Thursday, February 28, 2008

Market Chain Picks 19 Area Sites

Market Chain Picks 19 Area Sites
Newcomer Fresh & Easy specializes in grab-and-go foods.
By Jon Ortiz -
Published February 28, 2008

Sacramento's turbulent grocery scene is about to get another good shaking.

Fresh & Easy Neighborhood Markets plans to announce today that it has locked up 19 store sites from Vacaville to Folsom and from Lincoln to Galt.

The 19 stores will open next year, with an unspecified number added later. Some will be newly built, while others will move into vacated retail spots.

Backed by billions of dollars from Britain's Tesco PLC, the world's third-largest retailer, Fresh & Easy's start in the Sacramento region will give locals a new food shopping option in what is already one of the nation's most competitive grocery markets, experts say.

While traditional chains such as Raley's, Safeway and Save Mart Supermarkets still have about a year to tweak their strategies, "any new competitor is bad news for an established chain," said Robert Reynolds, a Moraga-based grocery industry consultant who is familiar with Sacramento. "New players always siphon away some dollars from existing businesses."

The Fresh & Easy concept depends heavily on private-label goods and prepared grab-and-go food offered in stores roughly the size of a Trader Joe's. Tesco is pouring $2 billion to design and build hundreds of 10,000-square-foot stores in California, Nevada, Arizona and the Midwest.

Tesco has said it is committed to placing stores in underserved urban areas with little or no access to healthy foods purchases – including one at 34th and Broadway in Sacramento's Oak Park neighborhood.

"Our goal is to serve every neighborhood," said Fresh & Easy spokesman Brendan Wonnacott. "As we move forward, we'll be looking at sites all over Sacramento."

Fresh & Easy combines elements of a traditional grocery store and a convenience store. At about one-fifth the size of a typical supermarket, the sparsely decorated stores emphasize fresh items, prepared take-home food and private-label goods. They also carry a limited selection of national-brand merchandise among their 3,500 items.

Supermarkets generally carry 30,000 products or more.

Most perishables that Fresh & Easy sells come in small plain packages: $4.99 for a 32-ounce green bean casserole, $3.72 for 15 ounces of fruit salad, $3.99 for a 17-ounce serving of Thai chicken and shrimp.

Fresh & Easy doesn't take American Express, checks or manufacturers' coupons. Forget Safeway-style loyalty cards.

Union labor is out, too. That's a sore point with grocery labor unions, which have protested in front of stores in Southern California. But Fresh & Easy says the practice allows it to trim costs and pass the savings on to shoppers.

Another cost-cutting feature: Every checkout line is set up for self-service.

In December, Goldman Sachs analyst John Heinbockel told Supermarket News, an industry publication, that prices at two Fresh & Easy stores he sampled in Southern California ran 13 percent to 15 percent less than those at major grocery chains.

Since its November debut in Southern California, the company has opened stores in Las Vegas and Phoenix, for a total of 55. Last month it announced 18 locations in the Bay Area that will open next year.

Experts say Tesco must expand quickly to maximize its investment in an 88-acre Riverside distribution center.

"These are unique stores, offering a unique environment with a unique approach to selling food," said George Whalin, a retail consultant based in San Marcos who has visited the stores. "But they are so different that it could take a while for customers to embrace them."

Indeed, Fresh & Easy has hit some bumps.

Early news accounts of excited customers waiting in long lines at store openings have given way to articles about distribution challenges and empty shelves. Others have criticized the stores' bland avocado green decor and Spartan furnishings.

Company spokesman Wonnacott said the interiors reflect Fresh & Easy's underlying theme.

"Simplicity. Our stores are simple to shop, the shelves are low and simple, the supply chain is simple," he said. "These all reflect our commitment to keeping costs low."

Some industry observers have concluded that Fresh & Easy's revenues are low, too. In a conference call with investors earlier this month, Citigroup analyst Jim Prevor estimated that individual store sales are averaging $50,000 to $60,000 each week. That's about 75 percent below the company's expectations.

Tesco has not made public Fresh & Easy's sales numbers.

On Wednesday, Wonnacott called reports about the financial performance "pure speculation. We've only been open for four months. Sales, customer numbers and repeat visits are all growing. The response from our customers has been very encouraging."

In December a report by TNS Retail Forward, a consulting group in Columbus, Ohio, concluded that Fresh & Easy "potentially represents a significant threat to the U.S. food retailing industry."

The stores could reach $4 billion in U.S. sales by 2011, the report predicted, and $10 billion by 2015. That would put it among the top 10 U.S. grocery retailers.

The challenges haven't kept Fresh & Easy from adding stores at breakneck speed. If all goes as planned, the chain will have at least 200 stores in the West by the end of the year. It also reportedly is considering sites in the Chicago area.

Whalin, the San Marcos consultant, expects new stores, including those in the Sacramento area, to reflect the lessons Fresh & Easy has learned.

"It would be foolish to discount this company without giving them a fair shake," he said. "Tesco is formidable. They tend not to have many failures. The Fresh & Easy concept is new. It will take time to get legs."

Fresh & Easy's push into Sacramento has been a source of local scuttlebutt for more than a year. With another year before stores open here, long-established competitors say they're ready.

"Save Mart has been in business for 55 years, and we have seen competitors come and go," said Alicia Rockwell, a spokeswoman for Modesto-based Save Mart Supermarkets, which controls about 11 percent of the Sacramento-area grocery market. "We also have the advantage of being locally owned and operated. We think that gives an advantage in sourcing product and understanding the needs of our shoppers."

Bill Coyne, Raley's president and chief executive, said in a recent interview that the company doesn't fear Fresh & Easy moving into the West Sacramento-based chain's home turf.

Raley's nameplate stores and its Bel-Air brand together take in about 33 cents of every dollar spent on groceries in the Sacramento region, according to TradeDimensions, a market researcher.

"Competition is good," Coyne said. "It makes us better."

Calls and e-mails to Safeway Inc. headquarters were not returned. The Pleasanton-based company is one of America's biggest traditional grocery sellers. Its 31 Sacramento stores account for about 21 percent of the local market share.

Solano's Got It!

Solano's Got It!
The Best That Northern California Has To Offer.

Blog Archive