December 11, 2007
Safeway in Me-Too Response to Tesco
A new report suggests that Safeway has developed a response to Tesco’s Fresh & Easy entry into northern California and its answer is the development of a small format store similar to its competitor.
John Machado of Collier’s International brokerage told the San Jose Business Journal that Safeway has discussed opening a smaller format store for some time. The grocery chain is reported to be looking at a number of locations in the San Francisco Bay area.
Safeway will need to compete not only with Tesco’s fresh and prepared foods but also its prices. According to TNS Retail Forward, a comparison of eight food items purchased at a Fresh & Easy store in Los Angeles found that Tesco’s market basket rang up for less than $20 compared to $24 and up at Albertsons, Kroger and Safeway.
Melissa Plaisance, a senior vice president of finance and investor relations for Safeway, said too much shouldn’t be read into the chain looking at stores with a smaller footprint.
“Clearly we are aware of Tesco’s entry, and we are watching their activities closely,” she said. “But all we do is rooted in consumer research, and we do realize that there are different kinds of shopping trips.”
Discussion Questions: Do Safeway and others need to develop small store formats to compete with Tesco? Why do small store formats now seem to make sense when they apparently didn’t before Tesco made its plans to enter the U.S. market public?
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Safeway is simply acknowledging a trend which has been developing for some time now and to which I personally believe has transformative implications to the retail industry.
I have written about this several times over the past year and each time it is in context to an article or an opinion which sees this concept as something new and unproven.
Smaller store formats embedded widely within urban population centers that deliver quality, value and convenience will continue to grow in importance as a key market segment. These retailers will span meals to go, grocery, consumables, pharmacy, health and wellness, fuel and other services. Their growth will be at the cost of the big boxes, whose crowds and distance to destination makes them an increasingly less valued experience.
Tesco announced recently that they see unlimited growth capacity with upwards of 10,000 units in the US as a possibility. I have mentioned before that I believe Aldi will begin an expansion push as their concept, well accepted in many other countries, is about ready to come into its own here in the USA. There are others who are pioneering what I have termed the new “convenience” format and they include retailers like Schnucks and Schnees.
Wal-Mart, Safeway, Target and others are working, I am confident, on their own versions of these neighborhood markets that offer speed and convenience matched with quality and value.
The Fresh and Easy concept may not seem like a great threat to any one concept; however, they allow for a foreign invasion of the retail market. The best place to fight and push them back is on the beach. While their initial plans were covert we have now seen the enemy’s order of battle and it is time to fight.
They have announced that they combine the great qualities of the convenience store, drug store, supermarket and prepared foods in one. If you consider that they are also running their own commissary,like their German cousins in WWII, they are fighting on multiple fronts. All four classes of trade can fight back with convenience, variety, price, promotions and taste while the manufactures get more creative with their product offerings.
Competitors will build smaller stores because the customer is becoming more niche and convenience driven. To criticize Safeway implying that it is copying Tesco because it is looking at the choicest spots before Tesco gets to market is silly in an industry that knocks off most everything; but it also implies that Tesco is the wellspring of innovation when their the logo is but a poor copy of Target’s Archer Farms.
After seeing Tesco stores in the US and UK you can see that the employees are trained to keep the shelves full. And in the US, these employees know nothing about specific food such as meat, seafood, etc. If you don’t believe me just go into a US Tesco and ask a question about what grade that steak i or how do you should cook it….
If Safeway moves into the same format type stores, I just wonder how they will be able to compete with their highly trained, highly paid employees? If they do and it fails, will the employees that make the transfer to the smaller store end up without a job?
The current 45,000 square foot typical store was created from financial analysis and make-believe consumer demand. Larger stores utilize smaller overhead as a percent of sales than small ones. This supports a greater profit objective and ROI on new stores.
The retail food industry sold itself on one-stop shopping as the answer to consumer poverty of time issue. I have yet to see any research that supported this great solution for consumers. Where was this balanced with consumers complaints about a boring shopping experience? For some time, I have predicted the 100,000 plus square foot store will be a white elephant. As the Baby Boomers age, they simply will not have the ability to walk much less shop these large stores.
While Tesco is one of the best retailers, all should remember that many European retailers have failed in the US market. Two of Tesco’s strengths in its new format are a strong Private Label line and–yes–Home Meal Replacement. American retailers are still 10 years behind European retail in the Private Label arena and fail completely in Home Meal Replacement. Only time will tell if Tesco has a winner. Knowing them, I expect many changes before they reach 100 stores.
Safeway needs to be looking forward. When they look to their Gift Card business as a profit driver, what does that say about retail? Considering their acquisition history their claim of consumer driven is surely in question. Like all things in the retail food industry, we will continue to see new formats. Safeway must develop or create new ideas to be around for the long term. Their new effort is most likely a knee jerk response to Tesco. How will they do with Home Meal Replacement this time?
Tesco is not impacting small store formats as much as Wal-Mart and others are. Consumers are finally realizing the time it takes to navigate the mega-store parking lot, lines, etc, to purchase a few items. This is no different than the move away from the regional enclosed mall concept–which was so strong in the 70s and 80s–to the lifestyle center, where customers can park closer to the store of their choice.
With American consumers being always time constrained and looking for the easiest way to get their chores done, stores that offer the consumer what they want, at a fair price with ease of purchase have a vast advantage over those that don’t. This is exemplified by both Target and Trader Joe’s.
Although Target does not compete head on with Wal-Mart on price, they try to exceed Wal-Mart’s offer on service. Thus, their policy of no more than two people in a check-out line at any time. How many times have you bought something at a big box store, only to get frustrated in the check-out line and leave the purchase behind as you exit the store?
Trader Joe’s, on the other hand, refines the Whole Foods concept, offering organic food, albeit private label, at competitive prices in easy to shop venues.
Both Target and Trader Joe’s are emphasizing ease of shopping and service over assortment and/or pricing and the customer seems to like it.
Tesco’s Fresh & Easy offers the consumer a similar choice with an easy to navigate smaller venue offering the creme of the crop of a larger stores’ assortment. Remember, if the old adage that twenty percent of the SKUs represents eighty percent of the business, a smaller venue with a reduced assortment should prosper.
All grocery operators are carefully watching the Tesco experiment. With big pockets and a determination to succeed in the United States, Tesco wants to win with their new format. No competitor can sit by and not take action should the concept play well with the consumer. Prior to the true globalization of the economy, retailing was regionalized. We saw many failures from US retailers entering foreign countries and foreign retailers entering the US. Times have changed–“The British are coming,” for more than just tea.
Sometimes it doesn’t pay to be the pioneer. McDonald’s wasn’t the first burger franchise. KFC wasn’t the first chicken franchise. DOS wasn’t the first personal computer operating system. Google wasn’t the first search engine. Wal-Mart wasn’t the first mass merchant. Why not watch what Tesco does and then react? Maybe competitors can learn from Tesco’s mistakes or position themselves more profitably. And just because Tesco prices are less than some competition today doesn’t mean that will be a permanent condition. When a new concept opens, aren’t adjustments expected?
Safeway is doing what a lot of other companies do when they see a successful execution of a plan. The copy it, and they hope that their customers will come to their location simply because they are Safeway. Tesco knows its customers, and I would venture to say that Safeway does not. This is certainly indicated by the huge debacle named Dominick’s in the Chicago market.
If Safeway wants to create a new format, why don’t they take some risks and try to be different? They should attempt to differentiate themselves from the competition, not mimic their strong competitors. They seem to have a great Private Label program in their O Organics line. Why not leverage this brand? Why not open a small store format using the O Organics brand as the name of the store, and build the store offering around this category? It seems that would be perfect for the California market, and it would help set them apart.
Be different. Be special. That is the best strategy that Safeway should execute.
I think that Safeway’s endeavors into smaller formats make sense for the same reason it made sense for Tesco: a rapidly aging population of Boomers who increasingly look south and west for retirement options that suit lifestyles of healthy cosmopolitanism.
Now, of course, what Safeway DOES in the box is critical, as a smaller footprint will not be anything close to a silver bullet….
Lots of buzz about a niche market segment.
Our observation about the stores (Fresh & Easy): great pricing, but very limited selection. They are clearly not equipped or formated for any kind of destination shopping. For the format to work, the locations will need to be ubiquitous and with competitors slipping in, tight margins and high fixed costs, how will this format survive?
For the busy family, time is everything. A stop off at the grocery store takes the same amount of time to purchase one item as it does several items. If the selection doesn’t exist, you have just wasted a trip, and will have to repeat the process. I see this format as occasional and low ring. Just how much room is there in this niche and what is the return on the substantial investment?
“Times they are a changing”
There has been much publicized about the Time Value of Money lately. But the new paradigm is “Time Value of Time;” this is the true precious commodity.
Consumers are looking for a quick, convenient shopping experience. Remember Wal-Mart; they entered this scaled-down approach with the Neighborhood Market years ago.
Sheer necessity. One reason for this scaling down is due to the lack of real-estate required to build the bigger box stores. It is at a point now where it is impossible to bring the store to the people, when you build a 180,000 square foot box.
When the store is designed well, with the right mix of merchandise and placed where it is convenient for the consumer, the frequency of shopping goes up, the mix of merchandise in the basket goes up and the shoppers walk away happy.
There will always be a destination store, where the consumer can spend an afternoon. The Tesco/Safeway design is not this destination, but a quick alternative.
The frustrating thing about this is that it’s really about suburban vs. urban places. Small store formats are still viable. It’s just that an ever concentrating supermarket industry has focused on creating ever increasing store sizes, mostly for suburban, car-based shoppers.
As the industry has concentrated, they’ve abandoned rightsizing store formats for different places-conditions.
There’s nothing new here. Just another company with a different business model, a business model that is modified in terms of offering (more prepared foods) but “old” in terms of store sizes, such as Sunflower Market from Supervalu, the stores mentioned in another post such as Trader Joe’s, which for the most part prefer suburban locations, even though they are small format stores physically.
Small store formats have always made sense and I’m not convinced that Tesco’s entrance into the US is the reason for it. Big boxes have always had a reputation for substandard service and customers are realizing that they can get better service and a more unique product selection at smaller formats. I have always contended that a small store is easier to run for managers which allows them to offer a better shopping experience for their customers.
No question that Tesco is doing market research for the rest of us. One big old concept test, basically! Whether or not Tesco has a format that works in SoCal means nothing to shoppers who don’t live there, so the ability to leverage the experience and duplicate the concept in other parts of the US before Tesco can roll out is very real.
There is no question that “first mover” advantage is a myth (a professor from NYU has a compelling book on this) so what Safeway (and potentially others) are doing is very smart.
I suspect that Safeway was smart enough to be looking at this well before Tesco came to town. Can we stop talking about Tesco for awhile? So far as I know, God did not pass the “Ten Commandments of Retail” to them atop some mountain somewhere, and this is really getting tedious. Good luck, Safeway. Good luck, Tesco. Amen.
I’m not so sure any retailer needs to develop a new small store format to compete with Tesco. Since Tesco really hasn’t been successful yet, why develop a format to compete with one that hasn’t proven successful?
Copy cat formats don’t always work. Just look at at Super Target and Super Kmart. Those two never made a dent trying to compete with Wal-Mart Supercenter. Meijer and Fred Meyer have come a little closer. Nash Finch and Fleming tried to develop a limited assortment store to compete with Aldi. Those all closed up not long after opening. Save-A-Lot has done a little better.
Remember how everyone was trying to copycat Webvan and Peapod? Then as it turns out, online grocery shopping never caught on.
Let’s give Tesco another year or so and see if they are still in business in the US.
A favorite former boss was fond of saying that “the only thing worse than REactionary management is NO-actioary management.” Sure these moves are reactionary, but they are as much a reaction to consumer trends and studying the impact of multiple formats on shopping patterns as they are a reaction to Tesco specifically. Sure, Tesco was the catalyst, but hand it to the other guys for realizing that Tesco can’t beat them to every market in America. And consumers in Idaho aren’t nearly as aware that “the British have landed–again” as we in the industry are. If the first well-designed small format store in Boise is a Supervalu, then guess who wins that market in Boise?
Let the games begin!
I quite disagree with a great deal of the tenor of comments here. There is a pretense, commonly expressed, that American supermarkets were closely studying the shoppers, and acting on that data. It reminds me of a comment in Boorstin’s “The Discoverers”: “The great obstacle to discovering the shape of the Earth, the continents and the oceans was not ignorance but the illusion of knowledge. Imagination drew in bold strokes, instantly serving hopes and fears, while knowledge advanced by slow increments and contradictory witnesses.”
This doesn’t mean that no American stores were making moves in the right direction, but here is an industry that, even though HALF their shopping trips purchase 5 or fewer items, and TOTAL household purchases in a year consist of less than 400 SKUs, virtually forced the creation of their competitor, the C-store, and held on for dear life to a high-low business model, virtually “forcing” Wal-Mart to become the largest business in the world. I think Boorstin’s “illusion of knowledge” is quite apt.
Your lead implies that a small store format is new. That is not the case. There are at least two highly successful and growing chain operations today–Trader Joe’s and The Fresh Market. Each of these operates about the same way I envision the Tesco operation. The Fresh Market (privately held) has expanded to nearly eighty stores since its founding some 25 years ago. I wonder how many stores they would have if backed by some real money.
It seems to me that there is a place for this format any time 250,000 people gather in a community.
Victor Hugo said that nothing is as powerful as an idea whose time has come. Well, the idea of smaller, local food stores is upon us like a force of nature. Tesco is merely the most highly publicized example, as this thread reveals. Let’s not overlook Giant Eagle’s Express format, noble past experiments like Eatzi’s, and the brand-new AJ’s Petite store that Basha’s opened this week here in Chandler, AZ.
Clearly, the new frontier for grocery stores is in-town, 12,000 – 20,000 square feet, and focused on smaller, quicker trips. Whether it’s store brand like Trader Joe’s, upscale like AJ’s, prepared foods like Fresh & Easy, or simply convenience oriented like Sheetz, smaller is definitely big. So I think it’s a bit unfair to call Safeway’s new effort a me-too response. Smart people tend to get similar smart ideas at the same time for the same abundantly apparent reasons.
Safeway already has a smaller footprint format in urban areas called TownHouse. So maybe they should revamp these sites as tests markets to see if selling more prepared meal options in a smaller setting would be feasible.
All the supermarket giants who have been players for a long time – A&P, Kroger, Safeway – all started out with smaller footprints. But a tried and true fact of business success is a combination of “location, location, location”, price, and the right product mix.
A&P and its latest fresh prototype located in Park Ridge, NJ is a smallish 25,000 sq ft footprint which is doing quite well, beating all estimates.
Maybe smaller is better. But if the past is any indication, the consumer can always be fickle and what works today, might not necessarily work tomorrow.
Tesco’s Fresh & Easy markets are basically a combination limited assortment neighborhood grocery (offering private label and national brand grocery items) and a “semi-upscale” market featuring prepared foods made at a central kitchen (and delivered daily to the stores) in Southern California.
The stores’ fresh produce departments are thus far rather meager. Most of the fruits and veggies are pre-packaged. The fresh meat selection also is rather slim. It’s also of moderate quality.
Keep in mind, Safeway’s “convenience-oriented” stores will be about 20,000 square feet. That gives them nearly double the retail space in the box than Fresh & Easy stores, which average about 10-13,000 square feet.
Word is, Safeway plans to do much more in their “box” in terms of quality/upscale fresh prepared foods than Fresh & Easy is doing. This would include major dinner offerings similar to what’s available at a restaurant.
I agree with the writer who said it’s key what Safeway does in the box. This is especially true since it’s double the size of Tesco’s F&E box.
In terms of price on basic grocery items, F&E has a major advantage since they are a non-union operator. They offer 10 bucks an hour starting salary and a health benefits plan about half as good as Safeway’s. A retail clerk with one year experience makes about 20 bucks an hour at Safeway.
However, Tesco is going to meet with lots of opposition in the Bay Area, Safeway’s home turf. It’s a much stronger union region (some say the strongest in the USA) than even Southern CA. As such, if Safeway plays it right on the PR front, they could become the hero vis-a-vis Tesco as the non-union bad guy.
Tesco made a smart move in signing a deal to put a store in SF’s Bayview neighborhood–a place all other grocers have said no to over the last 10 years. That’s just the beginning though; they will see the Bay Area is more like London for them in terms of social responsibility demands and the like.
Safeway is a major corporate citizen in the Bay Area, where their corporate HQ is located. The brand will give them an automatic advantage in terms of small format retailing.
One should add here that Wawa grocery markets in Penn has been operating hybrid convenience store/small format grocery markets in the eastern U.S. for decades—and doing so very successfully.
While there are some qualitative differences between a Wawa grocery market and a Tesco Fresh & Easy store (which is a version of their Tesco Express format), there also are many similarities: limited assortment basic groceries, fresh meat and produce departments, lots of prepared foods, for example.
Wawa also sells gas at many of its grocery markets, a practice becoming more an more popular with supermarket chains, as we all know.
Unlike F&E though, Wawa isn’t trying to be a low-price leader with its basic grocery goods. Their retails are lower than most C-stores, but slightly higher than most supermarkets. The key for F&E is going to be, can they make money? Wawa keeps its margins decent not only by selling prepared foods, but also by selling groceries (which it sells a lot of) for higher margins than supermarkets. For F&E to make any money, they are going to have to sell lots of groceries and prepared foods.
Most of the comments on this column are much more insightful than the US analysts who cover the supermarket sector. So, congratulations to you all.
Time will tell what happens with Fresh & Easy. It may not be the future of food retailing in the US and may not grow to anything like the number of stores that are being projected. But one thing is for certain: stores that have middle aged women devoting an afternoon to meticulously stacking apples into perfect pyramids and have 20 choices of soy sauce aren’t either. I would be very surprised if Safeway is successful, because it doesn’t have the cost structure in place to match the offer and the price.
Yes, Safeway and other supermarkets need to develop more small store formats. This was a need even before Tesco entered the market. Consumers like choices and may choose a smaller store with a good selection for convenience shopping.
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Safeway is simply acknowledging a trend which has been developing for some time now and to which I personally believe has transformative implications to the retail industry.
I have written about this several times over the past year and each time it is in context to an article or an opinion which sees this concept as something new and unproven.
Smaller store formats embedded widely within urban population centers that deliver quality, value and convenience will continue to grow in importance as a key market segment. These retailers will span meals to go, grocery, consumables, pharmacy, health and wellness, fuel and other services. Their growth will be at the cost of the big boxes, whose crowds and distance to destination makes them an increasingly less valued experience.
Tesco announced recently that they see unlimited growth capacity with upwards of 10,000 units in the US as a possibility. I have mentioned before that I believe Aldi will begin an expansion push as their concept, well accepted in many other countries, is about ready to come into its own here in the USA. There are others who are pioneering what I have termed the new “convenience” format and they include retailers like Schnucks and Schnees.
Wal-Mart, Safeway, Target and others are working, I am confident, on their own versions of these neighborhood markets that offer speed and convenience matched with quality and value.
The Fresh and Easy concept may not seem like a great threat to any one concept; however, they allow for a foreign invasion of the retail market. The best place to fight and push them back is on the beach. While their initial plans were covert we have now seen the enemy’s order of battle and it is time to fight.
They have announced that they combine the great qualities of the convenience store, drug store, supermarket and prepared foods in one. If you consider that they are also running their own commissary,like their German cousins in WWII, they are fighting on multiple fronts. All four classes of trade can fight back with convenience, variety, price, promotions and taste while the manufactures get more creative with their product offerings.
Competitors will build smaller stores because the customer is becoming more niche and convenience driven. To criticize Safeway implying that it is copying Tesco because it is looking at the choicest spots before Tesco gets to market is silly in an industry that knocks off most everything; but it also implies that Tesco is the wellspring of innovation when their the logo is but a poor copy of Target’s Archer Farms.
After seeing Tesco stores in the US and UK you can see that the employees are trained to keep the shelves full. And in the US, these employees know nothing about specific food such as meat, seafood, etc. If you don’t believe me just go into a US Tesco and ask a question about what grade that steak i or how do you should cook it….
If Safeway moves into the same format type stores, I just wonder how they will be able to compete with their highly trained, highly paid employees? If they do and it fails, will the employees that make the transfer to the smaller store end up without a job?
The current 45,000 square foot typical store was created from financial analysis and make-believe consumer demand. Larger stores utilize smaller overhead as a percent of sales than small ones. This supports a greater profit objective and ROI on new stores.
The retail food industry sold itself on one-stop shopping as the answer to consumer poverty of time issue. I have yet to see any research that supported this great solution for consumers. Where was this balanced with consumers complaints about a boring shopping experience? For some time, I have predicted the 100,000 plus square foot store will be a white elephant. As the Baby Boomers age, they simply will not have the ability to walk much less shop these large stores.
While Tesco is one of the best retailers, all should remember that many European retailers have failed in the US market. Two of Tesco’s strengths in its new format are a strong Private Label line and–yes–Home Meal Replacement. American retailers are still 10 years behind European retail in the Private Label arena and fail completely in Home Meal Replacement. Only time will tell if Tesco has a winner. Knowing them, I expect many changes before they reach 100 stores.
Safeway needs to be looking forward. When they look to their Gift Card business as a profit driver, what does that say about retail? Considering their acquisition history their claim of consumer driven is surely in question. Like all things in the retail food industry, we will continue to see new formats. Safeway must develop or create new ideas to be around for the long term. Their new effort is most likely a knee jerk response to Tesco. How will they do with Home Meal Replacement this time?
Tesco is not impacting small store formats as much as Wal-Mart and others are. Consumers are finally realizing the time it takes to navigate the mega-store parking lot, lines, etc, to purchase a few items. This is no different than the move away from the regional enclosed mall concept–which was so strong in the 70s and 80s–to the lifestyle center, where customers can park closer to the store of their choice.
With American consumers being always time constrained and looking for the easiest way to get their chores done, stores that offer the consumer what they want, at a fair price with ease of purchase have a vast advantage over those that don’t. This is exemplified by both Target and Trader Joe’s.
Although Target does not compete head on with Wal-Mart on price, they try to exceed Wal-Mart’s offer on service. Thus, their policy of no more than two people in a check-out line at any time. How many times have you bought something at a big box store, only to get frustrated in the check-out line and leave the purchase behind as you exit the store?
Trader Joe’s, on the other hand, refines the Whole Foods concept, offering organic food, albeit private label, at competitive prices in easy to shop venues.
Both Target and Trader Joe’s are emphasizing ease of shopping and service over assortment and/or pricing and the customer seems to like it.
Tesco’s Fresh & Easy offers the consumer a similar choice with an easy to navigate smaller venue offering the creme of the crop of a larger stores’ assortment. Remember, if the old adage that twenty percent of the SKUs represents eighty percent of the business, a smaller venue with a reduced assortment should prosper.
All grocery operators are carefully watching the Tesco experiment. With big pockets and a determination to succeed in the United States, Tesco wants to win with their new format. No competitor can sit by and not take action should the concept play well with the consumer. Prior to the true globalization of the economy, retailing was regionalized. We saw many failures from US retailers entering foreign countries and foreign retailers entering the US. Times have changed–“The British are coming,” for more than just tea.
Sometimes it doesn’t pay to be the pioneer. McDonald’s wasn’t the first burger franchise. KFC wasn’t the first chicken franchise. DOS wasn’t the first personal computer operating system. Google wasn’t the first search engine. Wal-Mart wasn’t the first mass merchant. Why not watch what Tesco does and then react? Maybe competitors can learn from Tesco’s mistakes or position themselves more profitably. And just because Tesco prices are less than some competition today doesn’t mean that will be a permanent condition. When a new concept opens, aren’t adjustments expected?
Safeway is doing what a lot of other companies do when they see a successful execution of a plan. The copy it, and they hope that their customers will come to their location simply because they are Safeway. Tesco knows its customers, and I would venture to say that Safeway does not. This is certainly indicated by the huge debacle named Dominick’s in the Chicago market.
If Safeway wants to create a new format, why don’t they take some risks and try to be different? They should attempt to differentiate themselves from the competition, not mimic their strong competitors. They seem to have a great Private Label program in their O Organics line. Why not leverage this brand? Why not open a small store format using the O Organics brand as the name of the store, and build the store offering around this category? It seems that would be perfect for the California market, and it would help set them apart.
Be different. Be special. That is the best strategy that Safeway should execute.
I think that Safeway’s endeavors into smaller formats make sense for the same reason it made sense for Tesco: a rapidly aging population of Boomers who increasingly look south and west for retirement options that suit lifestyles of healthy cosmopolitanism.
Now, of course, what Safeway DOES in the box is critical, as a smaller footprint will not be anything close to a silver bullet….
Lots of buzz about a niche market segment.
Our observation about the stores (Fresh & Easy): great pricing, but very limited selection. They are clearly not equipped or formated for any kind of destination shopping. For the format to work, the locations will need to be ubiquitous and with competitors slipping in, tight margins and high fixed costs, how will this format survive?
For the busy family, time is everything. A stop off at the grocery store takes the same amount of time to purchase one item as it does several items. If the selection doesn’t exist, you have just wasted a trip, and will have to repeat the process. I see this format as occasional and low ring. Just how much room is there in this niche and what is the return on the substantial investment?
“Times they are a changing”
There has been much publicized about the Time Value of Money lately. But the new paradigm is “Time Value of Time;” this is the true precious commodity.
Consumers are looking for a quick, convenient shopping experience. Remember Wal-Mart; they entered this scaled-down approach with the Neighborhood Market years ago.
Sheer necessity. One reason for this scaling down is due to the lack of real-estate required to build the bigger box stores. It is at a point now where it is impossible to bring the store to the people, when you build a 180,000 square foot box.
When the store is designed well, with the right mix of merchandise and placed where it is convenient for the consumer, the frequency of shopping goes up, the mix of merchandise in the basket goes up and the shoppers walk away happy.
There will always be a destination store, where the consumer can spend an afternoon. The Tesco/Safeway design is not this destination, but a quick alternative.
The frustrating thing about this is that it’s really about suburban vs. urban places. Small store formats are still viable. It’s just that an ever concentrating supermarket industry has focused on creating ever increasing store sizes, mostly for suburban, car-based shoppers.
As the industry has concentrated, they’ve abandoned rightsizing store formats for different places-conditions.
There’s nothing new here. Just another company with a different business model, a business model that is modified in terms of offering (more prepared foods) but “old” in terms of store sizes, such as Sunflower Market from Supervalu, the stores mentioned in another post such as Trader Joe’s, which for the most part prefer suburban locations, even though they are small format stores physically.
Small store formats have always made sense and I’m not convinced that Tesco’s entrance into the US is the reason for it. Big boxes have always had a reputation for substandard service and customers are realizing that they can get better service and a more unique product selection at smaller formats. I have always contended that a small store is easier to run for managers which allows them to offer a better shopping experience for their customers.
No question that Tesco is doing market research for the rest of us. One big old concept test, basically! Whether or not Tesco has a format that works in SoCal means nothing to shoppers who don’t live there, so the ability to leverage the experience and duplicate the concept in other parts of the US before Tesco can roll out is very real.
There is no question that “first mover” advantage is a myth (a professor from NYU has a compelling book on this) so what Safeway (and potentially others) are doing is very smart.
I suspect that Safeway was smart enough to be looking at this well before Tesco came to town. Can we stop talking about Tesco for awhile? So far as I know, God did not pass the “Ten Commandments of Retail” to them atop some mountain somewhere, and this is really getting tedious. Good luck, Safeway. Good luck, Tesco. Amen.
I’m not so sure any retailer needs to develop a new small store format to compete with Tesco. Since Tesco really hasn’t been successful yet, why develop a format to compete with one that hasn’t proven successful?
Copy cat formats don’t always work. Just look at at Super Target and Super Kmart. Those two never made a dent trying to compete with Wal-Mart Supercenter. Meijer and Fred Meyer have come a little closer. Nash Finch and Fleming tried to develop a limited assortment store to compete with Aldi. Those all closed up not long after opening. Save-A-Lot has done a little better.
Remember how everyone was trying to copycat Webvan and Peapod? Then as it turns out, online grocery shopping never caught on.
Let’s give Tesco another year or so and see if they are still in business in the US.
A favorite former boss was fond of saying that “the only thing worse than REactionary management is NO-actioary management.” Sure these moves are reactionary, but they are as much a reaction to consumer trends and studying the impact of multiple formats on shopping patterns as they are a reaction to Tesco specifically. Sure, Tesco was the catalyst, but hand it to the other guys for realizing that Tesco can’t beat them to every market in America. And consumers in Idaho aren’t nearly as aware that “the British have landed–again” as we in the industry are. If the first well-designed small format store in Boise is a Supervalu, then guess who wins that market in Boise?
Let the games begin!
I quite disagree with a great deal of the tenor of comments here. There is a pretense, commonly expressed, that American supermarkets were closely studying the shoppers, and acting on that data. It reminds me of a comment in Boorstin’s “The Discoverers”: “The great obstacle to discovering the shape of the Earth, the continents and the oceans was not ignorance but the illusion of knowledge. Imagination drew in bold strokes, instantly serving hopes and fears, while knowledge advanced by slow increments and contradictory witnesses.”
This doesn’t mean that no American stores were making moves in the right direction, but here is an industry that, even though HALF their shopping trips purchase 5 or fewer items, and TOTAL household purchases in a year consist of less than 400 SKUs, virtually forced the creation of their competitor, the C-store, and held on for dear life to a high-low business model, virtually “forcing” Wal-Mart to become the largest business in the world. I think Boorstin’s “illusion of knowledge” is quite apt.
Your lead implies that a small store format is new. That is not the case. There are at least two highly successful and growing chain operations today–Trader Joe’s and The Fresh Market. Each of these operates about the same way I envision the Tesco operation. The Fresh Market (privately held) has expanded to nearly eighty stores since its founding some 25 years ago. I wonder how many stores they would have if backed by some real money.
It seems to me that there is a place for this format any time 250,000 people gather in a community.
Victor Hugo said that nothing is as powerful as an idea whose time has come. Well, the idea of smaller, local food stores is upon us like a force of nature. Tesco is merely the most highly publicized example, as this thread reveals. Let’s not overlook Giant Eagle’s Express format, noble past experiments like Eatzi’s, and the brand-new AJ’s Petite store that Basha’s opened this week here in Chandler, AZ.
Clearly, the new frontier for grocery stores is in-town, 12,000 – 20,000 square feet, and focused on smaller, quicker trips. Whether it’s store brand like Trader Joe’s, upscale like AJ’s, prepared foods like Fresh & Easy, or simply convenience oriented like Sheetz, smaller is definitely big. So I think it’s a bit unfair to call Safeway’s new effort a me-too response. Smart people tend to get similar smart ideas at the same time for the same abundantly apparent reasons.
Safeway already has a smaller footprint format in urban areas called TownHouse. So maybe they should revamp these sites as tests markets to see if selling more prepared meal options in a smaller setting would be feasible.
All the supermarket giants who have been players for a long time – A&P, Kroger, Safeway – all started out with smaller footprints. But a tried and true fact of business success is a combination of “location, location, location”, price, and the right product mix.
A&P and its latest fresh prototype located in Park Ridge, NJ is a smallish 25,000 sq ft footprint which is doing quite well, beating all estimates.
Maybe smaller is better. But if the past is any indication, the consumer can always be fickle and what works today, might not necessarily work tomorrow.
Tesco’s Fresh & Easy markets are basically a combination limited assortment neighborhood grocery (offering private label and national brand grocery items) and a “semi-upscale” market featuring prepared foods made at a central kitchen (and delivered daily to the stores) in Southern California.
The stores’ fresh produce departments are thus far rather meager. Most of the fruits and veggies are pre-packaged. The fresh meat selection also is rather slim. It’s also of moderate quality.
Keep in mind, Safeway’s “convenience-oriented” stores will be about 20,000 square feet. That gives them nearly double the retail space in the box than Fresh & Easy stores, which average about 10-13,000 square feet.
Word is, Safeway plans to do much more in their “box” in terms of quality/upscale fresh prepared foods than Fresh & Easy is doing. This would include major dinner offerings similar to what’s available at a restaurant.
I agree with the writer who said it’s key what Safeway does in the box. This is especially true since it’s double the size of Tesco’s F&E box.
In terms of price on basic grocery items, F&E has a major advantage since they are a non-union operator. They offer 10 bucks an hour starting salary and a health benefits plan about half as good as Safeway’s. A retail clerk with one year experience makes about 20 bucks an hour at Safeway.
However, Tesco is going to meet with lots of opposition in the Bay Area, Safeway’s home turf. It’s a much stronger union region (some say the strongest in the USA) than even Southern CA. As such, if Safeway plays it right on the PR front, they could become the hero vis-a-vis Tesco as the non-union bad guy.
Tesco made a smart move in signing a deal to put a store in SF’s Bayview neighborhood–a place all other grocers have said no to over the last 10 years. That’s just the beginning though; they will see the Bay Area is more like London for them in terms of social responsibility demands and the like.
Safeway is a major corporate citizen in the Bay Area, where their corporate HQ is located. The brand will give them an automatic advantage in terms of small format retailing.
One should add here that Wawa grocery markets in Penn has been operating hybrid convenience store/small format grocery markets in the eastern U.S. for decades—and doing so very successfully.
While there are some qualitative differences between a Wawa grocery market and a Tesco Fresh & Easy store (which is a version of their Tesco Express format), there also are many similarities: limited assortment basic groceries, fresh meat and produce departments, lots of prepared foods, for example.
Wawa also sells gas at many of its grocery markets, a practice becoming more an more popular with supermarket chains, as we all know.
Unlike F&E though, Wawa isn’t trying to be a low-price leader with its basic grocery goods. Their retails are lower than most C-stores, but slightly higher than most supermarkets. The key for F&E is going to be, can they make money? Wawa keeps its margins decent not only by selling prepared foods, but also by selling groceries (which it sells a lot of) for higher margins than supermarkets. For F&E to make any money, they are going to have to sell lots of groceries and prepared foods.
Most of the comments on this column are much more insightful than the US analysts who cover the supermarket sector. So, congratulations to you all.
Time will tell what happens with Fresh & Easy. It may not be the future of food retailing in the US and may not grow to anything like the number of stores that are being projected. But one thing is for certain: stores that have middle aged women devoting an afternoon to meticulously stacking apples into perfect pyramids and have 20 choices of soy sauce aren’t either. I would be very surprised if Safeway is successful, because it doesn’t have the cost structure in place to match the offer and the price.
Yes, Safeway and other supermarkets need to develop more small store formats. This was a need even before Tesco entered the market. Consumers like choices and may choose a smaller store with a good selection for convenience shopping.