Tesco Planning to Announce in July When First Northern California Fresh & Easy Neighborhood Market Stores to Open

Northern California Special Report

Tesco plans to announce in the next couple weeks, and possibly as early as next week, on July 2, at its 2010 shareholders meeting in London, when it will open the first of its 37 confirmed (and numerous non-confirmed) Fresh & Easy Neighborhood Market stores in Northern California, Fresh & Easy Buzz has learned.

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

The announcement will be one of multiple big and important announcements Tesco plans to make about Fresh & Easy USA at the July 2 meeting and/or later in July, according to our sources.

Among our sources for the information is Eric Mar, a member of the City and County of San Francisco Board of Supervisors. At a meeting of the San Francisco Richmond District Lincoln Park Neighborhood Association on Thursday, June 24, at which a Fresh & Easy Buzz correspondent attended, Supervisor Mar said he recently had conversations with Tesco Fresh & Easy Neighborhood Market executives who told him two things: That the retailer remains committed to opening its stores in Northern California, including its current three sites in San Francisco, and that it would be making some "important announcements in the next couple weeks" that would include information about the Northern California stores and Tesco's launch into the market.

Supervisor Mar's information matches information we had previously obtained from other sources.

The purpose of the Lincoln Park Neighborhood Association's June 24 meeting was a presentation by representatives of the CVS drug chain and its local developer, Landmark Retail Group, of plans they've filed with the City of San Francisco for a drug store at 3123 Clement Street (32nd Avenue and Clement Street) in the Richmond District, which borders Golden Gate Park in the San Francisco's West of Twin Peaks area. The Richmond District, along with the neighboring Sunset District, are also referred to as "The Avenues" because of the long and flat (unusual in the city) avenues that lead out to Ocean Beach at lands-end.

In April 2009 [April 13, 2009: Despite Postponing its Northern California Launch Again Earlier This Year Tesco's Fresh & Easy Planning Third San Francisco Store; First Stockton Unit] we reported Tesco's Fresh & Easy had leased a vacant, former Albertsons store at 32nd Avenue and Clement Street in San Francisco's Richmond District for a future Fresh & Easy Neighborhood Market store. Tesco has a 25 year lease on the about 32,000 square-foot building at 3123 Clement. Fresh & Easy has yet to publicly confirm the Clement Street location.

Earlier this year Tesco's Fresh & Easy sub-leased about 40% of the building - 14,271 square-feet - to the CVS drug chain. Recently CVS submitted formal written plans (see above) to the City of San Francisco to turn the 14,271 square-feet into a drug store. Tesco plans to put a Fresh & Easy store in the remaining space. The two stores will be separated by a wall. CVS hopes to get approval for the store as soon as possible, for a 2011 opening. (If you double-click on the plan graphic above you can enlarge it for better viewing.)

It was at the meeting on Thursday evening, which was held inside the vacant building at 3132 Clement, where Supervisor Mar, who represents the Richmond District, told those in attendance, including the Fresh & Easy Buzz correspondent, that Tesco executives have assured him they will open the stores in Northern California, including the three current planned locations in San Francisco, which is something we've been consistently reporting, most recently in April here and in May, 2010 here.

It was also at the meeting where the Supervisor said he's had recent conversations with Tesco Fresh & Easy Neighborhood Market executives in which they told him Tesco will be making "a couple important announcements in the next couple weeks." Among those announcements will be one regarding Tesco's future plans to open its stores in Northern California, he said he was told.

[Note: See our current 'The Insider' column here for additional information.]

As mentioned earlier, Tesco is holding its 2010 shareholders meeting in London on July 2. We expect these "big announcements" to come then. Any additional announcements not made at the meeting should come in July, but no later, according to our information.

Stories in our on-going 2010 Northern California Market Special Report Series

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

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

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

[Readers: Click here and here to read more of Fresh & Easy's Buzz's extensive reporting and analysis on Tesco's Fresh & Easy-Northern California, as well as on the Northern California market in general.]

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

Large farmers market-style produce departments are a key feature of the Sprouts Farmers Market format. The stores also offer a full-selection of natural and organic groceries and a limited assortment of conventional brands, along with fresh meats, perishables, deli and fresh-prepared foods, non-foods, bulk foods, and vitamin-nutritional supplements departments. The produce departments, which offer about 500 items in the summer and about 350 in winter, on average contribute about 20%-25% of overall store sales (Suggestion: Double-click on the photograph to enlarge so you can see the full extent of the produce department.)

Northern California Market Special Report

Arizona-based grocery chain Sprouts Farmers Market opened its first store in Northern California on Wednesday, June 2 at 111 E. El Camino Real in the south Bay Area city of Sunnyvale, which is in the heart of the famed Silicon Valley, and not far from San Jose.

In addition to being family-owned Sprouts' first store in Northern California, the Sunnyvale market is the chain's 50th store. Along with the new store there currently are 13 Sprouts Farmers market locations in Southern California and 36 more units located in Arizona, Colorado and Texas.

Sprouts Farmers Market was founded in 2002 by members of the Boney family, who are also the founders of the Henry's Farmers Market chain, which today is owned by Southern California-based Smart & Final. Henry's was named after family patriarch Henry Boney.

The 30,865 square-foot Sunnyvale store is in an old Circuit City store building, which Sprouts renovated from stem-to-stern.

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

The June 2 grand opening found at least 200 shoppers waiting in line at 7 a.m, about an hour before the store manager turned the key in the lock and opened the Sunnyvale store's doors. But the wait wasn't all that bad for the grand opening day customers: Sprout's staff treated the group to a free breakfast of muffins, along with providing coffee, orange juice, milk and bottled water, while they waited in line.

Among the numerous grand opening day events on June 2 at the first Northern California Sprouts Farmers Market store were:

>The One Big 5-day sale: Numerous grocery items were sold for $1, $2 and $5; about half off the regular prices.
>All customers purchases were bagged in free, reusable Sprouts Farmers Market grocery bags.
>The store held raffles for free grocery carts full of food and groceries throughout the day.

The store, which hired about 100 workers, also offered scores of hot grand opening specials, ranging from a dozen organic, cage-free eggs for $1.99 and 64 ounce bottles of apple juice for $1.00, to avocados for 49 cents each. Sprouts also sent out an advertising circular prior to the store opening in which it offered these and a number of other items for free with a coupon.

And today, the store is holding what its calling a "cheesy event": From 9 a.m. -to- 5 p.m. Sarah "The Cheese Lady" Kaufmann will carve a "50 store" theme into a 300 pound wheel of chipotle cheddar cheese to celebrate the Sunnyvale store being Sprouts' 50th market.

In introducing the grocer to Sunnyvale residents, president and coo Doug Sanders said: "Sprouts, with its playful setting and high quality fresh foods, is a great addition to the fun, active community that has been dubbed the "happiest place in America." We are thrilled to open this landmark market - our 50th and first in Northern California - in the city of Sunnyvale and provide local residents with high quality, affordable foods. We welcome new friends from all over the area to come out and enjoy our low prices on great-tasting healthy and natural foods... a perfect fit for this progressive community."

As part of its entry into Northern California and the Bay Area, Sprouts, which puts a big focus on locally-grown and produced fresh produce and other foods in its stores, has created a partnership with Full Circle Farm, an 11-acre sustainable farm located just three miles from the Sunnyvale Sprouts Farmers Market store. Sprouts' president Sanders says the grocer will be helping to raise funds for the non-profit farm, and will help it to develop agricultural-based curricular programs targeted toward middle-school students in Sunnyvale and Silicon Valley. The farm also will sell some produce to the store.

To kick off the partnership, Sprouts presented Full Circle Farm with a $2,000 check to help fund a new irrigation project. "We are very pleased to initiate a partnership with Sprouts Farmers Market, and their generous donation will launch a much-needed irrigation system for Full Circle's historic 300-tree fruit orchard," says Rebecca Jepsen, the farm's executive director. This orchard is one of the first to be put back into the Valley of the Heart’s Delight in more than 75 years and provides education on how to live a healthier, more sustainable life."

The south Bay Area region, now famous as the high tech capital of the world and called Silicon Valley for shorthand, was not all that many years ago equally famous for being one of the most productive fruit-growing and packing house regions in the world. For example, it's no accident Apple Computer, which is located next door to Sunnyvale in Cupertino, named many of the streets on its corporate campus using fruit-growing themes. An example is Mariani Avenue, which is named after one of the region's pioneering fruit-growing and packing families. The Mariani fruit brand remains popular today.

Full Circle Farm is a two-year-old non-profit, community-based neighborhood farm located on property owned by the Santa Clara Unified School District right in the heart of Sunnyvale. It's mission is to help promote sustainable agriculture and enable people, especially kids, to reconnect with the natural world, according to executive director Jepsen. They use the farm to put students in charge of the work, responsibility and rewards of growing, harvesting, preparing and eating locally grown foods. Full Circle Farm also oversees Sunnyvale’s one-acre community-based Charles Street Gardens, and hopes to serve as a model for other urban agricultural projects around the country, says Jepsen.

"Sprouts leadership has been looking for ways to fulfill its 'healthy living' mission beyond just the stores, and hopes to work together with Full Circle Farm to develop food and nutrition-based educational materials, as well as more programs to promote and sell locally grown produce," says Sprouts Farmers Market president Sanders.

"This is a golden opportunity for Sprouts to support the very kind of mission our company was created to promote," Sanders says. "Anyone who has ever grown their own food knows what it feels like to get reconnected to the soil. It's important to understand where our food comes from, and to convey that learning and the life lessons that go with it to the young people of Sunnyvale."

As we noted in our May 8 piece, Sprouts Farmers Market is in the process of setting up a regional produce facility in Northern California. This is to allow the grocer to source locally-grown produce (and there's an abundance of it within a less than 200 mile radius of the San Francisco Bay Area) for its Sunnyvale store and the other units it plans to open in the region.

And Sprouts indeed plans many more stores in Northern California, with an initial focus on the San Francisco Bay Area. For example, our commercial real estate sources in the region tell us Sprouts is looking all over the nine-county Bay Area, which has a population of nearly 7 million, for store locations. The grocer also is looking at numerous other vacant Circuit City stores which, like the Sunnyvale store, it can renovate. There a many such vacant stores available in the Bay Area as a result of Circuit City going out of business last year.

Sprouts' Sanders recently said the now 50-store chain had 2009 sales of about $445 million. There were 42 stores at the end of 2009. Projected sales for 2010 are between $620 million and $670 million, according to Sanders, with about 56-58 stores open and operating by the end of the year.

The chain's 2008 sales were $350 million (with just under 40 stores), according to Sanders, which means Sprouts' revenue increased by nearly $100 million over a 12 month period, ending in 2009.

The grocer says it plans to double its store count from 50 to 100 by the end of 2013. A significant number of those new stores will be in Northern California, along with in its existing Southern California, Arizona, Colorado and Texas markets, and perhaps an additional new market or two in the Western U.S. Sprouts, which started with one store and 43 employees in Arizona in 2002, currently employees nearly 4,000 workers.

Related stories in our 2010 Northern California Special Report

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

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

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

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

Northern California Special Report: Central Valley

Tesco's Fresh & Easy Neighborhood Market plans to build a 13,969 square-foot store in Los Banos, California, a rural city of 36,198 located in California's Central Valley. The store will be Tesco's first Fresh & Easy unit in the city, which is in Merced County. It will also be the grocer's first store in Merced County.

Los Banos is considered part of Northern California, although it's right on the border-line. Cities south of Los Banos, like Fresno, are more properly referred to as being in Central California.

The City of Los Banos Planning Commission approved Fresh & Easy's site plan for the store on Wednesday, May 26. The commission also approved the use of an off-sale wine and beer sales license, which Fresh & Easy has applied for with the State of California, for the location.

The site plan approval is based on a set of design and other related conditions [see here] that Fresh & Easy Neighborhood Market and its store designers and building contractors must follow. The approval also expires in one year if Fresh & Easy doesn't obtain a building permit in that time period, although there is an option to extend the approval for an additional year.

According to the city's planning department staff, neither Tesco's Fresh & Easy or its representatives have said when construction of the store would begin. Fresh & Easy Buzz would be surprised is the grocer breaks ground on the site this year.

The Los Banos City Council must grant final approval of the site plan. There wasn't any organized opposition against the store voiced at Wednesday's planning commission meeting. Therefore it's likely the Los Banos City Council will follow the planning commission's lead and grant final approval.

The future Fresh & Easy store will be in an existing shopping center, The Los Banos Marketplace, at 1420 E. Pacheco Boulevard. The center's major tenants include Walgreens, Starbucks, Quiznos and Jack in the Box.

There's a vacant building on the 1.22 acre site earmarked for the Fresh & Easy market. According to the planning commission documents, the grocer plans to demolish the building and build the 13,969 store from the ground up. Tesco's Fresh & Easy Neighborhood Market has purchased the 1.22 acre parcel.

The city of Los Banos has a community design standards ordinance for the part of the city where the Fresh & Easy store is planned. Keeping with the city's history and culture (agrarian) and heritage (Spanish), the design standards are of a Spanish-Mission style. The Fresh & Easy store's architects have followed these community design standards, according to the city's planning department staff.

Among the local (Spanish-Mission style) design characteristics and features of the Fresh & Easy store are: a tiled roof, arched entry doors and window openings, arcaded porches, a walled garden, towers and accentuated corner parapet elements, varied roof heights, and ornamental brick to enhance the Spanish-Mission architecture motif. [Tesco's Fresh & Easy Neighborhood Market went through a lengthly hearing process in 2008 regarding a proposed store in Sacramento's Oak Park neighborhood, which the grocer to date hasn't broke ground on. We wrote a series of stories on the issue, which you can read here.]

Los Banos, which is the second-largest city in Merced County after the city of Merced, is about 72 miles from Fresno, where Tesco's Fresh & Easy has a number of stores.

Additionally, Los Banos is about a 90 minute drive to San Jose in the southern Bay Area, and about two and a half hours (about 130 miles) from both Sacramento and San Francisco.

It's proximity to San Jose has made Los Banos a major commuter city over the last decade because housing costs are 50%-60% (or higher) less than they are in the San Jose Metropolitan region. In fact, Los Banos has been hit so hard by the housing foreclosure crisis since 2008 that houses which sold in the $300,000 -to- $400,000 range in 2006 are today selling for almost half that amount. Merced County has been among the top five counties in the U.S. for housing foreclosures for nearly three years.

According to published data, the housing market in Merced County and Los Banos is beginning to pick up, although it's got a very long way to go. Additionally, unemployment in the county, which is primarily an agricultural and agribusiness-based economy, is 19.9%, according to the most-recent state figures, making it among the highest of all California counties. California's overall unemployment rate is currently 12.6%.

Locating a store in Los Banos is something we predicted Tesco's Fresh & Easy Neighborhood Market would do as far back as 2008. It's part of what we call Fresh & Easy's Northern California and Central Valley "critical mass" store location strategy, which is modeled after what the grocer has been and is doing in Southern California, Metropolitan Los Vegas, Nevada and Metro Phoenix, Arizona. Essentially, the strategy is to first grab store sites in the major cities in a given region, then fill in with locations in nearby suburban and smaller cities. It's also further evidence the grocer has an urban, suburban and rural store location strategy.

In the case of the Central Valley and Northern California, Fresh & Easy first obtained store sites in Bakersfield, Fresno, Modesto and Stockton, the key big cities in the Central Valley, now its starting to fill in around those major cities in places like Los Banos. Fresh & Easy has only opened stores in the Bakersfield and Fresno regions to date, although it has locations in Modesto and Stockton, as we've reported previously in Fresh & Easy Buzz. (Los Banos is about 41 miles from Modesto, which is in the Northern Central Valley. Fresh & Easy has three future store sites in Modesto.)

In Northern California, Fresh & Easy first concentrated on securing store locations (37 confirmed sites but additional unconfirmed locations we've reported on) in the San Francisco Bay Area and the Metropolitan Sacramento region's major cities and larger suburban towns. It then has been slowly branching out to smaller cities in the regions.

Of course none of the Northern California Fresh & Easy stores have yet to open. The grocer has postponed its launch into the region at least twice sine 2008. and to date hasn't talked about Northern California publicly at all. However, it still has all or most of the store sites, as we've reported on recently. [April 19, 2010 - Tesco Debating Whether to Launch Fresh & Easy Into Northern California This Fiscal Year... or Wait]

Fresh & Easy is also looking at potential store locations near Los Banos and elsewhere in Merced County and the Northern Central Valley, which includes the Modesto and Stockton Metro regions, as we've detailed in our ongoing reporting. For example, the grocer is looking at potential sites for Fresh & Easy stores in the Merced county cities of Merced and Atwater. Both cities are about 25 miles from Los Banos.

The fact Tesco is continuing to book future store locations in Northern California, despite having yet to open any of its stores in the region, should put to rest any rumors out there it plans to fold up shop with its Fresh & Easy Neighborhood market any time in the near future, despite the fact it recently reported another full-year loss of over $250 million for the chain.

There are currently two major supermarkets in Los Banos, a Save Mart supermarket, which is a branch of Modesto, California-based Save Mart Supermarkets, and a Food 4 Less warehouse market, which is part of a chain operated by a Northern California independent group. There's also a couple smaller, independent grocery stores and a branch of the regional El Pueblo Hispanic supermarket chain in the city.

Walmart has a discount format store in Los Banos, which it plans to remodel and turn into a hybrid supercenter, offering a full-selection of fresh foods and groceries. There's also a farily new Target discount format store in the city. It sells a fairly strong selection of groceries but not fresh foods.

In past analysis pieces in Fresh & Easy Buzz of the Central Valley region and its various grocery retailing markets we've identified Los Banos as a city that's underserved by grocery stores, based on our research and analysis.

There are currently 159 Fresh & Easy fresh food and grocery stores in California (Southern California and the Bakersfield and Fresno regions in the Central Valley), southern Nevada and Metropolitan Phoenix, Arizona.

No new Fresh & Easy stores are being opened this month. Additionally, the grocer hasn't (as of May 29) announced if it plans to open any stores in June.

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

Northern California Special Report: San Francisco

News & Analysis

Emeryville, California-based Holliday Development is set to complete the first two buildings of its $75 million, 340 unit mixed-use residential condominium development at 5800 Third Street (at Carroll Avenue) in San Francisco's Bayview district by the end of June, according to the developer.

The development (pictured at the top) includes a Fresh & Easy Neighborhood Market store as the retail anchor, in a 15,000 square-foot space at the bottom-level of the multi-story condo development, which is on the site of a former Coca-Cola bottling plant that was closed decades ago. The space for the Fresh & Easy store is set to be completed, along with the first two residential buildings, by the end of June.

Tesco owns the 15,000 square-foot space in the 5800 Third Street condo development, which is a project of the Goldman Sachs Urban Investment Group. The Goldman Sachs Urban Investment Group is part of the Merchant Banking Division within The Goldman Sachs Group Inc. According to the developer, Tesco's Fresh & Easy still holds the space and still plans to open a store in the development.

The 5800 Third Street project has encountered numerous hiccups since December 2007, including a construction stoppage in the summer of 2008 and the replacement by Goldman Sachs after that of the original developer, Houston, Texas-based Noteware Development, with Bay Area-based Holliday Development. And of course there's the global financial and credit crisis which started in late 2008 and has heavily impacted Goldman Sachs.

Holliday Development has an additional 5,685 square-feet of retail space for lease in the development. Most or all of that space will likely be taken by a restaurant operator, according to our commercial real estate sources.

The Third Street & Carrol Avenue condominium project was kicked off with a big bang on December 13, 2007, featuring a ground-breaking ceremony and press conference attended by San Francisco Mayor Gavin Newsom, Goldman Sachs executives, Tesco Fresh & Easy Neighborhood Market CEO Tim Mason and other dignitaries. Tesco's Fresh & Easy used the ground breaking ceremony and press conference to signal its intention to open numerous Fresh & Easy markets in the San Francisco Bay Area and elsewhere in Northern California. In January 2008 the grocer announced it's plans to open 18 Fresh & Easy stores in the San Francisco Bay Area.

As regular readers of Fresh & Easy Buzz know, Tesco hasn't to date opened any of its confirmed 37 stores (18 in the Bay Area and 19 in the Vacaville-Sacramento region) in the Northern California market.

As we wrote in this piece on April 19, 2010 - Tesco Debating Whether to Launch Fresh & Easy Into Northern California This Fiscal Year... or Wait - Tesco is debating whether or not to start opening some of the 37 (19 in the Vacaville-Sacramento region and 18 in the San Francisco Bay Area) this year.

However, the fact that the 5800 Third Street condo project will have its first two buildings completed next month, suggests Tesco could open its first Fresh & Easy store in Northern California this year, at 5800 Third Street.

Of course Tesco's Fresh & Easy Neighborhood Market could wait until 2011 to open the store, although leaving it sitting empty for six or more months after the first two buildings in the condo project have been completed isn't a smart thing to do, in our analysis. Fresh & Easy has already generated a considerable amount of ill will from many residents living in the numerous Northern California neighborhoods where its future store sites - some completed, others partially worked on, and still others in which no construction has even began - have sat unopened for over two years.

As we've mentioned in past pieces in Fresh & Easy Buzz, it's our analysis that the 5800 Third Street location in San Francisco has the potential to be the best performing store of the 37 confirmed Fresh & Easy Neighborhood Market locations in Northern California. We still believe that to be true.

We've also long held that the store in the Third & Carrol Street development will be the first Fresh & Easy unit Tesco opens in Northern California. We still predict this will be the case.

Among the reasons 5800 Third Street should be the first Fresh & Easy store for Tesco to open in Northern California are: It's located in the region's premiere city, San Francisco; the Bayview neighborhood is an urban "food desert," a fact much attention was given to, including by San Francisco Mayor Newsom, when Tesco announced its plans to open the store in December 2007; and the store is new, from-the-ground-up construction, and thus can serve as a showcase for the grocer in its Northern California region launch. As such, we predict it will be (and if not should be) the first store Tesco's Fresh & Easy Neighborhood Market opens in Northern California.

For example, at that December 2007 press conference, current San Francisco Mayor Newsom, who's running for the position of California Lieutenant Governor said: "I applaud the Goldman Sachs Urban Investment Group for its vision and I am excited that an institution like Goldman Sachs is making a long term commitment to this city. A development like 5800 Third Street is critical for the revitalization for this area and the broader Bayview community. This project represents exactly the kind of growth we are trying to encourage across the City."

Newsom and members of a coalition of San Francisco elected officials and Bayview residents, who've been working to attract grocers to the neighborhood for many years, also praised Tesco and Fresh & Easy Neighborhood Market CEO Mason at the December 2007 press conference for its decision to locate a Fresh & Easy market in the Bayview district.

Based on information from our sources, however, Tesco has not yet decided if it will open the 5800 Third Street, San Francisco, store - or any of the other sites in Northern California - this calendar year. Tesco operates on a fiscal year system. It's 2010/11 fiscal year, which started in February 2010, ends at about that same time in 2011.

If Tesco's Fresh & Easy Neighborhood Market plans to open the 5800 Third Street location this year - or even by early 2011 - we should know very soon, since once the 15,000 square-foot building is completed the grocer would have to start work on its interior - installing flooring, shelving, checkout stands, refrigerated and frozen cases and the like - which takes at least a few months to do. Stay tuned.

Selected Related Posts - Fresh & Easy and San Francisco's Bayview

April 13, 2009: Despite Postponing its Northern California Launch Again Earlier This Year Tesco's Fresh & Easy Planning Third San Francisco Store; First Stockton Unit

April 13, 2008: San Francisco: Cool Bay Breezes, A City Full of History, Cable Cars--And A 'Fresh & Easy' State of Mind

June 1, 2008: Upcoming New Markets Special Report: From Food Desert to Urban Oasis? Tuesday Election Could Change San Francisco's Bayview-Hunters Point Forever

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

July 29, 2008: Tesco's Fresh & Easy and San Francisco's Tenderloin Redux: Upcoming Developments Offer First Mover Opportunity For Fresh & Easy or Competitors

January 24, 2008: Fresh & Easy Locking-Up Leases For Northern California Invasion

January 30, 2008: Fresh & Easy Goes On the Record: Announces 18 Northern California Stores in the Bay Area

July 2, 2008: Tesco's to Open A Fresh & Easy Grocery Market in Low Income, Underserved South Central Los Angeles Neighborhood

Click here and here for a selection of past stories about Tesco's Fresh & Easy Neighborhood Market and the San Francisco Bay Area. (See the numerous links to other posts as well. Also you can click the "newer posts" and "older posts" links at the bottom of each page.)

Click here and here for a selection of past posts about Tesco's Fresh & Easy Neighborhood Market and Northern California (See the numerous links to other posts as well. Also you can click the "newer posts" and "older posts" links at the bottom of each page.)

Recent Stories in Fresh & Easy Buzz's Northern California Special Report Series

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

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

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

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

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

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

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

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

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

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

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

San Francisco Bay Area

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

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

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

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

4. San Francisco (Castro District)

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

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

6. San Jose (Alameda)

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

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

Sacramento Metro Region

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

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

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

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

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

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

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

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

Fresh - but not easy - eyes are on Northern California

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Tesco may be debating whether or not to start opening some of its numerous Fresh & Easy Neighborhood Market store locations in Northern California's San Francisco Bay Area and Sacramento-Vacaville regions this year, but two of Fresh & Easy's competitors in Southern California and Arizona - Sprouts Farmers Market and Henry's Farmers Market - are moving forward full-steam ahead with their respective plans to enter the two metro-markets. Both of the hybrid natural-conventional grocery chains are set to open their first stores in Northern California very soon. [See - April 19, 2010: Tesco Debating Whether to Launch Fresh & Easy Into Northern California This Fiscal Year... or Wait]

Fast-growing, Arizona-based Sprouts Farmers Market, which currently operates 48 stores in Southern California, Arizona, Colorado and Texas, is set to open its first Northern California store in the San Francisco Bay Area city of Sunnyvale, near San Jose, in just three weeks, on June 2. The Sunnyvale store is at 111 E. El Camino Real, in the heart of the famed Silicon Valley.

The 30,865 square-foot Sunnyvale Sprouts store is in an old Circuit City store building, which Sprouts has renovated. Sprouts Farmers Market stores average 23,000 -to- 37,000 square-feet, according to the retailer.

The grocer held a job fair at the Sunnyvale location last weekend, and is currently hiring the 90-100 employees who will staff its first Northern California hybrid natural-conventional grocery store. We call the Sprouts' stores "hybrid" because, although the format and merchandising focus is on natural and organic products across all categories, the stores also carry a selection of conventional groceries.

For example, you're likely to see Best Foods Mayonnaise and Hunts ketchup on the shelf in the condiment aisle, right next to the various natural and organic brands of mayonnaise and Ketchup. In the beer cooler you're just as likely to see Budweiser and Miller next to the various micro-brew and organic brands of beer.

Not by coincidence, Henry's Farmers Market, which is owned by Southern California based grocer Smart & Final, is a hybrid natural-conventional grocer as well. Like Sprouts, its stores offer an assortment of conventional food and grocery items, along with the natural and organic versions.

We say not by coincidence because members of the Boney family, who own Sprouts Farmers Market, which is privately-held and was started in 2002, are the founders of Henry's.

The Boney family sold Henry's Farmers Market to Wild Oats Markets Inc. years ago. Wild Oats operated Henry's, along with its Wild Oats banner stores, for many years. In 2008, when Whole Foods Market, Inc. acquired Wild Oats, Whole Foods turned right around shortly after the deal went through and sold Henry's to Smart & Final, because it didn't fit into their merchandising philosophy and strategic plans.

Smart & Final's Henry's Farmers Market is opening its first store in Northern California this fall, likely in November. The store will be in Elk Grove (at 8211 Laguna Boulevard), which is near Sacramento. Henry's says it plans on hiring about 90-100 workers for its first Northern California store, which is set to open in just six months.

Like the Sprouts store, The Elk Grove Henry's, which is about 21,000 square-feet, is going into a vacant, former Circuit City store. Circuit City's going out of business last year resulted in numerous vacant retail buildings coming on line. In Northern California both Sprouts and Henry's have been able to obtain excellent lease terms on the buildings.

Since acquiring Henry's from Whole Foods in 2008, Smart & Final, which itself is owned by the private equity firm Apollo Management, has been growing the chain aggressively, along with remodeling numerous existing stores in Southern California.

There are currently 39 stores in the chain - 31 in Southern California under the Henry's Farmers Market banner and eight unit in Texas under the Sun Harvest Farmers Market banner. Sun Harvest is also the name of Henry's private brand natural-organic food, grocery, perishable and non-foods products. In addition to being sold in the Henry's and Sun Harvest banner markets, a variety of the Sun Harvest brand items are also offered in the numerous Smart & Final non-membership warehouse stores in the Western U.S., and in Smart & Final's EXTRA format grocery markets.

Henry's has numerous new stores planned for Southern California and Texas.

Smart & Final also has created a new discount supermarket banner called SmartCo. The first five SmartCo stores are set to open this summer, in Denver (2), Littleton, Centennial and Longmont, Colorado, in buildings Albertsons vacated over the past three years.

It's interesting that Sprouts and Henry's are starting out in separate metro-market regions in Northern California -the Bay Area for Sprouts and the Sacramento Metro area for Henry's - although its not earth shaking. This is a plus for both, since they can focus on going after, and responding to, the existing competition in those respective markets rather than starting off competing directly against each other in start up mode. There's plenty of time for that later.

The Bay Area and Sacramento area also just happen to be the two metro-market regions in Northern California where Tesco's Fresh & Easy has 37 publicly confirmed store sites (and a few more not confirmed), which have been sitting since early 2008 when the grocer made the announcement.

As we wrote in our piece on April 19 [Tesco Debating Whether to Launch Fresh & Easy Into Northern California This Fiscal Year... or Wait], and remains the situation, Tesco's Fresh & Easy has yet to say publicly when, or if, it plans to open its stores in Northern California.

Both Sprouts and Henry's Farmers Market are looking for (and may have already found some) numerous additional store locations in Northern California.

Additionally, Henry's and Sprouts Farmers Market, which both put a big emphasis on fresh produce merchandising, are setting up regional produce depots in Northern California. That equals: Numerous stores in the region over time.

Sprouts is supplied by grocery and natural foods wholesalers and Henry's is supplied directly by Smart & Final and by a natural foods wholesaler, which means neither of the chains need to invest in and construct a distribution facility in Northern California. Both chains' wholesalers already service Northern California, as does Smart & Final, which operates numerous Smart & Final banner non-membership warehouse stores throughout the region.

In contrast, Tesco's Fresh & Easy plans to open it's own distribution center in the Northern Central Valley city of Stockton, which is about 40 miles from Sacramento and about 70 miles from San Jose. As a result, the start up costs for entering Northern California are extremely higher for Fresh & Easy than they are for either Sprouts or Henry's.

Spouts and Henry's Farmers Market aren't going to make a significant competitive difference in the market regions until each has a half dozen or so stores open. But competition is competition. For example, a Sprouts store in Sunnyvale is going to take business away from other grocers in the city and nearby, by simple virtue of it being there. The stores are also rather popular.

Further, both Henry's and Sprouts Farmers Market tend to be competitors against not just natural foods retailers like Whole Foods Market and others, but also conventional supermarkets. This is do to the fact both chains offer a limited selection of conventional food and grocery products, along with their focus on natural-organic products.

An important note though is that in Northern California, particularly in the Bay Area, many food and grocery shoppers use natural-organic grocery stores as their primary shopping venues.

The Bay Area, for example, is one a Whole Foods Markets' top three performing regions in the U.S. And many of Whole Foods' stores in the region have higher sales per-square-foot than conventional competitors' stores - Safeway, Save Mart's Lucky, ect. - located nearby do.

An example: Whole Foods' 14,000-15,000 square-foot store in San Francisco's trendy Noe Valley neighborhood, which opened late last year and is one of its smallest in the region, is averaging at least $400,000 in weekly sales, according to a source in a position to know the numbers.

The building formerly housed one of Kroger's now out of business Bell Market supermarkets, a conventional grocery format but with lots of specialty and natural products to help up the average ring and the gross. That store did well, about $300,000 weekly in its prime (early 1990's -to- early 2000's), according to information provided by the store's manager during those years, but not as well as Whole Foods' is doing in the same spot. The Bell Market was, like the Whole Foods is now, the only major grocery store in the neighborhood,. So the ground rules are the same.

The primary shopping venue aspect is also one key reason there are so many natural-organic format foods stores in the Bay Area. It's also why Bay Area supermarkets, like those operated by Safeway and numerous others, have extensive assortments of natural and organic products.

The pile-it-high, sell it for a good price, big, farmers market-style produce departments Sprouts and Henry's have and focus on are also a big draw - arguably the major shopper-drawing card for both grocery chains.

Henry's and Sprouts both also sell fresh, prepared foods, and offer extensive selections of vitamins and nutritional supplements in their respective stores.

Based on our sources and research, we expect both of the hybrid chains to announce or confirm additional Northern California locations before the year is out. Sprouts could do so shortly after the Sunnyvale store opens in June.

Of additional importance: Both Sprouts Farmers Market and Henry's made their final decisions to launch into Northern California only last year, going from decision to opening first stores in Northern California in about one year.

In Tesco's case, it's now been over two years since it announced the 37 Northern California Fresh & Easy locations, which to date remain in limbo in terms of a public announcement as to when, or if, they will be opened. [Tesco has some Fresh & Easy stores in the Fresno area. However, Fresno is located in Central (Valley) California, rather than being in Northern California proper.]

Were we Tesco, we would remedy this.

Having the stores in limbo for so long is creating very negative public (and potential consumer) relations for Fresh & Easy in many of the San Francisco Bay Area and Sacramento-Vacaville market regions where the store sites sit; some in various stages of remodeling and construction; others untouched at all for over two years.

Limbo is not a good state for either a human or corporate organism to be in. And it's absolutely a bad state for a start up grocer like Tesco's Fresh & Easy to be in vis-a-vis potential customers, relative to an important potential market region like Northern California.

In our analysis, the longer Tesco stays mum about it plans for Fresh & Easy in Northern California, the more potential damage to its future entry into the market will be done, unless of course it decides not to enter the market at all. Even in that turns out to be the case, the overall damage to Fresh & Easy's reputation could be huge.

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

Tesco Debating Whether to Launch Fresh & Easy Into Northern California This Fiscal Year... or Wait

News & Analysis

Tesco is debating whether or not to begin opening the first of its planned Fresh & Easy stores in Northern California later this year, or to further postpone its launch into the market until 2011, Fresh & Easy Buzz has learned.

Tesco first announced its plans to open an initial 37 Fresh & Easy markets in Northern California - 18 in the San Francisco Bay Area and 19 in the Sacramento-Vacaville region - in early 2008, not long after its first stores opened in Southern California, Arizona and southern Nevada. [Click here for a list by address of the 37 confirmed Northern California Fresh & Easy locations. There's also some additional, non-confirmed, planned locations we've discovered and reported on]

The first stores in these two Northern California markets were planned to be opened in mid-to-late 2008.

However, Tesco postponed its plans later in 2008, suggesting it would wait until 2009 to launch into the northern portion of the Golden State.

Again in 2009 Tesco postponed opening stores in Northern California, sighting the economic recession as its official reason for doing so.

To date, over two years after announcing its plans to move into the San Francisco Bay Area and Sacramento-Vacaville market regions, Tesco has yet to open any stores in the north state. It is and has been paying the monthly rent and related expenses on the planned locations for these two-plus years however.

Most of the 37 confirmed Northern California locations are vacant retail buildings in which Tesco's Fresh & Easy is or planned to remodel. A few of the sites are new, from the ground-up construction, such as the planned location at Third & Carrol Street in San Francisco and the planned site in Sacramento's Oak Park neighborhood, for example.

A handful of the 37 Northern California store sites, along with at least one non-confirmed store in Pacifica, near San Francisco, which is completed and has been sitting vacant for well over a year, could be opened in short order.

However, the majority of the planned Northern California store locations are still in various stages of remodeling and construction. And in many cases work has been on hold at the locations for a very long time.

Work on some of the planned Fresh & Easy sites, such as a vacant building to be remodeled in Napa, California, which was formerly a branch of three-store local independent grocer Vallergas Market, and the planned built from the ground up store in Sacramento's Oak Park neighborhood, for example, haven't had any work done on them at all to date.

We also know of one location - in the Edgewood Shopping Center that's being remodeled in Palo Alto, California, which Tesco's Fresh & Easy never confirmed but the developer did confirm to us in 2009 - that the retailer has now decided not to go forward with at all.

The project's developer told Fresh & Easy Buzz earlier this year that Tesco's Fresh & Easy pulled out of the project and that a new grocer-anchor is being sought.

At issue for Tesco is whether or not it wants to make the substantial investment required to launch into Northern California this year.

This major investment includes opening and staffing its planned distribution facility in Stockton, California, along with the labor costs to staff the stores it opens, plus marketing and all other related costs required of a grocer when it launches into a major new market region such as Northern California.

And since both the San Francisco Bay Area and Sacramento-Vacaville markets are big and very competitive, rest assured the start up costs for Tesco will be massive.

The costs also will be high for Tesco because it will be marketing for and distributing to only a handful of stores in Northern California for a considerable period of time. From a logistical and marketing perspective, a retailer needs critical mass - a significant number of stores - before it can achieve any efficiencies in terms of logistics and other costs.

For example, with over 150 stores (159 at the end of April) in Southern California, Arizona and southern Nevada to date, based on the current sales volume, which we estimate at about $500-$600 million annual, Tesco has yet to achieve the type of critical mass out of its Riverside County distribution center that it both wants and needs.

The issue regarding launching Fresh & Easy into Northern California this year at all then comes down to investment versus added losses for Tesco.

Tesco reports its fiscal year 2009 sales and profit numbers tomorrow, Tuesday April 20, 2010. The United Kingdom-based global retailer says it estimates the full-year loss for Fresh & Easy will be about $250-$259 million. This is on top of a fiscal year 2008 loss of $208 million. We estimate Tesco has lost at least $700 million on Fresh & Easy Neighborhood Market thus far. [Related post - April 19, 2010: Tesco Reports Fiscal 2009 Results on Tuesday, April 20; Estimated $250-$259 Million Loss For Fresh & Easy]

Tesco's dilemma therefore is: Should it launch into Northern California this year, which in our analysis will cost the grocer even more money than it anticipates it will, or should it continue focusing on its existing stores, and opening new ones, in its current Southern and Central California, Metropolitan Phoenix, Arizona and southern Nevada market regions?

But on the up side, if the recession is really the main problem with Fresh & Easy's performance to date, then the Northern California stores should be opened as soon as possible since, as we've said and has been true since 2008, Northern California, especially the Bay Area, has been hit far less by the recession than Southern and Central California, Nevada and Arizona have and still are experiencing.

The decision, which according to our sources hasn't been fully decided as of yet by Tesco, will depend on just how much of a loss the retailer hopes to post in its 2010 fiscal year, when it reports those numbers in April of 2011.

Our conclusion: We predict Tesco will start opening some of its Northern California Fresh & Easy stores in the mid-to-late-third quarter -to- early fourth quarter of this year - or before the end of its current fiscal year, which ends in early 2011.

[Readers: Click here and here to read our extensive reporting and analysis on Tesco's Fresh & Easy-Northern California, as well as on the Northern California market in general.]

Competitor News: Wal-Mart Clears First Major Hurdle For Proposed Mega-Distribution Center in Merced, CA; Chain's Regional Strategy Moving Forward

Regional Market Report: California's Central Valley & Northern California

In this April 18, 2009 story [Competitor News: Wal-Mart Close to Clearing First Major Hurdle For its 1.1 Million Square-Foot Regional Distribution Center in Merced, California] Fresh & Easy Buzz reported that Wal-Mart Stores, Inc. was close to clearing its first major hurdle towards its plans to build a mega-1.1 million square-foot regional distribution center in Merced, California, in the Golden State's Northern Central Valley region.

That initial hurdle has now been cleared by Wal-Mart: On April 27 a 90-day public comment period in which area residents could comment by letter pro or con to the City of Merced Planning Department about the proposed project's potential environmental and other impacts on the community and surrounding region ended.

As of the end of business on April 27 the City of Merced received 301 letters from area businesses, organizations and individuals regarding the planned 1.1 million square-foot Wal-Mart distribution center project, according to the city's planning department.

Next phase for Wal-Mart

The next phase of the now-ended public comment period has started.

That phase requires Wal-Mart's contract planning firm for the project, EDAW, to respond in writing to each of the 301 letters received by the CIty of Merced.

The 301 letters are a mix of comments in favor of and opposed to the proposed 1.1 million square-foot Merced Wal-Mart distribution center, according to the planning department. When we published our earlier story on April 18 there were about 50 letters submitted at that time, with the number of letters in favor of the project far exceeding the quantity of letters in opposition, according to the city's planning department.

Once the EDAW planning firm responds to all of the letters, the City of Merced Planning Commission will hold public hearings on the proposed project.

Those hearings could come soon, or much later, depending on how fast the planning firm responds to the letters, a process Wal-Mart is required to follow by law.

The hearings will include public input, allowing members of the public for and against the huge distribution center project to voice their opinions.

Wal-Mart Stores, Inc. has said it wants to break ground on the 1.1 million square foot distribution facility starting in early 2010.

The project, which Wal-Mart proposed in 2005, is to be built on 230 acres at Childs and Gerard avenues in southeast Merced, according to plans filed with the City of Merced Planning Department.

Wal-Mart Stores, Inc. says it estimates the distribution center will take about 18 months to complete.

If the planned mega-distribution center is ultimately approved by the planning commission, it then goes before the Merced City Council for discussion and debate -- and an eventual vote. In California, planning commissions, which are comprised of members appointed by the city council, only give advisory approval to projects. Elected officials must ultimately approve such projects.

Merced residents and others for and against the distribution center project also get a chance to voice their respective opinions at a public Merced City Council meeting before the elected officials vote on the project's approval or denial, according to the city.

Organized support and opposition groups

As we wrote about in our April 18, 2009 story, there are organized groups in favor of and against the proposed 1.1 million square-foot Wal-Mart distribution center project in Merced.

Leading the opposition to the proposed distribution center is a local organization called "Merced SWAT" (Stop Wal-Mart Action Team). You can read about the group's opposition to the project at its Web site here.

Another local group, the "Merced Alliance for Responsible Growth," also opposses the planned Wal-Mart distribution facility. There's overlap between this group and "Merced SWAT."

Two national anti-Wal-Mart groups have also joined the local organization, "Merced SWAT," in opposition to the proposed Merced Wal-Mart distribution center.

One of the two organizations is the well-know Wal-Mart watchdog group "Wal-Mart Watch." You can read what the group is saying about the proposed project at its Web site here.

The second national anti-Wal-Mart organization allied with the local Merced group is called "WARN" (Wal-Mart Alliance for Reform Now). The group says it's collaborating with "Merced SWAT" to oppose the 1.1 million square foot Wal-Mart distribution center project in Merced. Read what WARN has to say at its Web site here.

The proposed distribution facility project also has strong support in Merced however.

For example, a majority of the City Council has indicated it's in favor of the distribution center, which Wal-Mart says will bring 1,200 full-time jobs to Merced. The retailer says the facility will operate 24 hours a day, seven days a week.

Additionally, most of the city's and Merced County's business leaders are in favor of the project.

And informal polls of residents have shown widespread support for bringing the disctribution center and the estimated 1,200 new jobs to the city.

Lastly, a pro-distribution center organization called the "Merced County Jobs Coalitio"n is heading up support and lobbying efforts among proponents of the proposed 1.1 million square-foot Wal-Mart Merced distribution center.

Tough economic climate, high unemployment

Merced County, of which Merced is the county seat, currently has a whopping 20% unemployment rate, one of he highest in California. By comparison, California's overall joblessness rate is about 11.4%, and the current U.S. unemployment rate is just under 9%.

Additionally, Merced County, which up until about mid-2007 was one of the fastest-growing counties in California, has since early 2008 been one of the top-five counties in the U.S. in terms of having the highest per-capita housing foreclosure rates in the United States month after month. And its often been number one or two during this period, including just last month when it was the leading U.S. county in housing foreclosures, according to a number of firm's that track monthly foreclosures by county.

Local development watchers in Merced have told us in the recent past that they believe the planned Wal-Mart distribution center project will ultimately be approved by the City Council because new jobs are so desperately needed in the city and county.

However, it's important to note that since the April 27 public comment period on the project ended, the opposition groups have been gearing up considerably, including in the case of "Merced SWAT" recently hiring a Sacramento, California-based land-use lawyer to assist it in fighting the project, along with getting more aggressive with its public relations efforts.

Of course such opposition isn't anything new for Wal-Mart, particularly in California where it has had other distribution center proposals, along with numerous proposed mega-Supecenter stores, killed by opposition groups , cities and counties.

As a result, Wal-Mart is working closely with the City of Merced and with its allies in the city regarding its efforts to gain approval for the proposed 1.1 million square-foot facility. Supporters are touting the 1,200 new jobs and Wal-Mart is promising to spend additional monies in the city, buying supplies for the distribution center from local businesses and donating to a wide variety of groups and local organizations, as it does throughout the U.S.

There are three major retail grocery industry distribution facilities in Merced, so the proposed Wal-Mart facility would hardly be one of a kind if built, although it would be much larger than the existing three centers are.

Grocery wholesaler McClane Companies, which is owned by billionare Warren Buffett's Berkshire Hathaway conglomerate, has a large distribution center in Merced from which it distributes grocery products to convenience stores throughout California and other western states.

Pleasanton, California-based Safeway Stores, Inc. operates a private label manufacturing and distribution facility in the city.

And Modesto, California-based Save Mart supermarkets operates a fresh produce distribution center in Merced.

Strategic importance

The proposed 1.1 million square-foot distribution center is crucial to Wal-Mart's strategic plans to grow its store count and market share in Central and Northern California, particular in the food and grocery categories, in which it is only a minor player at present in the regions.

For example, read our story here - February 11, 2009: Tesco's Fresh & Easy Isn't the Only Food & Grocery Retailer With its Eyes on Bakersfield: Wal-Mart's Bakersfield Push and Central Valley, CA Strategy; and our piece here - September 15, 2008: Wal-Mart Expanding its Discount Store-to-Supercenter Conversion Program As Part of its Strategy to Grab Even More Food and Grocery Sales Market Share.

The Merced facility would distribute everything contained in a giant Wal-Mart Supercenter, including perishable and non-perishable food and grocery products.

Right now, the political odds-makers in Merced tell Fresh & Easy Buzz that their money is on the ultimate approval by the Merced City Council of the project in the city of about 80,000 residents. Merced County has a population of about 250,000.

First Lady in Merced today

And today is a big day for Merced.

First Lady Michelle Obama is set to make her first and only university commencement address this afternoon to about 500 graduates of the University of California at Merced, the University of California's newest campus, which opened in the city in 2005. The class graduating today is the first full graduating class since the school was opened four years ago.

Ironically, the graduating class lured the First Lady to speak at today's commencement by launching a student-initiated letter writing and video lobbying campaign directed at Mrs. Obama, which included sending her a special Valentine's Day invitation in February, which was an invitation she apparently couldn't resist.

Perhaps the proponents and opponents of the proposed Merced Wal-Mart distribution center project could learn something from the University of California at Merced class of 2009 when it comes to launching successful letter writing and lobbying campaigns? After all, out of the huge stack of 2009 commencement speech requests she received, the First Lady chose just one, UC Merced, where she will speak this afternoon.

The city and the campus are conducting a two-day weekend festival in conjunction with the First Lady's commencement speech. As many as 15,000 -to- 20,000 people are expected to attend the graduation ceremonies on campus. The four year-old campus currently enrolls about 3,000 students.

Those same Merced political odds-makers tell us that today and tomorrow the proposed Wal-Mart distribution center issue is taking second place as a topic of discussion among residents as the city gears up for and celebrates the First Lady's visit. But come Monday, local residents tell us the proposed distribution facility issue will be back front and center as the main topic of discussion around town and in the city's coffee shops and pubs.

The proposed Merced mega-Wal-Mart regional distribution center is a major topic of discussion among the region's grocers as well, as they know the facility means more Wal-Mart Supercenters and likely other Wal-Mart format food and grocery stores in the region. That's a competitive prospect most grocers aren't looking forward to.

Tesco's Fresh & Easy in the Central Valley

Tesco's Fresh & Easy Neighbohrood Market hopes to have a major impact on food and grocery retailing in California's Central Valley in the not too distant future.

Thus far, Tesco has three of its small-format, convenience-oriented Fresh & Easy combination grocery and fresh foods markets open in Bakersfield, which is in the southern Central Valley. The grocery chain plans to open at least six additional stores (four more in Bakersfield, one in Delano and one in Wasco) in Bakersfield and the surrounding region.

Fresh & Easy Buzz however is aware that at least two of the four additional Bakersfield Fresh & Easy stores have now been completed but are sitting empty and have yet to be opened by the grocery chain. Those two locations are at Brimhall & Jewetta and Hageman & Coffee in Bakersfield. The store in Delano also is completed but has yet to open. [February 11, 2009: Tesco to Open Third Bakersfield, California Fresh & Easy Store On February 25.]

Additionally, Tesco has at least 10 (seven in Fresno and three in nearby Clovis) Fresh & Easy markets slated for the Fresno Metropolitan region in the mid-Central Valley.

Tesco's Fresh & Easy hasn't opened any of the 10 Fresno-area Fresh & Easy stores despite the fact that some of the stores are completed and ready to open.

For example, the downtown Fresno Fresh & Easy market at Tulare and R Street, which we wrote about in this July 23, 2008 piece: [Fresno, California Fresh & Easy Grocery Store to Be First in Chain to Include Local, Community and Neighborhood Design Elements and Features] is completed but not yet opened.

Fresh & Easy has included the 10 Fresno stores as part of its indefinite postponement of its Northern California region launch, even though Fresno isn't technically in Northern California. Rather it's considered Central California. [See - November 12, 2008: Analysis: Hard Times at Fresh & Easy - Northern California Expansion to Be Postponed or Shelved Do to Economy; But its Only a Symptom Not the Cause. May 15, 2008: Fresh But Never Easy: Tesco's Long But Rapid South-North March in the Nation-State of California. May 6, 2009: Tesco Fresh & Easy Northern California Market Region Update ]

And in the Northern Central Valley, Tesco's Fresh & Easy thus far has three sites planned in Modesto, as we've previously reported. [See - March 31, 2009: Despite Having Postponed its Northern California Launch Indefinitely; Tesco's Fresh & Easy Planning Third Store in Modesto, California.]

But despite all these Central Valley sites, many of which contain completed Fresh & Easy markets, the grocer has to date only opened three stores in the vast region, all three in Bakersfield.

Merced is located between Fresno and Modesto. The city is about 45 miles from Fresno (to the south) and about 35 miles from Modesto (to the north).

Of course, it's hard to become a player in a market like the Central Valley if a grocer has stores completed but doesn't open them, as the Bakersfield and Fresno examples above indicate is the case for Tesco's Fresh & Easy.

Not opening a completed grocery store is seldom if ever done by U.S. food retailers. Having numerous empty store buildings that aren't producing sales or cash flow isn't considered to be prudent management in the food and grocery retailing industry, particularly for major chains.

For example, one would be hard-pressed to find a completed Wal-Mart store of any kind that doesn't have a definite opening date planned for it.

The same would be the case at Kroger, Costco, Safeway and virtually every other chain -- large or small -- we are aware of. It's just not an excepted practice. And most grocers rush to open a completed store rather than allow it to remain empty a day longer than they have to.

Linkage - Additional Related Stories:

>February 11, 2008: Tesco's Fresh & Easy Isn't the Only Food & Grocery Retailer With its Eyes on Bakersfield: Wal-Mart's Bakersfield Push and Central Valley, CA Strategy

>September 15, 2008: Wal-Mart Expanding its Discount Store-to-Supercenter Conversion Program As Part of its Strategy to Grab Even More Food and Grocery Sales Market Share

>December 29, 2008: Competitor News: Winco Foods to Expand in California and Nevada in 2009; Put Aggressive Focus on Central Valley, Northern California and Northern Nevada

>December 3, 2009: Tesco Opens its First Two California Fresh & Easy Stores Outside of Southern California in the Central Valley City of Bakersfield Today.]

>April 13, 2009: Despite Postponing its Northern California Launch Again Earlier This Year Tesco's Fresh & Easy Planning Third San Francisco Store; First Stockton Unit

>March 31, 2009: Despite Having Postponed its Northern California Launch Indefinitely; Tesco's Fresh & Easy Planning Third Store in Modesto, California

>November 12, 2008: Analysis: Hard Times at Fresh & Easy - Northern California Expansion to Be Postponed or Shelved Do to Economy; But its Only a Symptom Not the Cause

>July 23, 2008: Fresno, California Fresh & Easy Grocery Store to Be First in Chain to Include Local, Community and Neighborhood Design Elements and Features

>May 14, 2008: Fresh & Easy Buzz Exclusive: Tesco's Fresh & Easy Neighborhood Market Plans to Open Five Stores In the Fresno, California Metropolitan Region

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

>November 20, 2008: Analysis & Commentary: Fresh & Easy Neighborhood Market and Tesco's Lowered Expectations

>September 29, 2008: Special Report: Wal-Mart, Inc. Studying Second Small-Format Food and Grocery Store Concept; the 'Bodega' or Modern Version of the Corner Grocery Store

>August 8, 2008: Analysis & Commentary: Wal-Mart's Marketside As Part Of it's Multi-Format Category-Killer Strategy Spells Trouble For Tesco's Fresh & Easy

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