Wednesday, May 13, 2009

No Recession Blues For 'Beautifull:' Start Up Fresh, Prepared Foods Retailer 'Beautifull' Opens First Store in Bay Area; Says More Stores To Come

Northern California Market Region Report: Fresh, Prepared Foods Retailing

Tesco has postponed the Northern California market region launch of its Fresh & Easy small-format (10,000 -to- 13,000 square-foot) grocery and fresh, prepared foods markets indefinitely, saying the primary reason for doing so is the poor economy, as we've previously reported in Fresh & Easy Buzz.

But recession or not, the current state of the economy isn't stopping a San Francisco Bay Area fresh, prepared foods retail start up called "Beautifull" from opening the first store (pictured at top) of what it says will be numerous fresh, prepared foods markets it plans to open throughout Northern California's Bay Area region.

"Beautifull" is headquartered in the East Bay Area city of Emeryville, which is located just over the Bay Bridge from San Francisco. The fresh foods company has a central kitchen facility in South San Francisco, which is where all of the ready-to-eat and ready-to-heat fresh, prepared foods are made.

The first "Beautifull" store, or what the company calls a "fresh foodspace," opened on April 29 in San Francisco's Laurel Village Shopping District (at 3401 California Street @ Laurel) in a building that most recently housed a Cuban-themed cafe and for many years before that was home to a popular neighborhood diner called Ms. Brown's Feed Bag.

The building's interior space, which is no more than 5,000 square-feet in size, was gutted and turned into the "Beautifull" fresh foodspace" by noted restaurant and retail space designer Cass Calder Smith, who has designed some of San Francisco's most popular and trendy restaurants, including Restaurant Lulu and Terzo.

The "Beautifull" (note the second l in "Beautifull," as in a "full" tummy no doubt) format is devoted strictly to fresh, prepared foods of all kinds, ranging from comfort foods like macaroni and cheese, roast beef and meatloaf to more upscale offerings, along with a complete selection of ethnic entrees and side dishes, ranging from the basic to the exotic.

A sampling of the prepared foods items in the store includes: (entrees) ready-to-heat Prime Ribs of Beef, Spaghetti & Meatballs, Southwestern Style and Leek & Wild Mushroom Corn Frittata's, Thai Chicken Curry, Grilled Salmon, and Moroccan Chicken, for example, along with dozens of side dishes including various potato and rice-based sides, vegetable side dishes and much more.

The format also features ready-to-eat desserts of all types, along with numerous beverage offerings. [You can view the various prepared foods' offerings at the company's Web site here.

The ready-to-eat and ready-to-heat fresh, prepared foods at "Beautifull" are merchandised tray-pack-style in self-service refrigerated display fixtures with shelving (pictured above) and in bulk, in deli-style full-service refrigerated display cases staffed by employees.

The format's main focus is for take-out purchases. But customers can also eat in the store in a small dining area and outside at tables. Additionally, shoppers can place orders at the store for home or office delivery at a later time if they desire.

All of the fresh, prepared food items sold in the store are free of preservatives, added sugars, colorings, steroids and hormones, according to the fresh foods company. There are also organic offerings included in the entree and side dish product mix.

"Beautiful" says the three key attributes it's focusing on with its fresh, prepared foods are: "tasty, healthy and convenient." The retailer's tagline in fact is: "Real, Good Food."

And now that the company has opened its first store, it can bet shoppers will let it know "Real, Darn Fast" if it's meeting those three important criteria -- "tasty, healthy and convenient."

Staffed with experience, funded by major VC firms

"Beautifull" is the brainchild of serial entrepreneur Eric Greenberg. And the fresh, prepared foods company is far from a mom & pop operation.

Greenberg has put together a senior management team, board of directors and advisory board comprised of people with extensive experience in the retail food industry, culinary world, nutritional field, business development and finance.

Additionally, "Beautifull" is backed by two of Silicon Valley's leading and pioneering venture capital firms -- Mohr Davidow Ventures and Wilson Sonsini Goodrich & Rosati.

"Beautifull's" eclectic group of advisers includes: Larry Sonsini, the chairman and named partner of the Silicon Valley law firm and venture capital firm Wilson Sonsini Goodrich & Rosati; famous physician and food-nutrition guru Dean Ornish, MD; Brain Cornell, a former executive vice president and chief marketing officer for Safeway Stores, Inc. and the current CEO of the Michaels Stores, Inc. retail chain; noted San Francisco chef and caterer Paula LeDuc; and Ben F. Barnes, the former Speaker of the House for the Texas House of Representatives, former Lt. Governor of Texas, and former assistant to President Lyndon B. Johnson in the 1960's. Today Ben Barnes is a consultant and investor. [Click here for a complete list of the company's board members and advisers.]

The fresh, prepared foods company's senior management team includes a group of people with extensive experience in food retailing-merchandising, business operations, the culinary trades, finance and related sectors.

In addition to Eric Greenberg, "Beautifull's" founder, chairman and CEO, who has started a number of companies in the high-tech space, the company's president and chief operating officer is Matthew Janopaul, who has extensive experience in operations and finance.

John Mitchell, a professional chef and a former director of operations-food service for natural foods grocery chain Whole Foods Market, is "Beautifull's" senior vice president for product development & merchandising

In charge of "Beautifull's" retail operations as senior vice president for retail operations is Michael O’Keefe. O' Keefe has extensive retail operations experience in the restaurant-food service industry and most recently owned and operated his own consulting firm, Reality Check Consulting, where he worked with restaurant and food service companies in the retail operations, finance and related segments of their businesses.

On the culinary side of the business, veteran chef and food product developer Donna Insalaco is "Beautifull's" senior vice president for Culinary R&D and the corporate executive chef, overseeing prepared foods product development and preparation.

[Click here for a complete list of the company's senior management members, along with their bios.]

Retailer plus supplier to other grocers

"Beautifull" has a three-part business model and marketing strategy.

Supplier: The fresh foods company sells its fresh, prepared food products to other retailers. It currently supplies 32 San Francisco Bay Area independent supermarkets and natural foods stores with fresh, prepared foods made at its South San Francisco facility, for example, and has additional new retail customers lined up.

Online retail and delivery: "Beautiful" also offers its fresh, prepared foods directly for sale to Bay Area consumers online on its Web site, and delivers the orders to homes and offices.

Brick & mortar retail: The fresh foods company's third and what will be its most aggressive strategy is its retail store development, the first unit of which is the San Francisco "Beautifull" fresh foods market it opened on April 29, in San Francisco's Laurel Village Shopping Center.

"Beautifull" also is in the process of developing a commercial catering division which will feature its fresh, prepared foods.

'Beautifull:' The brick and mortar retailer

San Francisco's Laurel Village is a specialty foods center of sorts.

For example, along with the new "Beautiful" fresh, prepared foods market, the center includes the Cal-Mart supermarket, a very popular independent supermarket that focuses on specialty foods but also offers basic food and grocery items, including lots of fresh produce and fresh meats offered from an old-fashion, butcher shop-style service meat department.

Cal-Mart has been a fixture in the Laurel Village center for over 60 years. It's a part of "old San Francisco." The supermarket had a complete new interior design and upscaling in the 1990's, making it "old San Francisco" with a modern look.

There's also an upscale meat-seafood market/specialty grocery store just a few doors down from the "Beautifull" fresh food store and the Cal-Mart supermarket. Cal-Mart is at one end of Laurel Village and "Beautiful" is at the other. All three of the food stores are within just a couple minutes walk from each other.

The neighborhood also has numerous top-quality restaurants offering foods from a wide-variety of ethnic and regional cuisines.

Because of the variety of its offerings, Laurel Village is a food shopping venue not just for neighborhood residents but also for many residents from other neighborhoods in San Francisco.

'Beautifull:' The supplier

One the supply side of "Beautifull's" business model, the fresh, prepared foods company is aggressively trying to gain new retail customers and increase sales of its ready-to-eat and ready-to-eat entrees and side dishes with its existing grocer-customers.

It's hired food and grocery industry veteran Brett Johnson as its vice president of retail and foodservice sales. His mission is to built the fresh foods company's fresh, prepared foods sales with retail grocers. Johnson worked on the retail side of the industry for Safeway Stores for 10 years. He also previously worked in sales and marketing for Ready Pac Produce, a major California-based fresh produce company.

As mentioned earlier, "Beautiful" is currently supplying 32 San Francisco Bay Area independent supermarkets and natural foods stores with its fresh, prepared entrees and side dishes.

Among these retail customers include some of the region's most popular and highest-volume independent supermarkets and natural food stores such as: G & G Market (Santa Rosa, California); Mill Valley Market (Mill Valley); Berkeley Bowl (Berkeley); Petaluma Market (Petaluma); Delano's IGA (two stores: San Francisco and Fairfax in Marin County); Real Foods (two stores in San Francisco); Sonoma Market (Sonoma); and a number of others.

"Beautiful" started out by supplying grocers and offering its prepared foods items online for sale, with and home and office delivery, which it still does. With the opening of its first retail store it's now launching the third phase of its business model and marketing plan -- it's own brick and mortar retail fresh, prepared foods stores.

Marketing and selling the prepared foods items to grocers as a supplier makes good sense in our analysis because the company needs to create as much sales volume as it can in order to be able to offer the ready-to-eat and ready-to-heat foods at affordable prices in its stores. The only way to do this without opening multiple stores rapidly is to develop other markets for the products in order to create volume. Other grocers, as well as foodservice customers, equal those other markets.

We're more skeptical of the viability of selling the products online and via telephone ordering, with home and office delivery. The expenses of this particular model, especially with lower volume orders, is hard to make work, particularly when gasoline gets back up closer to $4 a gallon. And it will at some point.

But it could work out. After all, home pizza delivery is a low sales volume model. But it works for scores of pizza chains and independent pizza shops that do home and office delivery.

At present though the online ordering, home and office delivery model (as part of "Beautifull's" three strategies or models) probably is a good marketing strategy in and of itself as a way to generate consumer trial and create brand identity for the "Beautiful" brand, even if the cost of doing so exceeds the profit margin. (We have no information regarding if the cost does exceed the profit margin of home delivery regarding the company.)

The 'Beautifull' flagship store: Retail price points

We put the pricing of the prepared foods items in the "Beautifull" store just-opened in San Francisco in the mid-to-upper range. The fresh, prepared foods item retail price points aren't as low as those offered by Tesco's Fresh & Easy and many other supermarkets, for example. But the price points are about the same, and in the case of a number of items are lower, than those offered at many upscale supermarkets, natural foods stores and specialty markets in the Bay Area which offer fresh, prepared foods.

The "Beautifull" fresh foods market has only been open for two weeks, which gives the company plenty of time to adjust its retail pricing.

The current retails are probably fine or close to fine for the flagship store in San Francisco's Laurel Village, as price is less of a consideration in the neighborhood than it is in many other parts of the city and the Bay Area. Plus, San Franciscans' in general spend a greater percentage of their income on food, both by choice and not by choice.

By choice, San Francisco is a food lovers city, including when it comes to food and grocery shopping. The city is among the top U.S. cities in per-capita consumer purchases at the grocery store. That's one of the reasons there are so many upscale markets and specialty food stores in San Francisco.

Not by choice has to do with the fact that chains such as Safeway, which operates numerous supermarkets in San Francisco, as well as stores in nearly every other city in the region, charges slightly higher retail prices on nearly every item sold in its San Francisco and Marin County supermarkets than it does in its East Bay Area stores, for example. This type of pricing system is called "zone pricing."

Under the system, items in Safeway's stores in higher income counties and cities like San Francisco and Marin County have slightly higher retail price points than at the supermarket chain's stores in middle or lower income Bay Area cities. It's important to note that the cost of doing business for retailers in cities like San Francisco is also higher than it is in most if not all of those East Bay Area cities. For example, building rents are generally higher. Local taxes are most-often higher. And other costs of doing business tend to cost more.

As "Beautiful" looks to other neighborhoods in San Francisco and to additional cities in the Bay Area for its additional store locations -- although there are plenty of even more upscale and higher income neighborhoods in San Francisco and in numerous cities in the Bay Area it can focus on for the near to medium-term -- it might have to adjust its retail pricing downward in order to be more competitive with other retailers offering fresh, prepared foods.

However, since "Beautiful" is a niche fresh, prepared foods retailer, price is far less important compared to taste, quality, nutritional content, product selection and convenience, in relative terms of course. For example, we wouldn't suggest raising the current retail price points.

Price is currently more important in the economic recession, particularly since many shoppers are buying far less prepared foods and opting more for basic food and grocery purchases and cooking at home.

But the Bay Area is among the best performing U.S. regions -- and the best in California -- in the current recession. For example, California's unemployment rate is now 11.4%. The overall U.S. unemployment rate is approaching 9.0%. But San Francisco's jobless rate is at about 7.0%.

Fresh, prepared foods retailing abounds in Bay Area

There is no "fresh, prepared foods retailing gap" in the Bay Area. The region is full of supermarket chains, independent grocers, natural foods stores (and chains like Whole Foods), specialty markets, food halls and other retail venues that offer extensive selections of fresh, prepared foods to go, much of it prepared right in store.

In fact, the San Francisco Bay Area is home to numerous pioneering U.S. grocers in terms of fresh, prepared foods category retailing and merchandising.

Just a few of these pioneering grocers in the prepared foods category include the regional supermarket chains Andronico's Markets, Mollie Stone, Draegers, Lunardi's and Cosentino's, along with a number of other regional chains and numerous multi and single-store Bay Area independents.

An example that illustrates the pioneering nature of these Bay Area grocers is that in 2007-2008 when Wal-Mart Stores, Inc. was researching its small-format Marketside grocery and fresh foods markets, which feature an extensive selection of fresh, prepared foods made in-store, the development team led by former Wal-Mart executive David Wild based itself in the San Francisco Bay Area for a considerable amount of time, researching these and other pioneering prepared foods retailers in the region, picking up ideas for the Marketside format. Wal-Mart has four of the Marketside stores currently open. All four stores are in the Phoenix, Arizona Metropolitan region.

"Beautiful," with its fresh, prepared foods retailing concept and first store, adds yet another category player to the rich San Francisco Bay Area fresh, prepared foods retailing scene.

If Tesco's Fresh & Easy Neighborhood Market does decide to start opening some of its numerous planned Bay Area grocery and fresh foods stores this year -- a number of the stores are completed and sitting empty -- this fresh, prepared foods retailing super-competitive climate is something the grocer must be prepared for since a significant portion of Fresh & Easy store sales depend on its extensive fresh, prepared foods offering. And that's the case with or without an economic recession. [Suggested reading - May 6, 2009: Tesco Fresh & Easy Northern California Market Region Update.]

[Readers: Click here to read a selection of previous stories and posts from Fresh & Easy Buzz on fresh, prepared foods category merchandising and retailing.]

[Photo Credit: Beautifull.]

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Anonymous said...

Have been in the store twice now, once a couple days after it opened and again this week. Tempted to say it looks Beautifull. But seriously the designer did do a nice job. Also was surprised how busy it was considering the economy. But it is SF. Some of the dishes excellent. Others need work.

Anonymous said...

I disagree somewhat with the comment that customers are choosing "less prepared foods and opting more for basic food and grocery purchases and cooking at home".

Yes, cooking at home is a trend and customers in general are trading down. Sales of prepared foods remain strong as customers that are no longer going to restaurants are using prepared foods as a substitute. Trading down means different things to different consumers.