Wal-Mart Marketside Countdown: Two Days to Go Until the Mega-Retailer's First Four 'Small-Marts' Open in the Phoenix, Arizona Region

Wal-Mart Marketside, Arizona - Continuing Coverage & Analysis

As we've been reporting and writing about in Fresh & Easy Buzz, Wal-Mart, Inc. is set to open its first four small-format combination grocery and fresh foods Marketside stores in just two days, on Saturday, August 4, in the Phoenix, Arizona East Valley region cities of Gilbert, Chandler, Mesa and Tempe.

As we've been reporting for months now, Wal-Mart will place a heavy emphasis on convenience, freshness and low price in the Marketside stores.

The Marketside concept and store format is very "food-centric."

For example, the fresh, prepared foods will be made in kitchens located right in the stores. There also will be seating areas in the markets where about 9 -to- 10 customers at a time can eat-in. Take-out is the major focus of the Marketside prepared foods category though.

The prepared foods sold in Tesco's Fresh & Easy stores are made at a central kitchen facility in Southern California, then shipped to the stores in Southern California, Southern Nevada and Arizona.

Fresh produce, meats and deli will be featured in the Marketside stores as well, just as they are in Fresh & Easy markets.

Nearly all of the fresh produce in Fresh & Easy grocery stores are pre-packaged in plastic tubs or plastic bags.

Wal-Mart's Marketside stores will merchandise a mix of bulk and pre-packaged produce, similar to what Safeway Stores, Inc. does in its small-format "the market by Vons" store in Long Beach, California, which is about 15,000 square feet.

On the grocery side, national and regional brand items and some store brands will share space in the Marketside stores with natural, organic and specialty products.

Marketside will have far more skus of nationally and regional branded items than Fresh & Easy stores do however. About 60-65% of the items sold in Fresh & Easy markets are under the fresh & easy store label.

Additionally, since the Marketside stores range from about 4,000 -to- 6,000 square feet (the four Arizona stores are from 15,000 -to- nearly 18,000 square feet respectively, compared to 10,000 -to- about 13,000 square feet for Fresh & Easy stores), Wal-Mart's small-format markets will carry more total skus across all categories than Tesco's Fresh & Easy stores do. Wal-Mart's Amee Chande, vice president of strategy and marketing for Marketside, says the stores carry in the neighborhood of 7,000 -to- 10,00 skus, which is considerably more than Fresh & Easy stores merchandise.

Additionally, as you can see in the Marketside, Arizona interior store photograph directly above, the Marketside stores use more traditional high profile shelving with attractive wood-trimmed end-cap units, again similar to what Safeway is using in its "The Market" format, rather than the utilitarian warehouse-style shelving used by Fresh & Easy and Trader Joe's, for example.

Another difference between the Marketside stores and Tesco's Fresh & Easy is that while both small-format markets sell beers and wine, Marketside also will sell spirits, which could help the store in terms of increasing its average ring or market basket size since spirits generally are higher-ticket items. Fresh & Easy stores don't offer spirits.

Wal-Mart's Chande also confirms the Marketside stores will be full-service-oriented, which we've been saying for sometime in the blog. For example, the markets will offer full-service checkout and bagging at the front-end unlike Fresh & Easy stores which feature customer self- checkout and bagging, although if asked a store clerk will assist shoppers with checkout.

That full-service model obviously also extends to the Marketside prepared foods category since the foods will be prepared by a chef in the in-store kitchen (some items will be prepared ahead and packaged for quick take-out of course) and additionally the stores have the full-service eating area in them.

Among the features of the in-store kitchen include a wood burning open hearth oven for baking breads, pizzas and related items.

As we've reported, the Marketside store format is divided into sections with names like The Deli, The Bakery, The Garden (fresh produce), The Butcher Shop (meat department) and so on.

Lastly, Chande confirms what we've been reporting since we first wrote about Marketside last year, which is that although the store prices may not be as low overall as at the retailer's Supercenters, the focus is on competitive prices across all categories, including offering 6 -to- 12 basic items like milk, eggs, butter and the like at what Wal-Mart is calling "the lowest" everyday prices.

Below are a few Marketside items and prices Wal-Mart's Amee Chande has released:

Prepared meals and side dishes:

>Family-size chicken tamales over Spanish-style rice, $8
>Family-style penne pasta with sliced grilled chicken breast in creamy alfredo sauce, $8 >Classic-style meat lasagna with ground beef, ricotta, mozzarella and parmesan cheeses, $6 >Garlic mashed red-skin potatoes, $4
>Coconut curry pilaf with mild yellow curry, apricots and almonds, $4.

Ready-to-Eat Sandwiches, burritos and wraps:

>Pepperoni and salami with provolone and balsamic vinaigrette, $4
>Fire-grilled chicken burrito with cilantro rice, black beans, chicken and cheddar cheese, $4

Grocery

>Marketside brand fresh ground Ccffee, $4.98 per pound
>Black Angus choice beef rib-eye boneless steak, $10.98
>Ready-to-steam baby green zucchini, $4.48 (8 oz)
>Mixed fruit bowls, $2.98 (10.5 oz)

Looking at the prices, they aren't "door openers" by any means. The prepared foods item prices are good, especially if they taste as good as the descriptions of them and ingredients in them would suggest.

However, the "grocery items" prices are comparatively on the high end, particularly the $10.98 per pound choice beef rib-eye steak and the $4.48 (8oz) baby green ready-to-steam zucchini. All zucchini is essentially ready-to-steam. You just wash it and steam it.

This week numerous supermarkets throughout the Western U.S. have non-baby zucchini on sale for 99 cents -to- $1.19 per pound. Paying an over $3 premium for baby zucchini seems a bit odd in this current economy, especially considering how well Wal-Mart knows what the market will bear at present.

The sample size of the items and prices is tiny though. Therefore we will wait and see further what the overall pricing scheme is when we are able to survey the Marketside stores.

Meanwhile, as we reported earlier today, Tesco opened two more Fresh & Easy markets in the Phoenix area today, bringing its store count in the region up to 26. The grocery chain has confirmed it plans to open at least 37 Fresh & Easy stores in the Phoenix and Valley regions.

The clock is ticking with only two days until the opening of the first four Marketside food and grocery stores in Gilbert, Chandler, Mesa and Tempe, Arizona -- all of which are only about 1 -to- 2 miles from Fresh & Easy markets in each of those cities, by the way.

It will be interesting to see if Arizona shoppers who are used to Wal-Mart as a "Mega-Mart" retailer decide to spend their money at what now also is a "Small-Mart" retailer.

Perhaps with everything else in life shrinking -- the paycheck, the savings and checking accounts, the size of automobiles -- consumers also will decide its time to "get small" when it comes to grocery shopping. If so, Arizona will be ground-zero for the battle of the "Small-Marts" -- not just between Tesco and Wal-Mart either -- but also Trader Joe's, and perhaps soon Safeway with its first "The Market" format store in the state.

Below are the addresses of the four Marketside stores opening on Saturday, October 4:

>Gilbert: northwest corner of Elliot and Cooper roads
>Chandler: southwest corner of Ray and McQueen roads
>Mesa: northwest corner of Sossaman and Baseline roads
>Tempe: northeast corner of Rural and Elliot roads

Click here for map directions for each store location.

Resources:

Related stories from Fresh & Easy Buzz:

October 2, 2008: Arizona Market Report: Fresh & Easy Opens Two New Stores; Marketside Opens in Three Days; Analysis of One Of the Most Competitive Markets in the U.S.

October 1, 2008: 'The Promotional Pundit:' Fresh & Easy Buzz Analyzes, Offers Suggestions and Grades Tesco Fresh & Easy's Bi-Weekly Advertising Flyer

September 30, 2008: News & Analysis: Tesco Reports Half-Year Financials; Reports Loss For Fresh & Easy USA and Sales Per Square Foot Averages

September 29, 2008: 'Will it Play In Peoria?' Wal-Mart Will Open its Fifth Arizona Marketside Store Later This Year in Peoria, Arizona

September 29, 2008: Wal-Mart Offers its Own 'Peek' Inside it's Small-Format Marketside As Part of A One-Week Countdown to the Stores' Oct. 4 Openings in Arizona

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

September 26, 2008: Real Estate Group Selling the Four Wal-Mart Marketside Small-Format Grocery Stores Set to Open on Oct. 4; Plus Data on the Store's Exact Sizes

September 26, 2008: Fresh & Easy Buzz Gets A Peek -- And it Was Only A Peek -- Inside One of the Four New Wal-Mart Marketside Stores Opening in Arizona On October 4

September 26, 2008: News & Analysis: Employees At Two More Fresh & Easy Grocery Stores Could Soon Request UFCW Union Recognition From Tesco's Fresh & Easy

September 24, 2008: Breaking News: Wal-Mart to Open its Four Marketside Food and Grocery Markets in the Phoeniz, AZ Metropolitan Region on October 4

September 23, 2008: Key Personnel Breaking News: Co-Vice President of Retail Operations Brian Pugh No Longer Employed At Tesco Fresh & Easy Neighborhood Market

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

September 15, 2008: Wal-Mart's Chief Merchandising Officer Reiterates CEO's Words that it's 'Keeping Tabs' On Tesco's Fresh & Easy Today at Bank of America Conference

September 12, 2008: Thinking Out Loud: We Reply to A Reader's Request About Retail Strategy; Tesco's Fresh & Easy and Wal-Mart's Marketside

September 12, 2008: CEO's Can Say the 'Darndest Things': Wal-Mart CEO Lee Scott Says He Has Faith Tesco Will Succeed With Fresh & Easy; It's A Small-Mart World After All

September 10, 2008: Fresh & Easy Planning to Introduce Over 200 New Store Brand Items By the End of the Year; Prepared Foods, Coffees and Teas, Snacks Among the Selection

September 10, 2008: Financial Times Follows Fresh & Easy Buzz's Lead in Reporting on Wal-Mart's Plans to Open Marketside Stores in Southern California

September 7, 2008: Analysis & Commentary: Should Tesco's Fresh & Easy Put An Asterisk Next to its Motto? Yes; Unless it Corrects Four Operational Omissions

August 27, 2008: Wal-Mart's Four Phoenix Metro Arizona Small-Format 'Marketside' Community Grocery Stores Nearing Completion; Openings Just Weeks Away

August 17, 2008: Special Report: Tesco Fresh & Easy Neighborhood Market Experiencing A Category Manager and Buyer 'Brain Drain'

August 11, 2008: Arizona Region Market Report: Which Food Retailer Will Seize the Opportunity Offered by the Lack of a Grocery Store in Downtown Tempe, Arizona?

August 11, 2008: Wal-Mart's Small-Format Marketside Strategy is Currently Neither A 1,500 Store, $10 Billion A Year Mega Plan, Nor A Mere Four Store Test

August 9, 2008: Proximity Matters: More On the Upcoming Tesco Fresh & Easy-Wal-Mart Face Off in the Metro Phoenix, Arizona Market

August 8, 2008: Analysis & Commentary: Wal-Mart's Marketside As Part Of it's Multi-Format Category-Killer Strategy Spells Trouble For Tesco's Fresh & Easy

August 7, 2008: Pie in the Sky or Pie in the Face to Tesco's Fresh & Easy: Does Wal-Mart, Inc. Plan to Build A $10 Billion A Year 'Small-Mart' Empire?

July 29, 2008: Metro Phoenix Arizona Market Report: Tesco Opens Store Number Twenty in Phoenix Market; We Use That Milestone to Offer A Market Overview and Analysis

July 25, 2008: Metro Phoenix Arizona Market Report: Tesco Opens Store Number Twenty in Phoenix Market; We Use That Milestone to Offer A Market Overview and Analysis

June 26, 2008: Phoenix, Arizona Metro Market Report: More Competition in an Already Hot Market as Pro's Ranch Markets Plans Two New Stores in Phoenix Metro Market

June 24, 2008: Competitor News: Wal Mart Launches New 'Marketside' Website; Announces First Four Stores in Arizona to Open in the Fall Rather Than Summer

June 23, 2008: Competitor News: Wal-Mart's Marketside On A Hiring Tear; Getting Closer to Opening Small-Format Fresh Food & Grocery Stores in the Phoenix, AZ Region

June 20, 2008: Competitor News: Wal-Mart Executive in Charge of Small-Format 'Marketside' Format Development Leaving to Join UK Bicycle Retailer Halfords Group PLC

June 16, 2008: Wal-Mart and Tesco: The Cross-Atlantic Competition Continues to Heat Up; Almost Hot Enough to Make Uber-Cool British Secret Agent James Bond Flinch

June 8, 2008: Arizona Region Market Report: First Signs of A Weakening Might Be Starting to Show in the 'White-Hot,' 'Super-Competitive' Arizona Market

June 6, 2008: Wal-Mart USA Chief Eduardo Castro-Wright Confirms Fresh & Easy Buzz Reportage on 'Marketside,' Adds Information From the WM Corporate Side

May 18, 2008: Wal-Mart Looking For Sites in California For it's Small-Format 'Marketside' Grocery Stores

February 12, 2008: Wal-Mart's New Logo For It's 'Marketside' Small-Format Grocery Stores Unveiled

January 18, 2008: Wal-Mart and Safeway vs. Fresh & Easy

January 16, 2008: Wal-Mart and Safeway Stores Could 'Box' Tesco in With New Small Format Stores

January 14, 2008: Citigroup Supermarket Industry Analyst Confirms Wal-Mart Small Marts in Arizona

January 14, 2008: Wal-Mart Confirms it Will Test New Small Store Format Later This Year

January 13, 2008: The Battle of the Retail Titans Begins: Wal-Mart to Open Small Format Stores in Arizona

{Photo credit: photo second from the top: Andrea Bloom, Tribune.com.]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Pie in the Sky or Pie in the Face to Tesco's Fresh & Easy: Does Wal-Mart, Inc. Plan to Build A $10 Billion A Year 'Small-Mart' Empire?

Wal-Mart sees Marketside as $10bn chain

From the: Financial Times
By Jonathan Birchall in New York
August 7, 2008

Wal-Mart, the world’s largest retailer, says the new small Marketside grocery stores it is to launch this autumn could expand to a chain of more than 1,000 stores, delivering $10bn-plus in annual sales.

The retailer plans to open 10 of the 15,000 sq ft Marketside stores initially, including four in the Phoenix area, where they will be competing directly with Tesco’s recently launched US Fresh & Easy store concept.

Wal-Mart’s executives have described the Marketside stores as a pilot project, although it is the first new store format to be launched by the company in a decade. But a job advertisement for the retailer indicates the scale of its ambitions for Marketside, saying the format “is expected to start with 10 stores and evolve to between 1,000-1,500 stores with over $10bn annual sales."

At less than a 10th of the size of the average Wal-Mart superstore, Wal-Mart said the new stores would be aimed at “the needs of a time-starved, higher-income consumer that is interested in convenience and premium fresh, natural and organic offerings.”

The approach contrasts with Wal-Mart’s experience with the Wal-Mart Neighborhood Market stores it launched 10 years ago, which are about the size of a traditional US supermarket.

In response to an inquiry from the Financial Times, Wal-Mart stressed the Arizona stores were a pilot project. The retailer subsequently removed from its website the job advert that included the more ambitious targets.

Wal-Mart’s superstores are built around high volume and low cost, and the group has faced challenges in adapting to the supermarket-sized Neighborhood Market stores it launched in 1998, opening more than 140 outlets. The Marketside stores will require a fast turnover of stock, which could be a difficult fit with Wal-Mart’s distribution system.

Tesco has opened more than 60 Fresh & Easy stores in California, Arizona and Nevada since November and plans to have several hundred operating during the next two years.

Wal-Mart, the largest US grocer with more than 20 per cent of the market, is developing the Marketside format as growth slows at its 2,500-plus superstores.

The Marketside format is also expected to spearhead a broader drive by the retailer to improve its overall grocery offering.

Safeway and SuperValu, two of the largest US supermarket chains, are also experimenting with small, local formats.

Fresh & Easy Buzz Editor's Note: Below is a selection of original reporting news stories, features and analysis about Wal-Mart's Marketside format stores from Fresh & Easy Buzz:

August 7, 2008: Food Retailing & Labor Unions: Canada's Supreme Court to Hear Case that Could Change Wal-Mart's, and Others, Non-Union Status in North America

June 24, 2008: Competitor News: Wal Mart Launches New 'Marketside' Website; Announces First Four Stores in Arizona to Open in the Fall Rather Than Summer

June 23, 2008: Competitor News: Wal-Mart's Marketside On A Hiring Tear; Getting Closer to Opening Small-Format Fresh Food & Grocery Stores in the Phoenix, AZ Region

June 20, 2008: Competitor News: Wal-Mart Executive in Charge of Small-Format 'Marketside' Format Development Leaving to Join UK Bicycle Retailer Halfords Group PLC

June 16, 2008: Wal-Mart and Tesco: The Cross-Atlantic Competition Continues to Heat Up; Almost Hot Enough to Make Uber-Cool British Secret Agent James Bond Flinch

June 9, 2008: Breaking News and Analysis: German Small-Format Discount Grocery Chain Lidl is 'Coming to America' By 2012 Says Chief Executive Klaus Gehrig

June 8, 2008: Arizona Region Market Report: First Signs of A Weakening Might Be Starting to Show in the 'White-Hot,' 'Super-Competitive' Arizona Market

June 6, 2008: Is A Wal-Mart 'Marketside' Small-Format Grocery and Fresh Foods Store Coming to Reno, Nevada?

June 6, 2008: Wal-Mart USA Chief Eduardo Castro-Wright Confirms Fresh & Easy Buzz Reportage on 'Marketside,' Adds Information From the WM Corporate Side

May 18, 2008: Wal-Mart Looking For Sites in California For it's Small-Format 'Marketside' Grocery Stores

April 11, 2008: Wal-Mart to Open Two More New 'Neighborhood Market' Stores in the Phoenix Metro Region; Still On-Track to Open New Marketside Stores This Summer

February 22, 2008: Wal-Mart and Tesco Locked in Heated Cross-Atlantic Competitive Battle in the USA and UK

February 12, 2008: Wal-Mart's New Logo For It's 'Marketside' Small-Format Grocery Stores Unveiled

January 18, 2008: Wal-Mart and Safeway vs. Fresh & Easy

January 16, 2008: Wal-Mart and Safeway Stores Could 'Box' Tesco in With New Small Format Stores

January 14, 2008: Citigroup Supermarket Industry Analyst Confirms Wal-Mart Small Marts in Arizona

January 14, 2008: Wal-Mart Confirms it Will Test New Small Store Format Later This Year

January 13, 2008: The Battle of the Retail Titans Begins: Wal-Mart to Open Small Format Stores in Arizona

Competitor News: Wal Mart Launches New 'Marketside' Website; Announces First Four Stores in Arizona to Open in the Fall Rather Than Summer

Wal-Mart has launched a new, colorful website for its Marketside small-format (15,000 -to- 20,000 square foot) community grocery stores and announced today its first four combination grocery and fresh foods stores in the Phoenix Metropolitan/East Valley region cities of Gilbert, Mesa, Chandler and Tempe will open in the fall rather than this summer as the retailer originally had planned.

View the new Wal-Mart Marketside website here.

Fresh & Easy Buzz first reported last year Wal-Mart would open the first four of the new Marketside format stores in these Arizona cities. Wal-Mart confirmed this two months ago when it created the website workformarketside.com where it listed job postings and began excepting online applications for store manager and assistant manager positions at the four Marketside stores in these four Arizona cities.

Wal-Mart originally planned to open at least one or more of the four stores this summer, according to our sources. In fact, it was hoped the first store would open before August 4, when David Wild, Wal-Mart's senior vice president for business development and the head of the Marketside format development team, leaves the company to become CEO of Halfords, a United Kingdom-based car part and bicycle retailer.

Based on Wal-Mart's announcement today, that's not going to be the case. Wal-Mart offered no specific month or date this fall when the first store would open; just that they will open in the fall of 2008.

As we've reported previously, Wal-Mart's Marketside will have its own offices in Tempe, Arizona, rather than being operated out of Wal-Mart corporate headquarters in Bentonville, Arkansas. Starting on June 30, Marketside will open a recruiting office to hire for the Arizona stores at this address: 800 E. Southern AvenueTempe, AZ 85282. Marketside has already been accepting applications and conducting interviews for positions. But the opening of this recruiting office will kick the process into high gear, according to our sources.

The new Marketside website positions the stores as we've been reporting for months now, as small "community grocery stores" with a focus on fresh foods and basic grocery items. In fact, on the new website, Wal-Mart describes Marketside this way "Marketside is a small community grocery store owned by Wal-Mart Stores, Inc."

Interestingly, Tesco originally planned to name its Fresh & Easy USA division and stores, Fresh & Easy Community Market, but changed it to Fresh & Easy Neighborhood Market after the retailer said research with focus groups demonstrated a preference for "Neighborhood" over "Community" in the name. [This has been publicly stated by both Tesco PLC CEO Terry Leahy and Tesco Fresh & Easy Neighborhood market CEO Tim Mason. Tesco makes no mention on the Fresh & Easy website that Fresh & Easy Neighborhood Market is owned by Tesco, like Wal-Mart does mention about Marketside being owned by Wal-Mart on the new Marketside website.]

Ironically, Wal-Mart's original small-format supermarket (at least small-format for Wal-Mart at the time at 45,000 square feet), which it continues to expand in terms of store count, is called Wal-Mart Neighborhood Market. Wal-Mart built its first Wal-Mart Neighborhood Market store in 1998, which was the last time it launched a new format until now with Marketside.

The Marketside website plays up the stores' and its workers "passion" for food, especially fresh foods, with pictures and text about food and Marketside's commitment to offering "the freshest food available in-store and the best customer service."

As we've reported, the Marketside stores will have in-store kitchens where the fresh food items will be prepared, along with a seating area that will sit about 10 customers at any one given time. Take-out is expected to be the big draw for the fresh in-store, prepared foods in the stores however.

Tesco's Fresh & Easy Neighborhood Market makes its fresh, prepared foods at a central kitchen in Southern California and ships the items to its current 61 stores in Southern California, Nevada and Arizona.

The new website also makes an effort to reinforce the message that Marketside prices will be value-oriented, rather than having high prices like some publications have been suggesting recently in various stories using the angle that Wal-Mart plans to open upscale and high-priced small-format stores.

Wal-Mart's positioning for Marketside--fresh, quality foods at affordabel prices--is clear from reading this key introductory statement on the website reprinted below:

Welcome to Marketside

"Marketside provides fresh, innovative answers to the daily question, "What's for dinner tonight?" Our unique product and shopping experience will change the way you shop for — and think about — fresh food, and our prices will keep you coming back."

It's clear Wal-Mart is positioning Marketside as a small, community grocery store as it calls it, featuring basic groceries and fresh foods with a clear value proposition.

Our sources have told us all along, and we have reported, that the Marketside stores will be slightly upscale but also will offer value pricing, which is Wal-Mart's stock in trade across all of its formats.

The new Marketside website also has photographs of the uniforms (burnt red-color grocery aprons with Marketside in gold lettering) store-level employees will wear. The uniforms, which are in the same colors used in the website and in other Marketside design and marketing elements and materials (hint: look for these to be the design colors used in and outside the stores) are designed to depict "freshness," which is the key marketing and positioning element for Marketside.

The website also features a sign up area here called "Stay in the Know," where consumers can sign up to receive a Marketside newsletter on a regular basis as well as receiving email up dates about Marketside.

The new Marketside website incorporates Wal-Mart's earlier job listing-only website (http://www.workformarketside.com/), including having listings in its "Join Our Team" section for the new store-level Pantry Controller and Meal Specialist positions Fresh & Easy Buzz was the first publication to report on in this piece yesterday, along with the store manager and assistant manager positions.

As Fresh & Easy Buzz reported in this piece on May 18, "Wal-Mart Looking For Sites in California For it's Small-Format 'Marketside' Grocery Stores," Wal-Mart is looking throughout California for future Marketside store sites.

In addition, in this June 6 piece, "Is A Wal-Mart 'Marketside' Small-Format Grocery and Fresh Foods Store Coming to Reno, Nevada?,"we reported Wal-Mart is interested in locating a Marketside store in this new and upcoming commercial development in Reno, Nevada.

In this piece, "Wal-Mart USA Chief Eduardo Castro-Wright Confirms Fresh & Easy Buzz Reportage on 'Marketside,' Adds Information From the WM Corporate Side," from our coverage of Wal-Mart's annual meeting on June 6, Wal-Mart CEO Eduardo Castro-Wright himself confirmed Marketside would have a value pricing proposition along with its more upscale fresh foods focus and basic grocery offerings.

It's obvious to Fresh & Easy Buzz that Wal-Mart plans to use Marketside as part of its three format--Supercenters, 45,000 square foot Neighborhood Market's and now Marketside--food and grocery retailing strategy in Arizona to become the market share leader in the state.

It's also obvious that although doing some things differently than Tesco with its Fresh & Easy, Wal-Mart plans to use Marketside, along with its other formats, to attempt to strike a serious competitive blow to the start up Fresh & Easy chain.

It looks like readers and others will have to wait until the fall to see the Fresh & Easy vs Marketside battle begin (the first four Marketside stores are very close to existing Fresh & Easy stores) rather than this summer.

That gives Tesco time to open more Arizona Fresh & Easy stores as well, which it will soon start doing after ending its three month new store opening pause on July 2 when a new store opens in Manhattan Beach in Southern California. New Arizona stores will start opening shortly after that date. Their currently are about 20 Fresh & Easy grocery markets open and operating in Arizona.

The launching of its new Marketside website by Wal-Mart though is a clear indication things are getting serious with the world's largest retailer when it comes to its new Small-Mart development, Marketside. After all, fall is just around the corner.

Analysis & Commentary: Wal-Mart's Marketside As Part Of it's Multi-Format Category-Killer Strategy Spells Trouble For Tesco's Fresh & Easy

Yesterday we ran this story from the Financial Times newspaper (along with links to numerous previous Fresh & Easy Buzz original pieces about Wal-Mart's new Marketside format fresh foods and grocery stores) about a posting on Wal-Mart's small-format Marketside.com website that mentioned the mega-retailer's eventual goal with Marketside was to have a division of about 1,000 -to- 1,500 stores in the U.S., doing about $10 billion in annual sales.

Today, most of the supermarket industry trade publications, along with numerous newspaper business sections, ran brief stories quoting the Financial Times' report.

There's also been some discussion today in a number of blogs and on a couple industry websites like retailwire.com about Wal-Mart's possible big "Small-Mart" growth plans for its Marketside division. All of course writing about it, including us, before the first store even has opened. Sounds much like to the run up to Tesco's Fresh & Easy Neighborhood Market chain in fact, doesn't it?

Much of the reaction today has had an exclamation point after it--meaning there are many media perceptions of amazement that Wal-Mart might be thinking so "big" about its small format store Marketside division, the first four stores of which are scheduled to open this fall in the Phoenix, Arizona Metropolitan region.

A few first facts

Unlike Tesco with its small-format Fresh & Easy Neighborhood Market grocery stores, which are Tesco's single-format strategy in the U.S., Wal-Mart's Marketside is merely the newest development of the mega-retailer's multi-format food and grocery retailing strategy in the U.S.

For Wal-Mart, that strategy centers on its huge combination food and general merchandise Supercenters as its primary food and grocery retailing format nationally in the U.S., followed by its 45,000 square foot supermarket-only Wal-Mart Neighborhood Market stores, it's Sam's Club warehouse stores--which sell a very extensive selection of fresh food and grocery items--and even its Wal-Mart general merchandise discount stores, which have grocery product aisles, sell perishable and frozen foods, and stock extensive selections of household cleaning and related items.

And, of course, now there will be Marketside, which are 15,000 -to-20,000 square food combination fresh foods, basic and specialty grocery markets. At the center (literally and figuratively) of the Marketside format is its in-store, fresh prepared foods category or feature.

The Marketside "Small-Mart" stores will have kitchens in them, along with a seating area where shoppers who choose can eat-in. Take-out purchasing of the fresh, prepared foods will be the mainstay of the category's sales however.

A few more facts

Tesco's single-format strategy with its average 13,000 square foot Fresh & Easy grocery markets, which are combination fresh foods and basic grocery stores that also feature a selection of organic products and specialty wines, is to concentrate for the first two or three years on three U.S. states--California, Nevada and Arizona--opening numerous (probably 300 -to-400 by the end of 2010) stores in selected markets in these states within a couple of miles of each other to achieve what we've termed a "critical mass" strategy. (Think Walgreens drug stores and Starbucks cafes in terms of stores in close proximity to each other in a market.)

As part of this single-format strategy, Tesco tried to create small-format grocery stores (Fresh & Easy) that would appeal to everybody in its analysis. In fact, when asked what the target consumer market is for its Fresh & Easy stores, Tesco executives will even use that word. They are for "everybody," is the answer you're likely to get from a "Fresh & Easier."

That's easier said than done of course. As anybody who has spend some years in the U.S. food and grocery industry knows, appealing to "everybody" with a 65,000 square foot supermarket, let alone a 13,000 square foot grocery store, isn't an easy task, assuming a retailer even wants to try it.

It's no accident the three leading small-format food and grocery retailers in the U.S.--SuperValue, Inc.'s Sav-A-Lot (about 1,600 stores in the U.S.), Aldi USA (about 900 stores) and Trader Joe's (about 300 stores)--are tightly focused and positioned small-formats. Sav-A-Lot and Aldi are price-focused, no frills discount grocery stores. Trader Joe's is a specialty grocery store with a focus on selling specialty and natural-organic products (primarily under its own brands) at discount prices.

In other words, the positioning of all three of these small-format grocers is well defined. Sav-A-Lot and Aldi are focusing on the price-conscious shopper and Trader Joe's on the specialty consumer who wants unique specialty products for a reasonable price. None of the three are trying to get "everybody" to shop in their respective stores. If "everybody" shops them, they will be pleased. But its not the positioning.

Back to Wal-Mart

Wal-Mart didn't get to be the largest corporation and retailer in the world, along with recently becoming the number one seller of food and grocery products in the U.S. passing Kroger Co. for the honor, by not understanding format development, and particularly the power of a multi-format strategy. The same can be said for Tesco, the third largest retailer in the world. Tesco operates numerous formats, ranging from hypermarkets to small-format Tesco Express hybrid grocery and convenience stores at home in the UK, for example.

Wal-Mart didn't even start out as a seller of food and groceries. Rather, Sam Walton founded the company--and operated it for many years--strictly as a general merchandise discount chain with a single format--Wal-Mart discount stores. Those stores sold a limited assortment of shelf-stable food and grocery products, but it was an afterthought rather than a focus.

It was with the Sam's Club warehouse format stores and then the Supercenters (which at first were called hypermarts under the European model) that Wal-Mart starting getting into food and grocery retailing. Later, it developed its Neighborhood Market supermarkets as the third leg of its multi-format food retailing strategy.

Now along comes Marketside, which will be Wal-Mart's fifth format and its fourth one with a focus on food and groceries.

Instead of merely doing a smaller version of its 45,000 square foot Wal-Mart Neighborhood Market supermarket format Wal-Mart understood that wouldn't be smart and came up with the proposition of centering the stores around in-store, fresh prepared foods, including having an "eat-in" area, which is really more for atmosphere than profit, and then building a fresh foods (produce, meats, perishables) and grocery (dry grocery and specialties) store around the prepared foods proposition.

Tesco's Fresh & Easy stores have a focus on fresh, prepared foods as well. However, its prepared foods are made at a kitchen facility in Southern California and then shipped to its California, Nevada and Arizona stores. Some say Wal-Mart's fresh, prepared foods focus is copied from Tesco's Fresh & Easy. Wal-Mart says it isn't.

In the U.S., consumers (and the industry) have generally perceived fresh, prepared foods made in-store to be fresher and better tasting than those prepared off-site and delivered to the stores. In fact, in the late 1980's/early 1990's a very well-funded company in the San Francisco Bay Area launched a company in which using the European sous-vide cooking method, its professional chefs created an extensive line of fresh, prepared foods.

The company created an extensive DSD delivery system and supply chain with the millions of dollars it raised and launched the premium quality prepared foods, starting in a number of Bay Area supermarkets the expanding nationally. The prepared foods were tasty and of a high quality, but the company failed after about five years because consumers prefered shopping at stores featuring in-store prepared foods items.

Wal-Mart's multi-format strategy

What many analysts, writers and others fail to realize when comparing Tesco's Fresh & Easy to Wal-Mart or even Safeway Stores, Inc.'s (with its "The Market" stores) entry into small-format food and grocery retailing is just this fact--that for Wal-Mart and Safeway, Marketside and "The Market" are just parts of a multi-format national food retailing strategy. Conversely, for Tesco--at least until it makes a U.S. acquisition--Fresh & Easy is the whole enchilada. And its a regional whole enchilada at that.

Geographically, the United States is a big country. Add in Canada and you have an even bigger North American canvas. Eventually opening 1,500 small-format (15,000 -to- 20,000 square foot) Marketside stores in the U.S. and Canada, where Wal-Mart is becoming a major player, is a very reasonable proposition. Especially if you remember that Marketside is a national format and concept, just like Wal-Mart's Supercenters, discount stores and Sam's club are--and the Wal-Mart Neighborhood Market supermarkets are becoming.

Wal-Mart has far more than 1,500 of its huge (average 180,000 square feet) Supercenters in the U.S., and has been and is opening as many new ones as it can throughout the country.

Unlike the huge Supercenters--which not only have finding enough room (real estate) to put them as a limiting factor, along with all the political challenges Wal-Mart has even getting one approved, not to mention how long the mega-stores take to build once approved--the small-format Marketside stores can be built nearly anywhere the retailer wants to place them. This includes in urban downtowns and city neighborhoods as well as in suburbs.

For example, Wal-Mart can't open a Supercenter in the city of San Francisco for space and political reasons, but it likely can open five or six (or more) Marketside stores in that city of residential neighborhoods. The same is the case in big cities throughout the U.S., such as Los Angeles, downtown Phoenix, New York City, Boston, Chicago and many others where lack of available space and political issues make locating Supercenters impossible.

Thinking about it that way--that Marketside is an urban, suburban and even in some cases a small town adaptable format--makes the thought of 1,500 of the stores in the U.S. and Canada actually sound perhaps to few over the long term.

For example, 100 -to- 125 Marketside stores a year for ten years is an attainable goal for Wal-Mart, especially when an urban strategy is a significant part of the new store development. (Wal-Mart will open about 100 mega-Supercenters in the U.S. this year. That's the equivalent of over one thousand 15,000 square foot Marketside stores in terms of total square footage.) City's throughout the U.S. are understored, so this opens up a real opportunity for Wal-Mart with Marketside. It also just so happens that city's are where the fewest--and in many cases where they have none--Wal-Mart Supercenters are located, for the reasons detailed earlier.

Wal-Mart Marketside in Arizona

It's no accident that the first four Wal-Mart Marketside small-format fresh food and grocery stores to open will be in the Phoenix, Arizona Metropolitan region.

There are two primary reasons the Phoenix Metro market is first up.

Yes, one of those reasons is because that is where Tesco has chosen to focus its Fresh & Easy Neighborhood Market business, along with in Southern California and in the Las Vegas, Nevada Metro region.

But that is the secondary reason. Primary reason number one that the first four Marketside stores will open in the Phoenix Metro market in Arizona is because Wal-Mart has staked a claim strategically to become the food and grocery sales market share leader in Arizona, eventually beating out Safeway Stores, Inc. and Arizona-based Bashas, the top two sellers of food and groceries in the state.

It's no accident Arizona has been and is one of the top three states in terms of Wal-Mart's opening new Supercenters and its 45,000 square foot Neighborhood Market supermarkets, as well as adding Sam's Club stores. Now comes Marketside.

As we said, Wal-Mart's goal in Arizona is to become the state's, which is one of the fastest growing in the U.S., number one retailer of food and grocery products--and to do so by crushing the competition with four formats: Supercenters, Neighborhood Markets, Sam's Club and Marketside. Each format has its primary customer base. Each format is designed to eat into the specialties of its competitors.

For example, Wal-Mart doesn't expect to sell more basic groceries in the Marketside stores than say even a Tesco Fresh & Easy will. It wants to. But that's not the primary goal. It doesn't need to. It has Supercenters, Neigborhood Market supermarkets and Sam's Club stores all nearby that can achieve that task.

What Wal-Mart does plan to do is to eat into most of Fresh & Easy's fresh, prepared foods sales with its Marketside in-store, fresh prepared foods offering. In turn, Wal-Mart then believes the other three formats will eat into most of the basic grocery sales at Fresh & Easy, thereby crushing the stores from all sides with its four different food and grocery retailing formats.

Wal-Mart hopes to do the same to Safeway and Bashas as well. But with hundreds of supermarkets each in Arizona already, these two retailers are far less vulnerable to the Wal-Mart multi-format machine than Tesco's Fresh & Easy is.

If you look at where Wal-Mart is opening its first four Marketside stores in the Phoenix Metro market, you will find they are very close to Tesco Fresh & Easy Neighborhood Market stores. All four Marketside stores also have Wal-Mart Supercenters and Neighborhood Market supermarkets nearby. Wonder why that is? Each format has a primary purpose. Each format serves a primary need. That's why. All that is secondary from each format is gravy in Wal-Mart thinking.

General George Washington, who later became America's first President, finally defeated the British in the war of independence by figuring out that his best strategy, which took him losing thousands of men and numerous battles to finally arrive at, was to concentrate a critical mass of soldiers in fewer battles, thereby inflicting maximum damage, and then retreating. Sort of the cuts by a thousand knives strategy. He lost lots of battles but ultimately won the war.

In many ways that's the strategy Wal-Mart is conducting in Arizona with its current three food and grocery retailing formats--Supercenters, Neighborhood Market supermarkets and Sam's Club warehouse stores--and soon to be fourth format: Marketside. Toss in the Wal-Mart discount stores as well as gravy.

It goes something like this: If the Wal-Mart Supercenters and Sam's Club warehouse stores don't kill you (a grocer) all by themselves in terms of siphoning off lots of you're primary shoppers, there's a Wal-Mart Neighborhood Market supermarket to absorb you're remaining primary as well as secondary shoppers.

And like this: Sell in-store fresh, prepared foods Mr. grocer? That's your niche? You say let consumers buy most of their basic groceries at the Supercenter and Sam's? That you want consumers' fresh, prepared and specialty/natural foods dollars mainly anyway? After all, it brings you higher margins anyway, right?

But wait: along comes Marketside this fall to start siphoning some of those valued fresh, prepared and specialty/natural foods sales dollars you are counting on so much away from your stores. And, those shoppers have now become significant primary and secondary shoppers in your grocery markets. What to do? Perhaps go out an get another format of your own? Good idea. But doing so does take some time.

Of course that's the theory and the strategy in Wal-Mart world seen through our analytical lenses. However, American supermarket chains and independents have a history of beating back the Wal-Mart's of the world when it comes to competing. Wal-Mart's competitors like Bashas and Safeway may lose lots of share in Arizona, but that doesn't mean the competitors are going away. After all, they've been right where they are for a very long time, growing, evolving and changing all the while generally. Nor does it not mean they won't innovate to counter Wal-Mart's multi-format machine.

What we don't know is if Tesco can do what these American supermarket chains and independents have done in fighting back against the Wal-Mart's of the world since day one in the U.S., which is to largely survive and often even to thrive against the giants.

You see, Tesco is a world class food and grocery retailer. It controls 31% of the market in its home country of the United Kingdom. Wal-Mart has about a 20% share nationally in the U.S. as America's leading retailer of food and groceries.

Tesco also has done very well internationally in Eastern Europe, parts of Asia and elsewhere.

But Tesco has never played in a market as big in dollar terms or as competitive as the U.S. The state of California all by itself has nearly the total annual grocery sales volume as the entire United Kingdom, for example.

The U.S. also is a regional food and grocery retailing market, with giant regional supermarket chains in addition to the national chains. In just California alone you have Save Mart, Inc., which does about $6.5 billion annually with stores in just Northern and Central California. You have Raley's, which does nearly $4 billion with stores only in roughly the same part of the state as Save Mart.

In Southern California, regional chain Stater Bros does nearly $4 billion a year having stores only in the Southern California region. Bashas in Arizona has sales of about $3 billion with 160 stores, all but a handful of them being in its home state. There are scores more regional chains and multi-store independent operations on top of that, in addition to a few thousand single store independents.

It's like that throughout the U.S.--north to south and in between. Scores of regional mega-chains doing billions annually in sales, along with hundreds more doing in the hundreds of millions, and even more multi and single-store independents doing in the tens of millions annually.

In the UK, there are five grocery chains that control about 80% of the total food and grocery sales in the nation. Tesco is number one, Wal-Mart-owned Asda is number three, right behind number two Sainsbury's.

In the U.S. its these regional mega-chains that usually are the market share regions throughout the country, with just a few exceptions.

America is a whole new ballgame for Tesco. It has never done business in a nation that even approaches the competition offered in the U.S. in the food retailing industry. We aren't sure the folks running Tesco's Fresh & Easy Neighborhood Market USA division have an appreciation for that fact, based on our observations. They should.

But Tesco is a learning corporation, so anybody that counts the retailer out in the U.S. does so at their own peril, in our analysis.

For some reason Tesco's Fresh & Easy senior executives haven't felt the need to do much learning about the U.S. food retailing culture and industry though, based on what we've been told by more than one former Fresh & Easy corporate headquarters employee, as well as numerous suppiers. The concept of hubris and trying to fit British food retailing methods and systems into the American market comes up again and again in conversations with these sources. It's not our opinion--it's what we've been told again and again.

Raising (and learning from) Arizona

From a strictly learning perspective, Arizona, and especially the Phoenix Metropolitan region market, will be a great classroom for the next couple years, as Wal-Mart opens more and more Supercenters, Sam's Club stores, Neighborhood Market supermarkets and its new small-format Marketside food and groery stores, as part of its strategy to become that state's number one multi-format food and grocery retailing market share leader.

From a competitive perspective it could be rough--and expensive. Wal Mart has the buying and supply chain machine, along with the marketing and merchandising system, that if it wants, it can make things very difficult and extremely expensive for its international retailing rival Tesco in Arizona.

Sort of a death by a thousand knives (four Wal-Mart formats, each aimed at killing Fresh & Easy's two key categories, basic groceries and fresh, prepared foods) strategy.

'Will it Play In Peoria?' Wal-Mart Will Open its Fifth Arizona Marketside Store Later This Year in Peoria, Arizona

With still a week yet left until it opens its first four small-format combination grocery and fresh foods Marketside stores in the Phoenix, Arizona Metro region cities of Gilbert, Chandler, Mesa and Tempe, Wal-Mart already is preparing another store to open later this year in the Arizona city of Peoria, Fresh & Easy buzz has learned. [The Mesa Marketside store is pictured above.]

The Peoria, Arizona store will be Wal-Mart's fifth Arizona Marketside store thus far.

Two new additional Marketside stores in Southern California, one in San Diego and the other in nearby Oceanside (both which we've reported on), are scheduled to open this year before the Peoria, Arizona store does, according to Amee Chande, vice president of strategy and marketing for Wal-Mart, Inc.

Additionally, as we've previously reported, Wal-Mart has identified other Arizona and Southern California locations for its Marketside stores, as well as looking for locations in Northern California, primarily in the San Francisco Bay Area.

Peoria, which is located in the Northwest Valley region in the Phoenix Metropolitan area, is Arizona's ninth-largest city with a population of about 153,592 (2007) residents.

Wal-Mart chose Peoria as the location for its fifth Marketside location based on research and demographic data the retailer has collected due to its extensive retail presence in Arizona with its Wal-Mart Supercenters, Sam's Club stores and Wal-Mart Neighborhood Market supermarkets, which all offer food and grocery items, according to a Wal-Mart source.

Peroria has a mix of residents including young professionals and high-income retirees. Wal-mart believes the community offers a good consumer base for its Marketside stores, which will offer about 5,000 -to- 10,000 ingredient skus (shelf-stable groceries, beverages and fresh foods like meat, produce, dairy and the like) and ready-to-eat and ready-to-heat fresh, prepared foods items made right in the stores.

Wal-Mart is referring to all of the food and grocery items the stores will offer as ingredients, positioning the Marketside stores as "food-centric," yet affordable combination fresh food and ingredient (read grocery) markets.

Marketside stores will offer basic groceries and natural, organic and specialty products; fresh produce, meat and bakery; beers, wines and spirits; and fresh, prepared foods, featuring an in-store kitchen and even a small sit-down eating area for customers to have breakfast, lunch or dinner at in the store.

Resources:

Recent related stories from Fresh & Easy Buzz - Wal-Mart and Marketside

Wal-Mart Offers its Own 'Peek' Inside it's Small-Format Marketside As Part of A One-Week Countdown to the Stores' Oct. 4 Openings in Arizona

Fresh & Easy Buzz Gets A Peek -- And it Was Only A Peek -- Inside One of the Four New Wal-Mart Marketside Stores Opening in Arizona On October 4

Real Estate Group Selling the Four Wal-Mart Marketside Small-Format Grocery Stores Set to Open on Oct. 4; Plus Data on the Store's Exact Sizes

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

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Wal-Mart's Chief Merchandising Officer Reiterates CEO's Words that it's 'Keeping Tabs' On Tesco's Fresh & Easy Today at Bank of America Conference

Wal-Mart's Small-Format Marketside Strategy is Currently Neither A 1,500 Store, $10 Billion A Year Mega Plan, Nor A Mere Four Store Test

The supermarket industry trade publication Supermarket News reports in a brief item this morning that a Wal-Mart, Inc. spokesperson told the publication on Friday that its initial four Marketside small-format communtiy grocery stores set to open this fall in the Phoenix, Arizona Metropolitan region are part of "a small-scale pilot, and we have no plans [for the format] beyond a handful of stores."

The comment from the Wal-Mart spokesperson came in response to a report published in the Financial Times that quoted the Marketside website as saying the company expected to start with 10 stores and evolve to between 1,000 and 1,500 locations with more than $10 billion in annual sales," according to the Supermarket News report this morning.

As we've written all along since first reporting last year on Wal-Mart Inc.'s development of the 15,000 -to 20,000 square foot Marketside format stores--which will feature in-store fresh, prepared foods, fresh produce, fresh meats and a selection of basic, specialty and natural food and grocery products--Wal-Mart plans are to open an initial handful of the Marketside stores, see how they perform, and then move forward with additional stores slowly and carefully, unike Tesco with its Fresh & Easy grocery markets, which is taking a rapid new store opening approach, having thus far opened 68 of the combination fresh foods and basic grocery markets in Southern California, Nevada and Arizona in a 10 month period, with many more new stores on the way.

This strategy is for what to us are obvious reasons. First, Wal-Mart already is the number one food and grocery retailer in the U.S., with thousands of stores under four formats--Supercenters, Sam's Club warehouse-style club stores, Wal-Mart Neighborhood Market supermarkets and Wal-Mart general merchandise discount stores.

The discount stores, which sell a limited assortment of perishable and dry grocery products (but no fresh meats or produce) are the only one of these four Wal-Mart formats that don't feature a combination of both fresh foods and grocery items in them. Therefore, for Wal-Mart, Marketside is merely a fifth format in its multi-format U.S. strategy, albeit a very different one, and one that like its 45,000 square foot Neighborhood Market supermarkets focuses esclusively on food and grocery sales.

A tale of two (different) strategies: Tesco and Wal-Mart

On the other hand, Tesco's current strategy in the U.S. is a single small-format food and grocery retailing one, with its 10,000 -to- 13,000 square foot Fresh & Easy Neighborhood Market combination basic grocery, fresh, prepared and specialty foods convenience-oriented grocery stores. As such, Tesco's plans is to open hundreds of the Fresh & Easy markets over the next few years, primarily in the Western U.S. but also potentially elsewhere in the country, in order to create a "critical mass" of neighborhood grocery stores primarily in suburban but also in urban neighborhoods.

Additionally, except for the similarity of the Fresh & Easy and Marketside stores (small-format, combination fresh foods and groceries and the like) the strategies of the two mega-international retailers couldn't be more different in terms of format-focus, strategy and tactics in the U.S.

Marketside: More than a test

However, we also know Wal-Mart's strategy and plans for Marketside are far more ambitious than merely opening the four Arizona stores and then sitting back for some time and evaluating their performance before looking for other store sites in other states and market regions.

For example, we've reported that Wal-Mart is taking to a commercial developer in Reno, Nevada about putting a Marketside in a new urban mixed-use retail and residential development in that city. [Read the story: Is A Wal-Mart 'Marketside' Small-Format Grocery and Fresh Foods Store Coming to Reno, Nevada?]

We've also reported (May 18, 2008) Wal-Mart has been talking to commercial real estate people about various potential Marketside store locations throughout California. [See that story here: Wal-Mart Looking For Sites in California For it's Small-Format 'Marketside' Grocery Stores.]

In fact, Fresh & Easy Buzz was told long ago by a source who was in a position to know first hand about Wal-Mart's Marketside plans, that as early as late last year the marketside development team led by David Wild, who recently left Wal-Mart, Inc. to take the CEO position at British car parts and bicycle company Helfords PLC, that strategic plans called for locating Marketside stores in the San Francisco Bay Area, including more than one location in the city of San Francisco.

Wal-Mart only has a few Supercenters in the nine-county San Francisco Bay Area, which has a population of nearly 7 million people, and is one of the most food-oriented regions in America. Wal-Mart has wanted a stronger food and grocery retailing presence in the Bay Area for years, but has been unable to get approvals for most of the Supercenters its proposed in the region's city's because of opposition by many of the citys and numerous consumer and neighborhood groups to having the mega-Supercenters in their communities.

Our source told us Wal-Mart was looking to Marketside as a way to increase its food and grocery sales market share in the Bay Area by locating the small-format, more upscale stores in city's throughout the region. The argument goes that it would be rather difficult for city's and community groups to use the same arguments they've used in opposition to the Supercenters--too big, bad for the environment, ect.--against Wal-Mart's proposals to build and open the small-format Marketside stores in the region. Wal-Mart also isn't calling the stores "Wal-Mart" Marketside in part for that very reason.

The Marketside development team led by David Wild did its work in fact out of the San Francisco Bay Area, where Wal-Mart operates its Wal-Mart.com online business from. Wild also lived in the San Francisco area even though he had the title of corporate vice president for new business development. Nearly all Wal-mart corporate officers work out of headquarters in Bentonville, Arkansas.

Commercial real estate sources in the Bay Area also have told Fresh & Easy Buzz about conversations they've had with members of the Marketside development team in the past regarding store locations in the Bay Area, including in the city of San Francisco, as we've reported previously.

The emphasis on in-store fresh, prepared foods for Marketside in fact was greatly influenced by David Wild's touring numerous San Francisco Bay Area grocers that are famous for quality in-store fresh, prepared foods merchandising, including Draeger's (3 stores), Andronicos (8 stores), Mollie Stone (9 stores), Whole Foods Market (about 25 Bay Area stores), and a number of others.

Southern California also is on Wal-Mart's radar for Marketside. based on source information we know that Wal-Mart representatives have had discussions with real estate agents and developers about numerous potential sites in Southern California, including a site in downtown San Diego's popular Gaslamp district which the retailer may be close to signing a lease on.

Therefore, based on our reporting and source information, we suggest Wal-Mart's strategy and plans for Marketside are neither the ambitious 1,500 stores and $10 billion in annual sales scenario reported in the Financial Times, although such long range plans have been discussed by the Marketside development team when it was headed up by David Wild, nor the tiny mere four store test the Wal-Mart sopkesperson told Supermarket News is the case in its report this morning. (We aren't criticizing Supermarket News. It is reporting what it was told by the spokesperson.)

At a June 6, 2008 press conference held by Wal-Mart's CEO for U.S. operations (in conjunctions with the company's annual meeting) Eduardo Castro Wright, a Fresh & Easy Buzz correspondent asked Mr. Wright about the retailer's expansion plans, including in California, for Marketside. He neither confirmed such plans nor denied them.

However, he made it clear in a number of ways during the press conference, and when he spoke earlier about Marketside at Wal-Mart's annual meeting prior to the press conference, that the retailer's plans for Marketside went far beyond a mere four store test. [Read the June 6 report, "Wal-Mart USA Chief Eduardo Castro-Wright Confirms Fresh & Easy Buzz Reportage on 'Marketside,' Adds Information From the WM Corporate Side.]

Further, Fresh & Easy Buzz has talked with a person who interviewed for a position at Wal-Mart's new Marketside corporate offices in the Phoenix, Arizona region. That person was told by a Wal-Mart executive that the retailer has plans to open Marketside stores far beyond the Arizona market, including in California and numerous other U.S. states. The strategy was described to this person as a combination "fill-in" and upscale retailing (with a fresh, prepared foods emphasis) focus for the company.

In the piece linked above, Eduardo Castro Wright uses this same term, "fill-in," meaning the retailer is positioning the Marketside stores in markets like Arizona for "fill-in" rather than primary food and grocery shopping, meaning it hopes consumers shop its Arizona Wal-Mart Supercenters for major purchases and Neighborhood Market supermarkets and Marketside stores to "fill-in" their shopping after doing the primary at the Supercenters.

The upscale focus refers to using the Marketside stores as a way of attracting higher income and more quality food-oriented shoppers, which is a market Wal-Mart hasn't tapped into with any of its formats. These are shoppers who primarily shop Whole Foods Market and other more upscale regional food retailers' stores. In Arizona this includes Bashas-owned AJ's Fine Foods, Sprouts Farmers Market, Safeway's Lifestyle format stores, Tesco's Fresh & Easy (its fresh, prepared foods and organic groceries sides of the business) and Trader Joe's, for example.

Based on all of our reporting and sources, we can say Wal-Mart's plans at present for Marketside aren't to open 100 or more stores a year to achieve that 1,500 store, $10 billion a year sales number anytime soon, like the report in the Financial Times suggests is the case. But, such a strategy (those figures) wasn't put on the Marketside website as a joke by a hacker either.

Conversly, Wal-Part's strategic plans for Marketside also aren't the mere test-oriented strategy the Wal-Mart spokesperson told Supermarket News is the case.

Lowering expectations almost always best

Unlike Tesco's Fresh & Easy, which used a public relations strategy to create a huge buzz about its Fresh & Easy stores prior to the first store opening, Wal-Mart is taking the complete opposite approach, playing down the Marketside development as a test in order to keep expectations low. It takes digging and reporting to learn what we have thus far about Marketside.

As all political and corporate image masters know (well, should know), managing media and consumer (or voter) expectations is key. And creating lowered expectations, especially for something or someone new to the scene like a small-format groery store from a retailer known for big boxes, almost always is the smartest strategy in business as well as in politics.

Tesco set the bar too high with its pre Fresh & Easy PR campaign. As a result, the mainstream media played it up like it was the second coming of food and groery retailing in America. Once this expectation was set, it has resulted in every negative aspect of Tesco's Fresh & Easy's operations being focused on more so than had Tesco set expectations lower with its public relations efforts like Wal-Mart is doing with Marketside.

Sometimes a retailer, business or politician can be the victim of its own publicity blitz, ezpecially when the expectations game isn't properly maanged or not managed at all. Our analysis is that Tesco did this with its Fresh & Easy campaign (the British Invasion headlines and such). Wal-Mart is making sure to avoid this with Marketside.

By doing so, Wal-Mart is giving the company more room to fail and then course correct with Marketside. This is a good idea since the retailer's culture isn't historically one that is known for either small-format, specialty-oriented or in-store fresh, prepared foods merchandising, despite the fact its done lots of preparation for its Marketside format launch.

Wal-Mart has zero reasons to play-up Marketside--and many reasons to low-key the small-format development. But don't mistake the brawny big-box (and soon to be small-box too) retailer's low-key approach to Marketside for a mere four store test, that if it doesn't work Wal-Mart plans to just close the stores and move on to something else.

The retailer has put lots of research and development into Marketside, including bringing in executives like David Wild--who spent many years working for Tesco in the UK and elsewhere in Europe, and was involved in its initial small-format Tesco Express store development--along with the hiring Jack Sinclair in January of this year as executive vice president of grocery merchandise for Wal-Mart USA. Wild has left but was ready to move onto other new business development tasks before leaving anyway.

Mr. Sinclair spent his entire food retailing career before joining Wal-Mart this year in the United Kingdom (UK), first for many years with Tesco PLC, and then for 14 years before that with the former British Safeway chain, which was acquired last year by Morrisons, the UK's fourth largest supermarket chain. To paraphrase the popular culture saying: 'Jack' (Sinclair) knows small-format food and grocery retailing, along with knowing Tesco and it's brands of small-format, convenience-oriented food retailing, according to those who've worked with him or know him.

He has been involved in the Marketside small-format store process along with his other duties since joining Wal-Mart in January, especially since the new business development team formerly headed by David Wild turned over Marketside to the Wal-Mart operations and grocery merchandising team a couple months ago as the retailer prepares to open the first four stores this fall in the Phoenix, Arizona Metropolitan region.

Wal-Mart may be being low-key with Marketside, but it's a top corporate priority. Similar to what the retailer has done with its Neighborhood Market supermarket format, which has undergone slow but steady expansion, and the expansion of which Wal-Mart has recently been kicking up a couple notches, so too does it plan to grow and evolve Marketside rather than look at it as a mere hit or miss test.

Again, the key fact to remember is that for Wal-Mart, Marketside is a part of its national multi-format food and grocery retailing strategy with its Supercenters, Sam' Club stores and Wal-Mart Neighborhood Market supermarket format. Understanding that fact is central to observing and understanding Marketside as it developes after the first four stores open in Arizona this fall.

Wal-Mart Confirms it Will Test New Small Store Format Later This Year

Wal-Mart confirms it will test a small-format grocery market later this year in Arizona. Our industry sources also provide us with some further insight regarding what Wal-Mart's 20,000 square foot 'MarketSide' stores might be like

Yesterday we reported on the Financial Times' report that Wal-Mart will open four small-format grocery markets in Arizona later this year. (Read that piece here, or see it below.) We also linked to a piece in the blog Natural~Specialty Foods Memo, which ran the FT report and added some of its own new information.

Wal-Mart's approximately 20,000 square foot stores, named "MarketSide," will be located in Arizona cities where Tesco either currently has or will soon have stores.

Today we did two things: First, we contacted Wal-Mart in an attempt to get a confirmation on the Financial Times' report. Second, we talked to a number of our sources, who have been giving us information on this story for awhile now.

First, a Wal-Mart spokesperson did confirm that the retailer will be "trialing and testing" a new format of stores later this year. And that the format "would be smaller than the retailer's current Neighborhood Market grocery stores," which are about 45,000 square feet. However, that's all the spokesperson would say. When asked about the FT story, as well as questions we posed from conversations with our sources, we recieved a polite no comment.

The Wal-Mart spokesperson told Forbes.com and the London Independent the same thing.

Second, we talked with a number of our sources today. Many of these sources are close to Wal-Mart in one way or another.

Here is what we feel comfortable enough to report, beyond the Financial Times story, thus far:

>We're told the four Arizona "MarketSide" stores are far more than a test, or pilot program. Further, that Wal-Mart plans to challenge Tesco not just in Arizona, but in California as well.

The Wal-Mart team that developed the "MarketSide" grocery store format, did so while being based in the San Francisco Bay Area for a number of months last year. We've been told by more than one commercial real estate source in the Bay Area that Wal-Mart representatives have met with commercial real estate people in the Bay Area--as well as in Southern California--searching for locations for the 20,000 square foot "MarketSide Stores."

>We have been told by a food industry source who has lots of involvement in the prepared foods arena, that Wal-Mart representatives talked extensively to a prepared foods product development consultant he knows, about store-brand prepared foods entree development and related products. He told us the consultant never ended-up doing any work for Wal-Mart, but felt the company was very serious about creating such a line of store brand prepared foods items. The consultant didn't know anything about new format developments until his conversation with out source.

>We talked to an executive for a major, national grocery manufacturing and marketing company in the U.S. This company obviously does business with both Tesco and Wal-Mart internationally. He wouldn't tell us the Wal-Mart executive's name (and we certainly didn't push him to tell us), but said he was recently asked by this executive how Tesco was selling some of it's products at such low prices at its Fresh & Easy stores thus far operating in California, Arizona and Nevada.

The grocery products' executive assured the Wal-Mart executive that Tesco wasn't paying (or getting any kind of rebate) any less than Wal-Mart for the goods. (We have no doubt that's true. In fact, based on Tesco's number of Fresh & Easy stores open in the U.S. and a logistics system that's just in its infancy, the products cost the retailer more in a gross cost manner than they do Wal-Mart.)

Our source further told us the Wal-Mart executive then told him that "When we open our small format markets we can easily under-price them (Fresh & Easy) on your products, and we won't have to lose money on the items like they (Tesco) are doing. (This conversation was sometime before the reports on Wal-Mart's new, samll format stores were made public.)

This source is a straight shooter. This comment to him from the Wal-Mart executive indicates to us--along with a number of other bits of information we have but aren't ready to publish just yet--that Wal-Mart's "MarketSide" stores are going to be similar in format, product selection and merchandising to Tesco's Fresh & Easy Neighborhood Market stores. They might not be

identical mind you, but similar.