Food & Grocery Retailing in the Western USA
Whole Foods Market, Inc. reached a settlement agreement on March 6 with the U.S. Federal Trade Commission (FTC) regarding the FTC's nearly 20-month antitrust legal challenge against the Austin, Texas-based natural and organic foods chain's 2007 acquisition of then major competitor Wild Oats Markets, Inc., which was headquartered in Boulder, Colorado.
[We last wrote about the then ongoing antitrust case here.]
The settlement agreement between Whole Foods Market, Inc. and the FTC requires the natural foods and grocery chain to sell a total of 32 of its stores; 13 operating markets and 19 stores that have already been closed. Ten of those 19 stores were closed by Wild Oats Markets, Inc. before the 2007 acquisition by Whole Foods Market. Nine of the 19 stores have been closed by Whole Foods' since acquiring Wild Oats.
Of the 13 operating stores to be sold, 12 are former Wild Oats' units acquired by Whole Foods Market, Inc. in the 2007 deal. Just one of the 13 stores is a Whole Foods banner market store that existed prior to the 2007 acquisition of Wild Oats.
The FTC-Whole Foods settlement agreement also requires Whole Foods Market, Inc. to put up for sale the "Wild Oats" brand and all related intellectual property associated with it. This includes all the branding and packaging materials associated with the "Wild Oats" brand products, which then Wild Oats Markets, Inc. featured in its stores and for a couple years were sold in most Kroger Co.-owned supermarkets in the U.S., prior to Kroger creating its own natural-organic store brand just a few years ago.
Whole Foods Market has worked to eliminate the "Wild Oats" brand since the 2007 acquisition, rebranding all but about 6-10 former Wild Oats stores "Whole Foods" (and those stores are in the process of being rebranded as we write this), and closing-out and discountinuing all of the products under the brand from the former Wild Oats Market stores' shelves. Therefore it isn't a brand the natural grocery chain planned on using anyway, although it might have preferred to bury it rather than to sell it.
Whole Foods Market, Inc. currently operates 279 natural foods supermarkets in the U.S., Canada (6 stores) and the United Kingdom (5 stores). It had gross annual sales of $8 billion in 2008.
If the 13 operating stores are sold, that will bring Whole Foods' store count down to 266. The 13 stores to be sold had $31 million dollars in sales for the first quarter, 2009, which just ended. That works out to annual sales of about $124 million, which won't have a significant negative impact on the natural grocry chains annual sales.
Whole Foods Market will open about 10 new stores in 2009. Those 10 new stores will likely make-up most of that $124 million in annual sales because they are all bigger than the 13 stores to be sold, and a number of them are in its top demographic markets, such as in Northern California.
For example, Whole Foods Market will open its first store in the Northern California coastal city of Santa Cruz tomorrow. The city of about 100,000 residents has a very high natural and organic foods shopper demographic. We expect the Santa Cruz Whole Foods' store to be a high volume market for the natural grocer, possibly doing in the $600,000-plus per week sales range. The new store is 31,500 square feet. As an example, the Whole Foods store in Mill Valley, California (Marin County) does about $500,000 a week on average and is only 14,000 square feet. It is a very high volume store.
As a part of the settlement deal with the FTC regarding the 13 operating Whole Foods stores being sold, if those stores don't sell in a one year period of time, Whole Foods Market gets to keep them. The natural grocery chain also will operate and gain the income from the 13 stores until each respective store is sold.
A third-party receiver has been appointed by the FTC and Whole Foods Market, Inc. to sell the 13 operating and 19 closed stores. They are in the process of being put on the market by the receiver as we write this piece.
Below are, first, a list of the 13 operating Whole Foods stores being sold. After that is a list of the 19 closed stores being put on the market. The stores in green font are those located in markets where Tesco's Fresh & Easy Neighborhood Market operates. Fresh & Easy has stores in California (Southern CA and Bakersfield), southern Nevada and Metro Phoenix, Arizona. A number of the 13 currently operating and the 19 closed Whole Foods stores for sale are in Arizona and Nevada. None are in California.
The 13 operating stores for sale:
7133 N. Oracle Rd., Tucson, AZ
8688 E. Raintree Dr., Scottsdale, AZ
2584 Baseline Rd., Boulder, CO
1651 Broadway St., Boulder, CO
3180 New Center Pt., Colorado Springs, CO
5910 S. University Blvd., Littleton, CO
9229 N Sheridan Blvd., Westminster, CO
340 N. Main St., West Hartford, CT
4301 Main St., Kansas City, MO
1090 St. Francis Dr., Santa Fe, NM
7250 W. Lake Mead Blvd., Las Vegas, NV
19440 N.W. Cornell Rd., Hillsboro, OR
6930 S. Highland Dr., Salt Lake City, UT
The 19 closed stores for sale
5350 W. Bell Rd., Glendale, AZ
1422 N. Cooper Rd., Gilbert, AZ
874 E. Warner Rd., Gilbert, AZ
9028 W. Union Hills, Peoria, AZ
13823 N. Tatum Blvd., Phoenix, AZ
15569 W. Bell Rd., Surprise, AZ
200 W. Foothills Pkwy., Fort Collins, CO
8194 S. Kipling Pkwy., Littleton, CO
6424 Naples Blvd., Naples, FL
4600 Shelbyville Rd., St. Matthews, KY
87 Marginal Way, Portland, ME
8819-8833 Ladue Rd., St. Louis, MO
7831 Dodge St., Omaha, NE
517 N. Stephanie St., Henderson, NV
4879 S. Virginia St., Reno, NV
5695 S. Virginia St., Reno, NV
2077 N.E. Burnside St., Portland, OR
17711 Jean Way, Lake Oswego, OR
3736 W. Center Park Dr., West Jordan, UT
Out of the total 32 stores for sale, 12 are located in Arizona (8) and Nevada (4), two of the three states where Tesco's Fresh & Easy operates its stores. Fresh & Easy currently has stores only in the Las Vegas Metropolitan region in southern Nevada. However, it currently has at least two stores in development in the Reno area in northern Nevada.
Additionally, 26 out of the total 32 stores for sale are located in the Western U.S., in states other than Arizona and Nevada. That leaves only six stores outside the west.
The reason this is the case is because the FTC's main antitrust argument was that a combined Whole Foods-Wild Oats constituted a retail monopoly in 15-29 U.S. markets in what the FTC called the "natural and premium organic retailing segment." The majority of U.S. markets in which the FTC claimed in its legal challenge that the combined Whole Foods-Wild Oats was the most monopolistic in based on its regulatory agency created retailing category were in the Western U.S. Therefore the majority of stores offered for sale are in the west.
Arizona and Nevada
Since so many of the former Wild Oats Market stores being offered for sale are in Arizona, this obvioulsy provides Tesco's Fresh & Easy an opportunity to acquire additional new store locations in what is its second highest market region in terms of store count -- Arizona -- particularly the Phoenix Metro and easy-west valley regions.
Additionally, since all but one of the 32 stores for sale are former Wild Oats units, they are a perfect physical size for Tesco to convert into Fresh & Easy markets. Most of the 31 former Wild Oats locations for sale (out of the total 32) average about 14,000 -to- 20,000 square feet in size. This is the perfect size for Tesco to convert since the Fresh & Easy stores average about 10,000 -to- 13,000 square feet.
It's much cheaper to convert an existing store of the size of the former Wild Oats units into a Fresh & Easy market than it is to convert the former 35,000-plus square foot supermarkets and much larger big box stores Tesco has in many cases converted into Fresh & Easy stores. But the retailer knows that. It just opened a new Fresh & Easy store in Pasadena, California two weeks ago that is in a former Wild Oats store that was closed before the acquisition of the company by Whole Foods Market, Inc.
But the mere fact the stores in Arizona and Nevada are for sale, and in what we hear are in many instances for good prices, along with the fact the former Wild Oats Market stores are the perfect size to convert into Fresh & Easy markets for Tesco, doesn't mean Tesco's Fresh & Easy Neighborhood Market should buy any of the stores, especially in Arizona.
Why? It's our analysis that Fresh & Easy basically has enough stores in the Phoenix metro region for right now. In fact, we think that a number of the Fresh & Easy stores, which are located so close to one another as they are, are actually canabalizing sales of each other in numerous cases.
At this point in time, we suggest Tesco look only to key cities in Arizona on a very selective basis where there are currently no Fresh & Easy stores for new locations. The only duplication exception in the Phoenix Metro region being spots that are just screaming for a small-format grocery store.
In terms of the stores being put up for sale by Whole Foods in Arizona, our suggested strategy above basically narrows the list down to one store -- the former Wild Oats Market store in Peoria, Arizona. We would look at that former Wild Oats store to buy and convert into a Fresh & Easy. In all of the other cities, Tesco already has plenty of Fresh & Easy stores, in our analysis. [By the way, Wal-Mart will open one of its small-format, combination grocery and fresh foods Marketside stores in Peoria later this year, it's fifth Marketside unit in the Phoenix Metro region.]
We would also take a pass on the stores for sale in Las Vegas and Henderson, in southern Nevada. Tesco has enough stores in the market for now as well, in our analysis. Actually it has a few too many.
But we would take a close look at the two former Wild Oats' units for sale in the Reno area, in northern Nevada.
Colorado and Oregon
Beyond taking this limited look at the former Wild Oats stores for sale in Arizona and Nevada, here is what we would do: We would take a very close look at the seven former Wild Oats stores for sale Colorado.
Yes, we know Tesco's Fresh & Easy is currently only in three markets: California (Southern and Bakersfield), southern Nevada and Arizona. And we know it has postponed its launch into Northern California at least two or three times now.
But being in only the three states and markets with its current 116 stores is part of Fresh & Easy's problem: With its "critical mass" store location strategy, the grocery chain has put way too many stores in just three states, with the stores located way too close to one another.
There have been three negative primary results of this strategy, in our analysis:
>First, the "critical mass" store location, limited market focus strategy has resulted in too many Fresh & Easy stores being located too close together. This is causing stores to canabolize sales of other nearby stores.
>Second, the decision by Tesco to open so many Fresh & Easy stores in such a short period of time so close to one another in only three states-markets resulted in numerous bad store location decisions, in our analysis. That's in part of the reason why so many of the current Fresh & Easy markets are doing below $150,000 per week in sales.
>Third, Tesco's research failed to identify its only real key consumer demographic group so far, based on our research. The one group that seems to have thus far started to develop brand identity with and some brand loyalty to the Fresh & Easy retail brand (meaning they are primary shopper potential) and stores are members of the about 18-34 year old consumer. This is the only demographic segment we've identified thus far that contains some members who seem to have "gotten" the Fresh & Easy format, as Tesco's Fresh & Easy often puts it, as it is at present.
Consumers in this age segment tend to live in urban regions not suburbs where most of the Fresh & Easy markets are located. Think in and around Phoenix, Arizona but not farther out in the suburbs where many of the Fresh & Easy stores are located. Think college or university towns. Think Metro Los Angeles and the west side more so than the Inland Empire region and Orange County, where most of the Fresh & Easy stores in Southern California are located.
And think San Francisco and Silicon Valley in Northern California's Bay Area, as well as Metro Denver, Colorado and the hip city of Boulder where two of the former Wild Oats Colorado stores for sale are located.
A Western U.S. market region strategy, not limited 'critical mass'
In other words, instead of opening numerous more new stores in the Metro Phoenix, Arizona east and west valley regions and in Metropolitan Las Vegas (there is still plenty of room in Southern California for new stores), accept for the very limited new store fill-ins we described earlier, what Tesco needs to do is to spread out in other key Western U.S. states-regions (San Francisco Bay Area in Northern California and states like Colorado to start), thereby creating a bigger market basket instead of counting on more and more stores in the same markets to lead to success.
We would open select stores in select areas in the the San Francisco Bay Area right away. (More on this in an upcoming piece in Fresh & Easy Buzz.)
We would look at the seven Colorado former Wild Oats' stores for sale by Whole Foods. Then we would look to Oregon and Washington state, from Northern California. Then look to Utah, Idaho and New Mexico, from Colorado.
We don't mean a year or two from now. We mean right now.
What we are talking about to start is the opening of just a few Fresh & Easy stores in these states-market regions, not the "critical mass" strategy Tesco has employed to date.
For example, we see opening a total of about 7-10 Fresh & Easy stores in Metro Denver and key other cities in the state outside of the Metropolitan Denver market region. In a similar move, we suggest opening about 4-5 Fresh & Easy stores in the Metro Portland, Oregon market region and one or two outside the Metro region.
We would open about 7-10 stores in the Seattle Metro region and surrounding area to start, two-three in the Boise, Idaho Metro region, and perhaps two each in the Santa Fe and Albuquerque Metro market regions in New Mexico, to start.
This "Western U.S." strategy is opposed to Tesco's limited market region, many stores in just three states store location strategy. We will be elaborating on the alternative strategy in a future piece in the Blog.
One result of Tesco putting all of its stores in just three Western states is that those three states -- California, Nevada and Arizona -- just happen to not only be the three states hit worse by the housing foreclosure crisis, financial and credit crisis and unemployment in the west -- but also in the entire U.S.
In contrast, although being hit by the recession, Colorado, Utah and Washington State, for example, all are fairing much better that the three states. Utah has just a bit over 4% unemployment, for example, which is nearly half the national average, and is 6% below California's unemployment rate. Colorado and Washington state also have much less job loss than California, Nevada and Arizona.
And in California, the San Francisco Bay Area is doing much better than the rest of the state. It has much lower unemployment than Southern California and the Central Valley. For example, San Francisco's unemployment rate is under 6%, nearly half as much as the state's average of 10.4%.
The housing foreclosure percentage is much lower in the Bay Area than anywhere else in the Golden State, for example. And the diverse economy is till creating new jobs in some sectors, unlike what's happening in the rest of the state. (We would add that of the 18 confirmed Fresh & Easy locations by Tesco in the San Francisco Bay Area, and the additional approximately seven or eight we've discovered and reported on but haven't been confirmed by the retailer yet, about 60% of the store sites are in what we consider poor locations. We will elaborate on this in that future piece.)
Lastly, for those readers with a logistics and distribution bent, Tesco's Fresh & Easy can distribute to all of these Western States out of its Distribution center in Riverside County, (Southern) California. All that's needed are some tweaks to its current logistics model, along with one or two key additions. Yes, you have to wait for that upcoming piece to read what those logistical tweaks and addition are.
So, that's how we would deal with the new influx of grocery stores now for sale in the Western U.S. because of the Whole Foods Market-FTC settlement agreement, were we Tesco's Fresh & Easy Neighborhood Market. And we hear there could be some wheeling and dealing (good prices) for the stores, since the sale is the result of the settlement agreement with the FTC.
But its all about good store location strategy rather than good deals on closed stores, in our analysis and experience. That you can take to the bank, as long as it isn't Bank of America or Citi, and you are looking for a commercial loan.
We will elaborate on the "Western U.S. strategy," as opposed to what we term Tesco's current limited state, limited market, "critical mass" store location strategy, along with the Northern California piece, and the logistics piece, in an upcoming post or two in Fresh & Easy Buzz. Please stay tuned.
[Editor's Note: For detailed coverage and analysis about the FTC v. Whole Foods Market antitrust case, along with the settlement agreement, we suggest Natural~Specialty Foods Memo (NSFM), which has covered the topic, issue and legal case extensively since the acquisition happened in the summer of 2007. Here is a bibliography of its recent coverage, along with posts from its archives. Here is a recent piece about the selling of the "Wild Oats" brand and intellectual property.]
[Readers: You can follow Fresh & Easy Buzz around on Twitter at: www.twitter.com/freshneasybuzz.]
Whole Foods Market, Inc. reached a settlement agreement on March 6 with the U.S. Federal Trade Commission (FTC) regarding the FTC's nearly 20-month antitrust legal challenge against the Austin, Texas-based natural and organic foods chain's 2007 acquisition of then major competitor Wild Oats Markets, Inc., which was headquartered in Boulder, Colorado.
[We last wrote about the then ongoing antitrust case here.]
The settlement agreement between Whole Foods Market, Inc. and the FTC requires the natural foods and grocery chain to sell a total of 32 of its stores; 13 operating markets and 19 stores that have already been closed. Ten of those 19 stores were closed by Wild Oats Markets, Inc. before the 2007 acquisition by Whole Foods Market. Nine of the 19 stores have been closed by Whole Foods' since acquiring Wild Oats.
Of the 13 operating stores to be sold, 12 are former Wild Oats' units acquired by Whole Foods Market, Inc. in the 2007 deal. Just one of the 13 stores is a Whole Foods banner market store that existed prior to the 2007 acquisition of Wild Oats.
The FTC-Whole Foods settlement agreement also requires Whole Foods Market, Inc. to put up for sale the "Wild Oats" brand and all related intellectual property associated with it. This includes all the branding and packaging materials associated with the "Wild Oats" brand products, which then Wild Oats Markets, Inc. featured in its stores and for a couple years were sold in most Kroger Co.-owned supermarkets in the U.S., prior to Kroger creating its own natural-organic store brand just a few years ago.
Whole Foods Market has worked to eliminate the "Wild Oats" brand since the 2007 acquisition, rebranding all but about 6-10 former Wild Oats stores "Whole Foods" (and those stores are in the process of being rebranded as we write this), and closing-out and discountinuing all of the products under the brand from the former Wild Oats Market stores' shelves. Therefore it isn't a brand the natural grocery chain planned on using anyway, although it might have preferred to bury it rather than to sell it.
Whole Foods Market, Inc. currently operates 279 natural foods supermarkets in the U.S., Canada (6 stores) and the United Kingdom (5 stores). It had gross annual sales of $8 billion in 2008.
If the 13 operating stores are sold, that will bring Whole Foods' store count down to 266. The 13 stores to be sold had $31 million dollars in sales for the first quarter, 2009, which just ended. That works out to annual sales of about $124 million, which won't have a significant negative impact on the natural grocry chains annual sales.
Whole Foods Market will open about 10 new stores in 2009. Those 10 new stores will likely make-up most of that $124 million in annual sales because they are all bigger than the 13 stores to be sold, and a number of them are in its top demographic markets, such as in Northern California.
For example, Whole Foods Market will open its first store in the Northern California coastal city of Santa Cruz tomorrow. The city of about 100,000 residents has a very high natural and organic foods shopper demographic. We expect the Santa Cruz Whole Foods' store to be a high volume market for the natural grocer, possibly doing in the $600,000-plus per week sales range. The new store is 31,500 square feet. As an example, the Whole Foods store in Mill Valley, California (Marin County) does about $500,000 a week on average and is only 14,000 square feet. It is a very high volume store.
As a part of the settlement deal with the FTC regarding the 13 operating Whole Foods stores being sold, if those stores don't sell in a one year period of time, Whole Foods Market gets to keep them. The natural grocery chain also will operate and gain the income from the 13 stores until each respective store is sold.
A third-party receiver has been appointed by the FTC and Whole Foods Market, Inc. to sell the 13 operating and 19 closed stores. They are in the process of being put on the market by the receiver as we write this piece.
Below are, first, a list of the 13 operating Whole Foods stores being sold. After that is a list of the 19 closed stores being put on the market. The stores in green font are those located in markets where Tesco's Fresh & Easy Neighborhood Market operates. Fresh & Easy has stores in California (Southern CA and Bakersfield), southern Nevada and Metro Phoenix, Arizona. A number of the 13 currently operating and the 19 closed Whole Foods stores for sale are in Arizona and Nevada. None are in California.
The 13 operating stores for sale:
7133 N. Oracle Rd., Tucson, AZ
8688 E. Raintree Dr., Scottsdale, AZ
2584 Baseline Rd., Boulder, CO
1651 Broadway St., Boulder, CO
3180 New Center Pt., Colorado Springs, CO
5910 S. University Blvd., Littleton, CO
9229 N Sheridan Blvd., Westminster, CO
340 N. Main St., West Hartford, CT
4301 Main St., Kansas City, MO
1090 St. Francis Dr., Santa Fe, NM
7250 W. Lake Mead Blvd., Las Vegas, NV
19440 N.W. Cornell Rd., Hillsboro, OR
6930 S. Highland Dr., Salt Lake City, UT
The 19 closed stores for sale
5350 W. Bell Rd., Glendale, AZ
1422 N. Cooper Rd., Gilbert, AZ
874 E. Warner Rd., Gilbert, AZ
9028 W. Union Hills, Peoria, AZ
13823 N. Tatum Blvd., Phoenix, AZ
15569 W. Bell Rd., Surprise, AZ
200 W. Foothills Pkwy., Fort Collins, CO
8194 S. Kipling Pkwy., Littleton, CO
6424 Naples Blvd., Naples, FL
4600 Shelbyville Rd., St. Matthews, KY
87 Marginal Way, Portland, ME
8819-8833 Ladue Rd., St. Louis, MO
7831 Dodge St., Omaha, NE
517 N. Stephanie St., Henderson, NV
4879 S. Virginia St., Reno, NV
5695 S. Virginia St., Reno, NV
2077 N.E. Burnside St., Portland, OR
17711 Jean Way, Lake Oswego, OR
3736 W. Center Park Dr., West Jordan, UT
Out of the total 32 stores for sale, 12 are located in Arizona (8) and Nevada (4), two of the three states where Tesco's Fresh & Easy operates its stores. Fresh & Easy currently has stores only in the Las Vegas Metropolitan region in southern Nevada. However, it currently has at least two stores in development in the Reno area in northern Nevada.
Additionally, 26 out of the total 32 stores for sale are located in the Western U.S., in states other than Arizona and Nevada. That leaves only six stores outside the west.
The reason this is the case is because the FTC's main antitrust argument was that a combined Whole Foods-Wild Oats constituted a retail monopoly in 15-29 U.S. markets in what the FTC called the "natural and premium organic retailing segment." The majority of U.S. markets in which the FTC claimed in its legal challenge that the combined Whole Foods-Wild Oats was the most monopolistic in based on its regulatory agency created retailing category were in the Western U.S. Therefore the majority of stores offered for sale are in the west.
Arizona and Nevada
Since so many of the former Wild Oats Market stores being offered for sale are in Arizona, this obvioulsy provides Tesco's Fresh & Easy an opportunity to acquire additional new store locations in what is its second highest market region in terms of store count -- Arizona -- particularly the Phoenix Metro and easy-west valley regions.
Additionally, since all but one of the 32 stores for sale are former Wild Oats units, they are a perfect physical size for Tesco to convert into Fresh & Easy markets. Most of the 31 former Wild Oats locations for sale (out of the total 32) average about 14,000 -to- 20,000 square feet in size. This is the perfect size for Tesco to convert since the Fresh & Easy stores average about 10,000 -to- 13,000 square feet.
It's much cheaper to convert an existing store of the size of the former Wild Oats units into a Fresh & Easy market than it is to convert the former 35,000-plus square foot supermarkets and much larger big box stores Tesco has in many cases converted into Fresh & Easy stores. But the retailer knows that. It just opened a new Fresh & Easy store in Pasadena, California two weeks ago that is in a former Wild Oats store that was closed before the acquisition of the company by Whole Foods Market, Inc.
But the mere fact the stores in Arizona and Nevada are for sale, and in what we hear are in many instances for good prices, along with the fact the former Wild Oats Market stores are the perfect size to convert into Fresh & Easy markets for Tesco, doesn't mean Tesco's Fresh & Easy Neighborhood Market should buy any of the stores, especially in Arizona.
Why? It's our analysis that Fresh & Easy basically has enough stores in the Phoenix metro region for right now. In fact, we think that a number of the Fresh & Easy stores, which are located so close to one another as they are, are actually canabalizing sales of each other in numerous cases.
At this point in time, we suggest Tesco look only to key cities in Arizona on a very selective basis where there are currently no Fresh & Easy stores for new locations. The only duplication exception in the Phoenix Metro region being spots that are just screaming for a small-format grocery store.
In terms of the stores being put up for sale by Whole Foods in Arizona, our suggested strategy above basically narrows the list down to one store -- the former Wild Oats Market store in Peoria, Arizona. We would look at that former Wild Oats store to buy and convert into a Fresh & Easy. In all of the other cities, Tesco already has plenty of Fresh & Easy stores, in our analysis. [By the way, Wal-Mart will open one of its small-format, combination grocery and fresh foods Marketside stores in Peoria later this year, it's fifth Marketside unit in the Phoenix Metro region.]
We would also take a pass on the stores for sale in Las Vegas and Henderson, in southern Nevada. Tesco has enough stores in the market for now as well, in our analysis. Actually it has a few too many.
But we would take a close look at the two former Wild Oats' units for sale in the Reno area, in northern Nevada.
Colorado and Oregon
Beyond taking this limited look at the former Wild Oats stores for sale in Arizona and Nevada, here is what we would do: We would take a very close look at the seven former Wild Oats stores for sale Colorado.
Yes, we know Tesco's Fresh & Easy is currently only in three markets: California (Southern and Bakersfield), southern Nevada and Arizona. And we know it has postponed its launch into Northern California at least two or three times now.
But being in only the three states and markets with its current 116 stores is part of Fresh & Easy's problem: With its "critical mass" store location strategy, the grocery chain has put way too many stores in just three states, with the stores located way too close to one another.
There have been three negative primary results of this strategy, in our analysis:
>First, the "critical mass" store location, limited market focus strategy has resulted in too many Fresh & Easy stores being located too close together. This is causing stores to canabolize sales of other nearby stores.
>Second, the decision by Tesco to open so many Fresh & Easy stores in such a short period of time so close to one another in only three states-markets resulted in numerous bad store location decisions, in our analysis. That's in part of the reason why so many of the current Fresh & Easy markets are doing below $150,000 per week in sales.
>Third, Tesco's research failed to identify its only real key consumer demographic group so far, based on our research. The one group that seems to have thus far started to develop brand identity with and some brand loyalty to the Fresh & Easy retail brand (meaning they are primary shopper potential) and stores are members of the about 18-34 year old consumer. This is the only demographic segment we've identified thus far that contains some members who seem to have "gotten" the Fresh & Easy format, as Tesco's Fresh & Easy often puts it, as it is at present.
Consumers in this age segment tend to live in urban regions not suburbs where most of the Fresh & Easy markets are located. Think in and around Phoenix, Arizona but not farther out in the suburbs where many of the Fresh & Easy stores are located. Think college or university towns. Think Metro Los Angeles and the west side more so than the Inland Empire region and Orange County, where most of the Fresh & Easy stores in Southern California are located.
And think San Francisco and Silicon Valley in Northern California's Bay Area, as well as Metro Denver, Colorado and the hip city of Boulder where two of the former Wild Oats Colorado stores for sale are located.
A Western U.S. market region strategy, not limited 'critical mass'
In other words, instead of opening numerous more new stores in the Metro Phoenix, Arizona east and west valley regions and in Metropolitan Las Vegas (there is still plenty of room in Southern California for new stores), accept for the very limited new store fill-ins we described earlier, what Tesco needs to do is to spread out in other key Western U.S. states-regions (San Francisco Bay Area in Northern California and states like Colorado to start), thereby creating a bigger market basket instead of counting on more and more stores in the same markets to lead to success.
We would open select stores in select areas in the the San Francisco Bay Area right away. (More on this in an upcoming piece in Fresh & Easy Buzz.)
We would look at the seven Colorado former Wild Oats' stores for sale by Whole Foods. Then we would look to Oregon and Washington state, from Northern California. Then look to Utah, Idaho and New Mexico, from Colorado.
We don't mean a year or two from now. We mean right now.
What we are talking about to start is the opening of just a few Fresh & Easy stores in these states-market regions, not the "critical mass" strategy Tesco has employed to date.
For example, we see opening a total of about 7-10 Fresh & Easy stores in Metro Denver and key other cities in the state outside of the Metropolitan Denver market region. In a similar move, we suggest opening about 4-5 Fresh & Easy stores in the Metro Portland, Oregon market region and one or two outside the Metro region.
We would open about 7-10 stores in the Seattle Metro region and surrounding area to start, two-three in the Boise, Idaho Metro region, and perhaps two each in the Santa Fe and Albuquerque Metro market regions in New Mexico, to start.
This "Western U.S." strategy is opposed to Tesco's limited market region, many stores in just three states store location strategy. We will be elaborating on the alternative strategy in a future piece in the Blog.
One result of Tesco putting all of its stores in just three Western states is that those three states -- California, Nevada and Arizona -- just happen to not only be the three states hit worse by the housing foreclosure crisis, financial and credit crisis and unemployment in the west -- but also in the entire U.S.
In contrast, although being hit by the recession, Colorado, Utah and Washington State, for example, all are fairing much better that the three states. Utah has just a bit over 4% unemployment, for example, which is nearly half the national average, and is 6% below California's unemployment rate. Colorado and Washington state also have much less job loss than California, Nevada and Arizona.
And in California, the San Francisco Bay Area is doing much better than the rest of the state. It has much lower unemployment than Southern California and the Central Valley. For example, San Francisco's unemployment rate is under 6%, nearly half as much as the state's average of 10.4%.
The housing foreclosure percentage is much lower in the Bay Area than anywhere else in the Golden State, for example. And the diverse economy is till creating new jobs in some sectors, unlike what's happening in the rest of the state. (We would add that of the 18 confirmed Fresh & Easy locations by Tesco in the San Francisco Bay Area, and the additional approximately seven or eight we've discovered and reported on but haven't been confirmed by the retailer yet, about 60% of the store sites are in what we consider poor locations. We will elaborate on this in that future piece.)
Lastly, for those readers with a logistics and distribution bent, Tesco's Fresh & Easy can distribute to all of these Western States out of its Distribution center in Riverside County, (Southern) California. All that's needed are some tweaks to its current logistics model, along with one or two key additions. Yes, you have to wait for that upcoming piece to read what those logistical tweaks and addition are.
So, that's how we would deal with the new influx of grocery stores now for sale in the Western U.S. because of the Whole Foods Market-FTC settlement agreement, were we Tesco's Fresh & Easy Neighborhood Market. And we hear there could be some wheeling and dealing (good prices) for the stores, since the sale is the result of the settlement agreement with the FTC.
But its all about good store location strategy rather than good deals on closed stores, in our analysis and experience. That you can take to the bank, as long as it isn't Bank of America or Citi, and you are looking for a commercial loan.
We will elaborate on the "Western U.S. strategy," as opposed to what we term Tesco's current limited state, limited market, "critical mass" store location strategy, along with the Northern California piece, and the logistics piece, in an upcoming post or two in Fresh & Easy Buzz. Please stay tuned.
[Editor's Note: For detailed coverage and analysis about the FTC v. Whole Foods Market antitrust case, along with the settlement agreement, we suggest Natural~Specialty Foods Memo (NSFM), which has covered the topic, issue and legal case extensively since the acquisition happened in the summer of 2007. Here is a bibliography of its recent coverage, along with posts from its archives. Here is a recent piece about the selling of the "Wild Oats" brand and intellectual property.]
[Readers: You can follow Fresh & Easy Buzz around on Twitter at: www.twitter.com/freshneasybuzz.]
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4 comments:
The 2 stores in Boulder,CO are good locations, and would be probably better for a grocer that sells basic items along with organic. There are enough natural foods store in town. But one that sells non-organic plus some fresh & natural could do very well in both locations. Both sites have long histories in town.
I agree with Tedi-in-Boulder...you can factor in the student population as well..many of whom are walking. As a current F&E provider, I've always felt that their model really lends itself to high density, urban locations where foot traffic is heavy like Chicago, San Francisco, New York (Manhattan)places where F & E could be a real neighborhood store. See some of those New Season's locations in Portland, OR where they've put great stores right in the midst of a real neighborhood where shoppers are not required to drive there.
I agree with both comments, and the thrust of the story. I work in the grocery industry in the SF Bay Area. I completely agree that half or more of the sites they have picked here are in the wrong places. They should focus more on SF. Include Berkeley. Go more urban and less suburban in the Bay Area, assuming they still plan on opening stores in the market.
This article is very timely and relevant. As I quote Cameron Muir, an economist, "Home sales are unlikely to fall much further..That being said we expect home sales not to decline much further."
But it's never too late, with the right business plan set up, it will lead to valuable outcome. This is what most counselors would give as an advise.
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