First 4,000 Sq. Ft. Fresh & Easy Neighborhood Market 'Express' Store Set to Open in Los Angeles' San Pedro Community This Year

The Fresh & Easy store in Danville, California (pictured above) opened March 2 has about 10,000 square-feet of selling space inside. The San Pedro "Express" unit in Los Angeles will have less than half as much. [Photo: Fresh & Easy Buzz.]

Breaking Buzz

We broke the news in this January 23, 2011 story [Tesco's Fresh & Easy Neighborhood Market Looking For Locations For New, Smaller-Format 4,000-to-5,000 Square-Foot Stores] that Tesco-owned Fresh & Easy was developing a 4,000-5,000 square-foot edited version of its about 10,000 (selling space) square-foot Fresh & Easy Neighborhood Market stores and looking for locations in Southern California to test the concept.

We've now discovered what will  likely be the first smaller-format Fresh & Easy store to open. That unit, in Southern California, will be a 4,000 square-foot store at Sixth and Gaffey Streets (here) in San Pedro, which is a community in and around Los Angeles' harbor area and home to the Port of Los Angeles.

Fresh & Easy Neighborhood Market currently plans to call the 4,000-5,000 square-foot stores Fresh & Easy Neighborhood Market "Express," according to our sources, to differentiate the smaller units from the flagship (10,000 square-foot) Fresh & Easy Neighborhood Market stores, which it currently has 176 of in California (127 units), Metro Las Vegas, Nevada (21 units) and metro Phoenix, Arizona (28 units)

As we reported in January of this year, the Fresh & Easy "Express" format stores will essentially be a smaller and edited version of the 10,000 square-foot Fresh & Easy grocery markets. They will also borrow a couple elements from the United Kingdom-based retailer's Tesco Express (about 2,500-3,000 square-feet) convenience-style stores, which it operates in the UK and elsewhere in Europe.

Fresh & Easy Neighborhood Market has applied to the State of California for an off-sale beer and wine license for the 4,000 square-foot store at the San Pedro location, something we've verified through California's Alcohol Beverage Control Department.

Additionally, a hearing regarding Fresh & Easy Neighborhood Market's application for the beer and wine license is scheduled for September 21 of this year, according to a City of Los Angeles notice we recently reviewed.

In our January story we reported that among the current potential smaller store sites Fresh & Easy Neighborhood Market is looking at in Southern California include at least three locations in Orange County, along with more than one site in Los Angeles and nearby Santa Monica.

According to our sources, assuming it doesn't run into any objections in obtaining the beer and wine license for the store along with incurring other types of delays, Fresh & Easy CEO Tim Mason and his senior staff would like to open the 4,000 square-foot "Express" store in San Pedro around mid-November of this year, although as we always say about new store opening dates at Tesco's Fresh & Easy, they are fluid and dynamic. If the store doesn't open this year, it will open in early 2012, our sources say.

We reported in this December 10, 2010 story [Fresh & Easy Neighborhood Market CEO Tim Mason Says 70 New Stores Possible in Los Angeles Area] that Tim Mason, who since then has become the deputy CEO of Tesco as well as CEO of its El Segundo (Southern) California-based Fresh & Easy Neighborhood Market chain, told members of the Valley Industry & Commerce Association of the San Fernando Valley at a meeting that Fresh & Easy was looking to open up to 70 new stores in the Los Angeles area.

"We've identified 70 opportunities [new store locations] in Los Angeles", Mason told a meeting of the Valley Industry & Commerce Association of the San Fernando Valley (VICA) on December 9, 2010. "If we can open those 70 opportunities, that will be 1,400 jobs, as well as 300 construction workers per-site. We’re eager to invest and we want to get on," he told the group.

Tesco's Fresh & Easy has opened three stores in Los Angeles County so far this year; in Long Beach, San Dimas and Walnut Park. A few additional new Fresh & Easy stores are set to open this year in Los Angeles County, including in Long Beach, which isn't far from San Pedro. In addition to Long Beach, Tesco has other Fresh & Easy stores near San Pedro, in Harbor City and Signal Hill., for example.

On July 12 of this month Mason said in a speech he gave at Town Hall Los Angeles that Fresh & Easy was still  looking at opening those 70 stores, saying as he did in December 2010 that part of the grocer's ability to do so is predicated on it not being bogged down with numerous local government regulations and objections by community and neighborhood groups.

Some of the 70 Los Angeles-area locations Fresh & Easy has identified are, like the San Pedro unit, in the 4,000-5,000 square-foot range and, like the store in San Pedro, will be "Express" units rather then flagship Fresh & Easy Neighborhood Market stores, although the 10,000 square-foot fresh food and grocery market remains Teco's primary format focus in the U.S.

Tesco's primary focus with Fresh & Easy will remain on the current 10,000 square-foot format stores, adding the smaller "Express" units as an adjunct or secondary format.

We'll have more on Fresh & Easy Neighborhood Market's "Express" smaller store initiative soon in Fresh & Easy Buzz. Stay tuned.

Tesco's Fresh & Easy Neighborhood Market Looking For Locations For New, Smaller-Format 4,000-to-5,000 Square-Foot Stores

Breaking Buzz

Tesco has developed a smaller-format version of its Fresh & Easy Neighborhood Market fresh food and grocery store - in the 4,000 square-foot -to- 5,000 square-foot range, compared to Fresh & Easy's 10,000 square-foot -to- 12,000 square-foot size - and is currently looking for potential locations for the smaller footprint stores in Southern California, where it's considering opening the first few of the smaller stores, and in Northern California, Fresh & Easy Buzz has learned.

The smaller stores are an addition to and not a replacement for the current 10,000 square-foot -to- 12,000 square-foot Fresh & Easy markets.

We don't have all the details on the new format as of yet.

However, based on what we've learned so far, the smaller format is essentially an edited version of the existing Fresh & Easy format.

The 4,000 square-foot -to- 5,000 square-foot stores would offer basically the same product category assortment as the 10,000 square-foot -to- 12,000 square-foot stores do but in a limited way, based on the fact the smaller stores will be about half the size as the existing Fresh & Easy markets are. Think of the smaller stores as essentially offering a limited assortment of the current Fresh & Easy store product assortment and mix, with perhaps a couple other minor tweaks here and there.

El Segundo, California-based Fresh & Easy Neighborhood Market's real estate team is currently looking at sites for the 4,000 square-foot -to- 5,000 square-foot stores primarily in Southern California and secondarily in Northern California.

Further, we're told both urban and suburban retail store sites are being looked at by Tesco's Fresh & Easy for the new, smaller stores, which could have the "Express" name attached top them.

For example, among the current potential smaller store sites the fresh food and grocery chain is looking at include at least three locations in Orange County, along with more than one site in Los Angeles and nearby Santa Monica.

According to our sources, one of the reasons Tesco's Fresh & Easy is considering opening the smaller stores is because Tesco's business model has restrictions on the amount of capital used to purchase and lease store locations. This is one reason, for example, there aren't 10,000 square-foot -to- 12,000 square-foot Fresh & Easy stores in Southern California cities like Santa Monica or regions like West Los Angeles, which have among the highest retail commercial real estate costs in Southern California.

In contrast, according to our sources, by being able to build or lease locations in the 4,000 square-foot -to- 5,000 square-foot range, Fresh & Easy Neighborhood Market can get into these desirable cities and neighborhoods because the rental and purchase costs for stores half the size of the existing Fresh & Easy markets in places like Santa Monica and West L.A., and elsewhere where retail real estate costs are similar, generally fit into the business model Tesco has set for Fresh & Easy when it comes to the amount of capital available for buying and leasing store locations.

Tesco's Fresh & Easy Neighborhood Market has been working for some time to come up with a way to adapt the current product offering (about 4,500-5,000 SKUs) in the 10,000 square-foot -to- 12,000 square-foot Fresh & Easy markets to a smaller format store, such as those we're reporting on in this piece, according to a source in a position to know such information.

The existing Fresh & Easy stores carry about 4,500-5,000 SKUs. Many independent grocery stores in the 4,000 square-foot -to- 5,000 square foot range carry 5,000 (and far more) SKUs.

Fresh & Easy Neighborhood Market could easily fit the same number of SKUs it currently offers in the 10,000 square-foot -to- 12,000 square-foot stores in the 4,000-5,000 square-foot units simply by narrowing the store aisles, using higher shelving, and reducing the amount of product facings it gives each item in the store. Sources tell us though that the smaller stores will offer a limited assortment of the current Fresh & Easy store mix rather than doing what we describe above.

The primary but not only reason Fresh & Easy Neighborhood Market has developed the smaller store format is because it wants to create more flexibility within Tesco's property capital allocation model, described earlier, which will then allow Fresh & Easy to open stores in these desired but so far unobtainable locations and still be within its property budget.

The smaller stores are Fresh & Easy's answer to this situation, according to the source, who says the first of these smaller stores should come on line this year in Southern California first, then later in Northern California.

Target to Have 'P-fresh' Fresh Food & Grocery Markets in 850 Stores By 2011 End; First Smaller Urban Store Set For Seattle in 2012

Target, the second-largest U.S. discount chain (after Walmart Stores, Inc.) hit a bulls-eye today with its "On Target," "All Target," media event, which it held at a location dear to the company's, and Minnesota Twins fans' hearts, in Minneapolis, Minnesota. Target is headquartered in the city.

The location: First up, the event was held at Target Field, the Minneapolis ballpark named after the retail chain and home to the Minnesota Twins baseball team. That's a pretty good start when it comes to branding an event. [Target Field has a high definition Web Cam, which allows you to view the ballpark. You can check it out here.]

Little details: Next, drinks and snacks at the event were from a nearby Target store or two. That's pretty good branding reinforcement.

See, "All Target," and "On Target" so far.

The bulls-eye: But most importantly, the retailer was on target - and even hit a bulls-eye because there was actual news announced (some was confirmation), along with a lot of good information offered, at the event. You can't say that about many, or even most, corporate media events.

Target's senior executive team was present today, nearly to a man and women. Presentations were given by CEO and chairman Gregg Steinhafel, CFO Doug Scovanner, John Griffith, executive vice president of property management, and a host of corporate merchandising executives, who talked in detail about merchandising and marketing plans, upcoming holiday promotions, a new advertising campaign, and more.

We're going to focus (below) on the two major announcements, and one minor, made today that most pertain to the food and grocery retailing aspects of Target's business and U.S. food and grocery retailing in general.

Target's Smaller-Format Urban Stores

Target confirmed and publicly announced today it's created a new urban prototype store format. The format ranges in size from 60,000-100,000 square-feet, with an average size of about 80,000 square-feet, according to John Griffith, Target's executive vice president of property management.

The average size of Target's discount format stores, which is the most prevalent of the chain's two current U.S. formats (the other being its combination grocery and general merchandise Super Target), ranges from 120,000-180,000 square-feet, according to Griffith. Target has about 1,500 discount stores in the U.S. and about 243 Super Target units, which are similar to a Walmart supercenter and offer a full selection of food and grocery products, along with everything Target sells in its discount stores.

Griffith said the first urban format Target store, which will be about 90,000 square-feet, will open in 2012, in Seattle, Washington. Initial plans, subject to change, are to have the smaller, urban stores in 10 U.S. cities to start. The cities include San Francisco, Los Angeles, New York, Chicago, Boston, Miami, and Baltimore. The urban format puts a premium on offering more essential types of products.

Target says it currently has about 150 full-sized discount stores located in numerous U.S. cities, including in a few big cities like Chicago and New York City, that have populations of over 100,000. Most of its stores are in suburban areas though.

That's where the smaller, urban store format comes in. The smaller stores will be used when size is limited, which is the case, for example, in most all of Manhattan, as well as in other dense urban cities like San Francisco and Seattle, and in urban places like downtown Los Angeles and many parts of Chicago, along with many other places in the U.S.

Like Walmart, which has now decided to "go smaller and go urban," in addition to being big, brawny and mostly suburban - See: July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store - Target has come around to realizing it's been missing a huge opportunity, and the added sales that come with it, by not having stores in most of America's most populated urban regions and cities. That's due largely to Target's (and Walmart's) strategy to date - instead of having multiple store sizes and formats, designed to fit various regions, it's relied on a one-store-size-fits-all approach, which has resulted in being locked out, for the most part, of these highly populated but space-limited cities. Target's Griffith said today the retailer now plans to make the store fit the site rather than making the site fit the store.

Target, like Walmart, is now hungry for those urban shoppers' dollars.

In July of this year, Target submitted a proposal to the city for its first store in San Francisco. That store, which would be a full-sized Target discount store, is planned to go into two vacant big box buildings, a former Mervyn's department (before that a Sears) store and a former Good Guys electronics store in a shopping center at Masonic Avenue and Geary Boulevard in the city's Richmond District, near the Laurel Heights neighborhood. The center is also near the University of San Francisco's main campus. Target would renovate the stores, which are next to each other, completely, creating one big store.

Target is already making plans for a second store in San Francisco. That store, which would be one of the new, smaller format stores, would be in the popular Metreon Shopping Center, in the city's South of Market neighborhood. The Metreon is a 350,000-plus square-foot, four-level combination shopping, technology and entertainment center. See here.

The smaller-format urban stores will include Target's 'P-fresh' fresh food and grocery sections, which it's been aggressively putting in its discount stores, although the mini-markets could be scaled down on a store-by-store basis from the current 10,000-12,000 square-feet size, based on the smaller stores' overall square-footage.
'P-fresh' Food & Grocery Markets in 850 Stores By 2011 End

The second bit of news Target announced today is that it will have 'P-fresh' fresh food and grocery store-within-a-store markets (pictured above) in 850 of its Target discount stores by the end of 2011. The 'P-fresh' sections average 10,000-12,000 square-feet. Troy Risch, Target's executive vice president for stores, said 'P-fresh' will be in 450 discount stores by the end of this month, which means the retailer plans to add the fresh food and grocery sections to 400 stores between October 2010 and the end of 2011.

To put that number into perspective, Target started out in mid-2009 saying it planned to test the 'P-fresh' grocery sections in about 100 stores. At the end of 2009, saying it was pleased with the initial test, the retailer said it would add the mini-fresh food and grocery markets to 350 discount stores this year. The 850 number means by the end of next year, Target will be offering shoppers the fresh food and grocery option in over half of its current 1,500 discount stores.

Target has been aggressively installing the 'P-fresh' food markets in its discount stores since first announcing its plans to do so in mid-2009. In fact, Fresh & Easy Buzz is currently working on a research project in which we are identifying all of the 'P-fresh' sections added to Target stores in California, Nevada and Arizona - the three states where Tesco has its 168 small-format (about 10,000 square-feet) Fresh & Easy Neighborhood Market fresh food and grocery stores. Thus far into our research, the numbers are dramatic.

For example, see how many 'P-fresh' markets Target has added to its discount stores in San Jose, California over the last 12-15 months. It's mentioned in this story - September 22, 2010: California Dreamin': Fresh & Easy Neighborhood Market, Whole Foods Market Combined Open a Total of Four Stores Today in California - we published on Wednesday.

What's powerful about the 'P-fresh' units for Target, compared to say what Tesco is doing with Fresh & Easy - both are small-format and have numerous similarities of format - is that Target will have 850 units, and can ultimately have 1,500 - and more as it opens new discount format stores - 'P-fresh' in-store markets by the end of next year, without having had to construct one new store building or acquire one vacant building to house the fresh food and grocery markets in.

Take California, for example. Target has 245 discount stores in the Golden State at present, plus a handful of its Super Target combination supermarket/general merchandise stores.

Tesco has 107 of its 168 Fresh & Easy stores in California.

This means Target, if it chooses to put 'P-fresh' fresh food and grocery sections in all of its California stores by the end of 2011, would have double the number of stores as Tesco's Fresh & Easy has, assuming Tesco opens 20 stores in California next year, without having had to build a single new store.

This is powerful and cost effective in food and grocery retailing. The capital costs for Target are minimal by being able to put the 'P-fresh' units into existing stores. Plus the grocery sections draw shoppers who buy the other goods sold in the stores. Even if Tesco were to open 50 Fresh & Easy stores in California in 2011, from store-count and cost-effective perspectives, Target has a huge advantage.

More Grocery, Health & Beauty and Body Care SKUs

Target also said today it's been added more health and beauty and body care items, including private brand, in its stores, something which has been evident in the stores for a few months.

Target has also been increasing its packaged food and grocery, and perishable, SKU count over the last nine months in discount stores without 'P-fresh' sections.

We will be offering an analysis piece on Target's expanded food and grocery retailing efforts - its expansion of "P-fresh," along with how it fits with the retailer's new smaller store urban plans. Stay tuned.

Related Stories:

May 11, 2009: Target on Tap to Put Mini-Grocery and Fresh Foods Markets Into 100 Target Discount Stores This Year; Many More Likely to Come in 2010

November 19, 2009: Competitor News: Target Corp. Planning to Dramatically Expand Food and Grocery Offerings in All of its U.S. Target Discount Format Stores

July 9, 2008: Southern California Market Report: Five Supermarkets; A New Fresh & Easy, Wal-Mart and Super Target Will All Compete in Hesperia Food Retailing Rodeo

July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store

September 23, 2010: Revisting 'marketside by Walmart': Format As We Know it On the Way Out But Some or All Of the Four Stores Could Be Converted

About Today's Walmart Stores, Inc. Smaller Stores Media Frenzy: We Scooped it On July 6, 2010

Fresh & Easy Buzz

July 6, 2010:
Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store [Additional regions and cities mentioned in our piece.]

Others

Financial Times
September 19, 2010:
Walmart lines up sites for smaller stores

Wall Street Journal
September 19, 2010:
Wal-Mart Scouting Sites For Smaller US Stores - Report

Associated Press
September 20, 2010:
Wal-Mart to make a big push into urban markets

San Francisco Chronicle
September 21, 2010
Walmart sets sights on San Francisco

Additional Publications - click here

In the coming days, Fresh & Easy Buzz will have more to come about Walmart's smaller-format, smaller-store plans, leading up to the retailer's plans to offer more details in October at its anlaysts' meeting.

Walmart in Fresh & Easy Buzz: Suggested Reading/Linkage:

marketside by Walmart, Wal-Mart, Wal-Mart format innovation, Wal-Mart hybrid supercenters, Wal-Mart Marketside, Wal-Mart Modesto CA, Wal-Mart Supercenter, Wal-Mart's new Supercenter prototype, Walmart, marketside store brand, brand marketside, Walmart Stores Inc. Use the 'Older Posts' 'Newer Posts' links at the bottom of the linked pages for more pages.

Shout it Out Loud Joe: H-E-B Opening Second Joe V's Smart Shop Discount Grocery Store in Houston, Texas

H-E-B's Joe V's Smart Shop, at 12035 Antoine Drive, Houston, Texas. The Joe V's format is everyday-low-price focused, limited assortment and fairly no-frills. The flagship store, which opened on May 5 of this year, is about 50,000 square-feet and stocks approximately 9,000 SKUs. It offers all the traditional supermarket departments, from meat, produce and deli, to perishables, grocery and non-foods. [Photo credit: Vicky Pink for Houston Style Magazine. Photo courtesy of Houston Style Magazine. The photograph was taken on may 26, 2010.]

On August 26, 2010 we wrote and published this piece - What's Up With Joe? Texas Grocer H-E-B Planning 'Major Announcement' About its Joe V's Smart Shop Soon - about a 'major announcement' we learned Texas food and grocery retailer H-E-B was soon to make about its start up Joe V's Smart Shop discount grocery chain.

Currently there's one Joe V's store, located at 12035 Antoine Drive in Houston, Texas, which opened on May 5, 2010. But that's about to change.

In the August 26 piece linked above we offered five predictions about what the major announcement might be. The five predictions, in rank order are:

1. H-E-B will announce it plans to open a second Joe V's Smart Shop store in the Houston, Texas region.

2. H-E-B will announce it's settled the trademark law suit filed by grocer Trader Joe's - in which TJ's argues the Joe V's Smart Shop name is an infringement on the Trader Joe's name, asking a court to order H-E-B to cease from using the Joe V's name for the store - and therefore can continue using the Joe V's Smart Shop name for the chain.

[See: Say it Ain't So Joe: Trader Joe's Tells H-E-B's Joe V's Smart Shop to Change its Name. The case is still in court. The court has permitted H-E-B to continue using the Joe V's Smart Shop name until the case is settled or a decision ordered by the court.]

3. H-E-B will announce it will change the name from Joe' V's Smart Shop to something else. See number two.

4. H-E-B will announce it plans to open a second Joe V's Smart Shop store in Texas, but outside of the Houston Metro region.

5. Jose (Joe) Villarreal will announce (perhaps at a "Major" press conference) that he is indeed the "Joe" behind the Joe V's Smart Shop name. An executive of Trader Joe's, attending the press conference, will shout: "Say it ain't so - Joe," over and over again, following Joe Villarreal's announcement.

We suggest you read the full August 26 piece here.

A look at a portion of the produce department in the flagship Joe V's Smart Shop store, at 12035 Antoine Drive, Houston, Texas. [Photo credit: Vicky Pink for Houston Style Magazine. Photo courtesy of Houston Style Magazine. The photograph was taken on May 26, 2010.]

The 'major announcement'

Drum roll please... We've now learned what H-E-B's major announcement about its Joe V's Smart Shop is - and we got it right in prediction number one.

H-E-B plans to open a second Joe V's Smart Shop discount grocery store in Houston, Texas.

Joe V's unit number two will be on Wallisville and Uvalde Road in East Houston. H-E-B's Joe V's Smart Shop has confirmed the 'major announcement' for Fresh & Easy Buzz.

The grocer plans to open the East Houston Joe V's Smart Shop unit before the end of this year.

Shout it out loud...Joe

It appears Fresh & Easy Buzz not only is the only publication, including the local Houston newspapers, we can find, based on doing a number of different google keyword searches moments ago, that reported on Joe V's upcoming announcement in our August 26 piece, we also to appear to be the first publication to report on what that 'major announcement' is.

Prior to publishing this piece we conducted Google searches under 'Joe V's Smart Shop,' 'Joe V's', 'H-E-B,' 'HEB,' 'H.E. Butt Grocery Company,' and a couple others, and can't find any reports of the announcement, including in the local Houston, Texas online newspaper sites, or in the major mainstream supermarket industry trade publications. We may have missed such reports. If you find a story published prior to today - Sunday, September 12, at 11:01 am - about H-E-B's second Joe V's Smart Shop store, please let us know using the comments box at the end of this piece.

We don't care all that much about being the first (or even the only) publication we can find to report this significant news.

Instead, we're just surprised to be unable to find any other coverage of the second store of a new format- Joe V's Smart Shop - from one of America's largest family-owned - over $15 billion in annual sales, over 300 stores in Texas and Mexico, and about 75,000 employees - and best merchandised-operated food and grocery chains, San Antonio, Texas-based H-E-B.

H-E-B , which is celebrating its 105th birthday this year, was founded in 1905 by Florence Butt, who opened a small grocery market called C.C. Butt Grocery Store in the Texas Hill Country town of Kerrville. In the 1920's, Florence Butt's youngest son, Howard, started to grow the company and store-count. Later on the company name was changed to the Butt Grocery Company and then to H.E. Butt Grocery Company, as in Howard Butt. The family has used the name H-E-B since the 1940's, however.

105 years, 300-plus more stores, numerous banners and formats, multiple private brands, and about $15-plus billion in annual sales later, Texas born, bred and based H-E-B is still owned by the Butt family, which continues to grow the food and grocery retailing company not only in size but in multiple formats - ranging from the flagship H-E-B banner and the very successful upscale Central Market, to its newest, the price-impact Joe V's Smart Shop chain, the second store of which opens in East Houston later this year.

Related Stories:

August 26, 2010: What's Up With Joe? Texas Grocer H-E-B Planning 'Major Announcement' About its Joe V's Smart Shop Soon

May 5, 2010: H-E-B Opens Joe V's Smart Shop Discount Prototype Grocery Store in Houston TX ... But Where's Joe?

May 6, 2010: Say it Ain't So Joe: Trader Joe's Tells H-E-B's Joe V's Smart Shop to Change its Name

May 20, 2010: H-E-B Tweaking Product Assortment at Joe V's Smart Shop Discount Grocery Store in Texas Opened May 5

May 20, 2010: 'The Insider': Welcome to Discountopia USA

Small-Format Butcher Shop-Grocer 'The Meat House' Has Big Growth Plans For Southern California

Inside The Meat House's Costa Mesa, California store, which opened in January 2010. Click on the photo to enlarge it. You can view additional photographs of the Costa Mesa store here.

Southern California Market Region Report: Format Bending

A fast-growing, small-format (the stores average 3,500-4,500 square-feet) butcher shop and grocer new to the Western U.S. and California has plans to open numerous stores in Southern California over the next few years, along with elsewhere in the U.S., Fresh & Easy Buzz has learned.

The grocer is The Meat House, which opened its first store in Portsmouth, New Hampshire in 2003, just a few months after it was founded in 2002 by partners Justin Rosberg, a former Bear Stearns investment banker, and Jason Parent, a restaurant industry veteran. The retailer is headquartered in Portsmouth. Rosenberg holds the title of CEO. Parent is president.

The Meat House, which currently has 25 stores in eight states - New Hampshire (8 units), Massachusetts (7), Maine (4), North Carolina (2), New York (1), Connecticut (1), Texas (1) and Southern California (1) - opened its first California store in Costa Mesa in January of this year.

The retailer operates on a mixed corporate ownership-franchise basis, although it doesn't grant any single-store franchises. Instead, any franchise holder excepted must open a minimum of four stores in a given area. The Costa Mesa store (at 103 East 17th Street) is one of those franchise operations, owned by partners Brian Smith and Robert Hagopian. Both live in nearby Laguna Beach.

About 60% of the current 26 stores are corporate-owned. The food retailer only created its franchise option in February of this year. It says it currently has territory agreements with franchise partners for at least 125 new stores in 11 states.

Two new Southern California stores - with more to come

The Meat House is preparing to open two more stores in Southern California - in Mission Viejo and in Brea, our source at the company tells us. Plans are to open both stores before the end of this year.

Additionally, numerous other The Meat House stores are on the drawing board for Southern California over the next few years.

The full-service butcher shop in a typical 3,500-4,500 square-foot The Meat House store. The full-service counters generally have more than one butcher working behind them regularly.

More than a butcher shop: A small-format grocer

Like the name says, The primary merchandising focus of The Meat House is fresh meat and poultry, merchandised in full-service meat cases similar to the old-fashion neighborhood butcher shop, which the format is modeled after, although with a modern day twist or two. The retailer describes the format as "a modern revival of the neighborhood butcher – only better."

In addition to fresh meats and poultry, the markets offers a deli featuring fresh-prepared foods and other items, a specialty cheese section, fresh produce, fresh baked goods, a wine and craft beer selection, and an assortment of shelf-stable specialty and gourmet grocery products in the center of the store.

In its specialty foods and grocery section, the retailer puts an emphasis on locally-produced items. For example, many locally-produced products offered in the Costa Mesa store aren't offered in the New Hampshire or other stores. Instead, a selection of grocery items locally-produced in those regions are offered in those stores. Localization.

Trends

The Meat House has a few current trends in its favor. One is the currently hot trend towards butchers and butchering, in which many consumers are preferring to buy their meat un-packaged from an "old fashion" butcher shop rather than buying pre-packaged meat at the supermarket.

Fueling this trend are both food safety-oriented and local/neighborhood concepts. The idea of knowing your butcher, and where he gets his meat, is appealing to many shoppers today, as it was before pre-packaged meat became the merchandising norm in the U.S. More and more U.S. supermarkets, for example, are offering full-service, butcher-style meat cases, along with pre-packaged self-service cases.

The face-to-face interaction with the butcher also is part of the appeal for these "back-to-the-future" grocery shoppers. The Meat House puts a high premium on this type of customer - or butcher-to-customer - service in its small stores.

Many consumers have also become interested in do-it-yourself (DIY) butchering. These folks range from the hardcore, those who are taking classes and learning how to butcher a whole animal, to those who just want to purchase primal cuts from the butcher and do the finishing work at home, which also can be a money-saver for consumers.

Time magazine captured the growing trend in a piece earlier this year, 'DIY Butchering,' which you can read here.

Numerous forecasters have named the DIY butchering trend as one of the top five food trends for 2010, in fact. Fresh & Easy Buzz has followed the trend closely - and agrees it's extremely popular today - and appears to be growing, as part of the local food and personal food knowlege movements.

The writings of Michael Pollan, including his best-selling book, 'The Omnivore's Dilemma,' have also helped fuel the trend of consumers wanting to know more about where their meat comes from and wanting to have a hand in the process, even if it only means having a regular butcher to interact with over the counter on a regular basis.

The Meat House offers various in-store classes and other events geared towards informing shoppers about where it procures its meat, how customers can purchase better quality meat, and how they can prepare it. The goal is to forge a relationship between shoppers and The Meat House's store employees, especially the butchers, something the independent neighborhood butcher and grocer have, and generally still are, the best at doing.

It will be interesting to observe how well The Meat House can do that as a chain, particularly as it grows it number of stores. The franchise ownership aspect is an attempt to enhance that local aspect. The company's long-term goal is to have only about 20% of the total number of stores corporate-owned, with the 80% eventually being owned by locally-based franchisees.

The Meat House, like Tesco's Fresh & Easy Neighborhood Market and many other grocers and other types of retailers, also is counting on the growing ready-to-eat and ready-to-heat fresh-prepared foods trend to aid it in its growth and success. The stores offer fresh-prepared foods of various types and also offer all sorts of value-added items and concepts - marinades, rubs, simple recipes - to make preparing the meats they offer easy to do at home.

By offering prepared foods, fresh produce, bakery, wine and the other departments and product selections in the small stores, which range so far from downtown storefront locations to suburban centers, the grocer also is attempting to cater to more than just the meat needs of shoppers. This is essential, in fact, because by offering a variety of food products complementary to meat - bread, produce, wine, ect. - in the stores, the retailer has a better chance of increasing the average market basket size purchases by customers, which is a key indicator (higher the better) for the success of any food and grocery retailer regardless of store size, than it would by merely offering meats and poultry alone.

The Meat House stores, which the company like to call a "modern revival" of the corner butcher shop, could also tap into another growing trend in the U.S. - nostalgia - which can be described as a yearning for something from the past. Many shoppers, including those who are to young to have ever experienced the corner meat market unless they grew up in a traditional U.S. big city like New York, Philadelphia, Chicago or San Francisco, for example, like the idea of going "back-to-the-future" for shopping, hence in part the growing popularity (along with cost) of flea markets, second hand stores, farmers markets, and even corner mom & pop grocery stores. We suspect The Meat Market would like to see such a trend blossom.

Costa Mesa 'The Meat House' Reviews

In the eight months since it's been open, the Costa Mesa, California The Meat House unit has received 34 reviews on the popular Yelp.com review site. All 34 of the review are positive - and many of the customer reviews are darn right gushing. You can view the reviews here.

There's a lot of vacant commercial space in Southern California. And at just 3,500 -to- 4,500 square-feet, the start up costs of opening a The Meat House store are relatively low.

The stores also, because of their format and size, can be located in urban and suburban areas. As such, Southern California appears to present a good opportunity for the retailer's growth plans. The region's strong food culture also could be a good match for The Meat House's offering.

After the two new stores - Mission Viejo and Brea - open, the fast-growing butcher and grocer has plans to open additional units in the region in 2011. The Meat House is also looking to Northern California for stores in the not to distant future, along with additional states beyond the current eight. The competition is strong - but the butcher shop-food retailer may have found a niche it can continue to fine tune and localize for success?

Smart & Final's First California SmartCo Foods Store to Be in Southern CA City of Lake Forest

Pictured above is the existing Smart & Final non-membership warehouse store and the vacant Office Depot store building (to the right) next door, in the Twin Peaks Plaza shopping center in Lake Forest, (Southern) California. Smart & Final bought the Office Depot building. It's combining the two spaces into one in a major renovation. The combined space will create an about 41,000 square-foot SmartCo Foods store. [Photo credit: City of Lake Forest, California.]

Southern California Market Region Report

Fresh & Easy Buzz has been following and reporting on the launch by Southern California-based food and grocery retailer Smart & Final of its new-format SmartCo Foods stores in the Metropolitan Denver, Colorado region closely. Smart & Final has opened five SmartCo Foods stores so far in Metro Denver.

For example, read our series of stories linked below:

>Tuesday, August 17, 2010: And Then There Were Five: Smart & Final Completes its Mission of Opening Five SmartCo Foods Stores in Metro Denver Before Summer Ends

>July 14, 2010: Smart & Final Opens Second SmartCo Foods Store Today in Metro Denver, Colorado

>June 28, 2010: Smart & Final to Open its New Format SmartCo Foods Stores in California and Arizona

>June 29, 2010: A Pictorial Look Inside Smart & Final's First SmartCo Foods Store in Denver, Colorado

Smart & Final says it plans to open a total of 20-25 of the 41,000 -to- 60,000 square-foot hybrid supermarket/non-membership warehouse/farmers market-style markets in the Denver region over the next few years.

In the June 28, 2010 story linked above, we reported that Smart & Final plans to open SmartCo Foods stores in California and Arizona this year, as well as in Metro Denver.

The first California SmartCo Foods store will be in the south Orange County city of Lake Forest, in Southern California, in the Twin Peaks Plaza shopping center at 23601-23641 El Toro Road.

The store is going into an existing Smart & Final non-membership club store the retailer is renovating, along with a vacant Office Depot big box building next door, which Smart & Final has acquired. When the renovation is completed, the combined two spaces will create a SmartCo Foods store of about 41,000 square-feet, which is similar in size to the smallest of the five stores currently open in Metro Denver. Those five stores are in former Albertsons supermarket buildings.

Smart & Final plans to open the SmartCo Foods store before the end of this year. However, depending on the pace of the current major renovation, it may not open until early 2011.

Lake Forest has a population of about 74,000. According to the City of Lake Forest the city's demographics break down like this: White 49.28%; Hispanic 22.53%; Asian 11.56%;
Black 1.96%; and Other 14%.

The city has a high median household income of $94,107. The popular and affluent planned communities of Foothill Ranch and Portola Hills are part of the city of Lake Forest.

As we've said in the pieces linked near the top, the addition of the SmartCo format and banner to the Southern California market will add yet another layer of competition to what's an already very competitive region when it comes to food and grocery retailing. Additionally, Orange County, which has been a major focus for Tesco's Fresh & Easy Neighborhood Market in Southern California, is one of the most grocery-stored and competitive sub regions within Southern California.

Smart & Final is currently looking for additional locations for its SmartCo Foods stores in Orange County and elsewhere in Southern California.

Additionally, as we've previously reported, plans are to open SmartCo stores in Metropolitan Phoenix, Arizona, which is one of Fresh & Easy Neighborhood Market's four market regions, with its current 159 stores. The other regions are: Southern California; California's Central Valley; and Metro Las Vegas, Nevada.

Tesco plans to open its first Fresh & Easy stores in Northern California early next year. [Read - August 21, 2010: April 2010 Prediction Correct: February 2011 Target to Open First Eight Fresh & Easy Neighborhood Market Stores in Northern California and Tesco Will Open its First Eight Fresh & Easy Neighborhood Market Stores in Northern California in 'Early 2011']

Smart & Final is also looking for sites in Northern California for its SmartCo Foods stores. In addition, Smart & Final-owned Henry's Farmers Market opened its first store in Northern California on August 18 in Elk Grove, which is near Sacramento. [See - August 17, 2010: Henry's Farmers Market 'Beats' Fresh & Easy Neighborhood Market to Northern California Despite Multi-Year Head Start; Elk Grove Store Opens Tomorrow

What's Up With Joe? Texas Grocer H-E-B Planning 'Major Announcement' About its Joe V's Smart Shop Soon

New Format Development in the 21rst Century

We've been closely following Texas-based grocer H-E-B's Joe V's Smart Shop price-focused discount grocery store in Houston, Texas (12035 Antoine Drive) since before it opened in May of this year for four main reasons. Those reasons are:

H-E-B is among a handful of the best food and grocery retailers in the United States - and globally. Number two follows from that premise, which is that anything new H-E-B does - particularly when it's a brand new discount grocery store format like Joe V's, discount grocery retailing being something that H-E-B doesn't specialize in - warrants close following by any serious food and grocery retailing analyst and publication. Third: New formats matter. Innovation matters. And lastly, we plain just love new formats.

Below are our past stories about H-E-B's Joe V's Smart Shop:

>May 5, 2010: H-E-B Opens Joe V's Smart Shop Discount Prototype Grocery Store in Houston TX ... But Where's Joe?

>May 6, 2010: Say it Ain't So Joe: Trader Joe's Tells H-E-B's Joe V's Smart Shop to Change its Name

>May 20, 2010: H-E-B Tweaking Product Assortment at Joe V's Smart Shop Discount Grocery Store in Texas Opened May 5

>May 20, 2010: 'The Insider': Welcome to Discountopia USA

Inside Joe V's Smart Shop in Houston Texas: Joe V's has all of the traditional supermarket grocery and fresh foods departments. The format features a limited-item selection. The focus is on everyday low price, although H-E-B has a weekly advertising circular for Joe V's, offering specials. The Joe V's Smart Shop format also features price-focused in-and-out deals on non-foods items, like the comforters pictured above.

As you can see, it's been three months since we last wrote about Joe V's Smart Shop. But we've been following the store's development closely - perhaps closer than any other food and grocery retailing publication out there.

And something 'Big' is is about to happen in Joe V's land, deep in the heart of Texas.

That something big is a soon to be made "Major Announcement" by H-E-B about its Joe V's Smart Shop, according to Joe V's general manager Jose (Joe) Villarreal, who might or might not be the "Joe" behind the name of the start up, price-focused grocery chain's name? Or as he likes to day about Joe V's: "Are you ready to deliver the best Price Format Store in Texas"

Mr. Villarreal is sworn to secrecy in terms of publicly declaring he is that Joe. Therefore readers, you'll have to make your own determination on the judgement for now.

Jose (Joe) Villarreal is also sworn to secrecy on the content of what he says will be this upcoming "Major Announcement." But he says it will be "Big" - and that it's coming soon.

Unable to pry anything further out of the man outside of resorting to water boarding, Fresh & Easy Buzz has decided to attempt to predict what the upcoming "Major Announcement" from H-E-B about its Joe V's Smart Shop just might be. Our five predictions go from most likely to least likely below:

1. H-E-B will announce it plans to open a second Joe V's Smart Shop store in the Houston, Texas region.

2. H-E-B will announce it's settled the trademark law suit filed by grocer Trader Joe's - in which TJ's argues the Joe V's Smart Shop name is an infringement on the Trader Joe's name, asking a court to order H-E-B to cease from using the Joe V's name for the store - and therefore can continue using the Joe V's Smart Shop name for the chain.

See: Say it Ain't So Joe: Trader Joe's Tells H-E-B's Joe V's Smart Shop to Change its Name. The case is still in court. The court has permitted H-E-B to continue using the Joe V's Smart Shop name until the case is settled or a decision ordered by the court.

3. H-E-B will announce it will change the name from Joe' V's Smart Shop to something else. See number two.

4. H-E-B will announce it plans to open a second Joe V's Smart Shop store in Texas, but outside of the Houston Metro region.

5. Jose (Joe) Villarreal will announce (perhaps at a "Major" press conference) that he is indeed the "Joe" behind the Joe V's Smart Shop name. An executive of Trader Joe's, attending the press conference, will shout: "Say it ain't so - Joe," over and over again, following Joe Villarreal's announcement.

Since the announcement is coming soon, we encourage the many food and grocery retailing experts and keen industry observers who read Fresh & Easy Buzz to chime in using the comments link below.

Which one of our predictions do you think is correct? None? What's your prediction?

H-E-B Tweaking Product Assortment at Joe V's Smart Shop Discount Grocery Store in Texas Opened May 5

Discount Format Food & Grocery Retailing

A mere two weeks after opening its first Joe V's Smart Shop discount grocery store in Houston, Texas on May 5, San Antonio, Texas-based grocery chain H-E-B this week is giving the new store's product assortment a bit of a tweaking, Fresh & Easy Buzz has learned.

The product assortment adjustment started on Wednesday (May 19), and is based on feedback and other inputs the grocer has gleaned over the two weeks Joe V's has been open, according to Joe Villarreal, the general manager of H-E-B's Joe V's Smart Shop division.

We aren't surprised family-owned H-E-B would be doing a product assortment adjustment only two weeks after the discount format grocery store opened. H-E-B is among the most fastidious and best retail grocery merchandisers in the U.S. It's a good - and smart - sign at the smart shop.

Additionally, since Joe V's Smart Shop is a new format for H-E-B, and it's first price-focused discount grocery format to boot, it makes good and logical sense in our analysis for the grocer to tweak the store's product assortment so early in the game, and continue doing so regularly.

Since Joe V's is a limited assortment discount format - the store carries about 9,000 SKUs -regular product assortment adjustment is even more important for H-E-B, or for any other grocery chain that operates a limited assortment format, because with a limited assortment a retailer has to obtain the maximum sales bang from far fewer SKUs than a typical supermarket carries. For example, the average U.S. supermarket, which averages 46,755 square-feet, carries 46,852 SKUs, according to the Food Marketing Insitute's research. FMI is the leading trade organization for the U.S. food and grocery retailing industry.

That H-E-B, which was founded 105-years ago and does $15 billion in annual sales in about 300 stores in Texas and Mexico, is adjusting the Joe's V's Smart Shop product assortment so early is a sign the grocer understands the importance of item optimization when it comes to operating a limited assortment discount grocery format.

Fresh & Easy Buzz has heard from a few readers who've visited the Joe V's Smart Shop store in Houston in the two weeks it's been open. All of the readers told us the store was extremely busy during their visits.

Big reusable grocery bag giveaway at Joe V's

H-E-B is also taking an aggressive approach with Joe V's. Smart Shop in the area of reusable shopping bags.

During the store's first eight opening weeks, which started on May 5, the grocer is giving each shopper who makes a single item qualifying purchase four free reusable grocery bags, according to general manager Joe Villarreal. (Here's an example of a qualifying item.) The purpose of this aggressive approach is to equip as many customers as possible with reusable bags at no charge, so they can bring the bags with them to the store on return trips, thereby dramatically reducing the amount of single-use plastic carrier bags Joe V's uses on an ongoing basis.

H-E-B's Joe V's smart shop division initially considered not offering single-use plastic carrier bags at the store at all, according to Joe Villarreal. However, it later decided to offer them, but to give out the reusable bags for free as a way to encourage regular use of the bags by customers.

The free reusable bag promotion also fits into what is a key promotional feature at H-E-B's Joe V's Smart Shop, which is what the grocer calls its FREEBIE! And the tagline is: "There's always something free at Joe V's."

And yes, Jose Villarreal, or Joe which he uses in e-mail correspondence, is the person and name, at least inspirationally, behind the Joe V's Smart Shop format and store name, although neither H-E-B or Mr. Villarreal has stated Joe V's Smart Shop is directly named after its general manager, Joe Villarreal.

Related stories from Fresh & Easy Buzz:

May 5, 2010: H-E-B Opens Joe V's Smart Shop Discount Prototype Grocery Store in Houston TX ... But Where's Joe?

May 6, 2010: Say it Ain't So Joe: Trader Joe's Tells H-E-B's Joe V's Smart Shop to Change its Name

Say it Ain't So Joe: Trader Joe's Tells H-E-B's Joe V's Smart Shop to Change its Name

Analysis & Commentary

Yesterday we reported on and wrote about Texas grocery chain H-E-B opening its first Joe V's Smart Shop discount grocery store at 12035 Antoine Drive in Houston, Texas. Our story - May 5, 2010: H-E-B Opens Joe V's Smart Shop Discount Prototype Grocery Store in Houston TX ... But Where's Joe?

Last night we heard via e-mail from a reader who visited the store yesterday. He told Fresh & Easy Buzz there was a big crowd at the new store - and new format for grocer H-E-B - for the Cinco de Mayo grand opening. There was plenty of free food and lots of bargains offered, he said. It was a good, strong grand opening for H-E-B's Joe V's, according to the reader, who works in the food and grocery industry in a sales capacity.

But not all is good for H-E-B and the fictitious Joe V's beyond yesterday's grand opening.

The other Joe - Trader Joe's - is striking back. The local Houston Business Journal is reporting that Monrovia, California-based iconic grocer Trader Joe's filed a cease-and-desist order on April 26, just days before yesterday's grand opening, against H-E-B regarding its use of the "Joe" name for the new Joe V's Smart Shop discount format store.

The publication reports that, "according to documents filed with the U.S. District Court in Austin, Texas, Trader Joe’s is demanding that H-E-B 'immediately cease and desist its use of the word Joe in the proposed business name Joe V’s Smart Shop and in the associated promotional materials for the store,' and threatened to 'pursue any and all available legal remedies' if those demands were not met."

But H-E-B begs to differ.

On April 29, H-E-B responded to the Trader Joe's legal complaint by filing a declaratory judgment petition asking the federal judge to determine that "there is no likelihood of confusion, mistake or deception as to the source or sponsorship of H-E-B’s goods or services sold and planned to be sold under the Joe V’s name," reports the paper

"H-E-B contends that the only common element between the Joe V’s name and the Trader Joe’s name is 'Joe,' a term in which Trader Joe’s has no exclusive rights," an H-E-B spokesperson told the reporter. Further: "The name 'Joe' is an extremely common surname, and is widely used by many retail businesses, including in the grocery and food fields," he said.

Trader Joe's doesn't operate any stores in Texas - yet.

The full Houston Business Journal story is here.

Ironically, we lead our May 5 piece by making an analogy between Trader Joe's and H-E-B's Joe V's. Below is our lead paragraph:

"Unlike the "Joe" in the name of the iconic Southern California-based grocery chain Trader Joe's, which represents a real person - founder Joe Coulombe - the "Joe" in Joe V's Smart Shop, the name of the new discount grocery store concept by Texas-based grocery chain H-E-B, is a creative fiction, designed to personalize the popular privately-held grocer's new warehouse-style discount format, the prototype store of which opened today at 12035 Antoine Drive in Houston, Texas."

But it wasn't mere irony that lead us to choose that particular lead. Trader Joe's is vigorous in protecting its trademark name, including the use of "Joe" or "Trader" (and not just together in the same name) by grocers and any other business, regardless of the context.

When we first heard about H-E-B's Joe V's a couple months ago, one of the first things that came to mind was a challenge from Trader Joe's. We've even exchanged e-mails with a regular reader from Texas over the Trader Joe's-Joe V's name irony topic over the last few weeks.

We wrote about Trader Joe's trademark vigor in these two stories in the blog published on January 15, 2009: [Small-Format Food Retailing USA: The Big Apple Won't Be A Two-Trader City: Judge Says No to Gristedes' 'Trader John's' 'Trader Joe's' Knockoff and Small-Format Food Retailing USA -Trader v. Trader: Gristedes Complies With Judge's Order; Covers Up 'Trader' Portion of its 'Trader John's' Store Sign]. In this instance Trader Joe's was successful in forcing New York City's Gristedes supermarket chain from using the name "Trader Johns" on a new concept, small-format grocery store it opened last year in the city.

We aren't trademark lawyers here at Fresh & Easy Buzz. But it seems to us that the Gristedes "Trader John's" name was clearly an attempt to cash in on the Trader Joe's name, although the owner and CEO of Gristedes, billionaire John Catsimatidis, is named John.

But the use by H-E-B of the name Joe V's Smart Shop doesn't appear on the face of it to be an attempt to rip off the Trader Joe's trademark. Perhaps the use of Joe V by the grocer has some subliminal motivation behind it in terms of resonating in consumers minds. After all, "Joe," as in its usage in any variation when it comes to grocery stores, seems to be perceived as pure gold. But it's unclear to us that Trader Joe's is on solid footing in its legal attempt to get H-E-B to change the store's name. But then, we aren't trademark lawyers, so we'll have to wait and see. But a legal fight to the end over the name clearly is something that's likely to happen if H-E-B sticks to its guns.

Interestingly, in our piece yesterday we had some fun about the fact the Joe V of H-E-B's Joe V's Smart Shop is a creative fiction, unlike the Trader in Trader Joe's, who is a real person, founder Joe Coulombe, who sold the grocery chain to Germany's Albrecht brothers, of Aldi ownership fame, many years ago. Theo Albrecht is today the sole owner of Trader Joe's. He and his brother Karl both own Aldi, but under a separate ownership structure.

In the Houston Business Journal report, Armando Perez, the senior vice president for H-E-B in Houston, comments that the Joe V’s brand is based on the name of an H-E-B executive who was instrumental in developing the new concept over the past two years. We take Mr. Perez's word for that - but he's on the record in more than one instance saying the Joe V's name was created in order to personalize the new discount grocery chain. Other H-E-B executives have also said there's no real Joe V. Perhaps the H-E-B executive was an inspiration?

So we ask: Will the real Joe V please stand up?

The Trader Joe's cease-and-desist order against H-E-B and it's Joe V's Smart Shop is worth following. When it comes to its name, Trader Joe's, like fast food chain McDonalds, is willing to spend whatever it takes and devote whatever time is required to win. That it decided to challenge Joe V's suggests Trader Joe's will fight the name like a hungry dog going after a prime rib bone.

We said this in the last paragraph in our story about Joe V's yesterday: "The Joe V's format and prototype store will be an interesting development, from one of the most interesting and successful grocers in the U.S., to observe and follow closely. We will be doing just that.

But we have to admit, we didn't know it would get so interesting - so fast.

H-E-B Opens Joe V's Smart Shop Discount Prototype Grocery Store in Houston TX ... But Where's Joe?

New Format Development

Unlike the "Joe" in the name of the iconic Southern California-based grocery chain Trader Joe's, which represents a real person - founder Joe Coulombe - the "Joe" in Joe V's Smart Shop, the name of the new discount grocery store concept by Texas-based grocery chain H-E-B, is a creative fiction, designed to personalize the popular privately-held grocer's new warehouse-style discount format, the prototype store of which opened today at 12035 Antoine Drive in Houston, Texas.

H-E-B's Joe V's in Houston is no frills inside and out. The store's exterior (above) looks more like a barn than a supermarket. The store's interior (below) is no frills and utilitarian all the way: cement floors, warehouse-style shelving and basic signage.

The Joe V's Smart Shop prototype store is 50,000 square-feet, according to H-E-B.

The premise and positioning of Joe's V's is no frills - it's discount all the way.

Here's the Joe V's mission statement and promotional tagline, for example:

We’re Joe V’s Smart Shop and we never met a low price we didn’t like! From farm fresh produce and top quality meats to everything in between, we have what you need for less. That way you don’t have to shop around. We’ve already done it for you! What’s our secret to low, low prices? We keep things simple and pass the savings on to you. After all, you know a great deal when you see one. That’s why we have outrageously low prices on the items you use every day. So come get to know us. After just one trip you’ll agree, “Those who know…save big with Joe.”

It clearly communicates a focus on price-value. It also takes a shot at communicating that personalization aspect in the last line, referring to the fictitious Joe.

Keeping with that no frills, discount focus, Joe V's Smart Shop also offers a limited item selection: about 9,000 SKUs, compared to the 37,000 -to- 40,000 SKUs carried in the H-E-B flagship stores, according to the retailer. At 9,000, that's still a bit more than double the SKU count of small-format grocers like Aldi USA, Supervalu's Sav-A-Lot and Tesco's Fresh & Easy though.

Joe V's item selection includes both manufacturers' national and regional brands and H-E-B's store brands.

The prototype discount market has all of the standard departments: dry grocery, perishables-dairy-deli, frozen foods, produce, meat-seafood and bakery. What you won't see in these departments at Joe V's though are the many upscale and higher-end items which H-E-B is known for offering in its flagship stores - and even more so in its very successful upscale-specialty format Central Market banner stores.

The new format's focus is on price-value: The discount price-value shopper is the target market for the fictitious Joe V.

In keeping with its no frills, discount positioning, Joe V's will have one of the first automated iCASH machines to be used in a U.S. grocery store. The machine, which H-E-B has been testing in some of its stores in San Antonio, Texas, allows customers to pay for their groceries using the self-service machine, while employees scan and bag their purchases at checkout. The iCASH machine accepts cash, debit and credit cards, WIC Vouchers and food stamps, all of which Joe V's is accepting. Joe V's also accepts manufacturers' coupons.

A key efficiency aspect of the The iCash machine, besides being a big time-saver, which equals employee labor savings, is it eliminates the need for employees to set up and balance the cash register tills through the day. The machine does that task automatically. The machines are used in a number of supermarkets in Europe.

Additionally, in keeping with the store's warehouse design style and shelving, all of the product to be shelved is brought out onto the floor on pallets, using a forklift. Hand stocking by store employees is kept at a bare minimum. This isn't a new concept. For example, warehouse formats like Food 4 Less and others have been doing it for decades. But it is labor-saving

An interesting note about the prototype Joe V's Smart Shop unit is that H-E-B owns the property where the store sits, along with the store building, and developed the shopping center anchored by it's first discount grocery market. H-E-B is in the process of leasing retail space it's built next to the store in the center.

The grocer also is leasing some space inside Joe V's to tenants. So far two are going in: Pronto Insurance and First National Bank, according to H-E-B. There's additional space available in the store for a couple others.

A key merchandising focus for H-E-B with Joe V's Smart Shop is on non-foods, general merchandise. For example, the Houston store is featuring the comforters pictured above for $5 each as part of its grand opening sale. The store is calling this promotional item, and some others, a "Facebook Deal" because it's promoting them exclusively on its Joe V's Facebook site. Notice the Facebook "f" logo on the signs in the photograph above, for example.

The store will offer lots of general merchandise, household and even durable goods items (comforters, clothing, electronics, yard furniture, ect.) on an in-and-out basis. We see shades of Aldi USA's "special buys" merchandising program in that regard, although it's important to note that numerous U.S. food retailers have used such merchandising long before Aldi set up shop in America. What makes it interesting regarding Aldi USA is it does so in a small-format box.

H-E-B is kicking off the Cinco de Mayo grand opening of its Joe V's Smart Shop store today by offering some hot promotional items in its advertising circular. Some of those items include: bananas at 3 pounds for $1; sweet corn at 8 ears for $1; chicken breasts for 67 cents pound; and assorted 16 ounce cans of vegetables at 3 cans for $1. [You can view the ad circular here.]

It's no accident, in our analysis, that H-E-B's opening of the first Joe V's store, in what could become a no frills, discount grocery chain, comes at a time when small-format, hard-discount Aldi USA is barnstorming its way throughout parts of Texas, opening numerous stores. Take a look here at Aldi so far in Texas. It's just getting started.

H-E-B has said Joe V's Smart Shop isn't a response to Aldi entering Texas. And since the first Joe V's is in Houston, where Adi has yet to open any of its hard-discount stores, we take H-E-B at their word on that - at least from a geographical standpoint.

But it only makes sense that at least a significant portion of Texas-based H-E-B's motivation in creating Joe V's would come from competitive concerns over Aldi's entering the state. In fact, if this isn't part of its motivation, we would be stunned, since H-E-B is one of the best and most competitive grocers in the U.S.

There's also significant and growing overall competition, including in and from the discount segment, in Texas - particularly in the Dallas-Forth Worth, Houston and Austin market regions - with more to come. The state is fast-becoming one of the most competitive food and grocery markets in America - from the discount format and mid-range segment, to the upscale and natural-organic format and segment.

The grocer is very successful with its H-E-B banner supermarkets and upscale Central Market chain. But it's flagship H-E-B supermarkets face somewhat of a competitive threat from Walmart and numerous other food and grocery retailers in Texas.

And of course there's Aldi, which has made Texas a major current and future focus, with plans to open a couple hundred stores in the state.

Therefore, it's a logical, competitive thing for H-E-B to create and test its own no frills, discount grocery store format named Joe V's Smart Shop (or another name), even though the "Joe" in its name is a creative fiction. We'll withhold judgement on the fictitious Joe V name for now.

H-E-B is using the Joe V's Smart Shop store as a prototype and, according to our information, isn't planning to open a second unit soon. Rather, it wants to study, analyze and tweak the first Joe V's for a while before opening another, or for that matter not opening any additional units, which seems "smart" in our analysis.

The Joe V's format and prototype store will be an interesting development, from one of the most interesting and successful grocers in the U.S., to observe and follow closely. We will be doing just that.