Some of the world’s retail titans are headed for a battle over smaller grocery stores.
Safeway Stores Inc. jumped into the fray when it quietly opened a 15,000-square-foot store named the Market by Vons in Long Beach on Thursday as part of a test to see whether California shoppers like smaller neighborhood stores.
Wal-Mart Stores Inc., the world’s largest retailer, also pushed ahead with its plans to debut a smaller grocery chain known as Marketside. The first store is expected to open in Arizona this fall, and the retailer announced this week that it was looking to hire managers and other employees for the store.
Both ventures look to be in direct competition with Fresh & Easy Neighborhood Market, the small-store concept that British retailing giant Tesco launched amid fanfare late last year in Southern California and the Western U.S.
Tesco has opened 61 Fresh & Easy stores in the Southwest, with 31 in Southern California. But the chain has put additional openings on hold until this summer in part to iron out kinks in the business. Analysts say the stores have not met sales projections.
Despite that, the large retailers appear to be searching for “the next big thing” to boost sales as they grow concerned that the nation is reaching a saturation point with big-box stores and outsized supermarkets, said Andrew Wolf, an analyst at BB&T; Capital Markets in Richmond, Va.
The new smaller stores are attempting to offer convenience by editing down the selection to fewer product choices in each category and making it easier for people to do their shopping and get out. The stores offer a large selection of prepared foods and meals that can be quickly assembled by time-pressed households.
At the Market by Vons, which replaced a tiny and run-down traditional Vons in the Belmont Shore section of Long Beach, the message is upscale simplicity.
Shoppers walk through a wood floor entry with an immediate view of stacked produce, a fresh bakery, a prepared-food counter, a selection of 1,000 wines and a Starbucks kiosk.
With its ample displays of fresh flowers and spotlight lighting on the food, Nicole Stanton likened the format to a small Whole Foods Market.
“It is very clever and refreshing,” said Stanton, who said she planned to shop there several times a week.
About 50% of the offerings are fresh produce, meats, cheese and prepared foods. The rest are items shoppers are most likely to be looking for, said Rojon Hasker, president of corporate lifestyle for the company. The store carries about 15% of the items a large supermarket might offer.
“We want to provide the things you need most on a daily basis,” Hasker said. “People shouldn’t expect to come here to find 17 choices of ketchup,” she said.
Safeway plans to open as many as four of the smaller markets over the next year to see how shoppers react. If the concept is successful, the chain is prepared to roll out as many as 50 per year as a way “to get into neighborhoods and areas where we couldn’t put a large store,” Hasker said.
The initial consumer reaction has been good, Hasker said. On Friday, the parking lot was packed and the checkout aisles were jammed. The store plans to quadruple the number of bicycle parking slots to 16 to accommodate the neighborhood’s heavy beach cruiser traffic, she said.
Safeway and Wal-Mart are moving into the market while Fresh & Easy stores have yet to make much of an impact locally. Foot traffic in many of the Fresh & Easy markets has been light, analysts say. Tesco will lose about $200 million in start-up and operational expenses this year and $158 million in the company’s next fiscal year, said Mike Dennis, a senior analyst at the London office of investment firm Piper Jaffray & Co.
Tesco has already made changes to its original concept to attract more customers. It has added products and broadened its advertising beyond direct-mail fliers. When it opened, the chain offered a coupon that gave customers $5 off a purchase of $30. It is now offering $5 off $20 in purchases.
Still, Safeway and Wal-Mart don’t appear to want to wait and find out if Fresh & Easy can become profitable. Both companies “were mobilized” to get small-store formats off the back burner by Fresh & Easy’s entrance into the marketplace in California and the Southwest, said Craig Hutson, a supermarket industry analyst.
Wal-Mart isn’t saying much about its plans beyond the fact that it has four stores in the works in Arizona. “This is a pilot, and we are going to trial and test different things. They are not slated to open until the fall,” Wal-Mart spokesman Nick Agarwal said.
Agarwal said that part of the tests include preparing and serving food, and that at least some of the stores will include a kitchen, food counters and seating for as many as nine people.