One-Year On: Bristol Farms Adds 4,500 New Natural, Organic, Local and Gluten-Free Items to its Stores

Click on the letter above from CEO Kevin Davis to enlarge it.

Southern California Market Region

It's been about one year since Bristol Farms' senior management team and the private equity firm Endeavour Capital acquired the Southern California-based specialty grocery chain from Supervalu, Inc., which obtained the trend-setting upscale chain some years' earlier as part of its buyout, in partnership with the Cerberus private equity firm, CVS Pharmacy and a couple other players, of Boise, Idaho-based Albertson's Inc.

As we wrote about in detail in this story last year - October 29, 2010: CEO Kevin Davis, Execs and Investment Firm Buy Upscale Southern California Bristol Farms Chain From Supervalu, Inc. - the deal to buy Bristol Farms from parent Supervalu was quarter-backed by CEO and President Kevin Davis, who spent many years at the specialty grocery chain while it went through numerous ownership changes.

Davis has an extensive background in the food-grocery retailing business in Southern California, including working as a store manager, district manager, corporate vice president of sales/advertising and senior vice president of marketing at Ralphs, which is the largest grocery chain in the region.

Kevin Davis joined Bristol Farms after leaving Ralphs, which he first joined in 1974 as a retail grocery clerk. Kroger Co. bought the Ralphs and the Food 4 Less chains in Southern California from billionaire supermarket industry investment guru Ron Burkle in the 1980's.

This month, a year after he, his management team and the investment firm took over ownership of Bristol Farms, Davis is announcing what he says is the launching of the specialty grocery chain's "most important change to our merchandising plan in our 28 year history."

That change, Davis says in a letter to customers and potential customers featured at the top of this week's Bristol Farms' advertising circular (see at top), is the "adding of over 4,500 new organic, natural, local and gluten-free products, combined with more specials and more everyday values on key brands throughout the store."

"We’ve added more shelves, more items, more variety, and more value to the extraordinary products and unique Bristol style customer service our shoppers expect and deserve," Davis writes in the letter addressed to shoppers included in this week's (November 16-29) advertising circular, and posted at the top of this story.

The addition of the 4,500 new organic, natural, local and gluten-free SKUs into the 13 Bristol Farms stores (12 in Southern California and one in San Francisco) looks to be completed, based on visits we've made to three stores over the last couple weeks, and conversations with workers in those stores. Bristol Farms also operates a natural foods store in Santa Barbara under the Lazy Acres name.

Davis also wrote a brief post on the Bristol Farms company blog on November 8 announcing the merchandising initiative. The content of the advertising message to customers in this week's ad circular is taken from that post.

Bristol Farms has also unveiled the special logo - "Great Taste Just Got Better: More Organics, More Natural, More Local and More Value! - (pictured at top) as a way to tout and promote the addition of the 4,500 new SKUs in the respective product categories noted above.

The logo is being used throughout the grocer's stores, as well as on its website and in printed media materials.

The addition of the 4,500 new natural, organic, locally-produced and gluten-free products is a natural for Bristol Farms because the small chain's focus since the first store was opened in 1982 in Rolling Hills, California, has been on the specialty-natural-organic-fresh foods niches.

In its early days Bristol Farms became best-known for the numerous specialty and gourmet groceries it stocked in the stores, along with its extensive and high-quality fresh-prepared foods offering. Scouting and introducing unique specialty and gourmet food products remains something Bristol farms prides itself on doing.

The grocer built on this positioning and added more and more natural and organic products into the 1990's.

The 1990's, however, brought major new store growth to Southern California from natural-organic grocery chains like Whole Foods Market, Wild Oats Markets (now part of Whole Foods) and its Henry's Farmers Market chain (now part of Sprouts Farmers Market), along with others, therefore making Bristol Farms' specialty grocer niche one that's today occupied by a lot of competitors, including Whole Foods, Trader Joe's, Gelsons, Sprouts and others, such as Tesco's Fresh & Easy, which has opened 105 stores in Southern California since November 2007, and is increasingly being positioned by Tesco as a specialty grocery chain.

A focus on "local" in general, not just offering locally-produced products, has also been a hallmark of Bristol Farms popularity in Southern California.

For example, in 2000 when Bristol Farms' acquired the old Chasen's restaurant building in Beverly Hills/West Los Angeles, which was known as the gathering place for Hollywood's biggest stars, it incorporated many of the  famed eating and watering hole's existing design elements into the store it constructed , and that still stands at the location, including keeping the high-backed leather booths Chasen's was famous for, and re-using them in the store's restaurant-dining area. About a half-century ago then actor and future President Ronald Reagan proposed to his second wife, actress Nancy Davis (no relation to Kevin we're told), who became First Lady, while sitting in one of those booths during dinner at Chasen's.

A year earlier, in 1999 Bristol Farms acquired another landmark business, this one in Hollywood. The grocer retained many local elements of that landmark business, the former Chalet Gourmet, in the design of its grocery store at the location in Hollywood.

Earlier this year Kevin Davis said, in relation to the acquisition of Bristol Farms from Supervalu

He also said at the time the now "locally-owned" grocer was interested in opening additional locations in Northern California, where there's just one store in San Francisco, if the right location were to come along.

Our 'The Insider' columnist offered one suggestion for Bristol Farms' in Northern California in his May 30, 2011 column here. Andronico's new owners, Renovco Capital, which finalized its acquisition of the grocer at the end of October and is working fast and hard to turn the six-store San Francico Bay Area operation around, might be interested in talking turkey down the road.

The San Francisco Bristol Farms store is inside the big, vertical San Francisco Centre shopping mall on Market Street downtown. The store's focus in more on ready-to-eat and ready-to-heat fresh-prepared foods than it is on groceries, although it includes a small assortment of groceries, fresh foods and perishables. There's also seating inside the store, where breakfast, lunch and dinner is offered to eating-in as well as for take-out.

Since the October 2010 buyout, Bristol Farms has also been improving and beefing-up its in-store deli/fresh-prepared foods offering, which was already extensive. For example, the grocer recently introduced a new line of high protein and fiber-packed ready-to-eat "energy salads," featuring varieties like Italian Salad with Middle Eastern Couscous, Wheatberry Salad, Quinoa Salad and Edamame Tofu Salad.

Fresh bakery is another department where Bristol Farms has over the decades created a signature image. It was one of the first grocers in Southern California, for example, to introduce a full line of in-store baked fresh artisan breads, doing so in the 1980's.

Another in-store bakery feature Bristol Farms started many years ago - and it should use it more aggressively in its current marketing and merchandising efforts, in our analysis - is its "One of A Kind" baked goods program, in which it creates and offers a unique item that's generally not available at any of its competitors. A few of its "One of A Kind' baked goods items have included: Texas Chocolate Cake, Carrot and Pumpkin Cake, Bristol Farms' Gourmet Brownies and various unique varieties of fresh-baked scones.

Bristol Farms is also expanding its private brand program, developing and introducing more products under its "Bristol Farms" brand, such as a line of cookies it debuted this summer, which feature conventional varieties like chocolate chip, ginger, snickerdoodle and iced oatmeal, along with two certified organic vanilla and lemon wafers.

The specialty grocery chain also recently introduced a new line or organic fruit preserves under its "Bristol Farms" brand, and has expanded its own-brand line of organic herbs and spices as well.

The grocer is also branding many fresh meat, pork and poultry items under the "Bristol's Own" private brand, which is a new and more aggressive branding effort than its made with the categories in the past.

Bristol Farms finds itself independent and in a very competitive niche in Southern California.

Not only are there numerous grocers like Whole Foods, Trader Joe's, Tesco's Fresh & Easy, Gelsons and Sprouts focusing today on the specialty, natural, organic, fresh food and gluten-free categories - and have their own brands of products in the respective categories along with selling manufacturers' brands - the once very niche categories have become much more mainstream, which is why Safeway Stores, Inc., for example, features an extensive selection of specialty, natural and organic foods in its Lifestyle format Vons stores and more-upscale Vons Pavilions markets in Southern California, as does Kroger-owned Ralphs in its same-banner stores, as well as in its more-upscale Ralphs Fresh Fare units.

Both the Safeway and Kroger-owned chains (Vons and Ralphs, which are the top two grocers in the region) feature their own brands of organic, natural and premium food and grocery products as well. Supervalu-owned Albertsons, the third-largest grocery chain in Southern California by market share, also offers its own brand, Wild Harvest, of natural and organic food and grocery products.

Bristol Farms, now celebrating its first year of independence from Supervalu, Inc., has to carve out its own niche in competitive Southern California, having on one side the giants - Safeway (Vons), Kroger (Ralphs), Supervalu (Albertsons) - each offering a strong assortment of private-brand and manufacturer-branded specialty and organic foods in each of their respective chains - while the numerous specialty grocers in the market region - Whole Foods, Sprouts, Trader Joe's, Gelsons, Fresh & Easy and others - push at it with similar positioning and product offerings from the other end.

As a result, it's worth watching what Bristol Farms' management team, 17 members of which are now owners as well as employees, does in the coming year or two to attempt to differentiate the grocer from the specialty format-focused competitors noted above and others, while at the same time offering consumers a reason to shop at its stores, even though increasingly many of the same products it offers are available at the thousands of mainstream supermarkets and other format food and grocery stores in the region.

Supervalu-Owned Cub Foods Chain Parades its Lumberjack-Size Shopping Cart Down the Streets of Stillwater, Minnesota Today

The giant shopping cart in today's Lumberjack Days' parade.

The Sunday Supplement: Grocers Need to Go Big or Go Home When in the River City of Stillwater, Minnesota

Giant grocery shopping carts as promotional "vehicles" for grocery chains might just be the new black.

For example, we wrote about Modesto, California-based Save Mart Supemarkets' giant "Hot Rod" shopping cart in this June 28, 2011 story: Gentlemen ... Start Your Grocery Cart: Save Mart Supermarkets Goes 'Big' With 12-Foot High Motorized Shopping Cart. [Also see this related story - June 29, 2011: Save Mart Supermarkets Signs On For Five More Years' of NASCAR Sponsorship.]

The 12-foot-high Save Mart shopping cart (pictured here), which is nicknamed "Big Red" and called "Piccinini's Pride" by some Save Mart insiders (Bob Piccinini is the majority-owner, chairman and CEO of the 240-store supermarket chain) is powered by a 454 cubic inch Chevy racing engine. It can hold three grown men inside the basket, with enough room leftover for a few kids and  numerous bags of groceries.

Save Mart's "Hot Rod" cart has been making the rounds to various events in Northern California this summer (see the stories linked above), a well as stopping off at a few of the grocer's Save Mart and Lucky banner stores in the region.

The giant shopping cart's next major appearance is in August, when it will take center stage at the popular Hot August Nights celebration in Reno, Nevada, where Save Mart operates stores in addition to Northern California and California's Central Valley.

Cub Foods' 'Lumberjack-size' shopping card a parade hit

Today in Stillwater, Minnesota, thousands of miles from Modesto, California were Save Mart Supermarkets' is headquartered, Cub Foods, a local chain owned and operated by Eden Prairie, Minnesota-based Supervalu, Inc. unveiled its own giant grocery shopping cart - racing motor not included - at the annual Lumberjack Days Grand Parade in Stillwater, which is located on the St. Croix River.

Supervalu, Inc.-owned Cub Foods operates 69 supermarkets in Minnesota, Wisconsin and Illinois. Of those units 58 stores are in Minnesota's Minneapolis-St. Paul metropolitan area. The small River City of Stillwater, which has 18,000 residents, is located 20 miles east of downtown St. Paul.

The Cub Foods' giant shopping cart is actually a parade float, as you can see in the photograph at the top of this piece.

The cart is motorized. But unlike the 454 Chevy engine on Save Mart's "Hot Rod" cart, which CEO Bob Piccinini told us in June allows it to hit upwards of 100 miles-an-hour (if anyone is crazy enough to attempt it), the Supervalu-owned chain's version instead has a tiny motor that moves the float/cart along at a standard parade speed or pace.

Notice the over-sized food and grocery product packages in Cub Foods' giant shopping cart pictured at top? A Supervalu, Inc. spokesperson says the big cart plus the big grocery product packages featured inside it "equals big savings," which at least is the message the grocery chain says it wanted to get across in today's parade, along with having a little fun.

We do know the fun part was experienced because according to a group of parade spectators we talked to today, the giant shopping cart appeared to receive a good deal of attention and created lots of smiles among parade-goers, the viewers told us.

The annual Lumberjack Days Grand Parade is part of an event-packed five day festival in Stillwater, Minnesota called Lumberjack Days. You can see just how event and activity-packed the annual celebration of the city's heritage is by taking a look at its website here.

A number of residents of Stillwater and the surrounding area were concerned that the fast-rising St. Croix River might interfere with this year's Lumberjack Days celebration and parade, particularly after the city had five inches of rain on Friday, July 19.

But event organizer Dave Eckberg says there was no way he and his team were going to allow heavy rains and a rising river to stop the popular annual celebration of the city's heritage, which has as its title sponsor this year Supervalu, Inc. competitor Walmart Stores, Inc.

A little irony: Supervalu, Inc. is headquartered in nearby Eden Prairie, Minnesota. It's not only the dominant grocer in the state but also one of the top employers in Minnesota. It's the home state grocery chain. 

It's CEO, Craig Herkert, was a senior executive at Bentonville, Arkansas-based Walmart Stores, Inc. before taking the top spot at Supervalu, which owns Cub Foods and other chains like Albertsons, Save-A-Lot, Shaw's and numerous others.

One of the key states Walmart's U.S. division is putting a major focus on in terms of growing its food and grocery retailing presence nationally is Minnesota, which is the major reason it's the top-sponsor of Lumerjack Days this year. Walmart is the market share leading seller of groceries in the U.S. Supervalue, Inc. is neck-to-neck with Safeway for the number four slot. Kroger is number two. Costco is number three.

On Friday July 19th Lumberjack Days' organizer Eckberg said, "We're not compromising the event in any way. We're actually really excited about the possibilities [presented by the rising river]. The concert venue is moving west, away from the the river about 200 feet. We're clearing three parking lots and closing off most of Water Street. We'll still be right downtown, East of main Street and all events remain on schedule."

That's a spirit the town's original Lumberjacks would be proud to know still exists in Stillwater.

And we bet Supervalu's Cub Foods' chain would like to see some of that "can do" spirit in its stores, with locals filling regular-sized shopping carts to the brim, having been inspired by viewing the Supervalu-owned chain's Giant shopping cart float in today's Lumberjack Days parade.

CEO Kevin Davis, Execs and Investment Firm Buy Upscale Southern California Bristol Farms Chain From Supervalu, Inc.

Actress Halle Berry, who's a regular customer at the Hollywood, California Bristol Farms store at 7880 West Sunset Boulevard, will likely be happy to learn the upscale grocery chain isn't going away and is now back in local control. The photo of the casually dressed actress leaving the store was taken on June 3, 2010 by Hollywood celebrity blogger JustJared.com. You can see the Bristol Farms logo on the grocery bags in her cart. Ms. Berry appears to be a paper and not plastic (or reusable) user when it comes to her grocery bag of choice. Based on the contents of her shopping cart, Halle Berry also appears to be a good customer for the upscale grocer when it comes to the house plant category.

From Twitter-to-the-Blog: Southern California Market Region Report

On July 22, 2010 we tweeted the following (reproduced in italics below) to Natalie Berg, an analyst with London-based retail research firm Planet Retail. The Tweet: @Natalie_Berg: Keep it under your beret: There is some talk about a possible senior exec w/investor or a grocery wholesaler participation buyout of BF (Bristol Farms) 3:09 PM Jul 22nd]

Our Tweet was in response to one Ms. Berg, who covers both the UK and U.S. retailing scenes for Planet Retail (and who offers insightful Tweets), posted on July 13, in which she wrote: "@Natalie_Berg Just updated SuperValu forecasts. Bristol Farms now classified as "other" and they are quietly selling off stores. Do I smell a divestment? 8:23 AM Jul 13th."

Then Supervalu, Inc.-owned Bristol Farms didn't sell any stores in 2010 but it has closed four stores in Southern California since it acquired the chain in 2006 from then Boise, Idaho-based Albertsons Inc. Those stores were located in Valencia, Woodland Hills, Redondo Beach and Mission Viejo.

Today Supervalu, Inc. announced it has sold the upscale 14-store Bristol Farms division to chairman, president and CEO Kevin Davis and a group comprised of 17 other executives and management members, who've acquired the division in partnership with private equity firm Endeavour Capital, which takes its name from the H.M.S. Endeavour, the ship that was piloted by noted explorer James Cook. Endeavor Capital has offices in Portland, Oregon, Seattle, Washington and Los Angeles. The new ownership team takes over today, Supervalu said.

Thirteen of the 14 stores operate under the Bristol Farms banner. One is a Lazy Acres banner natural foods market. It's in Santa Barbara. Twelve of the Bristol Farms banner stores are in Southern California. One Bristol Farms store is located in the Westfield San Francisco Centre at 845 Market street in downtown San Francisco.

Supervalu operated Bristol Farms, which is headquartered in the Southern California city of Carson, as an autonomous division, hence Kevin Davis' various senior-level titles.

Bristol Farms has also operated independently from Supervalu in terms of its procurement, continuing its previous policy of buying from Southern California-based retailer-owned cooperative grocery wholesaler Unified Grocers. Under its new ownership, Bristol Farms' CEO Davis says it will continue its long relationship with Unified, which he has been a board member of in the past.

Davis, along with Bristol Farms' executive vice president Sam Masterson and the 16 other employees will own a percentage of the specialty grocery chain along with Endeavour Capital, which has a track record of investing in grocery chains like Idaho-based WinCo Foods, Oregon-based New Seasons Market and others. [The private equity firm's investment portfolio is a varied one. You can view the companies it's invested in here.]

Interestingly, both WinCo Foods, which Endeavour Capital sold its stake in earlier this year, and New Seasons, which the firm invested in only last year, are both employee-owned food retailers, as Bristol Farms now is, at least to a limited degree (18 employees). WinCo has been employee-owned (except for a small percentage which is held by investors) for many years. New Seasons changed from private ownership to employee-ownership earlier this year.

Kevin Davis has been with Bristol Farms, which was founded by partners Irv Gronsky and Mike Burbank with a single store in Rolling Hills, California in 1982, for 14-years. Early in his career at Bristol Farms Davis was the head-buyer/merchandiser for the upscale Southern California grocery chain, which is a pioneer in specialty grocery retailing not only in Southern California but nationally.

Davis has an extensive background in the food retailing business in Southern California, including working as a store manager, district manager, corporate vice president of sales and advertising and senior vice president of marketing at Ralphs, which is the largest grocery chain in the region. He first went to work as a grocery clerk for Ralphs in 1974.

Bristol Farms has been the step-child of its two most recent corporate owners - Boise, Idaho-based Albertsons Inc., followed by Supervalu, which obtained Bristol Farms as part of its 2006 joint-acquisition of Albertson's Inc. in partnership with private equity firm Cerberus Capital Management. Cerberus owns Albertsons LLC. For example, the Albertsons stores in Southern California are owned and operated by Supervalu, Inc. But the Albertsons stores in Arizona are a part of Cerebus' Albertsons LLC.

Albertsons Inc., which is now part of Supervalu, Inc., bought Bristol Farms in 2004 from Los Angeles-based investment firm Oaktree Capital Management For $137 million, specifically as a play to enter the upscale specialty food retailing niche.

At the time the then Boise, Idaho-based chain said it planned to grow Bristol Farms not only in Southern California but would expand it geographically into other parts of the U.S. However, those plans never materialized. In the two years it owned the specialty grocery chain, Albertsons Inc. opened a few new Bristol Farms stores in Southern California and bought the Lazy Acres store in Santa Barbara (in 2005). But only one Bristol Farms' store opened outside of Southern California, the unit in San Francisco, which was opened in 2006, shortly before Albertsons Inc. was acquired by Supervalu and Cerberus.

When Supervalu, Inc. obtained Bristol Farms in the Albertsons Inc. acquisition, it too talked about expanding the upscale chain, both in terms of opening new stores in Southern California and in Northern California and potentially expanding geographically. That never happened either under its ownership. From 2006-2010 three former Southern California Albertsons units - in the Westchester neighborhood in Los Angeles, Palm Desert and La Jolla - were converted to Bristol Farms stores, and a new store in Valencia was opened in November 2008, but that's about it in terms of expansion. The Valencia store was closed in late February of this year due to poor performance

At its high point, Bristol Farms operated 17 stores under the banner of the same name. The closing of the four stores - Valencia, Woodland Hills, Redondo Beach and Mission Viejo - brought the store count down to the current 13 Bristol Farms units.

Being free from Supervalu's corporate ownership should allow Kevin Davis and company to get back to what Bristol Farms historically has done well: Innovative specialty food retailing with an independent grocer's local touch. The Bristol Farms stores offer a full-selection of basic food and grocery items but put a major focus on specialty, gourmet and natural food and grocery offerings across all categories, including fresh-prepared foods.

With its backing from Endeavour Capital we also expect to see Bristol Farms' selectively open new stores in a measured way, primarily in Southern California but perhaps out of the region as well. For example, Davis has long been interested in Northern California. And with just one store in the region, in San Francisco, there's certainly plenty of room to grow, particularly in the San Francisco Bay Area where Bristol Farms' brand of upscale specialty food retailing has a following in selected, higher-income communities and neighborhoods.

Additionally, with only the one unit in the Bay Area, it's difficult to do much in the way of cost-effective marketing and merchandising since the economies of scale aren't there for Bristol Farms with just the single-store in San Francisco.

Over the years there's been talk about closing the San Francisco unit. However that's not happened. This fact offers another good reason why it could make logical sense for the "new" Bristol Farms to look north for future stores.

Unified Grocers, Bristol Farms' supplier, also has a division in Northern California, which supplies the one store in San Francisco. As such, supplying additional stores in the region would pose no problem and would be seamless.

In fact, Unified Grocers is breathing much relief that Davis and company has acquired Bristol Farms, which means the wholesaler will be able to continue to supply the 14 stores, which provides a healthy amount of revenue for the retailer-owned wholesale grocer. For example, had Supervalu sold Bristol Farms to a self-distributing chain instead of the employee group and Endeavour Capital, that would likely have ended the supply agreement with Unified, or at least limited it.

We know this to be true because over the summer our sources - the same ones that informed our July 22, 2010 Tweet to Ms. Berg - told us Unified was considering investing with Davis and the other Bristol Farms executives if doing so was required to keep the chain independent. Having once owned Bristol Farms as part of a then move to own and operate retail grocery stores along with being a wholesaler, Unified wasn't crazy about doing so, but was considering it. However, with the backing of Endeavour Capital, such a move wasn't needed.

Look for a new round of interesting food and grocery retailing to come from the "new" Bristol Farms.

First off though the new owners have some top and bottom line concerns to address, as the recession has hurt sales at the upscale chain as many of Bristol Farms core customers have been trading down to more mid and lower-priced grocers like Kroger's Ralphs and Safeway's Vons, along with others.

Additionally, the competition in the upscale and specialty niche in Southern California has and is only getting more competitive. Whole Foods Market and Trader Joe's, for example, continue to add stores in the region. And hybrid niche players like Sprouts Farmers Market, Henry's Farmers Market and Tesco's Fresh & Easy continue to open numerous new stores throughout Southern California, including in cities where the 12 Bristol Farms stores are located.

Davis and his team are creative and innovative grocers though. As owner-executives who now have a personal financial interest in Bristol Farms' success and growth, coupled with Endeavour Capital as an investment partner, which understands the grocery retailing business because of its track record in the industry, and freed from being a step-child of Supervalu, Inc., things should be looking nowhere but up for Bristol Farms in the months and years to come.

And thanks in part to Twitter and Ms. Berg - but particularly to our sources - we pretty much had the acquisition deal story nailed over three months ago in our July 22, 2010 Tweet.

Suggested additional reading

April 29, 2010: Heard on the Street: There's Something About Albertsons ... In Southern California

June 27, 2010: The Insider: Will Tesco Acquire Supervalu, Inc. and Change its 'Fresh & Easy' Game in America?

October 18, 2010: Supervalu's Small-Format, Hard-Discount Save-A-Lot Food Stores Chain is California Bound

Notes to above:

>In the April 29 piece linked above our 'The Insider' columnist offered a strategy for Supervalu, Inc. in Southern California. He also noted a possible sale of Bristol Farms.

>In our October 18 story linked above we reported on and detailed Supervalu's push with its small-format Save-A-Lot chain in California. Cash from the sale of Bristol Farms will help fund that strategy.

>'The Insider' also mentions Bristol Farms in his June 27 column linked above. By the way, he says a Tesco acquisition of Supervalu, Inc. isn't in the cards at present. He will have an upcoming column on the topic soon.

Supervalu's Small-Format, Hard-Discount Save-A-Lot Food Stores Chain is California Bound

Breaking Buzz & Analysis

Supervalu, Inc.'s small-format, hard-discount Save-A-Lot Food Stores chain confirmed today by its significant presence at the 2010 California Grocers Association's (CGA) Strategic Conference in Las Vegas, as well as by its sponsorship activities and comments made by representatives for the retailer at the event, what Fresh & Easy Buzz has been saying for some time - it wants a healthy piece of California's food and grocery retailing pie.

The annual conference, which kicked off yesterday with registration and a golf tournament, is being held at the Mandalay Bay Resort and Casino in Las Vegas. It runs through tomorrow, October 19.

There are currently only a handful of Save-A-Lot stores in California. Those few stores are located in Southern California the Central Valley region.

But Save-A-Lot, which operates on a mixed franchise-license/corporate ownership model, is out to change that. (About 75% of the 1,200 Save-A-Lot stores in the U.S. are owned by independent operators. The remaining 25% of the stores are corporate owned.)

Last night Save-A-Lot Food Stores, which is exhibiting at the trade show portion of the conference which began this afternoon and runs through tomorrow, along with Kraft Foods, sponsored the annual opening reception (from 6 p.m.-8 p.m), which is a high profile event for the grocers, suppliers and others who attend the conference. It's also designed to be a high-profile event for the companies that provide the sponsorship, which is why those doing so, like Save-A-Lot, seek it out.

There was discussion at last night's reception, including from Save-A-Lot representatives, that the discount grocer is looking to open numerous stores in California, which is the reason it's not only exhibiting at the CGA conference and trade show but also why it sponsored and co-hosted the high-profile annual opening party: To draw attention to itself and its plans in California.

At its booth on the exhibition hall floor today, Save-A-Lot representatives were armed and ready with information, as well as being prepared to sit down and talk with grocers and others who might be interested in becoming Save-A-Lot licensees-franchisees in California.

The chain has certain regions and territories - a strategic blueprint - where it plans to open stores in the Golden State, including possibly a number of corporate-owned units, although its preference is for independent operators. It's looking for existing grocers, groups and individuals, as well as qualified business people not currently in the grocery retailing business, to become independent owner-operators of single stores and multiple groups of stores in California.

One of the representatives at the Save-A-Lot booth on the exhibit floor told a Fresh & Easy Buzz correspondent that the Supervalu, Inc.-owned chain, which operates independently, including having its own corporate headquarters in St. Louis, Missouri and its own senior executive team, led by CEO Bill Shaner, plans to open numerous stores in California over the next five years.

This tracks with Supervalu CEO Craig Herkert's plans to double the number of Sav-A-Lot stores in the U.S., from the current about 1,200 to about 2,400, over the next five years, which is something we've previously reported on and written about in Fresh & Easy Buzz. [See - April 20, 2010: CEO: Supervalu to Open 100 New Sav-A-Lot Stores This Year; Strategy to Double Store-Count to 2,400 in 5 Years in Place.]

Supervalu, Inc. has a significant presence in Southern California through its ownership of the Albertsons supermarket chain (number three market share after Kroger's Ralphs and Safeway's Vons). It also owns the upscale Bristol Farms chain in the region.

However, with the exception of a couple Save-A-Lot stores in the southern Central Valley and one Bristol Farms supermarket in San Francisco, Supervalu has no presence in Northern California or the Central Valley region, where about 35-40% of California's nearly 40 million residents live. Save-A-Lot would be Supervalu's best food and grocery retailing vehicle overall, among the numerous formats it has, to reverse that, in our analysis. Not everywhere, but in the right markets.

Additionally, with only a couple Save-A-Lot units in Southern California, the vast region where the remaining about 60% of Californians live is wide open for the small-format, hard discount grocer.

As a matter of fact, the entire Western U.S. (and much of the Midwest) is wide open for Supervalu when it comes to opening Sav-A-Lot food and grocery stores.

Take a look at the map here, it tells the story graphically very well. Notice that all the colored dots on the map, which represent Save-A-Lot stores, are in the Mid-Atlantic, eastern and some Midwestern portions of the U.S., while there's virtually no stores west of the Rocky Mountains. And since Save-A-Lot is headquartered in St. Louis, which happens to be called "The Gateway to the West," coming west is the logical next move. It's also logical since Supervalu plans to double the number of Save-A-Lot units between now and 2015. The vast west is vastly empty of Save-A-Lot stores.

California doesn't have a small-format, limited assortment, hard-discount grocery chain on the order of Save-A-Lot or Aldi USA, which has all of its current 1,000-plus U.S. stores east of the Rocky Mountains, as a major player in the state. Aldi USA has come as far west as Texas thus far. The two are the leading chains of the format in the U.S.

The current state of the California economy, which includes having the third-highest jobless rate (12.5%) among the 50 states, should offer a warm climate for hard-discount Save-A-Lot in the state.

Additionally, there are numerous vacant retail stores available at extremely favorable lease rates in the California, from the south to the north and everywhere in between. This abundance of properties at favorable rates, which is going to be the case from a number of additional years in the state, offers what likely will be a once in a decade opportunity for a chain like Save-A-Lot, and independent franchise owners, to grab numerous locations at extremely advantageous monthly rent amounts and long-term lease rates.

The one key limiting factor for Save-A-Lot in California at present is that because of the less than stellar economy and ongoing depressed residential and commercial real estate markets, it could be difficult to get more than a few independent owner/operators to become Save-A-Lot licensees-franchisees in the Golden State because access to capital is still rather limited, although it is improving somewhat.

Despite this economic and capital situation though, fast-growing Berkeley, California-based salvage and discount grocery chain Grocery Outlet, which operates on a licensing-franchise system similar to Save-A-Lot's, has been finding independent operators left and right in California and elsewhere in the west, where it's been opening one or more new stores about every other month since last year. Most of the new stores opening have been in California. Grocery Outlet plans to double its about 130 store count over the next few years.

One solution to this potential problem would be to build and open numerous corporate-owned Save-A-Lot stores and then franchise them out to independent owners as the franchisees become available. Convenience store chain 7-Eleven has and is doing this with considerable success in California, for example.

Another possibility is to get established, privately-held California grocery chains to become franchisees. This is something grocery wholesalers have done with much success in the state with the Food For Less discount grocery store format, for example.

There are a number of privately-held chains, such as Woodland, California-based Nugget Markets, that own and operate multiple Food For Less stores, which comprise a part or all of the retailer's chain. Nugget, which was founded in 1926 and remains owned by the Stille family, operates both the Food for Less discount stores and its upscale Nugget Markets.

PAQ Inc. (see here) is an example of a chain that's comprised completely of Food 4 Less stores. There are nine units in numerous cities in Central California's valley and coastal regions. And the Food 4 Less chain in Southern California owned by Kroger Co. got its origin as a privately-owned chain comprised of franchised Food 4 Less stores.

The annual CGA conference and trade show, which has the theme of "Express Lane to Success" this year, runs through tomorrow.

The annual event, which is sponsored financially by food, grocery and related companies that sell to and do business with the state's chain and independent grocers (collectively known as the trade), and related trade show is a key networking event for grocers doing business in California, their suppliers and service providers.

The networking takes place at formal events like the Sunday golf tournament, the opening reception hosted by Save-A-Lot and Kraft Foods mentioned earlier, and other social events hosted by The Illuminators, which is an organization comprised of members of the California grocery trade.

But the networking, which representatives of Supervalu's Save-A-Lot are doing some of right now in Las Vegas, also happens, and frequently in more interesting and productive ways, at informal venues like the golf course, restaurants, hospitality suites set up by suppliers and food brokerage firms, casino bars and gaming tables, and other Vegas hot spots.

Tesco's Fresh & Easy Neighborhood Market is a member of the California Grocers Association, as are all of the leading chains in California - Kroger's Ralphs, Safeway Stores, Albertsons, Stater Bros, Save Mart, Raleys and others - and most key independents.

Related Stories

April 20, 2010: CEO: Supervalu to Open 100 New Sav-A-Lot Stores This Year; Strategy to Double Store-Count to 2,400 in 5 Years in Place

June 27, 2010: The Insider: Will Tesco Acquire Supervalu, Inc. and Change its 'Fresh & Easy' Game in America?

September 13, 2010: Reading Philip Clarke's Tea Leaves: Might A Mixed Corporate/Franchise Model Be in Fresh & Easy Neighborhood Market's Future?

April 29, 2010: Heard on the Street: There's Something About Albertsons ... In Southern California

December 4, 2008: Competitor News: Supervalu Inc.'s Small-Format, No Frills, Extreme Value Sav-A-Lot Chain Beefing Up its Executive Ranks as Part of its Growth Program

March 25, 2009: Supervalu, Inc. Introduces New, Value-Plus-Convenience Meal Solutions Program; Features Refrigerated Case 'Meal Centers' in Multiple Store Departments

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

The Insider: Will Tesco Acquire Supervalu, Inc. and Change its 'Fresh & Easy' Game in America?

The Insider: Heard on the Street

I ended my last column - June 12, 2010: Will Phil Clarke Shake Things up at Fresh & Easy Neighborhood Market USA When He Becomes Tesco CEO in 2011? - with the question below:

"What follows then - the big question in this scenario should it play out - is: 'Who would replace Tim Mason, say in late 2011, as CEO (or whatever the title might be) of Fresh & Easy Neighborhood Market USA?' And: I'm going to leave that question to be addressed in part two of what is going to be a series of columns on this topic, which is: 'Will incoming Tesco CEO Philip Clarke shake things up at Fresh & Easy when he becomes CEO in March 2011.' But Here's a hint: The central premise of my follow-up next column can be summed up in this question: 'If my scenario does become reality, would Phil Clarke name a new chief for Fresh & Easy Neighborhood Market from Tesco's ranks, or would he name a veteran U.S. food and grocery retailing executive to head up Tesco's fledgling U.S. operations?' But that's only a part of the next column. Stay tuned."
In today's column I'm going to offer one answer to the question in part by harking back to my April 29, 2010 column - Heard on the Street: There's Something About Albertsons ... In Southern California - about Supervalu, Inc. You need to read the column to get the full background.

First, a little back story: For over two years Fresh & Easy Buzz has mentioned in various stories and analysis pieces that the real game-changer in the U.S. for Tesco would come were the United Kingdom-based global retailer acquire a major U.S. food and grocery retailer. We've even mentioned in the past a specific retailer - Minnesota-based Supervalu, Inc. - that in our analysis is (or should be) the prime candidate for such an acquisition by Tesco.

In fact, earlier this year The Insider suggested via an e-mail exchange to United Kingdom-based financial analyst Mike Dennis (as well as a few others), who currently works for the firm MF Global and has followed Tesco plc for many years, that an acquisition of Supervalu by Tesco has the potential to be a game-changer for the UK-based retailer, which continues to struggle with its small-format Fresh & Easy Neighborhood Market chain, which currently has 159 stores in California, Nevada and Arizona. Tesco has projected a loss of about $253 million for fiscal year 2010/11, which ends in February 2011. That loss is on top of a loss of $253 million for fiscal year 2009/10 (the year just ended) and $208 Million for its fiscal year 2008/09. In other words, daylight, in the form of break-even, is a long way away for Tesco with Fresh & Easy.

Dennis, who knows Tesco as well or better than most, didn't disagree with my premise. However his opinion was that Tesco won't acquire Supervalu or a chain of similar size - Supervalu is the second-largest U.S. supermarket chain (after Kroger) and the fourth largest retailer of food and groceries in America - because of the huge debt load it would have to take on in order to make such an acquisition, which is a good argument from a financial-stock analysis perspective. But as I suggested, there's the "grocer or merchant element" to always consider as well. We left the e-mail exchange there.

But here's a summary of my strategy and scenario for a Tesco acquisition of Supervalu, Inc., which is ripe for the pickings, based on its low level of performance but excellent asset value, at least excellent in my analysis and opinion. (Note: I am neither for nor against an acquisition by Tesco plc or any other party of Supervalu, Inc. Nor do I own any Tesco or Supervalu stock at present.)

My strategy and scenario for Tesco's acquiring Supervalue is primarily - but not exclusively - for its small-format, hard-discount Sav-A-Lot chain. There are about 1,200 Save-A-Lot stores currently in the U.S. Nearly all of the stores are east of the Rocky Mountains. Supervalu plans to double the Sav-A-Lot store-count over the next five years. There's only a handful of Sav-A-Lot stores in California, and just a small store-count in the Western U.S. in general. As such, there's plenty of room for growth out west, as well as elsewhere in the country.

Having Sav-A-Lot would make Tesco, along with Aldi USA, the leading operator of small-format discount grocery stores in the U.S. Sav-A-Lot would also give Tesco a dual small-format retail strategy - Sav-A-Lot and Fresh & Easy.

Fresh & Easy Buzz has long argued a major problem with Fresh & Easy is that it's a format muddle. It's one part discount format, another part prepared foods format, yet another part natural and specialty foods format, and still yet another part convenience store. As such we argue trying to be everything in one box has resulted in a format muddle. The most successful food retailing formats are well differentiated - Walmart (discount), Wegmans (hybrid-upscale), Aldi USA (hard discount) Whole Foods (natural-organic), and the like.

Having Sav-A-Lot then, Tesco could, as an example, turn Fresh & Easy into a more differentiated format, perhaps focusing primarily on fresh, prepared foods and natural and organic products, offered at discount prices. Sav-A-Lot could then be Tesco's primary discount grocery format. This is what I mean by gaining a dual format advantage for Tesco by having Sav-A-Lot.

Secondarily, but still important, Supervalu owns Albertsons in Southern California. Albertsons is the number three market share grocery chain in the region, behind number one Ralphs (Kroger-owned) and Vons (Safeway-owned). With ownership of Supervalu, and thus Albertsons, Tesco would go from having virtually no market share with Fresh & Easy in the Southern California market to being number three. That's a game-changer, at least in the market share numbers game. Supervalu also owns the upscale Bristol Farms chain in Southern California, 16 stores. I think this could be a good asset for Tesco. But it also could fetch a decent price if sold.

Perhaps Tesco could change up the Albertsons format, making it similar to its superstores in the UK, which in addition to offering fresh food and groceries also offer a strong selection of general merchandise, clothing, electronics and other non-food product lines. Tesco does this in UK stores no bigger than the average Southern California Albertsons. In fact, many are smaller. This format, unlike Fresh & Easy, also taps into Tesco's core retailing competence, supermarkets and superstores. It also, if executed well, might find a niche in Southern California, since there isn't anything currently similar. If you haven't seen them, think of the Tesco UK stores I'm talking about as much smaller versions of Walmart supercenters, for example. I put it out there more of as a thought experiment for now, rather than as a definitive suggesten.

Beyond Sav-A-Lot and Albertsons Southern California, Supervalu has some good retail grocery chain assets. These chains include, for example, Jewel-Osco, which is a major player in the Metropolitan Chicago, Illinois market. After California, Nevada and Arizona, Metro Chicago is the next U.S. market Tesco planned to enter with Fresh & Easy in its original strategic plan, and up to early 2009, when it halted the original strategy and postponed its launch into Northern California. In the original plan, Metro Chicago was supposed to happen in mid-to-late 2010 -to- early 2011.

Other key Supervalu-owned chains include Shaws on the east coast and others. (You can view all of Supervalu's chains here.) I'm not going to get into an analysis of each Supervalu chain here. That's not my focus. Perhaps in a future column?

My focus: Beyond keeping Sav-A-Lot and Albertsons Southern California, an acquisition of Supervalu gives Tesco the ability to play on a huge chessboard in terms of strategically deciding which U.S. markets it wants to be in and which formats it wants to keep. For example, if its wants to be in Metro Chicago (and other parts of the Midwest) and on the east coast with traditional supermarket formats, it can keep Jewel-Osco and Shaws but sell all of the other chains, using the cash to pay down the debt acquired in the acquisition.

This cut-and-paste scenario can be played out in a dozen different variations. It all depends on which formats - other than Sav-A-Lot, all of Supervalu's chains are traditional supermarkets or superstores, ranging from price-impact focused formats to mid-range and upscale - and which market regions Tesco wants to operate and be in. And remember, supermarkets and superstores are what Tesco operates best.

Supervalu also operates a wholesale grocery division, which sells to independent grocers. Tesco could - and I would - sell that off. It should fetch a decent price, and there are at least three or four wholesale grocery companies and cooperatives out there that would love to buy all of or pieces of Supervalu's wholesale division. This would provide additional cash for Tesco to use to pay down the Supervalu acquisition debt.

So, what I'm suggesting in summary is: Supervalu, Inc. is an excellent U.S. acquisition for Tesco. I also believe that if a decent offer were to be made, Supervalu's board would have to take it. Why? Because Supervalu, Inc. shareholders, particularly the institutional investors, would likely demand it. The company's stock is once again back near its 52-week low after seeing a pretty good run up earlier this year. Additionally, most analysts have fairly poor mid-term -to- longer-term outlooks on Supervalu, Inc. This combination of factors makes the company a hot potato for acquisition. In fact, one of the reasons the stock went up considerably earlier this year was because rumors of acquisition were strong. Tesco was never mentioned in those rumors.

Additionally, in summary, I'm suggesting acquiring Supervalu (at a decent cost) would be a good move for Tesco, if it's really serious about being a major player in U.S. food and grocery retailing. The fact is as I see it, the odds on Tesco ever becoming anything more than a minor, niche player in the U.S. with just Fresh & Easy aren't in the retailer's favor.

Conversely, an acquisition of Supervalu, Inc. would vault Tesco from a tiny start up with Fresh & Easy, with 159 stores and about $450 million in annual sales, to the fourth-largest retailer of food and groceries in America, just below Kroger (number three), Costco (number two) and number one Walmart. That's game changing folks.

Ask yourself this, which one of these two (above) positions do you think Tesco, which is the third-largest food and grocery retailer in the world, wants - and needs - to be in in America?

I've shared this scenario with a number of analysts and other people in, and observers of, the U.S. food and grocery industry. Many of them, unlike Mike Dennis who just said he didn't think it will happen, dismissed my suggestion that a Supervalu, Inc. acquisition would not only be a smart strategic move for Tesco, despite the cost, but actually if done well - the wholesale and retail chain asset sales aspect - a financially prudent one, right out of hand. Additionally, Tesco could bring in a private equity firm as a partner in the acquisition, which would spread the financial burden around a bit. Cerberus, for example, partnered with Supervalu in the acquisition of Albertsons Inc. a few years ago.

Until recently, a Tesco acquisition of Supervalu Inc. has merely been a concept I've shared via e-mail exchanges with various analysts like MF Global's Mike Dennis and others in order to test my proposition and get feedback.

However, two recent developments lead me to conclude that Tesco could actually be considering acquiring Supervalu.

The first recent development is that sources tell me Tesco executives have met with Supervalu executives to discuss such a deal. And that there's been more than one such meeting.

The second development is that Fresh & Easy Buzz has learned from more than one source Tesco plans to make a couple big and important announcements in the next couple weeks, starting as soon as at its July 2 shareholders' meeting, regarding Fresh & Easy Neighborhood Market and the UK-based retailer's plans in the U.S.

Additionally, a San Francisco City Supervisor confirmed the information at a meeting on Thursday, June 24, of the Lincoln Park Neighborhood Association, which was held in the Richmond District of San Francisco, California. [June 26, 2010: Tesco Planning to Announce in July When First Northern California Fresh & Easy Neighborhood Market Stores to Open] The purpose of the meeting was a presentation by representatives of the CVS drug chain and its local developer, Landmark Retail Group, about a new CVS store coming to the neighborhood.

Earlier this year, Tesco's Fresh & Easy Neighborhood Market sub-leased 40% of a vacant Albertsons building at 3132 Clement Street in San Francisco's Richmond District to CVS. Tesco has a 25 year lease on building, which has remained vacant since Fresh & Easy Buzz reported on its acquisition of the building in April 2009. [April 13, 2009: Despite Postponing its Northern California Launch Again Earlier This Year Tesco's Fresh & Easy Planning Third San Francisco Store; First Stockton Unit] Tesco's Fresh & Easy has never publicly confirmed it has the lease. The about 32,000 square-foot building is in addition to the two store locations in San Francisco the grocer has confirmed. Those two store locations are: Third Street & Carroll and Silver Avenue & Goettingen Street.

At the June 24 meeting, which was held inside the vacant Albertsons store at 32nd Avenue and Clement Street, the CVS and Landmark Retail Group representatives, presented plans for the 14,271 CVS drug store to members of the neighborhood. Tesco's Fresh & Easy is using the other 50-60% of the space for a future grocery store. The two stores will be divided by a wall.

Also attending the meeting was Supervisor Eric Mar, who represents the Richmond District on the San Francisco City and County Board of Supervisors.

During the meeting, Supervisor Mar said he's had recent conversations with Tesco Fresh & Easy Neighborhood Market executives. In those conversations Mar said he was told two key things.

The First is the retailer remains committed to opening its Fresh & Easy stores in Northern California, including in San Francisco, which is something Fresh & Easy Buzz reported here in April and again in May, 2010.

The Second is that Tesco will be making a couple "big announcements" in the next couple weeks, which likely will include - but won't be the only one- when it will start opening the 37 confirmed Fresh & Easy stores (and numerous non-confirmed stores Fresh & Easy Buzz has reported exist) in Northern California. Eighteeen of those confirmed stores are in the San Francisco Bay Area; 19 are in the Sacramento/Vacaville Metropolitan region. (See my comment regarding the July 2 Tesco shareholders meeting.)

The Insider can't tell you right now with complete certainty that one of those big announcements Tesco is set to make in a couple weeks or less will be the announcement that it's acquiring Supervalu, Inc. I'm sure one though will be about when Tesco plans to start opening its Northern California stores.

But what I can say is the probability right now is at least 50-50 that Tesco could acquire Supervalu, and announce it soon. And if that happens - the acquisition - it will be a major game-changer for Tesco in America, and for U.S. food and grocery retailing, because it will be the first time in modern history, if ever, a foreign-based retailer would be one of America's top 5 food and grocery retailers.

Recent columns by 'The Insider'

~June 12, 2010: Will Phil Clarke Shake Things up at Fresh & Easy Neighborhood Market USA When He Becomes Tesco CEO in 2011?

~May 20, 2010: Welcome to Discountopia USA

~April 29, 2010: Heard on the Street: There's Something About Albertsons ... In Southern California

['The Insider' will be devoting additional columns to the topic of whether or not incoming (March 11, 2011) Tesco CEO Philip Clarke will "shake things up" at Fresh & Easy USA.]

Heard on the Street: There's Something About Albertsons ... In Southern California

"The Insider" is a new, regular - weekly -to- fortnightly (every two weeks for the non-bilingual) - feature in Fresh & Easy Buzz. "The Insider" will be exploring all aspects of what's happening in - and what he's hearing about - the food and grocery retailing business, with a focus on - but not limited to - California, Nevada and Arizona - the three states where Tesco has its Fresh & Easy Neighborhood Market fresh food and grocery stores.

The Insider: Heard on the Street

The Southern California - and beyond - rumor mill (and I mean informed people, not just the "usual suspects") has been buzzing since late February of this year with talk that Supervalu, Inc. is up to something - or somethings - with its Albertsons chain in Southern California.

Here's a summary of the buzz heard on the street:

1. Supervalu plans to sell its Albertsons chain in Southern California.

The Insider doesn't think that's going to happen.

Why? Supervalu owns and operates about 463 Albertsons banner supermarkets in Southern California, Nevada and the Northwestern U.S. If it sold the Southern California Albertsons chain, doing so would reduce its presence and total store count in the Western U.S. by about 40% - which is a very significant reduction in volume, and would result in a loss of efficiencies for Supervalu in its western U.S. operations, not to mention a dramatic drop in sales. Albertsons also owns the 14 store (13 in Southern California, one store in San Francisco) Southern California-based Bristol Farms upscale grocery chain.

2. Supervalu is looking to sell - and/or close - some of its under-performing Albertsons stores in the Southern California Market.

This is a more logical and likely scenario than number 1 - and really not much of a big deal - unless the number of stores it were to sell is significant.

Supermarket chains sell under-performing stores all the time, to a greater or lesser degree. And Supervalu has been selling some of its stores on the east coast this year. Further, Supervalu closed about a dozen poorer-performing Albertsons stores in Southern California last year, so selling or closing some stores in the region this year wouldn't be without recent precedent

Therefore, unless the number of stores sold or closed (or a combination of the two) is significant - say 25%-30% or more of the total Southern California store-count - I don't see this, if it occurs, as a big story.

Selling 25%-30% or more of the total store-count would be significant because it would reduce Southern California Albertsons' annual sales volume considerably, which would then likely reduce the chain's market share considerably.

Albertsons is the third-largest grocer in Southern California by market share. It has a slightly over 12% share.

Kroger-owned Ralphs is tops (with slightly over 19%), followed by Safeway's Vons (15%).

Trader Joe's is fourth (6.33% share), and Stater Bros. is fifth, with an estimated 6.07% share. There are regional differences though in Southern California. For example, in the Inland Empire region, a huge market area, Stater Bros, which is headquartered in the area and has the majority of its 159 stores there, tops Albertsons, Vons and Trader Joe's, and is neck-and-neck with Ralphs.

Albertsons lost the most business among the large Southern California chains last year. Its market share dropped by almost one-third of a percentage point in 2009, while Ralphs'
increased slightly, and Vons remained steady.

Trader Joe's market share grew considerably, which is what put it into fifth place at the end of last year. Stater Bros share declined just slightly.

Rounding out the numbers, Smart & Final is sixth in Southern California with an estimated 3.23% share, followed by Whole Foods at around 3.1%, and Superior Grocers and Walmart at an estimated 3% each.

Walmart's share is so low because it has very few stores in Southern California that sell food and groceries, a situation it's trying to change as fast as it can by converting about 50-60 of its discount stores into supercenters, along with proposing new supercenters throughout the region.

Although it has about 80 of its 159 stores in Southern California to date, Tesco's Fresh & Easy hasn't registered any significant market share numbers thus far. Significant would be at least 2%.

[Note: Supervalu has converted a handful of the Albertsons stores in Southern California to the Lucky banner, a brand name it obtained when it acquired it's share of then Boise, Idaho-based Albertsons Inc. a few years ago. In January 2006, Albertsons Inc. was purchased by a consortium of investors including Supervalu, Inc., which acquired about 1,100 Jewel, Acme, Shaw’s, and Albertsons stores in Southern California, the northwest, the inter-mountain region, and Florida; Cerberus Capital, which acquired 600-plus Albertsons stores in Northern California (now owned by Save Mart Supermarkets), the Rocky Mountains, Florida and Texas; and CVS Pharmacy, which acquired the Osco, and Sav-on drug chains the company owned and operated.]

3. Supervalu is planning to convert some of its Albertsons stores into its hard-discount Sav-A-Lot stores, owning some corporately and franchising others to independent operators.

This is the scenario - based on the rumors I've distilled into the three summaries above - The Insider believes is the most likely to occur.

For example, I could see Supervalu doing a demographic study of the neighborhoods surrounding all of its Albertsons stores in Southern California, and then selecting a number of the stores best suited for the Sav-A-Lot format, based on the demographics, to be converted into the smaller-format, hard-discount Sav-A-Lot.

In fact, I think this is what Supervalu should do in Southern California: Make Albertsons a slightly smaller (by store count), leaner, meaner and more focused supermarket chain, while building Sav-A-lot as a price-impact player in the region, starting with converting a bunch of the less-performing Albertsons stores into the first batch of Sav-A-Lots - along with opening up new Sav-A-Lot units, both corporately-owned and franchised to independent operators. New Albertsons stores can be built at a low rate when good location opportunities arise.

Doing this also fits nicely into Supervalu's plans to double the size of its hard-discount Sav-A-Lot chain from 1,200 stores to 2,400 over the next five years. [CEO: Supervalu to Open 100 New Sav-A-Lot Stores This Year; Strategy to Double Store-Count to 2,400 in 5 Years in Place

Supervalu should also look closely at opening Sav-A-Lot stores in urban "food desert" neighborhoods in Southern California - and in other U.S. cities - like South and East Los Angeles and other urban areas in the region underserved by grocery stores offering groceries and fresh foods at reasonable prices. Such a strategy fits well with the Sav-A-Lot target shopper, who makes under 45,000 annually, and with the Sav-A-Lot no frills, price-focused retail format.

My model would give Supervalu a three-chain, multi-format strategy in the Southern California market. Albertsons would be its mid-range - but tightly focused - supermarket chain, hard-discount Sav-A-Lot would be its price-impact format, and Bristol Farms its higher-end, upscale play.

I would then focus on growing Sav-A-Lot aggressively, along with tweaking Albertsons in a variety of ways.

Having this option is far superior for Supervalu in a tough, highly competitive market like southern California than having just one horse - Albertsons.

Let's see if any of the above summaries play out with Supervalu's Albertsons over the coming weeks and months in Southern California.

Let's also see if Supervalu employs a strategy in Southern California anything like the three-format, three chain model I've outlined above.

CEO: Supervalu to Open 100 New Sav-A-Lot Stores This Year; Strategy to Double Store-Count to 2,400 in 5 Years in Place

Supervalu Inc. plans to open 100 new small-format, hard discount Sav-A-Lot grocery markets this year, president and CEO Craig Herkert said today during the company's reporting of its fourth quarter and fiscal year 2010 sales and earnings.

The 100 new Sav-A-Lot stores will be a mix of corporate-owned/operated and independent-owned/operated units, Herkert said. He wouldn't offer a precise breakdown on the percentage of corporate vs. independent for the 100 new stores.

Supervalu, which also owns and operates a grocery wholesaling division serving independent grocers, franchises its Sav-A-Lot stores to independent owners, along with owning and operating the stores corporately. The company handles all of the logistics, distribution, marketing and merchandising support functions for the independent Sav-A-Lot store operators, for which the operators pay it an annual fee. In return, the independent operators agree to follow specific operational and marketing guidelines laid out by Supervalu.

The company opened 22 Sav-A-Lot units in the fourth quarter of 2009, according to Herkert.

The CEO said the 100 new store target this year is a speeding up of the grocery chain's expansion plans first formulated in mid-2009.

Supervalu plans to open about 15 new Sav-A-Lot stores in the first quarter of this year, slightly more than that in the second quarter, and the balance of the stores, to reach 100, in the last half of the year, Herkert said today.

Additionally, the CEO confirmed today that his plan to double the current Save-A-Lot store count of about 1,200 stores over the next five years is in place as a strategy and is being implemented. This is a very ambitious and major initiative. That would work out to opening in the neighborhood of 240 new stores on average in each of the next five years, for a total of about 2,400 Sav-A-Lot units.

"We are developing the internal expertise and skills to ramp up to a pace that will allow us to more than double in five years. Our newest Save-A-Lot stores are doing quite well, with sales averaging 10% above our internal projections, and initial capital costs 10% below our best spend rate," Herkert said today. "The Save-A-Lot team has had good success controlling capital by utilizing existing storing periods, aggressively negotiating construction bids, and leveraging internal architectural and engineering expertise."

Supervalu, which owns and operates about 2,300 stores in the U.S. under various banners - including the Albertsons and Bristol Farms chains in Southern California and a handful of Sav-A-Lot stores located in Southern and Central California where Tesco's Fresh & Easy is headquartered and has the majority of its 150-plus fresh foods and grocery markets - reported its fourth quarter and fiscal year 2010 sales and profits today.

Supervalu said it returned to profitability in its fourth quarter. Fourth-quarter earnings for the grocer were $97 million, or 46 cents a share. In contrast, in the same period last year, the company lost $201 million.

Additionally, the grocery company reported full-year fiscal 2010 net sales of $40.6 billion, and net income of just $393 million.

[You can read the full financial release issued today here for full financial details, along with this summary report by Dow Jones.]

Herkert said the company expects similar results for fiscal year 2011.

Supervalu Inc. has been struggling for a number of years. In fact, one can time its problems as beginning soon after its acquisition of the majority of then Boise, Idaho-based Albertsons Stores Inc.

This multi-year struggle is in part why Herkert, a grocery retailing veteran who prior to taking the position at Supervalu was a senior executive at Walmart, came aboard as Supervalu's CEo in May 2009.

Before joining Walmart he spent 23 years with the old Boise, Idaho-based Albertsons Stores Inc. and the no longer existing Salt Lake City, Utah-based American Stores. Albertsons acquired American Stores. Later on Supervalu acquired Albertsons. As a result, some might say its "all in the family" for Craig Herkert, with Walmart being a mere detour.

Shortly after taking the leadership reins last spring, Herkert decided to refocus Supervalu's strategy to emphasis its small-format, hard discount Sav-A-Lot format and banner, hence the aggressive new store expansion program doesn't come as a surprise to us.

But opening 200-plus new Sav-A-Lot stores a year for five years is big, surprise or no surprise.

Supervalu, Inc. Introduces New, Value-Plus-Convenience Meal Solutions Program; Features Refrigerated Case 'Meal Centers' in Multiple Store Departments

Pictured above is one of the "4:15" freestandling merchandising cases in Supervalu, Inc.'s new "Simply Good Meals" meal solutions program. This and similar merchandising units will be located in store produce and meat departments in 1,300 Supervalu owned and operated supermarkets to start.. Other meal solution destination merchandising units will be located in store deli departments.

Competitor News: Merchandising Developments

Supervalu, Inc., which operates the Albertsons banner supermarkets in Southern California and southern Nevada, along with a total of about 2,500 supermarkets under numerous banners nationwide in the U.S., today announced the introduction of a new meal solution destination in-store program it calls "Simply Good Meals." Supervalu, Inc. had 2008 sales of $45 billion.

The "Simply Good Meals" concept offers prepared and easy-to-prepare food items that are merchandised in branded, standalone refrigerated cases which are located in various store departments. The offerings are designed so shoppers will find complete, easy-to-make meal solutions in one spot in the various store departments.

The focus is on offering affordable, convenient meal solutions to capture shoppers who are looking for what to prepare for dinner that night while shopping in the store.

For example, Most stores will initially feature up to four "Simply Good Meals" in-store destinations, including two in the produce area, one in the meat section and one in the deli department. Some stores will also have additional meal and soup destinations in the deli area, according to a Jim Smits, Supervalu's group vice president for fresh foods.

One of the destinations -- known as "4:15" (as in the time of day) -- will feature a selection of items targeted to busy moms and designed to create a good, easy, home-cooked meal for a family of four for under $15 and, in many cases, in 15 minutes or less, according to Smits.

"Research shows that most people don't know at 4 o'clock what they are having for dinner that night, and in many cases, these hurry-up meals result in less-than-balanced and more expensive food choices," Smits says.

"We wanted to make it easier for our customers to answer that inevitable 'what's for dinner' question by providing them with simple, convenient, affordable ideas for creating a real home-cooked meal."

Smitts adds in explaining the merchandising philosophy behind the new meal solution-centered program: "The 'Simply Good Meals' program addresses consumers' needs for convenience, value and family meal-time help at a time when concerns about the economy are causing changes in their eating and shopping behaviors.

According to the Food Marketing Institute, 71 percent of consumers are cooking at home more and eating out less at restaurants. Yet on a typical weekday, nearly 53 percent of consumers don't decide what's for dinner until a couple of hours or less before the meal. While time constraints continue to drive demand for quick and easy meal solutions, moms frequently find that meals at cheaper price points are incomplete or less satisfying.

In addition, most moms equate cooking with emotional meaning, with eight in 10 saying they show their love for their families by making home-cooked meals as often as possible, and 74 percent saying they put a lot of care and emotion into their cookin, according to Yankelovich. At the same time, nearly 45 percent of women say they tend to prepare the same meals all the time, and others simply lack the time and skills to cook."

Items in the "4:15 meal solutions" destination area will include offerings like those listed below, according to Supervalu:

>Ready-to-heat beef roast, potatoes and a salad.
>Lasagna, salad and French baguette.
>Pork teriyaki tenderloins, a side dish and salad.

Initially the meal solutions will change every other week, ensuring a variety of different menus for busy, on-the-go moms, according to Supervalu's Smits.

Additionally, all of the meal solutions offer paint-by-the-numbers-style simple preparation instructions.

Supervalu said today it will initially roll the meal solutions program out in 1,300 of its 2,500 U.S. supermarkets to start, beginning right away.

There's nothing particularly unique about the more value-based meal solution-centered offering from Supervalu in terms of the products offered and the concept of meal solutions, which is something Supervalu and most other supermarket chains have been doing for a number of years, although the merchandising practice has become more pronounced since last year when the recession hit hard.

The merchandising aspect of the program, the placement of the branded meal solution centers in different store departments, does offer some originality though. By placing the branded meal centers in the produce and meat departments, as well as in the deli/prepared foods sections, Supervalu has the potential of addressing customers at multiple points-of-purchase and decision-making in-store.

Such a multi-departmental merchandising strategy is a good one we believe because it attempts to catch the shopper with a meal solution idea in departments other than deli/prepared foods, thereby increasing the point of opportunity in which the customer is offered the selling proposition.

The meal centers also are a form of cross-merchandising, which enhances the opportunity for incremental sales since the concept is that shoppers will buy the multiple components (items) of the "meal" rather than merely an item or two. Such meal-centered cross-merchandising works in food retailing, as long as the cross-merchandised items are good and the pricing is appropriate.

This isn't Supervalu, Inc.'s first offering in the value-based meals and related prepared foods segment. The new meal solutions program follows the introduction by the grocery company last year of its "Culinary Circle" brand, a value-priced fresh, prepared foods line in all of its stores, including the Albertsons banner.

The "Culinary Circle" brand items are all prepared foods however. The items in the "Simply Good Meals" program include heat-and-eat and quick fix items that need some minimal preparation and value-adding (salad dressing on a salad type of stuff) at home. The average time to prepare the meals in the "Simply Good Meals" program is about 15 -to- 20 minutes, according to Supervalu.

In terms of the price point -- the under $15 -- it's our analysis based on research that the hot button meal solution price-point at present is about $12 and under for a complete meal for four. For example, Safeway Stores and Raley's, two supermarket chains with numerous stores in California and other western states, have since the middle of 2008 been offering meal solutions deals priced at under $12 and $10 and under for four. These offerings have been very popular at the two supermarket chains.

A number of the Supervalu "Simply Good Meals" program offerings come in at about $10 -to- $12 for four. We think those will be the most popular offerings in the program in the current recessionary climate.

Tesco's Fresh & Easy currently operates 116 combination grocery and fresh foods markets in California (Southern and Bakersfield), Metro Las Vegas, Nevada and in the Phoenix, Arizona Metropolitan region.

Supervalu, Inc. operates the Albertsons chain in Southern California. The chain is number three in market share overall in Southern California after Kroger Co.'s Ralphs and Safeway Stores' Vons.

Supervalu also operates the Albertsons banner supermarkets in southern Nevada, along with in Washington state, Oregon, Idaho, Montana, Wyoming and Utah.

The Albertsons stores in Arizona however are owned and operated by the private equity firm Cerebus, as are the Albertsons banner stores in New Mexico, Colorado, Texas, Louisiana and Arkansas.

Cerebus licenses the Albertsons brand name from Supervalu for these stores. The reason for this split is because Cerebus acquired those divisions from Albertsons, Inc. as part of the 2006 $9.7 billion acquisition of the company by Supervalu, in which Cerebus, drug chain CVS and Kimco Realty Company were investors.

Cerebus acquired all of the Albertsons, Inc. divisions mentioned above, along with a couple others like Northern California, which Cerebus sold last year to Modesto, California-based Save Mart supermarkets. Save Mart now operates those stores in the San Francisco Bay Area and Sacramento region under the Lucky banner. The Lucky stores are the number two market share leader in the Bay Area ,after number one Safeway.

Supervalu, Inc. also owns the 16 Bristol Farms supermarkets in Southern California and one store in San Francisco in Northern California. It acquired the small chain in the deal for Albertsons, Inc. in 2006. Albertsons bought then independent Bristol farms a few years before that.

Bristol Farms is an upscale, specialty-oriented format. It's a pioneer in fresh, prepared foods development and merchandising, albeit with most of its offerings at higher price-points. However, Supervalu has learned much about the fresh, prepared foods category, for example, since acquiring Bristol Farms nearly three years ago. Some of that knowledge has resulted in changes and product improvements overall in the category for Supervalu, including at its Albertsons stores in California and Nevada.

Supervalu, Inc. also owns the small-format, no frills, deep discount Sav-A-Lot chain. The Sav-A-Lot stores, many of which are franchised to independent operators, aren't included in the new meal solution program. [Supervalu, Inc. is growing Sav-A-Lot significantly. Read our December, 2008 piece where we detailed some of that growth here: Competitor News: Supervalu Inc.'s Small-Format, No Frills, Extreme Value Sav-A-Lot Chain Beefing Up its Executive Ranks as Part of its Growth Program.]

Competitor News: Supervalu Inc.'s Small-Format, No Frills, Extreme Value Sav-A-Lot Chain Beefing Up its Executive Ranks as Part of its Growth Program

Supervalu, Inc.'s small-format, no frills Sav-A-Lot grocery chain is beefing-up its senior management team as part of the discount grocer's growth strategy nationally in the U.S.

St. Louis, Missouri-based Sav-A-Lot, which operates nearly 1,200 small-format discount grocery markets in the U.S., has made four new headquarters hires and made a number of internal promotions as a way to grow the business both organically and through new store growth, Fresh & Easy Buzz has learned.

The new hires are:

Bill Gillispie. Gillispie has joined Sav-A-Lot as its new senior vice president of marketing and merchandising. A veteran of the U.S. food and grocery retailing industry, he previously held positions with Scotts Food, Cub Foods, and Jewel Food Stores.

Tom Lenkevich. Lenkevish has been named Sav-A-Lot's senior vice president of operations. He previously held management positions at Meijer, A&P, and Farmer Jack's. He also is a former Sav-A-Lot licensed franchise owner. Supervalu's Sav-A-Lot operates both company owned stores and stores franchised to independent owners.

Andrea Wagner. Wagner, a veteran marketer who previously worked in senior positions for Kroger Co. and H.E.B in Texas, has been named vice president of consumer brand strategy.

Vanessa Foster. Foster is Sav-A-Lot's new director of communications and community relations. She most recently managed community relations and multicultural marketing initiatives for the Cartoon Network children's television network.

The newly promoted-from-within Save-A-Lot executives are John Gerber, named as vice president of distribution; Mike Kemp, the retailer's new vice president of product segments (a new position); and Donna Mickens was named director of organization effectiveness.

Gerber, who's been with Supervalu since 1985, joined Save-A-Lot in 2002, and has held various roles in the company's distribution division.

Kemp joined Save-A-Lot in 2003, and has managed the company's procurement of meat and perishables.

Mickens will oversee executive-level development with a focus on succession planning and identification of key talent within the company.

The major new executive hires and promotions signals what we've been hearing for sometime; that Sav-A-Lot is looking to seriously grow its business both organically and through new store development.

The Supervalu, Inc. subsidiary already is the largest small-format, no-frills, limited assortment discount chain in the U.S. It has about 1,300 stores compared to Aldi USA's nearly 1,000, for example.

Aldi USA is on a major growth spurt however, adding 75-100 new stores a year over the next five years, in addition to moving into brand new markets like it recently did in Florida.

Sav-A-Lot's no-frills, small-format discount stores, which operate on an everyday hard discount model (the retailer calls them "Extreme Value Stores"), and stress the value proposition, but also promote and advertise, have been doing well in the current recessionary economy as shoppers search out the best bargains on food and groceries. In fact, Sav-A-Lot appears to be the bright estspot in Supervalu's multi-format and multi-banner lineup at present.

We've been hearing Sav-A-Lot plans on focusing more on opening new stores west of the Rockies, including in California where it has only a minimal presence with its small-format discount grocery markets. There are Sav-A-Lot stores in 40 states. If so, particularly if it puts a serious focus on Southern California, that wouldn't be great news for Tesco's Fresh & Easy, which is struggling to gain a foothold in Southern California, Nevada and Arizona with its small-format combination discount grocery and fresh foods stores.

If you look at the Sav-A-Lot store location map here for example, you will see very few stores in the Western U.S. Rather, the chain's stores are concentrated in the Midwest, south, Mid-Atlantic and eastern regions of the country.

The Western U.S. presents a huge opportunity for Sav-A-Lot, which as a single banner of Supervalu, Inc. is the fifth-largest grocery chain in the U.S. Supervalu is the second-largest retail grocery company in the U.S., after Kroger CO. (not including mass merchandisers like Wal-Mart and Costco).

'Go west' is something we're told has been mentioned often of late at Sav-A-Lot headquarters in St. Louis, Missouri, which ironically is considered the gateway city to the Western United States.

Sav-A-Lot sees lots of opportunity even in the current down economy, and in many ways because of it, for its extreme value merchandising position and no frills small store format, along with other operational and merchandising reasons.

The Sav-A-Lot stores average 14,000 -to- 18,000 square feet and carry about 1,200 food, grocery and non-foods items, including national brands and their own store brands.

The no frills, limited assortment markets also have "dollar departments" in -store, which essentially are like a small dollar or 99 cent-store-within-a-store.

The chain claims it saves shoppers 40% over the everyday cost of groceries at the average supermarket.

About 75% of the Sav-A-Lot stores currently are operated by licensees, which allows for the chain to have much lower capital expenses than it would if all of the stores were company-owned. Sav-A-Lot corporate handles all of the distribution (is self-distributing), marketing, logistics and related headquarters activities for these licensees, which are many cases are large groups rather single-store-owned independents.

This business model is the one Sav-A-Lot is currently focusing the most on. However it also plans to continue opening new company-owned stores.

It should be interesting to watch Sav-A-Lot's development, especially as it pertains to the Western U.S., now that it has put in place a comprehensive, strong senior management team poised to grow the chain.