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Grocers try to match lifestyles

Wed., Oct. 29, 2008

Smaller stores limit driving, reduce costs

PORTLAND – Grocery stores, like consumers’ food budgets, are shrinking.

This month Wal-Mart Stores Inc. opened four pilot Marketplace stores in Arizona that are half the size of a traditional supermarket.

Supervalu-owned Jewel-Osco is testing its own small-format store in Chicago known as Urban Fresh. Safeway tried out its version in Southern California. And Whole Foods has said it is scaling down the size of its new stores.

The format has worked for some companies, such as Trader Joe’s, for years. But the idea is spreading as grocers are coping with rising costs and limited capital and find themselves pressed to find more profitable formats. It’s part of increasing competition with existing small stores and British company Tesco PLC, which launched its first small Fresh & Easy store about a year ago and now has nearly 100 around the West.

“It’s safe to speculate that a lot of the growth in the grocery business in the years ahead is going to be focused on these small stores,” said Bill Bishop, a food retailing consultant at Willard Bishop Consulting.

While the companies testing out the smaller stores wouldn’t release details on their performance, for grocers the format means lower overhead costs and fewer – but often higher-margin – products. For consumers, they mean quicker shopping trips to nearby stores with more tailored choices.

Gary and Ceci London shop at the Fresh & Easy in San Diego’s Point Loma neighborhood three or four times a week. The couple like the small packages and low prices. They estimate the prices are 30 percent below Vons, where they previously shopped.

“They don’t have everything, but they have 80 percent of what you need on a daily basis,” Gary London said. “These are like the old neighborhood markets of 40 years ago.”

Experts say most grocery store trips are small ones, to pick up a few items.

Bishop estimates the small-format store can cut the typical grocery trip from an average of 20 minutes to less than 10. And there’s the “shopability” factor: Not everyone wants to choose from a wall of ketchup.

The small-format stores seem to have mastered the mix of high-end items with low-priced steals.

Trader Joe’s for example, has long drawn people with its deals on fresh tuna or sea salts. Now Wal-Mart’s new stores, which seem to be the antithesis of its ubiquitous “supercenters,” are offering local produce within days of harvest, and more than 200 of its wine selections sell for under $10. And many of the small stores focus on ready-to-eat prepared foods, which can be sold at a higher margin.

“We really took a lot of things the consumer is going for; although the consumer may be pausing for more value today, they are still time-starved and looking for solutions,” Jeff Noddle, chairman and CEO of Supervalu, told investors during a conference call to discuss its most recent quarterly earnings.

Lisa Foster, 42, a registered nurse, hasn’t shopped for groceries anywhere else since Fresh & Easy opened in her San Diego neighborhood in August. The selection is limited, but that’s fine with Foster.

“I don’t really care if they don’t have 500 brands of mayonnaise or 500 brands of salad dressing,” she said after ringing herself up for a carton of ice cream and a $2 bottle of chardonnay.

Fresh & Easy spokesman Brendan Wonnacott said it’s a market Tesco has looked at for about 20 years.

“The main thing was to listen to what consumers felt they needed: something that is easy to get to, simple and offers everything you need at low prices,” Wonnacott said.


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