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

Fresh & Easy Buzz was the first publication to report months ago that Wal-Mart is planning to open some of its new small-format Marketside combination grocery and fresh foods markets in Southern California (and Northern California), along with its first four markets set to open in the Phoenix, Arizona market this fall.

We also are the only publication to date (on June 6, 2008) to report Wal-Mart is considering locating a small-format Marketside store in a major new mixed-use development in Reno, in northern Nevada.

We first reported Wal-Mart planned to locate Marketside stores in Southern and Northern California as early as December, 2007. Since then we've filled out that story with numerous pieces about the development.

For example, in this May 18, 2008 story, "Wal-Mart Looking For Sites in California For it's Small-Format 'Marketside' Grocery Stores," we reported on the progress Wal-Mart is making in terms of searching for Marketside store locations in Southern and Northern California.

Fresh & Easy Buzz also was the first to report that among the regions and cities Wal-Mart is targeting in Southern California for its Marketside stores includes San Diego County, including downtown San Diego itself.

Today's edition of the Financial Times newspaper is confirming Fresh & Easy Buzz's enterprise reporting that Wal-Mart indeed has plans to open some of its small-format Marketside grocery stores in Southern California. Specifically, the publication is confirming Wal-Mart plans to open two Marketside stores in the San Diego region, one in downtown San Diego as we reported and the other in the nearby city of Oceanside.

The downtown San Diego location (in the new residential condominium project) is the one we previously reported on in what is often referred to as the city's Gaslamp downtown district.

You can read the Financial Times' report, "Wal-Mart takes on Tesco's US chain," which confirms Fresh & Easy Buzz's reporting of months ago, here.

More Marketside units to come in California

As we've reported previously, the San Diego region is far from the only part of Southern California , and California as a whole, where Wal-Mart plans to open Marketside stores.

In addition, as we've also reported based on information from our sources, Wal-Mart also has plans to open its small-format Marketside grocery stores--which will offer a basic selection of grocery products, fresh foods, and in-store prepared ready-to-eat and ready-to-heat meals and side dishes--in Northern California, with a specific focus on the San Francisco Bay Area.

Wal-Mart has had a difficult time being able to gain approval for its combination food, grocery and general merchandise Supercenters in the Bay Area because of city government and consumer group opposition to the mega-stores which average about 180,000 square feet. Therefore, the retailer hopes in-part to be able to increase its market share in the food and grocery categories in the lucrative Bay Area market by locating the smaller and different style Marketside stores, which don't use Wal-Mart at all as a part of the banner, in the region.

Wal-Mart also believes the somewhat upscale positioning of the Marketside stores, which includes the in-store fresh, prepared foods offering, is "ripe" for Bay Area consumers, who are among the most food-conscious shoppers in America.

The original Marketside development team, led by former Wal-Mart executive David Wild, conducted "Project Marketside" out of Wal-Mart's offices near San Francisco, where the retailer operates its Wal-Mart.com online business from.

It was no accident then Wal-Mart director of new business development Wild chose to do so. He lived in the Bay Area before returning to the United Kingdom to take a CEO job with Britain's leading auto parts and bicycle-maker earlier this year, and took much of the inspiration for the in-store fresh, prepared foods approach for Marketside from a number of the region's grocery chains and independents such as Andronico's Markets, Lunardi's, Draegers, Mollie Stone, Whole Foods Market and even Safeway Stores, Inc. These Bay Area grocers, along with others, are among the pioneers of in-store fresh foods merchandising in the United States.

The San Francisco Bay Area also provided a perfect backdrop for the urban strategy aspect of Marketside, which is to locate the small-format stores in big city's like San Diego and San Francisco, as well as putting them in suburbs like the suburban Phoenix, Arizona cities the first four stores set to open in just weeks are located in.

We also know Wal-Mart has searched for more than one location in the city of San Francisco itself for its Marketside stores, along with looking in San Jose and various Bay Area suburban cities.

Tesco's Fresh & Easy and Northern California

Tesco's Fresh & Easy Neigborhood Market has at least 21 locations to date locked up in the San Francisco Bay Area for its small-format combination basic grocery and fresh foods markets. Further, Tesco is in the process of looking for and gaining leases on additional sites for its Fresh & Easy stores in the Bay Area.

Tesco also currently has leases for about 19 Fresh & Easy stores for the Sacramento Metropolitan region in Northern California. It plans to add more locations in the Sacramento Metro region as well.

The first Bay Area and Sacramento region Fresh & Easy stores were scheduled first to open before the end of this year. Tesco then changed this to having the first stores open in early 2009. However, based on our sources and observation of the states of the various store projects in Northern California, it's our estimation the first Northern California stores won't likely open until at least the beginning of the second quarter of 2009, likely no earlier than April, 2009.

Fresh & Easy and Southern California

Southern California, which Wal-Mart will enter with its small-format Marketside stores, remains Tesco's number one market region for Fresh & Easy. Over half of its current 78 stores are located in the region, as is its corporate headquarters and 800,000-plus square foot distribution center. Tesco also will open many more Fresh & Easy stores in Southern California this year and in 2009.

As is the case with the four Marketside stores opening this fall in Arizona, which are all located one -to- two miles from existing Fresh & Easy markets, the planned Marketside unit in Oceanside, California also is located in that same range.

Locating the Marketside stores close to existing Tesco Fresh & Easy markets is part of (but far from exclusively) Wal-Mart's strategy with its small-format grocery and fresh foods stores.

Wal-Mart wants to see how the format differences--chief among those differences being the Marketside stores will make its fresh, prepared foods in-store (as well as having in-store seating for about 10 customers at a time) rather than having the foods prepared at a central kitchen and then shipped to the stores like Fresh & Easy does--of its Marketside stores play out head-to-head with Tesco's Fresh & Easy.

Since Marketside is merely one-part of a three format food retailing strategy for Wal-Mart--along with its Supercenters and 45,000 square foot Neighborhood Market supermarkets--the retailer plans to observe and analyze the sales at those Marketside stores located near Fresh & Easy grocery markets rather than rollout scores of stores rapidly as Tesco is doing with Fresh & Easy, which is a single food retailing strategy for Tesco thus far in the U.S.

Resources:

Click Here for a selection of Fresh & Easy Buzz past reports and stories about Wal-Mart Marketside.

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

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

View the new Wal-Mart Marketside website here.

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

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

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

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

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

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

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

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

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

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

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

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

Welcome to Marketside

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Wal-Mart Looking For Sites in California For it's Small-Format 'Marketside' Grocery Stores

As we reported late last year and have followed up on throughout this year, Wal-Mart plans to open an initial four of its small-format (about 15,000 square foot) Marketside grocery markets this summer in the Arizona cities of Mesa, Gilbert, Chandler and Tempe. Tesco Fresh & Easy stores are located nearby the Wal-Mart Marketside locations in each of these cities.

As we previously reported, the small-format Marketside stores will be similar to Fresh & Easy grocery markets in that they will offer a limited assortment of discount-priced food and grocery items and fresh foods like produce, meats and other perishables.

In the category of fresh, prepared foods however, Marketside will differ from Fresh & Easy in that the Wal-Mart-owned small-format grocery stores will have kitchens in-store, along with small eating counters, where all of the fresh, prepared foods will be prepared right in the stores. Fresh & Easy's fresh, prepared foods are produced in a kitchen at the Southern California distribution center and delivered to the stores.

The Marketside kitchens will prepare foods for customers to "eat-in" at seating that holds about 9-10 customers at a time, but more importantly for take-out, which will be the majority of the stores' business in terms of the in-store kitchen created prepared foods.

The four Arizona stores could open as early as next month, but no later than August, Fresh & Easy Buzz has learned. Wal-Mart is currently hiring for store managers and assistant managers on this website: http://www.workformarketside.com/.

Wal-Mart looking to California for Marketside

Fresh & Easy Buzz also has learned Wal-Mart executives have been seriously looking for sites in both Southern and Northern California for the small-format Marketside stores, which will put a major emphasis on fresh, quality foods, along with offering new store branded food and grocery products in them.

As we've reported before, Wal-Mart has trademarked the brand names "City Thyme" and "Field and Vine." We expect to see food and grocery products under these store brands in the Marketside stores, along with perhaps another.

Our sources, who've been very good thus far, tell Fresh & Easy Buzz Wal-Mart is looking at both urban and suburban locations in Southern and Northern California for the Marketside stores.

Wal-Mart has had a difficult time getting approval for its Supercenters in California because of widespread opposition--and even laws prohibiting them--from counties, cities and community groups.

The retailer believes it will have no such problems with the 15,000 square foot Marketside stores, as they are the opposite in every way to the huge Supercenters, thereby making the arguments if they do come up anti Wal-Mart rather than anti-Supercenter, which is an argument the retailer thinks it can win.

According to our sources, Wal-Mart is particularly interested in using the Marketside format as an urban strategy in California, in big, dense cities like San Francisco, San Jose, Los Angeles and a few others.

Wal-Mart has little or no presence in food and grocery retailing in places like the 7-million resident-strong San Francisco Bay Area, and wants to use Marketside to create that presence. The same is the case in Los Angeles, as well as in San Jose and San Diego, since between space (real estate)limitations and political opposition it's nearly impossible for Wal-Mart to locate Supercenters in these cities, along with many others in California.

The retailer also sees Marketside as part of a multi-format strategy in California. For example, in the Golden State Wal-Mart has focused primarily on its discount store and Supercenter formats. However, having so many cities reject Supercenter permit applications has actually helped make Wal-Mart more creative from a multi-format perspective.

For example, it put a smaller-version (about 100,000 square feet compared to the average 180,000 square feet a Supercenter is) in a renovated big box building in Sanger, a suburb of Fresno last year. Wal-Mart is in the process of renovating a building of the same size in Modesto, California currently. It will be the retailer's second shrunken Supercenter in the state when it opens at the end of this year or early in 2009.

The retailer faced strong opposition in the past when it tried to build 200,000 square foot brand new Supercenters in both cities. However, since all that's required to buy and renovate and old buildings like the two mentioned above is to get the proper permits, neither Sanger or Modesto could prohibit Wal-Mart from renovating the empty buildings like they can in the case of new construction.

Wal-Mart also is adding square footage on to a number of its discount format stores in Southern California. The additions--of about 25,000 -to- 50,000 square feet--will all be used for food and grocery products, turning these stores into hybrid Wal-Mart Supercenters similar to the Sanger and Modesto stores. Rather than ranging from 180,000 -to- 200,00 square feet like the typical Supercenter, these Southern California hybrids will range from about 100,000 -to- 120,000 square feet.

These strategies still don't solve all of Wal-Mart's problems in California. In fact, for whatever reasons, the retailer hasn't proposed building very many of its average 45,000 square foot Wal-Mart Neighborhood Markets in the state as well historically.

That's changing as well. Along with the Supercenter hybrid strategy, and the new Marketside format, Wal-Mart plans to open more of the mid-range "Neighborhood Market " stores in California as well.

But Marketside isn't just a alternative, smaller format strategy for the retailer. It's also entirely new positioning--fresh, prepared and specialty foods and groceries combined with basic grocery items at discount prices. Sounds a little like Tesco's Fresh & Easy, doesn't it.

The format is after new customers--fresh food and quality food shoppers- for example--as well as new markets.

Based on our information, the Marketside stores' design will be more upscale than Fresh & Easy's, but they won't be fancy food shops. Wal-Mart wants an upscale look and feel, but also for the format's discount price and value messages to be reflected in the design.

In California, as in Arizona, Wal-Mart hopes the stores will get them more of the higher-income shopper dollar. That's another reason the San Francisco Bay Area looks so good to Wal-Mart. The region has about the highest average income of anywhere in the Golden State; and its residents spend a higher percentage of their income on food and related products overall than people who live in the other regions of California.

Wal-Mart's Marketside development team spent lots of time in the Bay Area while they were creating the format. This included studying the regions grocers--from Safeway to upscale single store independents with superior fresh, prepared foods' operations.

This time in the Bay Area also gave the team time to scout out various locations where they believe the Marketside stores will do well. This includes in the city of San Francisco proper.

A Bay Area commercial real estate agent told us late last year, and again earlier this year, that Wal-Mart representatives have talked to landlords and developers about various potential sites for the Marketside stores in the Bay Area.

We've been told the same from a Southern California source. Both sources said they have no idea if Wal-Mart has signed any leases for sites in California, but describe the conversations they are aware of as "serious" ones, rather than mere inquiries.

Tesco plans to start opening 18 Fresh & Easy stores in the Bay Area early next year, along with 19 in the Sacramento region. Safeway also will likely open up to four of its new "The Market" small format grocery stores in the Bay Area beginning this summer. As we reported Thursday, the first store in the format, the "Market by Vons," opened Thursday in Long Beach in Southern California.

Regarding Southern California, that's Tesco Fresh & Easy's home turf and number one target market. The retailer's corporate headquarters and distribution center is in Riverside County in the region, and about half of its current 61 small-format grocery stores are located in Southern California, with Arizona next and Nevada third in terms of store counts.

Southern California also is home to the original small-format success story, Trader Joe's. Trader Joe's was founded in Southern California and its corporate headquarters--along with operating numerous stores--remains in the region, even though the chain is owned by German family members who also are majority owners of Aldi International, based in Germany.

With Safeway, which operates hundreds of supermarkets in Southern California under the Vons and Vons Pavillions banners, dipping its small-format food retailing toes in the water in Southern California with its "The Market" format stores, and the high probability of Wal-Mart coming to the Golden State in the not so distant future with Marketside--as well as Trader Joe's opening more stores in the region--Tesco will find itself with some heavy small-format food and grocery retailing competition in the market.

Safeway also operates a large supermarket division in Arizona, and it's likely we will see "Market by Safeway" stores open there as well. Safeway is pursuing two strategies with its small-format operation: putting the stores in converted supermarkets deemed too small to convert to its Lifestyle format, which it is converting all of its U.S. supermarkets to, and building new stores from the ground-up.

We believe the new stores, however, will come later; that the focus right now is on putting "The Market" format in any smaller, older supermarkets the grocer has already decided to not convert to Lifestyle format supermarkets, assuming the stores are in neighborhoods with the proper demographics and other characteristics for the small-format grocery stores.

There are a few smaller, older stores in Arizona which meet this criteria. Therefore, we wouldn't be surprised to see some of those supermarkets become the "Market by Safeway" small-format stores in the near future.

Beginning in as little as a month, and at least by August, we will see the already hot Arizona market heat up even more when the four initial Wal-Mart Marketside stores open in the respective cities. All four stores are fairly close to Fresh & Easy stores, so that should make for an interesting--and convenient--store-to-store comparison.

Even more interesting will be when Wal-Mart starts inking some deals for locations in California. The mega-retailer has long been frustrated about not being able to get a stronghold in the state's huge food and grocery sales market. It just could use Marketside in part to attempt to grab a big chunk of the Golden State market as part of its growing multi-format strategy.

Note: For more information, details and some additional analysis about Wal-Mart's Marketside, we suggest this recent story in the food and grocery industry blog Natural~Specialty Foods Memo.

The blog also is running what it's calling a "small-format food retailing special feature." There are a number of pieces, ranging from a story about French retailer Carrefour's small-format stores in Asia and a piece on Fresh & Easy, to a story about small-format natural foods' retailer Sprouts Farmers Markets, which is a fast-growing discount natural foods grocer with stores in Arizona, Southern California and elsewhere in the Western U.S.

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

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

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

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

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

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

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

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

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

Marketside: More than a test

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Lowering expectations almost always best

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

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

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

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

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

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

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

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

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

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

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

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

Observation, Analysis and Commentary

Yesterday and today Fresh & Easy Buzz was able to visit each of the four Wal-Mart Marketside stores in Gilbert, Chandler, Mesa and Tempe, Arizona which officially opened yesterday, October 4, although as we previously reported had soft openings on Thursday and Friday.

We spent a considerable amount of time in each store not only analyzing the store design, merchandising, pricing and prepared foods offerings but also talking to shoppers and employees.

First though some back story. As we've been writing since January, 2008, Wal-Mart's retail strategy with its small-format (the four Phoenix, Arizona region stores range from about 15,000 -to- a little over 17,000 square feet) combination grocery and fresh foods Marketside stores is not the same as Tesco's strategy with its small-format (10,000 -to- 13,000 square foot) Fresh & Easy Neighborhood Market combination grocery and fresh foods stores.

For Tesco, Fresh & Easy is (at least currently) a single format food and grocery retailing strategy for the Western U.S. -- California, Nevada and Arizona at present. The plan is to open around 300 of the stores by sometime in 2010. In other words, right now Fresh & Easy is a single-play strategy in the U.S. for Tesco, which is a multi-format retailer at home in the UK and elsewhere throughout the world.

Additionally, a part of that single-format strategy is to locate the Fresh & Easy stores within a couple miles of each other in the respective market regions so as to create what we call a "critical mass" retailing strategy. Think of it as Fresh & Easy attempting to become the de facto neighborhood grocery store in the various neighborhoods in these respective market regions by virtue of having so many stores located in a concentrated area so close to one another. Tesco's models in this regard are the drug store chain Walgreens and Starbucks in the coffee retailing space, both which use a "critical mass" retail store location strategy. In many ways this is a logical store location tactic for a retailer conducting a single format food retailing strategy.

On the other hand, as we written about before, Marketside is a part (the most recent addition) of Wal-Mart's national (U.S.) multi-format food and grocery retailing strategy.

The lead horse of that strategy is the Wal-Mart Supercenter, the retailer's mega-combination food, grocery and general merchandise stores that average about 187,000 square feet.

Along with the Supercenter, Wal-Mart operates Sam's Club membership warehouse stores which carry a strong selection of fresh food and grocery products at discount prices.

Along with these two food and grocery selling formats, Wal-Mart also has its 40,000 -to-45,000 square foot Wal-Mart Neighborhood Market, which are standalone supermarkets.

And now there is Marketside, the fourth strategic horse so to speak, and smallest format store Wal-Mart has ever created. [We aren't including Wal-Mart discount stores even though they sell a selection of groceries (but not fresh produce or meats) because they aren't part of the modern Wal-Mart food and grocery retailing strategy.]

Some observations

Marketside is a hybrid in some ways of the Wal-Mart Neighborhood Market in that Marketside offers a selection of basic food and grocery items with a focus on national brands. But Marketside's merchandising is qualitatively different than the Wal-Mart Neighborhood Market supermarket format in that its what we call "food-centric," meaning Marketside puts a major positioning focus on fresh foods, even calling the grocery products in the stores "ingredients" rather than groceries.

Marketside also is designed for convenient in-and-out shopping, yet puts a major emphasis on service, offering full-service checkout as well as including a full-service deli in the store. In the service regard Marketside is much more a small version of a modern Whole Foods Market than it is a format similar to Tesco's Fresh & Easy or Trader Joe's. Yet it's more than that because it also sells basic grocery items. Marketside also offers a strong, limited assortment of top organic brands.

These service and "food centric" themes carry over to Marketside's prepared foods offering. There's a kitchen with a wood burning, open hearth oven in-store, along with a small "eat-in" seating area for customer/diners.

Not all of the prepared foods sold in the stores are actually made in the store. However, the in-store kitchen is as much a perception (read fresh) creator as it is a functional attribute to Marketside's prepared foods offering.

Our observation from watching shoppers in all four stores, along with talking to many of them, is that the in-store kitchen, along with the eating area, serves as a sort of semiotic signal to shoppers signaling "fresh."

The Marketside in-store kitchen/service deli offers Wolfgang Puck-type artisanal pizzas which are cooked in the kitchen's wood burning oven, as well as whole chickens which are prepared in-store on a rotisserie, for example. This isn't anything radical -- upscale U.S independents have been doing both things for decades and many big chain supermarkets do it now -- but it is different in terms of what the major small-format U.S. players thus far -- Tesco's Fresh & Easy, Trader Joe's, and on the hard-discount end Sav-A-Lot and Aldi -- are doing with prepared foods. it also fits into the "food centric" positioning of Marketside.

There also are sushi chefs (a concept taken from Whole Foods and numerous other upscale food retailers) preparing sushi right in-store.

The Marketside stores' fresh produce departments were full, abundant and fresh-looking on our visits. They also feature, as we've been reporting they would for months, mostly bulk produce displayed farmers market style. Additionally, most of the pre-packaged produce is branded with well known names like Dole, Fresh Express and the like, as is the case in most U.S. supermarkets -- and in Wal-Mart's Supercenters and other food retailing format stores.

This in our analysis is a smart thing for Wal-Mart to do with the fresh produce category in the Marketside stores based on the overall "food-centric" gestalt of the stores and what Wal-Mart is trying to do positioning-wise with the format.

For example, although Trader Joe's does very well with its pre-packaged produce and Fresh & Easy has seen fresh produce category sales progressively increase with its nearly 100% pre-packaged produce program, it's our analysis American consumers still prefer having a majority of bulk produce to choose from in their food stores.

U.S consumers like value-added pre-packaged produce considerably -- salad kits and the like -- and also like and often prefer certain items pre-packaged -- berries, herbs, spinach and some others. But in the main the preference remains for bulk, both because it offers more choice in terms of item purchases (you can buy one cucumber or Italian squash rather than a package of three for example) but also because bulk, abundant produce displays appeal to American (especially in the west) consumers' concept of fresh. It's a cultural-socio--psychological characteristic. For example, if you've ever experienced how a Brit or Irishman reacts when served a pint of Guiness ice cold rather than room temperature in an American bar, you understand what we mean by a cultural-socio-pychological characteristic vis-a-vis bulk and pre-packaged fresh produce among the majority of American consumers.

Basic groceries

A significant aspect of the Marketside store format is that the stores offer a strong but limited assortment of basic shelf-stable food and grocery items -- packaged goods. The vast majority of these products are well-known U.S. national and regional brands -- Folgers Coffee, Best Foods Mayo, Heinz Tomato Ketchup and the like, rather than store brands or private label.

We think Wal-Mart did this for three primary reasons.

>It's the safe way (no retail chain pun intended) to start out. Last year Wal-Mart trademarked a couple new store brand names -- "Wild Thymes" and Field and Vine --" specifically with Marketside in mind. However, instead of using those store brand names to create a store brand mix of say about 65% store brand -to- about 35% national and regional brands like Fresh & Easy and Trader Joe's (more like 75% store brands 25% other for TJ's) using say these two new brands, Wal-Mart has opted to focus on the national and regional manufacturers' brands in the stores for now.

> The second reason we believe Wal-Mart put this focus on the national and regional manufacturer's brands in the packaged goods category (and it's related to the reason above in part) is because it allows Wal-Mart to further leverage it dominance as the number one retail customer (buyer) of manufacturers' brands in the U.S. There's tons of street and promotional money Wal-Mart can get from these vendors, which Fresh & Easy and TJ's for example can't because both chains carry so view a percentage of the "big brands," which will come in handy for its Marketside startup.

>Third (and related to one and two above), Wal-Mart knows based on the information in its extensive consumer data base that even though store brands are experiencing a significant gain in popularity in the U.S., American consumers still tend to prefer national and regional manufacturers' brands, as long as they are priced well. This is the case in Wal-Mart's Supercenters. With manufacturer coupon use by consumers at an all time high in the U.S. do to high food inflation and thus soaring retail prices, this offers another plus for the Marketside national brand strategy.

National brands: Price

With this in mind, we paid close attention to the retail prices of numerous national branded packaged goods items in the four Marketside stores we visited yesterday and today. We then visited a Wal-Mart Neighborhood Market supermarket and a Wal-Mart Supercenter, comparing the prices on some of the same items offered in Marketside and the two other Wal-Mart format stores.

What we found in the main is that the prices on the items in the Marketside and Wal-Mart Neighborhood Market supermarkets were about the same, exclusive of items on promotion at either format store. The Marketside prices were however higher on the same items at the Supercenter in the range of about 5 -to- 15%.

We also checked two supermarkets, a Safeway Store and a Bashas. Overall Marketside prices on national branded packaged goods items were in line with the everyday prices in those two stores, exclusive of advertised or in-store promotions.

Prices on like basic items at two Fresh & Easy stores (fresh & easy store brand items compared to like or similar national brand items) were lower than they are at the Marketside store by about 6 -to-12%, based on the 15 or so key items we compared. We aren't suggesting we took a market basket survey. By design and time constraints it was a small comparison of key grocery items.

Pricing the branded packaged goods items in the Marketside stores a bit higher than in the Supercenters makes sense for Wal-Mart to do. After all, as we've said, Marketside is merely one part of a current four-format (by the way there's going to be a new, fifth national food and grocery Wal-Mart format we will be reporting on soon. Hint: it isn't small-format) food and grocery retailing strategy. And of course, the stores just opened. Pricing will be adjusted of course, as it is by all retailers.

Analysis: The Marketside format and more

It's our analysis Wal-Mart has created its own, differentiated format with Marketside. It's neither a copycat of Trader Joe's or Tesco's Fresh & Easy (many similarities of course) and it certainly isn't a copycat of Sav-A-Lot or Aldi.

Marketside also has numerous similarities to the hybrid eastern USA convenience store/ grocery store chain Wawa, which we've written often about as being a small-format pioneer in the U.S. However it's far from a Wawa clone either.

Their also are similarities between Marketside and Giant Eagle, Inc.'s small-format hybrid grocery/convenience-oriented format Giant Eagle Express, which we've also written about in the past. But the qualitative differences in Marketside far outweigh the similarities.

The closest chain store small-format relatives to Marketside are Safeway's "The Market" format, which is currently represented by just one store, "the market by Vons" in Long Beach, California, and Supervalu, Inc.-owned Jewel-Osco supermarkets' "Urban Fresh by Jewel." The first store of the format recently opened in Chicago, Illinois.

Wal-Mart actually began development of Marketside (late 2006-early 2007) before Safeway (mid-2007) did with its "The Market" format or Supervalu's Jewel (early 2008) did its development of "Urban Fresh." Therefore it's fair to say Safeway's "The Market" and Jewel Osco's "Urban Fresh" are the younger cousins of Wal-Mart's Marketside even though each of those two chain's stores opened first.

Marketside also isn't a clone of Tesco's Fresh & Easy. There are obviously many similarities. Chief among them the basic premise of offering a combination of basic groceries and prepared foods, which Tesco certainly did first with Fresh & Easy. And there's the convenience-orientation of both stores. Again Fresh & Easy was first.

But there are enough differences in Wal-Mart's Marketside format for us to conclude the retailer has created its own small-format store, rather than merely reacting to Tesco's Fresh & Easy, Trader Joe's or others.

Of course, as we've reported for months now, the decision by Wal-Mart to open the first four Marketside stores in the Phoenix Metropolitan region -- each of the four stores being about 1 -to- 2 miles from Tesco Fresh & Easy stores -- is clearly a signal to Fresh & Easy, and inspired in part by Tesco's making the region on of its first three markets in the Western U.S. Southern California and Metro Las Vegas, Nevada being the other two regional markets for Fresh & Easy.

However, it all depends on which foot that particular retail shoe goes on, to use a footwear metaphor that perhaps lacks a bit of "sole."

For the last five -to- 10 years, Arizona, and particularly the Phoenix Metropolitan regional market, has been one of Wal-Mart's top-three market region focuses in the U.S. Therefore, when Tesco decided to make the Phoenix market one of its first three launch targets for Fresh & Easy, Wal-Mart took that in part as a direct competitive attack by the world's third largest retailer on its (the world's largest retailer) plans to become the dominant food retailer in the region, which it now is with about a 26% market share.

Therefore, perhaps in the corporate eyes of Wal-Mart it's merely returning the favor to Tesco by opening its first four Marketside stores in the region, which after all has been one of its top three focus markets for many years now. An industry analyst at a major investment banking firm told us a few years ago that if you said the word "Arizona" to Wal-Mart CEO Lee Scott at that time, he would almost break out in a song (Glen Campbell's "By the Time I Get to Phoenix" perhaps) and happy dance routine.

Wal-Mart also didn't appreciate that Tesco decided to name Fresh & Easy "Fresh & Easy Neighborhood Market," since it's used "Neighborhood Market" for its standalone Wal-Mart Neighborhood Market supermarkets for over a decade.

Tesco originally was going to call Fresh & Easy Neighborhood Market "Fresh & Easy Community Market." However, Tesco decided to change it to "Neighborhood Market" rather than "Community Market" after focus group research the retailer did showed consumers preferred the more intimate "Neighborhood" wording over the larger "Community" term. Ironically, although Wal-Mart doesn't use it in the store name, it is referring to Marketside in its marketing literature and on its website as "a small community food and grocery store."

{The term "community" has an interesting double meaning and usage in the U.S. On the one hand it has very positive connotations, suggesting people coming together. On the other hand it has negative connotations and is sometimes used in a derisive manner, especially in politics to suggest socialistic leanings. Notice how the Presidential campaign of Republican John McCain has been using the term "Community Organizer" regarding the time when Democratic candidate Barack Obama did that work for a living, for example. It's not meant as a positive.}

Marketside as Wal-Mart's utility infielder format

Since we started the analogy trend above with the footwear reference, we will use one more. That analogy is in our analysis we see Marketside as Wal-Mart's food and grocery format equivalent to the utility infielder on a professional baseball team.

In baseball the utility infielder is the one the team manager can call on to play more than one infield position at different times during a season.

For example, perhaps the team's starting second baseman pulls a muscle in May and is out for 4 weeks. The utility infielder steps in and takes his place at second base for a month.

Then in August the third baseman gets arrested for a DUI and the team owner suspends him from playing for three weeks. The utility guy takes his place at third base while he is on suspension.

Lastly, the team makes it to the playoffs in September, only to have the shortstop trip and fall in the locker room, breaking a leg which puts him out of commission for the entire playoffs. Who are you going to call to fill in? Yes, the same utility infielder who's been rather busy this season. He will cover shortstop for the playoffs and if they win for the World Series.

In a similar regard, since it is part of a multi-format food and grocery retailing strategy for Wal-Mart rather than a single-play format like Fresh & Easy is for Tesco in the U.S., the retailer can use Marketside selectively.

For example, as we've often said, small-format Marketside can be an urban strategy for places like the city of San Francisco and parts of the Bay Area (as well as Los Angeles) where political and community opposition has prevented Wal-Mart from opening anywhere the number of its mega-Supercenters as it's wanted to and tried to open in the respective regions. Also in general Marketside is a good urban strategy just because of the density of such cities and regions, along with space limitations and the often high real estate costs. New York, Chicago, Philadelphia, Washington D.C. -- the list of cities and urban regions in the U.S. is a long one for a Marketside urban retail location strategy.

Additionally, Marketside can be used as a selective suburban region strategy for suburbs in the U.S. that are either already fast-growing or are emerging in affluence and population, like Chandler, Gilbert, Mesa and Tempe, Arizona are. There are lots of those in the U.S. It's also great for suburbs where there's a high population of "foodies," like in Southern California, the Bay Area, New York, Boston, Seattle and many other regions.

Further, Wal-Mart can even use Marketside for what we call a "dual-format" or "co-located" store strategy in selective cases. This is something we've mentioned before in Fresh & Easy Buzz in relation to Marketside but haven't elaborated on much.

Let us explain. The United Supermarkets chain, which among the formats it operates includes an upscale banner called Market Street, has created a "mini" Market Street store called a "Taste of Market Street," which is located in the same parking lot (like two minute walk close) as its "third generation" Market Street supermarket at 98th & Quaker in Lubbock, Texas.

The" co-located" "mini" "Taste of Market Street" store is only 1,300 square feet. It's an upscale format hybrid grocery and convenience store. The "mini" Market Street offers a mix of basic grocery items, organic and specialty foods, some convenience store-style GM and non-foods items and ready-to-eat and ready-to-heat prepared foods items. It has gas pumps as well. It's a tiny version of its big brother supermarket across the way, with a few qualitative differences.

The premise of the "co-located" "Taste of Market Street" store format is to offer a convenient but yet upscale (along with some basics) convenient store as an adjunct to the chain's very nearby Market Street format supermarket. United Supermarkets plans to "co-locate" more of the little stores, which focus on prepared foods and the other items, in parking lots with its Market Street banner supermarkets.

Following the United Supermarkets Market Street and "Taste of Market Street" example and precedent, we can see Wal-Mart in selective cases "co-locating" a Marketside store close by an existing Supercenter. For example, in the front of the Supercenter or near the side. The parking lots are huge after all.

Even more compelling, we could see the retailer "co-locating" Marketside stores on a selective basis nearby existing Wal-Mart Discount Stores, which sell a limited assortment of dry grocery and perishable items in pantry departments but offer no fresh produce, meats, deli or prepared foods. The Marketside stores don't particualrly have to be in the same parking lot as the discount format stores even. They could be strategically located nearby.

In some cases "co-locating" Marketside stores with Sam's Club membership stores also could make good sense.

Additionally, who says all Marketside stores have to range from 15,000 -to- 20,000 square feet? The format is adaptable.

A "Mini Marketside" version 2.0 could be easily created, say a 3,000 -to- 10,000 square foot version, or something similar. The smaller version would put a much greater emphasis on prepared foods and far less on grocery items. After all, being "co-located" near a Supercenter, which offers a full selection of groceries, or a Wal-Mart Discount Store, which offers about as much in the grocery category as a regular Marketside does, would make it a bit redundant to have too many grocery skus in the store. Therefore, a greater emphasis on prepared foods in these "co-located" "Mini Marketside" would make perfect sense.

We call this the Marketside "co-location" strategy, which makes a third form of utility for the format along with the urban and suburban retail strategies we discussed above. The urban, suburban and "co-location" strategies demonstrate how versatile a small-format store can be when it's part of a retailer's multi-format portfolio.

Marketside and Fresh & Easy

Because Wal-Mart's Marketside has in our analysis enough qualitative format differences to make it distinct from Tesco's Fresh & Easy, along with the fact it is one part of a multi-format food and grocery retailing strategy for Wal-Mart, we don't believe the success of Fresh & Easy Neighborhood Market will be based significantly on how Marketside does, even if it performs beyond Wal-Mart's expectations wildly and the retailer grows the store count rapidly over the next couple years in California, Arizona and Nevada.

Rather, we believe Tesco Fresh & Easy's success or lack of success will be the result of the retailer's own making and performance in the main.

Certainly in those cases like the four Arizona cities where Marketside stores are so near Fresh & Easy units there will be competition. Therefore Marketside will be a factor in the success or failure of Fresh & Easy stores in those cases and situations.

However, for the reasons detailed above, overall we believe Fresh & Easy's success or failure rests with Tesco more so than anything Wal-Mart does or will do with Marketside.

This goes against what many are suggesting is the small-format battle and standoff between Wal-Mart and Tesco.

Don't get us wrong, we aren't suggesting Marketside and Fresh & Easy aren't going to be direct small-format store competitors in some cases and perhaps in many ways overall down the road. What we are saying is that Fresh & Easy's sucess depends primarily on Tesco and its execution and operations of the chain rather than it does on anything Wal-Mart does with Marketside. The same can be said for Marketside, although being one part of a multi-format strategy makes it different in both kind and degree.

We also have no idea if Marketside will be a success for Wal-Mart.

However what is a fact in our analysis is achieving success with Marketside for Wal-Mart is far easier than it is for Tesco with Fresh & Easy because Fresh & Easy is that single-format play for Tesco in the U.S., while Marketside is that small part of the overall multi-format strategy for Wal-Mart. Failure also would come at a much lower financial cost for Wal-Mart with Marketside, compared to the financial cost of failure for Tesco with Fresh & Easy based on the respective investments both companies have in each of the banners.

But as we often say the jury remains out on Tesco's Fresh & Easy in our analysis. We suggest those who count them out do so at their own peril, or at least potential embarrasement.

We also believe in many ways if Tesco's Fresh & Easy is a success, it will be a more pronounced one than if Wal-Mart is a success with Marketside.

Tesco's Fresh & Easy format and stores are what we call far more 2.0 version grocery stores than Wal-Mart's Marketside is. With its self-service checkout model, prohibitions against accepting paper personal checks and cashing payroll checks, its majority focus on store brands, near 100% pre-packaged produce, along with a few other things, Tesco's Fresh & Easy stores are a far more radical departure (the 2.0 grocery store title) from maintream food and grocery retailing formats in in the U.S.

Wal-Mart's Marketside on the other hand is as we said a format all to its own but is well within the mainstream of U.S. food and grocery retailing -- full-service checkout, paper checks are fine, more national brand items than store brand, for example.

Therefore, for Tesco with Fresh & Easy its: "Go big or go home." For Wal-Mart with Marketside it's more: "Go moderate or go back to the drawing board."

After all, as we've previously reported, Wal-Mart will open ten initial Marketside stores -- one more in the Phoenix region in the city of Peoria (to open this year) for a total of five and five (at least two will open this year) more in the San Diego region in Southern California -- then plans to evaluate the ten stores before opening further units. Although as we've reported Wal-Mart is in the process of obtaining other sites for new marketside stores, including in Southern and Northern California.

If for example Wal-Mart decided after evaluating the first ten units to shelve the Marketside format and closed the stores, the financial and reputational losses would be minimal. In fact, Wal-Mart likely could use what it learned from the prepared foods aspect of Marketside to improve the category in its Supercenters, Sam's Club stores and Neighborhood Market supermarkets, basically chalking up the Marketside development costs to corporate prepared foods category research and development spending.

Conversly, Tesco has opened 90 Fresh & Easy stores in 11 months, with plans to open at least 200 more in the next 18 months. That's what we mean by the "Go big or go home" proposition.

As a result, if Tesco is successful with its "Go big or go home" Fresh & Easy venture, along with the fact the stores are 2.0 version grocery markets, we believe it would deserve far more praise for doing so than say Wal-Mart would deserve for a similar success with Marketside. Think of it as the risk and reward principle. Of course, if Tesco fails, with Fresh & Easy it will get much more negative attention for doing so than Wal-Mart will if Marketside fails, we believe.

'What's it all about' - Markeside?

What we do believe though is Wal-Mart has created an original format for the company. It could have cut and pasted pieces of its Supercenters, Sams Club stores and Neighborhood Market supermarkets together and ended up with a Marketside.

Instead, based on our observation and analysis, Wal-Mart has created a format, Marketside, that is more than the sum of the parts of its other food and grocery retailing formats. It's a gestalt, the whole.

Marketside isnt' a Trader Joe's clone nor a Tesco Fresh & Easy clone.

It does borrows concepts from Whole Foods Market, Safeway's Lifestyle format and others.

It also borrows numerous merchandising concepts and practices from those upscale independent grocers (all which sell basic grcoeries as well as specialty items) in the San Francisco Bay Area we told you would be the case way back in January of this year and throughout the months after that in our stories about Wal-Mart's development of Marketside.

As you will recall, David Wild, Wal-Mart, Inc.'s former new business development chief who headed the Marketside format development team, had the team do much of its development work in the San Francisco Bay Area where Wild lived and worked out of Wal-Mart's offices there. And as we said then in our various pieces on Marketside in Fresh & Easy Buzz, Wild and the team got much of the inspiration for the Marketside format from a few pioneering Bay Area independents -- multi-store grocers such as Andronico's Markets, Mollie Stone, Draegers, Cosentinos, Lunardi's and a couple others, including some of Whole Foods Market's newer Bay Area Stores.

What Marketside has though that these pionering independents don't have is the buying power of the number one retailer (Wal-Mart) in the world, which also happens to now be the top retailer of food and groceries in the United States. That's a key competitive advantage Wal-Mart can use in many ways -- if used well -- to make Marketside whatever it wants it to be.

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

Wal-Mart Marketside, Arizona - Continuing Coverage & Analysis

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Prepared meals and side dishes:

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

Ready-to-Eat Sandwiches, burritos and wraps:

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

Grocery

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

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

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

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

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

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

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

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

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

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

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

Click here for map directions for each store location.

Resources:

Related stories from Fresh & Easy Buzz:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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