Friday, July 25, 2008

Breaking Competitor News: Safeway Stores, Inc. Plans to Open A Small-Format 'the market by Vons' Grocery Store in Downtown Los Angeles

Safeway Stores, Inc. plans to open the second or third (see our June 5 report about a potential "the market by Safeway" store in downtown San Jose, California here) store of its small-format (15,000 square foot) "The Market" grocery stores in downtown Los Angeles, Fresh & Easy Buzz has learned.

As we mentioned in our May 15 piece when we were one of the first publications to report on the upcoming grand opening (which Safeway kept under wraps) of Safeway's first small-format store, "the market by Vons," in the Belmont Shores neighborhood in Long Beach (Southern) California (the inside of which is pictured at the the top), the grocery chain had plans to also open "The Market" small-format food stores in urban locations. [Read our report on Safeway's plans to open a "the market by Safeway" in a new high-rise residential development in downtown San Jose in the San Francisco Bay Area here.]

We haven't been able as of yet to determine the precise location of the "market by Vons" store slated for downtown Los Angeles. We have some strong leads from sources but aren't ready to report a location until we are able to further confirm it.

For decades, downtown Los Angeles has been what is termed a "food desert," meaning that the vast urban downtown has been without food and grocery stores that offer a decent selection of basic groceries and fresh foods, especially fresh produce, at affordable prices.

Although the downtown is still underserved by such grocery stores, it's beginning to change primarily as the result of lots of new residential development that's been occurring in the city's urban core in recent years.

For example, a year ago this week, Southern California-based Ralphs supermarkets, which is a banner owned by Kroger Co., opened one of its first new Fresh Fare format supermarkets in what was then a brand new residential loft development in downtown Los Angeles.

The one-year old downtown Los Angeles upscale Ralphs Fresh Fare supermarket at 645 West 9th Street, which isn't a small-format grocery store but rather is a 50,000 square foot urban giant, was the first full-service supermarket to open in downtown Los Angeles in decades.

The Ralphs Fresh Fare stores are more upscale than the Ralphs conventional supermarkets, hundreds of which are located throughout Southern California. And as the "Fresh Fare" name implies, the stores feature an expanded selection of "fresh" foods, including produce, meats, dairy and fresh, prepared foods. The stores also have a greater selection of natural, organic and specialty food and grocery items than conventional Ralphs supermarkets do.

Although Tesco's Fresh & Easy Neighborhood Market is based in Southern California and has stores in Los Angeles, the grocery chain has yet to open one of its small-format (10,000 -to- 13,000 square foot) combination basic grocery and fresh foods markets in downtown Los Angeles. Based on our sources, who are good, Tesco's Fresh & Easy currently doesn't have any downtown Los Angeles stores in the new store opening pipeline either.

Ralphs, and now Safeway Stores, Inc. with its small-format "market by Vons" future downtown Los Angeles store, aren't the only grocers looking to the city's urban core for new business.

Hispanic consumer-focused, family-owned Southern California-based Liborio Market has opened a couple new supermarkets in downtown Los Angeles recently.

Liborio Market opened its first store in Southern California on February 6, 1966 in Los Angeles with $1,400 of initial capital, which was the collective savings of Enrique J. Alejo, Jr., Enrique B. Alejo, Sr., Randy M. Alejo, Berta Alejo and Nancy Alejo. The first store1,200 sq. ft. and had only $800 in beginning inventory, according to members of the family-owned grocer.

Liborio Market currently operates 9 full-sized supermarkets in Southern California, Nevada and Colorado. Two of those 9 supermarkets are in downtown Los Angeles. (five of the 9 stores are in Southern California where the grocer is headquartered.) One of the stores is in Las Vegas, Nevada. The remaining three supermarkets are located in Colorado: one each in Colorado Springs, Aurora and Commerce City.

Although the grocer's stores focus on Latino customers, the downtown Los Angeles stores also offer basic food and grocery items in order to reach the many non-Hispanics who live in the downtown neighborhoods. All of the Liborio Market supermarkets have full-size fresh produce, meat and grocery departments, along with having in-store bakeries and fresh, prepared foods departments.

The majority of the new residential growth in downtown Los Angeles is coming from younger professionals, who are moving into the numerous new multi-unit residential loft, apartment and high-rise condominium developments that have been built in the downtown core in recent years, and continue to be built despite a bit of slowing do to the credit crunch and the poorU.S. and California economies.

These young, mostly college educated professionals are moving to downtown Los Angeles for a variety of reasons, including to be closer to the office buildings where they work, to enjoy the excitement of the urban core, which is becoming an arts and restaurant and club mecca, and for a variety of other personal and professional reasons.

Downtown Los Angeles, as is downtown San Francisco and San Jose in Northern California, is luring numerous retired baby boomers in there late fifties to mid-seventies into the new, upscale lofts and condos rising throughout the city's urban core.

Many retired baby boomers who've lived in the suburbs for decades now find themselves with their children grown and out of the house, retired from their primary careers and perhaps working as consultants or in other second full-time and part time careers (or merely retired), as well as being "house rich" from twenty to thirty years of built-up equity as a result of historically fast-rising California housing values.

Many are "cashing out" and leaving the suburbs for urban centers such as Los Angeles' for a variety of reasons, ranging from desiring a simple change of lifestyle, to being able to be in the center of the city where they can drive less and walk to restaurants, cafes, restaurants and art galleries, for example.

Safeway's fairly upscale "The Market" format food and grocery stores, which feature fresh, prepared foods, fresh produce and meats, along with a selection of basic and natural and specialty food and grocery items, fit this "new urban" lifestyle well, although in the case of downtown Los Angeles, where the majority of residents are still low-income, the store's price points as they currently are in the Long Beach store, will need to come down if the store is going to cater to all levels of income in the downtown Los Angeles neighborhood where it is located.

However, since urban living usually means shopping more frequently because often residents in the urban core walk to the store or take public transportation, the fact that elements of the small-format "The market" format strores are designed for that type of shopping could make it a success in downtown Los Angeles.

Safeway has positioned its "The Market" format stores for "fill-in" shopping since the grocery chain also operates hundreds of full-size supermarkets in Southern California and elsewhere in the United States.

Therefore, unlike Tesco's Fresh & Easy Neighborhood Market, which the retailer has positioned to appeal to all consumers and wants to be used by consumers as a primary shopping neighborhood grocery store, Safeway can live by design with only attracting a certain segment--generally higher income--of consumers. In fact, that's the strategy behind the small-format, fairly upscale "The market" format stores.

To look at it in a related way, Safeway is using a multi-format food retailing strategy, with its "The Market" stores as secondary and tertiary shopping venues (its supermarkets being primary), while Tesco is using a single-format strategy currently, with its small-format Fresh & Easy stores designed to appeal to all shoppers and to be primary and to a limited extend secondary grocery shopping venues.

As we've reported previously, Safeway plans both a suburban and urban strategy in locating its small-format "The Market" food and grocery stores. [The name of the stores depends on the supermarket banner the retailer operates in a given market region. For example, it operates the Vons banner in Southern California. Therefore the stores are called "the market by Vons." In Northern California it uses the Safeway banner. Therefore those stores will be called "the Market by Safeway.]

The future store in downtown Los Angeles, along with the potential store in downtown San Jose we reported on here, demonstrates Safeway plans to put as much emphasis--at least thus far--on urban locations as it does on suburban ones. This makes sense because urban neighborhoods, regardless of demographics, are seriously underserved by quality food and grocery stores.

Tesco's Fresh & Easy realizes this trend as well, which is why it's mixes an urban and suburban store location strategy into its mix in California, Nevada and Arizona.

Small-format food and grocery stores are the ideal urban format. You will see even more urban stores from Safeway and Tesco's Fresh & Easy, as well as from other food retailers; not just in California but throughout the United States.

It's taken the grocery retailing industry a long time to see the potential of urban stores, and the changing suburban to urban demographics have helped that realization along in the last few years. However, numerous major grocery chains and independents are now seeing the potential of opening small-format stores in the city core. In fact, we see opening urban small-format grocery stores of various formats as being on of the top initiatives of the U.S. food and grocery retailing industry over the next few years.

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