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

Northern California Market Special Report
Breaking Buzz

Don't bother asking Fresh & Easy Neighborhood Market if it 'Knows the Way to San Jose.' It does. But so do many of its competitors and future competitors.

Tesco's small-format Fresh & Easy fresh food and grocery chain is planning a third store in San Jose, which is the largest city in the San Francisco Bay Area, with a population pushing one million.

The location of the future San Jose Fresh & Easy market (Fresh & Easy Neighborhood Market store 1184) is at 1328 Saratoga Avenue (Saratoga and Payne), in 'The Plaza Shopping Center.'

Fresh & Easy Neighborhood Market has applied to the California Alcohol Beverage Control department for a general off sale beer and wine sales license (#469249) for the future store. The grocer's application is in the "pending" stage at present. However, unless there's some serious objection by neighborhood residents or the City of San Jose to the offering of beer and wine for sale at the location, gaining approval of the permit shouldn't be a difficulty for Fresh & Easy.

The future store at 1328 Saratoga Avenue makes three units thus far for the grocery chain in San Jose.

Two of the thus far 12 Fresh & Easy stores Tesco plans to open in early 2011 are in San Jose. See story published earlier today for the locations. [September 22, 2010: Fresh & Easy Neighborhood Market Plans to Open Two Additional Stores in Northern California in Early 2011.]

There are currently four major food and grocery stores in the Saratoga and Payne area: A Safeway supermarket, a Trader Joe's, a branch of the Berkeley, California-based salvage and discount grocery chain Grocery Outlet, and a Ranch 99 supermarket. Ranch 99 specializes in Asian foods but also offers a strong selection of basic groceries and fresh foods in its stores.

The Saratoga Avenue location in San Jose is the third new planned Fresh & Easy store in Northern California we've discovered and reported on in the last few months. In this May 29, 2010 story - Going Rural: Fresh & Easy Neighborhood Market to Build First Store in Los Banos, California - we reported on Tesco's plans to build one of its Fresh & Easy markets in the Northern California city of Los Banos, and on August 25, 2010 we reported on the retailer's plans to build a store in Sutter Creek, which is in Amador County, in the Northern California's foothill region. [See - August 25, 2010: Going Rural: New Fresh & Easy Neighborhood Market Store Planned for Sutter Creek in Northern California.]

As we've written previously in Fresh & Easy Buzz, Tesco's Fresh & Easy has a mixed suburban, urban and rural store location strategy in Northern California. For example, the planned new store in San Jose is in an urban setting. Conversely, the Los Banos and Sutter Creek sites are both in smaller, rural towns.

Numerous grocers finding the way to San Jose

Fresh & Easy Neighborhood Market isn't the only grocer with its sites set on San Jose. Below is a summary of a number of other food and grocery retailers who've also 'Found the Way to San Jose':

Walmart Stores, Inc.: Walmart has plans for multiple stores in San Jose for its 20,000 'Neighborhood Market by Walmart' stores, which it plans to open throughout the Bay Area, elsewhere in Northern and Southern California and in other U.S. cities, as we reported in this July 6, 2010 story - July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store.

Kroger Co.: as part of its plans to expand its FoodsCo discount chain in Northern California and the Bay Area, Kroger Co. is looking at store sites in San Jose. [See - 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.

Whole Foods Market: is planning to open its first store in San Jose - in the Blossom Hill neighborhood - in 2011, as we reported in this story earlier this year - 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. Whole Foods is currently searching for additional store locations in San Jose.

Sprouts and Henry's: If that's not enough for San Jose, two new entrants into the Northern California and Bay Area region food and grocery retailing market - Arizona-based Sprouts Farmers Market and Smart & Final-owned Henry's Farmers Market, which is headquartered in Southern California, both have their respective store location sites set on San Jose, as well as in cities throughout Northern California, with a focus on the Bay Area and Sacramento region.

Sprouts opened its first Northern California store, in the South Bay Area city of Sunnyvale (at 111 E El Camino Real), which is near San Jose, on June 2 of this year. [See - June 5, 2010:Sprouts Farmers Market Opens First Northern California Store in Sunnyvale; Strikes Up Partnership With Local Non-Profit Farm] The grocer plans to open a second Bay Area store, a 34,000 square-foot unit in downtown Dublin California in the East Bay Area, in early spring 2011. Sprouts Farmers Market also plans to open a third store in Roseville, near Sacramento, at about the same time next year. More stores are on the way.

Henry's Farmers Market opened its first Northern California unit in Elk Grove, which is also near Sacramento, on August 18. [See - August 17, 2010: Henry's Farmers Market 'Beats' Fresh & Easy Neighborhood Market to Northern California Despite Multi-Year Head Start; Elk Grove Store Opens Tomorrow] Like Sprouts Farmers Market, Henry's is looking for numerous store locations in Northern California, including the Bay Area.

In fact, Henry's plans to open its second store in Northern California, and its first in the Bay Area, in the East Bay city of Walnut Creek next summer. A developer, Hall Equities Group, currently has plans before the City of Walnut Creek for the development of a 2.8 acre parcel in the city, of which a 25,000 square-foot Henry's Farmers Market store would serve as the retail anchor. The Henry's market is planned to go into a vacant building on the parcel which was the former home of co-op grocery store. The developer's plans call for an additional 10,000 square-feet of retail shops to be situated around the anchor Henry's grocery store. The developer's proposal is currently working it's way through the city planning process and should gain approval soon, were told.

Target: Over the last 12 -to- 15 months discount retailer Target has added its 10,000-12,000 square-foot P-Fresh grocery and fresh foods markets-within-a-store, which include produce, meat, perishables, frozen and deli/prepared foods offerings, along with packaged food and grocery items, to seven of its stores in San Jose. This development amounts to about 100,000 new square-feet, but spread out throughout the city, of new food and grocery retailing space in San Jose in a period of about one year.

Safeway Stores, Inc.: Safeway is the food and grocery retail market share leader in San Jose, which is something it's not about to give up without a hearty food fight. It's also the market share leader in the entire nine-county San Francisco Bay Area. Safeway's headquarters is in the East Bay Area city of Pleasanton.

Safeway also opened its second 'The Market' small-format fresh food and grocery store in downtown San Jose in summer 2009. The first 'The Market' format and banner store opened in Long Beach (Southern California) in summer 2008.

The San Jose store is about 24,000 square-feet. The Long Beach 'The Market' unit is 15,000 square-feet. In early 2008, Safeway hired the Cornish & Carey commercial real estate firm to find it a total of five locations for the small format store, all in San Jose and the surrounding South Bay Area. To date, the downtown San Jose store is the only one of the five locations opened by Safeway. The main reason for this is because Safeway CEO Steve Burd has been less than impressed with the performance of the two 'The Market' stores to date.

However, the five 'The Market' locations in the South Bay region were in part inspired as a counter move to Tesco's Fresh & Easy, which at the time planned to start opening its Northern California stores in late 2008/early 2009. As we've written about extensively, Tesco postponed the launch, and now plans to open the first batch of 12 Fresh & Easy stores, including two in San Jose and one in nearby Sunnyvale in early 2011. As such, it will be interesting to see if Safeway goes forward with any of the four locations in the region now that Fresh & Easy plans to open the stores in five to six months.

Safeway's focus in the Bay Area currently is on big stores in the 45,000 -to- 55,000 square-foot range - expanding current smaller stores in major remodels and when building new ones going big. Additionally, with nearly three years observing Fresh & Easy in Southern California, Nevada and Arizona, combined with the fact Tesco continues to loose a couple hundred million dollars a year with the chain, Safeway's sense of urgency about having numerous small-format-killer stores of its own in its home Bay Area region is minimal, compared to what it was in late 2007/early 2008, when the first Fresh & Easy stores were just opening.

Other grocers are also expanding in San Jose, including the Grocery Outlet chain mentioned above, local multi-store independent Zanottos Family Markets and a couple others.

In 1968, singer Dionee Warwick had a huge hit with the song 'Do You Know the Way to San Jose,' written for her by Burt Bacharach and Hal David. When it comes to finding the way to San Jose in 2010, it's clear Tesco's Fresh & Easy, and a whole bunch of other groceries have done so without a doubt.

Our 2010 'Northern California Market Special Report' series

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.]

Breaking Competitor News: Safeway Stores, Inc. Plans to Open A Small-Format 'the market by Vons' Grocery Store in Downtown Los Angeles

Safeway Stores, Inc. plans to open the second or third (see our June 5 report about a potential "the market by Safeway" store in downtown San Jose, California here) store of its small-format (15,000 square foot) "The Market" grocery stores in downtown Los Angeles, Fresh & Easy Buzz has learned.

As we mentioned in our May 15 piece when we were one of the first publications to report on the upcoming grand opening (which Safeway kept under wraps) of Safeway's first small-format store, "the market by Vons," in the Belmont Shores neighborhood in Long Beach (Southern) California (the inside of which is pictured at the the top), the grocery chain had plans to also open "The Market" small-format food stores in urban locations. [Read our report on Safeway's plans to open a "the market by Safeway" in a new high-rise residential development in downtown San Jose in the San Francisco Bay Area here.]

We haven't been able as of yet to determine the precise location of the "market by Vons" store slated for downtown Los Angeles. We have some strong leads from sources but aren't ready to report a location until we are able to further confirm it.

For decades, downtown Los Angeles has been what is termed a "food desert," meaning that the vast urban downtown has been without food and grocery stores that offer a decent selection of basic groceries and fresh foods, especially fresh produce, at affordable prices.

Although the downtown is still underserved by such grocery stores, it's beginning to change primarily as the result of lots of new residential development that's been occurring in the city's urban core in recent years.

For example, a year ago this week, Southern California-based Ralphs supermarkets, which is a banner owned by Kroger Co., opened one of its first new Fresh Fare format supermarkets in what was then a brand new residential loft development in downtown Los Angeles.

The one-year old downtown Los Angeles upscale Ralphs Fresh Fare supermarket at 645 West 9th Street, which isn't a small-format grocery store but rather is a 50,000 square foot urban giant, was the first full-service supermarket to open in downtown Los Angeles in decades.

The Ralphs Fresh Fare stores are more upscale than the Ralphs conventional supermarkets, hundreds of which are located throughout Southern California. And as the "Fresh Fare" name implies, the stores feature an expanded selection of "fresh" foods, including produce, meats, dairy and fresh, prepared foods. The stores also have a greater selection of natural, organic and specialty food and grocery items than conventional Ralphs supermarkets do.

Although Tesco's Fresh & Easy Neighborhood Market is based in Southern California and has stores in Los Angeles, the grocery chain has yet to open one of its small-format (10,000 -to- 13,000 square foot) combination basic grocery and fresh foods markets in downtown Los Angeles. Based on our sources, who are good, Tesco's Fresh & Easy currently doesn't have any downtown Los Angeles stores in the new store opening pipeline either.

Ralphs, and now Safeway Stores, Inc. with its small-format "market by Vons" future downtown Los Angeles store, aren't the only grocers looking to the city's urban core for new business.

Hispanic consumer-focused, family-owned Southern California-based Liborio Market has opened a couple new supermarkets in downtown Los Angeles recently.

Liborio Market opened its first store in Southern California on February 6, 1966 in Los Angeles with $1,400 of initial capital, which was the collective savings of Enrique J. Alejo, Jr., Enrique B. Alejo, Sr., Randy M. Alejo, Berta Alejo and Nancy Alejo. The first store1,200 sq. ft. and had only $800 in beginning inventory, according to members of the family-owned grocer.

Liborio Market currently operates 9 full-sized supermarkets in Southern California, Nevada and Colorado. Two of those 9 supermarkets are in downtown Los Angeles. (five of the 9 stores are in Southern California where the grocer is headquartered.) One of the stores is in Las Vegas, Nevada. The remaining three supermarkets are located in Colorado: one each in Colorado Springs, Aurora and Commerce City.

Although the grocer's stores focus on Latino customers, the downtown Los Angeles stores also offer basic food and grocery items in order to reach the many non-Hispanics who live in the downtown neighborhoods. All of the Liborio Market supermarkets have full-size fresh produce, meat and grocery departments, along with having in-store bakeries and fresh, prepared foods departments.

The majority of the new residential growth in downtown Los Angeles is coming from younger professionals, who are moving into the numerous new multi-unit residential loft, apartment and high-rise condominium developments that have been built in the downtown core in recent years, and continue to be built despite a bit of slowing do to the credit crunch and the poorU.S. and California economies.

These young, mostly college educated professionals are moving to downtown Los Angeles for a variety of reasons, including to be closer to the office buildings where they work, to enjoy the excitement of the urban core, which is becoming an arts and restaurant and club mecca, and for a variety of other personal and professional reasons.

Downtown Los Angeles, as is downtown San Francisco and San Jose in Northern California, is luring numerous retired baby boomers in there late fifties to mid-seventies into the new, upscale lofts and condos rising throughout the city's urban core.

Many retired baby boomers who've lived in the suburbs for decades now find themselves with their children grown and out of the house, retired from their primary careers and perhaps working as consultants or in other second full-time and part time careers (or merely retired), as well as being "house rich" from twenty to thirty years of built-up equity as a result of historically fast-rising California housing values.

Many are "cashing out" and leaving the suburbs for urban centers such as Los Angeles' for a variety of reasons, ranging from desiring a simple change of lifestyle, to being able to be in the center of the city where they can drive less and walk to restaurants, cafes, restaurants and art galleries, for example.

Safeway's fairly upscale "The Market" format food and grocery stores, which feature fresh, prepared foods, fresh produce and meats, along with a selection of basic and natural and specialty food and grocery items, fit this "new urban" lifestyle well, although in the case of downtown Los Angeles, where the majority of residents are still low-income, the store's price points as they currently are in the Long Beach store, will need to come down if the store is going to cater to all levels of income in the downtown Los Angeles neighborhood where it is located.

However, since urban living usually means shopping more frequently because often residents in the urban core walk to the store or take public transportation, the fact that elements of the small-format "The market" format strores are designed for that type of shopping could make it a success in downtown Los Angeles.

Safeway has positioned its "The Market" format stores for "fill-in" shopping since the grocery chain also operates hundreds of full-size supermarkets in Southern California and elsewhere in the United States.

Therefore, unlike Tesco's Fresh & Easy Neighborhood Market, which the retailer has positioned to appeal to all consumers and wants to be used by consumers as a primary shopping neighborhood grocery store, Safeway can live by design with only attracting a certain segment--generally higher income--of consumers. In fact, that's the strategy behind the small-format, fairly upscale "The market" format stores.

To look at it in a related way, Safeway is using a multi-format food retailing strategy, with its "The Market" stores as secondary and tertiary shopping venues (its supermarkets being primary), while Tesco is using a single-format strategy currently, with its small-format Fresh & Easy stores designed to appeal to all shoppers and to be primary and to a limited extend secondary grocery shopping venues.

As we've reported previously, Safeway plans both a suburban and urban strategy in locating its small-format "The Market" food and grocery stores. [The name of the stores depends on the supermarket banner the retailer operates in a given market region. For example, it operates the Vons banner in Southern California. Therefore the stores are called "the market by Vons." In Northern California it uses the Safeway banner. Therefore those stores will be called "the Market by Safeway.]

The future store in downtown Los Angeles, along with the potential store in downtown San Jose we reported on here, demonstrates Safeway plans to put as much emphasis--at least thus far--on urban locations as it does on suburban ones. This makes sense because urban neighborhoods, regardless of demographics, are seriously underserved by quality food and grocery stores.

Tesco's Fresh & Easy realizes this trend as well, which is why it's mixes an urban and suburban store location strategy into its mix in California, Nevada and Arizona.

Small-format food and grocery stores are the ideal urban format. You will see even more urban stores from Safeway and Tesco's Fresh & Easy, as well as from other food retailers; not just in California but throughout the United States.

It's taken the grocery retailing industry a long time to see the potential of urban stores, and the changing suburban to urban demographics have helped that realization along in the last few years. However, numerous major grocery chains and independents are now seeing the potential of opening small-format stores in the city core. In fact, we see opening urban small-format grocery stores of various formats as being on of the top initiatives of the U.S. food and grocery retailing industry over the next few years.

Recent Related Posts 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 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

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.