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

California's Central Valley region (detailed in the map of California above), stretching from Bakersfield and Kern County in the south to Stockton and San Joaquin County in the north, is the largest single-producing and most diverse -- cotton, grains, fruits, vegetables, nuts, milk, beef cattle, chickens, eggs and more -- agricultural region in the world. Additionally, one fourth of all the food produced in the U.S. comes from the Central Valley region, which also is home to such well-known global companies and brands as E.J. Gallo (Modesto, CA), the largest family-owned winery in the world, and the second-largest overall seller of wine globally.

The Central Valley is a diverse region as well. Kern County (Bakersfield area) is one of the top oil producing regions in America, for example, in addition to being a major agricultural region, as well as being considered by many to be the second home of American country music after Nashville, Tennessee. And when it comes to college sports, the Fresno State University Bulldogs are among the top college football teams in the nation. Stockton, in the north, was in the 1930's -through- 1960's one of the centers for both amateur and profesional boxing in America. So much so in fact that the famous boxing movie, "Fat City" was set in Stockton.

The Central Valley also is home to a few famous brands when it comes to individual celebrities. For example, famed movie director and producer George Lucas was born and raised in Modesto, which was the setting of his award-winning movie "American Graffiti." The late Pulitzer Prize winning writer and playright William Soroyan (author of The Time of Your Life and numerous other plays and books) is from Fresno, and country music greats Merle Haggard and Buck Owens hail from Bakersfield, which often is called "Nashville-West" for its fame in country music circles.

Bakersfield and Beyond:
Central Valley, California Market Region Report and Analysis

Earlier today we reported that Tesco will open its third and newest Fresh & Easy Neighborhood Market combination grocery and fresh foods market in Bakersfield, California on February 25. [Read that post here: Tesco to Open Third Bakersfield, California Fresh & Easy Store On February 25.]

The new store is one of nine Fresh & Easy units planned thus far by the grocer for the Bakersfield Metropolitan market region, which is in California's southern Central Valley. The first two Fresh & Easy markets opened on the same day in Bakersfield on December 3, 2008. [December 3, 2008: Tesco Opens its First Two California Fresh & Easy Stores Outside of Southern California in the Central Valley City of Bakersfield Today.] Seven of the nine Fresh & Easy stores are located in the city of Bakersfield. One is planned for nearby Wasco, and the other for the nearby city of Delano.

Wal-Mart's Bakersfield market region push

Tesco's entry into the Bakersfield Market region is going to add new competition into the region which has an economy based primarily on agriculture, oil production and increasingly on service businesses. [May 24, 2008: Upcoming New Markets Special Report: The Changing 'Face' of Retailing in Bakersfield, California.] [March 10, 2008: Bakersfield, California Region Next Up On the Fresh & Easy Neighborhood Market New Store Parade.] [May 15, 2008: Fresh But Never Easy: Tesco's Long But Rapid South-North March in the Nation-State of California.]

But Tesco isn't the only food and grocery retailer looking to add a new competitive retailing element in the Bakersfield market. Bentonville, Arkansas-based mega-retailer Wal-Mart Stores, Inc. also is targeting the Bakersfield market region aggressively, and plans to soon open its first Supercenters in the city of Bakersfield and in the region.

Wal-Mart currently operates three of its Wal-Mart discount format stores in Bakersfield. But has none of its combination food, grocery and general merchandise mega-Supercenters in the city -- yet.

The Wal-Mart discount format stores, at well over 100,000 square feet, sell only a limited assortment of food and grocery items and consumer packaged goods, mostly shelf-stable products, but also some perishables in the refrigerated and frozen foods categories. Additionally, unlike the Supercenters, the discount format stores don't offer fresh produce, fresh meats or in-store deli and bakery departments, as well as not offering a full supermarket-like selection of food and grocery items.

But Wal-Mart is out to change that in the Bakersfield market -- and beyond in the Central Valley.

Here is what we know based on our research:

>First, just last week the Bakersfield Planning Commission approved a request by Wal-Mart to remodel and add an additional 46,000 square feet to its Wal-Mart discount store (one of the three in the city) in northeast Bakersfield at 2701 Fashion Place, turning the store into one of the retailer's hybrid Supercenters, as we call them. All of the new, additional 46,000 square feet, along with some added space from the store remodeling, will be devoted to food and grocery, including fresh produce, meats, an in-store deli and bakery. The additional square footage will come from Wal-Mart's taking over an empty building next door that used to be a Vons supermarket, operated by Safeway Stores, Inc. before it was closed by the supermarket chain.

The Bakersfield City Council must vote in favor of the planning commission's approval. But a vote in favor of the project by the city council going forward looks likely, according to members of the Bakersfield Planning Commission.

>Second, Wal-Mart is looking to try to add additional square footage in a similar way to its other two Wal-Mart discount format stores in Bakersfield, using the added space to include a full supermarket inside and create a hybrid Supercenter like its doing with the northeast Bakersfield store.

Wal-Mart is converting existing discount format stores into these hybrid Supercenters throughout the U.S. For example, the retailer is in the process of converting 30 or more of its Wal-Mart discount stores stores in Southern California into the hybrid Supercenter format so that it can offer a full selection of food and grocery products for sale in the units, as we've previously reported and written about. [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.]

As we've also previously reported, Wal-Mart is using the hybrid Supercenter conversion process throughout the Central Valley, not just in Bakersfield. For example, the retailer plans to convert an exiting Wal-Mart discount store in Los Banos, California (Merced County) into a hybrid Supercenter that will offer a full range of food and grocery products, and is looking to do the same with a dicount format store in Merced and another in Turlock (Stanislaus County) if it can find the added space in the respective shopping centers to do so, and get approvals from the respective cities for the conversions, if the additional square footage can be found. [Click here to read a selection of past stories about the hybrid Supercenters and related Wal-Mart topics.]

In the fall of 2008 Wal-Mart opened its first "hybrid" Supercenter, located in a vacant big box building that it completely gutted and remodeled, on McHenry Avenue in the Central Valley city of Modesto, which is in Stanislaus County, about 10 miles from Turlock, 35 miles from Merced, and about 45 miles from Los Banos.

Wal-Mart took the about 100,000 square foot vacant building that used to house a warehouse format supermarket in one half and a drug store in the other, gutted it, then remodeled it into the 100,000 square foot combination food, grocery and general merchandise hybrid Supercenter. [April 25, 2008: Going Smaller: Wal-Mart Might have Found A Solution or Two to Much of the Opposition to its Mega-Supercenter Stores in the USA]

At 100,000 square feet the store is nearly half the size of the average Wal-Mart Supercenter, which are about 180,000 square feet and often larger. As an example, Wal-Mart is building a brand new Supercenter in Ceres, which is right next door to Modesto. That store is about 215,000 square feet.

>Third, Wal-Mart has had a partially built new combination food, grocery and general merchandise Supercenter sitting at a site at Panama Lane and Highway 99 in Bakersfield for about five years. Wal-Mart started construction of the store in 2003-2004 and then was hit with a series of lawsuits from environmental groups over various environmental aspects related to the store location. In late January (last month) the Bakersfield Planning Commission and Wal-Mart said those lawsuits have been resolved. Wal-Mart further announced two weeks ago that it is preparing to resume construction on the site and hopes to have the Supercenter completed in time to open in the fall of this year.

>Fourth, Wal-Mart has another site approved to build a new Supercenter at in Bakersfield. That site in on Gosford Road in the city. It was approved in 2002, just like the Panama Lane and Highway 99 site was. Wal-Mart decided not to start construction at the Gosford Road location because of the lawsuits filed against the Panama Road project. Now that the retailer has resolved those lawsuits and is completing construction on the Panama Road Supercenter, it's likely it will soon move forward with the start of construction on the approved site on Gosford Road.

>Fifth, Wal-Mart also is proposing building a Supercenter at a site in Delano, which is close to Bakersfield in the market region, and is where Tesco also plans to open a Fresh & Easy market. The city of Delano has approved the project and supports the hundreds of new jobs and added retail sales tax revenue the new Supercenter coming to down would bring. Delano is a rural city and the average income of is residents is at the very low end.

A citizen's group in Delano though is against the project and has filed a lawsuit against its going forward. The group says the Wal-Mart Supercenter will hurt and drive out local small businesses who can't compete against mega-Wal-Mart. Wal-Mart runs into such opposition with nearly every Supercenter it proposes in California, although in this current bad economy numerous California cities that in the past didn't want anything to do with a Wal-Mart Supercenter are now looking much more favorably on the prospect of the retailer bringing one to their respective town.

This Friday a court in Bakersfield will hear the Delano group's lawsuit against the Wal-Mart Supercenter going in their city. The judge will rule on the lawsuit following the hearings.

We're told it's likely Wal-Mart, and the city of Delano, will prevail in winning the lawsuit and getting the Supercenter in Delano built.

>Lastly, in addition to hoping it can find the additional space, and if it does to gain approval from the city of Bakersfield to expand and remodel its other two Bakersfield Wal-Mart discount format stores into hybrid combination food, grocery and general merchandise Supercenters, the retailer is looking for additional new Supercenter sites in and around Bakersfield as part of its strategy to become a serious player in food and grocery retailing in the region.

Wal-Mart's Central Valley strategy

Wal-Mart's plans to aggressively convert discount format stores into hybrid Supercenters and to open new Supercenters in the Bakersfield region of the Central Valley isn't an isolated strategy. Rather it's part of the retailer's overall strategic plan to become a major player in food and grocery retailing throughout the Central Valley -- from Bakersfield in the far southern end of the vast valley, and Fresno and Merced County in the middle of the region, to Stanislaus County and San Joaquin County in the Northern Central/San Joaquin Valley. Nearly 5 million people live in the Central Valley, from Bakersfield north to Stockton in San Joaquin County

The key to Wal-Mart's Central Valley strategy is its proposal to open a big, new distribution facility in the city of Merced, the county seat of Merced County. Wal-Mart submitted plans for the new 500,000 -to- 600,000 square foot facility early last year.

The proposal has been making its way through the various local government agencies responsible for approval. There has been objections to the huge facility from a number of groups in the region, and Wal-Mart has made some changes to its original proposal because of those objections. The objections center around environmental impacts like traffic congestion and other related issues.

Last year it looked like the proposed new Wal-Mart distribution center in Merced might not gain approval. However, according to sources in the region, the economic recession has changed that. Merced County has one of the highest housing foreclosure percentages of any county in the U.S., at times being number one, and one of the highest unemployment rates in the country at its current whopping 16%, which is almost twice the rate of the state of California (9.4%). The region is bleeding jobs and the Wal-Mart distribution center, which would bring hundreds of badly needed jobs to the area, now looks like it will soon gain approval, we are told.

With the new Merced distribution center, Wal-Mart will be able to supply fresh foods, grocery products and other goods without a hitch to basically all of the new and hybrid Supercenters and other format stores it wants to remodel and build in the Central Valley -- south to Bakersfield and Fresno and north to Stanislaus County and San Joaquin County, as well as up into the Sacramento region and even into the nearby San Francisco Bay Area -- where the retailer has a near-zero presence and wants to open many new stores, including Supercenters, if it can gain approval of them by Bay Area cities and counties, something the retailer has found near-impossible to do to in the past with its Supercenters because of so much opposition to the mega-big box stores. (That's one reason the retailer created its small-format Marketside grocery and fresh foods stores as an alternative food and grocery retailing format to help Wal-Mart increase market share in such difficult to enter with Supercenter markets.)

As we mentioned earlier in this piece, Wal-Mart opened its first Supercenter in Modesto in November of last year -- the 100,000 square foot hybrid store in the vacant big box retail building. The retailer also has a discount format store in the city it would like to convert into a hybrid Supercenter if it can find the the space next to the existing store to add the additional square footage. Wal-Mart also is looking for other vacant big box buildings in other parts of Modesto where it can create a hybrid Supercenter like it did with the one on McHenry Avenue in the city that opened in the fall of 2008. [Related story - November 21, 2008: Breaking News: Wal-Mart Stores, Inc. Names New CEO to Replace Lee Scott; USA Chief Castro-Wright Elevated to Vice Chairman Effective Immediatley.]

The retailer previously tried to gain approval for a new, built from the ground-up Supercenter in Modesto a number of years earlier, but met objection from the city and various community groups. That's why it went with the hybrid Supercenter in the vacant building concept instead.

Fresh & Easy Buzz has identified and reported on two locations thus far Tesco's Fresh & Easy has leased for planned stores in Modesto. [Those reports are here and here.] Tesco hasn't publicly announced or confirmed the Modesto locations as of yet.

The process of putting a store in a vacant building like Wal-Mart did in Modesto doesn't require the same extensive approval and environmental impact process that building a Supercenter from the ground up does in the city and in most California cities. As a result, even though there were groups opposed to the Modesto store, they couldn't stop Wal-Mart because like any other retailer its able to convert an existing vacant building into what they want it to be without an elaborate planning process like with new store construction, and particularly like new big box store construction. Instead Wal-Mart just needed to meet the essentially simple approval process for remodeling a vacant store building in Modesto, just as all other retailers are required to do.

As we also mentioned earlier in this piece, Wal-Mart is building a huge, new Supercenter (over 200,000 square feet) in Ceres, which is on Modesto's southern border. The two cities basically run into one another. That store is set to open sometime this year. The store was supported by the city of Ceres and met with little opposition from members of the community, with the exception of some traffic issues that were resolved by Wal-Mart and the city. [Related story - November 19, 2008: Competitor News: Wal-Mart Lowering Prices on Holiday Items and Staples; New Formats Coming; Online Grocery Sales; Hundreds of New Stores FY 2009-2010.]

Wal-Mart also has applied to build a brand new 158,000 square foot Supercenter in the Stanislaus County city of Patterson. Patterson, which has about 35,000 residents, is located about 20 miles from Modesto on the county's west side. The proposed Supercenter is right across the street from an existing Save Mart supermarket, operated by Modesto-based Save Mart Stores, Inc., which is the market share leader in the region.

Additionally, Wal-Mart plans to turn its existing discount format store in the city of Los Banos (Merced County) into a hybrid Supercenter. We're told the city of Los Banos has no objection to that since the city of about 30,000 is understored in terms of supermarkets, having only one major supermarket, a branch of Modesto, California-based Save Mart, curently operating in town. There's also an independent supermarket in Los Banos, but it is an older and fairly small store. Los Banos is located about 20 miles from Merced, where Wal-Mart hopes to open its new Central Valley distribution center.

Further, Wal-Mart building a new Supercenter in the Merced County city of Livingston, which is a small city of about 20,000 people located just a few miles from Merced. That store will serve a much larger population base than just the residents of the Livingston though because numerous people live in the nearby unincorporated parts of rather rural and agriculture-based Merced County, in addition to living in the county's incorporated cities. It's also expected that residents of other towns just a few miles away will shop at the Livingston Supercenter when it opens.

Merced County has a current population of about 260,000 residents. Merced is the largest city in the county with about 80,000 residents. Next door Stanislaus County, of which Modesto (about 205,000 population) is the county seat, has a population of about 560,000. The two counties are right next to each other in one geographical block.

Merced is only about 40 miles from Fresno, where Wal-Mart has been opening up numerous new Supercenters and has plans to open more. The Fresno Metropolitan region has a population of over 1 million people, and has been one of the fastest-growing regions in California, as have Merced and Stanislaus Counties, until the housing foreclosure crisis and recession hit.

If it can gain approval, Wal-Mart wants to open numerous build new Supercenters and create hybrids, in some cases adding on to existing discount format stores and in other cases putting hybrid Supercenters in remodeled vacant big box buildings like the one on McHenry Avenue in Modesto, throughout the Central Valley. It will be able to do so aggressively once it gets the Merced distribution center open, which it wants to do no later than 2010.

Tesco's Fresh & Easy in the Central Valley

In addition to the two Fresh & Easy Neighborhood market combination grocery and fresh foods stores already opened in the city of Bakersfield and the other seven planned for the market region, and the Modesto stores we've discovered and reported on, the retailer has leased numerous sites in Fresno and the Fresno Metropolitan regions where it is either building or converting vacant buildings into Fresh & Easy markets it plans on opening in the near future.

Tesco plans to eventually open and operate Fresh & Easy stores throughout the Central Valley and Northern California, from Bakersfield in the south to the Northern San Joaquin Valley, and into the Sacramento Valley region and San Francisco Bay Area, as we've previously reported on and written about extensively in Fresh & Easy Buzz.

The retailer continues work on a number of its Fresno region stores but no opening dates have been announced. Work has yet to begin on the two Modesto sites, both set to be stores located in vacant buildings that formerly housed supermarkets.

Additionally, as we reported here, Tesco has postponed its Northern California launch, the first stores of which it originally planned to start opening in 2008, then changed to early 2009, and now has postponed indefinately.

California's Great Central Valley, as its often called, is suffering significantly in the current recession with high unemployment, massive housing foreclosures, growing poverty and other serious economic probelms. That's actually a good perscription for Wal-Mart's brand of discount retailing, which is why the retailer is moving forward with its strategic growth plan throughout the region.

The region also offers opportunity for Tesco's Fresh & Easy if it focuses its merchandising on creating a solid, comprehensive value proposition and communicates it well in the Central Valley, rather than one week positioning itself as a discount grocer, then the next week as a specialty foods market, and the third week as a prepared foods market that also happens to be an environmentally-friendly-focused grocery chain, as in our analysis it has been doing since it opened the first stores in November, 2007. There are some signs Tesco's Fresh & Easy is taking our advice though and starting to better create, develop and communicate a solid value proposition. It's far from being there yet though.

All those things are fine -- selling specialty foods and prepared foods and being a "green" grocer. But they need to be additions to the overall discount grocer value proposition, which should be Fresh & Easy's hub on the wheel of food retailing, with all the other aspects of its merchandising being the spokes on that wheel.

If Tesco does that with Fresh & Easy in the meat and potatoes Central Valley -- focuses on being a discount food and grocery retailer with a solid value proposition first, with all else coming after -- it stands a chance of doing well in the region, in our analysis. If it doesn't, or fails in trying, things are going to be very difficult, paticularly with Wal-Mart now joining the already competitive Central Valley food and grocery retailing market in a big way.

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

Mega-retailer Wal-Mart may have found a solution (or two) to all the community-based opposition in many parts of the U.S. to the retailer's building of its supercenter stores.

Last month, the brawny big-box bruiser from Bentonville (Arkansas) decided to kill 47 new supercenter store projects it had on the books for a variety of reasons, all having to do with either opposition to the stores from city and country governments or community-based groups in the cities and neighborhoods where the respective stores were to be built.

Don't feel sorry for Wal-Mart though. The world's and United States' largest retailer will still open at least that many (47) new supercenters in the U.S. this year, plus a handful more.

The municipal government and community-based group opposition is a serious impediment to Wal-Mart's supercenter growth plan in the U.S. however. But it's not a new problem. It's been going for for years.

However, what is new is Wal-Mart's response to the opposition, which historically has only been one-dimensional: To lobby city governments and community groups, trying to change their minds, or to fight the opposition in court.

Until now, that is.

The Modesto CA supercenter strategy

In the Central Valley city of Modesto in Northern California, Wal-Mart is gutting an old 90,000-105,000 square-foot (about 75,00-80,000 square-feet of selling space) vacant big-box retail building, which most recently was divided in half and housed a store belonging to the now gone local discount warehouse grocery chain SavMax in one half of the building and a Rite-Aid drug store in the other half.

Wal-Mart is turning the vacant building into a scaled-down version of its supercenter format store. The Modesto supercenter, which is located at 3848 McHenry Blvd., a popular shopping street in the city of about 210,000, will have all the departments--fresh produce, meat, perishables, dry grocery and the like--that its larger supercenters have, which average about 185,000 square feet, and run as big as 225,000 square feet.

The only difference between the more petite Modesto supercenter and nearly all of the retailer's other, larger supercenters, is that those departments will be scaled down and the store's overall product selection will be a bit less expansive than in the traditional supercenters.

To compare the size difference of this new supercenter in Modesto to Wal-Mart's other stores of the same format, lets compare it to the retailer's Wal-Mart discount store format stores, one of which the retailer has in Modesto. That store, like all the Wal-Mart discount format stores, carries only a limited assortment of grocery products in a few aisles plus some basic frozen and perishable foods. However, it's still 115,000 square-feet without the supermarket inside, which makes it considerably larger than the new full food and grocery "hybrid" supercenter set to open early next year on Modesto's McHenry Avenue.

The main reason Wal-Mart is doing this supercenter scaling-down in California, and especially in the Central Valley, is because the state as a whole and the region particularly, has been one of the most difficult places in the U.S. for the mega-retailer to get approval to build it's 185,000 -to- 225,000 square-foot new, from the ground-up supercenters.

For example, Wal-Mart planned to build a roughly 200,000 square-foot supercenter in a shopping center in Modesto in 2001. However, after a couple years' of battling with the city planning commission and city council, as well as opposition from numerous small business groups, it abandoned those plans.

In 2004, Wal-Mart proposed building a brand new 225,000 square-foot supercenter in Turlock, which is a city of about 75,000 residents located just 10 miles from Modesto. The Turlock City Council not only rejected Wal-Mart's proposal - even though the retailer already had a Wal-Mart discount store in the city and promised to keep it open along with the new supercenter - it ended up passing a big-box ordinance, which prohibited any retailer from opening a store of at least 100,000 square-feet, that devoted at least 5% of its floor space to grocery items.

The supercenter ban was specifically designed to prevent Wal-Mart from locating a supercenter in the city. However, through its language it left the door open for big box retailers like Costco Wholesale and even Wal-Mart's Sam's Club.

Wal-Mart filed a lawsuit against the city of Turlock in February 2004, one month after the city council passed the ban legislation. The case was in the courts for two years. In 2006 the court ruled in favor of the city and Wal-Mart announced it would no longer try to build a supercenter in the city.

Big box bans like Turlock's are common in California. Two other cities in the area, Oakdale which is next door to Modesto, and Patterson, which is about 25 minutes away from Modesto, have both passed laws similar to Turlock's, designed specifically to keep Wal-Mart supercenters out of their respective cities.

Wal-Mart pulled the plug on a supercenter in another nearby city in 2006, when the city of Ripon, just a few miles from Modesto, fought against the retailer's proposal to locate a supercenter in the community. At the time the issue of contention was over where the supercenter would be located in Ripon. Wal-Mart announced it would not build on the site but would look for a more suitable location in the city. That was two years ago and the retailer is yet to announce a site in Ripon.

Last year, Wal-Mart did get approval to build a 225,000 square foot supercenter in Ceres, which is right next door to Modesto. However, the community of about 45,000 was far from the retailer's first or second choice in the region. But since the city is aggressively seeking retail and streamlined the permit process, Wal-Mart went forward with the proposal. The Ceres, California supercenter is currently being built - not without community protest of sorts - and is scheduled to open in 2009.

Bay Area and Southern CA tough for supercenters

Its not just the Central Valley that opposes Wal-Mart supercenters so strongly. In fact, the nine county San Francisco Bay Area, which is about 90 minutes from Modesto, opposes the mega-stores as much or even more than the valley's municipalities and communty groups do.

Wal-Mart has only a couple supercenters in the 7-million population-strong Bay Area. Those stores are out in the fringes of the region where opposition and the need for tax dollars of any kind are far more desired than in the major Bay Area cities and suburbs. As a result, opposition to the supercenters is less intense.

Try as it might, Wal-Mart has failed to build numerous new supercenters its proposed in many of the most desirable Bay Area cities; cities where it wants to be with that format.

Wal-Mart hasn't had much better luck in the Southern California region, where more than half of California's residents live. It has some supercenters in the region, but nowhere near the number it wants - or has tried to get approval for.

In fact, it's in Southern California where Wal-Mart has come up with phase two of its plan to open more supercenters in the Golden State, albeit somewhat smaller than average like the Modesto store.

The retailer just announced plans to add an additional 25,000 -to- 50,000 square feet on to a number of its Wal-Mart discount stores in Orange County, thereby turning them into hybrid supercenters.

According to John Mendez of Wal-Mart, the stores will have all the same departments and sell the same food and grocery products that a standard, larger supercenter does. The departments will just be scaled-back and have a more limited overall product assortment.

Wal-Mart's discount stores sell perishable items like milk, juice and eggs, have some frozen foods, and contain aisles where a limited assortment of grocery products are offered.

The expanded discount stores would still retain all the non-foods departments they currently have but would add a smaller-version of a full-fledged Wal-Mart supercenter-style supermarket inside.

Wal-Mart becoming more agile

These two developments, along with Wal-Mart's new, small-format (about 15,000 -to- 20,000 square feet) Marketside grocery markets, which will make their debut this summer in the Phoenix, Arizona Metropolitan region, are showing that a mega-retailer can also be a nimble one when it comes to format adjustments and creations.

By choosing a supercenter strategy which includes remodeling vacant, smaller buildings like in Modesto, and adding on square-footage to Wal-Mart discount stores like the retailer plans to do in Orange County, Wal-Mart is showing a new adaptability after years of sticking with the single supercenter mind set and format.

As a result, the retailer will be able to garner much more of the grocery dollar market share in states like California where the opportunity is there but the jumbo-sized singular supercenter format has proven a barrier to entry.

Additionally, the small-format Marketside stores will give Wal-Mart an urban strategy for city's like San Francisco, Oakland, San Jose and Sacramento in Northern California, and Los Angeles and San Diego in Southern California, if it chooses that strategy.

For example, it's impossible for Wal-Mart to get approval, even if it found the space, to built a supercenter in politically-charged San Francisco. However, it's likely it could get approval - with a bit of a fight still - to build a 15,000 -to- 20,000 square-foot Marketside store, or two in the highly dense city.

The same is the case in urban Los Angeles and San Diego. In terms of the Modesto model of locating a supercenter in a smaller, existing building, doing so makes it difficult for a city to stop Wal-Mart because the application and permitting process is much different than when building a new store from the ground up. Essentially, a city like Modesto can't prevent Wal-Mart from putting whatever type of store it desires in an existing building like the Modesto location, as long as it files the proper paperwork and meets existing city laws.

It's the same for the square-footage additions the retailer plans to do with some of its Orange County Wal-Mart discount stores. Should the respective cities in Orange County try to hold up or prevent Wal-Mart from adding the additional square footage to those stores, the retailer would easily win in court, since such additions are done by retailers of all types regularly, and preventing Wal-Mart alone from doing it would likely be ruled discriminatory.

Localizing and shrinking new supercenters

Another strategy Wal-Mart is employing is to design its supercenter to fit in with a local city's geographic location, setting, culture and history. For example, the brand new Wal-Mart supercenter in Austin, Texas pictured at the top of this piece, sure looks different than the typical Wal-Mart square, big box supercenter, doesn't it? It's designed to fit into the more hip, upscale style that is Austin.

The retailer has designed similar "local" supercenters in Colorado that fit in with the regions rugged mountains and woods, using different roofing and siding on the buildings, in addition to numerous other local touches. One supercenter in Colorado even has a complete bicycle shop in the store, and Wal-Mart built and paid for bike paths and bike racks on land around the store because the community is a major bicycling area.

These localization design strategies also include shrinking the supercenters a bit if need be. Wal Mart has built a couple of brand new supercenters so far that are in the 130,000 square foot range rather than the average 185,000 size.

Market share is key regardless of format

Last year Wal-Mart overtook Kroger Co. as the number one grocery sales market share leader in the U.S. It's a close race between the two retailers though.

What Wal-Mart seems to have finally figured out with its new format flexibility as detailed in this piece, is that grocery market share is king, and it doesn't have to just come from a 185,000 -to- 225,000 square-foot supercenter.

In addition to putting the scaled-down supercenters in vacant big-box buildings like the retailer is doing in Modesto, adding the additional square-footage for groceries onto the existing discount Wal-Marts in Orange County, plus introducing the new, small-format Marketside grocery stores this summer in Arizona, Wal-Mart also is building more of its average 40,000-45,000 square-foot Neighborhood Market supermarkets this year and next than it has in many years.

This new, multi-supercenter and multi grocery store format strategy should give Wal-Mart additional market share, allowing it to increase its lead over Kroger. The main reason this should be the case is because these strategies will allow it to increase its grocery sales square-footage in places like California where it currently has a minimal food and grocery retailing presence because of the inability to open any where near the number of traditional, new supercenters it has wanted to for over a decade.

The mega-retailer plans to use its "hybrid" Modesto supercenter strategy and the Orange County add-on discount store strategy in other parts of the U.S. in which gaining approval for new, built from the ground up supercenters is a problem.

The Modesto supercenter strategy also will be used in places like urban areas, where space is of a premium and the idea of acquiring an empty big box building and turning it into a Superstore is a good option.

Further, expect to see Wal-Mart add additional square-feet onto other discount stores in other parts of the U.S. this year and beyond. Food and grocery sales are what's allowing the retailer to post strong sales and profit gains like its recently released quarterly profits.

Wal-Mart wants to be able to sell more food and grocery products in all categories in all of its stores--as well as in more places in the USA. As a result, the strategies detailed in this piece will be implemented, along with the building of new supercenters, wherever the brawny big box retailer from Bentonville thinks they make sense.

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

Fresh & Easy Buzz broke a little news on Friday, September 12 when we reported in this piece, "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, that Wal-Mart, Inc. CEO Lee Scott spoke out about Tesco's Fresh & Easy Neigborhood Market at the recent Goldman Sachs (investment bank) retail conference in New York City, saying the mega-retailer was keeping close tabs on Fresh & Easy and that he has faith Tesco will ultimately succeed in the U.S. with its small-format, convenience-oriented grocery stores.

It appears CEO Scott has taken the leash off (at least by his lead) his senior executives as far as talking about Tesco's Fresh & Easy is concerned at investment conferences. Previous corporate policy has been not to discuss Tesco's U.S. small store convenience grocery venture.

At an investment conference today sponsored by Bank of America, Wal-Mart chief merchandising officer John Fleming repeated a portion of what Lee Scott said at the Golden Sachs conference, which is that Wal-Mart is keeping a close eye on Tesco's Fresh & Easy stores in Southern California, Nevada and Arizona. The Bank of America conference was broadcast over the Internet.

"We have people in those stores (Tesco's Fresh & Easy) every day, every week," Fleming said at today's Bank of America conference. "We continue to monitor the progress that they make." [Fresh & Easy Buzz is well aware of this fact, having run into two Wal-Mart executives once in a Fresh & Easy store.]

Wal-Mart CEO Scott said essentially the same thing at the recent Goldman Sachs retail conference less than two weeks ago.

Is anybody else seeing the beginning of a coordinated Wal-Mart message just weeks before it opens the first four of its Marketside small-format, convenience-oriented combination basic grocery and fresh foods grocery markets in Mesa, Gilbert, Chandler and Tempe, four cities where Tesco has existing Fresh & Easy stores in the Phoenix, Arizona Metropolitan region? The four Marketside stores are located within 1 -to- 2 miles from Fresh & Easy stores in all four cities.

Wal-Mart's John Fleming also made some new news at today's Bank of America conference. The chief of merchandising said Wal-Mart is studying different store formats beyond its Supercenters that combine a full grocery store with general merchandise.

As we've reported, Wal-Mart has converted at least two vacant big box buildings into what we refer to as hybrid Supercenters. These two stores, both in California's Central Valley, one in Sanger near Fresno and the other in Modesto in the Northern San Joaquin Valley, are "hybrid" because at about 100,000 square feet they are 80,000 square feet smaller than the size of the average Wal-Mart Supercenter, and half the size of Wal-Mart biggest Supercenters, which are 200,000 -to- 230,000 square feet.

The Sanger hybrid Supercenter is open. The Modesto store is set to open this fall. Both of the stores feature all of the departments--both in food, grocery and general merchandise--that a larger Supercenter does. They just are scaled back a bit in size to fit the smaller footprint of the stores.

Additionally, we reported in May that Wal-Mart is converting a number of its Southern California Wal-Mart Discount Store format stores that sell general merchandise and a limited assortment of grocery products but no fresh foods, into Supercenters, which do sell fresh foods and offer a full selection of food and groceries. The retailer is adding from 30,000 -to- 50,000 sqaure feet onto these discount format stores, all of the additional square feet being devoted to food and groceries, including fresh produce, meat, deli and bakery departments.

We've also learned Wal-Mart plans to follow this same Southern California plan selectively with other discount format stores in other parts of the U.S. The retailer also plans to find and convert other vacant big box buildings in the 100,000 -to- 125,000 square foot range, like the Sanger and Modesto Supercenters, into hybrid Supercenters in other parts of the U.S., as well.

Additionally, Wal-Mart has created a brand new Supercenter store prototype. That prototype allows the retailer to build smaller sized Supercenters by merely adjusting certain elements of the prototype design. Sort of a "Supercenter in a box," so to speak.

Our information is this new Supercenter prototype will serve and aid Wal-Mart in its development of the new formats to sell groceries and general merchandise in that merchandising chief John Felming mentioned at today's Bank of America conference.

Wal-Mart has become very agile and nimble at new format development of late, including changing its long held views that its Supercenters can't be adaptable in terms of size and product selection.

As we frequently write in Fresh & Easy Buzz, Wal-Mart is creating a multi-format food and grocery retailing strategic dynamo. It's all part of the retailers plans to be the food and grocery category sales market share leader throughout the United States.

Thus far the Wal-Mart multi-format food and grocery retailing juggernaut includes its Supercenters (now including the first of the smaller hybrids), its Sam's Club stores, Wal-Mart Neighborhood Market, its 40,000 -to- 45,000 square foot stand supermarkets, and now Marketside--which are 15,000 -to- 20,000 square foot food stores, and will feature a limited assortment of discount-priced basic groceries, fresh meat, produce, bakery and deli, a small assortment of natural, organic and specialty foods, wines and beers, and in-store fresh, prepared foods. The stores will feature a kitchen in-store, along with a small eat-in area for about 9 -to- 10 shoppers at a time.

Wal-Mart is far from finished with its new format innovation. Stay tuned. Of course, neither is Tesco, which owns and operates Fresh & Easy Neighborhood Market USA.

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

Wal-Mart Stores, Inc. has created a new supercenter design prototype (pictured above), which the retailer is currently submitting plans for to a select number of cities and counties in the U.S., where it hopes to build and open the first of these new design stores.

The prototype supercenter has a completely different look and feel compared to the retailer's existing battleship blue and grey supercenters.

For example, it's much sleeker in design than Wal-Mart's existing traditional big box design, and is rather upscale in its look and feel.

It's still a big box store in that it will feature all of Wal-Mart's traditional supercenter departments, but it also has numerous new features and elements including: glass windows or large skylights on the roof to let in natural sunlight; numerous green building design elements, which Wal-Mart has been using in its prototype "green" supercenters for some time; and energy-efficient lighting systems that turn on when they detect a shopper, and off when shoppers leave the particular area of the store.

The new design prototype supercenter also features new department titles or names throughout the store, less clutter and in-store signage, curved lines rather than the square edges common in Wal-Mart's traditional supercenters, and multiple earth-tone colors used throughout the store instead of the traditional blue and grey-only standard color scheme.

The new prototype also features a new Wal-Mart logo to be placed on the stores. The new logo has two color schemes we've viewed. The first color scheme (pictured below) has blue lettering with a gold/orange star-burst after "Walmart." The second color scheme has "Walmart" in white letters on an orange background, with a white star-burst after.
Wal-Mart, Inc. plans to officially unveil a new corporate logo next week, something that's being anxiously anticipated by company stakeholders, analysts and others. We believe Wal-Mart's new corporate logo might well be the one above, in one or the other color schemes. You read it (and viewed the logo) here first.

One of the handful of U.S. cities and counties Wal-Mart has submitted plans to for the new supercenter prototype stores is Cordova, in Shelby County, Tennessee, according to a senior Wal-Mart official.

That plan initially called for the new design prototype supercenter to be a whopping 267,000 square-feet, which would have made it Wal-Mart's largest supercenter built to date.

However, the Shelby County Land Use Control Board rejected the Wal-Mart's plan for the mega-supercenter earlier this year because of extensive objections by nearby residents over its size, along with having concerns about potential noise and traffic issues. The store's size also was objected to by the Shelby County Division of Planning and Development, along with it having some serious concerns about increased traffic on existing roads.

Wal-Mart went back to the drawing board, and on July 10 will present a revised plan to the Shelby County Land Use Control Board for a much smaller 151,908 new design prototype supercenter for the same site in Cordova, in Shelby County, according to the senior Wal-Mart official. Cordova is near Memphis. The supercenter site is at Macon and Houston Levee in Cordova. The county has jurisdiction over planning in Cordova.

The design elements of the revised, smaller 151,908 square-foot supercenter are identical to those of the initial 267,000 proposed monster-store, according to the Wal-Mart senior official. The only change is one of scale, he says.

One of the features of the new design prototype supercenter is that it can be used to build stores of various sizes - as big as the 267,000 square-foot model (and bigger if desired) described above, and as small as about 100,000 square feet, or even smaller. This feature allows Wal-Mart to more easily adapt the prototype to specific neighborhoods - urban settings for example - as well as municipal and county political situations and conditions.

The site for the supercenter in Cordova, in Shelby County, Tennessee, is a 26-acre development which includes numerous other commercial buildings besides the proposed supercenter. Wal-Mart has a contract to buy the land on which the proposed unit would sit and will do so if its plans for the 151,908 square foot new design prototype supercenter are approved by the county land use board, according to the senior Wal-Mart official.

If approved at or not to long after the Shelby County Land Use Control Board meeting on July 10, when Wal-Mart officials will present the revised supercenter plan, we're told by the Wal-Mart senior official the Tennessee new design prototype likely will be the first of the new design Superstores to be built and opened in the U.S.

It's far from certain the revised supercenter will gain approval though. There remains much opposition to it among various citizens and groups in the area, although they've yet to see Wal-Mart's plans for the smaller version supercenter.

The supercenter's opponents' primary concerns are traffic and noise. The county also has concerns because it says it will have to spend a considerable amount of money on road and intersection improvements because of the heavy volume of automobile traffic the new supercenter will generate in the area.

What's significant though, at least for this piece, is that Wal-Mart has created this new age design supercenter prototype. You can bet if this particular new supercenter doesn't get built in this particular part of Tennessee, one of the new design supercenters will be built soon elsewhere in the U.S.

As we wrote about in this April 27, 2008 piece [Going Smaller: Wal-Mart Might have Found A Solution or Two to Much of the Opposition to its Mega-Supercenter Stores in the USA] Wal-Mart has become flexible with its supercenter size recently, when historically it's been rigid over tweaking the size of the mega-stores. For example, the retailer is converting a 105,000 square- foot (about 75,00-80,000 square-feet of selling space) vacant big box retail building in Modesto, California into a "hybrid" supercenter, which will be the first such supercenter for the retailer in the U.S.

Additionally, Wal-Mart is converting a number of its Wal-Mart discount format stores in Southern California's Orange County into supercenters, adding about 30,000 -to- 75,000 square feet to them (the amount depends on the store), which will be used for food and grocery (including fresh foods) product merchandising.

These discount format-to-supercenter "hybrids" will be much smaller than the average 185,000 square-foot Wal-Mart supercenter, but will allow for a full selection of fresh foods and grocery products to be sold in them, which is a top priority for the mega-retailer, since food and grocery now comprise 41% of Wal-Mart's overall sales, according to the most recent category sales numbers from the retailer.

Despite being the world's largest corporation and retailer, Wal-Mart isn't letting that prevent it from innovating. In fact, when it comes to retail format innovation, Wal-Mart is currently innovating more so than it's done at any time in its history.

In addition to the multi-format supercenter concepts mentioned above, along with Wal-Mart's "green Wal-Mart supercenter prototype, the mega-retailer is set to open its new Marketside small-format grocery stores, or what we call "Small-Mart's," in four cities in the Phoenix, Arizona Metropolitan region this fall.

The Marketside "Small-Marts," at about 15,000 square feet, are about the size of the meat department in one of the retailer's 200,000 square-foot supercenters.

The stores are being positioned by Wal-Mart as small community grocery stores with a focus on service. The product merchandising focus in the Marketside stores will be on store-made fresh, prepared foods, fresh produce and meats, and basic and specialty grocery products, including some new store brands to be introduced by Wal-Mart just for the Marketside grocery stores.

Additionally, Fresh & Easy Buzz has learned, Wal-Mart plans to convert more former big box stores into smaller supercenters like it's doing in Modesto, California, in other selected cities, including urban markets.

Lastly on the format innovation front, we've learned Wal-Mart is working on some new design changes, tweaks and upgrades to its 45,000 square foot Neighborhood Market supermarkets.

The retailer hasn't done much in terms of expanding its Neighborhood Market supermarket's store count since it created the format and opened the first store in 1998. However, in the last couple years its opened a higher than historic annual average number of the supermarkets, and plans on continuing to do so for the next few years in select regions of the U.S.

For the last few years, Wal-Mart has been customizing the design of its supercenters in a few regions of the U.S., where doing so has helped it to gain approval for the stores. For example, in Colorado, Wal-Mart has built two supercenters that blend in with the respective communities' mountain setting, using earth-tone colors and brick on the store facades rather than the traditional blue and grey-colored materials it normally uses, as well as adding features like bicycle paths around the store, and even a bicycle shop inside one of the Colorado stores.

It appears to us the new design prototype supercenter is an evolution of that customization as well as a "mass customization" of many elements of the handful of "green" Wal-Mart supercenters the retailer has opened over the last few years in the U.S.

The flexibility of the new design prototype supercenter - to go from say 267,000 square-feet -to- 100,000 square-feet for example - also has an element of "mass customization" in it, which should serve Wal-Mart well.

The fact the new design prototype supercenter is much more upscale and attractive than the basic format supercenter (which wouldn't take much) seems to send a signal from the brawny big box retailer from Bentonville it believes its low and value price positioning won't be hurt by housing such merchandising - the key to the retailer's success - in a more sleek, upscale and considerably more attractive retail box - a box with design lines even.

As far as we're aware, Wal-Mart doesn't intend at this point in time to completely do away with its standard Wal-Mart supercenter battleship blue and grey big box. Although, based on information from our sources, we suspect eventually doing so will be the case for the mega-retailer from Arkansas, especially if the new logo "Walmart" logo it unveils is the one we have pictured in this story., which we believe to be the case.

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

In a move today that took nearly everybody by surprise, Wal-Mart Stores, Inc. replaced CEO Lee Scott with Mike Duke (pictured at left), the head of the mega-retailer's international operations. Duke will take over as CEO of Wal-Mart in February, 2009. Wal-Mart's investors responded to Duke's appointment by sending the stock up $2.26, or 4.5%, to $52.92 on Friday. The consensus among analysts is that Duke is a good retailer and deserved the CEO's job.

Duke, a former department store executive, only joined Wal-Mart in 1995. he was named to head the company's international division in 2005, making his three year rise from that key position to CEO a meteoric one. Prior to joining Wal-Mart, Duke's 23-year retail career included work for Federated Department Stores and May Department Stores.

When he joined Wal-Mart in 1995 Duke first led the company's logistics divisions and U.S. Wal-Mart stores before being named international chief in 2005.

Wal-Mart also today promoted the CEO of its Wal-Mart USA operations, 53-year-old Eduardo Castro-Wright, to vice chairman of the corporation, effective immediately. He's slated to take on additional responsibility in global procurement.

The announcement paved the way for what some say is his eventual ascension to the top job at Wal-Mart Stores, Inc. Many believe Castro-Wright, who is considered an extremely excellent retailer, is ready now to be CEO. However, his promotion is a pretty clear sign he's next in line for the position if he wants it whenever Mike Duke leaves. Duke held the same vice chairman position Castro-Wright was just promoted to, as did Lee Scott, before being named CEO. Duke and Scott were responsible for different aspects of Wal-Mart's business though as vice chairman

Current CEO Lee Scott, who has worked at Wal-Mart for three decades and served as CEO for the last nine years, isn't going away anytime soon though. He will continue as chairman of the executive committee of the board and as an adviser to Mike Duke through January 2011, Wal-Mart spokesman David Tovar said today.

The timing of the announcement caught most people in the retail industry and on Wall Street by surprise. Changes at the top for huge corporations like Wal-Mart generally don't come towards the end of the year or before the holiday season. Additionally, such changes are usually made at the beginning of a major corporation's fiscal year, which isn't the current case at Wal-Mart.

"Lee (CEO Scott) decided the time was right for him to retire and approached the board about doing so," Tovar said. "The board has an ongoing and rigorous succession plan process. We think the right time is now. It's a time of strength for us."

Wal-Mart didn't name a successor to Mike Duke today as part of the changes at the top for the world's largest corporation and retailer. Duke is Wal-Mart's most senior international executive, which is a key post. Some are suggesting the fact a replacement wasn't named today for Duke could mean Wal-Mart might make an outside hire to replace Duke for its most senior global executive position.

Lee Scott's nine years as the head of Wal-Mart Stores, Inc. has been overall a very successful tenure.

Under Scott's leadership, Wal-Mart has put a relentless strategic and operational focus on value that has clicked with shoppers facing myriad economic concerns. He has also put a major emphasis on revamping merchandise assortment, improved store layouts and shored up Wal-Mart's environmental and labor image, positioning the chain as a Wall Street darling after a prior streak of criticism by the media, labor and environmental groups. Wal-Mart currently is the only company on the Dow Jones listing that's up for the year, for example.

Additionally, Wal-Mart has also become the number one seller of food and grocery products in the United States in terms of overall national market share. Prior to Scott's taking the helm as CEO nine years ago Wal-Mart wasn't even close to achieving that distinction.

As CEO Lee Scott launched a massive new store opening program in the U.S. and internationally, focusing mostly on the retailer's mega-Supercenters and Sam's Club warehouse format club stores, but also on its discount stores and Wal-Mart Neighborhood Market supermarkets.

The CEO also has led an aggressive new format development program at Wal-Mart. All of the new Wal-Mart formats in the United States for example -- the small-format Marketside grocery and fresh foods stores; the "Community Market" Hispanic prototype store, the first of which opened in Texas earlier this year, the new smaller (100,000 square feet) Sam's Club prototype; the new Supercenter prototype design, and the new hybrid, smaller Supercenter located in vacant buildings (the first one, at 100,000 square feet located in a former big box supermarket building, opened in Modesto, California on November 12 -- have one basic thing in common: They all offer lots fresh foods and groceries for sale in them.

That all these new formats sell food and groceries as a primary or key feature isn't an accident. What likely could be seen historically as one of the two most important contributions Scott has made during his nine year run as CEO at Wal-Mart could very well be his decision to put the retailer on the path to becoming the dominant seller of food and grocery products in the United States -- and eventually the world. In fact it's this ficus on consumables that most analysts attribute to Wal-Mart's current success in the U.S. and globally during the severe economic recession and financial meltdown.

Scott's relentless pursuit of consumers' food and grocery dollars also led to a decision earlier this year at Wal-Mart USA to start converting scores of its Wal-Mart discount format stores throughout the U.S. in hybrid Supercenters by adding 15,000 -to- 50,000 (depending on the available space) square feet to the discount stores, all of it and then some being devoted to consumables, including fresh produce and meats.

Most of these ideas and concepts for the U.S. came from Eduardo Castro-Wright, who yesterday was the CEO of Wal-Mart USA and today is the company's new vice chairman. However Lee Scott gets CEO credit just like he gets faulted for the negatives, as it should be.

Lee Scott's other major historic contribution has been push as CEO to make Wal-Mart an even bigger global retailer than it was when he took over the head office eleven years ago.

Under Scott's leadership Wal-Mart acquired the Asda chain in the United Kingdom, making it that nation's second-largest retailer after Tesco.

The company grew business in Latin and Central America dramatically.

He did a joint venture deal bringing Wal-Mart into India, which has the world's second-fastest growing economy after China.

Scott grew Wal-Mart-China in a huge way, even saying it will someday in the not too distant future become the retailer's largest market, eventually surpassing the United States in terms of sales.

Most recently Scott inked a deal to bring Wal-Mart stores to Russia, which also has one of the world's fastest-growing economies, although that growth has slowed considerably since oil dropped from $142 per-barrel to $50 a barrel in just the last couple months. But it will rise once again -- the price of oil that is.

By naming Mike Duke, the head of its global business, as the new CEO, Wal-Mart is clearly sending a message that it plans on becoming an even bigger international retailer. The retailer's international division, which Duke heads, accounts for more than a quarter of Wal-Mart's $400 billion in annual sales. The company's future growth is globally. Although there's still room to grow sales in the U.S., it's the retailer's most mature market and pales in comparison to the opportunities internationally.

During his tenure as head of international operations, Duke had some hits, but also some big misses. For example, In 2006, Wal-Mart withdrew from Germany and Korea, two big setbacks for the company. And despite taking control of its Japanese business in 2007, Wal-Mart continues to struggle there.

Successes though include Brazil, which has experienced phenomenal growth and serves as a model for Latin America, and India, where Wal-Mart scored a coup by forming a partnership with Bharti Enterprises to expand in that country despite local opposition from mom-and-pop retailers. Add China to the list as well.

And Asda in the United Kingdom is doing extremely well despite that country's economic recession and its position as a distant number two to Tesco. Tesco has a 31% UK market share to Asda's about 17% share. But Asda has consolidated its lead over number three Sainsbury's, which was neck-to-neck with Wal-Mart-owned Asda just two years ago for number two, but now has about a 14.5% share to Asda's about 17%.

Beginning next year when he takes over Mike Duke will have a much different political agenda to contend with as CEO than Lee Scott did during the last eight years of the Republican Bush Administration. With a new Democratic President, Barack Obama, and a Democratic majority in both the U.S. house of Representatives and U.S. Senate, issues such as unionization, which Wal-Mart has been able to keep at bay, are going to become much more pressing for the company -- and for the new CEO.

If organized labor can get the Employee Free Choice Act passed, a provision of which ("quick check") allows workers to merely check a box if they want to be represented by a union rather than going through the current and sometimes elaborate secret ballot voting process, it will make it much easier for unions like the United Food & Commercial Workers (UFCW) to organize store-level Wal-Mart employees, something the union has failed to do for decades. President-Elect Obama and a majority of House and Senate Democrats support the Employee Free Choice Act. Therefore its prospects for passage in 2009 currently look strong.

New CEO Duke also will have some political fences to mend globally; fences he has yet to mend as head of Wal-Mart's international operations.

For example, in September, Mexico's Supreme Court chastised Wal-Mart for paying employees partially in vouchers that could only be used at company stores. The court compared Wal-Mart to the Mexican dictator Porfirio Diaz, who ruled the country from the late 1880s to 1911.

Wal-Mart is now Mexico's number one retailer of food and grocery products. As such it can't afford to get on the wrong side of the government.

Other global issues include its Asda chain in the United Kingdom. That nation's top three retailers -- Tesco, Wal-Mart's Asda and Sainsbury's -- have been involved in a multi-year battle with the British government involving charges of anti-competition and price fixing. Earlier this year Asda CEO Andy Bond directed executives of the chain to cooperate with British government authorities against competing chains in return for a promise that the retailer wouldn't be prosecuted or fined. The issue is still taking shape but Asda isn't completely in the clear yet either.

It will be extremely interesting to see who Wal-Mart names to replace Mike Duke in the key position of head of international operations.

Additionally, with Eduardo Castro-Wright moving from CEO of Wal-Mart USA to his new position as vice chairman of Wal-Mart, that opens up the key position of head of U.S. retailing, which remains Wal-Mart's single-largest division in terms of annual gross sales.

We will be watching this closely because since so much of Wal-Mart USA's strategy is focused on selling consumables, and developing new formats that feature food and grocery products, we would expect a person with a food and grocery retailing background perhaps to assume Castro-Wright's position.

Of course that's far from a given since Wal-Mart is fairly deep with food and grocery sector talent below the USA CEO position. However, naming a person with extensive food and grocery retailing experience, either from inside or from outside Wal-Mart Stores, Inc., would send a strong signal that Wal-Mart is even more serious than ever before about becoming the dominant force in food and grocery retailing in the U.S.

[Photo Credit: Wal-Mart Stores, Inc.]

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

Eduardo Castro-Wright, CEO of Wal-Mart USA, was feeling his retailing oats a bit yesterday at the Morgan Stanley retail conference in New York City. He also made news at the conference, which is something he seems to enjoy doing despite Wal-Mart's generally tight-lipped culture. Yesterday's Morgan Stanley retail conference was broadcast over the Internet.

"I've read and heard most of the (retail) industry is struggling," Castro-Wright said to a few laughs from attendees during his presentation at yesterday's retail conference.

"But Wal-Mart is seeing positive trends," the head of Wal-Mart Stores, Inc.'s North American operations told analysts and others attending his presentation . "Customers now are shopping more frequently (primarily because of cheaper gasoline) and there hasn't been a significant change in how much they spend during each visit," he said.

Earlier this month Wal-Mart reported a nearly 10% rise in quarterly profits as consumers appear to have flocked to the discounter's stores. This despite the severe economic recession, and despite the fact other combination grocery and general merchandise mass merchandise retailers like Target and Costco reported losses for their respective most recent quarters.

Holiday food and grocery price reductions every week

Castro Wright said Wal-Mart is rolling back prices on many food and grocery items for the Thanksgiving and Christmas holidays, meaning numerous (particularly holiday-related and staple items) grocery prices in all of the retailer's stores beginning this week are even lower overall than they were last week, he said. The rollbacks will remain in place for the Christmas holidays as well, Castro-Wright said.

In addition, every week between now and Christmas Wal-Mart will do additional price rollbacks on food, grocery, general merchandise and holiday-oriented items and products, Castro-Wright said.

Addressing the current cutback in consumer spending across the board in the U.S., including on food and groceries, the Wal-Mart USA CEO said: "The consumer will spend when you have the right prices and offerings. So with Christmas coming, I thought I would give you a little confidence."

More new formats

Eduardo Castro-Wright also talked about Wal-Mart's expansion in the U.S. for the company's 2009 (current) and 2010 fiscal years at yesterday's Morgan Stanley retail conference.

Breaking a little news he said the mega-retailer is currently working on developing a new "high efficiency" retail format that would have higher sales per square foot than some of its current stores. According to our sources this is a smaller version of the Supercenter.

The executive said Wal-Mart also is looking at using smaller-sized stores to enter markets where it does not have a presence today, this includes its new 100,000 square foot smaller Sam's Club prototype store it's been testing, along with its new small-format Marketside fresh foods and grocery stores (four open so far in the Phoenix, Arizona region as we've reported), its 43,000 square foot Wal-Mart Neighborhood Market supermarkets, and its new hybrid Wal-Mart Supercenters, the first of which opened in Modesto, California last week.

Fresh & Easy Buzz has been writing all year that Wal-Mart will use its new small-format Marketside and other new, smaller-format stores to penetrate market regions such as the San Francisco Bay Area in California, as well as urban regions in the state like Los Angeles and San Diego, where it has little opportunity to locate mega-Supercenters because of both geographical limitations and objections by city governments and community groups to the giant stores. [You can search "Wall-Mart" in the Blog's search box for a selection of those posts.]

At about 100,000 square feet that Supercenters, which is in a remodeled vacant retail building, is about 80,000 square feet smaller than the average-size Wal-Mart Supercenter. It's "hybrid" because it's in a formerly vacant building rather than being built from the ground up which is what Wal-Mart historically does with its Supercenters. Despite the smaller size the Modesto hybrid Supercenter has a full supermarket inside, offering a complete assortment of fresh foods and groceries. About 40,000 square feet of the total 100,000 square feet of the store is devoted to food and grocery items. The remaining 60,000 square feet contains general merchandise products just like a larger Supercenter.

Adding food and grocery items to Walmart.com

Castro-Wright didn't address it during the conference yesterday but Fresh & Easy Buzz has noticed Wal-Mart has listed thousands of food, grocery and non-foods items on its Walmart.com Web site, indicating the retailer will soon be offering food and groceries at its online store, along with all of the other products it sells there.

There are no prices on the food and grocery items at Walmart.com as of yet. However we're told by a good source the prices are coming soon. Our source also tells us Wal-Mart will ship the items via UPS and Federal Express, just like it ships all of the general merchandise products it sells via its Web site. Amazon.com sells a huge selection of food, grocery and beverage products on its Web site, and ships them via these same carriers as well, for example.

Add another national format -- actually more of a product line extension to Walmart.com -- to the mega-retailers multi-format food and grocery retailing empire: online grocery retailing. Its cheap -- no stores, cheaper marketing costs and the like -- and its national. More importantly it will provide Wal-Mart with yet another niche or piece of the multi-format puzzle in its all out battle to dominate food and grocery retailing in the U.S., where it now is the national market share leader.

Hundreds of new U.S. stores in FY 2009 and FY 2010

The Wal-Mart USA CEO also said yesterday despite the fact the company has cut back the number of new stores across all formats it plans to open in the U.S. in its 2009 (current) and 2010 fiscal years, it doesn't mean the retailer plans to be merely playing around the edges in terms of new store openings.

In fiscal year 2009 (the current fiscal year) Wal-Mart plans to launch 191 new stores of various formats -- Supercenters, Sam's Club stores, Neighborhood Market supermarkets, Marketside small-format food stores and others -- according to Castro-Wright. That compares to the 218 new units Wal-Mart opened last fiscal year (2008).

In fiscal year 2010, Castro-Wright said Wal-Mart will launch between 142 -to- 157 new units in the U.S.

Considering the size of most of the Wal-Mart format stores, particularly Supercenters and Sam's Club stores, that's still a whole lots of retail square footage for the 2009 and 2010 fiscal years. Additionally, that's a whole lot of new square footage in what many say is a mature retail market, the United States.

Castro-Wright said Wal-Mart would focus the majority of these new stores on what he called 15 "opportunity markets" in the U.S. that the retailer has identified and says account for nearly 40% of total retail sales. Various market regions in California, Nevada and Arizona, the three states where Tesco operates its 102 small-format, convenience-oriented grocery and fresh foods markets, are included among the 15 "opportunity markets" Wal-Mart is putting its major new store development focus on in the 2009 (current) and 2010 fiscal years.

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.