Monday, August 18, 2008

Small-Format Food Retailer 'Good Eats Grocer' Signs Leases For Two More Store Sites; Five More Stores in the Pipeline For the Sacramento Metro Market

Upcoming New Markets News: Northern California--Sacramento

It doesn't look like Tesco's Fresh & Easy Neighborhood Market will get the small-format grocery store fresh, prepared and organic-specialty foods market all to itself when it starts opening the first of it currently 19 planned grocery stores in Sacramento and the surrounding region in Northern California early next year.

On July 8 we reported the former CEO of Sacramento-based Raleys (supermarket chain), Michael Teel, had founded a small-format combination fresh, prepared and natural-specialty foods retailing company called Good Eats Grocer, headquartered in Sacramento. Teel left Raleys in 2002 to form his own advertising agency and then started a new business venture firm.

Teel, who is an heir to the family-owned 130-store, $3.5 billion a year Raley's food and grocery retailing mini-empire (his mother is the daughter of Raleys founder Tom Raley, Michael Teel's late grandfather), and partner investment banker and entrepreneur Michael Asker, signed a lease for the first Good Eats Grocer small-footprint food market which will be located in Sacramento's landmark Adiamo building at 3145 Folsom Blvd, as we wrote about in our July 8 piece.

The Adiamo building once housed the Rosemount Grill restaurant, which was a favorite of Sacramento's corporate chiefs and politicos, including Michael Teal's grandfather Tom Raley.

Michael Asker, Teel's partner in Good Eats Grocer, is the investment banker who arranged the much-publicized $30 million in new financing earlier this year for fast-growing small-format natural foods chain Sunflower Farmers Market, which is opening numerous stores in Arizona (and in other states), which is one of the three current markets for Tesco's Fresh & Easy, along with Southern California and Nevada.

Teel and Asker, who together operate a firm called M2 Venture Partners (M2=two Michaels) of which Good Eats Grocer is a part, are remodeling the Adiamo building into their small-format Good Eats Grocer bistro and market format. That format puts at its center high quality fresh, prepared foods, along with offering a selection of natural, organic, specialty and gourmet food and grocery products.

Below is how Michael Teel describes Good Eats Grocer:

"Good Eats Grocer is a natural-organic crossover market that sources the finest quality foods at incredible prices. We have designed our stores to be smaller, and more intimate with an overriding emphasis on the customers’ convenience and ease of access. We offer a great selection of natural and specialty foods from around the world and a huge variety of take-home meals and dinner solutions for the family."

In our July 8 piece, we also reported the flagship store going in the Adiamo building is merely the first of what the partners plan to be a regional chain of Good Eats Grocer food markets, starting first in Sacramento and the surrounding metropolitan area and then perhaps going from there to other parts of Northern California if the initial stores do well.]

Now, a story in yesterday's Sacramento Bee, the details of which we've confirmed with Good Eats Grocer, reports Teel and company have secured leases for two more food markets.

Additionally, Teel says the company has five more Good Eats Grocer stores in the pipeline (all in the Sacramento Metropolitan region), which would bring to eight the number of stores currently planned to open next year in Sacramento and the surrounding area. And that's just thus far. The partners are moving fast, having only inked the lease on the first store a few months ago.

The second of the three Good Eats Grocer stores in which the company has signed leases for is in what now is the Corti Bros. specialty foods supermarket at 5810 Folsom Blvd. in East Sacramento.

Corti Bros. is a 61 year old pioneering independent supermarket in Sacramento. Darrell Corti, who runs the store, and his brothers were the first grocers to introduce specialty, gourmet, artisan and local foods to Sacramento shoppers in a serious way. In addition, Darrell Corti, who is an internationally renowned wine expert, has created one of the finest wine retail shops in the Sacramento region at the family-owned Corti Bros. specialty supermarket.

Corti Bros. lost the lease on the 61 year old Sacramento store due to a failure between the grocer and the building's landlord to reach agreement on new lease terms. Good Eats Grocer picked the lease up and will be putting its second store in the building made famous for specialty foods and wine merchandising not only in Sacramento but nationally in the U.S. by the Corti Bros.

Darrel Corti, who in addition to running the store is an international specialty foods and wine consultant and judge for some of the most prestigious wine competitions globally, is such a foodie that each year for decades he has a commercial kitchen prepare to his special recipe an orange marmalade produced from Seville oranges from the family's own orange trees, creating not only a local foods product but a Corti Bros. Estate Orange Marmalade as well. The marmalade, which is ready at about Christmas time each year, is sold out before it even hits the store's shelves.

Teal and company have some pretty large grocery aprons to fill in that location, home for 61 years to arguably Sacramento's most innovative grocer. Darrel Corti says he is close to finding a new location for the family-owned Corti Bros specialty supermarket, most likely in Sacramento.

The third Good Eats Grocer store will be located in Sacramento's popular and fast-growing Midtown neighborhood, which is increasingly becoming the trendy residential and commercial neighborhood in the capital city. It has lots of art galleries, cafes, shops and other businesses which encourage pedestrian traffic, which makes it a good location for a combination small-format fresh, prepared foods and natural-specialty foods market like Good Eats Grocer we believe.

Tesco is building a Fresh & Easy grocery market in Sacramento's Oak Park neighborhood, which is fairly close to where the Good Eats Grocer store is going in Midtown.

Teel hasn't announced the locations of the five additional small-format food markets, likely because those locations aren't finalized yet.

We do know at least some of the five will be in Sacramento, and that the grocer also has looked at locations in nearby Davis, home of the University of California at Davis, along with a few other Sacramento suburbs. Whole Foods is opening a new natural foods store in Folsom, next door to Sacramento. Don't be surprised if Good Eats Grocer opens one of the additional five stores in Folsom, where Tesco also plans to open a Fresh & Easy store next year.

Good Eats Grocer stores won't sell basic grocery items like Tesco's Fresh & Easy Neighborhood Market combination fresh foods and basic grocery stores do. About half of the product selection in Fresh & Easy stores consists of basic food and grocery items (about 65% under the fresh & easy store brand and about 35% supplier brands), along with some basic non-foods items. The other half consists of fresh produce, meats and other perishables, along with natural, organic and specialty grocery items, wines and beers.

Therefore, Good Eats Grocer and Fresh & Easy won't be identical competitors, at least 100% because Teel's food markets aren't going to sell the basic grocery items. However, a major portion of Fresh & Easy's offering is in the prepared foods and other fresh categories-- categories Teal's food markets will compete on--along with to a lessor but significant degree in the natural, organic and specialty grocer categories, as well as specialty wines and craft beers--all categories Good Eats Grocer stores will focus on extensively.

When Tesco first announced its plans to start Fresh & Easy over two years ago, it positioned it as a new retail offering for American consumers, with its focus on convenience shopping, low everyday prices on grocery items and fresh foods, and its emphasis on affordable fresh, prepared foods.

While the stores have numerous similarities to Trader Joe's markets, the big difference with Fresh & Easy is its emphasis on basic groceries at low prices. (Trader Joe's carries natural, organic and specialty foods and groceries but not everyday items.) The stores also carry a larger selection of fresh, prepared foods than Trader Joe's specialty markets' do, although that's changing as Trader Joe's is putting its "Joe's Shack" fresh, prepared foods kitchens in more and more of its stores.

However, less about 10 months since Tesco opened its first Fresh & Easy market opened in late October, 2007 (there currently are 71 stores), the retailer is seeing a proliferation of small-format food and grocery stores of multiple formats either opening or planning to open in its market regions.

There's Safeway with its "The Market" small-format grocery stores. One already is open in Long Beach, California, with more to come in California and likely in Arizona. Wal-Mart, Inc. which will open its first four small-format Marketside combination fresh foods and basic grocery stores in the Phoenix, Arizona region this fall. (Like Good Eats Grocer, the Marketside stores also will prepare foods right in-store, unlike Tesco's Fresh & Easy which prepares the foods at a central kitchen in Southern California then ships them to the stores in that region, Nevada and Arizona.

Additionally, on the small-format discount format side, SuperValu, Inc. is opening additional no frills discount Sav-A-Lot grocery stores in California. Save-A-Lot focuses on offering a limited assortment of basic grocery items and fresh foods, selling them for the lowest prices possible. There are 1,600 Sav-A-Lot stores in the U.S. The format has been around for many years, and SuperValu is putting increased emphasis on growing the chain throughout the U.S. beyond its already impressive 1,600 current store count.

Good Eats Grocer does not by any means pose a barrier to entry to Tesco's Fresh & Easy in the Sacramento Metro market. And let's not forget Fresh & Easy Neighborhood Market is owned by deep-pocketed Tesco, the third largest retailer in the world. But it does add yet another competitor--and in this case a significant one because of the small-format and in-store fresh, prepared foods focus--to the many established grocers already waiting for Fresh & Easy in the Sacramento Metro region market.

These competitors include Raleys, which is the number one market share leader in the market, Save Mart-owned Lucky stores (formerly Albertsons in Northern California), Safeway Stores, Inc., Wal-Mart Supercenters, Trader Joe's, Whole Foods Market, Inc., Super Target (soon to be coming to Sacramento), Winco (a large discount grocery chain), numerous warehouse format retailers, and many independents with formats ranging from discount to upscale.

Sacramento also is a very locally-based market, which in part accounts for hometown Raleys dominance, even in the face of stiff competition from giants like Wal-Mart and Safeway Stores. This local advantage or effect should help Michael Teel with Good Eats Grocer, since both he and partner Asker are extremely well known longtime Sacramento residents who have extensive business, political and charitable ties in the community and throughout Northern California.

But even more important than all that, Good Eats Grocer has to offer "good eats" at a decent price, as is the case with nearly every other food retailer except perhaps for Dean & Deluca and a couple others. If not, it won't succeed. After all, even organic and gourmet Whole Foods Market, Inc. has now put its stores on a value diet, focusing significantly on bringing shoppers value in these bad economic times.

Value is an area in which Tesco's Fresh & Easy can likely beat Good Eats Grocer in. But executing in the Sacramento market is going to require a localized approach in order to be successful. And that's a plus for Good Eats Grocer.

The competition continues to heat up in the Sacramento Market. Next year should be a very interesting one.

1 comment:

Fresh & Easy Buzz said...

Fresh & Easy Buzz Editor:


Good Eats Grocer founder Michael Teel decided to drop out of obtaining the lease for the Corti supermarket building just a couple weeks after our story was published, so that Corti could continue to negotiate a new lease with the building's landlord.

To date Corti and the landlord have not come to an agreement on a new lease.

Teel says Good Eats Grocer is no longer interested in the location and said he wishes the popular Corti Bros. luck in gaining a new lease.

Corti thanked Teel publicly for doing so.

Numerous Corti customers have formed a coalition in support of the longtime Sacramento independent grocer, encouraging the building's landlord to renew its lease.