by Mitchell Clute
Sometimes old ideas are the best ideas. A case in point is the small-format grocery store, akin to the neighborhood market of the past. In fall 2007, Britain's Tesco opened its first Fresh and Easy Neighborhood Market in California, based on a retailing model that has been highly successful in Europe. Since then, Tesco has opened more than 70 stores in California, Arizona and Nevada.
And Tesco isn't alone in the trend. Safeway has opened its first small-format store in California, Jewel-Osco has one under construction in Chicago and Walmart is working on four "Marketside" stores, its own version of the small-concept grocery, in Phoenix. In addition, Whole Foods is working on a Whole Foods Express concept.
What's the appeal of 10,000- to 15,000-square-foot stores, when for decades grocery store sizes have been trending upwards? "The No. 1 reason is that consumers want a more empowering, more intimate retail experience," according to Phil Lempert, founder and editor of Supermarketguru.com, a website that watches retail trends. "Consumers are overwhelmed by the choices [in traditional supermarkets]. There's too much stuff and not enough differentiation on price."
Jim Hertel, managing partner at retail consultancy firm Willard Bishop, agrees. The appeal is primarily convenience. "More trips now are quick-mission, grab-and-go types, and small stores are easier to get in, get through and get out of quickly," he says.
The current economic climate, far from putting an end to these small store experiments, may actually speed up the process. Hertel explains that the trend has appeal for retailers. "It helps them target trips that typical 40,000 to 55,000 [square-foot] supermarkets are not as well suited for," he says, "and it opens up more location possibilities from a real estate point of view."
"Retailers are looking at their overhead, whether it's employees or their physical plant, and scratching their heads because they just can't afford it," Lempert says. "These new, smaller stores are designed for people to walk to, where huge parking lots aren't required. It really is a return to the corner grocery stores our grandparents went to."
Last year, for the first time in decades, Food Marketing Institute data showed that the average size of new stores declined. Lempert believes many conventionally sized supermarkets are headed the way of the dinosaur, with a new grocery landscape of smaller stores on one hand and big-box retailers like Sam's Club and Costco on the other. "We'll have two extremes, with neighborhood stores we shop at three times a week and warehouse stores we visit once a month," he says.
If this trend is here to stay, who will suffer and who will succeed? In the short term, sales across the board may dip. But in the long term, smaller stores have a lot to gain—and this includes independent natural foods retailers, which have traditionally been neighborhood destinations with smaller footprints.
"There's no question that naturals retailers stand to gain because of their relationship with shoppers," Lempert says. "Independent retailers have such an opportunity to really build their businesses because people want to relate to people, not to faceless corporations." As an example, Lempert points to an independent food store in his office building in Santa Monica, Calif. The store's deli and smoothie bar has managed to outlast two smoothie chains in the area because of its positive customer connections.
Lempert, an early booster of Tesco's small stores, believes more retailers will enter the small-store fray. "The economy is speeding up the process, because retailers have to build their business, and these new stores allow retailers to update their technology, which is way behind the times, in an affordable way through more self checkout and more efficient front-end processes," Lempert says. "Retailers are going to build these stores as fast as they can."
Specialty retailer Trader Joe's has built its entire business on the concept of smaller stores with high-quality branded items, but fewer SKUs. While Trader Joe's may have been the first, it won't be the last. Ultimately, Lempert believes the small store approach is a boon for customers and their understanding of the foods they purchase. "It brings us closer to our food and allows us more enjoyment," he says. "When we're not faced with overwhelming choices, we can spend more time selecting items, reading labels and understanding where it comes from." In other words, these new small stores sound a lot like what independent naturals retailers have been offering all along
Mitchell Clute is a Fort Collins, Colo.-based freelance writer.
Natural Foods Merchandiser volume XXIX/number 12/p. 12