Safeway goes to Market: No. 3 U.S. grocer answers Tesco with smaller Lifestyle-like store

LONG BEACH, CALIF. —Safeway responded to Tesco’s invasion of its home turf in California last month with the opening of a new, small-format store called ‘The Market.’ The unit is the first of four tentatively planned for 2008 and could lead to a larger rollout in 2009.

The 15,000-square-foot store located in the affluent Belmont Shores area of Long Beach, Calif., is basically a sawed-off version of Safeway’s Lifestyle stores. It has the same upscale look with wood flooring at the entrance, along with a floral section and a Starbucks coffee stand.

The store—officially called ‘The Market by Vons’ because it is part of Safeway’s Southern California Vons chain—puts a strong emphasis on prepared meals and freshly made food-to-go with a bakery and deli. It also has a large wine section with more than 1,000 wines and a wide selection of its private label “O” Organics products, including an organics section in the produce department.

About 50% of the product mix consists of produce, meat and prepared foods, with ready-to-go meals displayed in a refrigerated case near the front of the store. The rest of the mix is made up of canned, packaged foods and condiments with a liberal offering of its private label mixed in.

Safeway launched the store without fanfare and has been fairly quiet about its plans. It did say it could open as many as three more this year and up to 25 in 2009 if the concept is a success.

While ‘The Market’ is an obvious response to Tesco’s arrival, Safeway seems to be targeting its typical customers with merchandise and prices found in its other banners. “The products and pricing are comparable to our regular Vons stores,” said Safeway spokeswoman Teena Massingill.

In contrast, Fresh & Easy stores make lower prices part of their allure as they compete head-to-head with chief rival Trader Joe’s, often undercutting it by a penny on products like bananas.

But The Market and Fresh & Easy do share a few things in common, including an emphasis on prepared meals and food-to-go. And The Market’s self-checkout stands are an obvious nod toward Fresh & Easy, since most Vons stores in Southern California don’t have them, while Fresh & Easy relies on them almost exclusively.

Wal-Mart plans to join the small-format club later this year when it debuts a 20,000-square-foot grocery store it is calling Marketside. It plans to open four stores in Phoenix this fall that will likely be small versions of its Neighborhood Market format, which averages about 40,000 square feet.

Tesco declined to comment on the debut of The Market as it works to revamp its stores with new merchandise and signage during its self-imposed 90-day break on openings. “As always, we’re focused on our customers and looking forward to our next opening in Manhattan Beach, Calif., on July 2,” said Tesco spokesman Brendan Wonnacott. Tesco is currently rolling out 250 new private label items under its Fresh & Easy brand.