Dollar General's California Dream Becoming Reality

Tennessee-based discount retailer Dollar General has been moving hard and fast in Northern California, particularly in the Central Valley, since we first revealed the discount retailer's big plans for the market region in this December 5, 2011 story: Dollar General Jump-Starts California Launch: Taking Over 5 Centro Mart Supermarkets For Early 2012 Openings.

In the mere four months since we published the report, Dollar General has hit the ground running, focusing on its Dollar General Market grocery stores and traditional dollar format stores in the region.

Below is what the mega-discount retailer, which operates 10,000 stores in 39 U.S. states, is up to:

>First store opened: Dollar General opened its first Dollar General Market grocery store in the region March 31, at 1729 West Highway 140, in Merced, California.

The grocery market was store number 10,000 for Dollar General, and it went all out for the grand opening, offering activities for shoppers including: a free make-up consultation from representatives of  L’Oreal and Maybelline; photographs for the kids with characters Sponge Bob, Bimbo Bear and the Energizer Bunny; and food sampling, offering numerous products sold at Dollar General. Additionally, the first 500 customers to arrive at the store for the 9 a.m. grand opening received a free ham and a reusable tote bag filled with product samples and coupons

>Store manager search: The retailer is currently advertising for store managers for its three Dollar General Markets in Stockton, California and the unit in the East Bay Area city of Brentwood. These are four of the five stores Dollar General is leasing from Stockton-based supermarket chain Centro Mart, as we detailed in our December 5, 2011 story. The fifth former Centro Mart unit, in Stockton, will be a Dollar General dollar format store. The four Dollar General Market grocery stores and the dollar store are set to open in the coming weeks.

>Regional director wanted: Dollar General is advertising for a regional director for its dollar stores and Dollar General Market stores for California and Nevada.

According to our sources, the retailer plans to open 150-200 units combined of both formats in California and Nevada over the next two-to-three years.

So far Dollar General has seven stores open in Nevada and six units in California. Dollar General CEO Rick Dreiling said in a March 22, 2012 conference call with financial analysts that the retailer plans to have 50 (grocery stores and dollar stores combined) units open and operating in California by the end of the year.

>More stores: In our December 5, 2011 story we reported Dollar General had plans to open numerous other Dollar General Market (which offer groceries along with perishables, fresh meat and produce) and dollar store units, which carry perishable and dry grocery consumables along with general merchandise items but not meat or produce, throughout Northern California, with a major focus on the Central Valley.

Above: The location of the Dollar General Market in the Gregory Gardens shopping center, Modesto, California.

Thus far we've discovered the following planned Dollar General Market grocery store units in the region: two units in the Fresno area, at Fruit and McKinley in Fresno and Bullard and Minnewawa in nearby Clovis (both are former Save Mart supermarkets which the Modesto-based chain had previously closed); a Dollar General Market in Modesto, in the Gregory Gardens shopping center at 2003 Tully Road, between Bowen and Briggsmore (the retailer has also signed a lease for a dollar format store at 510-560 North Main Street in Modesto); and a Dollar General Market in Winton, which is next door to Merced, where the first store in the region opened March 31.

Dollar General is currently advertising on a variety of online job sites for managers for the Modesto and Winton grocery markets, which are set to open in the coming weeks.

Distribution center

As we reported in our December 5, 2011 story, Dollar General has established a distribution center near Bakersfield, California to service its grocery and dollar format stores in California, Nevada, Arizona and New Mexico. The facility opened this month.

Major growth plans

Dollar General plans to open approximately 625 new stores this year, the majority of which will be its flagship dollar format stores, which average about 7,000 square feet, CEO Dreiling said in the March 22 conference call. Additionally, according to the CEO, the retailer plans to remodel and relocate about 550 stores in 2012.

The retailer opened 625 new stores in 2011, along with remodeling or relocating 575 units, for a net increase in square footage of 7%, Dreiling said.

Dreiling said in the March 22 conference call that Dollar General has about 40 new Dollar General Market grocery stores set to open this year, the majority of which will be in California, Nevada and Arizona.

Last year the retailer opened seven new Dollar General Market stores, seven of which were in Nevada (its first new market since 2006), and remodeled 25 existing grocery markets.

There are currently 70 Dollar General Market grocery stores in the U.S.

The grocery stores, which average 10,000-15,000 and offer a selection of grocery items, perishables, frozen foods, produce, meats and general merchandise, are a key element of Dollar General's strategy for California.

Part of that strategy is to focus on food deserts, regions and cities that are currently underserved by grocery markets offering fresh food and groceries at reasonable prices.

The Dollar General Market format is focused on everyday low prices. A number of industry surveys, for example, put the store's prices on par with Walmart for fresh food, groceries and general merchandise items. Dollar General also runs weekly ads for the grocery markets and sometimes offers store coupons, such as $5 off purchases of $25 or more.

Inside a new generation Dollar General Market. [Photo credit: Dollar General, 09/27/11.]

Good fiscal 2011

Dollar General had a good 2011 fiscal year on all metrics. Its full-year sales increased 13.6% to a record $14.8 billion. There was an extra week in the fiscal year. Excluding that 53rd week, full-year sales increased to 11.4%.

Sales-per-square-foot for fiscal 2011 increased to $209, compared to $201 a year ago. Average sales-per-store came in a bit over $1.5 million.

The 2011 fiscal year also marked the 22nd consecutive year of same-store-sales growth for Dollar General. Same-store-sales were up 6% for the year, with all regions reporting positive comps, according to CEO Dreiling. Dollar general is forecasting a same-store-sales increase of between 3%-5% for the current fiscal year.

Dollar General's adjusted operating profit grew 17% in 2011 over the previous year to a record $1.5 billion and a record 10.2% of sales.

The retailer posted a 31.7% gross margin rate for 2011, which was 31 basis points below the previous year but was 246 basis points higher than in 2008, the first full year of the "great recession."

On the bottom line, Dollar General's adjusted net income increased 26% over 2010, which is an impressive performance.

Dollar General also launched and e-commerce website in 2011, which will not only bring it added revenue but should prove to be a good source of data over time. For example, the retailer is currently in 39 states. Purchasing data from the site over time could prove valuable as Dollar General looks at which of those remaining states it wants to open stores in first.

A closer look inside the Dollar General Market. [Photo credit: Dollar General, 09/27/11.]

Dollar General's impact

It's difficult to forecast whether or not Dollar General will be a major player in the food and grocery retailing business in California in general and in the Northern California/Central Valley region specifically for a couple reasons.

First off, selling food and groceries isn't something the retailer has a solid track record of doing. In fact, a couple years ago Dollar General considered shuttering its Dollar General Market format and stores completely. However, it instead developed a new Dollar General Market prototype in Dallas, Texas, which is the model for the remodeled and new stores, and is going forward with the chain, including emphasising the grocery markets as part of its two-format strategy in California and Nevada, as previously noted.

Second, California has no shortage of seasoned grocery chains and independents, with more coming, like Walmart with its Neighborhood Market supermarkets (see the story link at bottom), for example. But Dollar General's focus on undeserved regions and cities in the Golden State, such as the locations in the Central Valley detailed earlier, could be a very smart move for the retailer with its Dollar General Market stores, which have a low everyday price focus.

For example, Tesco's Fresh & Easy Neighborhood Market, which continues to lose millions of dollars a week with its 10,000 square-foot grocery markets, isn't opening any new stores in California's Central Valley despite having numerous sites in cities like Bakersfield, Fresno, Modesto, Los Banos and Stockton, most of which its been sitting on for three to four years.

Fresh & Easy did finally open its first five stores in Sacramento (see story links at bottom), where Dollar General also plans to open a number of its grocery markets and dollar stores (the first unit we've discovered will be in the Grand Oaks shopping center at 7963 Auburn Boulevard in the Sacramento suburb of Citrus Heights), in March. Tesco now has 196 Fresh & Easy stores. There are 142 units in California, 24 stores in Arizona and 20 units in Arizona.

Dollar General's two-format - the grocery stores and dollar stores - strategy in California should be a powerful one though, allowing it to establish its brand in the Golden State (and in Nevada) much faster than if it was only going with a single-format approach. For example, the dollar format stores also offer a considerable selection of groceries and general merchandise items, along with some perishables and frozen foods (two categories Dollar General is expanding in the stores), which should allow the retailer to establish itself in the highly competitive Golden State faster than if it were doing a single-play strategy only.

We'll keep you updated like only Fresh & Easy Buzz can on Dollar General's march through California, which is just getting started.

Related Stories

December 5, 2011: Dollar General Jump-Starts California Launch: Taking Over 5 Centro Mart Supermarkets For Early 2012 Openings

April 3, 2012: Getting Real in the Golden State: First Group of 13 Walmart Neighborhood Market Stores Opening in California This Fall

March 9, 2012: Scoop Confirmed: Sprouts Announces Acquisition of Sunflower Farmers Market

February 9, 2012: Confirmed: First 2 Fresh & Easy Stores Open in Sacramento March 7; 3 in Metro-Area March 14

January 18, 2012: Fast-Growing The Fresh Market Chain On Track to Launch in California This Year

August 29, 2011: Meaningful Move or Too Little Too Late? Fresh & Easy Neighborhood Market Planning Early 2012 Metro Sacramento Market Launch

August 3, 2011: Fast-Growing Specialty Grocer The Fresh Market Targeting Mid-2012 For First California Store

August 31, 2011: Tesco Says Sayonara to Japan, Good Morning to Sacramento

Getting Real in the Golden State: First Group of 13 Walmart Neighborhood Market Stores Opening in California This Fall

Walmart Neighborhood Market in California

We first reported in this July 2010 story [July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store] that Walmart Stores, Inc. was looking for locations in California for its Walmart Neighborhood Market supermarkets, which range in size from about 30,000-45,000 square feet.

To date Walmart has operated its mega-supercenters and discount format stores only in California, many of which it's been converting over the last few years to hybrid supercenters offering food and groceries, but not its Neighborhood Market grocery stores.

We followed our July 2010 report and analysis piece up with other stories, like this one in January 2011 about the Bentonville, Arkansas-based global retailer's plans to launch its Walmart Neighborhood Market format in the Golden State. In the January piece and in others, we reported on specific locations in California where Walmart would be opening its Neighborhood Market stores.

It's been a long reportage road from our first reports in 2010 about the mega-retailer's plans to open Walmart Neighborhood Market supermarkets in California to the present.

But it's been a fruitful journey.

Why? Because Walmart Store's, Inc. has now announced - and in our case confirmed because many of the store locations it's announced are those we already reported on - the first Walmart Neighborhood Market locations it plans to open, beginning this fall, in California.

Inside a Walmart Neighborhood Market supermarket. Photo courtesy Walmart Stores, Inc.

Below are the locations of those 13 (Walmart obviously isn't superstitious) supermarkets, along with all the key data grocery industry wonks and consumers alike like to see.

Walmart has other Neighborhood Market locations already booked in California, a couple of which are mentioned in our previous stories. In addition, the retailer is looking for more sites for its Walmart Neighborhood Market supermarkets throughout California.

We will be writing about Walmart's launch of its Walmart Neighborhood Market supermarkets in California from now until the end of the year, including reporting on some of those additional locations.

We'll be using this header: 'Walmart Neighborhood Market in California,' in those stories.

As of today we expect the first Walmart Neighborhood Market stores in California to open in the October-November time period. One of the first, if not the first unit, will be in Lincoln, California near Sacramento, where Tesco's Fresh & Easy Neighborhood Market opened a store in March 2012.

Walmart Stores, Inc. currently has 168 Neighborhood Market stores in the U.S., with plans to double the store- count over the next couple years. As we've said a number of times in Fresh & Easy Buzz, California will play a major role at Walmart in the growing of that store-count. Stay tuned.

[Read our extensive four-plus years of reporting, analysis and commentary about Walmart Stores, Inc., including its Walmart Neighborhood Market and other smaller format grocery stores at the following links: Wal-Mart, Wal-Mart Stores Inc, Walmart, Walmart Stores.]

The Walmart Neighborhood Market supermarket (an urban version) in Chicago's West Loop Neighborhood, which opened earlier this year. The store is about 31,000 square feet. Photo courtesy blog.chicagoarchitecture.info.

Walmart Neighborhood Market in California

Walmart Neighborhood Market - 13 Confirmed California Store Locations

Confirmation sources: Delia Garcia, Walmart West. Steven Ristivo, Walmart Stores, Inc., senior director of community affairs.

SOUTHERN CALIFORNIA

1. City: Los Angeles
County: Los Angeles
Address: Corner Grand Avenue and Ceasar Chavez Avenue. Downtown, on outskirts of Chinatown.
Square-footage: 33K. Ground floor of senior citizens' residential complex.
Current target opening: Early-to-mid-2013. Construction to begin summer 2012

2. City: Huntington Beach
County: Orange
Address: Corner Beach Boulevard and Atlantic Avenue. Former Rite-Aid drug store building
Square-footage: 31K
Current target opening: August 2012

3. City: Rancho Santa Margarita
County: Orange
Address: 30491 Avenida de Las Flores. Avenida de los Flores and Antonio Parkway
Square-footage: 33K
Current target opening: August 2012

4. City: Camarillo
County: Ventura
Address: Camarillo Town Shopping Center. 275 West Ventura Boulevard. Vacant Linens and Things building
Square-footage: 34-36K
Current target opening: Late 2012

5. City: San Diego
County: San Diego
Address: Logan Heights. Imperial Avenue between 21rst and 22nd Streets, near downtown. In historic former Farmers Market building. Neighborhood is underserved by grocery stores offering fresh food and groceries at affordable prices.
Square-footage: 48,800K
Current target opening: Late 2012/Early 2013

NORTHERN CALIFORNIA

San Francisco Bay Area

6. City: Pleasanton/East Bay
County: Alameda
Address: Meadow Plaza shopping center. 3112 Santa Rita Road. Santa Rita Road and Stoneridge Drive
Former Nob Hill Foods' (Raley's owned) supermarket building. Near Safeway Stores, Inc.'s corporate headquarters. Less than a mile from a Safeway store and a Fresh & Easy market.
Square-footage: 31K
Current targeted opening: Late 2012/Early 2013

7. City: San Ramon/East Bay
County: Contra Costa
Address: Country Club Village Shopping Center. 9100 Alcosta Boulevard. Former Ralphs' supermarket and La Asia supermarket building. Closest competitor: Save Mart-owned Lucky supermarket, less than one mile away.
Square-footage: 33-36K
Current target opening: Fall 2012

8. City: Hayward/East Bay
County: Alameda
Address: 2480 Whipple Road. Former Circuit City building
Square-footage: 33-35K
Current target opening: Late 2012/Early 2013

9. City: San Jose
County: Santa Clara
Address: Westgate Mall. 1600 Saratoga Avenue
Square-footage: 38K. Recently closed Safeway store
Current target opening: Fall 2012

Sacramento Region

10. City: Sacramento
County: Sacramento
Address: Taylor Center. 2700 Marconi Avenue. Marconi Avenue and Fulton Avenue. Former Goore's children's store building. Prior to 1999, when Goore's moved in, was a the American Stores' Inc. Lucky supermarket. Goore's closed in fall 2011.
Square-footage: 32-36K*
Current target opening: Late 2012/Early 2013

11. City: Granite Bay (Roseville border)
County: Placer
Address: Sierra Oaks shopping center. Douglas and Sierra College boulevards. Former Grocery Outlet store, plus additional square-footage attached to the building but previously not used by Grocery Outlet.
Square-footage: 43K
Current target opening: Late 2012-to-early-2013

12. City: Lincoln
County: Placer
Address: Highway 65 and Second Street. Former Rainbow Market building
Square-footage: 31-32K
Current target opening: Fall 2012

13. City: Modesto
County: Stanislaus
Address: Coffee and Orangeburg shopping center. Corner Coffee Road and Orangeburg Avenue. Former Dollar Superstore building (26K sq. ft.. Plus, former Leslie Pool Supply building next door (10K sq. ft.)
Square-footage: 36K.
Current target opening: Late 2012-to-early 2013

Dollar General Jump-Starts California Launch: Taking Over 5 Centro Mart Supermarkets For Early 2012 Openings

Related Story: February 2, 2011: Centro Mart-Stockton Chairman, Veteran California Grocer Jimmy Lam Has Died.

Tennessee-based dollar-store-dynamo Dollar General plans to hit the ground running hard and fast when it launches both its traditional dollar format stores and its small-box Dollar General Market grocery stores in California next year.

To jump-start its California launch, 38-state, 9,813-store Dollar General has done a deal with Centro Mart, a 65-year-old independent supermarket chain based in Stockton, California, in which Dollar General will take over five of the grocer's seven stores - four in Stockton and one in the San Francisco Bay Area city of Brentwood.

Centro Mart CEO Mel Young says the Stockton-based chain, which until his death earlier in January was run for decades by veteran California grocer Jimmy Lam (see the related story at top), will close the five stores at the end of this month. It will keep two stores, a Centro Mart banner grocery store in the East Bay Area city of Oakley and a supermarket it operates under the Apple Marketplace banner in Lodi, which is near Stockton.

Dollar General will lease the five Centro Mart stores. Its not acquiring Centro Mart.

Dollar General will convert four of the five Centro Mart stores into Dollar General Market grocery stores, which feature fresh foods as well as groceries, and the remaining supermarket will become one of its traditional dollar stores, according to Todd Vascos, Dollar General's executive vice president and chief merchandising officer.

Vascos says Dollar General will begin converting the Centro Mart stores shortly after they are closed, targeting all five for spring 2012, most likely March-April, openings.

Dollar General announced its plans to enter Nevada and California earlier this year. So far the retailer has opened five of its Dollar General Market grocery stores in metro Las Vegas, Nevada.

The retailer currently operates 62 Dollar General Market stores in the U.S.

The Nevada stores are the first Dollar General Market stores the retailer has opened since 2007. Since then it has revamped the format, making numerous changes to the original version.

Centro Mart's Young says Dollar General approached the grocer about acquiring the stores earlier this year.
He says Centro-Mart agreed to the deal in part because of long-time CEO Jimmy Lam's death earlier this year, along with the heavy competitive climate in Northern California, which has made it tough for the independent chain to compete.

Dollar General is also looking for additional locations in Northern California for both its traditional dollar stores and its Dollar General Market.

Our commercial real estate sources, many of whom are regular readers of Fresh & Easy Buzz, tell us the retailer is looking in the San Francisco Bay Area, Sacramento metro region, the Central Valley and farther north for locations, including paying special attention to the numerous vacant big and small-box store buildings currently on the market.

The dollar store retailer's plans also include Southern California, for both its dollar stores and Dollar General Market grocery stores. Like in the north, our commercial real estate sources tell us Dollar General is looking for numerous locations in the region.

Dollar General reported its third quarter financials today.

In a conference call reporting the results, CEO Richard Dreiling didn't address the Centro-Mart deal specifically, but said the retailer plans to open about 40 Dollar General Market grocery stores nationally in 2012. That number includes the five stores in Northern California, plus additional units in "new and existing markets."

Dollar General is entering into a short-term lease for a distribution center near Bakersfield, California which will serve the new stores in California and Nevada, along with existing stores in Arizona, Dreiling said today. The facility will open in the first half of 2012, he said. That timing fits with the April-May planned opening of the five to-be-converted Centro-Mart stores in Northern California.

Dreiling also said today that a major effort with Dollar General Market in its newest two markets, (Nevada and California) as well as nationally, will be to focus on food dessert regions where residents are underserved by grocery stores offering fresh foods and groceries at reasonable prices.

The CEO also said today that Dollar General is expanding its perishables offering in both the grocery markets and in its traditional dollar format stores.

"Fresh and refrigerated foods helped us drive customer traffic and increase basket size by serving a greater share of our customers' needs," Dreiling said. "We will continue to take an aggressive stance towards improving our in stock position. This is a never ending effort which requires focus on store-level perpetual inventory accuracy as well as improved execution across ordering, fulfillment, stocking and delivery."

CEO Dreiling also said today that private brand expansion is a key part of the Dollar General's ongoing strategy, saying the retailer is expanding product sourcing to new categories and importing from new countries. "To further expand our private brands we’ll be adding 150 new SKUs as we move into new categories," he said.

Dollar General reported fiscal 2011 third quarter (13 weeks ended October 28, 2011) net income of $171 million, compared to net income of $128 million in the third quarter (13 weeks) of fiscal 2010.

Excluding expenses in the 2011 third quarter of $0.9 million ($0.7 million, net of income taxes) relating to a secondary offering of the company's common stock by certain selling shareholders and excluding losses in the 2010 third quarter of $8 million ($5 million, net of income taxes) relating to the early repayment of long-term obligations, Dollar General's net income increased 29 percent, according to the retailer.

Consumable product sales continued to increase at a faster pace than non-consumables in Dollar General's third quarter, with the strongest growth across the food and snack categories, according to CEO Drieling. "Salty snacks, carbonated beverages, coffee and milk were the largest contributors," he said today.

The fact consumable sales are outpacing all other categories for Dollar General is in part what's making the retailer high on growing its Dollar General Market grocery store format, including in California, which with nearly 40 million residents has the highest population in the U.S.

Dollar General's entry into California next year adds yet another competitive layer to what already is a highly competitive food and grocery retailing scene, from Southern California and the Central Valley, to Northern California, where the retailer will open its first five grocery stores in the soon to be former Centro-Mart locations in early 2012.

Fast-Growing Specialty Grocer The Fresh Market Targeting Mid-2012 For First California Store

A Fresh Market store (above) in Miami, Florida and another (below) in Milwaukee, Wisconsin.

Breaking Buzz

Fast-growing Greensboro, North Carolina-based specialty food and grocery chain The Fresh Market plans to become California's next new grocer, and is looking to open its first store in the Golden State as early as mid-2012, Fresh & Easy Buzz has learned.

In February of this year CEO Craig Carlock said in a conference call The Fresh Market is looking west to the Golden State for future expansion, saying then he didn't have any specifics in terms of a time-line for entering California or any other state west of the Rocky Mountains.

The publicly-held specialty grocer currently operates 102 stores in 21 states. Those stores are in the South, Mid- Atlantic, Midwest and Northeast regions. The Fresh Market is currently putting a major focus on accelerating its store expansion in the Midwest and Northeast, Carlock said in a presentation at the William Blair Growth Stock Conference on June 14 of this year.

Our sources tell us The Fresh Market is searching for numerous store locations in parts of Northern and Southern California that fit the specialty grocer's consumer demographic and lifestyle criteria.

That criteria includes: communities where residents tend to have a higher than average income; have attended college; place a higher than average emphasis on food quality and customer service; are less driven by price; put a premium on fresh and healthy foods; and do an above average amount of entertaining at home.

San Francisco Bay Area top of the list

Among the regions The Fresh Market is searching most aggressively for store sites in is the San Francisco Bay Area in Northern California, particularly in cities and neighborhoods that skew high in the variables listed above.

For example, representatives of The Fresh Market are in negotiations with the developer of the Edgewood Plaza shopping center in Palo Alto, California to open what would be the North Carolina-based specialty grocer's first store in California, at 2800 Channing Avenue in the shopping center, which is being redeveloped by Sand Hill Property Company.

Interestingly, in 2008 the developer and Tesco's Fresh & Easy Neighborhood Market were close to signing a lease for the 2800 Channing location (a vacant building in the center), which would have made the grocer the shopping center's anchor store. But the deal ultimately fell through.

Palo Alto and Berkeley also have another thing in common: The Fresh Market has an interest in finding a store location in the East Bay Area college town, just like it is in Palo Alto, which is in the South Bay Area.

The North Carolina based specialty grocery chain is also looking for locations in other Bay Area cities that fit the criteria we described earlier in the story.

Some of those key cities include neighborhoods in Danville and Walnut Creek in the East Bay, parts of Marin County and Napa and Sonoma counties, elsewhere in the South Bay Area near Palo Alto, and in higher income cities on the San Francisco Peninsula, like Burlingame, as well as in San Francisco itself, according to our sources.

The Fresh Market is also looking for locations in the Sacramento metro region in Northern California, according to our commercial real estate sources.


Southern California

We're told The Fresh Market (take a look inside one of its stores above) is also looking for store locations in parts of Southern California, that meet the criteria we've described, for possible 2012 openings, although our sources say that at present the San Francisco Bay area and metro Sacramento region in the north are the number one priorities.

Among the areas in Southern California we're told The Fresh Market is looking for locations in include the higher income parts of Orange County, the western portion of Los Angeles and in and around San Diego.

The Fresh Market's focus and strategy

The fast-growing specialty grocery chain, which says it will open 12-14 new stores by the end of its 2011 fiscal year, focuses on offering premium products, with an emphasis on fresh foods and perishables, in its stores, which average about 21,000 square-feet.

In June CEO Carlock, who spent a number of years working for consumer products giant Proctor & Gamble, said the chain's sales of fresh and perishable foods represented 67% of total fiscal year 2010 sales, with the remaining 33% of sales coming from non-perishable or shelf-stable products.

The grocer's three key category or departmental focuses are specialty grocery, fresh produce, fresh meats and deli/prepared foods. The Fresh Market also offers numerous grocery, perishable and fresh food items under its own private label brand.

The Fresh Market also puts a strong emphasis on customer service. For example, its meat and deli/prepared foods departments are fully-staffed by butchers and clerks. The meat and deli departments are full-service, featuring un-packaged meats which are wrapped by butchers and deli clerks after the desired items are selected by customers. The meats are cut in-store by the butchers.

The fresh-prepared foods offering is extensive, ranging from fully-prepared ready-to-eat and heat items like salads, sandwiches and entrees to complete dinners.

The Fresh Market also takes a neighborhood grocer approach. (Sound familiar?) Each of its stores are designed to fit into the neighborhood, particularly the exterior design (see the photos at top), and the grocer does a considerable amount of product-mix localization on a store-by-store basis. In these two ways The Fresh Market, which was founded as a single store in Greensboro, North Carolina in 1982,  is very much like Austin, Texas-based Whole Foods Market.

Ray Berry, who founded The Fresh Market 30-years ago, is its chairman. CEO Carlock has been with the chain for 12 years.

In addition to its mega-population and foodie-oriented demographics, part of the reason driving The Fresh Market to the Golden State is simply sheer growth - and the grocer's strategic plan for much more of it. 

Since 2000, for example, The fresh Market has tripled its store-count.

Additionally, in June CEO Carlock said current plans call for developing The Fresh Market, which went public in November 2010, into a national specialty grocery chain of over 500 stores.

This isn't a new model. In fact, The Fresh Market is following a selective-region national growth model that's nearly identical to those of America's two most popular specialty grocers: Trader Joe's and Whole Foods Market. The specific geographical focuses of the three specialty chains are somewhat different but their national growth strategies are nearly identical.

Numbers strong

On June 2 The Fresh Market reported a 10% increase in overall sales for its 2011 fiscal year first quarter, which ended My 1, 2011, and a rise in comparable store sales of 4.1%, compared to the same period the previous fiscal year (2010).

Sales for the first quarter of fiscal year 2011 were $245.4 million, compared to $235.7 million for the corresponding period in 2010.

Net income for the first quarter of fiscal 2011 was $13.5 million, compared to $12.2 million for the same period in fiscal 2010.

The grocer also saw an increase in its gross margin rate, rising by 50 basis points to 33.9% for the first quarter of fiscal 2011, compared to 33.4% for the corresponding period in 2010.

For fiscal year 2011, The Fresh Market's CEO says the grocer aims to achieve the following:

>Open 12 to 14 new stores; many of which are expected to open late in fiscal 2011
Relocate two stores and remodel two others

>Spend about $85 million to $90 million in capital expenditures

>Increase comparable store sales by 4%-to-5%

>Improve operating margin as a percentage of sales 20-to-50 basis points over the prior year's 7.2% adjusted operating margin.

>Achieve diluted earnings per share of $1.01 to $1.05

California here it comes

The Golden State is likely to play a major part in The Fresh Market's long range growth, which its CEO says is forecast to be at least 15% annually for the next few years.

The San Francisco Bay Area's foodie culture, particularly in the more affluent and higher education-comprised locations we've described the grocer is targeting, offer a powerful lure for the specialty grocer as it watches how well Whole Foods Market and Trader Joe's are doing in the region, along with in Southern California.

Based on our current information, The Fresh Market plans to launch its first stores in the Bay Area in the north, followed later by opening stores in Southern California.

According to our sources, The Fresh Market likely won't likely announce anything about its specific plans in California until the end of this year or early 2012.

Fresh & Easy Neighborhood Market Press Release Confirms Our Recent Report On New Stores

Tesco's Fresh & Easy Neighborhood Market issued a press release today announcing it's hiring employees for three stores in California it plans to open soon.

The announcement confirms our July 5, 2011 story, in which we reported the grocery chain is queuing up nine stores, all in California, for upcoming openings.

The three stores - two in Southern California and one unit in Northern California - Fresh & Easy Neighborhood Market announced it's hiring for today are at the following locations: Long Beach Boulevard at 5th Street and Atlantic Avenue and 33rd Avenue, both in Long Beach, California; and Hesperian Boulevard and A Street in Hayward, which is in the East San Francisco Bay Area.

The two Long Beach stores and the Hayward unit are among the nine upcoming new Fresh & Easy markets the retailer is planning to open in the coming months, as we reported in our July 5 story.

>Read our July 5, 2011 story here: Fresh & Easy Neighborhood Market Preparing For A Spate of New Store Openings Beginning in August .

>Read the press release from Fresh & Easy Neighborhood Market here. 

Fresh & Easy wages

Tesco's Fresh & Easy pays a starting wage of $10 hour for basic clerk positions in its stores, as the grocer notes in its press release.

But what you won't read in today's press release issued by Fresh & Easy Neighborhood Market or in any of the others it's issued since 2007 - nor will you obtain the information in any other publication - is what the fresh food and grocery chain pays store managers and the two levels of management assistants level that comprise the 20-25 employees in each of its stores.

First, unlike supermarket chains operated by Kroger (Ralphs in Southern California and Fry's in Arizona, for example), Supervalu, Inc. (Albertsons in Southern California) and Safeway Stores, or mass merchandisers like Walmart and Target, Tesco's Fresh & Easy pays its store managers by the hour rather than an annual salary.

Currently, the hourly rate for a store manager at Fresh & Easy Neighborhood Market ranges from $42-$45 hour, depending on the perspective manager's experience level.

Additionally, managers of Fresh & Easy stores receive a health benefits package and have a bonus program, along with participating in the company 401K retirement plan if they choose to do so.

The Tesco-owned grocery chain, which currently has 176 stores in California, Nevada and Arizona, has two types of  positions designed to assist store managers - assistant mangers and team leaders.

The assistant managers, and not every Fresh & Easy store has them, make a starting wage of $15 hour at present.

Team leaders, which is a position similar to a head clerk at unionized grocery chains like those operated by Kroger and Safeway, start at $13 hour.

Like all store-level workers at Fresh & Easy that work over 20-hours a week, both assistant managers and team leaders have a health benefits plan that includes medical, vision, prescription drug and dental (the grocer pays about 75% of the premium), and they too can participate in the chain's 401K investment/retirement plan.

All of the rank-and-file employees at Fresh & Easy stores work part-time, in most instances in the 20-34 hours-per-week range.

Most but not all assistant manages work full-time.

The majority of team leaders (usually about three per-store but there can be more or fewer) work part-time, although there are some full-time exceptions.

Fresh & Easy in California

As we've been reporting in Fresh & Easy Buzz since last year, Tesco's El Segundo, California-based Fresh & Easy chain is focusing virtually all of its new store openings this year in California.

For example, so far in 2011 the grocer has opened 22 new stores, all in California. Twelve of those stores are in Northern California. The remaining 10 new stores opened so far this year are in Southern California.

The Golden State is where the majority of Fresh & Easy Neighborhood Market' 176 stores are located.

A whopping 127 units are in California. Of those stores, 101 units are in Southern California, 12 stores are in Northern California and 14 units (seven each respectively in each region) are in the Fresno and Bakersfield metro areas in the Central Valley.

Tesco has 28 Fresh & Easy stores in metropolitan Phoenix, Arizona and 21 units in metro Las Vegas, Nevada.

No new stores have been opened in either region this year. Fresh & Easy Neighborhood Market has no plans to open any new stores in either Nevada or Arizona in August, according to our sources.

In November 2010, Tesco closed six stores in each of the two western states, along with one unit in Southern California. (See here for details.)

Fresh & Easy Neighborhood Market thus far has announced it plans to open one new store in August. That store is at 3rd Street and Carroll Avenue in San Francisco's Bayview District.

We've reported the grocery chain also plans to open its store at Hesperian Boulevard and A Street in Hayward in August, although as we've noted that date could be advanced depending on a number of factors.

Related Stories

July 9, 2011: Fresh & Easy Neighborhood Market (Selectively) Bullish on Commercial Real Estate In California

July 5, 2011: Fresh & Easy Neighborhood Market Preparing For A Spate of New Store Openings Beginning in August

May 18, 2011: Major Changes Coming to Tesco's Fresh & Easy Neighborhood Market Stores

January 14, 2011: Tesco 'Banking' on California in 2011 For Fresh & Easy Neighborhood Market USA

November 4, 2010: Fresh & Easy Neighborhood Market Confirms Our October Reports On 10 New Stores Opening in Early 2011

May 15, 2008: Fresh But Never Easy: Tesco's Long But Rapid South-North March in the Nation-State of California

April 19, 2011: Tesco's Fresh & Easy Neighborhood Market Posts Biggest One-Year Loss Yet - $307 Million Loss on Sales of $818 Million

February 19, 2008: Tesco's Fresh & Easy Serving as an Economic Stimulus Package of Sorts for California's Troubled Commercial Retail Real Estate Industry

[Also: Click on the following links - new store development, California, Fresh and Easy and commercial real estate, Fresh and Easy Northern California, Fresh and Easy Southern California, new store development, Tesco Fresh and Easy California March - for additional related stories.]

Tesco in America: A Few Things Tesco Deputy CEO-Fresh & Easy Neighborhood Market CEO Tim Mason Might (and Probably Should) Say in His Speech at Town Hall Los Angeles Today

Tim Mason (above), the deputy CEO of Tesco plc and CEO of its El Segundo, California-based Fresh & Easy Neighborhood Market fresh food and grocery chain, will take center stage this afternoon in front of the movers and shakers in Southern California's business, government and non-profit worlds when he speaks at a luncheon event at Town Hall Los Angeles, which is one of the premier business and civic leadership forums in the United States.

Tim Mason, who joined United Kingdom-based Tesco in 1982 after working for three years for Walls Meat, a sausage company owned by Unilever, and rose to be become Tesco's head of corporate marketing in 1995 before coming to the U.S. in 2006 to start up Fresh & Easy Neighborhood Market as its first and to date only CEO, added the Tesco deputy CEO title along with that of chief marketing officer to his Fresh & Easy CEO title in March of this year after Tesco CEO Terry Leahy retired and was replaced by former head of European-Asian operations and corporate information technology chief Philip Clarke.

Mason, who remains based in Southern California, was in the running to replace Leahy as CEO of Tesco but instead was given the deputy CEO slot, which is a new position that was essentially created for him when Clarke was named CEO.

His chief marketing officer title is a return of sorts to Mason's pre-Fresh  Easy days, in that it's essentially the same position he held prior to 2006, although it's less hands on due to his responsibility heading up Tesco's Fresh & Easy chain in the states.

Mason's speech at the sold-out Town Hall Los Angeles event this afternoon, which is being held at the Millennium Biltmore Hotel at 506 South Grand Avenue in Los Angeles from 11:30 a.m. to 1: 30 p.m (he speaks from 12: 30-1:30 p.m)  is titled: "A 21rst Century Approach to Food Retailing."

Presumably Mason will point to now nearly four-year-old, 176-store Fresh & Easy Neighborhood Market, which has lost about $900 million since the first stores were opened in November 2007, including about $300 million in its fiscal year ended February 26, 2001, as an example of that topic in his speech this afternoon.

CEO Clarke and Mason say Fresh & Easy will break even by the end of Tesco's 2012/12 fiscal year, which is just 20 months away. The 2012/13 fiscal year ends February 2013.

In addition to his nearly 30-years with Tesco, Mason also has a very personal connection to the company and its history: He's married to the daughter of the famed former Tesco CEO and chairman Baron Ian MacLaurin of Knebworth, who retired from Tesco in 1997 (two years after Mason became its corporate marketing chief) and went on to a distinguished second career as chairman of Vodaphone and as an investor, philanthropist, politician  and all around power broker in UK business and political circles.

MacLaurin, who was born in 1937, was Tesco's very first executive trainee, joining the then minor British retailer in 1959. He rose through the ranks at Tesco, holding a number of senior executive positions before joining the board in 1970 and becoming managing director (CEO) shortly after that. In 1985 he was named chairman of Tesco's board.

When he took over as head of Tesco, Sainsbury's, which is now about tied with Walmart-owned ASDA as the UK's second-leading food and grocery retailer, was far and away Britain's top gun.

But when MacLaurin, who appointed Terry Leahy as CEO before he left, retired in 1997 after 38-years with the company, 27 of those years on the board, Tesco had cleaned Sainsbury's clock and was far and away the top retailer of food and groceries in the UK.

Terry Leahy built on what MacLaurin created at Tesco. Today Tesco, which is the third-largest food and grocery retailer in the world after number one Walmart Stores, Inc. and Carrfour of France, has nearly as much market share in the UK as ASDA and Sainsbury's do combined.

Tesco's share of the UK food and grocery market is about 31%. ASDA and Sainsbury's have an about 35% combined share, followed by Morrisons, which has about 12% of the market.

As you can see by those numbers, the UK's top four chains hold nearly 80% of the nation's food and grocery market share, leaving the country's numerous other chains to fight it out over the remaining 20-plus %. In fact, if you include the cooperative group (about 6% market share), the food and grocery market share held by the UK's "big five" chains jumps to over 80%.

A few things Mason might say this afternoon

We expect Mason's talk this afternoon at Town Hall Los Angeles to largely mirror Fresh & Easy Neighborhood Market's marketing positioning and message, which is that the chain of small-format (about 10,000 square-foot) fresh food and grocery stores is a "food retailer for the 21rst Century," because its focus is on providing "wholesome food at affordable prices" in a fairly no-frills setting, as the retailer says in its positioning statement.

Since Town Hall Los Angeles also has a civic focus in which business leaders often discuss the role of business in society and in the communities their respective company serves, we anticipate Mason will also devote a significant percentage of his less than one hour speech, which includes questions and answers at the end as part of the hour format, to discussing those aspects of Fresh & Easy's operations and how it relates to the community.

Mason will likely touch on the following topics as part of his speech tomorrow:

>Healthy foods offerings, using as example's the fact most of Fresh & Easy's private brand food products are made without the use of preservatives, artificial flavors or coloring;

>Local foods merchandising, using Fresh & Easy's "Farm to Store in 24 Hours" produce program as an example;

>The grocer's role in the community, siting as examples the fact Fresh & Easy gives a local non-profit organization a $1,000 donation each time it opens a new store, which to date has amounted to $176,000 in donations to various non-profit groups in California, southern Nevada and metropolitan Phoenix Arizona, where Tesco has its 176 Fresh & Easy stores, along with the various other charitable activities it engages in;

>Environmental sustainability; which is not only one of Mason's responsibilities as CEO of Fresh & Easy but also in his position as group deputy CEO of Tesco and;

>The future of Fresh & Easy Neighborhood Market, particularly as it pertains to Los Angeles and Southern California where the chain s headquartered, although this tpic area will be limited we suspect.

For example, a we reported in this December 10, 2010 story - Fresh & Easy Neighborhood Market CEO Tim Mason Says 70 New Stores Possible in Los Angeles Area - Mason told a gathering of business, political and community leaders at a meeting of the Valley Industry & Commerce Association of the San Fernando Valley on December 9, 2010: "We've (Fresh & Easy) identified 70 opportunities [new store locations] in Los Angeles. If we can open those 70 opportunities, that will be 1,400 jobs, as well as 300 construction workers per-site. We’re eager to invest and we want to get on."

Something Mason should address

Based on our information, Fresh & Easy Neighborhood Market hasn't acquired anything close to those 70 future locations in the Los Angeles area since Mason's speech to the group. And, according to our sources, current plans at Tesco don't call for opening anywhere close to 70 new Fresh & Easy stores in the Los Angeles area between now and the end of 2012.

Therefore, it would be informative if Mason offered an update to his December 9 speech tomorrow. Was the 70 stores in Los Angeles speech in December 2010, for example just more of Fresh & Easy's grand thinking and public relations - Terry Leahy and Mason originally said there would be 1,000 Fresh & Easy stores by the end of 2012-to-mid 2013 after all; instead current plans call for about 300 stores by February 2013 - or is it grounded in reality?

Tesco in (and a little bit of) America: A Story Mason could tell

We don't think Mason will offer a history of Tesco in his speech this afternoon. However if he does, an interesting aspect of that history has to do with the influence American supermarkets had on founder Jack Cohen when he visited the U.S. in 1935 and saw what at the time was a brand new innovation - the self-service grocery store - and by that we don't mean self-service checkout.

John Edward Cohen, called Jack for short, founded Tesco in the UK in 1924. That first store was a market stall  in London's East End.

The name Tesco was first used by Cohen on tea he sold in the market stall. The entrepreneur derived the name Tesco from the initials of his tea supplier, T E Stockwell, and combined the initials with the first two letters of his last name - Cohen.

In 1935 Jack Cohen incorporated his growing food and grocery retailing business as Tesco Stores Limited.

Grocery stores were all full-service at the time. Shoppers would tell store clerks the products they wanted, many of which were in bulk form, and store employees would "fill the order," picking the packaged grocery products from sheolves high and low and scooping the bulk items like sugar and flour from bins.

When Jack Cohen visited the U.S. in 1935, a number of grocery stores across the pond were trying the then radical concept of self-service, in which shoppers "filled their own orders," choosing what they wanted from shelves, bulk bins and refrigerated cases right out on the store floor rather than located behind a counter.

Cohen was hooked.

In 1945 he converted the first Tesco store, a small shop in St. Albans UK, into his frst all self-service market. Self-service took a while to catch on with the customers and the competition but Cohen pressed on, eventually converting all his Tesco stores to the concept, his competitors following his lead. Every new Tesco store Cohen opened was self-service as well.

Jack Cohen also brought back a popular U.S. merchandising technique of the time, the "stack it (product) high and sell it cheap" display, merchandising and pricing practice that was all the rage in the American food and grocery retailing business at the time -  and still is for many discount supermarket operators.

The Tesco founder, who retired in 1973 and was replaced by Ian MacLaurin, even earned the nickname Jack "The Slasher" Cohen for the low-price-focused merchandising practice he first saw in the U.S. and which Tesco built its business and massive growth on until the mid-1970's, when under MacLaurin's leadership the retailer took a more higher-end or up-market approach to selling groceries.

Tesco has maintained the more up-market-oriented approach to the present, although beginning in 2009 it  returned somewhat (and continues to today) to its more price-focused days, mixed with the more higher-end approach, forced to do so because of the economic recession and increased competition from Walmart's ASDA, Sainsbury's, Morrisons, hard-discount chains Aldi and Lidl, and even upscale operator Waitrose, which beginning in about 2009 under CEO Mark Price started to sharpen its pricing profile and has broadened its customer base beyond higher income consumers, who historically comprised the majority of Waitrose customers.

Had Jack Cohen not visited America in 1935, Tesco would still have eventually gone from a full-service grocery store to a self-service supermarket, although most likely much later than it did.

But had the founder not made the trip in 1935, Jack "The Slasher" Cohen may never have learned about the "stack it high and sell it cheap" merchandising approach, which fueled Tesco's initial growth and put it on the path of becoming what it is today, the leading retailer of food and groceries in the UK and the third-largest seller of groceries in the world.

Therefore, although Tesco has only been physically in America with Fresh & Easy Neighborhood Market since 2006, American-style food and grocery retailing circa-1935 and beyond has been "in Tesco" since Jack Cohn's first visited the U.S. in 135 and discovered self-service and stack it high, sellit cheap merchandising.

Not only would the Jack Cohen-USA visit story make a good antidote for Tim Mason to tell when he speaks to Southern California's movers and shakers at Town Hall Los Angeles this afternoon, it's also an instructive history lesson for he and CEO Philip Clarke to recall, study and learn from as Jack Cohen's market stall shop in London's East End, turned mega-global food and grocery retailer Tesco attempts to succeed with its U.S. Fresh & Easy venture in the 21rst Century, job one being to turn a fiscal year 2010/11 loss of $300 million into break-even 20 months from now.

Related Stories

~We written extensively about Tesco group deputy CEO-Fresh & Easy Neighborhood Market CEO Tim Mason. Click on this link - Tim Mason - to read those stories.

~We've also written numerous stories about Tesco CEO Philip Clarke since he took over the corner office in March of this year.You can read those stories by clicking on his name: Philip Clarke.

~You can also read about former Tesco CEO Terry Leahy, who retired in March after 14-years as CEO of Tesco by clicking here: Terry Leahy

Fresh & Easy Neighborhood Market (Selectively) Bullish on Commercial Real Estate In California

News/Analysis

Tesco's El Segundo, California-based Fresh & Easy Neighborhood Market may be struggling to stem what appear to be its no-end-in-site losses - around $900 million so far since November 2007 and about $300 million in Tesco's latest fiscal year ended February 26, 2011. But that's not stopping it - instead perhaps it's encouraging  it - from being bullish on commercial real estate in selected parts of California.

Fresh & Easy Neighborhood Market, which Tesco set up as an independent U.S.-based corporation when it launched the food and grocery retailing venture in Southern California in 2006, has closed on two major commercial real estate purchases in Southern California over the last four-to-five weeks, including its biggest deal we're aware of to date.

That deal: This week Tesco's Fresh & Easy Neighborhood Market closed on a $7-million purchase of 21815 Hawthorne Boulevard in Torrance, California, where the grocery chain plans to turn a 10,720-square-foot vacant building on what is a 1.69 acre parcel into one of it small-format fresh food and grocery stores. The now vacant building previously housed a CoCo's family-style restaurant.

Fresh & Easy Neighborhood Market bought 21815 Hawthorne Boulevard from the Kinoshita Family Trust, according to Woodspear Properties, the commercial real estate firm that represented the seller, and Highland Partners, which represented Tesco's Fresh & Easy in the deal.

The $7 million purchase comes on the heels of another multi-million dollar commercial real estate deal Tesco's Fresh & Easy closed on the second week of June, which is the $2.1-million purchase of a 1.12 acre parcel in the Central Coast California city of San Luis Obispo, where the grocery chain plans to build and open its first Fresh & Easy food and grocery market in the city.

According to our sources, Fresh & Easy Neighborhood Market is currently planning an early 2012 opening for its first store in the coastal city, which is home to one of the largest, most popular and top-ranked California State University campuses, Cal Poly San Luis Obispo.

Fresh & Easy Neighborhood Market bought the parcel in San Luis Obispo from Halfterty Development Company.

According to Stephen Leider and Clarice Clarke, who head up Lee & Associates' Central Coast offices in California, the parcel Fresh & Easy bought is one of three the real estate firm is marketing at the Village at Broad Street development in the city's popular downtown area . The three-parcel development is set to include a mix of residential housing and retail, they said.

The San Luis Obispo store will mark an important geographical milestone for Tesco's Fresh & Easy in its coastal route march from Southern California to Northern California, which is one of the two south-to-north paths it's taking as part of its strategy to have stores throughout the Golden State.

The other is the inland or valley route, which goes from Southern California, over the Grapevine and into the Central Valley - where there are 14 Fresh & Easy stores in the Bakersfield and Fresno regions and one unit about 100 miles north (of Fresno) in Modesto so far - and on into Northern California's Bay Area - where there are currently 12 Fresh & Easy stores - and eventually into the Sacramento region and other parts of the northern portion of the Golden State

The San Luis Obispo store will mark the nearly midway point in the coastal route between Southern California and coastal Northern California. The closest store in that south-to-north coastal route march so far is a recently opened Fresh & Easy market in Santa Maria, which is about 50 miles from San Luis Obispo on the south Central Coast.

Fresh & Easy has a future store location in Seaside on the Northern California coast and is currently negotiating with the landlord of a vacant roller rink in next door Monterey for another location in the region.

Seaside and Monterey are at the northern end of that south-to-north coastal route march, which follows the Pacific Ocean and offers some of the most scenic views in the U.S.

Fresh & Easy Neighborhood Market owns a few of its 176 stores, although the majority of the units are leased.

For example, it owns its store in Pacifica, California, which opened on March 9 of this year.

Fresh & Easy also owns the store in the 5800 Third Street development in San Francisco's Bayview district, which is set to open August 24, along with not-yet-opened Northern California store locations in the East Bay Area cities of Antioch (at Lone Tree & Golf Course) and Vallejo (two units), as well as a few other future store sites in the Golden State.

Fresh & Easy bought both future store locations in Vallejo, at Oakwood Avenue & Springs Road and Tennessee and Tuolumne, about a year ago after getting what its real estate chief thought was a good price due to commercial real estate values having dropped significantly in the city as a result of the recession and housing crisis. Vallejo has been one of the Northern California cities hardest hit by the recession. In fact, a couple years ago the City of Vallejo filed for bankruptcy, making it one of the first municipalities in the U.S. to do so.

The grocery chain paid about $1.5 million for the about 1.2-acre Oakwood Avenue location and a little over $1 million for the Tennessee and Tuolumne site, which is a vacant about 14,000 square-foot building that once housed a Grocery Outlet store.

Fresh & Easy's strategy is to purchase rather than lease selected parcels in places with historically solid commercial real estate appreciation, such as the San Francisco Bay Area, coastal California (north, south and central) and certain other regions in the state.

The strategy is a continuation of what Tesco has been doing for many years at home in the United Kingdom, which is to purchase selected properties its stores sit on, hold the properties for a given period of time and after they've reached a certain level of appreciation, bundle a set number of the properties into a portfolio and sell them, taking multi-year lease backs on the stores. Tesco then uses the proceeds from these sales to finance existing store remodels and new store construction. It's worked well for the retailer in the UK over the years.

The global retailer plans to do the same thing with the properties it's been selectively acquiring in the U.S. since about 2008 through its Fresh & Easy Neighborhood Market. Most if not all of the properties it's bought are either stores in California or parcels for future store development, like Torrance and San Luis Obispo in the Golden State.

Fresh & Easy Neighborhood Market operates a fairly large real estate department out of its El Segundo, California headquarters, particularly for a chain of 176 stores located in just three states with annual sales of about $800 million, which is currently the case for the Tesco-owned grocer.

Tesco's Fresh & Easy operates over a dozen real estate regions in California, Nevada and Arizona. Each region has a real estate director who is employed by the grocery chain. The real estate directors each work with a commercial real estate brokerage firm in each region, which it has named as its broker of record. For example, Pacific Retail Partners is Fresh & Easy's broker in the two real estate regions it has in Los Angeles.

Although the commercial real estate slump that hit the U.S. - and California, Nevada and Arizona, the three states Fresh & Easy operates in, particularly hard - most of the regions in California where it has bought properties have historically strong long-term appreciation levels, although the slump that still continues will result in Fresh & Easy Neighborhood Market getting far less of a return over a ten year period than it would have had it bought and sold the properties in the 1990's, for example.

However, the Bay Area and coastal locations remain excellent long-term commercial real estate investments, unless the last century of commercial real estate history in the state is proven wrong.

Meanwhile, Tesco's Fresh & Easy Neighborhood Market has a commercial real estate problem of its own, in our analysis. That problem is the grocery chain is sitting on, based on our research and calculations, about 60 sites it either owns or holds leases on (the vast majority being leased) that it hasn't yet opened and 13 locations - six each in metro Las Vegas, Nevada and metro Phoenix, Arizona and one in Southern California that it closed in November 2010 - it's paying monthly rent on (in most cases) but generating zero sales from.

Many of these locations, including about 30 (a few have been opened this year) in Northern California, were acquired by Fresh & Easy in late 2007-early-2008, which means in most of these cases it's been paying monthly rent on what are mostly vacant buildings it plans to turn into stores for going on four years. Many of the other units are early-to-mid-2009 acquisitions as well.

Having so many future locations it's making lease payments on is a major financial drag on Tesco's Fresh & Easy Neighborhood Market.

Tesco plans to open many of these Fresh & Easy stores between now and the end of 2012. Tesco says it will have 300 Fresh & Easy stores open by February 2013. There are currently 176 units, which means opening 124 new stores between now and then.

But there are also a number of Fresh & Easy units - particularly in metro Las Vegas and Phoenix but also in Southern California's Inland Empire region and the Central Valley - Tesco hasn't decided if it will open or not. Because Fresh & Easy has long term leases on these sites, coupled with the continued commercial real estate slump in California, Nevada and Arizona, it's basically stuck with the locations regardless if it opens those stores or not.

As a result, until it opens or disposes of these numerous non-producing store sites, their existence will continue to be a financial drag on Fresh & Easy Neighborhood Market and Tesco, in our analysis.

Related Stories

July 5, 2011: Fresh & Easy Neighborhood Market Preparing For A Spate of New Store Openings Beginning in August

May 18, 2011: Major Changes Coming to Tesco's Fresh & Easy Neighborhood Market Stores

January 14, 2011: Tesco 'Banking' on California in 2011 For Fresh & Easy Neighborhood Market USA

November 4, 2010: Fresh & Easy Neighborhood Market Confirms Our October Reports On 10 New Stores Opening in Early 2011

May 15, 2008: Fresh But Never Easy: Tesco's Long But Rapid South-North March in the Nation-State of California

April 19, 2011: Tesco's Fresh & Easy Neighborhood Market Posts Biggest One-Year Loss Yet - $307 Million Loss on Sales of $818 Million

February 19, 2008: Tesco's Fresh & Easy Serving as an Economic Stimulus Package of Sorts for California's Troubled Commercial Retail Real Estate Industry

[Also: Click on the following links - new store development, California, Fresh and Easy and commercial real estate, Fresh and Easy Northern California, Fresh and Easy Southern California, new store development, Tesco Fresh and Easy California March - for more related stories.]

Fresh & Easy Neighborhood Market Preparing For A Spate of New Store Openings Beginning in August

The next Fresh & Easy store to open is (above) at 3rd and Carroll in San Francisco. [Photo credit: Fresh & Easy Buzz.]

Breaking Buzz: New Stores

Fresh & Easy Neighborhood Market has to date announced it will open one store in August - its second unit in San Francisco - which is in the 5800 Third Street condominium development at 3rd Street and Carroll Avenue in the city's Bayview District.

However, the 176-store Tesco-owned grocery chain is queuing up a number of stores for openings in August and the following months, Fresh & Easy Buzz has learned.

We broke the news in this May 14, 2011 story [Breaking Buzz: Fresh & Easy Neighborhood Market Plans August 24 Opening For Third & Carroll Store in San Francisco's Bayview District] that Tesco's Fresh & Easy planned to open the new store at 3rd Street and Carroll Avenue in San Francisco on August 24. [Also see - May 10, 2011: Breaking Buzz: Fresh & Easy Neighborhood Market Plans to Open First San Francisco Store at 32nd and Clement June 22.]

Two weeks later, on May 23, Fresh & Easy Neighborhood Market confirmed our report by announcing in a press release it would open its first store in San Francisco - at 32nd Avenue and Clement Street in the Outer Richmond District - June 22, and its second unit, the 3rd Street and Carroll Avenue store, August 24, just as we reported in the May 10 story.

[See - May 23, 2011: Fresh & Easy Neighborhood Market Confirms Our Reports First Two San Francisco Stores to Open June 22 and August 24, 2011. Also read - June 22, 2011: Tesco's Fresh & Easy Neighborhood Market Opens First Store in San Francisco - in Outer Richmond District.]

Fresh & Easy Neighborhood Market doesn't normally announce store opening dates until three-to-four weeks prior to the given date of the opening. However, sources at the grocery chain tell us since we reported the opening date of the 3rd Street and Carroll store in early May, the retailer decided in part based on that to announce the date, along with the June 22 store opening, even though it was more than three months in advance of the August 24 opening, because it was receiving numerous inquiries, asking if the date we reported was correct.

In addition to the 3rd Street and Carroll Avenue store's August 24 opening date, we reported earlier this year Fresh & Easy is queuing up three additional stores, all in Northern California, for openings soon.

Those three stores are in the cities of Hayward, Antioch and Fairfield. You can read the details and get the addresses of the stores in the two stories linked here - March 15, 2011: San Francisco, Antioch and Fairfield Stores Next Up in Northern California For Fresh & Easy Neighborhood Market; and May 15, 2011: Breaking Buzz: Tesco's Fresh & Easy Neighborhood Market Plans to Open Second Store in Hayward, California August 10.

In addition to correctly reporting the planned August 24, 2011 opening of the 3rd Street and Carroll Avenue Fresh & Easy store in San Francisco's Bayview neighborhood on May 10 (as well as the June 22 opening of the Outer Richmond District store), we reported in the May 15 story linked above that the Hayward store, located at A Street and Hesperian Boulevard, will open August 10.

The store will be the grocer's second unit in the East Bay Area city. Tesco opened its first Fresh & Easy store in Hayward - at Mission Boulevard and Rousseau Street - April 27, 2011.[See - April 27, 2011: Tesco's Fresh & Easy Neighborhood Market at 175 (Stores): Three New Stores Open in Northern California Today.]

We (and you) should know in a couple weeks or so if our reporting on the Hayward store's opening date is correct because if it is opening August 10, Fresh & Easy Neighborhood Market will announce it 3-4 weeks in advance.

We stand behind the reported date. But as we always say in the blog, new store opening dates are fluid and dynamic at Tesco's Fresh & Easy. Therefore, the dates are always subject to change, as has been the case since the first units were opened in November 2007.

In addition to the San Francisco and Hayward stores opening in August - currently we're looking for August-to-October opening dates for the Fairfield and Antioch units - Fresh & Easy Neighborhood Market is now preparing a fifth store in Northern California for an opening in the coming months. That store is at Tasmine Drive and Fair Oaks Avenue in Sunnyvale, making five units in Northern California at the top of the upcoming new store opening list at Tesco's Fresh & Easy.

Southern California

Fresh & Easy Neighborhood Market is also queuing up four stores in Southern California for the next round of openings, which will start in August.

The locations of the stores in Southern California next up are:

City/Address

>Anaheim - Euclid and Broadway

>Long Beach - Long Beach Boulevard and 5th Street

>Long Beach - Atlantic Avenue and 33rd Street

>Los Angeles - Coldwater Canyon Avenue and Sherman

This makes nine new Fresh & Easy stores set to open soon in California, based on our reporting to date. Fresh & Easy has so far only announced the opening date (August 24) of the store at 3rd Street and Carroll Avenue in San Francisco.

Fresh & Easy Buzz is the first and only publication that's reported these stores are next up to open.

Tesco said in April it plans to open about 50 Fresh & Easy stores this year, confirming our reports far in advance of that date, in which we said it would open 40-50 Fresh & Easy fresh food and grocery markets this year. [See our April 19, 2011 report here for details.]

So far this year Tesco has opened 22 Fresh & Easy stores - 12 in Northern California and 10 in Southern California. That leaves 28 Fresh & Easy units to be opened from August through December to hit the 50-store mark.

No Fresh & Easy stores are being opened this month.

One store, the unit at 32nd and Clement in San Francisco, was opened in June.

The 22 Fresh  Easy stores were opened between January and April of this year.

No new stores were opened in May.

We correctly reported in late 2010 and early 2011 that California would be the focus of Tesco's new store openings for 2011. It has been the case so far this year - and it will be for the remainder of 2011. For example, read this January 14, 2011 story: Tesco 'Banking' on California in 2011 For Fresh & Easy Neighborhood Market USA.

Tesco currently has 176 Fresh & Easy stores in California, Nevada and Arizona.

The stores are about 10,000 square-feet and offer about 5,000 SKUs of fresh foods - produce, meats, fresh-prepared foods - packaged food and grocery items, perishables, frozen foods, wine and beer (and liquor in some stores) and a limited selection of health and personal care and general merchandise products.

Of the 176 stores, 127 units are in California. There are 101 stores in Southern California, 12 units in Northern California, and seven stores respectively in the Bakersfield and Fresno metro regions in the Central Valley.

Additionally Tesco has 28 stores in metropolitan Phoenix, Arizona and 21 units in metro Las Vegas, Nevada.

Fresh & Easy Neighborhood Market hasn't opened any new stores in Arizona this year.

No new units in either state are set open this month. Thus far, based on our reporting, no new Fresh & Easy store openings are planned in Arizona and Nevada for August either.

In fact, Tesco closed six under-performing stores in Nevada and in Arizona in November 2010, along with one unit in Southern California, giving it 12 fewer stores in the two states combined than it had nine months ago. [See here.]