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What's in Store: Big boxes open small packages, with perishables

Mass-merchandise retailers test smaller-format stores with a perishables focus

Walmart’s small-format urban Neighborhood Market has a fresh focus.  - Photos courtesy of Walmart
By Christine Blank
June 01, 2014

Walmart and Target: Arguably the two biggest names in mass merchandising, the retail giants have in recent years expanded into the grocery space with great success. Now the big players are going small and in unconventional locations to tap into new sales opportunities. 

Earlier this year, Walmart doubled its original growth forecast for its smaller-format stores, saying it would add between 270 and 300 units in 2014. Walmart currently operates 346 Neighborhood Markets and 20 Walmart Express stores.

“Neighborhood Market is performing comparable or favorable to leading grocers,” says Bill Simon, Walmart U.S. president and CEO, in a statement. “Our small-store expansion, in addition to providing customers access to a wide variety of products including fresh, pharmacy and fuel, will help us usher in the next generation of retail.”

Neighborhood Market’s focus on all things food, rather than typical department store-type items, makes it an ideal candidate for growing its fresh and frozen food selection. “Because Neighborhood Market is a supermarket, it gives seafood more visibility,” says Leon Nicholas, senior VP at Kantar Retail, a global retail market insights firm. 

Kantar predicts that Walmart will add around 200 more Neighborhood Markets by the end of this year, and that’s just the start. “By 2018, [Walmart] could be in the mid-$20 billion range for that format,” says Nicholas. “That’s a retailer that is bigger than Meijer, and that is just one banner.” 

The Neighborhood Market brand has grown quickly because executives have figured out how to use the pharmacy as a traffic driver, Nicholas says. “Walmart has also given stronger internal support to the stores,” adds Nicholas. “Neighborhood Markets were originally seen as an add-on [to traditional Walmart stores and supercenters].”

While the perishables assortment in the 40,000- to 80,000-square-foot Neighborhood Market stores is less than in Walmart supercenters (which average 197,000 square feet), seafood suppliers still have opportunities for their product to achieve shelf space. 

“Assortment is typically edited, but not necessarily to just top sellers. It’s critically important to understand neighborhood demand patterns and assort accordingly,” says Jim Hertel, managing partner at retail consulting firm Willard Bishop in Barrington, Ill.

Kantar predicts that Walmart will add 100 Walmart Express units, which range from 10,000 to 15,000 square feet, in the next fiscal year. The stores feature a variety of refrigerated, frozen and shelf-stable seafood items.

Seafood suppliers also have increasing opportunities to sell their products with Walmart’s ramped-up e-commerce efforts. The retailer is testing Walmart to Go grocery home delivery service at 11 stores in Denver and then will likely expand the service to other metropolitan markets. 

“Walmart is trying to create an ecosystem in which a shopper can get access to Walmart any way they want,” Nicholas says.

Meanwhile, Target plans to add between 10 and 20 PFresh stores in the next fiscal year. Already, Target operates 1,200 scaled-down PFresh stores, representing around 80 percent of its store base. 

“All new stores (except for Target Express) are PFresh. Target really wants to ramp up the idea of a one-stop shop,” says Amy Koo, senior analyst for Kantar Retail. In the past, Target has been focused on selling department-store goods, including clothing and household goods, as well as higher-ticket items such as furniture.

However, Target needs to figure out how to better merchandise food in PFresh and its smaller format City Target stores to better compete with Walmart and traditional grocery chains,
according to Koo. “Target is not as adept at selling food or consumables. They are coming from that heritage of a department store, focused on fashion and higher-ticket items. They keep inventory levels low because of the way they manage the company, so it doesn’t help for a replenishment-based system.”

Still, PFresh features a wide selection of fresh and frozen packaged seafood items, including the Archer Farms private label. And PFresh fits in perfectly with Target’s efforts to expand its meal solutions in its stores, including healthy meal ideas utilizing seafood. 

“Target is trying to figure out how to leverage their food more effectively,” Koo says. “They bought Chef’s Catalog and Cooking.com. The idea is to be more engaging with guests, online and off, and ties into this idea of entertaining in general.”

Target appeals more to “foodie” consumers hosting dinner parties and cooking with their families for enjoyment, whereas “Walmart shoppers are more focused on just getting the price and getting the meal on the table,” Koo says.

Plans for Target’s eight City Target stores are on hold while the retailer determines how to better merchandise in small formats. “Despite the fact that they have so much space (100,000 square feet on average), they still have a problem with frequency. If you are going to have your groceries all the way in the back of the store, it is not convenient, especially to urban shoppers,” Koo says.

In an attempt to learn how to sell food better in a small format, Target is testing a 20,000-square-foot Target Express store in Minneapolis this summer. The urban store is being built at the base of an apartment building under construction near the University of Minnesota campus. 

Contributing Editor Christine Blank lives in Lake Mary, Fla.

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