HARMAR TOWNSHIP, Pennsylvania: Like cars and homes, grocery stores in the United States are beginning to shrink.
After years of building bigger stores - many larger than a soccer field and carrying 60,000 items - retailers are experimenting with radically smaller grocery stores that emphasize prepared meals, fresh produce and grab-and-go drinks. The idea is to lure time-starved shoppers who want to pick up fast meals without paying restaurant prices or wandering down long grocery aisles.
Safeway has opened a smaller-format store in Southern California, and Jewel-Osco is building one in Chicago. Wal-Mart plans to open four Marketside stores in the Phoenix area this autumn, and Whole Foods Market is considering opening smaller stores.
And here in the northern suburbs of Pittsburgh, the grocery chain Giant Eagle opened a Giant Eagle Express last year that is about one-sixth the size of its regular stores. It offers gasoline pumps, wireless Internet and flat-screen televisions in a small café, a drive-through pharmacy and an expansive delicatessen that offers sushi, rotisserie chickens and ready-to-heat dinners.
"It's perfect," said Dusty McDonald, a 29-year-old bank teller who was buying breakfast sandwiches recently for her co-workers at the Giant Eagle Express. "It's on my way to work. It only takes me 10 minutes to get in and out."
The opening of smaller stores upends a long-running trend in the grocery business: building ever larger stores in the belief that consumers want choice above all. While the largest traditional grocery stores tend to be about 85,000 square feet, or 7,900 square meters, some cavernous warehouse-style stores and supercenters are two or three times that size.
Statistics compiled by the Food Marketing Institute show that the average size of a grocery store dipped slightly in 2007 - to a median of 47,500 square feet - after 20 years of steady growth.
The biggest push toward these new stores is coming from the British retailer Tesco, which made a splashy entry into the United States last autumn by opening a 10,000-square-foot Fresh & Easy Neighborhood Market in Las Vegas.
Since then, Tesco has opened 72 more stores in Nevada, Arizona and Southern California.
Gary Smith, founder of Encore Associates, which advises the food and consumer goods industry, said the smaller stores opened by other chains were "a loud message to Tesco that they are not going to be able to walk in and grab market share."
"It's also a way for them to do some testing for if and when Tesco comes to their market," Smith added. "They are better able to counter it."
Grocery retailers face competition other than Tesco on multiple fronts. Chains ranging from Target to dollar stores are selling more groceries, and some small convenience stores are offering higher-quality food.
The big grocery chains are not thinking about closing their larger stores, which have been a success. But they hope to capture new business with the smaller stores, appealing to consumers on days when they do not have time for a long shopping trip.
"The average person goes shopping for 22 minutes," said Phil Lempert, who edits Supermarketguru.com, a Web site that tracks retail trends. "You can't see 30,000 or 40,000 products. We are moving into an era when people want less assortment."
Of course, small grocery stores have been around for eons, and some old-time neighborhood markets still exist. Meanwhile, a handful of specialty retailers have proved that shoppers will flock to smaller stores if they are offered a novel experience.
Trader Joe's, for one, has thrived by offering a limited selection of high-quality, relatively inexpensive products in quirky stores that are 15,000 square feet or smaller. Aldi and Save-A-Lot are drawing customers in droves by selling a limited assortment of aggressively discounted products.
What distinguishes the new stores is that they are being built by more traditional retailers, and they emphasize fresh, prepared foods for busy consumers.
Kevin Srigley, a senior vice president at Giant Eagle, whose stores are spread across western Pennsylvania, Ohio, West Virginia and Maryland, said that the express store sought to provide customers with a "smart stop to save you time on the things you need most," in addition to offering fresh foods.
Will customers come to the smaller stores? Analysts said Tesco's initial sales had fallen short of expectations, and the company had stopped opening stores for several months this year to assess customer feedback and make adjustments. The company has not released figures detailing the Fresh & Easy stores' performance.
Will Carless contributed reporting from Laguna Hills, California.
http://www.iht.com/articles/2008/09/10/business/grocery.php
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Showing posts with label Wal-Mart. Show all posts
Showing posts with label Wal-Mart. Show all posts
Thursday, 11 September 2008
Monday, 8 September 2008
Two articles from the IHT about the success of low-cost supermarkts (IHT)
The lure of plain vanilla from Germany (IHT)
Like its reclusive German founders, the supermarket chain Aldi does not do much to draw attention to itself.
Its stores in the United States are small and spartan, with minimal décor and a limited selection of products. They are often found in nondescript shopping strips and lack the flashy signs and window displays of some competitors. Grocery carts cost a quarter apiece, which is refundable after the cart is returned.
But as the U.S. economy sputters and consumers look to save money, the privately held Aldi is suddenly emerging as a major force in the U.S. grocery business, one that some predict could one day rival Wal-Mart.
What makes Aldi so special is that, quite simply, its prices are cheaper than just about anyone else's, including Wal-Mart's.
The company said recently that prices of its private-label products were 16 percent to 24 percent below those at discounters and big-box stores, and 40 percent less than those at traditional supermarkets.
Its stores in the United States are small and spartan, with minimal décor and a limited selection of products. They are often found in nondescript shopping strips and lack the flashy signs and window displays of some competitors. Grocery carts cost a quarter apiece, which is refundable after the cart is returned.
But as the U.S. economy sputters and consumers look to save money, the privately held Aldi is suddenly emerging as a major force in the U.S. grocery business, one that some predict could one day rival Wal-Mart.
What makes Aldi so special is that, quite simply, its prices are cheaper than just about anyone else's, including Wal-Mart's.
The company said recently that prices of its private-label products were 16 percent to 24 percent below those at discounters and big-box stores, and 40 percent less than those at traditional supermarkets.
While the chain's format might perplex some shoppers who are used to a much broader selection, Aldi officials have maintained that the advantage of shopping at its stores — cheap prices — quickly becomes clear.
For shoppers, "there isn't much of a learning curve with a head of lettuce for 99 cents," Jason Hart, president of the United States division of Aldi, told Supermarket News.
Restaurant analysts and consultants are bullish on the chain. "Aldi has been one of the best-kept secrets in the United States for 20 years," said Bill Bishop, chairman of Willard Bishop, a consulting firm that caters to the supermarket industry. "They are a force to be reckoned with."
Neil Stern, a senior partner at the retail consulting firm McMillanDoolittle, said: "Aldi is one example of a chain that is ripe for the time."
The chain's low-key style reflects its reclusive, elderly founders, the octogenarian German billionaires Theo and Karl Albrecht, who reportedly live on the island of Föhr in the North Sea, where they are said to collect typewriters, play golf and tend to orchids. In 1971, Theo was kidnapped for 17 days, and the brothers have kept a low profile ever since.
The brothers split the business in two in the early 1960s, after a disagreement over whether to sell cigarettes. There are now two companies, Aldi Nord and Aldi Sud, which owns the United States division. In 1979, Theo Albrecht bought the Trader Joe's chain, which shares Aldi's small-store format, its reliance on private-label brands and its reputation for value, albeit in a hipper and more upscale way.
An Aldi spokeswoman said that the brothers were not involved in the company's United States operations. But their reputation as relentless economizers infuses the chain, whose name is short for Albrecht Discounts.
"The typical supermarket is a minefield of hidden costs," Aldi's Web site says. "Along with your groceries, the extra freight of free bags, baggers and check acceptance is loaded into your cart every time you shop, whether you use those services or not."
Aldi's stores are designed to cut out many of those costs. While some grocery stores carry about 45,000 items, Aldi stores offer only 1,300 or so products, most of which are private-label brands. They are often displayed in the store in the cardboard box in which they were delivered.
Having so few products ensures regular turnover, reduces spoilage and labor, and gives Aldi tremendous buying power with its suppliers. With its smaller stores, the company can lower its heating and electricity bills. In addition, the stores are typically open only during peak U.S. shopping times, from 9 a.m. to 7 or 8 p.m. Monday through Saturday, and 12 p.m. to 5 p.m. on Sunday.
Though it opened its first store in the United States in 1976, it only recently ran its first national television ad campaign. From a look at the ads on the company Web site, it doesn't seem as if the company spent much on them, either.
Credit cards and checks aren't accepted, eliminating processing fees and the cost of bad checks. Shoppers must bag their own groceries and provide their own bags — though leftover cardboard boxes are free.
So why charge for shopping carts? Aldi says customers are more likely to return their carts, so fewer carts need to be replaced and an employee isn't needed to round up carts in the parking lot.
Aldi's no-frills approach appears to be paying off. There are more than 950 stores in the United States, and it plans to add 100 in the next year. (It has 8,500 worldwide.) Supermarket News estimates that sales last year were $5.8 billion. By comparison, Wal-Mart's grocery sales in 2006 were $92 billion, according to the Food Marketing Institute, which listed Aldi's 2006 sales at $3.3 billion.
For shoppers, "there isn't much of a learning curve with a head of lettuce for 99 cents," Jason Hart, president of the United States division of Aldi, told Supermarket News.
Restaurant analysts and consultants are bullish on the chain. "Aldi has been one of the best-kept secrets in the United States for 20 years," said Bill Bishop, chairman of Willard Bishop, a consulting firm that caters to the supermarket industry. "They are a force to be reckoned with."
Neil Stern, a senior partner at the retail consulting firm McMillanDoolittle, said: "Aldi is one example of a chain that is ripe for the time."
The chain's low-key style reflects its reclusive, elderly founders, the octogenarian German billionaires Theo and Karl Albrecht, who reportedly live on the island of Föhr in the North Sea, where they are said to collect typewriters, play golf and tend to orchids. In 1971, Theo was kidnapped for 17 days, and the brothers have kept a low profile ever since.
The brothers split the business in two in the early 1960s, after a disagreement over whether to sell cigarettes. There are now two companies, Aldi Nord and Aldi Sud, which owns the United States division. In 1979, Theo Albrecht bought the Trader Joe's chain, which shares Aldi's small-store format, its reliance on private-label brands and its reputation for value, albeit in a hipper and more upscale way.
An Aldi spokeswoman said that the brothers were not involved in the company's United States operations. But their reputation as relentless economizers infuses the chain, whose name is short for Albrecht Discounts.
"The typical supermarket is a minefield of hidden costs," Aldi's Web site says. "Along with your groceries, the extra freight of free bags, baggers and check acceptance is loaded into your cart every time you shop, whether you use those services or not."
Aldi's stores are designed to cut out many of those costs. While some grocery stores carry about 45,000 items, Aldi stores offer only 1,300 or so products, most of which are private-label brands. They are often displayed in the store in the cardboard box in which they were delivered.
Having so few products ensures regular turnover, reduces spoilage and labor, and gives Aldi tremendous buying power with its suppliers. With its smaller stores, the company can lower its heating and electricity bills. In addition, the stores are typically open only during peak U.S. shopping times, from 9 a.m. to 7 or 8 p.m. Monday through Saturday, and 12 p.m. to 5 p.m. on Sunday.
Though it opened its first store in the United States in 1976, it only recently ran its first national television ad campaign. From a look at the ads on the company Web site, it doesn't seem as if the company spent much on them, either.
Credit cards and checks aren't accepted, eliminating processing fees and the cost of bad checks. Shoppers must bag their own groceries and provide their own bags — though leftover cardboard boxes are free.
So why charge for shopping carts? Aldi says customers are more likely to return their carts, so fewer carts need to be replaced and an employee isn't needed to round up carts in the parking lot.
Aldi's no-frills approach appears to be paying off. There are more than 950 stores in the United States, and it plans to add 100 in the next year. (It has 8,500 worldwide.) Supermarket News estimates that sales last year were $5.8 billion. By comparison, Wal-Mart's grocery sales in 2006 were $92 billion, according to the Food Marketing Institute, which listed Aldi's 2006 sales at $3.3 billion.
Of course, shopping at Aldi is hardly the same experience as shopping at Wegmans or Whole Foods Market, or the local Kroger or Safeway. Those stores spent the last decade catering to shoppers' desire for convenience and more upscale products like artisanal cheeses, fresh-caught fish and organic produce.
Aldi ignored the trends and stayed focused on price. For now, at least, shoppers are rewarding that decision.
Aldi ignored the trends and stayed focused on price. For now, at least, shoppers are rewarding that decision.
********************
Morrison to top growth league (IHT)
LONDON: Wm Morrison Supermarkets is set to post a 19 percent rise in first-half underlying profit on Thursday and confirm it is taking market share from bigger rivals as cash-strapped shoppers flock to its lower price stores.
Britain's fourth-biggest supermarket group is also expected to confirm plans to return 500 million pounds to shareholders both this fiscal year and the next, despite having only bought about 10 percent of this year's tranche so far.
Analysts say the buyback could help underpin Morrison's shares as it faces more demanding sales comparatives in the second half of the year.
Morrison is set to report profit before tax and one-off items of 294 million pounds for the 26 weeks to August 3, according to the average forecast of 8 analysts polled by Reuters. Estimates range from 284 million to 305 million.
Like-for-like sales excluding fuel, a key industry measure, are forecast to climb 7.2 percent in the second quarter, boosted by higher food prices as grocers pass on the rising cost of commodities such as meat and dairy products.
Britain's fourth-biggest supermarket group is also expected to confirm plans to return 500 million pounds to shareholders both this fiscal year and the next, despite having only bought about 10 percent of this year's tranche so far.
Analysts say the buyback could help underpin Morrison's shares as it faces more demanding sales comparatives in the second half of the year.
Morrison is set to report profit before tax and one-off items of 294 million pounds for the 26 weeks to August 3, according to the average forecast of 8 analysts polled by Reuters. Estimates range from 284 million to 305 million.
Like-for-like sales excluding fuel, a key industry measure, are forecast to climb 7.2 percent in the second quarter, boosted by higher food prices as grocers pass on the rising cost of commodities such as meat and dairy products.
The group is, after several integration problems, feeling the benefit of its purchase of rival Safeway in 2004 as well as its "Refresh" campaign to revamp stores and its image as a lower-priced alternative to some of its rivals.
Cash-strapped Britons are trading down to cheaper stores amid higher fuel and food costs, as well as sliding house prices.
Analysts are looking for signs of whether Morrison will step up promotional spending as it comes up against the second half's tougher sales comparatives, after having a quieter first half than some of its rivals.
They are also keen for an update on whether Morrison will try to buy stores from The Co-Operative Group, which is expected to put some on the market following its purchase of Somerfield.
Bradford-based Morrison runs around 375 stores and has a market share of about 11 percent, trailing J. Sainsbury , Wal-Mart-owned Asda and market leader Tesco .
Cash-strapped Britons are trading down to cheaper stores amid higher fuel and food costs, as well as sliding house prices.
Analysts are looking for signs of whether Morrison will step up promotional spending as it comes up against the second half's tougher sales comparatives, after having a quieter first half than some of its rivals.
They are also keen for an update on whether Morrison will try to buy stores from The Co-Operative Group, which is expected to put some on the market following its purchase of Somerfield.
Bradford-based Morrison runs around 375 stores and has a market share of about 11 percent, trailing J. Sainsbury , Wal-Mart-owned Asda and market leader Tesco .
Ian Walthew
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