Upcoming New Markets News: Tesco Will Open A Second Fresh & Easy Store in Modesto, California

Upcoming New Markets News: Central Valley - Modesto, CA

Tesco's Fresh & Easy Neighborhood Market plans to locate and open a second Fresh & Easy grocery and fresh foods store in the Central Valley, California city of Modesto, Fresh & Easy Buzz has learned.

Modesto's second Fresh & Easy market will be located at 1717 Oakdale Road in the city, in a building that formally housed a Save Mart supermarket. Save Mart built a new, larger store nearby some years ago and closed the older, smaller store at the location.

Fresh & Easy will remodel the building, turning it into one of its small-format, combination basic grocery and fresh foods markets.

The shopping center where the new 1717 Oakdale Road Fresh & Easy store will be located includes a Big Lots general merchandise discount store next door, a dry cleaner, pizza parlor, Mexican restaurant, Chinese restaurant, nail salon, Rent-A-Center store, insurance office and a Bank of America, according to a regular Fresh & Easy Buzz reader who lives in Modesto and knows the local food and grocery retailing market better than most industry professionals.

Tesco's Fresh & Easy has applied to the State of California Alcohol and Beverage Control Department for an off-sale beer and wine permit for the store at the 1717 Oakdale Road location. There's also an application sign on the window of the empty building in the shopping center. The application was first made on September 23 of this year.

The 1717 Oakdale Road Fresh & Easy will be the grocery chain's second location in Modesto, a city of about 205,000 located in the Northern San Joaquin Valley, in Stanislaus County.

Stanislaus County has a population of about 500,000. Modesto is the county seat and the largest city in the county. Modesto's motto is: "Water, Wealth, Contentment, Health," as the arch at the top of this story depicts. The arch is located as the gateway to downtown Modesto.

We reported in this May 10, 2008 story, "New Markets: Tesco's Fresh & Easy to Move Into Modesto, California Market; Open its First Store in the City Early Next Year," about Tesco's plans to open its first Fresh & Easy Neighborhood Market store in Modesto. That store will be located in the city's Sylvan Square Shopping Center in a building that previously housed an independent supermarket, Michotti's Marketplace, which closed, sighting competitive pressures in the market.

Crosspoint Realty Co., which is in charge of the Sylvan Square center and building, is dividing the former Michotti's Marketplace supermarket building, which is about 30,000 square feet, roughly in half. The Fresh & Easy store will take up about 13,000 square feet of the building when completed.

Fresh & Easy moves north

Locating a second Fresh & Easy store in Modesto is a part of Tesco's California strategy. The retailer is moving north from its current Southern California store base into the Central Valley, Sacramento region and the San Francisco Bay Area as part of its strategy to be a major statewide food and grocery retailer in the Golden State.

The first two Fresh & Easy markets in the Central Valley will open next month on December 3 in Bakersfield, as we reported in this piece yesterday.

Tesco will open additional Fresh & Easy stores throughout the Central Valley, from Bakersfield and Fresno in the south valley and on north to Stockton, beginning next year, along with beginning to open units in the Sacramento/Vacaville region and San Francisco Bay Area.

The grocery chain also will open its Northern California distribution center next year in Stockton, which is located about 30 miles from Modesto in the Northern San Joaquin Valley, as we reported here on March 8 of this year.

New developments in Modesto market

There have been a number of changes and new developments in the Modesto, California food and grocery retailing market in just the seven months since we reported on the first Fresh & Easy coming to the city in our May 10 story.

The "big" development is that mega-retailer Wal Mart Stores, Inc. will open its first Supercenter in Modesto in about two weeks, on November 14.

The Modesto Supercenter is a first for Wal-Mart nationally in the U.S. in that it is the retailer's first hybrid big box store. Rather than being built from the ground up, the Modesto Supercenter is located in a former warehouse food store building of about 100,000 square feet, which is about 80,000 square feet smaller than the average size of a Wal-Mart Supercenter.

The 100,000 -to- 105,000 Supercenter however will have all of the same departments a typical 180,000 -to- 200,000 square foot unit has. The departments will just be smaller and scaled down to fit the reduced square footage of the store.

Wal-Mart has one of its discount format stores already in Modesto. Those stores though don't sell fresh produce or meats. They also offer only a limited assortment of dry grocery products and a small selection of perishables, primarily basic dairy and deli items.

The mega-retailer is in the process of building a huge Supercenter in nearby Ceres, which shares a southern border with Modesto. Ceres has a population of about 45,000. But the new Supercenter there when open also will draw from residents of Modesto, since the two cities are right next to each other. The Ceres Supercenter, which is a new construction, will be about 200,000 square feet when completed. It is set to open in 2009.

Wal-Mart Stores, Inc. also has a proposal on the table to built a regional distribution center in the city of Merced (Merced County), which is about 30 miles from Modesto. The new distribution center would serve Wal-Mart stores, including Supercenters with food and grocery products, throughout the Central Valley and Northern California.

As a result of building this new distribution center, Wal-Mart will attempt to locate many more Supercenters -- and perhaps some of its other format stores like Sam's Club, Wal-Mart Neighborhood Market supermarkets and it's new small-format Marketside that sell food and grocery products -- in the region in the coming years.

Another significant change in the Modesto market was the recent sale of two supermarkets in the city by local independent grocer Richland Markets to another local, multi-store independent, Cost Less Foods Company, in late August, early September.

Richland Markets was for decades a major food and grocery retailer in Modesto and the surrounding communities, where it operated six full-service supermarkets. Over the last few years Richland Markets has sold off its stores. After selling the two Modesto stores last month, the independent grocer is now left with just one, in Ceres.

Cost Less Foods now operates three stores in Modesto, along with one in next door Oakdale and another in nearby Turlock, which is about 10 miles from Modesto. The retailer also operates a couple more stores outside the Modesto market.

Cost Less is a privately-owned grocery chain. It operates on an everyday low price merchandising philosophy but also features about a dozen "super hot" weekly specials in a weekly full-page advertisement it runs in the food section of the Modesto Bee, the major daily paper in the market.

For example, in its advertisement this week, which broke yesterday, the discount grocery chain is offering chicken fryer leg quarters for 49 cents pound, boneless pork chops for $1.28 pound, Roma tomatoes for 58 cents pound, Kraft 32oz Mayonnaise for $2.28 each, and Betty Crocker Hamburger Helper for just 98 cents a box, along with another seven items at similar hot prices.

Generally, Cost Less Foods has the lowest advertised items when its dozen are so weekly promoted items are also ran in competitors weekly advertising circulars, which often is the case.

Another change in the Modesto market was the closure a few months ago of R-N supermarket, one of the city's last remaining larger independent supermarkets. The store's owners said increasing competition and higher rents were the reason they were closing the store.

The R-N supermarket building is currently vacant. It isn't very far from the Sylvan Square Shopping Center site where the first Modesto Fresh & Easy market is going. According to a commercial real estate source in Modesto, there has been talk of Tesco's Fresh & Easy possibly locating what would thus far be its third Modesto store in that now vacant building. However we have found no confirmation of that at present however.

Modesto market share leaders

In terms of market share leaders, Modesto-based regional supermarket chain Save Mart still holds that honor in Modesto and the surrounding market region.

Save Mart, which operates over 200 supermarkets in the Central Valley and Northern California under the Save Mart (in the valley) and Lucky banners (in the San Francisco Bay Area and Sacramento markets), along with a discount warehouse chain called FoodMaxx, has seven stores in Modesto -- five Save Mart supermarkets and one FoodMaxx warehouse unit.

Save Mart also has Save Mart banner supermarkets in the nearby cities of Riverbank, Oakdale, Ceres, Turlock and Patterson, along with one FoodMaxx store in Turlock.

Privately-held Save Mart, which has its corporate headquarters in Modesto, had sales of about $6.5 billion in 2007.

Sacramento-based Raleys, which also is privately-held, is gaining on Save Mart a bit in Modesto.

The 130 store chain, which operates supermarkets under the Raleys, Bel-Air and Nob Hill banners, along with a having it's own discount warehouse store chain called FoodSource, currently has four stores in Modesto, as well as one in Riverbank, Oakdale and Turlock, All of these stores are under the Raley's banner. The chain also has a store under the Nob Hill banner in the Stanislaus County city of Newman, which is about 25 miles from Modesto.

Independents and other players

O' Brien's Market, a three store locally-owned independent, is a vibrant force in Modesto as an upscale grocer. The retailer has two stores in Modesto and one in next door Riverbank. In addition to offering a full selection of basic food and grocery products in its supermarkets, O'Brien's puts a focus on selling specialty, natural and premium food and grocery products, and in-store fresh, prepared foods, along with baked goods.

O'Brien's is nearly the last vibrant independent left in the city however. And Modesto was once a thriving independent grocery store market.

Another independent, three-store Sam's Food City, which has been in Modesto and for decades, continues to operate and do well, according to local observers, although primarily as a neighborhood grocer, which there's certainly nothing wrong with. After all, that's Fresh & Easy's niche.

Sam's has one store in Modesto, one in Turlock and one in Livingston, which is about 20 miles from Modesto in neighboring Merced County. The stores niche is primarily lower-end and price and convenience-oriented.

Modesto also has a very popular Costco club store, which according to local observers does a very strong food and grocery business.

Trader Joe's has one store in the city.

The Winco supermarket chain also has a unit in Modesto. Winco stores are big and discount-priced. Winco also has a major regional distribution center located in Modesto. The fast-growing Idaho-based employee-owned chain is expected to build more stores in Modesto and the the surrounding area.

There's also a large Food-4-Less discount warehouse format store in Modesto/Ceres that does a brisk business, according to local market observers.

There are no natural foods chain stores in Modesto. However the city has a couple strong independent natural foods markets that do well, along with a number of smaller health/natural foods stores.

Since there isn't a Whole Foods or similar chain natural foods store in the city, Fresh & Easy could do well in the natural and organic categories since it offers a fairly decent selection of such products at affordable prices that will most likely be considerably cheaper than the existing independents in Modesto currently are selling similar items for.

Fresh & Easy's organic products selection is limited however since the small-format stores only carry about 3,500 total items. Therefore the larger, independent natural foods markets in Modesto should still continue to do well based on the fact they offer a much larger selection of items in a wider variety of product categories than Fresh & Easy can and does.

Tesco's Fresh & Easy Neighborhood Market has yet to publicly confirm the first Modesto Fresh & Easy store in the Sylvan Square center we reported on in March.

Fresh & Easy Buzz is the first publication to report on the second store at the 1717 Oakdale Road location.