The west coast of America has seen significant market developments recently, including the emergence of a new type of 'convenience' style supermarket format. So which retailers are really standing out?

Following his research trip to Los Angeles, CA and Phoenix, AZ, IGD's Jamie Trust shares his insight and uncovers some innovative practice.
 

Retailers in the US are offering a new convenience proposition

US grocery - a unique nature

Retail sales are down, unemployment is on the up and the three largest car manufacturers are on the brink of collapse. It is hard to ignore the problems that the US economy is currently facing, with falling consumer confidence continuing to strike fear into the eyes of retailers all over the country. Analysts are already predicting that the current holiday season will be one of the worst on record, with operators attempting to find new ways to drive incremental sales in what is the world's largest grocery retail market. According to our latest report, Global Retailing: Preparing for Change, the US grocery market is worth an estimated $880bn (2008).

It is important to consider the unique nature of the US grocery sector, a market which is highly fragmented and characterised by a vast number of different channels - hypermarkets, superstores, supermarkets, discount stores, price-impact warehouses, convenience and forecourt operators and drug store chains. In this respect, those looking to do business within the US must adopt a regional focus, with a different set of players and legislation common across different US states.
 

Which retailers stood out?

Wal-Mart continues to lead the way in the current climate. Since the turn of the year, it has consistently outperformed the sector as a whole, increasing comparable store sales by 3.0 per cent for the third quarter of Fiscal 2009. As part of our research, I visited a Wal-Mart Supercenter in Pico Rivera, southeast of downtown LA, and was impressed with many of the recent improvements implemented across the business, most notably its "win, play, show" merchandising strategy.

Roll-backs were also very prominent throughout the store, helping to reinforce Wal-Mart's price leadership in the market. Much of Wal-Mart's work towards improving the presentation of its seasonal merchandise appears to be paying off for the group, with strong Christmas displays and promotions on show. The Wal-Mart 'Christmas Shop', found in the rear corner of the store, also appeared to generating strong interest.

Wal-Mart in-store communication

Source: IGD Research

Although it was clear during the visit that premium focused operators are finding times particularly tough, Whole Foods Market appears to be continuing to do what it does best. I visited a newly opened Whole Foods store in Venice Beach, CA, the group's highest volume store in the South Pacific, and was impressed with what I saw. Alongside its best-in-class fresh food execution and restaurant quality food-to-go, Whole Foods Market appears to have tightened up its value message considerably in the current climate. The '365' private label range has been the main vehicle of achieving this, with Whole Foods ramping up its private label focus and communicating this via a new 'Everyday Low Price' strap-line in categories where 365 is most prevalent.

In the forecourt sector, Quick Trip, a family owned retailer with approximately 500 stores, also appeared to be trading strongly. Although research shows that US consumers are now looking to consolidate their weekly shopping trips more in the downturn, Quick Trip's innovative store layout, and food-to-go ranges appeared to be generating strong traffic at stores visited in Phoenix.
 

The role of new small store formats

One particular highlight of the trip was to experience several new store formats which are being described as 'Urban Style Supermarkets'. This included visits to Fresh & Easy (Tesco), Trader Joe's (Aldi), The Market by Vons (Safeway) and Marketside (Wal-Mart). These stores are uniquely different to anything else that exists in the marketplace, with each aiming to take advantage of several gaps that currently exist in mainstream supermarket retailing.

New 'Urban Style Supermarkets'

Source: IGD Research

In the past, US supermarkets have been criticised for carrying too many SKUs, and in doing so, overcomplicate the decision process and make product navigation increasingly difficult for shoppers. In response, mainstream grocery operators like Safeway and Wal-Mart have begun trialling smaller store formats which carry fewer SKUs and specialise in a fresher, more convenient shopping experience.

Although there are several areas of overlap across the different small scale supermarket stores on the west coast of America, it is important to understand how they all differ in approach. Both Fresh & Easy and Trader Joe's place a strong emphasis on operating margins by keeping costs low and adopting a predominantly private label led strategy. The latter of which was particularly striking upon entry to both these stores, and is a key point of difference compared to other grocery store operators on the west coast, and the US in general.

Store portfolio figures of small scale operators   Operator Stores Trader Joe's Over 300 Fresh & Easy Over 100 Marketside 4 The Market by Vons 1 Source: IGD Research

In comparison, Marketside and The Market by Vons take a very different approach to small scale retailing. Both these store formats focus more strongly on quality, service and a more premium shopping experience, rather than strict cost control and a high volume led business model. Marketside for example, which has been open in south-eastern Phoenix since October 2008, had a number of fresh food counters in its four stores, in stark contrast to the more simple models of Fresh & Easy and Trader Joe's.

The Market by Vons store in Long Beach, California, also benefited from a fresh butchers, fish counter, deli, artisan bakery, and freshly prepared sandwich counter, a key traffic builder of the store. Marketside's newly developed meals-to-go range also impressed me, with the range sold under four clear price points - $8, $6, $4, $2 - appealing strongly to those looking to eat out less in the months ahead. This is even more notable when considering the fact that the range has been developed exclusively for the Marketside format, with Wal-Mart having little previous experience of operating a meal solutions led merchandising strategy across its stores.

A full round-up of this highly innovative channel and the individual players is available as a Special Analysis Report on IGD's Retail Analysis service.
 

More information:

	Global Retailing: Preparing for Change
	This latest report provides an overview of how the next era of retailer internationalisation is shaping up, as well as highlighting the key growth markets and channels going forward

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Jamie Trust is a Business Analyst in IGD's Market Intelligence unit and is responsible for managing coverage of the US market. As well as coordinating IGD’s research on the European private label market, Jamie has co-authored the new report Global Retailing: Preparing for Change. In the last year he has travelled to the USA, Netherlands, Sweden, Denmark and the Baltic States, and continues to play an active role in the ongoing development of Retail Analysis, IGD’s online subscription service.