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Natural Foods Merchandiser

Lessons from big retail stores going small

The British supermarket chain Tesco rolled out its first U.S. group of miniature stores—called Fresh & Easy Neighborhood Markets—in 2007, and hopes to have 300 in the near future, all on the West Coast. Meanwhile, Walmart has tested the waters with four little Marketside stores in Arizona and is now launching a new small-store concept. What can independent natural products retailers learn from this trend?

The warehouse-style shelving, bright overhead lighting, and olive green and lime accents give the store an industrial-chic look. Refrigerated cases line the walls, stocked with private label prepared foods and fresh meals, delivered as often as three times a day. The rest of the grocery offers prepackaged produce, fair-trade coffee, antibiotic-free meats and store-brand packaged goods—all at prices well below what you’d expect to pay at a naturals store. 

At 10,000 square feet, it’s small enough to get in and out of in a jiffy but big enough to meet all your shopping needs. It’s fresh. It’s easy. It’s a Fresh & Easy Neighborhood Market, Tesco’s chain of nearly 200 small-footprint stores. The British supermarket chain Tesco rolled out its first U.S. group of these miniature stores in 2007, and hopes to have 300 in the near future, all on the West Coast. Meanwhile, Walmart has tested the waters with four little Marketside stores in Arizona and is now launching a new small-store concept. 

What can independent natural products retailers learn from this trend?

Before answering that question, it’s important to understand that what’s small for Walmart might be gigantic to a natural retailer; these conventional stores are usually 10,000 to 25,000 square feet, larger than all but the biggest natural chain stores. “One man’s ceiling is another man’s floor,” says Jay Jacobowitz, president of Retail Insights, a consulting firm based in Brattleboro, Vt.

Still, although many natural retailers can’t take advantage of Tesco’s and Walmart’s economies of scale, these stores do offer critical lessons—both in terms of where they succeed and where they fail. The jury’s still out on whether Fresh & Easy and its kin make economic sense; Tesco is losing money on the venture.

And Walmart is slated to close all four Marketsides, but is launching a new venture, Walmart Express. Rather than a grocery market, the Express concept will be a mini Walmart, or general store; hundreds are planned in the coming years, in both urban and small-town markets. Walmart believes the selling points of its Express stores will be targeted product selection, sensible design and fresh stock.

Walmart and Tesco store stats

Walmart Marketside

  • Year started: 2008
  • Locations: Arizona
  • Average weekly sales per store: $5,000
  • Number of stores: 4
  • Standout features: Served as a small-store experiment and launching pad for the Marketside private label brand
  • Number of SKUs per store: 5,000 to 10,000

Tesco Fresh & Easy

  • Year started: 2007
  • Locations: California, Arizona, Nevada
  • Annual revenue: $818 million for the 12-month period ending in February; up 42 percent from the previous year
  • Previous year profit/loss: Loss of $307 million, partly due to acquisition of fresh food suppliers
  • Estimated break-even number of stores: 300
  • Current number of stores: 172
  • Standout features: 70 percent of sales are generated by private label items; huge selection of fresh prepared foods
  • Number of SKUs per store: 4,500 to 5,000

Small-format strategies for indie retailers

Here’s how you can bring concepts from conventional small-format competitors to your own store.

Choose your SKUs wisely

A big store can afford to stock everything, but a smaller store must be selective. “What the successful small-format stores have done is distill the essence of a larger store down to an edited SKU count,” says Jim Hertel, managing partner of retail consulting firm Willard Bishop, based in Barrington, Ill. “Instead of having 40,000 items, you might have 2,000; there’s not a lot of room for error.”

Fresh & Easy offers 4,500 to 5,000 SKUs per store, with the majority being house-brand items. Marketside’s 5,000 to 10,000 SKUs are divided between private and national labels.      

Try this

Stocking the right product mix means you must know the needs and desires of your customer base. “Make sure you’re responding to consumer queries and using your space wisely,” says Bill Crawford, director of retail publishing programs for New Hope Natural Media, the Boulder, Colo.-based parent company of Natural Foods Merchandiser. “In terms of commodity items, you need to provide two choices—the best-known brand in your market, plus a specialty brand with high quality and limited distribution.” This strategy works because shoppers in a hurry have a choice of products without an overwhelming number to sort through. In addition, private label items don’t get lost on a wall of similar products.

Don’t be dense

“We’ve learned to operate in small spaces and make the most of every square foot,” Jacobowitz says of natural products retailers. The end result, though: a tight fit.

In terms of interior design, many smaller natural stores could learn from Fresh & Easy and its ilk. For example, Fresh & Easy uses 5-foot shelving to open the store space and improve line of sight. But this plan may prove impossible to duplicate in very small stores that must use every vertical inch to accommodate a full line of products.

Try this

In a smaller footprint, retailers have to balance product density versus spaciousness. Jacobowitz says pack-out—the arrangement of SKUs on the shelves—is one of the keys to moderating the effect of a diminutive footprint. A smaller store will look disorganized, even chaotic, if SKUs aren’t tidy and fully stocked. Make sure you have storage for back stock so you never have unfilled holes on shelves as you await deliveries.

Be unique

“For a lot of independent natural retailers, the aesthetic piece is more or less an afterthought,” Jacobowitz says. “Having a unified design, with a color and materials and texture palette that encompass the entire space, is definitely something to consider.”

For example, Fresh & Easy uses bright, institutional lighting, which makes products easy to find but doesn’t offer the warmth and intimacy of, say, Whole Foods Market. The natural chain has a consistent color and texture palette from store to store, and uses a combination of general lighting and high-intensity spotlighting. Research shows consumers associate the latter with higher-end businesses.

By giving lighting and other design elements more thought—and more consistency—you can create a unified look that customers respond to on an emotional level. “Design affects the shopper’s experience and emotional reaction because it creates a store identity in the hearts and minds of the consumer,” Jacobowitz says.

Try this

“For independent retailers, your design should show how you’re different, and your design and presentation can support your strengths,” Jacobowitz says. For example, he recommends making aisles wider in the personal care and supplements sections so shoppers have more room to examine products. And because consumers tend to read health and beauty product labels carefully, use brighter spotlights in those sections. “Also, support your market position with aromatherapy, potted plants, complimentary tea or coffee, quiet music and reading areas where customers can interact with your knowledgeable staff,” he says. “These design and presentation decisions will make a connection with shoppers and support who you are, which is different from what Fresh & Easy is.”

Become a fresh destination

“Are you trying to catch the once-a-day shopper who wants to grab fresh foods and leave?” Crawford asks. “A lot of natural stores are hard-pressed to serve that customer, because they don’t get daily deliveries.”

Fresh & Easy has its own food distribution rail and truck system to restock fresh prepared foods once a day or more at each store—a key part of the retailer’s strategy. The only way a natural retailer can compete—especially if your store footprint is in that 15,000-square-foot range rather than the 3,000-square-foot size that is typical for natural independents—is to embrace the fresh challenge. Larger stores are better equipped to enter the fresh fray because they have space to devote to a deli, cheese cases, bakery displays and kitchen or other food prep areas.

“If a smaller store wants to make a mark in the perishables category, it would have to be through in-store prepared foods,” Jacobowitz says. “The other perishables departments—freezer, dairy, produce—are all ‘finished’ product, most of it branded already by others.”

But turning raw ingredients into finished products on site has its challenges. “It requires capital, expertise, space, equipment, licensing,” Jacobowitz says. “But good things worth pursuing are never easy or cheap.”

Try this

With everyone jumping on the fresh foods bandwagon, the key is to create signature dishes that lure shoppers. Hertel cites the example of a Chicago-area fishmonger who sets up a grill outside his shop every summer and cooks up that day’s catch for shoppers. “It’s the freshest possible fish, it’s reasonably priced and it’s spectacular,” he says. “If what you offer is truly special, people will go out of their way to make your store a destination.”

Mitchell Clute is a Fort Collins, Colo.-based freelance writer who tends to shop for one meal at a time.

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