Supervalu to close latest Chicago concept store

* Urban Fresh by Jewel set to close next week

* Store was test of small, upscale concept

* Employees to be transferred to other stores

By Jessica Wohl

CHICAGO, Oct 23 (Reuters) - Supervalu Inc (SVU.N) is shutting down its lone Urban Fresh store after just over a year, marking its second thwarted attempt at trying a new concept on the same busy street in Chicago.

Urban Fresh by Jewel tested a small-store format aimed at upscale professionals who do not want to dine out, but do not want to cook much either.

The closure comes as small-format grocery stores from retailers ranging from Wal-Mart Stores Inc (WMT.N) to British import Tesco PLC (TSCO.L) are finding mixed success.

On Thursday afternoon, workers at the store in Chicago's Lincoln Park neighborhood were pulling items from shelves and packing them into boxes. Signs at self-serve checkout counters informed shoppers that the store would close on Oct. 30.

"The company gathered a lot of key sales data and customer feedback and after gathering all of that the decision was made to close it," spokeswoman Karen May said on Friday.

She said the store's 57 employees would be transferred to other stores. Supervalu chain Jewel-Osco will keep the property and attempt to lease it to another party.

"This is not a problem or an issue that's unique to Supervalu," said Jim Hertel, managing partner at Willard Bishop LLC, a grocery consulting firm. "There has been a lot of experimentation with this format and I don't think anybody's really knocking it out of the park."

The closure of Urban Fresh comes as Supervalu's new Chief Executive Craig Herkert takes steps to streamline operations and boost the chain's performance amid intense competition. On Oct. 20, Supervalu slashed its quarterly dividend, trimmed the upper end of its profit forecast and said it planned to expand its discount Save-A-Lot chain. [ID:nN20399293]

Supervalu shares are up about 13 percent so far this year, but down 56 percent since the start of 2008.

SAME STORE, DIFFERENT CONCEPT

Supervalu last year closed another small concept chain, the five-store Sunflower Market focused on organic items, after it failed to meet expectations following its 2006 debut.

Urban Fresh moved into the same spot as a closed Sunflower Market on Chicago's fashionable North Clybourn Avenue in September 2008 with a fresh interior, different staff and upscale offerings such as sushi, prepared sandwiches and wine.

It opened just days after the Lehman Brothers bankruptcy rocked the financial world and shocked consumers, who stopped their discretionary spending in the midst of the resulting financial crisis.

This week, several displays in the 16,000-square foot store were empty. The meat department had fewer selections filling its cases and other sections were also emptier than usual.

Competition in the already crowded Chicago grocery market has heated up this year. Supervalu's Jewel-Osco and Safeway Inc's (SWY.N) Dominick's chains ignited a price war as the recession took hold of consumers' wallets. In May, Whole Foods Market Inc (WFMI.O) shut an older store and opened in a new, larger location with a wider selection of prepared foods just half a mile from Urban Fresh.

Meanwhile Batavia, Illinois-based Aldi is building another one of its small discount grocery stores steps from Urban Fresh's spot, below an existing Trader Joe's on Clybourn. Aldi already has a store further up the street.

"The small format that seems to be really doing well these days is limited assortment stores" such as Aldi, Save-A-Lot and Trader Joe's, said consultant Hertel.

Aldi and Save-A-Lot are probably running with double-digit same-store sales growth, and Trader Joe's is also growing with "a lot of buzz and a loyal following," he said.

Other chains have also been testing smaller stores catering to on-the-go U.S. consumers. Tesco opened its Fresh & Easy stores in the U.S. Southwest in late 2007 and as of last month had 12, while Wal-Mart opened a few small Marketside stores in the Phoenix area in 2008. (Reporting by Jessica Wohl, editing by Leslie Gevirtz)