Thursday, December 4, 2008

Despite Postponing its Northern California Launch, Fresh & Easy Continues to Grab New Locations in the Region, Including Going Rural

Upcoming New Markets News: Northern California

Fresh & Easy Neighborhood Market may be postponing it launch into the Northern California market as CEO Tim Mason has said and Fresh & Easy Buzz has reported. However, that postponement isn't stopping Tesco's small-format, convenience-oriented grocery and fresh foods Western U.S. chain from grabbing new store sights in the region.

According to a report today in the Oroville Mercury Register newspaper, Tesco's Fresh & Easy Neighborhood Market has signed a lease to locate a store in a 14,550 square foot space in the Goldtown Plaza Shopping Center in the rural North Central Valley city of Oroville, which is in Butte County.

From the report: 'Fresh & Easy Neighborhood Market had sent a letter of intent to locate in the plaza. Now, Bud Tracy of Tracy Realty said the owners of Gold Town Plaza signed a lease and returned it to the company on Monday.

Peter Blasingame, a broker at Tracy Realty, said in spite of a slower economy, businesses had been interested in coming into the plaza at the corner of Oro Dam Boulevard and Washington Avenue. The Fresh & Easy store will probably come in the summer of 2009.'

Read the entire story from the Oroville Mercury Register here.

Oroville is located north of Sacramento in Butte County near the well-known university town of Chico.

Unlike the Sacramento Metropolitan region where the grocery chain has thus far confirmed it will open 19 Fresh & Easy markets, Oroville is in a rural part of Northern California.

The town's current population is only 13,732 -- it's a small rural town in an agricultural region.

Butte County, of which Oroville is the county seat, is famous for being rice country -- the heart of California's rice-growing region. Numerous other crops are grown in the region as well. Butte County has a current population of about 225,000. The biggest city is Chico, with about 75,000 residents.

Thus far, the vast majority of the 46 (and now 47) Northern California Fresh & Easy store locations we've identified (Tesco's Fresh & Easy has confirmed 37 of those locations -- 19 in the Sacramento/Vacaville region and 18 in the Bay Area) are in more urban, metropolitan regions -- the San Francisco Bay Area, the Sacramento/Vacaville Metro region, Monterey County, and Modesto in the Northern San Joaquin Valley.

The Oroville location signals that Fresh & Easy also is pursuing a rural-region store location strategy in Northern California along with its metropolitan region strategy. We say rural rather than suburban because the Butte County region isn't suburban.

Fresh & Easy could find a niche in some of these rural Northern California cities, such as Oroville and others, not so much for the basic groceries, fresh produce and fresh meats sold in the stores, but rather more so for the prepared and organic foods offerings, since at least in the case of Oroville there aren't any supermarkets that offer these categories in any significant way, particularly at discount prices.

Chico, which isn't far from Oroville in Butte County, is a different story, for example. It's a college town, home to a major California State University campus, and thus has numerous supermarkets and natural foods stores that offer strong prepared foods selections, along with extensive natural, organic and specialty foods category offerings.

So far, Oroville is the smallest city (and most geographically rural) we've found in which Tesco has locked-in a lease for a Fresh & Easy combination grocery and fresh foods market. Therefore, in our analysis this signals the start of a rural store location strategy now combined with the retailer's metropolitan region strategy for Northern California.

This is a significant development because it indicates the grocery chain wants to appeal to what is the vast variety of Northern California consumers, which range from Bay Area urbanites and Sacramento suburbanites, to more rural consumers and regions.

The Oroville location also signals Tesco's move into a new sub-region of Northern California. To date the primary focus has been primarily on the San Francisco Bay Area and the Sacramento/Vacaville Metropolitan region, which are contiguous. The secondary focus has been on the Northern San Joaquin Valley -- Stockton, Modesto (which is near both the Bay Area and Sacramento) -- and in a very limited way on the Monterey Bay Area, where thus far we've only discovered one store location, in the city of Seaside near Monterey. Fresh & Easy hasn't confirmed that location.

Butte County is a natural, northern progression geographically from the Sacramento region but its also qualitatively different because of its more rural nature.

In our analysis, we believe you will see Tesco looking at additional rural areas in Northern California as a way to achieve its "critical mass" store location strategy in the market, even though at present the grocery chain has postponed its launch into the new market region.

We do wonder though, why Fresh & Easy is locking up new store locations in Northern California? It has postponed its launch into the region at least three times. Originally, the Northern California stores were to start opening in mid-to-late 2008. That was changed to late-2008 -to- early 2009. Now the launch has been postponed again.

One thing all experienced food retailers know is that once you actually open stores in a new market region you are able to look at the market in a very real and different way.

It seems to us that locking in so many locations in various sub-regions in Northern California before opening even one store in the market could be a prescription for failure (at least for numerous stores, the locations of which were chosen pre operations in the market) in that it requires far too much guess work.

Instead, better to stop, say after locking-in 47 or so stores (we would have stopped at half that then opened some and went forward), and then wait until you actually open a few grocery markets before going forward with more new sites, is our analysis. It's what we would do, especially in Northern California, which is a very dynamic, difficult and super-competitive market, even for those with lots of experience in it.

In fact, had Tesco done something similar -- not pre-booked so many store locations before opening even one store -- in Southern California, Nevada and Arizona, we bet they never would have put Fresh & Easy stores in a number of the current locations where leases were signed long before the first store opened.

Why? Because many are bad locations, which is one reason such stores are underperforming. It's hard when using such a shotgun approach so far in advance of having some operational experience in a market to pick good locations when choosing so many so fast and so far in advance. Even the best store location pickers don't have that kind of crystal ball. But perhaps Tesco has a grand stategy in doing it this way in Northern California, like it did in the existing three markets, that we just aren't aware of.


Anonymous said...

Why not continue to look in to underserved communities lacking fresh produce? Everyone has to make money and everyone has to eat. Make a difference. Make an impact in these neighborhoods. You won't outsell Whole Foods or other "gourmet" chains. Face it. In these times, nobody wants to pay top dollar for anything.

brad said...

Regarding Oroville population: Most people in the Oroville market area reside within city limits, but just outside. The Oroville area population is nearly 60,000