Sunday, May 9, 2010

A Whopping 15 of Whole Foods Market's 41 New Stores in Development are in California - And Nine of The 15 Are In Northern CA

Northern California Special Report: San Francisco Bay Area & Sacramento Metro-Markets: Analysis

Hybrid natural-conventional grocery chains Sprouts Farmers Market, which is privately-held, and Henry's Farmers Market, which is owned by Smart & Final, aren't the only competitors of Tesco's Fresh & Easy Neighborhood Market in Southern California and Arizona that are putting a big new store opening focus on Northern California's San Francisco Bay Area and Sacramento metro-market regions. [See - May 8, 2010: Sprouts, and Likely Henry's to Beat Fresh & Easy to Northern California Despite it's Big Head Start.] No sir, indeed.

Natural and organic grocer Whole Foods Market, Inc., is focusing the majority of its U.S. new store development efforts on California - and specifically on Northern California's San Francisco Bay Area and Sacramento metro-market regions.

Whole Foods currently has 15 new stores planned for California, out of a total 41 new U.S. stores currently in development. Of those 15 planned new California stores, nine are set for Northern California - all in the Bay Area and Sacramento regions - and six are planned for Southern California.

Whole Foods Market currently operates 58 stores in California - 29 in Southern California, 28 in Northern California, and one in Fresno, in the Central Valley.

Eight of the nine new stores in development are in the San Francisco Bay Area. One is in Folsom, which is in the Sacramento area.
In contrast, the next closest U.S. state in terms of planned new stores is Texas, which is the grocer's headquarters state, where Whole Foods' currently has five new stores in development.

Below are the nine new stores in development for Northern California. If more than one store is in the same city, the address is listed.

San Francisco Bay Area

1. Albany
Albany is in the East Bay Area, next to Berkeley, and just over the Bay Bridge from San Francisco. This will be Whole Foods' first unit in the city. Whole Foods' Northern California region headquarters is located in just a couple miles from Albany, in the city of Emeryville, where the grocer also has a store.

2. Lafayette
Lafayette is in Contra Costa County, near Concord and Walnut Creek. The affluent city is located about 15 miles east of Albany, and about 35 miles from San Francisco. This will be Whole Foods first store in the city.

3. Mill Valley (Blithedale)
Mill Valley is in Marin County, about four miles north of San Francisco over the Golden Gate Bridge. Whole Foods has an existing store in the city at 414 Miller Ave, which it opened in the early 1990's. The store, just 14,000 square-feet in size, is near the top in the chain in terms of sales-per-square-foot.

The new Mill Valley store is about twice the size of the existing unit. Whole Foods will continue to operate the existing store, having two units in the community. The existing $14,000 square-foot Mill Valley store does so well, at least $400,000 a week, that Whole Foods' believes a second store in the small, but very affluent, city of about 20,000 is warranted. Whole Foods co-president Walter Robb got his start with the grocer at the 414 Miller Avenue store in Mill Valley in 1991 1990's as the store's manager.

4. San Francisco (Castro District)

5. San Francisco (Haight/Stanyan)
Whole Foods currently has four stores in San Francisco, ranging in size from about 55,000 square-feet to it's newest store in the Noe Valley neighborhood, which is only about 14,000 square feet. The two new stores will bring the store-count up to six. The Haight-Ashbury neighborhood (yes, that Haight-Ashbury) store will be a bit under 20,000 square-feet. It's going into an existing vacant building that formerly housed a Cala banner supermarket owned by Kroger Co, which the company closed.

The Haight-Stanyon store will be a sales barn burner for Whole Foods. The neighborhood has perfect Whole Foods Market demographics. Plus, it will be the biggest and most comprehensive grocery store in the neighborhood. The store site sits right across from a major entrance to Golden Gate Park. There's a McDonalds right across the street. The foot traffic is extensive, which also means lots of sales of fresh, prepared, grab-and-go foods for the future Whole Foods unit. The University of California Medical School, research hospital and research facility, which has a daytime population of about 40,000, is also just blocks away. We're told the store could open before the end of this year.

6. San Jose (Alameda)

7. San Jose (Blossom Hill)
When opened, the two units will be Whole Foods' first stores in San Jose, which at close to a million residents is the largest city in the Bay Area. San Francisco is second with about 850,000 residents. The natural grocer has numerous stores in cities close to San Jose but none to date in the city.

8. Santa Rosa (Coddingtown)
Whole Foods has one existing store in Santa Rosa, which is in the north Bay Area, about 35 miles from San Francisco. That store, which is at 1181 Yulupa Ave, will remain open, giving the grocer two units in the city. Santa Rosa is where the late Charles Schultz, the creator of the Peanuts comic strip and the iconic Charlie Brown character, was born and lived his entire life. He passed away in Santa Rosa a few years ago.

Sacramento Metro Region

9. Folsom
This will be the grocer's first store in Folsom. Whole Foods has two existing stores in the Sacramento metro-market region: one in Sacramento and another in Roseville, which is next door to Sacramento. The Folsom store will be Whole Foods' first in the Sacramento region in some time.

The photographs above and below are of the extensive fresh, prepared foods area in the Whole Foods Market store near downtown Oakland, California, which opened in September 2007. The store has a unique design, inspired by Europe's food halls. The store's fresh, prepared foods offering, which includes both self-service and full-service features and an eat-in area called "Market Bistro," includes: hot and cold bars featuring foods from around the world; a chef’s case offering take-home salads, entrees and side-dishes by the pound; a meat carvery and salad toss station; pizza made on site in a stone hearth oven; extensive rotisserie selections, salad and soup bars; made-to-order sandwiches, pre-packaged selections of grab-and-go foods; and more. Learn more here.

The remaining Whole Foods Market stores currently in development in the U.S. are in the following states: Connecticut (3 stores); Colorado (1); Delaware (1); Georgia (2); Hawaii (1); Maryland (2); New Jersey (1); New York (2); North Carolina (1); Ohio (1); Pennsylvania (1); Tennessee (1); Utah (1); Vermont (1); Virginia (1); and Washington State (1).

The 41 new U.S. stores currently in development by Whole Foods range from about 65,000 square-feet to under 20,000 square-feet in size. Who says a grocer can't do both big and small formats?

The 41 total planned new stores, including the 15 for California and nine for Northern California, are as of May 9, 2010.

"In development" means Whole Foods Market, Inc. has signed a lease for a site or entered into an agreement with a developer to build a store on a site. The 41 stores are mostly new construction, but some are vacant buildings acquired by the grocer.

A number of the 41 stores in development will be opened by Whole Foods this year. Those not opened this year will be opened in 2011.

Whole Foods Market, which has annual sales of $8 billion, currently operates 280 stores in the U.S., Canada and the United Kingdom. Six stores are in Canada and five are in London, UK. The rest are in the U.S.

Fresh - but not easy - eyes are on Northern California

As we said at the end of our piece yesterday about Sprouts and Henry's opening their first Northern California stores, the region is shaping up as being one of the most interesting to watch in U.S. food and grocery retailing this year - and into 2011.

For example, in addition to Whole Foods, Sprouts and Henry's Farmers Market, other grocers in the region, including Safeway Stores, Save Mart's Lucky, Winco Foods, Walmart and others, are increasing their competitive activity, something we will be reporting on and writing about in upcoming posts. (Look for the 'Northern California Special Report' sub-head in the coming days and weeks.)

Meanwhile, United Kingdom-based Tesco has yet to say publicly if it plans to open any of its 37 (19 in the Sacramento-Vacaville region and 18 in the San Francisco Bay Area) confirmed Fresh & Easy store locations in Northern California, which it first announced in early 2008. [See - April 19, 2010: Tesco Debating Whether to Launch Fresh & Easy Into Northern California This Fiscal Year... or Wait]

There are a few unconfirmed Fresh & Easy sites in Northern California as well, which we've reported on. [April 13, 2009: Despite Postponing its Northern California Launch Again Earlier This Year Tesco's Fresh & Easy Planning Third San Francisco Store; First Stockton Unit]

With all the increased activity and competition in Northern California since Tesco announced its plans to enter the market with Fresh & Easy in early 2008, Fresh & Easy's senior management team in El Segundo, (Southern) California (and Tesco CEO Terry Leahy at home in the UK) has to ask itself a serious question, in our analysis: 'If it doesn't enter the market this year, might not it lose its window of opportunity?'

We argue this is a valid concern for three key reasons:

(1) Having so many Fresh & Easy store sites sitting empty in Northern California for so long raises serious questions about the viability of Fresh & Easy in the communities where those store locations are. Many residents are asking if the grocer ever plans to open the stores, for example.

(2) Existing food and grocery retailers in Northern California have now had two-plus years to go to school on Fresh & Easy. As a result, many that were concerned about the new competition coming to Northern California are now far less concerned. By still not entering the market so long after announcing its plans to do so, Fresh & Easy has essentially given these grocers a free-pass in terms of preparing defensive strategies against it.

(3) The increased competition in the San Francisco Bay Area and Sacramento metro-markets - in the form of new entrants and organic growth by existing chains like Safeway, Walmart, Winco Foods, Costco, Lucky Stores, Whole Foods and others since 2008 - is going to make it even more expensive and difficult for Tesco's Fresh & Easy to launch into Northern California, particularly in the areas of price competition and marketing expenses.

For example, in 2008 -to- mid 2009, Safeway Stores, Inc., the market share leader in the San Francisco Bay Area, had yet to fully adjust its pricing and promotional strategies to take into account the trading down nature of many shoppers, even in the Bay Area and elsewhere in Northern California, brought about by the recession. Safeway has done so now in Northern California, lowering thousands of prices and promoting far more aggressively. This is also true of Save Mart's Lucky chain, which is number two in market share in the Bay Area. Save Mart is also number two in the Sacramento metro-market, after Raley's.

In 2008 -to- mid-2009, Modesto, California-based Save Mart Supermarkets was still in the process of integrating its acquisition of the nearly 200 Northern California Albertsons stores it bought from Albertsons LLC, which is owned by the private equity firm Cerberus Capital Management, in 2007. Since then Save Mart has fully-integrated the stores, including changing the banner to Lucky, a name it acquired with its purchase of the Albertsons stores.

The old Salt Lake City, Utah-based American Stores Company grocery chain used the Lucky banner in Northern California for decades. When the no longer existing Boise, Idaho-based Albertsons Stores Inc. chain, which was acquired by Cerberus and Supervalu, Inc. three years ago., bought American Stores in the 1990's, it changed the name of the then Northern California Lucky stores to Albertsons. Save Mart changed back to the Lucky name when it bought the stores because it had strong brand equity during all the years it was used, particularly in the Bay Area and Sacramento metro-markets, where the majority of the Lucky stores are located.

The new entrants and overall increased competition, particularly from Walmart, which has been and is converting some of its discount format stores in Northern California into supercenters that offer a full selection of food and groceries [See - September 15, 2008: Wal-Mart Expanding its Discount Store-to-Supercenter Conversion Program As Part of its Strategy to Grab Even More Food and Grocery Sales Market Share, also will mean Fresh & Easy will have to focus on offering very low prices and hot promotions in the region, which means low margins. Combine that with start up costs, and the grocer can plan for significant losses in Northern California for some time, on top of the significant losses it's already generating.

Walmart also continues to look for vacant retail buildings in the 75,000 -to- 100,000-plus square-foot range in Northern California, in which it can put "hybrid" supercenters, like the one it opened in Modesto, California in the fall of 2008. [See - April 25, 2008: Going Smaller: Wal-Mart Might have Found A Solution or Two to Much of the Opposition to its Mega-Supercenter Stores in the USA]

Further, Walmart is also open to building smaller than traditional from-the-ground-up supercenters in the region, where it has little food and grocery sales penetration and wants a whole lot more. [See- June 27, 2008: Wal Mart Has Created A New, More Upscale Supercenter Store Design Prototype; Submitting Plans For the Stores Selectively in U.S.] [May 6, 2010: Going Smaller & Getting 'Hybrid': Walmart's Smaller Supercenter in Vacant Retail Buildings Strategy Began in 2008]

The nine county San Francisco Bay Area, the most populous region in Northern California with over seven million residents, is also home to numerous multi-store independents like Andronicos Markets, Mollie Stones, Lunardi's, PW Supermarkets (about 35 stores combined with just those four) and others, which have an upscale-specialty focus, yet also offer a full-selection of conventional food and grocery items.

These multi-store independents and others have gone head-to-head with Safeway and the other major grocery chain players in the Bay Area for decades. They continue to do well overall and will do even better as the recession ends and Bay Area shoppers start trading with higher-end grocers even more frequently than they already do, which already is rather frequently.

It's our analysis Tesco is asking itself this fundamental question right now regarding launching Fresh & Easy into Northern California this year: 'Should it invest the money now and go forward, which means an even greater financial loss for fiscal year 2010/11 than the about $253 million its projecting, or should it wait until some time in 2011, hoping that between now and then its fortunes improve in its existing markets?' [See - April 20, 2010: Strong Group Revenue & Profit For Tesco... But $253 Million Loss at Fresh & Easy]

That's the 64,000 question. The answer to the question whether launch into Northern California this year or wait until sometime in the future will in no insignificant way demonstrate how much overall confidence Tesco has in Fresh & Easy, we believe.

[Editor's Note: The San Francisco Bay Area and Sacramento regions in Northern California are shaping up to be two of the hottest food and grocery retailing metro-markets to watch this year, for a variety of reasons. We will be doing just that. Look for additional, upcoming news stories, analysis pieces and commentary on the markets and Northern California in general, in Fresh & Easy Buzz. Look for the 'Northern California Special Report' sub-head, like at the top of this piece. ]


Damien said...

Texas – Fairview (Allen) is currently under construction; Fort Worth with the Southwest Parkway (toll road) being built, Whole Foods will be located on Edwards Ranch.

Perhaps, I am being mistaken; Austin would have another location in Cedar Park, besides The Domain.

Houston will have Post Oak at 80,000 square feet.

NorCal Food Broker said...

There's opportunity for Sprouts and Henry's in numerous in-fill locations in Northern California where Whole Foods won't probably go because the locations don't meet there criteria.

Davis near Sacramento is a good one. Alameda near Oakland another. Livermore and Pleasanton in the east bay perhaps. Also Stockton and Modesto out in the central valley. There are others.

Damien said...

Same-store sales and smaller footprint are the reason why Northern California has fifteen stores in development.

After 64,000-square-foot Park Lane (Post Oak is an exception) opening this recent March, newer stores in Texas would be within 40,000 square feet, unless otherwise. It should not be a surprise for each city (within Dallas-Fort Worth) to have its own Whole Foods.