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Walmart, the world’s biggest supermarket chain by sales, is poised to expand its smallest format stores, creating a further potential hurdle for Tesco’s lossmaking US business, Fresh & Easy.
Bill Simon, chief executive of Walmart’s US business told an investor conference last week that its smallest stores – which span 12,000 to 15,000 sq – were performing ahead of expectations and it planned to roll out more of these Walmart Express outlets.
Tesco’s Fresh & Easy stores, primarily in California, are about 10,000 sq ft, although it is rolling out a smaller format of 3,000 to 4,000 sq to move deeper into urban areas.
Speaking at a Morgan Stanley retail conference, Mr Simon said he was happy with the sales performance of the 10 initial Walmart Express outlets, a mix of grocer, pharmacy and convenience store.
He added: “What we are also happy with … is that inside of 12 months, they are turning profitable.”
Mr Simon said the group was still analysing how many Walmart Express stores could be supported by individual markets.
“You will see us in the back half of this year go to a market and build them out very densely so that we can understand their interaction with the rest of the market, including us,” he said.
Locations for Walmart Express stores include Chicago and North Carolina. The retailer is also opening midsized supermarkets of about 40,000 sq in markets including California.
Walmart’s move underlines the shift in the US from big hypermarkets to smaller stores, as consumers shop more locally amid rising fuel costs and to save money by cutting down on food waste.
But Walmart’s plans come at a delicate time for Philip Clarke, chief executive of Tesco. Last month, he revealed that Fresh & Easy would not meet its target of breaking even by February next year.
Instead, the chain is now expected to break even during the 2013-14 financial year. Tesco has also put significant US store openings on hold as it strives to make existing ones profitable.
Tesco is introducing a series of initiatives to turn round Fresh & Easy, including experimenting with a version of its “click and collect” online shopping service.
It has refitted stores, introducing features that are standard in the US, such as in-store bakeries and takeaway coffee. It has also made the supermarkets feel warmer and less utilitarian, and last year introduced a version of its successful Clubcard loyalty scheme.
Tesco has also shaken up the Fresh & Easy management. Tesco could not be reached for comment on Walmart’s plans.