grocery retailing industry over the next few years.

Recent Related Posts From Fresh & Easy Buzz:

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

July 16, 2008: Former NBA Great Earvin 'Magic' Johnson is Working His Business Magic in Urban, Inner City Neighborhoods; We Offer An Idea For Tesco's Fresh & Easy

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

Southern California Market Report: Safeway Stores,'the market by Vons' Mass-Mails First Advertising and Promotional Flyer to Vons Club Card Members

Safeway Stores, Inc. has mass-mailed its first promotional flyer for its first small-format grocery store, "the market at Vons," which opened in Long Beach, California in May.

The advertising sheet, which was mass mailed to members of Vons' Club Card who live not only in the neighborhood where the store is located but also to residents who live a considerable distance away from the grocery store, introduces the Long Beach small-format grocery market as "Your neighborhood store (that) offers the best of everything."

The front of the advertising flyer, as you can see in the photograph at the top, features a picture of a bicycle with a basket full of groceries on it, with the tag line: "a refreshingly simple way to shop." The picture reinforces the messages of simplicity, conveniece, neighborhood, community, and the environment.

The messages are then elaborated on inside the flyer, pictured directly below, along with featuring items at promotional prices.

Below is the full text or copy inside of the mass-mailed promotional flyer:

welcome

Your neighborhood store offers only the best of everything.

a refreshingly simple way to shop

The Market by Vons is designed with a simple layout, so its easy to find what you're looking for. It's the perfect place for you're "fill-in" shopping or to grab a quick and delicious meal or snack.

the big little store

We offer a wide range of products, including fresh produce, meat and seafood, ready-to-enjoy meals, freshly baked goods and other everyday basics. So you can find everything you need but less of the things you don't, like long lines and 12 different kinds of ketchup.

no extra charge for convenience

You can expect the same great service and everyday value prices you'll find at Vons.

we want to be a responsible neighbor

Our store is 100% wind powered and is actively involved in programs that benefit our community.

have a taste

We offer samplings of our products daily. We'd like to help you discover what's in store in a delicious way.

Safeway is offering 10% off every item in "the market by Vons" small-format grocery store in the advertising flyer for the entire month of July.

In addition to the across the board 10%-off deal, the flyer promotion offers five features at fairly substantial discounts above 10%. These features are: A package of Safeway's private label Eating Right healthy brand fresh mixed lettuce greens, offered for free with no minimum purchase; $2-off any of Safeway's popular O' Organics store brand organic food and grocery items in the store; $3 off of the regular price of Safeway's Signature Cafe in-store roasted ready-to-eat whole chickens; and two deals on wines.

Safeway's Southern California Vons division has preloaded these promotions into all of the Vons Club Cards so that when shoppers purchase the items at the Long Beach "the market by Vons" store the promotional prices will automatically be reflected at the point-of-sale.

In the advertising flyer, under the "a refreshingly simple way to shop" header, Safeway mentions "The Market" is great for "your fill-in shopping." This is the retailer's positioning of the small-format "The Market" stores as we first reported here.

Unlike Tesco's Fresh & Easy Neighborhood Market, which is positioning its small-format (10,000 -to- 13,000 square foot) Fresh & Easy combination basic grocery and fresh foods Fresh & Easy stores as everyday or primary shopping neighborhood grocery markets, Safeway is positioning its "The Market" small-format (15,000 -to- 20,000 square foot stores) as more upscale, "fill-in " shopping venues as part of a multi-format strategy. In Southern California that multi-format strategy including Vons supermarkets and superstores, Vons Pavilions supermarkets, which have an upscale and specialty foods focus, and now the small-format "The Market" format, the first store of which is "the market by Vons" in Long Beach.

The Long Beach "The Market" store has come under some criticism since opening in May for having prices which some shoppers say are just too high in general, while others have commented the small-format store's prices are higher than those at traditional Vons supermarkets in Southern California.

Fresh & Easy Buzz has learned two things in this regard.

First, Safeway is adjusting the pricing in the Long Beach "market by Vons" store to make sure its generally in line with the everyday pricing at nearby Vons supermarkets.

Second, we've learned Safeway plans to mass mail flyers like this first one on a regular basis in order to create a value proposition for "The Market," along with positioning the format as convenient, quality and community-oriented.

In the mass-mailed advertising piece, Safeway says the Long Beach store is powered 100% by renewable wind power. The grocery chain is achieving this by buying wind power credits for 100% of all the energy the store consumes. Safeway has been doing this for some time for the stores throughout the U.S. in which it operates fueling or gas stations alongside the supermarkets. Every Safeway fueling center is powered by wind energy in the form of Safeway buying wind power credits equally the energy used by those gas stations.

As Safeway opens more "The Market" format stores, the retailer plans to put a major emphasis on the dual and compatible concepts of the environment and community with the small-format stores.

Green issues are front and center currently at Safeway. In addition to the wind power credits, Safeway is in the process of putting solar panel arrays on about 35 of its supermarkets in Northern California. The solar panels are designed to provide about 35% of a stores total energy use. Additional panels are set to be installed on more stores in Northern California as well as on a number of stores in Southern California.

Safeway also is converting its entire trucking fleet from traditional fossil based diesel fuel to biodiesel fuel, made from vegetable oils. The retailer initiated this program last year, before the price of diesel fuel soared, primarily for environmental reasons. However, with diesel fuel edging towards $6 a gallon, the economics of converting its huge trucking fleet to biodiesel should pay off well for the grocery chain much faster than it anticipated they would.

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

Inside Safeway's 15,000 square foot "the Market by Vons" in Long Beach, California. The store, the first of the small-format, opened on May 15.

On May 15, we wrote this piece about the grand opening of Safeway Stores, Inc.'s first "The Market" small-format (15,000 square feet) food and grocery store in Long Beach in Southern California, called "the Market by Vons." The format averages 15,000 -to- 20,000 square feet.

Yesterday, we reported Safeway is in negotiations with the developer of a 22 story high rise condominium tower in downtown San Jose, California in the San Francisco Bay Area to put its second "The Market" format store on the ground floor of that residential building, as the retail anchor for the development.

Today, we bring you the observations and analysis of "the Market by Vons," Safeway's first small-footprint food and grocery store, in Long Beach, California.

The piece below is written by a 20-year retail food and grocery industry veteran, and regular Fresh & Easy Buzz reader and correspondent. The analysis was offered to Fresh & Easy Buzz via email based on our request of the writer to visit the store and offer our readers his observations and analysis. The writer is active in the retail food industry in Southern California at present, so asked we not use his name, which we are honoring.

Below in italics are the industry veteran's observations and partial analysis of Safeway's "the Market by Vons," which opened a little over two weeks ago in Long Beach, California. The piece was written on June 3, based on a June 2, 2008 visit to the store:

I went into "the Market by Vons in Long Beach yesterday....interesting store, but I really don't think it will compete that much with F&E (or Trader Joe's) unless they really start expanding and promoting their ready meals and carry more healthy products.

Here are my observations:

There wasn't very good signage over the prepared meals: salads, entree's, etc.

They really need to promote the fact that the products are fresh and were created by their restaurant chef .

I did like the presentation of the salads, especially the large round bowls and the safety seal that said "handcrafted."

The rest of the prepared meal presentation was just "OK" and I feel they really need to tout the fact that they were created by a chef.

I also don't think they will compete with F&E unless they do more organic and healthy entrees without preservatives. By the way...the code date on the salads (at "the Market by Vons") were 6/3...so I know there has been a lot of complaints about the short shelf life on F&E products...but the salads only had 1 day shelf life remaining. In addition, I couldn't find any code dates on the entrees, so I'm not sure if this is a good or bad thing in the eyes of the consumer.

I really liked all the tasting stations scattered about the store. In addition, all the employees were very friendly and made a special effort of saying "hi, can I help you." It actually almost felt like overkill, like there were too many employees with not enough to do. [Fresh & Easy Buzz Editor's note: Safeway Stores, Inc. has a corporate policy, which started in the late 1990's, in which every employee must say hello to every customer that employee comes into contact in the store.]

I did like how they presented the produce "in the round." It seemed pretty easy to find the produce you were looking for and everything looked fresh.

As for the dry grocery items...again, I was surprised by the lack of healthy products. Most of the products were run of the mill top brands, and very little private label. Once again, if they want to compete with F&E or trader Joe's (and who said they did?), then I think they need to have more unique healthy products in the store. They most certainly have a larger sku count then F&E does because their shelving is higher and not as deep, and they are displaying the product out of the case.

I did find the checkout rather confusing. They had self checkout and service checkout, but it was confusing because at the beginning they had a roped off section and it was hard to tell which line you needed to get into for which. It looks like they decided to go with about 50% self-checkout and 50% service checkout. I went with the service checkout (in retrospect I wish I had gone with the self so I could see how easy it was), but I got in the wrong line!

I found the pricing to be higher than a typical Vons' supermarket (maybe my imagination), and higher than F&E. But if the product was on promotion, it seemed closer to the F&E pricing.

I thought the atmosphere was very nice in the store, low mellow music (not sure if F&E is still piping in loud music in the stores, but I personally don't like it). Overall, I really felt 'the Market by Vons" in Long Beach was pretty much just a grocery store shrunk down with a few nice benefits (tasting stations, bread cutting, etc).

Fresh & Easy Buzz will be publishing additional observations and analysis--including an original piece we are working on based on two long visits to "the Market by Vons" to date--in the upcoming days. Stay tuned.

Breaking News: Safeway Stores, Inc. Nearing Negotiation End-Game For its Second Small-Format 'The Market' Store Site; This One in San Jose, California

Safeway Stores, Inc. is negotiating with the developer of the 88, a new 22-story high-rise condominium tower (pictured at left) in downtown San Jose, in Northern California's San Francisco Bay Area, to put one of its new "The Market" small-format grocery stores on the ground floor of the urban residential tower, Fresh & Easy Buzz has learned.

The 88 high-rise residential tower, located on San Fernando Street in downtown San Jose, is being developed by a partnership of San Francisco-based WMS Group and CIM Group. The residential tower will open this month.

Despite the residential housing bust hitting most parts of the U.S., downtown San Jose is experienced a boom, with about 1,000 new residential units coming on line in the last year. There are about 4,000 more in various stages of development for the downtown.

Safeway isn't confirming the negotiations with the high-rise condominium developer.

However, Fresh & Easy Buzz has checked with two commercial real estate industry sources in the region--one was the one who gave us the initial tip about Safeway looking for locations in the San Jose area for a small-format grocery store concept which we published in a piece in December, 2007--and both confirmed Safeway and the developer of the 88 urban residential tower in downtown San Jose are negotiating over Safeway's putting a "The Market" small-format grocery store on the building's ground floor to serve as the retail anchor of the project.

Additionally, we talked with the real estate agent selling units in the new condominium project. She confirmed the negotiations were going on and said she has told potential residents that what she called a "mini Safeway" was likely going to anchor the building's ground floor.

As we reported in January, Safeway Stores, Inc. hired the Cornish & Carey commercial real estate firm to find the grocery chain up to an initial five locations in the South Bay Area region for its "The Market" format stores. It looks like the new 88 condominium high-rise residential tower in downtown San Jose will become one of those five sites, based on the information our sources have provided. [Read a recent, March, 2008, update on Safeway's small-format activity here. This was before the first "The Market" store opened in Long Beach, California two weeks ago.

As we reported on May 15 here, Safeway opened its first small-format "The Market" format store in Long Beach in Southern California on May 15. That 15,000 square foot store, called "the Market by Vons" because Vons is the banner Safeway operates in Southern California, is located in a former Vons supermarket building which the grocer decided not to convert to its Lifestyle supermarket format--which it's doing to all of its supermarkets in the U.S.

Tesco's Fresh & Easy Neighborhood Market plans to open 18 of its small-format, combination grocery and fresh foods grocery markets in the San Francisco Bay Area beginning either at the end of this year or more likely in early 2009. The leases for the 18 stores are inked, and the stores are being either built or empty buildings the retailer acquired for the stores are in the process of being renovated for the Fresh & Easy format.

Nearly all of the produce items merchandised in the Long Beach, California "the Market by Vons" are bulk, unlike Tesco's Fresh & Easy Neighborhood Market, which pre-packages nearly all of its produce in plastic tubs or plastic bags.

Four of the 18 Bay Area Fresh & Easy stores will be in the South Bay region: two in San Jose, one in nearby Sunnyvale, and one in Mountain view.

Inside "the Market by Vons," Long Beach, California. the design and merchandising scheme pictured above is the basic interior package for Safeway's "The Market" format.

During the grand opening of "the Market by Vons" in Long Beach on May 15, Safeway Stores' Rojan Hasker, president of Lifestyle stores and new concepts for the grocery chain, said the retailer is currently looking at an initial 25 locations to start for its small-format grocery stores. Not all those locations will be in California. Some also will be in the food retailer's other market regions such as Arizona, the Pacific Northwest, Colorado and elsewhere.

The "Signature Cafe," like the one pictured above in the Long Beach, California "the Market by Vons," is fresh, prepared foods central in the small-format food stores.

The way "The Market" format stores will work is they get their full name based on the banner Safeway operates in a particular market, hence "the Market by Vons" in Southern California. In Northern California, as well as in the Pacific Northwest, Colorado, Arizona and the Washington D.C./Maryland/Virgina region, all markets where Safeway operates under the "Safeway" banner, the small-format stores, which average about 15,000 -to- 20,000 square feet, will be called "the Market by Safeway." In Chicago they will be "the Market by Dominick's;" in Alaska "the Market by Carrs," and so on.

The Long Beach "the Market by Vons" is getting a generally positive but also somewhat mixed reaction by customers. Most store shoppers we've spoken with say they like the format, it's design, feel and ambiance. Most also said they liked the product selection: a combination of basic store brand and national brand grocery items, specialty, natural and organic foods, fresh produce and meats, cheeses, wines and some non-foods items. "The Market" format also has a cafe called the "Signature Cafe," which is the name of Safeway's upscale store branded fresh, prepared foods items sold in its Lifestyle format supermarkets. The cafe features fresh, prepared foods for take out.

Specialty and gourmet cheeses are merchandised in display cases like the one pictured above in the Long Beach, California "the Market by Vons," in Safeway's "The Market" small-format grocery stores.

A number of customers of "the Market by Vons" weren't too pleased with the pricing however, saying it is much higher than Trader Joe's or Tesco's Fresh & Easy in their analysis. A few even mentioned they thought the pricing higher than a traditional Vons supermarket in Southern California.

We compared the prices on some items from "the Market by Vons" with those at a Trader Joe's outlet and a Tesco Fresh & Easy store not to far away from the Long Beach store. The prices on "the Market by Vons" items were higher; about 13% higher than the comparable items at Trader Joe's and about 15% higher than those comparable items at Fresh & Easy.

Safeway's 15,000 square foot "The Market" format grocery stores, like in "the Market by Vons" in Long Beach, California pictured above, feature wood burning hearths in-store in the bakery area. The hearths are used to bake fresh bread, cooked-to-order pizzas and other prepared foods items right in-store.

However, "The Market" format is much more upscale than either Trader Joe's or Fresh & Easy. It's a small-format extension of Safeway's evolving Lifestyle format, which is looking more like a Whole Foods Market store with each new Lifestyle format store the retailer opens. Therefore, we aren't sure of Safeway is too concerned that their prices are 15% or so higher than the two small-format food and grocery retailers mentioned above. While we were in the store, a number of shoppers referred to it as a "mini Whole Foods market."

In fact, Safeway's communications vice president Brain Dowling told us the positioning of "The Market" small-format stores is as secondary, "fill-in" shopping venues rather than as primary ones like Tesco wants its Fresh & Easy small-format grocery stores to be, or as specialty and natural foods category-killer store like Trader Joe's markets are.

And of course, the first store, "the Market by Vons" in Long Beach, has only been open about two weeks, which gives Safeway plenty of time to play around with its retail pricing scheme, as well as the format's merchandising selection, just like Tesco's Fresh & Easy Neighborhood Market is doing.

Photo Credits: From top-to-bottom. The first "the Market by Vons" photo is courtesy: Los Angeles Times. The remaining "the Market by Vons" photos are courtesy: Orange County Register.