Veteran Grocer Harley DeLano's 'DeLano IGA Markets' Chain On the Verge of Closure in San Francisco Bay Area

Pictured above is the DeLano's IGA Market store at 207 Flamingo Road in Mill Valley, California. It's one of the eight Cala Foods/Bell Market stores Harley Delano and his son Dennis bought from Kroger Co. in 2006. [Photo Credit: Jay Masunaga.]

Breaking Buzz
Northern California Market Region Special Report

A second multi-store independent grocer in the San Francisco Bay Area, Marin County-based Delano's IGA Markets (Delano Retail Partners LLC), is on the verge of going out of business, Fresh & Easy Buzz has learned.

The DeLano's problems come just a couple months after one of the oldest multi-store independent grocers in the Bay Area, PW Markets which was founded in the 1940's by the late Joey Franco, closed its doors, sighting competitive pressures in a tough economy as the reason for going out of business. PW Markets, which until a few years ago operated 11 stores in the Bay Area, continued to be run by members of the Franco family until calling it quits this summer.

DeLano's IGA Markets, which operates six stores in San Francisco and nearby Marin County, is majority owned by grocery retailing veteran Harley Delano, who was president of Kroger Co.-owned Cala Foods/Bell Markets from 1990 to 1999, and his son Dennis, who's logged three decades in the food and grocery retailing industry.

Harley Delano, the chairman and CEO of DeLano IGA Markets, retired from his position at Cala/Bell in 1999/2000. The senior DeLano, who's in his early 70's, has over a half century of experience as a grocer, most of it in California.

The DeLano's also own and operate a seventh store in Davis, California, near Sacramento. The Davis store, Westlake IGA Market, which is the grocer's newest unit and was opened in September 2009, and a store in the Marin County city of Fairfax, Fairfax IGA, operate under the "Hometown IGA" rather than "DeLano's IGA" banner.

The Davis store is located in the Westlake Plaza shopping center in the western part of the city, which is home to the University of California at Davis. It's a small-format (11,000 square-foot) neighborhood grocery store. A local group called Davis Advocates for Neighborhood Groceries spent at least three years trying to find a grocer to go in the location. Among the retailers that considered putting a store at the site was Tesco's Fresh & Easy Neighborhood Market, which looked closely at the location in 2007 but decided against it.

In 2006 the DeLano's bought eight Cala Foods and Bell Market stores in San Francisco and Marin County from Kroger Co., which formed the basis of the DeLano IGA Markets chain. Having run the chain just a few years earlier before retiring in 2000, DeLano knew the stores well.

Since then Kroger has either closed or sold all of its remaining Cala Foods and Bell Markets stores, which numbered over 20, in the Bay Area, except for a single unit on Hyde Street in San Francisco. That store is slated to close either at the end of this year or sometime in 2011. Cala/Bell was a long time privately-held grocery chain in the Bay Area. Kroger acquired it in the 1980's.

The DeLano's have sold two of the original eight stores aquired from Kroger in 2006.

Here's what we know about DeLano IGA Market's troubles:

>Two stores to close any day now: The DeLano's have told employees at two of the San Francisco stores, 27th Avenue and Geary in the Richmond District and 18th Street in the Castro District, that the stores will be closed soon. An employee at one of the stores, who's a Fresh & Easy Buzz reader, says inventory in the stores is not being replenished and store hours have been reduced. He said the word is the doors will be closed once all of the existing inventory is sold. He said the closures could come as early as next week.

>Sale or Bankruptcy: Sources tell us DeLano IGA Market's problem's goes far beyond the closing of the two San Francisco stores. The sources say the grocer has been dealing with serious financial difficulty since at least mid-2009. DeLano's IGA Markets closed a store in the Marin County city of Tiburon in December of last year, for example. It's second since buying the eight stores from Kroger Co. on 2006.

We're told DeLano's is looking at two options. First, its hoping to sell the chain, or at least a few of the stores, to another grocer. Our sources tell us the DeLano family is in discussions with the owners of multi-store independent grocer Mollie Stone's Markets, which is based in Marin County, about acquiring some of the stores. Mollie Stone's has eight stores.

Based on demographics - Mollie Stone's Markets operates upscale, specialty-oriented grocery stores - in our analysis the grocer would be interested in just a couple to a few of the Bay Area stores, specifically the units in Mill Valley (pictured at top) and in the Castro District (4201 18th Street) in San Francisco, and perhaps the Fairfax unit. The demographics of the Davis store are fairly strong for the Mollie Stone format. But the grocer doesn't operate any stores outside the Bay Area, although that doesn't mean it might not be interested in doing so if the opportunity and deal were right. Davis is about 90 minutes from the grocer's headquarters in Mill Valley.

The second option would be for the DeLano's to file bankruptcy. It's unclear though, according to our sources, if the grocer has the cash on hand, or would have access to enough capital, to file for a Chapter 11 proceeding, which would allow it to reorganize operations and keep some of the stores in operation. The alternative would be a filing in which the grocer closes all the stores and goes out of business, and its assets are liquidated to pay off some or all of its creditors. The latter is the most probable filing, according to our sources.

>More Store Closures: Inventory levels in a number of the other DeLano IGA Markets, besides the two we report are closing, is low as of yesterday. According to our sources, many of the stores have abnormal out-of-stocks, particularly in the fresh and perishable foods categories. This development lends further evidence that the entire chain is in trouble and is headed for closure - or some form of limited acquisition.

>Website Down: The DeLano's IGA Markets website (delanomarkets.com) has been down (as in taken down) since at least yesterday, to our knowledge, and perhaps longer than that. The prolonged duration of having the website down, which has been a reliable one in the past in our experience, taken with the other information we are reporting, suggests something more than the closure of just two stores is going out with the grocer.

Interestingly, the website for the Davis and Fairfax stores, which are under the Hometown IGA rather than DeLano's IGA banner and have a separate online site, remains up. We're told by sources that the DeLano's own the Davis and Fairfax stores under a different corporate structure (not under Delano Retail Partners LLC), which might explain why one website is down and the other remains up. However, we haven't been able to verify that information as of yet.

>Bottom Line: Based on the information we presently have, it looks like DeLano IGA Markets will soon be out of business, or at a minimum shrunk considerably in size. Some of the stores could be bought by Mollie Stone.

The six DeLano's stores in San Francisco and Marin County that fly the IGA banner are smaller-format conventional supermarkets. The markets range in size from slightly under 10,000 square-feet to slighty over 20,000 square-feet.

The six stores are merchandised based to a certain extent on neighborhood demographics. For example, the stores on Mission Street and West Van Ness in San Francisco have expanded offerings of Hispanic foods because of the high percentage of Latino consumers who live in the neighborhoods. In contrast, the store in Marin County's Mill Valley (pictured at top) has expanded selections of organic and specialty foods because the area's high-income and highly educated residents are big consumers of such products. For example, Whole Foods Market has two stores in Mill Valley, which has a population of just 14,000. The stores do draw shoppers from nearby communties though.

As a price-competitive strategy, Delano's IGA Markets has been doing double couponing in the stores, which is something Harley Delano picked up from his years at Ralphs, which used the promotional vehicle for decades in Southern California until ending it some years ago. Under the ongoing promotion, the stores double the face value of each manufacturers' cents-off coupon (a 50 cent coupon gets a $1 discount) submitted by customers at checkout.

Independents under pressure

The closure of PW Markets a couple months ago, along with the current problems facing Delano's IGA, point up the growing competitive food and grocery retailing market in Northern California and the San Francisco Bay Area specifically.

For example, as as we've been reporting on and writing about since April of this year in our 'Northern California Market Region Special Report' series (see the linked stories at the end of this piece), a number of new grocery chains are entering the San Francisco Bay Area.

Privately-held Arizona-based Sprouts Farmers Market opened its first store in the South Bay Area earlier this year, and has many more units planned. Sprouts currently has over 50 stores. It's putting a major 2011-2012 focus on Northern California and the Bay Area, which is home to nearly seven million residents. [See - June 5, 2010: Sprouts Farmers Market Opens First Northern California Store in Sunnyvale; Strikes Up Partnership With Local Non-Profit Farm.]

Additionally, Southern California-based Henry's Farmers Market, which is owned by Smart & Final, opened its first store in Northern California earlier this year. The store is in Elk Grove, near Sacramento. Henry's plans to open its first Bay Area unit in Walnut Creek next year. Like Sprouts, it has additional stores planned for the region. [See - August 17, 2010: Henry's Farmers Market 'Beats' Fresh & Easy Neighborhood Market to Northern California Despite Multi-Year Head Start; Elk Grove Store Opens Tomorrow. Also see links to other stories at the August 17 piece.]

Further, Tesco's Fresh & Easy Neighborhood Market plans to open numerous stores in Northern California beginning early next year. The majority of its first batch of stores in the region will be in the nine-county San Francisco Bay Area. [See - November 5, 2010: Fresh & Easy Neighborhood Market Queuing Up Three Additional Stores in Northern California For Early-to-Mid 2011 Openings.]

Not to be left out, Sunflower Farmers Market, which operates stores similar in format to Sprouts and Henry's, is also entering Northern California. It's first store is set for Roseville, California, which is near Sacramento. Sunflower is also scouting for locations in the San Francico Bay Area. [See - September 22, 2010: Sunflower Makes Three: Sunflower Farmers Market's First Northern California Store Will Be in Roseville.]

And the big guns, Walmart Stores and Target Corp., the two-largest discount retailers in the U.S., are also putting a serious focus on the Bay Area. As we reported in this story - Walmart has plans to open a number of smaller-format food and grocery-focused stores in the San Francisco Bay Area over the next couple years. And Target is making the region a major focus for its store-within-a-store "P-Fresh" fresh food and grocery markets. [See - July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store; and September 26, 2010: While Tesco's Fresh & Easy Neighborhood Market Postponed, Target Opened 42 'P-Fresh' Fresh Food and Grocery Markets in Northern California.]

Also significant, Whole Foods Market and Trader Joe's are also expanding considerably in the Bay Area, opening numerous new stores, with plans to open more units over the next couple years. [See - 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.]

And not to be left out, Safeway Stores, Inc., which is the clear food and grocery market share leader in the San Francisco Bay Area, followed by Modesto, California-based Save Mart's Lucky chain, is remodeling and expanding the size of many of its existing stores in the region, along with opening new stores, even though it has nearly 200 stores in the nine-county Bay Area. [See - July 25, 2010: Safeway to Start Construction on New Pleasanton, California Flagship Store Soon; Thanksgiving 2011 Target Opening.]

Numerous key multi-store independent grocers, such as Mollie Stone's Markets, Lunardi's, Andronico's, Zanotto's, Draeger's and others continue to survive, although none have been thriving over the last few years, in the San Francisco Bay Area despite the increased chain competition and difficulty gaining access to capital because of the ongoing credit and lending crisis, which has hurt many privately-held independents that previously had ready-access to lines of credit but who have found that access seriously limited since 2008. But the increased chain competition and persisting credit market challenges, along with the fact many more shoppers in the region are today focused on price than was the case only a couple years ago, will make it more difficult for these and other independents - which have in significant measure been the innovators and trend-setters in the San Francisco Bay Area - in the year ahead.

The Series: Northern California Market Region Special Report

November 22, 2010: Tesco's Fresh & Easy Neighborhood Market Plans Five New Stores in Northern California's Sacramento Region

November 8, 2010 - Fresh & Easy Neighborhood Market's '5800 Third Street' Northern California 'Flagship' Store in San Francisco is Taking Shape

November 5, 2010: Fresh & Easy Neighborhood Market Queuing Up Three Additional Stores in Northern California For Early-to-Mid 2011 Openings

November 3, 2010: Tesco's Fresh & Easy Neighborhood Market Plans New Store in Northern Central Valley, California City of Ceres

November 1, 2010: Tesco's Fresh & Easy Neighborhood Market Planning to Build its First Store in Northern California City of Brentwood

October 30, 2010: Raley's Launches New 'Raley's TO GO' Pre-Packaged, Refrigerated Fresh-Prepared Foods Line

October 27, 2010: Save Mart CEO Bob Piccinini Poised to Make it to the 'Bigs' as Member of Golden State Warriors' Ownership Group

September 26, 2010: While Tesco's Fresh & Easy Neighborhood Market Postponed, Target Opened 42 'P-Fresh' Fresh Food and Grocery Markets in Northern California

September 22, 2010: Sunflower Makes Three: Sunflower Farmers Market's First Northern California Store Will Be in Roseville

September 22, 2010: Tesco's Fresh & Easy Neighborhood Market Planning A New, Third Store in San Jose, California

September 22, 2010: Fresh & Easy Neighborhood Market Plans to Open Two Additional Stores in Northern California in Early 2011

September 21, 2010: A Look Inside Whole Foods Market's Newest Store, A Mall Location in Santa Rosa, California

September 20, 2010: About Today's Walmart Stores, Inc. Smaller Stores Media Frenzy: We Scooped it On July 6, 2010

September 19, 2010: Whole Foods Market Gives Itself A 30th Birthday Present: 299th Store Opens This Week in Santa Rosa, California

September 18, 2010: Keep On Truckin' - Whole Foods Market Celebrates 30 Years This Weekend

September 14, 2010: Eight Plus One: Napa Unit Added to Eight Fresh & Easy Neighborhood Market Stores Opening in Northern CA in Early 2011

September 5, 2010: BevMo Chain Ends Full Time Employment For Store Workers; They Say No Way and Join With UFCW Union to Demand 'A Better BevMo'

September 3, 2010: How the California Grocers Association and its Members Can Snatch Victory From the Jaws of the Defeat of California's Plastic Bag Ban

August 25, 2010: Going Rural: New Fresh & Easy Neighborhood Market Store Planned for Sutter Creek in Northern California

August 23, 2010: Hybrid 'Good Eats' Market-Cafe From Raley's CEO Michael Teel & Company Opens Today in Sacramento CA

August 22, 2010: The Insider: Challenges & Opportunities: Tesco's Fresh & Easy Neighborhood Market Will Supply its Northern CA Stores From its Riverside County DC in Southern CA

August 21, 2010: April 2010 Prediction Correct: February 2011 Target to Open First Eight Fresh & Easy Neighborhood Market Stores in Northern California

August 19, 2010: Tesco Will Open its First Eight Fresh & Easy Neighborhood Market Stores in Northern California in 'Early 2011.'

August 17, 2010: Henry's Farmers Market 'Beats' Fresh & Easy Neighborhood Market to Northern California Despite Multi-Year Head Start; Elk Grove Store Opens Tomorrow

July 29, 2010: Tesco's Fresh & Easy Neighborhood Market Putting Together List of Managers Interested in Transferring to Northern California

July 25, 2010: Safeway to Start Construction on New Pleasanton, California Flagship Store Soon; Thanksgiving 2011 Target Opening

July 22, 2010: 'The Insider' - After Four Years in the High Weeds in Northern & Central California, Kroger Co. is Emerging to Grow its Foods Co Chain

July 21, 2010: Vacant Fresh & Easy Neighborhood Market Store in Pacifica, California Has the City's Mayor in a Pickle

July 18, 2010: 'The Insider' - When it Comes to Northern California - its Competitors are Rome Burning and Tesco's Fresh & Easy Neighborhood Market is Nero Playing the Fiddle

July 14, 2010: Tony Bennett Has Nothing on Whole Foods Market When it Comes to Loving San Francisco...That City By the Bay

July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store

June 28, 2010: Smart & Final to Open its New Format SmartCo Foods Stores in California and Arizona

June 26, 2010: Tesco Planning to Announce in July When First Northern California Fresh & Easy Neighborhood Market Stores to Open

June 14, 2010: Newly-Named Whole Foods Market CO-CEO Walter Robb Comes Full Circle With the Opening of the New Store in Mill Valley CA

June 5, 2010: Sprouts Farmers Market Opens First Northern California Store in Sunnyvale; Strikes Up Partnership With Local Non-Profit Farm

May 29, 2010: Going Rural: Fresh & Easy Neighborhood Market to Build First Store in Los Banos, California

May 28, 2010: First Phase of Fresh & Easy Neighborhood Market-Anchored Condo Development in San Francisco's Bayview Set For Completion in June

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

May 8, 2010: Sprouts, and Likely Henry's to Beat Fresh & Easy to Northern California Despite it's Big Head Start

May 6, 2010: Going Smaller & Getting 'Hybrid': Walmart's Smaller Supercenter in Vacant Retail Buildings Strategy Began in 2008

April 19, 2010: Tesco Debating Whether to Launch Fresh & Easy Into Northern California This Fiscal Year... or Wait

[Also: click here , here and here for a selection of past stories on Fresh & Easy and Northern Calfornia.]