Monday, March 10, 2008

Bakersfied, California Region Next Up On the Fresh & Easy Neighborhood Market New Store Parade

Bakersfield, California, best known as once being one of the top oil-producing regions in the United States, along with being the boyhood home of famous country western singers Buck Owens and Merle Haggard, will be the next new region in California that Tesco's Fresh & Easy Neighborhood Market marches into, when it opens at least six of its small-format, convenience-oriented grocery stores in the region either at the end of this year or in early 2009.

Tesco, the world's third-largest retailer, plans to open three Fresh & Easy grocery markets in Bakersfield--two in the northwest portion of the city and one in the southwest side of town. The retailer also plans two open two stores in the nearby Bakersfield suburbs of Delano and Wasco. Bakersfield, Delano and Wasco are located in Kern County. [Kern County is shaded in light green in the map above. See San Joaquin Valley on the map key.]

These six stores are only the initially units Tesco has planned for the region. Our commercial real estate sources, along with a source in the local community, tell us the grocer is looking for additional sites in the area for its grocery stores, which merchandise a limited-assortment of Fresh & Easy store brand and national brand everyday groceries, along with specialty and natural foods, fresh produce and meats, an extensive selection of prepared foods, wines and craft beers, fresh flowers, and some non-foods' products.

Fresh & Easy grocery stores average 10,000 -to- 13,000 square feet. There currently are 59 of the stores in Southern California, Arizona and the Metro Las Vegas, Nevada region. The retailer plans to open many more stores in these three states, especially in California and Arizona. Based on statements from Tesco, we believe the retailer wants to have as many as 200 stores opened by mid 2009.

Additionally, Tesco has signed leases for an initial 18 Fresh & Easy stores in Northern California's San Francisco Bay Area and is negotiating for more store sites in that region. Further, the grocer has inked leases on 19 sites for its small-format grocery markets in the Sacramento region in Northern California. Tesco also is negotiating leases for additional grocery store sites in the Sacramento area, as well as in the Northern San Joaquin Valley cities of Stockton, Tracy, Manteca and Modesto.

Fresno, which is between Bakersfield and the Stockton/Modesto region, also is on the retailer's radar screen for Fresh & Easy store locations. As we reported here yesterday, Tesco will likely sign a lease for a Northern California distribution center on land in Stockton, California, which is about a 30 minute drive from Sacramento and an hour from San Francisco.

Tesco's initial Bakersfield region Fresh & Easy grocery markets will be at the following locations:

  • Olive Drive and Jewetta Avenue, Bakersfield
  • Brimhall Road and Jewetta Avenue, Bakersfield
  • Panama Lane and Stine Road, Bakersfield
  • Cecil Avenue and High Street, Delano
  • Highway 46 and Griffith Avenue, Wasco

The first of the initial six Bakersfield region Fresh & Easy grocery stores could open as early as the end of this year. However, it's more likely the stores will start opening in early 2009.

Most of these six stores will go into empty, existing commercial retail buildings in the region. This is a practice Tesco is employing for its Fresh & Easy stores. The retailer will locate a vacant (usually former supermarket or similar retail store) retail building, obtain a lease for it with generally favorable terms, and remodel the building to fit its 10,000 square foot -to- 13,000 square foot Fresh & Easy Neighborhood Market format. [Read a piece we did on this issue here.]

Not only does the grocer have a lower start-up cost by following this practice, versus building stores from the ground-up (although it is doing some of that), it also is able to go from lease to getting the store open and operating much faster, since the building shell and all its infrastructure is already in place, and Tesco has only to gut the interior, create a Fresh & Easy grocery store inside, and give the exterior a moderate remodel in order to create its Fresh & Easy store and retail brand.

Welcome to Bakersfield

Bakersfield is located in Kern County in the heart of California's Central Valley. It's about 110 miles from Los Angeles to the south and around 110 miles from Fresno to the north. The city's population is about 324,000, making it California's 11th most populous city. The Bakersfield Metropolitan region--which includes Delano and Wasco--has a population of about 780,000, which makes it the 65th largest metropolitan region in the United States.

The Bakersfield Metropolitan region has been fast-growing for the last few years. In fact, the city of Bakersfield is the 11th fastest-growing city in the U.S., according to data from the U.S. Census Bureau.

The city is actually more Midwestern USA than typical Californian in its culture, economy and political attitudes. The main sectors of the region's economy are: farming and agribusiness; the oil industry (petroleum extracting and refining); manufacturing, warehousing and trucking; and services, such as retail. Bakersfield also is home to a campus of the California State University system.

Bakersfield holds as a claim to its fame being the hometown of two famous country music legends, Merle Haggard and Buck Owens. both local country music stars made good have streets named after them in the city. And, Country Western is the music style of choice in Bakersfield. The city has dozens of country music venues (including a club owned by the family of the late Buck Owens), along with a number of professional recording studios. Bakersfield often is referred to as Nashville-West. The city also has a country music culture: you are more likely to see more people out at night wearing cowboy boots and hats than you are woman wearing stiletto high heels and men wearing suits and ties.

Politics in Bakersfield also is much more conservative than it is in the rest of California. The region has far more registered Republicans than it does Democrats. And, there are many more voters who describe themselves as conservative than in nearly every other part of California.

Politics is changing a bit in the region though. About 35% of the area's residents are Hispanic. Most of the region's Latino's are immigrants, thus immigration is a big issue for them. They tend to agree with Democrats more on the issue than they do with Republicans. As a result, the Democratic party is seeing an increase in party registration in the area, largely from Hispanics. African Americans comprise only about 5% of the area's population. Asian Americans are even less than that. Nearly 60% of Bakersfield population is white.

The region also is famous for its red-hot summers. It's not unusual for Bakersfield to have temperatures of 105 -to- 110 degrees for weeks at a time throughout the summer. Note to Fresh & Easy: You should make those Bakersfield region stores as energy efficient as possible. Also: look for higher than average air conditioning and other related bills from about May through September.

Analysis: Grocery retailing in Bakersfield

The Bakersfield grocery retailing market can best be described--like the region itself--as meat and potatoes. However, that doesn't suggest some of the region's key players--Safeway Stores, Inc-owned Von's, Modesto-based Save Mart, SuperValu-owned Albertsons and Save-A-Lot banner stores, Costco Wholesale, Kroger Co.-owned Food-4-Less and Foods Co., Smart and Final, Winco and Sam's Club--don't offer specialty, natural and organic groceries and produce, or prepared foods--because many of the them they do. There's also a Trader Joe's specialty grocery store in Bakersfield.

Rather, it just means you won't find scores of upscale, gourmet and natural foods stores in Bakersfield--Whole Foods Market, Gelson's, Bristol Farms, Raleys, Sprouts Farmers Market and others--like you do find in abundance in Southern and Northern California.

In particular, Safeway's Vons', offers good selections of specialty, natural and organic foods and grocery products in its stores, especially in its newer or remodeled stores, which have or are being converted to Safeway's upscale Lifestyle format. And, of course, Costco Wholesale is a major merchandiser of specialty and natural grocery products at reasonable prices. Some of the newer Save Mart banner stores (Save Mart also has Food Maxx warehouse stores in the region) also have good offerings of specialty, natural and organic products.

What all the above mentioned food retailers really do bring to the Bakersfield region though is heavy competition, especially on basic, everyday grocery products offered at a low-price. Costco, Save Mart's Food Maxx, Kroger's Food-4-Less and Foods Co, Winco, Wal-Mart's Sam's Club, and SuperValu, Inc.'s Save-A Lot are all no frills' warehouse-style, discount grocery stores. Price is king at these outlets.

Safeway's Vons, Save Mart's Save Mart banner supermarkets, and SuperValu, Inc.'s Albertsons, banner all focus on the lowest possible prices in their stores as well in the market because of this price pressure (even though two of the three retailers own both warehouse stores and supermarket banners) exerted by the highly competitive warehouse format sector.

In fact, the market share differences between Save Mart, SuperValu, Kroger Co.'s Food-4-less and Foods Co. and Safeway Stores, Inc.'s Vons is so close as to make the numbers near meaningless. Costco isn't far behind either.

Since half of Tesco's Fresh & Easy small-format grocery stores' business comes from selling basic groceries at low prices, the retailer will find a very competitive environment in Bakersfield in the low-price positioning sector when it opens it first stores there at the end of this year or in 2009.

Fresh & Easy's other offerings--prepared foods, specialty, natural and organic groceries, wines and craft beers, might find a less competitive market. However, both Vons and Albertsons are kicking-up both their specialty, natural and organic grocery selections (fresh produce too) in their respective region stores, as is Save Mart in its Save Mart banner stores.

In fact, because these grocers' stores are so much bigger than a Fresh & Easy Neighborhood Market store--they average 40,000 square feet -to- 65,000 square feet, compared to Fresh & Easy's approximate 10,000 square feet--most already merchandise a greater selection of specialty, natural and organic foods (including produce) than a normal Fresh & Easy grocery market does in general.

Rather than in the city of Bakersfield itself, Tesco's biggest opportunity with its small-format Fresh & Easy stores, might be in the surrounding smaller communities, such as Delano and Wasco. Many of these cities have populations ranging from 15,000 -to- 40,000 but have few grocery stores in them, especially those offering both basic groceries and more upscale offerings like prepared foods. This strategy--locating more stores outside Bakersfield in these smaller cities rather than in the city--might prove more successful to Tesco in our analysis.

Bakersfield is growing, not just in population but in food sophistication as well. So the timing could be good for Tesco, especially in relation to the fresh, prepared foods and other specialty-oriented product selections sold in the Fresh & Easy stores.

Of course, this growth in the Bakersfield region hasn't only been noticed by Tesco. Our sources tell us Whole Foods Market, Inc. is considering locating a supernatural lifestyle store in the city, and that Trader Joe's is considering opening an additional specialty market in the area as well. Vons, Albertsons and Save Mart also are upgrading their supermarkets, and specialty product selections--including prepared foods--in Bakersfield.

In other words, Tesco's Fresh & Easy Neighborhood Market could take some share away from these established retailers in the region. But its impending arrival also could spur these grocers on to prepare a very competitive welcoming for the United Kingdom-based retailer's small-format, convenience-oriented Fresh & Easy grocery stores come early next year.

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