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Food retailers find value in smaller formats, urban customers

4 min read


A CityTarget in Seattle (photo: Flickr user Joe Wolf)

From sprawling suburban supercenters and warehouse clubs to shops and stalls on city streets, retail space has always been varied. But as urban lifestyles move further beyond the limits of traditional cities and prime real estate gets harder to find and more expensive to rent, many food retailers are turning to concepts meant for smaller spaces and more specific consumer groups.

Last year, six of the top 10 fastest-growing retail banners were small-box store formats such as CityTarget and Wal-Mart’s Neighborhood Market, according to a report from Planet Retail, and smaller-format stores remain one of the key trends in retail this year, commercial real estate lawyer Craig Swanson told GlobeSt.

“Challenged by local jurisdictions trying to curb sprawl, retailers are adapting to these economic, demographic and regulatory changes by moving away from their prototypical stores and developing smaller formats for infill locations,” he said. “This trend will have broad-reaching effects for urban consumers, local governments and CRE companies alike, providing consumers with more diverse shopping options closer to home.”

For Wal-Mart, establishing a smaller-urban footprint is already paying off. The retailer’s Neighborhood Market chain has been around since 1998 and has grown to include more than 650 locations spanning more than 30 states. The small-format chain was a bright spot in the retailer’s results in the most recent quarter with sales jumping 8%, according to the New York Times and Supermarket News reported earlier this year that Wal-Mart is on track to open up to 170 new Neighborhood Market stores this year. While Wal-Mart might be more famous for its sprawling Supercenters that offer everything from diapers to bicycles, its Neighborhood Market stores, which carry only food items in a footprint about one-fourth of the size of an average Supercenter, are a prime example of a retailer switching it up and scaling down to reach an urban customer base.

Target is another retailer that has set its sights beyond the big-box space to broaden its customer base into urban markets. The retailer first launched its CityTarget concept in 2012, followed by its TargetExpress concept in 2014. The retailer considers both concepts to be flexible format stores, and unlike their big-box counterparts, they feature product selections tailored to the demographics of the surrounding areas. Earlier this year, Target announced that the formats will be rebranded and drop the “city” and “express” parts of their names, an indication that the company is looking to further incorporate these small-format, urban concepts into its brand identity. As Target continues to open both big-box and flexible-format stores, shoppers will increasingly associate all of the formats as just Target stores, rather than thinking of them as separate entities, which signals the importance of the smaller-format, urban concepts to Target’s overall retail strategy.

Exploring the opportunities of small-format, urban food retail isn’t just for major companies — regional players are entering the small-format fray, too.

For example, Massachusetts family-owned retailer Roche Bros. debuted its smaller-format Brothers Marketplace concept in the Boston area last year. The concept, inspired markets in Europe, puts an emphasis on prepared foods, seasonal items and local products.

“We harnessed today’s passion and enthusiasm for local farmer’s market-like flair to create a new, aesthetic store design and identity. It is our goal for Brothers Marketplace to offer customers inspiration, surprise and delight each time they walk into the store,” Roche Bros. Operations Director Aimee Morgida said of the format, which was recognized for its brand identity and awarded the 2014 International Visual Identity Award in the Retail category.

Even conventional supermarket giant Kroger is looking to tap the urban consumer base. Through its recent acquisition of Roundy’s Supermarkets, Cincinnati-based Kroger will gain access to Roundy’s banner Mariano’s Fresh Market — a concept that has found success in the Chicago market with its selection of fresh foods and local products. According to Kroger’s Chief Financial Officer Mike Schlotman, the retailer has experimented with urban formats, but has yet to truly establish its presence among city dwellers — something that will change now that the company will have firsthand access to Mariano’s operations and its creator Bob Mariano, who will stay on with Kroger to help run his namesake chain.

“We have great admiration for what Bob Mariano has accomplished with the Mariano’s banner in Chicago — effectively entering a new market organically and creating a successful urban format that customers love. We expect to learn from these accomplishments to further Kroger’s penetration into urban markets,” Schlotman said.


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