Tuesday, August 17, 2010

And Then There Were Five: Smart & Final Completes its Mission of Opening Five SmartCo Foods Stores in Metro Denver Before Summer Ends

Southern California-based food and grocery retailing company Smart & Final has completed its mission of opening the first five of its new-format SmartCo Foods stores in Metropolitan Denver, Colorado before the end of summer - with time to spare.

On August 4 Smart & Final held the grand opening of its fifth SmartCo Foods store, a 42,000 square-foot grocery market in the Denver suburb of Littleton. The store is located at 3615 West Bowles Avenue.

The SmartCo Foods stores are price/value-focused hybrid grocery markets that are part traditional supermarket, part warehouse club format and part farmers market.

The stores' hybrid nature borrows from Smart & Final's other formats: SmartCo Foods' gets its warehouse style from the retailer's Smart & Final non-membership warehouse format stores, its farmers market genes from the company's Henry's Farmers Market chain, and it traditional supermarket focus from a combination of Smart & Final's Extra format stores and supermarkets in general.

The Littleton, Colorado store - number five - is managed by a veteran of the grocery retailing business and Colorado market region, David Crookston, who has 17 years of experience in the industry, including positions at Sunflower Farmers Market, Wild Oats and Reay’s Ranch Markets.

Each of the five SmartCo Foods stores are staffed by about 100-115 employees, according to the grocer. Smart & Final has established a standalone SmartCo Foods division in Metro Denver, which is headed by Scott Drew, SmartCo Foods' vice president and general manager. Drew says the company has hired about 600 employees to staff the five stores so far.

As we've reported previously, Smart & Final says it plans to open 20-25 SmartCo Foods stores in Metropolitan Denver, Colorado over the next few years. The first five stores range in size from 61,000 square-feet to 41,000 square-feet.

California and Arizona next up for SmartCo Foods

According to Smart & Final president Dave Hirtz, the retailer also plans to open SmartCo Foods stores in California and Arizona before the end of this year. Hirtz made that statement in late June when the first Metro Denver SmartCo Foods store opened. The retailer has opened the first five SmartCo stores in just slightly over a one month period of time. Smart & Final, which also owns and operates the Henry's Farmers Market chain, plans to open its first Henry's store in Northern California this week.

Since opening the first SmartCo Foods unit in Metro Denver in late June, Smart & Final has been offering a variety of hot specials in its weekly advertising circular, injecting some serious price competition into the portion of the Metro Denver market where the five stores are located.

For example, the current ad features whole chickens for 59 cents per pound, fresh peaches for 49 cents a pound, 20 packs (12 ounce cans) of Coca Cola for $4.99, and boneless New York Steaks for $3.98 a pound, along with various other items. (You can view the ad here.)

If Smart & Final maintains that level of price promotion in its ads, and brings the same promotional pricing structure to the SmartCo Foods stores it opens in California and Arizona, along with the favorable everyday prices it's been offering in the stores thus far, the grocer could add a significant level of competition to the markets where it opens the hybrid format stores. Based on our current source information, it's our estimation Smart & Final will open SmartCo format stores in both Southern and Northern California (although not in both regions for sure this year) and in the Phoenix Metro region in Arizona. Smart & Final might name the stores something other than SmartCo Foods though.

Southern California and Metro Phoenix are the two key regions for Tesco with its Fresh & Easy Neighborhood Market stores. Of Fresh & Easy's current 159 stores, 98 are in Southern California (and the southern Central Valley; Bakersfield and Fresno) and 34 units are in Metro Phoenix, Arizona. The remaining 24 Fresh & Easy stores are in Metropolitan Las Vegas, Nevada.

As it struggles to break even - Tesco's Fresh & Easy has lost over half a billion dollars since Tesco opened the first stores in November 2007, and is projecting a loss of about $253 million for its fiscal year 2010/11, which ends in February 2011 - the last thing Tesco's Fresh & Easy Neighborhood Market needs in Southern California and Metro Phoenix is another competitor, particularly one with a value-based pricing structure. However, the fresh food and grocery chain will be getting one, in the form of Smart & Final's SmartCo Foods format.

And speaking of price/value-based food retailers, Idaho-based WinCo Foods, which already has stores throughout California and is opening new units fairly rapidly in the Golden State [December 29, 2008: Competitor News: Winco Foods to Expand in California and Nevada in 2009; Put Aggressive Focus on Central Valley, Northern California and Northern Nevada], is also headed to Arizona - Metropolitan Phoenix to be exact - as we've previously reported and written about. [See - May 3, 2010: Winco Foods is 'Moving Fast-Forward' With Metro Phoenix, Arizona Market Entry and April 27, 2010: WinCo Foods' Entry Will Put the 'Ultra' in the Already 'Hyper-Competitive' Metro Phoenix, Arizona Market]

WinCo, a fierce competitor, will add yet another competitive layer in Arizona for Tesco's Fresh & Easy Neighborhood Market when it starts opening its first stores in Metro Phoenix, which will probably be in early 2011.

And in Southern California, where WinCo Foods has plans to open numerous stores, along with a new 1 million-plus square-foot distribution center to serve those new stores, the competitive heat will continue to intensify, not just for Fresh & Easy, but for all grocers in the region, particularly those with a price/value focus.

But additional competition in Southern California and Arizona vis-a-vis Fresh & Easy Neighborhood Market is key because at this point in time we can't see anything Tesco is doing from operations, merchandising and marketing perspectives at Fresh & Easy that will reduce the $250 million-plus annual losses it's sustaining with the chain. As such, we expect Tesco will likely in February 2011 project another loss for fiscal year 2011/12 (which starts at the end of February 2011) in the $250 -to- $259 million range for Fresh & Easy, similar to what it lost in the 2008 and 2009 fiscal years and is projecting for the current fiscal year.

[Below are links to our coverage of Smart & Final's opening of its first five SmartCo Foods stores in Metro Denver, Colorado. The stories also include numerous photographs of the stores.]

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