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

Northern California Market Special Report - San Francisco Bay Area

Safeway Stores, Inc. is planning to break ground soon on its new flagship "Lifestyle" format supermarket in a mixed-use development at Valley Avenue and Bernal Avenue, off reeway I-680, in the grocer's headquarters city of Pleasanton, California, which is in the eastern part of the San Francisco Bay Area. Safeway's corporate campus and Northern California Division offices are in Pleasanton, just a short drive from the Bernal flagship store site. Safeway, which operates about 1,714 stores in the U.S. and Canada, employees about 3,000 at the corporate headquarters.

The new flagship Safeway store will be located on a 12.5 acre parcel which Safeway Stores, Inc. has acquired from San Francisco Bay Area developer South Bay Construction, which is heading up the development at Valley and Bernal avenues. The 12.5 acre retail portion of the development is called the Pleasanton Gateway center

An artist's rendering of the planned Safeway flagship supermarket in Pleasanton, California. [The artist's rendering is by Ken Rodrigues.]

The total mixed-use development parcel is 40 acres. South Bay Construction plans to construct seven office buildings on the remaining 27.5 acres. Homes and apartments have already been build next to the 40-acre parcel, on what is a 370-acre parcel dedicated to residential housing, along with various public facilities being built by the City of Pleasanton. For example, the city build a number of baseball fields for public use on the site last year.

In addition to the new Safeway supermarket, the 12.5 acre parcel owned by Safeway Stores, Inc. is slated to include numerous smaller retail buildings and restaurants. Safeway is developing the 12.5 acres through its in-house development firm, Property Development Centers.

Current plans for the new flagship Safeway store show the supermarket to be about 55,000 -to- 60,000 square-feet. In addition, Safeway is reserving 10,000 square-feet next to the store for future expansion of the store.

The new supermarket will feature all of the newest aspects of Safeway's "Lifestyle" format - its in-store Signature Cafe prepared foods department with a sit-down area for dining, spacious store-within-a-store areas for the grocer's 'O' Organics' and 'Eat Right' organic and healthy foods store brands, numerous bulk features like in-store nut, salad and sandwich bars, a coffee bar as part of the in-store fresh bakery. [See - April 8, 2010: The Branded 'Signature Cafe' in Safeway Stores' Soon to Open 'Social Safeway' in Washington D.C. Should Turn A Few Heads]

The store will also include an in-store pharmacy. Safeway originally planned to include one of its gasoline fueling stations next to the store. However, based in part on objections by local residents and a Shell gasoline station across the street from where the store will stand, the grocery chain has decided not to include it in the development.

Over the last few weeks, David Zylstra, senior vice president of Safeway's Property Development Centers and Scott Trobbe of South Bay Construction, have both made presentations to various groups in Pleasanton about the new flagship store, as well as the 12.5 acre retail portion of the 40-acre development as a whole. Those groups include the city's Chamber of Commerce, the Pleasanton Downtown Association and other neighborhood and business groups in the city.

In those meetings, the two men described the new flagship Safeway supermarket as being similar to the grocery chain's newest "Lifestyle" format stores opened in the nearby cities of Livermore, San Ramon and Alameda. Those stores are the newest "Lifestyle" version, as described earlier. A Fresh & Easy Buzz correspondent attended a couple of those meetings.

The vice president of Safeway Stores' development arm also said in the meetings that Safeway is planning to clear the land for the store on the 12.5 acre parcel and start construction either late this year or in early in 2011. He said the target date to open the new store is before Thanksgiving 2011.

The start date depends on gaining approval first from the Pleasanton Planning Commission and then from the city council. The city's planning commission says it's planning to review Safeway's plans in early September. Planning Commissions in California review and approve or disapprove of such projects. However, their approval isn't legally binding. Once approved, the city council of a given municipality must give the final approval. They can also overturn a planning commission's approval.

Safeway first talked to the City of Pleasanton about the new flagship store in 2008. The grocer has sought input from the city and numerous local groups since then, as it developed its plans for the store. As such, most local observers say they expect approval for the project in fairly short order following the first review by the planning commission in September, as does Zylstra of Safeway's development firm.

The Bernal store will be Safeway's second in its hometown city. The existing Safeway unit is at Santa Rita Road, which is on the other side of the city. The store does well. Safeway has told the city and others it has no plans to close the store when he flagship supermarket opens in 2011.

Tesco's Fresh & Easy Neighborhood Market has one future store site in Pleasanton, not far in fact from the Safeway store on Santa Rita Road. The future Fresh & Easy is in the Rose Pavillion Center, which is at Santa Rita Drive and Rosewood in Pleasanton.

Tesco's Fresh & Easy has not publicly announced or confirmed the Pleasanton store. However it's one of the numerous non-announced or confirmed Northern California Fresh & Easy locations we've reported on. See our April 19, 2009 story here: April 19, 2009 - Tesco's Fresh & Easy Signs Lease For New Store in Pleasanton, CA; We Reported 15 Months Ago the SF Bay Area City Was in its Strategic Sites. Also see the links to the other stores on our April 19, 2009 piece.

As of late April 2010, when a Fresh & Easy Buzz correspondent last visited the future Fresh & Easy Neighborhood Market location in the Rose Pavillion Shopping Center, no remodeling work has been done on the vacant building that's to house the Fresh & Easy store. Sources in Pleasanton tell us that's still the case.

However, the Ranch 99 supermarket mentioned in our April 19, 2009 piece has opened.

Our Safeway Stores' sources tell us that since the new Safeway store is so close to corporate headquarters, meaning frequent visits from company brass when it opens, that nothing will be spared in terms of making the store a showcase flagship store. They also tell us close to 200 employees will be hired to staff the new store when it opens in 2011.

Meanwhile, as we've been reporting on and analyzing in our ongoing "Northern California Market Special Report," series, the market as a whole, with some exceptions, is booming with activity by food and grocery retailers at this point in time. Safeway's plans to open its new flagship supermarket in Pleasanton next year just adds to that boom - and increased competitive activity, particularly in the San Francisco Bay Area region, home to about 7 million people, who all have to shop for groceries and eat.

Below are the stories thus far in our '2010 Northern California Market Special Report' series:

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

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

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

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

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

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

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

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

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

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

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

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

Additionally: Click here to read a selection of past stories on Tesco's Fresh & Easy Neighborhood Market and Northern California. Click the "older posts" link at the bottom of the linked pages for additional posts on the topic.

Friday Frolic: Getting Social at the Georgetown Social Safeway Gala Opening in Washington DC

The expanded and remodeled 71,000 square-foot Georgetown Social Safeway on Wednesday night, all decked out for the VIP gala opening. Double-click on the photo to enlarge it. [Photo Credit: Chris Svetlik, Washingtonian.com.]

Perhaps only in tony Georgetown in Washington DC, the neighborhood where President John F. Kennedy lived in the late 1950's while serving as a U.S. Senator and where he kept his beloved townhouse even after being elected President a few years later and moving into the White House, would women get decked out in expensive designer gowns and stiletto heels and men put on suits and ties for the grand opening of a supermarket.

But Georgetown's Social Safeway, which will now be open seven days a week, 24 hours a day, isn't a mere supermarket. It's a Georgetown, and District-wide, institution. Therefore, holding a "gala in a grocery store" only seems fitting.

The store has been called the Social Safeway since the 1970's because it's a place where single Washingtonians are known to pick up one another, along with a steak, bottle of wine and a bunch of arugula. The residential blocks of Georgetown are filled with couples who met at the Social Safeway.

It's also a store where it's not uncommon to spot a famous, or infamous, Senator pondering the ripeness of the bananas or melons in the produce department (hint: Senator and former 2004 Democratic nominee for President John Kerry lives in Georgetown), or to see a onetime political power broker, now retired, pushing a shopping cart filled with steaks, ice cream, cookies, ready meals - and lots of bottles of wine and spirits.

The Social Safeway is back. And, after having the Safeway store closed for a year for expansion and a complete remodeling, the movers and shakers of Georgetown were ready to welcome back their new, bigger (71,000 square-feet), more upscale and greener "neighborhood" grocery store in a big way on Wednesday night.

And Safeway Stores, Inc. didn't disappoint.

On Wednesday evening (May 5), the night before the Social Safeway's grand reopening yesterday (May 6), the grocery chain threw an invitation-only VIP gala opening party rivaling events and receptions held at the White House or the State Department. There was a jazz orchestra, 10 wine and champagne bars, a Belvedere vodka fountain and brie cheese flown in from Paris, and enough types and varieties of foods and desserts to make even Martha Stewart happy. Not impressed yet? Well, there was a red carpet literally rolled out in front of the store for entering guests, and valet parking was available for those who drove. And we don't want to forget the fancy Safeway-logo ice sculptures, noted by the Washingtonian blog. You can see a photograph of one of the ice sculptures here.

The 650 guests - a who's who of Washington DC's political, lobbying, media, business and social circles - mingled, talked politics and more, just like they would do at a fancy Georgetown cocktail party thrown by social maven and Washington Post society writer and religion columnist Sally Quinn, who lives in the neighborhood. But rather than standing next to one of the impressive works of art at the home of Ms. Quinn and her husband, former Washington Post executive editor and current vice president-at-large, Ben Bradlee - who was best friends with the late President Kennedy - the well dressed men and women did their socializing at the Social Safeway in the produce department, near the in-store sushi and nut bars, next to a display of eggs, and in the store's uber-upscale 'Signature Cafe,' which features flat screen televisions, couches and tables, free WiFi, and an open hearth fireplace, along with fresh, prepared foods of every kind.

We wrote about the Georgetown Social Safeway in this piece - The Branded 'Signature Cafe' in Safeway Stores' Soon to Open 'Social Safeway' in Washington D.C. Should Turn A Few Heads - on April 8, 2010, from the perspective of how the store is Safeway Stores' most ambitious fresh, prepared foods merchandising effort to date.

However, since we do business and merchandising angles better than we do social event stories, although the two are usually linked in real life, we're going to turn the rest of the page (except our concluding paragraph) over to the Washington Post's talented social scene writer Lisa Rein, who attended Wednesday night's VIP gala opening at the greatly expanded and upscaled Social Safeway in Washington DC's Georgetown neighborhood.

>At the link at the end of this sentence you'll find Ms. Rein's story from the Washington Post, "With a VIP gala opening, Georgetown's Social Safeway is back on the market," which details all of the action at Wednesday night's Social Safeway gala opening party. Click here to read the article.

>And since no proper grocery store grand opening gala coverage is complete without pictures, here's a photo gallery-slideshow from the Washington Post of the Wednesday night bash. By the way, you won't find any humans dressed as cartoon characters giving out candy, a staple of supermarket grand openings, in these pictures. [Note: the fellow in the first photo in the gallery - the one wearing glasses, dressed in the dark suit with blue tie, and raising his glass of wine - is Safeway Stores, Inc. CEO Steve Burd. The women in the peach suit next to him, the one drinking champagne instead of wine, is civil rights leader and Washington D.C. Delegate to Congress Eleanor Holmes-Norton. Since District of Columbia doesn't get a Member of Congress like the states' do, she's called a Delegate. She also doesn't get to vote on Congressional bills, like the Members of Congress do. Other than that, she's a member of the club. Can you name any of the others pictured in the photograph?]

>Lastly, since words and pictures don't always tell the complete story, we include this video news report, which offers the sounds of Wednesday night's Georgetown Social Safeway gala opening. Additionally, these two video news reports are done in the store on its grand opening day, Thursday. They feature many of the in-store departments like produce, the Signature Cafe and the nut bar. The video reports are from DC's Fox 5 Television.

In case you're wondering why Safeway Stores' would spend so much money creating a super-upscale, 71,000 square-foot supermarket in Georgetown, at a time when so many American consumers (and most of the everyday residents of DC) are trading down and doing their grocery shopping at discount grocers like Walmart, Aldi, Sav-A-Lot and even dollar format stores, let us remind you - this is Georgetown in Washington DC, where recession or not, if you live in the neighborhood, you're likely to be either a Senator, Washington Lawyer, highly paid lobbyist, business executive, media star, or foreign diplomat. Or if not, are living way beyond your means. And, in many cases, you're also likely to have some connection to the U.S. government, often including a financial one that involves getting paid in one way or another with taxpayer money. So, recession or not, the movers and shakers of Georgetown aren't about to go discount when it comes to grocery shopping. And Safeway is obviously glad they aren't.

The Branded 'Signature Cafe' in Safeway Stores' Soon to Open 'Social Safeway' in Washington D.C. Should Turn A Few Heads

Fresh, Prepared Foods Retailing & Merchandising

Safeway Stores' soon to open (May 6), completely remodeled (now 71,000 square foot) supermarket in Washington D.C's Georgetown neighborhood (pictured above) will include arguably the grocery chain's largest and most elaborate in-store branded "Signature Cafe" deli and fresh, prepared foods store-within-a-store to date.

In fact, take away the dry grocery, non-foods and fresh meat and produce departments, and it looks almost like Safeway's "The Market" prepared foods-focused small store format, two stores of which currently exist in Long Beach (opened in May 2008) and San Jose, California (opened in August 2009) respectively.

Of course, that's no accident: Safeway's Signature Cafe prepared foods brand, which the grocer has now extended as a brand for the deli and prepared foods departments in some of its newest built-from-the-ground-up and remodeled stores, is in large part the inspiration for its "The Market" small-format grocery stores.

And like Walmart, which is branding the deli and prepared foods departments in some of its supercenters and Neighborhood Market supermarkets "Marketside" - named after its small-format, fresh, prepared foods-focused stores and fresh, prepared foods brand of the same name - Safeway has figured out that a grocer doesn't need to build a small-format store all its own to be in the "store branded" ready-to-eat and ready-to-heat fresh foods business.

Rather, since both chains have existing mega-real estate in the form of thousands of U.S. stores, why not put that prepared foods store - be it "Signature Cafe" or "Marketside" - in existing stores, in the form of a branded store-within-a-store deli/prepared foods department and cafe.

The "Signature Cafe" in the soon to open two-story Georgetown Safeway (its Lifestyle format) store (pictured above), also called the "Social Safeway" because of the 'who's who' of Washington DC politicos and others that shop there, is indeed both a real eat-in cafe and a prepared foods store-within-a-store.

It's jam-packed with ready-to-eat and ready-to-heat fresh, prepared foods of all kinds. There's all of the Signature Cafe store brand ready-to-heat packaged entrees and side dishes, merchandised in self-serve refrigerated cases, for example.

There's also fresh, prepared foods (salads, entrees, snacks, sides and more) and deli items (lunch meats, cheeses and the like of every kind) merchandised in bulk, behind full-service cases. It's old fashion deli meets new-age self-serve prepared foods shop.

Add a mini-pizza parlor with fresh baked pizzas, a sandwich bar, and an Italian gelato bar to the mix.

There's also grab and go sections for other foods and beverages, along with separate pay stations, so that customers using the "Signature Cafe" don't have to use the store's central check outs in order to pay for foods they either eat-in or take-out. Think that store-within-a-store concept.

Additionally, there's a modern wood burning fireplace in the "Signature Cafe." Around the fireplace are numerous tables and chairs where customers can sit and eat. There's wide-screen flat-panel television screens and free WiFi in the cafe, which also has a balcony with a view of busy Wisconsin Avenue.

Of course, such features are only fitting for a store nicknamed the "Social Safeway."

Safeway closed the Georgetown store a little over a year ago for the remodeling. When it opens on May 6, we think its "Signature Cafe" deli and fresh, prepared foods store-within-a-store will turn a few heads, including perhaps a few in the food retailing industry.

Safeway CEO Steve Burd Says Fresh, Prepared Foods Sales at $100 Million Annually

Fresh, Prepared Foods Merchandising

Safeway Stores, Inc.'s fresh, prepared foods category is currently doing about $100 million in annual sales in the food retailer's 1,730 supermarkets in the U.S. and Canada, CEO Steve Burd said today during a conference call with analysts.

The conference call today was part of Safeway's reporting of its fourth quarter 2009 earnings. Safeway reported a loss of $1.6 billion for the fourth quarter of 2009, largely on a charge taken for a decrease in the value of its Vons chain (something to watch closely) in Southern California and its Eastern Division chains. Sales for the quarter were down 8.1% over the previous year's quarter. Same-store sales also dropped. You can read the complete details here.

The fresh, prepared foods category at Safeway includes ready-to-eat and ready-to-heat items like entrees, side dishes, pizzas, sandwiches and related items all primarily under the grocer's Signature Cafe store brand, but doesn't include the deli category, which would make the annual sales figure much higher that the $100 million.

In response to this question (in italics) [One category I am interested in, around the trends you are seeing say to the fourth quarter and into the current period. What do prepared foods look like and what kind of price points are people drifting towards?] from analyst Chuck Cerankosky of Northcoast Research, Burd said (in italics):

"Our prepared foods business has actually really done well for us this year. If you go back I think it probably was two investment conferences ago, we actually served a number of our prepared meals to everybody at the investor conference. And at that time we were pretty excited about it and had it in only a sampling at stores.

We struggled to really make that a profitable business because we had relatively short shelf life and we had a lot of shrink. And at that time we probably had a lot of SKU’s. So that business has been completely reengineered giving us extended shelf life without sacrificing quality.

And in that business today we’ve gone from zero to more than $100 million in sales in a relatively short period of time. And so, in terms of overall price point, I’m not sure if those price points have materially changed. We have certain on tray items that are actually designed to feed as many as four people and others design to feed as little as one.

And so the price points can be quite varied. But I think that the vision that we had a couple of years ago has finally been realized and that business is growing nicely."

Although CEO Burd didn't have much to say regarding the price point part of the question, Safeway has been heavily promoting its ready-to-eat and ready-to-heat fresh, prepared foods since about October 2009, according to Fresh & Easy Buzz research and analysis.

For example, we've documented that since that time to this week, Safeway has promoted its Signature Cafe store brand packaged ready-to-heat entrees and side dishes in its weekly advertising circular nearly every week.

The entrees are ad-priced at $3.99 each; the side-dishes at $2.99 each.

Additionally, about once every other week since November 2009, Safeway adds an additional promotional offering on the entrees and sides: If customers buy any combination of three of the entrees and side dishes using their Safeway Club Card, they get an additional $1 off per item, bringing the sale price on the entrees to $2.99 each and $1.99 each on the side dishes.

Further, each week Safeway runs a hot buy of $5 on a fully-prepared family size center-of-the-plate meat item that feeds 3-4 people. Those items include boneless turkey breast, whole roasted chicken, fried chicken, St. Louis Style Smokehouse Ribs and a couple additional offerings. Each of the about five items are rotated in the ad weekly. For example, this week's offering is either a 24oz (for 3-4 people) Signature Cafe Roasted Turkey Breast or Turkey Pot Roast for $5

The grocery chain also frequently does the same thing with a family-sized non-meat entree, such as a pasta meal. In this week's advertising circular Safeway is offering a number of varieties of 32.5-38.5 ounce ready-to-heat Signature Cafe Pasta Meals at $8.99 each. The pasta meals are very similar to those sold at Tesco's Fresh & Easy stores.

As part of its heavy promotion of fresh, prepared foods, Safeway also has been offering weekly one or two ready-to-eat hot or cold sandwiches at price points of $3.99 and $4.99, depending on the variety and size of the sandwich. This week it has a new item for $3.99 - a BBQ Tri-Tip sandwich on a french roll.

The grocer also offers additional prepared food items like its Signature Cafe Take-and-Bake Pizzas and other ready-to-eat and ready-to-heat items regularly in the ads.

At least one Signature Cafe ready-to-eat salad item is run bi-weekly and often weekly in the advertising circular. And in the fall and winter Safeway has been running its Signature Cafe prepared soups on ad about twice a month.

Lastly, Safeway has been frequently offering various prepared foods full meal-deals like the chicken, side dish and rolls promotion for $9.99 pictured at left. Safeway partners with a vendor, in this case King's Hawaiian Bread, for these promotions. The vendors offer promotional monies which Safeway then puts into the promotional discounts on its prepared foods items.

On average, Safeway runs about 8-10 prepared foods items in the ad circular each week.

So as you can see, in terms of price points, Safeway is focusing on some strong fresh, prepared foods category promotion as a way to keep retail prices at the lower-end on a variety of items on a regular basis. The best evidence of this is its near-weekly promotion and advertising of the Signature Cafe packaged entrees and side dishes.

From a merchandising and marketing perspective this makes sense because in the recession shoppers aren't willing to pay much of a premium for prepared foods. However, priced right, considerably below restaurant take-out for example, prepared foods sales at supermarkets can be brisk.

Safeway continues to develop new packaged and bulk ready-to-eat and ready-to-heat fresh, prepared foods items and add the new SKUs in its stores.

Unlike Tesco's fresh & easy, Safeway merchandises fresh, prepared foods in both packaged and bulk/deli style forms.

As we first wrote about in early 2008 here and here, Safeway Stores, Inc. owns a restaurant in Redwood City, California named Citrine, which the grocery chain uses as its fresh, prepared foods research and development lab.

Safeway doesn't own Citrine, which it opened in 2007, because it wants to be a player in the restaurant business. The restaurant's chefs develop recipes, get feedback from restaurant patrons, and then Safeway turns the recipes into prepared foods items to be sold in its supermarkets.

We recently were told by a source at Safeway in a position to know that the retailer is currently working on a number of new fresh, prepared foods items to go under its Signature Cafe brand. The primary focus of the new prepared foods items in development is value - larger family-sizes of high-quality but at affordable price points - the source tells Fresh & Easy Buzz.

Safeway Stores, Inc. is the fifth-largest food and grocery retailer in the United States. Walmart Stores, Inc. is number one, Costco Wholesale is ranked second, followed by Kroger Co. and Supervalu, Inc.

Competitor News: Safeway Stores, Inc. Confirms Second Small-Format 'The Market' Unit to Be in San Jose, CA; Fresh & Easy Buzz Nailed it in June, 2008

Pleasanton, California-based Safeway Stores, Inc., which operates about 1,715 supermarkets in the U.S. and Canada, with about 1,000 of those stores located in the Western U.S., today publicly confirmed to Fresh & Easy Buzz a couple news reports published on January 27-28 in two San Francisco Bay Area , California newspapers (and way back in June, 2008 in Fresh & Easy Buzz) that it plans to open its second "The Market" small-format food and grocery store this summer. Those reports are here: Safeway to move into San Jose's 88 tower (Biz Journal); and here: Safeway coming to downtown San Jose, officials say (San Jose Mercury News).

The about 24,000 square foot store, to be called "the market by Safeway," will be located in downtown San Jose, California. It will be the ground-floor retail anchor of the "88," a new condominium tower (pictured at the top) located on San Fernando and Second Streets in the city's downtown, as we reported in our June, 2008 story. Safeway plans to open the store in the building in the mid-to-late summer of this year, it confirmed today.

Fresh & Easy Buzz nailed the San Jose 'The Market' in June, 2008 story

But this development shouldn't be a surprise to Fresh & Easy Buzz readers. We reported the news that Safeway was planning to open its second "The Market" small-format food and grocery market in the downtown San Jose condominium tower in this story [Breaking News: Safeway Stores, Inc. Nearing Negotiation End-Game For its Second Small-Format 'The Market' Store Site; This One in San Jose, California] on June 5, 2008. We even included a picture of the condo tower -- the one at the top of this story -- in the piece.

Additionally, It was over a year ago in January, 2008 when we first reported Safeway Stores, Inc. had hired the San Jose-based Cornish & Cary commercial real estate firm to locate about five sites in the Bay Area for the supermarket chain's initial "The Market" format stores in the region. We identified downtown San Jose as one of five potential sites then, naming the specific site later and then reporting and writing about it more fully in June, 2008.

The downtown San Jose condominium tower site will be the first Northern California or Bay Area site where Safeway will open one if its "The Market" small-format stores. As we've reported on and written about, the grocery chain's first "The Market" format store, "the market by Vons," opened in the fall of 2008 in Long Beach, in Southern California. Safeway is headquartered in the San Francisco Bay Area city of Pleasanton, which is about a 45 minute drive from San Jose.

As we reported in our June, 2008 story about the downtown San Jose "the market by Safeway," it will be bigger than the "market by Vons" in Long Beach. That's because the Long Beach store went into an existing, older and smaller Vons banner supermarket. The San Jose space is being designed from the ground-up in existing retail space on at the bottom of the condominium tower. The Long Beach small-format store is about 15,000 square feet. Plans call for the San Jose "The Market" format store to be about 24,000 square feet, which is still much smaller than the average new Safeway supermarket, which ranges from 45,000 -to- 60,000 square feet.

The San Jose "the market by Safeway" also will feature some expanded sections, particularly basic grocery, produce, meat and non-foods, as compared to the Long Beach "The Market" format store. The reason for this is because although there is a supermarket just a half-block away from where "the market by Safeway" will be located in downtown San Jose, that supermarket, a Zanotto's store, has an upscale and specialty focus, although it also stocks a selection of basic food and grocery products. Zanotto's is a well-established, longtime multi-store independent grocery chain based not far from San Jose in the coastal city of Scott's Valley, California.

In this early December, 2008 story we wrote about how Safeway CEO Steve Burd said the supermarket chain was learning much about small-format food retailing from the Long Beach store. We can tell readers that Safeway plans to put much of what it's learned thus far from that store into changes in the San Jose "the market by Safeway" when it opens this summer. One hint from some recent reporting: Look for a greater selection of basic food and grocery items at value-oriented prices in the downtown San Jose "The market" store, as compared to the Long Beach, California "the market by Vons."

Having "the market by Safeway" so close to its downtown San Jose store could be a problem for Zanottos. The store has struggles in the location and even received a subsidy from the city's redevelopment agency in order to open in 1997.

Safeway continues to plan to open additional small-format "The Market" stores in the San Francisco Bay Area, as well as in Southern California. The retailer is taking a slow and cautious approach its "The Market", using it as fill-in type format while remaining focused on its Lifestyle format supermarkets in terms of its primary retailing focus. [Read the December 12, 2008 story linked below for further details.]

We will have additional reporting, writing and analysis on Safeway's "The Market" and the upcoming new downtown San Jose, California store in a soon to come story.

Linkage - Below are some past, related posts from Fresh & Easy Buzz on Safeway's "The Market."

[December 12, 2008: Competitor News: Safeway CEO Steve Burd Says Small-Format 'The Market' Is 'Good' So Far But Not 'Great;' But Must Be 'Great' in Order To Expand...

June 5, 2008: Breaking News: Safeway Stores, Inc. Nearing Negotiation End-Game For its Second Small-Format 'The Market' Store Site; This One in San Jose, California... March 5, 2008: New Details and Analysis About Safeway's Small-Format Summer SF Bay Area Surprise for Tesco's Fresh & Easy Neighborhood Market...

May 15, 2008: Breaking News: Safeway Opens its First Small-Format 'The Market' Grocery Store Today in Long Beach, California... July 25, 2008: Breaking Competitor News: Safeway Stores, Inc. Plans to Open A Small-Format 'the market by Vons' Grocery Store in Downtown Los Angeles...

July 8, 2008: Southern California Market Report: Safeway Stores,'the market by Vons' Mass-Mails First Advertising and Promotional Flyer to Vons Club Card Members... June 6, 2008: More on Safeway's 'The Market' Format: 20-Year Food Retailing Industry Vet Offers Observations and Analysis on 'the Market by Vons,' Long Beach, CA.]

Competitor News: Safeway CEO Steve Burd Says Small-Format 'The Market' Is 'Good' So Far But Not 'Great;' But Must Be 'Great' in Order To Expand

Safeway Stores, Inc. chairman, president and CEO Steve Burd (pictured above) offered an approximate eight month assessment of the chain's small-format store test, "the market by Vons", in Long Beach, California, which opened in May of this year, last Thursday during a meeting with analysts at Safeway headquarters in Pleasanton, California (San Francisco Bay Area.)

Burd's assessment thus far of the single test store of the grocer's "The market" format: "good, not great," Burd said on Thursday.

He said the Long Beach store is doing well but isn't setting the house of Safeway on fire, essentially.

Burd says Safeway will open at least two more of the small-format "The Market" stores next year. One of those two stores will be in a converted retail building, the other will be a built from the ground-up store, Burd said.

We believe the new construction store will be at this location in San Jose, California or this one in downtown Los Angeles, or both. which we broke the news on and wrote about earlier this year.

Burd said at the meeting that once the additional two "The Market" format stores are open, "unless the results go from 'good to great' and we feel we can open 30 to 50 of these per year, it won't make enough difference for these stores to be more than an experiment."

Burd's saying this about "The Market" shouldn't come as a shock to anybody, especially regular readers of Fresh & Easy Buzz. We've been writing all along since first reporting last year on Safeway's small-format development that it's an experiment and a test for the supermarket chain, which operates about 1,750 supermarkets under various banners in the U.S. and Canada, and is now ranked as the number four retailer of food and groceries in the U.S., after Wal-Mart, Kroger Co. and Costco.

Safeway's food and grocery retailing focus will continue to be on its Lifestyle format supermarkets. Burd said the company has nearly completed converting all of its supermarkets into its Lifestyle format, which combines discount retailing with a more upscale flair. The supermarkets are customized (we call it mass customization), ranging for being fairly mainstream to being super upscale, depending on the demographics and other criteria of the particular community and neighborhood the store goes into.

Burd also said at the analysts meeting that Safeway will further step-up its value proposition beginning early next year when it will make additional price cuts across all categories on numerous items in its supermarkets.

He also said the aggressive promotional programs, which even include the fresh, prepared and specialty foods categories in the stores, will continue and probably intensify beginning early next year.

Burd said Safeway "will survive" the recession in better shape than some of the price operators who are thriving now. "Recessions are temporary, and strong companies weather the downturns better than weaker companies," he told analysts.

"Some people on Wall Street have questioned whether we have the right strategy for a recession. But we believe you build a strategy to create long-term shareholder value, not to deal with a recession," Burd said.

So far he appears to be correct as Safeway has been doing fairly well despite the recession, thanks though in large part to the fact the grocer recognized the economic downturn early in 2008 and rapidly began expanding its value proposition.

CEO Burd told analysts that Safeway projects 2009 earnings per share of $2.34 to $2.44 and non-fuel ID sales growth of 2% to 3%.

"We believe that, despite all the price investments we plan, we will still be able to expand operating margins," Burd commented.

Reader Resource

Links to some past stories on Safeway's "The Market" from Fresh & Easy Buzz:

May 15, 2008: Breaking News: Safeway Opens its First Small-Format 'The Market' Grocery Store Today in Long Beach, California... June 5, 2008: Breaking News: Safeway Stores, Inc. Nearing Negotiation End-Game For its Second Small-Format 'The Market' Store Site; This One in San Jose, California... July 25, 2008: Breaking Competitor News: Safeway Stores, Inc. Plans to Open A Small-Format 'the market by Vons' Grocery Store in Downtown Los Angeles...

July 8, 2008: Southern California Market Report: Safeway Stores,'the market by Vons' Mass-Mails First Advertising and Promotional Flyer to Vons Club Card Members...July 16, 2008: Former NBA Great Earvin 'Magic' Johnson is Working His Business Magic in Urban, Inner City Neighborhoods; We Offer An Idea For Tesco's Fresh & Easy... June 6, 2008: More on Safeway's 'The Market' Format: 20-Year Food Retailing Industry Vet Offers Observations and Analysis on 'the Market by Vons,' Long Beach, CA

Competitor News: Safeway Stores, Inc. launches its Own Commercial Real Estate Development Division; CEO Burd Says Bad Times Offer Opportunity

Pleasanton, California (San Francisco Bay Area)-based Safeway Stores, Inc., which operates about 1,750 supermarkets under various banners in the U.S. and Canada, including over 500 supermarkets under the Safeway and Vons banners in California, Nevada and Arizona where Tesco's Fresh & Easy Neighborhood Market has its stores, has created a new real estate development division and business that has so far reviewed 36 projects for possible development and is working actively on a handful of the projects, company CEO Steve Burd (picture at top) told analysts during an investor conference last Thursday at Safeway headquarters.

"The opportunities [to develop undervalued real estate] are pretty extraordinary right now for people who can step up to the table", Burd said at the meeting. In other words, Safeway sees the current economic downtown as an opportunity in the commercial real estate space for the company.

The Safeway CEO offered an example of the type of projects Safeway is reviewing. For example, one project "might be" Safeway developing a shopping center where it operates a grocery store, and leasing or selling the retail space surrounding the store. Safeway Stores, Inc. would retain ownership of its grocery store in that center, according to Burd.

The new commercial real estate development business is part of Safeway's expansion beyond its core food and grocery retailing business under Burd's leadership as CEO.

For example, the company created its Blackhawk gift-card business, which started as a small in-house gift card marketing business, selling Safeway store and third-party gift cards in the chain's supermarkets. Blackhawk has now grown into one of the largest gift-card marketing companies in the U.S., marketing and selling third-party gift cards to retail chains nationally as well as via the Internet.

Additionally, earlier this year Safeway created a brand marketing and distribution arm in which it is marketing its O' Organics and Eating Right store brand food and grocery products to other retailers and grocery wholesalers in the U.S., as well as globally.

O' Organics has sales in Safeway supermarkets in the U.S. and Canada of about $500 million. Eating Right is approaching that same sales volume. To put that in scale compared to Tesco's Fresh & Easy in the Western U.S., sales at the grocery chain's about 103 grocery markets are currently in the $400 million range, which is about $100 million less than the 2008 sales of Safeway's O' Organics store brand in its supermarkets. That's not a knock on Fresh & Easy -- it's a start up venture. Rather its merely a comparison in scale to on of the big chains it is competing directly against.

France's Carrefour chain, the number two global retailer after Wal-Mart (Tesco is number three globally) already is selling many of the O' Organics branded items in its stores in Asia. Safeway will soon announce additional retailers outside the U.S., along with some in the U.S., that will offer the brand, along with the Eating Right brand, in their stores.

This summer Safeway created a corporate health care subsidiary based on the programs the retailer has implemented within the company that have resulted in substantial health care cost savings for Safeway, which offers health care plans to all of its employees.

Add the commercial real estate division to this fast-growing non core retailing aspect of Safeway Stores, Inc.

Safeway owns lots of real estate, especially in California and elsewhere in the Western USA. The grocery chain also develops lots of real estate by virtue of the fact its supermarkets generally serve as retail anchors in shopping centers. As a result, it makes logical sense for the company to get into the commercial real estate business since the synergies with its core supermarket retailing business are obvious.

As Burd mentioned at the analysts meeting last Thursday, part of the motivation for getting Safeway into the commercial real estate business has to do with the numerous undervalued properties available at present, with the financial crisis and economic recession in full bloom. Additionally, the residential foreclosure crisis has spread significantly into the commercial sector, particularly in the Western U.S., which means there currently are numerous properties on the market at deep discounts.

Big supermarket chains like Safeway, Tesco, and others are at an advantage because the business generates lots of cash flow compared to other types of businesses, as well as compared to other forms of retailing. Therefore this cash flow makes it easier for the big chains to have cash available to invest in areas like commercial property development.

Further, having its own commercial real estate arm offers some real cost savings for Safeway in terms of developing new retail store sites and now in creating new shopping centers in which it can anchor with its supermarkets.

Halloween 2008: A 'Great Pumpkin' You Likley Won't Find in the Supermarket Produce Department This Halloween; Or Ever

Every October for the last 35 years, San Francisco Bay Area-based Safeway Stores, Inc. sponsors the Half Moon Bay Pumpkin Weigh-Off competition in that coastal city in the Bay Area.

Safeway, which operates over 600 supermarkets in California, Nevada and Arizona (and nearly another 1,200 more throughout the U.S. and Canada), awards the first-place winner of the Pumpkin-growing competition grand prize money of $6 per pound for the winning mega-gourd. The grocery chain also awards prize money to the top finalists.

That can be lots of money since the winners are really giant pumpkins.

The food and grocery industry Blog Natural~Specialty Foods Memo has a piece today -- Halloween 2008 -- about the 2008 Safeway-sponsored Half Moon Bay, California Pumpkin Weigh-in competition and it's winners (including the grand prize winner), which you can read by clicking the link here.

The winner and his giant pumpkin is pictured at the top of this post. But you have to read the story at the link in order to find out his name, how big of a winning pumpkin he produced, and how much in grand-prize money he won.

Trick or Treat ...

Happy Halloween!

Southern California Market Report: Safeway Stores,'the market by Vons' Mass-Mails First Advertising and Promotional Flyer to Vons Club Card Members

Safeway Stores, Inc. has mass-mailed its first promotional flyer for its first small-format grocery store, "the market at Vons," which opened in Long Beach, California in May.

The advertising sheet, which was mass mailed to members of Vons' Club Card who live not only in the neighborhood where the store is located but also to residents who live a considerable distance away from the grocery store, introduces the Long Beach small-format grocery market as "Your neighborhood store (that) offers the best of everything."

The front of the advertising flyer, as you can see in the photograph at the top, features a picture of a bicycle with a basket full of groceries on it, with the tag line: "a refreshingly simple way to shop." The picture reinforces the messages of simplicity, conveniece, neighborhood, community, and the environment.

The messages are then elaborated on inside the flyer, pictured directly below, along with featuring items at promotional prices.

Below is the full text or copy inside of the mass-mailed promotional flyer:

welcome

Your neighborhood store offers only the best of everything.

a refreshingly simple way to shop

The Market by Vons is designed with a simple layout, so its easy to find what you're looking for. It's the perfect place for you're "fill-in" shopping or to grab a quick and delicious meal or snack.

the big little store

We offer a wide range of products, including fresh produce, meat and seafood, ready-to-enjoy meals, freshly baked goods and other everyday basics. So you can find everything you need but less of the things you don't, like long lines and 12 different kinds of ketchup.

no extra charge for convenience

You can expect the same great service and everyday value prices you'll find at Vons.

we want to be a responsible neighbor

Our store is 100% wind powered and is actively involved in programs that benefit our community.

have a taste

We offer samplings of our products daily. We'd like to help you discover what's in store in a delicious way.

Safeway is offering 10% off every item in "the market by Vons" small-format grocery store in the advertising flyer for the entire month of July.

In addition to the across the board 10%-off deal, the flyer promotion offers five features at fairly substantial discounts above 10%. These features are: A package of Safeway's private label Eating Right healthy brand fresh mixed lettuce greens, offered for free with no minimum purchase; $2-off any of Safeway's popular O' Organics store brand organic food and grocery items in the store; $3 off of the regular price of Safeway's Signature Cafe in-store roasted ready-to-eat whole chickens; and two deals on wines.

Safeway's Southern California Vons division has preloaded these promotions into all of the Vons Club Cards so that when shoppers purchase the items at the Long Beach "the market by Vons" store the promotional prices will automatically be reflected at the point-of-sale.

In the advertising flyer, under the "a refreshingly simple way to shop" header, Safeway mentions "The Market" is great for "your fill-in shopping." This is the retailer's positioning of the small-format "The Market" stores as we first reported here.

Unlike Tesco's Fresh & Easy Neighborhood Market, which is positioning its small-format (10,000 -to- 13,000 square foot) Fresh & Easy combination basic grocery and fresh foods Fresh & Easy stores as everyday or primary shopping neighborhood grocery markets, Safeway is positioning its "The Market" small-format (15,000 -to- 20,000 square foot stores) as more upscale, "fill-in " shopping venues as part of a multi-format strategy. In Southern California that multi-format strategy including Vons supermarkets and superstores, Vons Pavilions supermarkets, which have an upscale and specialty foods focus, and now the small-format "The Market" format, the first store of which is "the market by Vons" in Long Beach.

The Long Beach "The Market" store has come under some criticism since opening in May for having prices which some shoppers say are just too high in general, while others have commented the small-format store's prices are higher than those at traditional Vons supermarkets in Southern California.

Fresh & Easy Buzz has learned two things in this regard.

First, Safeway is adjusting the pricing in the Long Beach "market by Vons" store to make sure its generally in line with the everyday pricing at nearby Vons supermarkets.

Second, we've learned Safeway plans to mass mail flyers like this first one on a regular basis in order to create a value proposition for "The Market," along with positioning the format as convenient, quality and community-oriented.

In the mass-mailed advertising piece, Safeway says the Long Beach store is powered 100% by renewable wind power. The grocery chain is achieving this by buying wind power credits for 100% of all the energy the store consumes. Safeway has been doing this for some time for the stores throughout the U.S. in which it operates fueling or gas stations alongside the supermarkets. Every Safeway fueling center is powered by wind energy in the form of Safeway buying wind power credits equally the energy used by those gas stations.

As Safeway opens more "The Market" format stores, the retailer plans to put a major emphasis on the dual and compatible concepts of the environment and community with the small-format stores.

Green issues are front and center currently at Safeway. In addition to the wind power credits, Safeway is in the process of putting solar panel arrays on about 35 of its supermarkets in Northern California. The solar panels are designed to provide about 35% of a stores total energy use. Additional panels are set to be installed on more stores in Northern California as well as on a number of stores in Southern California.

Safeway also is converting its entire trucking fleet from traditional fossil based diesel fuel to biodiesel fuel, made from vegetable oils. The retailer initiated this program last year, before the price of diesel fuel soared, primarily for environmental reasons. However, with diesel fuel edging towards $6 a gallon, the economics of converting its huge trucking fleet to biodiesel should pay off well for the grocery chain much faster than it anticipated they would.

More on Safeway's 'The Market' Format: 20-Year Food Retailing Industry Vet Offers Observations and Analysis on 'the Market by Vons,' Long Beach, CA

Inside Safeway's 15,000 square foot "the Market by Vons" in Long Beach, California. The store, the first of the small-format, opened on May 15.

On May 15, we wrote this piece about the grand opening of Safeway Stores, Inc.'s first "The Market" small-format (15,000 square feet) food and grocery store in Long Beach in Southern California, called "the Market by Vons." The format averages 15,000 -to- 20,000 square feet.

Yesterday, we reported Safeway is in negotiations with the developer of a 22 story high rise condominium tower in downtown San Jose, California in the San Francisco Bay Area to put its second "The Market" format store on the ground floor of that residential building, as the retail anchor for the development.

Today, we bring you the observations and analysis of "the Market by Vons," Safeway's first small-footprint food and grocery store, in Long Beach, California.

The piece below is written by a 20-year retail food and grocery industry veteran, and regular Fresh & Easy Buzz reader and correspondent. The analysis was offered to Fresh & Easy Buzz via email based on our request of the writer to visit the store and offer our readers his observations and analysis. The writer is active in the retail food industry in Southern California at present, so asked we not use his name, which we are honoring.

Below in italics are the industry veteran's observations and partial analysis of Safeway's "the Market by Vons," which opened a little over two weeks ago in Long Beach, California. The piece was written on June 3, based on a June 2, 2008 visit to the store:

I went into "the Market by Vons in Long Beach yesterday....interesting store, but I really don't think it will compete that much with F&E (or Trader Joe's) unless they really start expanding and promoting their ready meals and carry more healthy products.

Here are my observations:

There wasn't very good signage over the prepared meals: salads, entree's, etc.

They really need to promote the fact that the products are fresh and were created by their restaurant chef .

I did like the presentation of the salads, especially the large round bowls and the safety seal that said "handcrafted."

The rest of the prepared meal presentation was just "OK" and I feel they really need to tout the fact that they were created by a chef.

I also don't think they will compete with F&E unless they do more organic and healthy entrees without preservatives. By the way...the code date on the salads (at "the Market by Vons") were 6/3...so I know there has been a lot of complaints about the short shelf life on F&E products...but the salads only had 1 day shelf life remaining. In addition, I couldn't find any code dates on the entrees, so I'm not sure if this is a good or bad thing in the eyes of the consumer.

I really liked all the tasting stations scattered about the store. In addition, all the employees were very friendly and made a special effort of saying "hi, can I help you." It actually almost felt like overkill, like there were too many employees with not enough to do. [Fresh & Easy Buzz Editor's note: Safeway Stores, Inc. has a corporate policy, which started in the late 1990's, in which every employee must say hello to every customer that employee comes into contact in the store.]

I did like how they presented the produce "in the round." It seemed pretty easy to find the produce you were looking for and everything looked fresh.

As for the dry grocery items...again, I was surprised by the lack of healthy products. Most of the products were run of the mill top brands, and very little private label. Once again, if they want to compete with F&E or trader Joe's (and who said they did?), then I think they need to have more unique healthy products in the store. They most certainly have a larger sku count then F&E does because their shelving is higher and not as deep, and they are displaying the product out of the case.

I did find the checkout rather confusing. They had self checkout and service checkout, but it was confusing because at the beginning they had a roped off section and it was hard to tell which line you needed to get into for which. It looks like they decided to go with about 50% self-checkout and 50% service checkout. I went with the service checkout (in retrospect I wish I had gone with the self so I could see how easy it was), but I got in the wrong line!

I found the pricing to be higher than a typical Vons' supermarket (maybe my imagination), and higher than F&E. But if the product was on promotion, it seemed closer to the F&E pricing.

I thought the atmosphere was very nice in the store, low mellow music (not sure if F&E is still piping in loud music in the stores, but I personally don't like it). Overall, I really felt 'the Market by Vons" in Long Beach was pretty much just a grocery store shrunk down with a few nice benefits (tasting stations, bread cutting, etc).

Fresh & Easy Buzz will be publishing additional observations and analysis--including an original piece we are working on based on two long visits to "the Market by Vons" to date--in the upcoming days. Stay tuned.

Breaking News: Safeway Stores, Inc. Nearing Negotiation End-Game For its Second Small-Format 'The Market' Store Site; This One in San Jose, California

Safeway Stores, Inc. is negotiating with the developer of the 88, a new 22-story high-rise condominium tower (pictured at left) in downtown San Jose, in Northern California's San Francisco Bay Area, to put one of its new "The Market" small-format grocery stores on the ground floor of the urban residential tower, Fresh & Easy Buzz has learned.

The 88 high-rise residential tower, located on San Fernando Street in downtown San Jose, is being developed by a partnership of San Francisco-based WMS Group and CIM Group. The residential tower will open this month.

Despite the residential housing bust hitting most parts of the U.S., downtown San Jose is experienced a boom, with about 1,000 new residential units coming on line in the last year. There are about 4,000 more in various stages of development for the downtown.

Safeway isn't confirming the negotiations with the high-rise condominium developer.

However, Fresh & Easy Buzz has checked with two commercial real estate industry sources in the region--one was the one who gave us the initial tip about Safeway looking for locations in the San Jose area for a small-format grocery store concept which we published in a piece in December, 2007--and both confirmed Safeway and the developer of the 88 urban residential tower in downtown San Jose are negotiating over Safeway's putting a "The Market" small-format grocery store on the building's ground floor to serve as the retail anchor of the project.

Additionally, we talked with the real estate agent selling units in the new condominium project. She confirmed the negotiations were going on and said she has told potential residents that what she called a "mini Safeway" was likely going to anchor the building's ground floor.

As we reported in January, Safeway Stores, Inc. hired the Cornish & Carey commercial real estate firm to find the grocery chain up to an initial five locations in the South Bay Area region for its "The Market" format stores. It looks like the new 88 condominium high-rise residential tower in downtown San Jose will become one of those five sites, based on the information our sources have provided. [Read a recent, March, 2008, update on Safeway's small-format activity here. This was before the first "The Market" store opened in Long Beach, California two weeks ago.

As we reported on May 15 here, Safeway opened its first small-format "The Market" format store in Long Beach in Southern California on May 15. That 15,000 square foot store, called "the Market by Vons" because Vons is the banner Safeway operates in Southern California, is located in a former Vons supermarket building which the grocer decided not to convert to its Lifestyle supermarket format--which it's doing to all of its supermarkets in the U.S.

Tesco's Fresh & Easy Neighborhood Market plans to open 18 of its small-format, combination grocery and fresh foods grocery markets in the San Francisco Bay Area beginning either at the end of this year or more likely in early 2009. The leases for the 18 stores are inked, and the stores are being either built or empty buildings the retailer acquired for the stores are in the process of being renovated for the Fresh & Easy format.

Nearly all of the produce items merchandised in the Long Beach, California "the Market by Vons" are bulk, unlike Tesco's Fresh & Easy Neighborhood Market, which pre-packages nearly all of its produce in plastic tubs or plastic bags.

Four of the 18 Bay Area Fresh & Easy stores will be in the South Bay region: two in San Jose, one in nearby Sunnyvale, and one in Mountain view.

Inside "the Market by Vons," Long Beach, California. the design and merchandising scheme pictured above is the basic interior package for Safeway's "The Market" format.

During the grand opening of "the Market by Vons" in Long Beach on May 15, Safeway Stores' Rojan Hasker, president of Lifestyle stores and new concepts for the grocery chain, said the retailer is currently looking at an initial 25 locations to start for its small-format grocery stores. Not all those locations will be in California. Some also will be in the food retailer's other market regions such as Arizona, the Pacific Northwest, Colorado and elsewhere.

The "Signature Cafe," like the one pictured above in the Long Beach, California "the Market by Vons," is fresh, prepared foods central in the small-format food stores.

The way "The Market" format stores will work is they get their full name based on the banner Safeway operates in a particular market, hence "the Market by Vons" in Southern California. In Northern California, as well as in the Pacific Northwest, Colorado, Arizona and the Washington D.C./Maryland/Virgina region, all markets where Safeway operates under the "Safeway" banner, the small-format stores, which average about 15,000 -to- 20,000 square feet, will be called "the Market by Safeway." In Chicago they will be "the Market by Dominick's;" in Alaska "the Market by Carrs," and so on.

The Long Beach "the Market by Vons" is getting a generally positive but also somewhat mixed reaction by customers. Most store shoppers we've spoken with say they like the format, it's design, feel and ambiance. Most also said they liked the product selection: a combination of basic store brand and national brand grocery items, specialty, natural and organic foods, fresh produce and meats, cheeses, wines and some non-foods items. "The Market" format also has a cafe called the "Signature Cafe," which is the name of Safeway's upscale store branded fresh, prepared foods items sold in its Lifestyle format supermarkets. The cafe features fresh, prepared foods for take out.

Specialty and gourmet cheeses are merchandised in display cases like the one pictured above in the Long Beach, California "the Market by Vons," in Safeway's "The Market" small-format grocery stores.

A number of customers of "the Market by Vons" weren't too pleased with the pricing however, saying it is much higher than Trader Joe's or Tesco's Fresh & Easy in their analysis. A few even mentioned they thought the pricing higher than a traditional Vons supermarket in Southern California.

We compared the prices on some items from "the Market by Vons" with those at a Trader Joe's outlet and a Tesco Fresh & Easy store not to far away from the Long Beach store. The prices on "the Market by Vons" items were higher; about 13% higher than the comparable items at Trader Joe's and about 15% higher than those comparable items at Fresh & Easy.

Safeway's 15,000 square foot "The Market" format grocery stores, like in "the Market by Vons" in Long Beach, California pictured above, feature wood burning hearths in-store in the bakery area. The hearths are used to bake fresh bread, cooked-to-order pizzas and other prepared foods items right in-store.

However, "The Market" format is much more upscale than either Trader Joe's or Fresh & Easy. It's a small-format extension of Safeway's evolving Lifestyle format, which is looking more like a Whole Foods Market store with each new Lifestyle format store the retailer opens. Therefore, we aren't sure of Safeway is too concerned that their prices are 15% or so higher than the two small-format food and grocery retailers mentioned above. While we were in the store, a number of shoppers referred to it as a "mini Whole Foods market."

In fact, Safeway's communications vice president Brain Dowling told us the positioning of "The Market" small-format stores is as secondary, "fill-in" shopping venues rather than as primary ones like Tesco wants its Fresh & Easy small-format grocery stores to be, or as specialty and natural foods category-killer store like Trader Joe's markets are.

And of course, the first store, "the Market by Vons" in Long Beach, has only been open about two weeks, which gives Safeway plenty of time to play around with its retail pricing scheme, as well as the format's merchandising selection, just like Tesco's Fresh & Easy Neighborhood Market is doing.

Photo Credits: From top-to-bottom. The first "the Market by Vons" photo is courtesy: Los Angeles Times. The remaining "the Market by Vons" photos are courtesy: Orange County Register.

What Others Are Saying: The LA Times on Safeway's New Small-Format 'Market by Vons' Grocery Store in Long Beach, California

Above is a photograph of the inside of the Long Beach the Market by Vons. Notice a couple things: The fresh produce in the store is bulk and displayed farmers' market style--as is the norm in California food retailing--rather than packaged like it is at Tesco's small-format Fresh & Easy grocery stores. Second: notice the store shelving/gondolas. The shelving is more high-profile, modern-supermarket-style rather than the warehouse store-type shelving Fresh & Easy stores use. The end-caps in Safeway's "The Market" format stores, like this one, also are made of wood, which is stained a deep, rich color. (Photo: Rick Loomis. Courtesy: Los Angeles Times.)

On Thursday, May 15 Fresh & Easy Buzz reported on the opening of Safeway Stores, Inc's first small-format grocery store, it's 15,000 square foot the Market By Vons, in Long Beach, California.

Read our breaking news piece, "Safeway Opens its First Small-Format 'The Market' Grocery Store Today in Long Beach, California here.

Today's (Saturday, May 17) edition of the Los Angeles Times has a story in the business section by business staff writer Jerry Hirsch about the store, which as we wrote in our piece is located in an older Vons supermarket which Safeway decided was too small and out of date to turn into one of its Lifestyle format supermarkets.

The Market by Vons is located on Ocean Blvd. in the Belmont Shore neighborhood in Long Beach.

Rather than attempt to convert the older Vons supermarket into a Lifestyle format Vons, Safeway decided to remodel it and convert it into its first "The Market" small-format, basic grocery, specialty and fresh, prepared foods grocery store.

Safeway will be converting other such stores in its market regions to the small-footprint, somewhat upscale "The Market" format. For example, in Northern California, the Pacific Northwest, Arizona and Colorado, the stores will be called the "Market by Safeway." In other regions like Chicago, the "Market by Dominick's," and the like, depending on the particular retail banner the grocery chain operates in a given market region.

The stores are sort of a hybrid basic grocery store, fresh, prepared foods and specialty foods' market, similar to Tesco's Fresh & Easy, but also different in look and kind.

In terms of the upscale and specialty products category perspective, Safeway has lots of experience in the categories from operating its Vons' Pavillions format supermarkets in Southern California for many years.

The Pavillions' banner stores, which Safeway obtained when it acquired the Vons chain and has continued to open additional supermarkets under the banner since then, also was in-part one of the inspirations for the food and grocery retailer's Lifestyle format, which it's in the processing of converting--except those stores it turns into "The Market" or decides to close--all 1,740-plus of its supermarkets in the U.S and Canada into. The retailer has converted about 70% of its total supermarkets into Lifestyle format stores to date.

There are numerous synergies between the Lifestyle format--which is a mix of basic food and grocery products value-priced, along with fresh, prepared foods and specialty, natural and organic offerings, with a big emphasis on "fresh," including produce and meats.

Read today's LA Times story, "Safeway Tries Downsizing to Better Fit Local Needs," here.

Arizona's Shopper and Employee-Beloved Bashas' Named One of 'The Best' Places to Work in the State For Second Year in a Row

Arizona's Bashas' Family of Stores, a multi-format supermarket retailer that operates about 159 stores in every county of the state (including few stores in New Mexico and one in Needles, in Southern California) was named yesterday as "one of the best places to work in Arizona" in an annual statewide employee survey conducted by the Phoenix Business Journal and Best CompaniesAZ, an Arizona-based human resources consulting firm.

It was the second year in a row the family-owned and operated supermarket chain was named one of the best places to work at in the Southwestern U.S. state. Bashas' also was the only retail grocery company to make the "best places to work" list this year.

Bashas' was founded 76 years ago in 1932 by brothers Ike and Eddy Basha Sr. That was a tough year to start a company of any kind in Arizona, or any place in America for that matter, since in 1932 the United States was in the midst of the Great Depression.

In part, the Arizona supermarket chain's depression era founding--and not only survival but ability to thrive for 76 years in one of the most competitive grocery markets in the nation--set the foundation for today's Bashas'.

Despite trying their best, U.S. national supermarket chains like Safeway Stores, Inc. and Albertsons (now part of SuperValu, Inc.) haven't been able to use their much larger size, capitalization and greater resources to diminish Bashas' position and reputation as the state's top grocer, neck-in-neck with Safeway for market share supremacy.

The Arizona best places to work list winners get named to the list as a result of votes by company employees who work for the companies that are nominated. In other words, its Bashas' employees who named the grocery chain one of the "best places to work" in Arizona.

Here's how it works: A firm called Quantum Market Research, Inc. conducts surveys of employees of Arizona-based companies, asking employees questions about the various companies' work environments, the workers' opportunities for personal growth and development, corporate human resources practices, and how the company values their (employee)personal contributions and embraces new ideas and innovations. The employees don't reveal their names on the survey questionnaires to help ensure truthfulness and protect the workers' privacy.

Quantum Market Research then independently analyzes and tabulates the employer survey questionnaires. In order to be named "one of the best places to work in Arizona," a company must receive a total score of 80% (out of 100%) from the employee survey results.

"The real honor (of being on the "best" list) is that our employees had the ultimate say in this award," says Mike Gantt, Phoenix-based Bashas' corporate senior vice president of human resources.

"It's wonderful to know they are satisfied with a well-balanced work environment that addresses both their professional and personal needs. Everyone benefits from this type of environment--our employees, our customers, and the communities we serve," Gantt added.

Bashas', the region's competitive environment, and Tesco's Fresh & Easy

Arizona's Phoenix Metropolitan and East Valley region is one of the three target markets (the others being Southern California and Metro Las Vegas, Nevada) where Tesco's Fresh & Easy Neighborhood Market has thus far opened a total of 61 stores. Currently there are 17 of the small-format (10,000 -to- 13,000 square feet), convenience-oriented combination basic grocery and fresh foods grocery markets in the Phoenix Metro/East Valley region. Tesco plans on opening at least 15 more of the Fresh & Easy stores in the market area before the end of this year.

Since Arizona, including the Phoenix Metro/Easy Valley region, is Bashas' home turf, it's been watching Tesco's Fresh & Easy closely. Thus far, in off-the-record conversations we've had with two Bashas' executives, we've been told the family-owned locally-based supermarket chain has yet to see "any appreciable" "Fresh & Easy effect" in terms of diminished sales in its stores.

These comments from the Bashas' people seem legitimate as we've also had conversations with numerous members of the Arizona Retailers Association (the state's trade group for grocery retailers of all sizes), local food brokers and grocery industry regional sales managers, and others who live and work in the region, and none of them have told us they've observed any significant shift in business as of yet as a result of the 17 Fresh & Easy grocery markets being in the market.

The Arizona grocery company is a multi-format supermarket chain. In addition to its flagship Bashas' banner stores, which are conventional, multi-category supermarkets and superstores, the retailer also operates: AJ Fine Foods, which is an upscale, premium and specialty supermarket format; Ike's Farmers' Market, a natural and health foods-oriented format; Food City, which is an ethnic supermarket geared-towards and targeting Hispanics or Latinos; and Sportsman's Wines, an upscale wine, beer, spirits and specialty foods' chain which Bashas' recently acquired from its owners.

Bashas' multi-format Arizona strategy has been very savvy. For example, it acquired AJ's Fine Foods--which was the state's leading privately-held, multi-store independent specialty, gourmet and natural foods grocer--as a way to establish a position in upscale food retailing. Since acquiring the small grocery chain a few year's ago, Bashas' has continued to add stores, primarily in the Metro Phoenix area.

Additionally, located on the border with Mexico, Arizona has on of the highest per-capita Hispanic-American populations in the U.S. Latinos also are the fastest growing ethnic group in the U.S., and are growing at an even faster-rate in Arizona than in all other U.S. states except California.

Bashas' creation of its Food City format, designed and positioned directly at Hispanics, was a smart move in capturing the substantial (and growing) Latino consumer food dollar in Arizona. Further, since Hispanic Americans on average spend far more of their income on food and groceries than any other ethnic group in the U.S., the Food City format offers excellent growth opportunities for the grocery chain corporately.

The grocery retailer's newest format, the Ike's Farmers Market natural foods stores, also positions the grocer to cash-in on the growing movement towards natural foods in the Arizona Market, as well as protect itself from Whole Foods Market, Sunflower Farmers Market and Sprouts Farmers Market, three natural and organic foods grocers who've built numerous stores in Arizona in the last few years.

Lastly, like AJ's Fine Foods, Sportsman's Wines, which is a recent acquisition for Bashas', is a long time popular beverage (with some specialty foods) retailer in the state. It's considered to be the premiere retailer of fine wines, micro-brewed beers and spirits in Arizona.

In addition to providing obvious synergies with upscale grocery chain AJ's, the Sportsman's Wines' addition allows the grocery chain to diversify into the category-killer beverage segment, while using the category expertise of the Sportsman's team, which the supermarket chain kept on, for all of its stores, regardless of format.

One of the primary reasons Bashas' is so successful in Arizona despite strong competition from the Safeway's and Albertsons' of the U.S. grocery retailing world, who are 10 to- 12 times its size, is because it permeates everything it does--from operations and merchandising, to employment practices and marketing--with "localism."

An intense focus on local history, culture, practices and demographics, regardless if a chain is from another country, is a national U.S. chain with stores in the region but headquartered thousands of miles away, or is a hometown-based one, is a key element in U.S. grocery retailing.

For example, it's no accident many of the market share leading supermarket chains in the western U.S. regions where Tesco has its Fresh & Easy stores aren't the U.S. mega-grocers like Kroger, SuperValu and Safeway (all which have major operations in Arizona, California and Nevada) and do practice a degree of local marketing everywhere they have stores) but the smaller, privately-held regional grocery chains like Bashas' in Arizona, Stater Bros. in Southern California, Raleys in Northern California's Sacramento region and Northern Nevada, and Save Mart in Northern California's Central Valley.

Each of the four regional chains mentioned above is the number one or two market share leader in its respective region. Take Southern California as an example. Safeway's Vons and Kroger's Ralphs Grocery Co. are the number one and two market share leaders in all of Southern California. However, in the huge Inland Empire region (which is bigger geographically than many European countries) regional Stater Bros. controls the grocery sales market share.

Northern California is a similar case. San Francisco Bay Area-based Safeway Stores, Inc. is clearly the 7-million resident-strong Bay Area's number one grocery chain (Save Mart's Lucky banner is second).

However, in the nearby Sacramento region (about 2.5 million people) local chain Raleys, with 130 stores and sales of about $3.5 billion, is number one. Further, just down the road in the Northern San Joaquin Valley counties of San Joaquin, Stanislaus and Merced (about 1.5 million residents total) Modesto-based (Stanislaus County) Save Mart, Inc., which has over 400 stores and about $6.3 billion in annual sales, is the number one supermarket chain in market share.

Bashas tells us it has no plans to rest on its "one of the best places to work in Arizona" laurels, nor that it's slowing up its multi-format growth plans.

The Arizona grocery chain plans to open a number of new Bashas' banner supermarkets before the year is out, along with another new upscale AJ's, at least one and likely two Ike's Farmers' Markets, and more Hispanic consumer targeted Food City supermarkets, along with at least one new Sportsman's Wines shop.

This is in a market--Arizona generally and specifically the Phoenix Metro and East Valley region--that's among the top-five most competitive in the U.S. In addition to Bashas', Safeway has nearly 200 stores in the state, Wal-Mart has a number of its Supercenters in Arizona and about 20 of its 43,000 square foot Neighborhood Market supermarkets, and plans to open the first four -to- five of its brand new small-format Marketside grocery stores in the Phoenix area this summer.

Let's not forget Albertsons either, which is a major player in Arizona. Then there's Trader Joe's, the earlier mentioned Sprouts Farmers Markets and Sunflower Farmers Markets--both of which have recently launched major new store opening programs in the state--along with numerous independents who are very competitive.

Lastly--but far from least--is Costco Wholesale, which continues to take a bigger share of the grocery sales market from retailers of all formats in Arizona and elsewhere in the western U.S. Of course--there's also mass merchandisers Target and Kmart, a few drug chains which sell lots of grocery products in their scores of stores, more ethnic supermarkets...very competitive.

This is the competitive environment Fresh & Easy is up against currently in Arizona. As a start up and the retail child of an overseas company, Fresh & Easy is going to have to really step it up on all fronts to succeed in Arizona, home of local guy Bashas' and all the other retailers who are trying to make a success of grocery retailing in this supercharged grocery market.