• by Sarah Mahoney  @mahoney_sarah, October 18, 2010

While Target is continuing its rollout of the $1 billion P-fresh format -- announcing makeovers of 114 stores in Chicago, Dallas and Washington D.C. -- industry executives continue to mull over just how big the small-format trend may be. Last week, Walmart told investors that it, too, would intensify the opening of smaller stores.

Target, which announced its P-fresh format early in the year, has been reconfiguring its smaller stores to include an open-market grocery layout, stocked with a selection of fresh produce, fresh meat and baked goods. It offers 90% of the categories found in a SuperTarget, albeit with much less selection.

"Perishables has been the one area where Target has struggled most," Jon Hauptman, a partner with Willard Bishop, a retail consultant in Barrington, Ill., tells Marketing Daily, "so it will be very interesting to see how they do. The success of their food offering will be based on how well they adjust their perishables."

The remodels include other changes too, among them softer lighting and curved fixtures in the beauty department, with interactive screens to help guests make personalized selections. Aisles have been widened in the home department, and electronics have also gotten an interactivity update, allowing guests to try more games.

Last week, Walmart said it would open 30 to 40 smaller stores in fiscal 2012, as well as 155 to 165 large stores, and it continues to experiment with its merchandise mix in existing small stores. "Walmart is putting a lot of very creative thinking into what they are going to do with smaller stores," he says. "We're really just seeing the beginning of the development of these smaller formats. It's one of the new foundation stones for growth among mass merchandisers."

While the trend toward smaller -- and more varied -- stores started before the recession, it has taken on new meaning as marketers struggle to process the many ways that shoppers have changed when it comes to buying groceries. "These new formats are a recognition of two things," he says.

"First, consumers are willing to purchase groceries outside the supermarket, if provided an appealing offering of packaged goods and perishable items -- we see them increasingly willing to buy food in mass merchandisers and dollar stores, too. And second, smaller stores give mass merchandisers a way to get shoppers in the store more often than they have in the past, without having to build a full-size supercenter."