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The Financial Times reports this morning that when Wal-Mart opens the first of its Marketside small store formats later this year in the Phoenix area, the focus will be on "a passion for fresh and delicious food” and “the highest level of customer service."

Meanwhile, Safeway has opened the first of its take on the small store format – The Market – in Long Beach, California. The unit is reported to have strong presence in fresh and prepared foods, which some products based on items developed for its Citrine stand-alone restaurant concept. The Market is in a former Vons store, and still carries the Vons name in small print, a move that the company believes will give it both credibility and recognizability.

According to the story, the new stores will be quite a departure for Wal-Mart. "The world's largest retailer - best-known for sprawling superstores with minimal service levels - says that its planned 15,000 sq ft Marketside neighborhood stores will be 'dedicated to helping our customers answer the question, What's for dinner?' The retailer is also planning to prepare and serve food in the stores themselves, a new direction for Wal-Mart that mirrors the approach of more upmarket retailers such as Whole Foods Market. The stores will include a kitchen, food counters, and seating for up to nine people, according to planning documents."

Also according to the FT story, "The Marketside format is a third of the size of most of Wal-Mart's 134 Neighborhood Market supermarkets, and less than a tenth of the size of most of its more than 3,400 superstores. The stores will be trading under a logo depicting a pile of stylised vegetables and fruits, with the Marketside name in green and a small blue star providing the only branding reference to Wal-Mart."

The new format allows Wal-Mart to expand its presence in markets without the political issues that have challenged its supercenters in some areas, and it also allows the company to compete head-on with Tesco, which has been opening small-forma Fresh & Easy Neighborhood Markets in Southern California, Arizona and Nevada.

KC's View:
This is going to be a pitched and fascinating battle, because you just know that Wal-Mart and Safeway are going to do something very interesting…neither can afford to let Tesco get a secure foothold in the US, and now – when Tesco at least appears to some to be vulnerable – is precisely the time to deliver a crushing blow.