New Details and Analysis About Safeway's Small-Format Summer SF Bay Area Surprise for Tesco's Fresh & Easy Neighborhood Market

We were one of the first publications to report last year that Pleasanton, California-based Safeway Stores, Inc. was developing a new, small-format (15,000 -to- 20,000 square feet) grocery store similar to Tesco's Fresh & Easy Neighborhood Market, which the San Francisco Bay Area headquartered supermarket chain plans to initially open in the San Jose area sometime this summer.

Tesco plans to open an initial 18 of its small-format, combination basic grocery/semi-upscale fresh foods and specialty grocery stores in the San Francisco Bay Area beginning in late 2008, or more likely in early 2009. A number of these 18 initial stores will be located in the South Bay Area, in San Jose and the surrounding communities.

Since we reported the Safeway small-format grocery store development story, we've been following Safeway's development process closely, doing research and talking to as many industry--and industry-affiliated--sources as we can. As a result we've learned some additional facts about the new small-format grocery stores likely to open in July or August, 2008

Small-format stores will likely open in July or August, 2008

First, based on information from our various sources, we believe the first of the four -to- five pilot Safeway small-format grocery stores will open in either July or August of this year in the San Jose area. Part of Safeway's reason for wanting to open the stores this summer, is so that the retailer can have the intial stores opened for a significant period of time prior to Tesco entering the market in either late 2008 or early 2009.

It was initially believed Tesco would open the first of its Bay Area Fresh & Easy stores this summer. However, Tesco says it won't open stores in the region until 2009. We still believe its possible Tesco will try to open a few Fresh & Easy markets in the Bay Area in late 2008. The first store location lease (of the 18 signed to date) the British retailer signed in the Bay Area was for an empty Albertsons supermarket building on Bird Avenue in the city of San Jose, which it will remodel into a Fresh & Easy Neighborhood Market store.

Safeway wants to have its small-format grocery stores open and doing business before Tesco's Fresh & Easy even comes to town, so to speak. By opening the first stores in July or August of this year, it could give Safeway anywhere from six months to close to a year of retail operations before the first key is even turned in a Fresh & Easy store door by Tesco in the Bay Area.

Safeway small-format grocery stores: A few snapshots

We don't have a complete picture of what the Safeway small-format grocery stores will look like in terms of design or overall product mix. However, based on conversations with sources and much analysis ,we do have some pieces of the puzzle filled out thus far.

In terms of design, we expect something fairly upscale inside and out. However, the stores aren't going to be super upscale. Rather, they will be attractive in terms of design but also somewhat utilitarian looking. They aren't designed for only high-end consumers.

In October, 2007 Anthony Gilmore, the former Northern California Region President for Whole Foods Market, Inc. resigned his position with the supernatural foods grocer to accept an executive position with Safeway Stores, at its corporate headquarters in the East Bay Area city of Pleasanton. (Gilmore actually began his retail grocery career years ago with Safeway Stores, Inc.)

While leading Whole Foods' Northern California division, Gilmore completed an aggressive and varied new store opening program for the supernatural grocer in the region. His strength was in being able to organize and lead the development of "new generation" Whole Foods' stores, giving each of the new stores its own local flair.

For example, under Gilmore Whole Foods' Northern California built its biggest and most comprehensive food store in Campbell, California, which is located in the famed Silicon Valley, and is only a few miles from San Jose. This store, which is now called the Northern California flagship, is nearly 80,000 square feet. It's a double-story superstore, filled with numerous in- store dining venues, a wine bar, a mini day spa, and much more. The store also fits its location well, both in design and in its product mix.

Further, Gilmore lead the creation of what is arguably Whole Foods' most innovative store to date: its European-style market hall store in downtown Oakland, California. The store, which opened in October, 2007, is designed like a European food hall, yet contains all of the departments--and more--the supernatural grocer is famous for.

In addition, Gilmore pioneered the building of Whole Foods' lifestyle-oriented superstores as retail anchor stores for upscale multi-unit housing developments in the city of San Francisco.

For example, the newest San Francisco store, which is located in the hip, up-and-coming Potrero Hill neighborhood, is the ground floor retail anchor of a huge, high-end condominium development which is becoming a very popular place to live in the city. The store design is modern, like the condo project, but also incorporates the history of the neighborhood. Among the store's unique features are an indoor-outdoor wine bar and bistro which features a DJ who spins tunes for customers on weekend evenings.

Gilmore's charge in his position at Safeway is primarily retail format development and merchandising. He's been working on the chain's successful lifestyle format, including a project which involves creating a "second generation" lifestyle format for Safeway's supermarkets. Some of these "second generation" developments are already beginning to show up in the retailer's new lifestyle stores.

What we refer to as the "second generation" aspects include more upscale design and interior packages--colors, flooring, shelving, and the like--and added in-store features like the fresh nut bars and similar new in-store venues appearing in a number of the grocery chain's recently opened lifestyle supermarkets.

Gilmore also was brought on, in part, to work on the small-format grocery store project, both from a format design and product selection and merchandising standpoint. Expect to see his input in how the 15,000 -to- 20,000 square foot grocery markets look, the products sold in them, and how they reflect the communities (localism) they are in. We expect some unique and creative flourishes in the store's design and product selection.

Prepared foods to be central to the small-format stores

Safeway is nearing completion of a line of fresh, prepared foods which it will begin rolling out in its lifestyle stores soon. The prepared foods' line includes ready-to-heat and ready-to-eat entrees, side dishes and grab-and-go type foods. Some of the prepared foods' items will be under the retailer's O' Organics brand, others under its Eating Right healthy foods brand, and still others under one or more new brands. These prepared foods items will be sold in all of the grocer's lifestyle stores--as well as in the new, small-format grocery markets, we believe.

The grocer already has extensive prepared foods offerings--which it has grown dramatically over the last couple years--for sale in its lifestyle supermarkets. For example, it offers fresh soups, sandwiches, pizzas and other items under its Safeway signature brand. The grocer also offers prepared entrees and side dishes under various store brands, along with many other ready-to-eat and ready-to-eat items.

A little over a year ago, Safeway bought a restaurant near San Jose, in Redwood City, California, called Citrine New World Bistro. The grocer has been using the restaurant--which features organic and healthy dishes and even uses the name O' Organics (Safeway's store organic grocery brand) in the menu--to develop and test items with consumers as a way to develop its fresh, prepared foods items.

Look for an extensive array of fresh, prepared food(including lots of organic) in the new small-format Safeway grocery stores. These items should range from basic, inexpensive items, to much higher-end gourmet items, which are being developed by professional chefs at the company-owned restaurant.

A limited assortment of discount groceries

In a conference call with supermarket industry analysts last week, Safeway CEO Steve Burd said because of the inflationary and recessionary nature of the U.S. economy, consumers are increasingly filling their shopping carts with cheaper groceries in his stores. He even said the company is seeing more shoppers buying generic groceries in Safeway-owned stores.

Safeway's stock tumbled to a 52-week low last week, even though the grocer's fourth-quarter profit met analysts expectations. Analysts--and Burd--attribute this decline in stock value to the current bad economic climate in the U.S., which like Burd argued to the analysts is causing middle-to-upper end consumers to buy more discount grocery products. During the conference call, Burd described the current rate of grocery inflation as "the highest I've seen in my 15 years as Safeway's chief executive."

We wouldn't be surprised to see Burd and company use the new, small-format stores to merchandise a limited assortment of private label and national branded basic grocery items along with the fresh, prepared foods and other offerings. We don't know this for a fact, and nobody at Safeway has gone on the record with us either confirming or denying this. Our view is based on discussions with numerous sources, as well as our own analysis.

Safeway has two strong selling value-positioned store grocery product brands. One is a low-end, near generic line, the other a mid-range brand. They also have Safeway Select, a premium, yet competitively-priced multi-category store brand, in addition to a number of other store brands.

In fact, these three--low-end, midrange and premium--store brands are the top market share sellers in many of their respective categories, such as various canned fruits and vegetables and other packaged goods. These product brands--like the Safeway retail brand--are strong in the Bay Area. Unlike Tesco's Fresh & Easy store brand, which will be new to the region, Safeway's brands have extremely strong equity with Bay Area consumers.

For example, the San Francisco Chronicle, the region's highest-circulation newspaper, runs a column in its food section every Wednesday in which it compares at least 10-12 grocery brands in a different grocery products category each week. Safeway's store brands (even the value brands) frequently place in the top three, beating out in many cases the top national brand in a given category, which sells for much more at retail than the Safeway store brand.

Safeway has a huge advantage over Tesco in this approach. First, the grocer knows the Northern California (and especially Bay Area) market inside-out. It's far-and-away the number one market share leader in the region. Second, the grocer has decades of market-specific scan data in its databases. This is an invaluable tool when choosing a limited basic grocery products selection for a store.

Finally, Safeway has over 20 years' of consumer data from its club card program. From a consumer-buying and behavior perspective, this information, combined with the market specific scan-data, can help the grocer not only choose the optimum limited-assortment basic grocery selection for its new, small-format stores, but also the club card data can guide the retailer in custom-tailoring the stores to each and every neighborhood.

This is powerful information that even the world's number-three retailer Tesco can't buy for any price. If they could, the retailer's Southern California stores would have a different basic grocery item product mix, and be tailored much better to the city's and neighborhoods they are located in.

What's in a name?

Lastly, and actually the most fun, is the question: What will Safeway name its small-format grocery stores? While we don't have any specific information from sources inside or outside of Safeway Stores, Inc. who can provide us with information credible enough for us to go on the record and give you the name Safeway's new, small-format grocery stores will go by, we are willing to go out on a limb and offer a potential or even probable name, based on three key factors we've identified and anlalyzed.

Those three factors are: First, Safeway Stores, Inc. likes the Safeway name and brand. All of its 271 stores in Northern California are branded Safeway, with the exception of a small division of warehouse stores called Pak 'n Sav. In addition, all of the grocery chain's stores in the Pacific Northwest, Arizona, Colorado and western Canada fly under the Safeway banner, as do the stores in the Washington D.C./Maryland/Virgina tri-state region.

All of the company's other banners--Vons, Pavillions, Dominicks, Randall's, Tom Thumb, Genuardi's and Carr's--were formerly independent chains which Safeway acquired, and as a result decided to keep the chain's names rather than change them to Safeway. The grocer sells its Safeway brand-named private label products, such as the Safeway Select, in all of these banner stores however.

The Safeway food retailing brand has strong consumer equity in Northern California, and especially in the Bay Area, where most of its stores are located, along with its corporate headquarters. As a result, we believe the grocery retailer is likely to use "Safeway" as part of the name for its new, small-format grocery stores when they open this summer.

Second, over the last four or five weeks we've floated a name for the small-format stores around to industry sources inside and outside of Safeway. We also have heard this name used by some Safeway suppliers, and others such as food brokers, who do regular business with Safeway at its corporate headquarters in Pleasanton.

While none of our sources (in the case of those outside Safeway) know for sure what the grocer will name the new, small-format stores, a number of them told us they've heard the name we put out there discussed among some serious industry people in Northern California. In terms of people inside Safeway (who didn't confirm or deny), the name we floated received some interesting responses. Not one of the insiders dismissed the potential name for the new, small-format stores we mentioned out of hand to us though.

All of this is purely anecdotal, and we aren't claiming otherwise. Rather, its merely one part of the three-part puzzle we are analyzing, along with a couple other factors. (Did you really think we would give you everything?)

The third piece of this three-part analysis puzzle involving the possible name for the small format, convenience-style grocery stores involves history. Many of our readers may not know this but there is a Safeway chain in the Middle Eastern country of Jordan. Safeway Jordan isn't owned by or affiliated with U.S.-based Safeway Stores, Inc.

However, there is an historic connection. U.S.-based Safeway Stores, Inc. once was an international food retailing company. Among it's international operations was Safeway plc. in the United Kingdom. Safeway Stores, Inc. USA sold UK-based Safeway a long time ago. And non- Safeway USA-affiliated Safeway plc. was recently acquired by Britain's Morrison's supermarket chain, which has nearly completed removing the Safeway banner from the stores in the UK.

Prior to selling UK-based Safeway plc. to Morrison's, the company owned Safeway Jordan and operated stores in that country and in Kuwait. In 2003, Safeway plc. sold its Jordan division to The Sultan Center (TSC), a Jordanian supplier and retailer of food, grocery, perishable and general merchandise items in the middle east. Jordan is a monarchy, so although it has a vibrant private sector, the ruling government family and business sectors are strongly tied-in together.

This is where the history gets interesting. Now, remember UK-based Safeway plc. was once long ago owned by USA-based Safeway, Inc. Safeway USA sold its UK operations to a group there who named it Safeway Plc. That group established Safeway Jordan, then sold the Jordan division to Jordanian-owned TSC.

TSC-owned Safeway Jordan operates three Safeway branded retail formats in that country. Those three retail grocery store formats are: Safeway service stores or supermarkets, which are similar to a western supermarket; Safeway Wholesale Center, which are a cash & carry-type format; and Safeway Express, which is a hybrid basic neighborhood grocery store/convenience store/food-service store.

Yes, you guessed it: we are suggesting (not stating as fact or saying we have any confirmation) there is a decent probability that Pleasanton, California-based Safeway Stores, Inc. will name its new, small format grocery stores, which will open this summer in the San Francisco Bay Area, Safeway Express.

There's an added caveat for Safeway Stores, Inc. in going with the Safeway Express name for its new, small-format grocery markets as well: Tesco, parent company of small-format Fresh & Easy Neighborhood Market, operates Tesco Express small format grocery stores throughout the UK and in other parts of Europe. These stores are the model from which Tesco created its Fresh & Easy grocery market format in the U.S. There are significant differences between the two formats--Tesco Express and Fresh & Easy--but also many similarities.

It would be ironic if Safeway names its new 15,000 square foot -to- 20,000 square foot grocery stores in the Bay Area--which will go head-to-head with Tesco's 10,000 square foot -to- 15,000 square foot Fresh & Easy grocery markets beginning at the end of this year or in early 2009--Safeway Express.

In many ways, using the Safeway Express name for the stores would set the stage for an all out premptive summer surprise by Safeway for Tesco's Fresh & Easy Neighborhood Market in the Bay Area and elsewhere in Northern California.

Note: If Safeway doesn't want to put its brand name (Safeway) on the small-format stores, or wants to use a fresher, more upscale natural and organic foods' sounding name, we think Citrine--like the company-owned restaurant--also might be a name in the running.

The tagline to the "Citrine" restaurant name, by the way is: 'Citrine: discover a new world of flavor.' Not too bad of a name for a chain of small-format grocery markets which would put an emphasis on fresh and natural, is it?

'The Insider' Offers Some Advice He Suggests the New Owners of Northern California's Andronico's Markets Should Take Post-Haste

All six of the stores still have signs saying Andronico's Market, like on the San Francisco store above, despite the fact the grocer changed the name to Andronico's Community Markets over a year ago. For 'The Insider' this is a blessing in disguise because he says the new ownership needs to bag the Andronico's Community Markets name and return to Andronico's Markets, with an emphasis on Andronico's, similar to how it's depicted on the sign above.

The Insider - Heard on the Street

In my October 18 column - May-to-October at 82-Year-Old Andronico's Markets: New Owner, 2 Stores Closed ... Now What? - I reported that an investment fund led by Renovo Capital and created by it and Rosewood Private Investments got the green light from the Oakland, California division of the U.S. Bankruptcy Court to acquire 82-year-old grocer Andronico's Markets, which has its headquarters next to and above its store in San Francisco and operates six stores in the Bay Area region, down from a high of 14 units less than a decade ago and two stores shy of the eight it operated until closing two units this year - one grocery market in Palo Alto, California, closed in July, and the store on University Avenue in Berkeley, closed yesterday.

Three of the existing Andronico's stores are in Berkeley - on Shattuck Avenue, Solano Avenue and Telegraph Avenue. The other two units are in Los Altos, in the South Bay Area, and San Anselmo, which is in Marin County in the North Bay.

On Friday, October 28, the day before the closing of the University Avenue store in Berkeley - the university city that's been home base for Andronico's since it was founded in 1929 by Greek Immigrant Frank Andronico - Renovo Capital partner Scott Lavie and Andronico's CEO, Bill Andronico, who is Frank's grandson and has been running the chain since the 1980's, publicly announced the closing of the deal and sale of Andronico's to the investment firms and their fund, following the approval by the bankruptcy court, as I reported on in my October 18 column.

The purchase price, as I noted on October 18, was $16 million.

Renovo Capital has already invested about $5 million in Andronico's in the form of secured debtor-in-possession financing, which was part of its strategy to keep Andronico's alive financially and operationally until it could complete the acquisition through the court proceedings, which began in August.

The closing of the University Avenue store in Berkeley was also a part of the deal worked out with the court.

The store's about 20 employees have been told by the new owners that they can apply for jobs at the remaining six Andronico's stores. However, that's more theoretical than a reality for all or most of the workers because the last thing the new ownership wants and needs to do is add to rather than reduce Andronico's labor costs, considering the small chain's debts of $10-$15 million are about equal to its assets, according to the Chapter 11 filing.

Renovo's Lavie and Bill Andronico, who is staying on for now to continue running the 82-year-old chain that bares his family's name, said Friday, as they've said previously, that the new ownership plans to invest cash to improve the stores and the small chain's operations.

Here's what Bill Andronico said on Friday: "I want to thank our loyal customers, our committed employees and our faithful vendors who have worked with us through this difficult chapter in the company's history. I am pleased that Renovo Capital's purchase will allow us to improve our standing in the market and build on the strong brand my family has built over three generations."

Bill Andronico is the third generation of the Andronico family to run the grocery chain, having taken over for his father John in the 1980's. John Andronico took over from his father, Frank Andronico, who in 1929 founded Andronico's with a small grocery store on Solano Avenue in Berkeley, the site of one of the three existing stores in the city.

Here's what Scott Lavie, a Renovo Capital partner who's been heading up the Andronico's deal said as part of the same announcement on Friday: "Andronico's will continue to operate six locations: three stores in Berkeley and markets in San Francisco, San Anselmo and Los Altos. Renovo is committed to investing into the store's physical infrastructure to update the facilities and ensure that the stores continue to improve the quality of service for which they have historically been known. As part of this effort, key members of Andronico's executive management team will be retained to manage the company and its operations."

Lavie added this in the announcement: "We are excited about the opportunity for improvement in Andronico's stores to better serve our customers." The acquisition of the Andronico's brand was based on its market cache, and in combination with Renovo's ability to invest in the stores and employees, we want to ensure that Andronico's continues its commitment to excellence and delivering value to our customers for generations to come."

According to the August bankruptcy filing, Andronico's was doing about $120-$130 million in annual sales at the time, which is considerably less than half the annual sales the chain was doing at its 14-store peak, based on sales figures I'm aware of from the early-to-mid 2000's.

In my October 18 column I offered some analysis and informed opinion on what I think the future might hold for Andronico's under the new ownership, if you care to take a look, here.

The "key members" of Andronico's executive management team that Scott Lavie says in the quote above will be retained by the new ownership potentially include, in addition to Bill Andronico: Steve Epidendio, Justin Jackson and Anthony Gilmore.

Last year Bill Andronico brought the three men, all former Whole Foods Market guys, along with another Whole Foods' alum, John Clougher, into the then family-owned chain to help him raise financial capital and turn the chain around.

Claughter, who has been the president and COO of Andronico's since then, reporting to Bill Andronico, is leaving to become the CEO of A.G. Ferrari Foods, a small specialty grocery chain that Renovo Capital and Rosewood also recently bought out of bankruptcy. (See my October 18 column for details).

Claughter, who is leaving to head A.G. Ferrari Foods as noted above is the former president of Whole Foods Market's Pacific Northwest Region, which includes Oregon and Washington State.

Jackson, who's held the title of executive vice president at Andronico's since last year, was the first Whole Foods Market alum Bill Andronico recruited last year. Most recently prior to that he was vice president of purchasing for Whole Foods' Pacific Northwest division.

Epidenio, who managed one of the Andronico's stores for about nine years, from the 1980's-to-early 1990's, later went on to become vice president of retail operations for Whole Foods Market's Northern California division. His position at Andronico's since last year has been as the grocer's vice president of operations.

Lastly, Anthony Gilmore, who was president of Whole Foods' Northern California region from 2004-2007 and worked for the natural-organic foods' chain from 1996-2007 before leaving in 2007 to take a job titled vice president of corporate lifestyle, new concept development and corporate perishables, at Pleasanton, California-based Safeway Stores, Inc., has since last year been Andronico's chief strategist and chief administrative officer.

From 2007-2010 at Safeway Stores' headquarters in the San Francisco Bay Area city of Pleasanton, Gilmore worked on, among other projects, the development of the grocer's "The Market" small-format fresh food and grocery chain.

Safeway opened its first "The Market" store in Long Beach, California in 2008, followed by a second unit in San Jose in 2009.

Safeway's CEO, Steve Burd, decided not to go forward with the small-format stores, which are very similar in format to Tesco's Fresh & Easy Neighborhood Market, as Fresh & Easy Buzz has reported. Not long after that decision by Burd, Gilmore, who worked for Safeway as a retail clerk and store manager for 19 years before joining Whole Foods Market, left the Pleasanton-based chain to join his fellow Whole Foods' alums at Andronico's.

There are additional details about the industry backgrounds of the former Whole Foods Market alums in my May 30, 2011 column about Andronico's  - 82-Year-Old Grocer Andronico's Needs A Sugar Daddy of Sorts: 'The Insider' Suggest Tesco and its Fresh & Easy Neighborhood Market Might Fit the Bill - if you're interested.

The executive management team - Bill Andronico, Epidenio, Jackson and Gilmore - is deep with experience in food and grocery retailing, including in Northern California's San Francisco Bay Area. But it also might be a bit to collectively expensive for the new ownership and for Andronico's balance sheet, even though there will be some savings on the expense side with John Claughter's move over to nine-store A.G. Ferrari Foods, which Renove bought out of bankruptcy for less than $2 million dollars.

Assuming all or most of the executive team is retained, based on the extensive experience and individual talents of each of the members, they have a shot at turning Andronico's around, assuming they do some out of the box thinking and implementation - no wholesale Whole Foods Market format cloning, for example - and are able to strike a fine balance between creating a strategic blueprint for going forward that combines the best elements of Andronico's successful food and grocery retailing history with much needed changes in how the chain has been operating for the last decade.

Andronico's knows merchandising - and executes it extremely well. As an example, take a look at the produce department merchandising pictured in the photographs above and below. The photos were taken November 27, 2009, at one of the six remaining stores. [Photo credit: Willo O'Brien.]

I'm not the foremost expert on Andronico's, if such a thing exists. But I've been a close observer of the grocer and the markets it operates its stores in for nearly three decades.

Therefore, I'm going to offer a list of five key action steps the new ownership needs to have the executive team start and focus on post-haste (immediately), as in beginning on Tuesday. On Monday they all need to go out in the stores, interact with shoppers, and give away free treats to kids in the stores for Halloween - along with an action timeline, if its serious about saving the six-store chain - and eventually growing it.

There are additional things to focus on - but this is a list to get busy on starting Tuesday morning.

Here goes:

1. Dump the Andronico's Community Markets name and go back to Andronico's Markets, which has been the grocer's name since it changed it from Andronico's Park & Shop in the 1980's.

Adding "Community" to the name of the stores add zero-value to Andronico's, its marketing position or operations, in my analysis. In fact, it's a determent. I see it as added word baggage and meaningless semantic clutter.

Customers and residents of the San Francisco Bay Area call the chain "Andronico's," and have done so for decades. Even before the family changed the name of the stores from Andronico's Park & Shop to Andronico'sAndronico's." In fact, that's one reason the grocer dropped "Park & Shop" from the name.

The name "Andronico's" (not Andronico's Community Markets) has brand equity with shoppers in the Bay Area, which is one reason Renovo says they bought the grocer out of bankruptcy. Why mess that up?

Further, the exterior signs on the six stores still say Andronico's Markets. Dropping "Community" from the name will not only fit with what shoppers already call the stores, it will save a ton of cash because it will eliminate the need to buy and install new store signage, which is an expensive proposition, particularly for a fledgling small grocery chain. It's money that should be put to better and higher uses by the new ownership.

Conversely, keeping the Andronico's Community Markets name but keeping the Andronico's Markets signs on the stores, which has been the case for over a year since the name change, creates brand dissonance among consumers. It's also extremely poor marketing and branding.

Additionally, if these two reasons aren't enough - and they are - dumping the Andronico's Community Markets name, which the new executive team created and changed the name of the company and stores to last year, apparently in an attempt to tell shoppers that the grocery chain that's been family-owned and community-based for 82-years was now really community-based, gives the new ownership a great press release headline story.

My press release story headline would read something like this: "Back to the future at Andronico's: New owner takes back the Andronico's Markets' name because it's meant 'community grocer' for eight decades."

Timeline: Launch by Friday, November 4.

2. Evaluate each of the stores ... using a metaphorical microscope.

The San Francisco store (Inner Sunset District) is an excellent location. The new owners need to nurture it.

The Shattuck Avenue Andronico's unit in Berkeley is a good location. The store on Solano Avenue (Berkeley) is decent-to-fair. The Telegraph Avenue (Berkeley) unit is mediocre - but has potential to improve.

The benefit in Berkeley is the three stores give Andronico's brand, advertising and promotional synergy and reach. But the stores have to perform on their own, and do so against major and increasing competition, in order to justify keeping all three open.

Regarding the stores in San Anselmo and Los Altos, unless they're performing better than I'm told (neither has ever been a sales barn-burner by the way), I would put them under the microscope closely. I would be asking 'Would closing one or both of these stores and using the savings to grow business at the remaining stores (and possibly adding a new location) be a better alternative than keeping them open?'

Were I crafting the strategy for Andronico's, there's a scenario I would look at closely.

Here it is: There's a potentially good location available to Andronico's in San Francisco, which is the vacant Delano's IGA Market store (about 15,000 square-feet) in the city's Richmond District. The store, at 6333 Geary Boulevard (at 27th Avenue), has been has been vacant since last year, when owner Harley Delano closed it, along with four other units, because of financial struggles. (see here for details.)

Tesco opened one of its Fresh & Easy markets not far away (at 32nd and Clement) in June of this year. That store has been doing fairly well since opening four months ago.

However, in my analysis the highly populated Richmond District could support a grocery store in the former Delano's building, particularly one that offers a strong mix of everyday grocery items, along with specialty and fresh foods offerings.

One problem with the Fresh & Easy stores is they only offer about $5,500 SKUs in the 10,000 square-feet of selling space. About 65% of those items are the chain's private brands. And of the remaining 35%, about half the items are nationally branded packaged food and grocery items. As a result, most shoppers can't get all they desire at a Fresh & Easy store, particularly when it comes to their favorite national grocery brands.

The former Richmond District Delano's location is just across Golden Gate Park from Andronico's supermarket in the Inner Sunset District. But the distance is such that few if any residents who live in the Richmond District cross the park to shop at the Andronico's, instead shopping at a Safeway supermarket in the neighborhood, along with another unit not far away on La Playa at Ocean Beach, and at the now-opened Fresh & Easy store.

What I would seriously look at would be potentially closing one of both of the two worse-performing (taking into consideration the future performance potential the stores have) Andronico's stores (which could easily be the San Anselmo and Los Altos units or the Telegraph store in Berkeley as I've noted previously) and then putting a new store in the vacant Richmond District Delano's building, assuming the costs of doing so were within reason. A decent monthly lease and the like. (I have no affiliation with the landlord of the building.)

Doing so would give the new ownership five or six stores - three units in Berkeley and two in San Francisco, under the two-store closing scenario, with one additional unit (total of six) under the one-store closing scenario.

Depending on relative performance, keeping the San Anselmo store in Marin County (the one-store closing strategy), which is much closer to San Francisco and Berkeley geographically than the Los Altos store is, would make the best sense from a synergy perspective because the six units would all be located in fairly close geographical proximity.

Berkeley, San Francisco and San Anselmo are all clustered fairly close together. Los Altos is farther out in the South Bay Area, next door to Palo Alto where Andronico's closed the store in July.

The type of store I envision for Andronico's in the former Delano's building is a smaller version (with some differences) of its Inner Sunset-San Francisco supermarket, which is nearly 30,000 square-feet.

The Richmond District-San Francisco Andronico's would carry at least 20,000 SKUs, with a mix of basic groceries, specialty-natural-organic products and fresh prepared foods.

Mollie Stone's Markets, which took over one of the former five Delano's stores, the unit in San Francisco's Castro District, offers that many SKUs in the store, which only has 9,000 square-feet of selling space. The former Delano's in the Richmond District has at least 12,000 square-feet of selling space, based on my estimate.

I would go stronger proportionately on the basic grocery category and item mix (essentials) in the hypothetical Richmond District Andronico's store than Mollie Stone's has done with its store in the Castro District (which has a good mix for the neighborhood) because the Richmond isn't as strong demographically for specialty-natural organic and fresh-prepared foods, a specialty of both Mollie Stone's and Andronico's, as the Castro District neighborhood is.

Were I directing strategy at Andronico's I would use the Castro Mollie Stone's store, along with an edited version of the Inner Sunset Andronico's supermarket, as the basis of my blueprint for the Richmond District Andronico's new unit. The Richmond District neighborhood also has a substantial Asian-American population (primarily Chinese but also others), so I would make sure to focus on the Asian foods category across all of the store's departments, particularly dry grocery, produce and fresh meat.

The hypothetical Richmond District Andronico's in my plan would be very much a basic grocery store - rather than a specialty grocery store with a selection of everyday products - with a major focus on fresh produce and meats, a lot of everyday food and grocery essentials, and a decent selection of specialty-natural-organic items, along with a small but very comprehensive ready-to-eat and ready-to-heat fresh-prepared foods offering, which historically is a category Andronico's has been a pioneer of in the Bay Area and even nationally in the U.S.

Timeline: Start the analysis now. Make a decision fast.

3. Conduct the category and pricing reviews next week. Make changes rapidly.

The new ownership needs to focus more than Andronico's has in the recent past on customizing the store's product mix to location. For example, with the opening last year of the Whole Foods Market store nearby in the Haigh-Ashbury District, Andronico's should beef-up its everyday grocery product offerings at its store in San Francisco's Inner Sunset District. Whole Foods doesn't carry everyday groceries - Tide, Charmin, Kelloggs, Coke and the like - and doing so is a competitive advantage Andronico's should better capitalize on in the store, which is its best-performing unit out of the six grocery markets.

The new ownership needs to look at each of the six stores in this way. Localize, localize, localize, when it comes to product categories and merchandise mix.

Timeline: Begin next week. Implement before year-end.

4. Go back to a weekly advertising circular. Add substance back.

One of the major cutbacks Andronico's made was to reduce its once very substantial weekly advertising circular to one that's a fraction of the former flyer. Its also reduced the promotional frequency of the circular from weekly to about one every three weeks. That won't cut it in the very competitive Bay Area markets where its stores are located.

Therefore, one of the first things I would do is bring back the substantial, weekly circular. However, I would put an equal focus on distributing digital, non-paper versions of the weekly ad - company website, Facebook, ect. - as I would paper versions, which are generally direct-mailed to households our included in Tuesday or Wednesday editions of local newspapers.

Timeline: Break the new, expanded ad for the Thanksgiving holiday sales week. That's about two weeks from today.

5. Hold a "Thanksgiving" community celebration at each store, thanking shoppers for sticking with Andronico's through tough times - and letting them know better days are coming soon.

Timeline: A week before the Thanksgiving Holiday. It is a "thanksgiving" celebration, after all.

This is just a start. But the five action items are good ones for the new ownership to put on the "to do" list, to be tackled starting Tuesday morning. I'll take a look at Andronico's, and my list, again before the end of the year.

Note: In my first column about Andronico's financial difficulties, on May 30, 2011, I strongly suggested to president Bill Andronico and his senior management team that they start using social media, particularly Facebook and Twitter, post-haste, as a low-cost, potentially high-impact way to talk to customers and shoppers specifically about what's going on with the company and generally as a way to communicate about and promote the stores.

Three weeks later, on June 20, Andronico's became active with a Facebook page, and over the last few weeks has been posting a variety of information on it on a regular basis - and doing a good job of it.

Additionally, on July 29 Andronico's set up and account on Twitter - @andronicos1 -  and has benn regularly posting tweets as a way to talk to customers and promote the stores.

I haven't (intentionally) has any direct communication with the members of the Andronico's senior management team, but the timing of the launch on Facebook and Twitter is definitely interesting, based on the playbook I've been suggesting for the grocer.

It's also something the senior management team should have been doing a long time ago. But, as a wise man (or it could have been women) once said ... Better to be late to the party than to have never attended. Social media offers a lot of potential for Andronico's if used regularly and in a creative way.

Related Stories

October 18, 2011: Look for Fresh & Easy Neighborhood Market to Grab Closing University Avenue Andronico's Supermarket in Berkeley CA ... If it Can

October 18, 2011: May-to-October at 82-Year-Old Andronico's Markets: New Owner, 2 Stores Closed ... Now What?

May 30, 2011: 82-Year-Old Grocer Andronico's Needs A Sugar Daddy of Sorts: 'The Insider' Suggest Tesco and its Fresh & Easy Neighborhood Market Might Fit the Bill

>Also see the following links - Mollie Stone's Markets, DeLano's IGA Markets - for additional related stories.

>You can read all of our 'The Insider' columns at this link -  The Insider - along with all past coverage about Andronico's here.

82-Year-Old Grocer Andronico's Needs A Sugar Daddy of Sorts: 'The Insider' Suggest Tesco and its Fresh & Easy Neighborhood Market Might Fit the Bill

The Insider - Heard on the Street

Last week the San Francisco Chronicle and a couple papers in nearby Berkeley published brief stories in which they reported eight-store, family-owned grocery chain Andronico’s Community Markets is having financial problems.

The reports were based on e-mails sent to the papers from suppliers/vendors the grocer owes money to on a past-due basis.

It's true the grocer is past-due to the vendors. But Andronico's financial struggles aren't a new development, as reading the reports might suggest. Instead, the grocer's financial difficulties began in earnest in late 2005-2006, becoming very serious in 2009, and remaining so today, due primarily to too much debt, increased competition and later the economic recession.

The 82-year-old upscale-oriented eight-store independent, headed by CEO Bill Andronico and founded in 1929 by his grandfather, Frank Andronico, moved on April 26, 2011 from its longtime headquarters located at 1109 Washington Avenue in Albany near Berkeley to a suite of offices above and next to its store (pictured above) on Irving Street in San Francisco’s Inner Sunset District.

The lease on the Albany digs, where Andronico's has been for about 25-years, was up May 1. The grocer didn't renew it, instead deciding wisely to save some cash by utilizing what is a fairly decent amount of office space at the San Francisco location, which is its best overall performing store out of the eight supermarkets it operates - four in Berkeley, and one unit each in San Francisco, Palo Alto, Los Altos and San Anselmo.

Palo Alto and Los Altos are in the South Bay Area, not far from San Jose. San Anselmo is in Marin County.

In the past Andronico's rented out some of the office space above and attached to the supermarket in San Francisco's Inner Sunset District.

The store is the only supermarket in the densely-populated neighborhood, which among other things is home to the University of California at San Francisco, a medical professions' campus which has a medical school, school of pharmacy, graduate school of health sciences, a major research hospital and additional research institutes.

Since I've known about Andronico's serious financial problems since 2009 - and its overall financial struggles since 2006 - I thought I would offer some details, analysis and commentary on the topic and issue for Fresh & Easy Buzz readers, many of whom are very familiar with Andronico's Community Markets, which until last summer was known simply as Andronico's Market, and before that as Andronico's Park & Shop.

The signs on the Andronico's stores still say Andronico's Market, even though the name of the chain and stores were changed to Andronico's Community Markets last summer. I'm told by a person in a position to know at Andronico's there are no current plans to put up new signs because of the expense of doing so.

First off, last week Bill Andronico responded to the San Francisco Chronicle with an e-mail, which was published May 26.

According to the May 6 item in the paper, Bill Andronico wrote in the e-mail that the grocer is looking to "recapitalize" and to "bring in lending/investor partners to replace the existing lender group and, additionally, provide growth capital." (You can read the rest of his e-mail as published in the Chronicle here.)

There's really nothing new about Andronico's trying to bring in new investors and raise capital. It brought in new money a decade ago, which is how from the late 1990's to the early 2000's  it built a new store and fresh foods facility in Emeryville (East Bay), two very upscale and expensive-to-construct stores in the East Bay Area cities of Danville and Walnut Creek, and how it financed the remodeling of the San Francisco store in 2008, along with doing a few other things.

Additionally, the grocer has been seriously trying to raise money from existing and new investors for at least six years that I'm aware of. It continues to try.

The first major sign Andronico's was having serious financial difficulties beyond those that surfaced in 2005-2006 was when in 2009 it let a number of category managers and buyers go at its then headquarters in Albany. The grocer had established a well-staffed professional category management system in the late 1990's, after having just a couple grocery buyers, a produce buyer, meat buyer and small prepared foods headquarters' staff prior to that.

Shortly after the cutbacks, Bill Andronico brought in former Whole Foods Market executive Justin Jackson as a consultant. Before joining Andronico's, Jackson was the vice president of purchasing for Whole Foods Market's Pacific Northwest Region

As part of his job, Jackson, who is executive vice president of Andronico's, recruited a new senior management team, largely comprised of ex-Whole Foods Market guys from the Pacific Northwest and Northern California divisions.

That team includes: John Clougher, Andronico's president and COO; Steve Epidendio, vice president operations; and Anthony Gilmore, who's titles are chief strategist and chief administrative officer. Bill Andronico remains CEO.

Clougher is the former president of Whole Foods' Pacific Northwest Region. Epidendio was the vice president of retail operations for Whole Foods Markets' Northern California division. He was previously a store manager for Andronico's for about nine years, from the late 1980's to early 1990's, later joining Whole Foods Market in Northern California.

Anthony Gilmore was recruited by Jackson and Clougher to Andronio's. Just prior he was vice president of corporate lifestyle, new concept development and corporate perishables at Pleasanton, California-based Safeway Stores, Inc., from 2007 until leaving in 2010, where among other things he worked on the development of its "The Market" small-format stores, which Safeway has stopped opening. There are two "The Market" stores - one in Long Beach, California, the other in San Jose. [See - October 15, 2010: Safeway Shelving 'The Market' Small Store Format; Won't Be Part of its Strategy Going Forward.]

Gilmore, who has 34-years experience in the food and grocery retailing business, most of it at Safeway and Whole Foods Market - and most of those years in Northern California - was president of Whole Foods' Northern California Region from 2004-2007. During his tenure in the position he was responsible for leading the development of numerous new Whole Foods locations in Northern California, many of which opened this year and last.

He went to work for Whole Foods in 1996 as the manager of its store in Palo Alto, California, where one of Andronico's eight stores is located. 

Gilmore later managed a store in Boulder, Colorado and was later promoted to regional vice president of the natural and organic-focused grocer’s Southwest Region, taking over as president of the division a short time after.

From 2002-2004 he was president of Whole Foods' Midwest division, getting promoted to president of the much larger Northern California Region in 2004.

Before joining Whole Foods Market in 1996, Gilmore spent 19-years working for Safeway Stores' in Northern California at the store-level, including as a store manager.

One of the casualties of the shake up at the grocery chain was the departure of Gary Wallner, who for 21-years was the face of Andronico's to the vendor-broker-supplier community. Wallner joined Andronico's in 1989 as a buyer-merchandiser, progressed to director of buying and merchandising, and then became vice president, which was the title he held when he left in May 2010.

In addition to Wallner, a couple other senior executives were let go in the reorganization.

One of the first things the new management team at Andronico's did last summer was to change the name of the chain, from Andronico's Market, to Andronico's Community Markets.

The change reflects the grocer's attempt to reposition the stores from their historic higher-end, upscale/specialty focus to a more community or neighborhood-oriented grocer. The stores still focus on specialty, natural, organic and fresh and fresh-prepared foods, along with offering basic groceries as they always have, but the group has been trying to tone down the upscale aspect in order to try to reach a broader customer base.

The recession that first hit in 2008 added to Andronico's financial problems, along with its debt load and the increased competition, because some its core-customers were forced to trade-down to grocery stores that offered lower prices. Although the Bay Area economy has improved somewhat since, as is often the case when  consumers start shopping around elsewhere, they continue doing it even when things get better economically, at best splitting their business among two or three food retailers.

The family-owned grocer has a history of name changes. For example, until the late 1980's-early 1990's the stores were called Andronico's Park & Shop Markets, then becoming Andronico's Market, the company name and store names until last summer.

Going Forward

First and foremost, Andronico's is looking for new investors - and money - plain and simple.

Additionally, the grocer has an experienced and seasoned senior management team.

Bill Andronico knows the Bay Area food and grocery retailing market extremely well, as does Gilmore and Epidendio, most particularly out of the others, although I question if Andronico's can afford as much high-priced talent as it has brought on in the senior management ranks.

For example, Bay Area competitor Mollie Stone's Markets (nine stores), which is privately-owned and very similar in format to Andronico's historic format positioning, has a much leaner management structure and team and is doing well despite the continued economic recession and competition from major chains and other independent grocers in the Bay Area. Mollie Stone's opened its ninth store in San Francisco's Castro District in March of this year, for example.

Andronico's has what in my analysis and opinion are three strong stores out of the eight it operates in the Bay Area. Those stores are its Inner Sunset supermarket in San Francisco and two stores in Berkeley - Shattuck Avenue and Telegraph Avenue - out of the four units in the Easy Bay Area city.

The other five stores are decent-to-marginal.

The two other Berkeley units, on University and Solano Avenues respectively, haven't been great performers for many years.

And Andronico's has and faces increased competition in Berkeley, where for decades it was the leading grocer with its four stores.

For example, Trader Joe's opened its first store in Berkeley this year. The TJ's store on University Avenue, not far from the Andronico's Communty Market unit on the same street, which leads to the world renown University of California at Berkeley campus, has taken a significant bite out of sales at the Andronico's store.

Additionally, local independent Berkeley Bowl opened a new store in the city last year. That and its existing store - the grocer is super-popular and focuses on fresh foods (particularly produce) as well as natural, organic and specialty products - have also hurt Andronico's considerably, as has the Whole Foods store (near the Telegraph Avenue Andronico's), which has come on stronger over the last few years, compared to its past performance.

Even though it's still a strong store, the Inner Sunset District Andronico's unit got some new competition earlier this year when Whole Foods Market opened a store a five minute drive away, at Haight and Stanyon streets in San Francisco's Haight-Ashbury District.

The Whole Foods' store went into a vacant building that for decades was home to a Cala Foods market, which was closed a number of years ago by Kroger Co., its owner. Ironically, the Haight and Stanyon Whole Foods store was one of the many locations acquired by Gilmore during his tenure as president of Whole Foods Market's Northern California division.

During the years the former Cala Foods building and now Whole Foods store was vacant, the Andronico's unit in the Inner Sunset gained added business and sales because the store was the nearest full-service supermarket for many people in the Haight-Ashbury neighborhood.

The Palo Alto, Los Altos and San Anselmo Andronico's stores are what I call decent-to-marginal performers, and are subject to becoming worse-performing with increased competition, which is coming everywhere in the Bay Area, with Trader Joe's, Sprouts Farmers Market, Whole Foods Market, Sunflower Farmers Market, Target and Tesco's Fresh & Easy Neighborhood Market all opening numerous new stores, along with continuing new store growth from Safeway and others, in the region.

Walmart also plans to start opening some of its new smaller-format Walmart Market and Walmart Express stores in the Bay Area, beginning later this year or in early 2012.

So what's Andronico's to do?

Option one is to bring in new investors with cash - this the grocer's preferred option because it desires to stay independent, according to my good sources - and not sell the 82-year-old chain bearing the family name, although investors do own a piece of it now.

When founder Frank Andronico stepped down, Bill Andronico's father took over. And when his Dad retired, Andronico, who's a graduate of the University of Southern California's Food and Grocery Industry Management Program and has worked in the family business for about three decades, became CEO. That's a serious and important legacy to uphold and maintain.

In its 82-years Andronico's has also been a innovator, no only in the Bay Area but nationally.

For example, it was one of the first grocers in the U.S. to offer fresh-prepared foods made in-store by chefs.

Andronico's was also one of, if not the first, grocers to install multi-shelved refrigerated produce cases in its stores. In fact, when it first did so many decades ago, such produce cases didn't exist, so the grocer had them custom made.

The family-owned chain also is a pioneer in specialty, gourmet, natural and organic food and grocery product merchandising and promotion. For example, long before Whole Foods Market opened its first store in the Bay Area in the 1980's, Andronico's was already firmly established as a leader in the then just-starting-to-emerge categories in the United States.

Andronico's was among the first wave of supermarkets in the U.S. that provided significant space on its shelves to natural and organic product brands like Lundberg (rice), Celestial Seasonings (tea), Newman's Own and many others, as well as to specialty and gourmet foods from abroad and at home.

Andronico's was also the first grocer I'm aware of that completely replaced the standard metal grocery shelving in its stores with wire Metro shelving, something that not long after it did so became popular among grocers in the Bay Area and throughout the U.S., thanks in part to Bay Area-based grocery store designer John Sutti, who built his considerable reputation in large part on the innovative store design work he did in partnership with the family in their stores.

A story: When Whole Foods Market co-CEO Walter Robb went to work for the then fledgling grocery chain in the early 1990's, his first task was to spearhead the renovation of a vacant building on Miller Avenue in Mill Valley, California that he previously had the lease on and had planned to turn into his own grocery store. But failing to raise the cash, Robb instead did a deal with Whole Foods' founder (and the other co-CEO) John Mackey, which was that in return for a little money and a job as the store's planner and then manager he would sell the lease to Whole Foods so the location could become the grocer's first store in Mill Valley.

It was a good decision for Whole Foods, Robb and Mackey. The 14,000 square-foot store has among the highest sales-per-square-foot of any Whole Foods unit - averaging about $550,000 a week in sales. Robb later became president of Whole Foods' Northern California Region. The Northern California Region has become a top-performer for Whole Foods. Mackey and Robb, who later became co-president of Whole Foods, went on to have a great working relationship, so much so that Mackey and the grocer's board named Robb co-CEO last year.

Robb (and Whole Foods) hired John Sutti and his firm to do the design work for the Miller Avenue store, which is one of two Whole Foods Market stores in the small town of Mill Valley (about 10,000 residents), in large part because Robb was impressed with the work Sutti did for Andronico's, who Robb called on for a couple years prior to that as a sales consultant for a number of Bay Area natural and organic products' companies. He also got had gotten to know Bill Andronico and the Andronico's stores fairly well prior to that as the manager of a natural foods store in Marin County.

Jean Greenfield, who for a number of years in the 1990's worked as Whole Foods' Northern California regional buyer out of a tiny converted closet, accessible by climbing a latter, atop a small loft in the backroom of the Miller Avenue store, later went to work for Sutti's retail store design firm. Whole Foods later established its Northern California headquarters in Emeryville, where it is today.

Bottom Lines(s)

Andronio's has been working hard on option one, bringing in new investors, for nearly one year now, since the new senior management team took over. So far - no new investors or cash.

This brings us to what I call option two, which would be an outright acquisition or major investment - controlling or significant minority interest - in Andronico's.

I see two grocery chains this might make sense for - Tesco's Fresh & Easy Neighborhood Market and Bristol Farms - both of which are headquartered in Southern California and have stores in Northern California's Bay Area.

Bristol Farms and Endeavour

In October 2010 members of Bristol Farms' senior management team, including CEO Kevin Davis, along with investment firm Endeavour Capital bought the upscale 14-store chain from its then owner, Supervalue, Inc. Bristol Farms has one store in Northern California, in San Francisco, and is scouting the region, with a focus on the Bay Area, for potential future stores. [See - October 29, 2011: CEO Kevin Davis, Execs and Investment Firm Buy Upscale Southern California Bristol Farms Chain From Supervalu, Inc.]

Andronico's and Bristol Farms are very similar chains, even though the new team is trying to position Andronico's Community Markets more into the community or neighborhood market space - which to date in my analysis and opinion hasn't and isn't working.

Therefore, I see some definite synergies (and mutual opportunities) between the two grocers in terms of Bristol Farms/Endeavour Capital taking a look at Andronico's, as either an investment opportunity or acquisition.

Both grocers are also supplied by wholesaler Unified Grocers, which doesn't want to lose the Andronico's business.

Will Bristol Farms take a look? I would if at the helm. Would Andronico's be interested? One would think so.

One problem though: Andronico's is union. Bristol Farms is not. That means a deal of any kind is going to involve the United Food & Commercial Workers (UFCW) union on some level, which is something Bristol Farms would like to avoid.

Tesco and Fresh & Easy

The other opportunity I find most interesting is Tesco and its Fresh & Easy chain.

Andronico's offers the following to Tesco and its Fresh & Easy Neighborhood Market chain, which has opened 11 stores in Northern Californa (nine units in the Bay Area) so far this year, and opens its first store in San Francisco June 22, followed by its second unit in the city on August 24.

>Talent: Bill Andronico and Anthony Gilmore (and maybe one additional member of the senior management team), both know as much about the Northern California market region as most grocers operating in it do. That would be a big plus for Tesco and Fresh & Easy, which as a dearth of senior executives with experience in Northern California or elsewhere in the U.S.

>Fresh Foods: Andronico's has a, history of having among the finest fresh produce, meat and fresh-prepared foods programs not only in Northern California but in the U.S. Tesco's Fresh & Easy could benefit greatly from this expertise and experience.

>Store Locations: Tesco could utilize all eight of Andronico's stores.

What I would do as Tesco:

>Get rid of the Andronico's Community Markets name and go back to Andronico's Market, keeping the San Francisco, Shattuck Avenue-Berkeley and Telegraph Avenue-Berkeley stores under the Andronico's Market banner and format. Use it as the basis of a possible upscale chain down the road. Invest some money in the two Berkeley stores, although it need not be much as they are in pretty good shape.

>Change the University Avenue and Solano Avenue stores in Berkeley to Fresh & Easy Nieghborhood Market stores. Both locatons are about the same size as Fresh & Easy markets - 10,000-12,000 square-feet - and geographically fit the format best of the four.

>Also convert the San Anselmo, Palo Alto and Los Altos locations to Fresh & Easy stores.

Tesco's Fresh & Easy has no stores in Berkeley, which is one of the better cities in the Bay Area for the format.

Tesco's Fresh & Easy also doesn't yet have any stores in Marin County (San Anselmo), Palo Alto or Los Altos, all desirable locations.

Andronico's fresh-prepared foods program and the high quality of the products it produces could be helpful to United Kingdom-based Tesco overall, in the UK where it's a major player but far from the best - Marks & Spencer, Waitrose and Sainsbury's are better in my view - in ready-to-eat and ready-to-heat prepared foods' merchandising and globally in some of its other operations.

Lastly, Andronico's specialty-oriented expertise and historic upscale format might also be a benefit to Tesco in the UK if it ever decides to create an upscale format and position it against the nation's leading upscale-specialty-natural-organic grocery chain,Waitrose, and Whole Foods Market, which is opening additional stores there.

Union redux: Like Bristol Farms, Tesco's Fresh & Easy is a non-union food and grocery retailing chain. And, as readers of Fresh & Easy Buzz are well aware because we cover the issue more extensively and more in-depth than any other publication does, the United Food & Commercial Workers Union (UFCW) has been trying to unionize Fresh & Easy Neighborhood Market since early 2008. Therefore, the fact Andronico's is a union grocer could pose a serious barrier to Tesco making any sort of  investment in Andronico's - even buying it - should the UK-based global retailing giant-come-to-America consider my scenario.

The jury is still out on whether the Fresh & Easy format will succeed. Right now in my analysis the majority of the jury is voting no. But Philip Clarke and company might still be able still change that verdict, although the clock is ticking very fast.

Were I an advisor to Tesco CEO Philip Clarke and his deputy CEO Tim Mason (and I'm not and don't seek such a position), who's also CEO of El Segundo, California-based Fresh & Easy Neighborhood Market, I would tell then to call Bill Andronico post-haste and set up a meeting with him, Anthony Gilmore and the CFO, to start. The investment in time is well worth the potential outcome.

And, of course, Andronico's could benefit - starting with surviving - from an investment or more from Tesco. As such, were I advising Bill Andronico (and I don't), I would tell him not to wait to hear from Tesco CEO Clarke or his deputy Tim Mason. Instead, I'd suggest he reach out and ask for a meeting. Perhaps he already has - Philip Clarke was in San Francisco late last week, leaving the airport on Saturday to return to London?

if Andronico's had hired that social media director it's been advertising for on its website for nearly a year - I first saw the ad on the website in August 2011 and noticed Andronico's removed it about one week ago - it could communicate with Tesco on Facebook and Twitter, two important social media sites Andronico's has zero-presence on. See its Facebook site, for example, assuming it's actually the grocers.

If I were being paid the big bucks to turn a grocery chain like Andronico's around, one of the first things I would do is create a significant presence on Facebook, Twitter (Andronico's has neither that I can find) and a couple other social media sites. You can hire a talented college intern to help for near-nothing, for example.

The sites are free but potentially powerful. They also allow a grocer to address customers and potential customers directly and instantly - no need to send e-mails to third parties like local newspapers, which is so 20th Century.

Bill Andronico should call Mollie Stone's co-owner Dave Bennett, who understands the potential power of social media, and chat a bit. Then he should ask his numerous senior executives what they're waiting for on the social media front? After all, 82-year-old Andronico's needs and deserves solutions rooted in the 21rst Century, not the 20th.

A Sugar Daddy of sorts isn't needed for social media and many other low-to-no-cost operations, merchandising, marketing and promotional programs that are needed but I'm not seeing being implemented at Andronico's, which makes me wonder - are things that close to the end financially? Or is it time for another new senior management team? Or both?

It would be a shame to lose the 82-year-old chain completely. So time and much better effort from the senior management team seems to me to be of the essence.

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

"No city invites the heart to come to life as San Francisco does. Arrival in San Francisco is an experience in living."

-American writer and poet William Saroyan, who once lived in San Francisco and was born about 200 miles away in the then small Central Valley farm town of Fresno.

"The coldest winter I ever spent, was a summer in San Francisco."

-American writer, humorist and riverboat captain Mark Twain. Twain lived in and worked for a number of years as a newspaperman in San Francisco.

If you're going to San Francisco, be sure to wear some flowers in your hair. If you're going to San Francisco, you're going to meet some gentle people there. For those who come to San Francisco, summertime will be a love-in there. In the streets of San Francisco, gentle people with flowers in their hair.

-From the 1967 song San Francisco (Be Sure to Wear Some Flowers in Your Hair) written by John Phillips of the rock band the Mama's & the Papa's and sung by Scott Mckenzie in 1967 during the Summer of Love in the city's Height-Ashbury District. The song reached number 4 on the Billboard top 100 list.

"We the peoples of the United Nations determined to save succeeding generations from the scourge of war, which twice in our lifetime has brought untold sorrow to mankind, and to reaffirm faith in fundamental human rights, in the dignity and worth of the human person, in the equal rights of men and woman and nation's large and small, and to establish conditions under which justice and the respect for obligations arising from treaties and other sources of international law can be maintained; and to promote social progress and better standards of life in larger freedom...

-From the Preamble of the United Nations Charter. The United Nation's was founded and its charter signed in San Francisco, California on June 26, 1945.

"One day if I do go to heaven...I'll look around and say, 'It ain't bad, but it ain't San Francisco.'"

--The late Pulitzer Prize winning newspaper columnist for the San Francisco Chronicle, Herb Caen, from one of his thousands of columns. The late Herb Caen, aka Mr. San Francisco, was the city's biggest fan but also its sharpest and most respected critic. When Herb passed away in 1997, he was America's longest-running newspaper columnist. So beloved was Mr. Caen, that on the day of his passing, the city by the bay stood still when its residents heard the news. Hundreds of thousands of people memorialized Herb's passing in a celebration of his life called "Herb Caen Day" in San Francisco a week or so after his death. A mention of their name or business in Herb Caen's column was to modern day San Franciscans' what finding gold was to the city's residents during the famous California gold rush. Treasure.

San Francisco, CA--The Fresh & Easy Buzz team found ourselves in San Francisco last week on business. With a little down time between business meetings, appointments, lunches and dinners, we also found ourselves drifting into a "Fresh & Easy" state of mind.

Therefore, after a breakfast meeting and with a couple hours to kill before our next meeting, we decided to take a walk from the hotel, over to the site in the city's Bayview-Hunter's Point low-income neighborhood where Tesco plans to open next year one of its thus far two confirmed San Francisco Fresh & Easy Neighborhood Market small-format grocery stores. The second confirmed location is at Silver Avenue & Goettingen in the city.

After all...the sunshine was breaking out, despite a very chilly (common for the city) Bay breeze, and the Fresh & Easy construction site was about a 25 minute walk from the hotel...just the perfect distance to get the heart pumping; at least pumping faster then sitting in the hotel room working on a laptop computer would do.

That site, on San Francisco's Third Street corridor (Third Street & Carrol Avenue) is a large, mixed-use but primarily residential condominium building being constructed by a partnership of Goldman Sachs Urban Investment Group and Noteware Development.

Fresh & Easy will be the ground-floor retail anchor of the new residential development.

We can report progress is being made on both the residential portion of the development and on the ground floor Fresh & Easy grocery market.

In talking to a construction foreman at the sight, as well as using our own eyeballs, we estimate the Fresh & Easy store to be about 13,000 -to- 15,000 square feet in size.

It's slightly larger than most of the 61 Fresh & Easy grocery stores currently open in Southern California, Arizona and Nevada, which average about 10,000 -to- 13,000 square feet. It's also brand new construction. The majority (but not all) of the 61 grocery markets currently operating have been located in former retail supermarkets or drug stores, which Tesco has gutted and turned into Fresh & Easy Neighborhood Market stores.

We first visited the site some time ago when construction was just beginning. Much has been done since then, including on the Fresh & Easy portion. According to a spokesperson for the developer, Tesco's Fresh & Easy has purchased the approximately 15,000 square foot retail portion of the development at 5800 Third Street from the developers.

Back to the hotel, and off to meetings, then a lunch event...and more meetings. Our 'Fresh & Easy' state of mind" was essentially over for the duration of the business trip...or so we thought.

During a brief conversation with one of the participants after our lunch meeting, we learned the city of San Francisco had recently completed a study which among other things suggested the city of about 800,000 residents could support about 1.8 million additional square feet of full-service retail grocery in the 43 square mile city and county.

The 'Fresh & Easy' state of mind' was now reactivated. And, of course, when we had a little bit more down time, we talked to a city of San Francisco spokesperson so we could get the skinny on the study.

The study says the neighborhood in the city in most need of additional full-service grocery stores is the Bayview Hunter-Point neighborhood, where the ground-floor Fresh & Easy grocery market-- which will offer both basic groceries and fresh foods--is being constructed. We were aware of the shortage of grocery stores in the neighborhood--but being empirically-oriented, research always improves the knowledge base.

Additionally, according to the "Mayors' Report," which was released on April 1, the residents of Bayview-Hunter's Point spend about $14.5 million annually on groceries in other San Francisco neighborhoods and even in nearby cities because of the lack of stores that sell basic groceries and fresh foods in the neighborhood.

Then it was back to business...But our 'Fresh & Easy' state of mind' was still there; just in the back of the mind at present.

The next day, when an hour or so of downtime presented itself, we decided to call the Mayor's Office of Economic and Workforce Development and ask how things were going Tesco Fresh & Easy-wise in the city by the bay. You know: Are they continuing to scout out more store sites in San Francisco besides the two already leased, and the like? Triangulate data and confirm, we believe.

We had talked to that department's (and the city's) director of neighborhood development, Amy Cohen, before about Tesco's Fresh & Easy and the city. Ms. Cohen was instrumental in getting Tesco to agree to locate a store in the Bayview-Hunter's Point development we visited the day before and reported on above.

Before Tesco decided to locate a Fresh & Easy grocery store in the neighborhood, a coalition of community groups along with the city had been trying for over a decade to get a supermarket chain to open a new, full-service supermarket in the neighborhood. They all said no thanks. Tesco was the first, and only, to say yes when it decided to choose the Bayview-Hunters Point neighborhood as one of its first 18 Bay Area sites last year.

Ms. Cohen was out, but we talked to a department spokesperson, who confirmed what one of our Bay Area commercial real estate sources had told us weeks earlier, which is that Tesco is looking for additional store locations in the city of San Francisco for its Fresh & Easy grocery stores beyond the two locations it's already announced it will open sometime next year.

When we spoke with Ms. Cohen a little over a month ago or so, she told us she was working with Tesco to identify neighborhoods in San Francisco, like Bayview-Hunters Point, which are in areas where that additional 1.8 million square feet of additional needed retail grocery space identified in the Mayor's report is located. In other words, those urban "food deserts" in San Francisco where residents are underserved by grocery stores that offer a good selection of basic grocery items and fresh foods like produce and meats.

The trip was almost concluded, save for a dinner event to attend that night.There would be people from both the Bay Area food and grocery and commercial real estate industries at the dinner...so somehow we didn't think our 'Fresh & Easy' state of mind' was completely vanquished yet...and we were right.

At the dinner, which was held in the East Bay Area city of Pleasanton, we had conversations with two local grocery industry folks who work closely with Safeway Stores, Inc., which has its corporate offices in the that very same city of Pleasanton.

In conversation, we asked the two long-time Bay Area grocery industry veterans what they were hearing about Safeway's new, small-format grocery stores, which the grocery chain plans to start opening (the first four or five as a test) in the South Bay Area region this summer. From what we've been able to determine thus far, the stores will be located in San Jose and in the nearby cities of Mountain View, Sunnyvale, Redwood City and perhaps another.

Tesco plans to open 18 stores in the San Francisco Bay Area beginning in early 2009. Four of these stores will be in the South bay Area: two in San Jose, and one each in Mountain View and Sunnyvale. Plans call for more stores in the Bay Area, including the South Bay Area, as well.

Our local sources confirmed for us that they are hearing what we've been hearing: that Safeway still is on track to open four and maybe five of the new small-format (about 20,000 square feet based on what we've learned thus far) this summer. Most local observers don't expect the first store to open before July, with the other three or four opening over the rest of the summer.

Our dinner party sources also confirmed for us what other sources have been telling us for a few months now--and which we've reported here in Fresh & Easy Buzz--which is expect some interesting design elements and lots of fresh, prepared foods items--including some organic--in the new small-format stores.

As we reported some months ago, In October, 2007 Safeway hired Anthony Gilmore, the former regional president of Whole Foods Market, Inc's Northern California region to a corporate executive position at the company. His charge is to help innovate the design and merchandising elements of Safeway's new (and remodeled) Lifestyle format supermarkets, as well as lend his expertise in those departments to the design and merchandising of the new, small-format grocery stores.

It's not Gilmore's first time at Safeway. He got his start at the grocery chain decades ago as a courtesy clerk.

Under Gilmore's leadership at Whole Foods' Northern California, the supernatural grocer built and opened some of its most unique and popular U.S. stores over the last few years.

These markets include: the grocer's huge, 77,000 square foot flagship store in the South Bay Area city of Campbell; the Potrero Hill neighborhood store in San Francisco, which is the ground-floor anchor of a huge residential complex and among other things features an in-store market bistro restaurant and wine bar with an outdoor patio where a DJ spins tunes for customers; and the unique European Market Hall-style store in downtown Oakland, which is smaller than most new Whole Foods stores but because if its "food hall-like" design doesn't seem like it. All three of the stores were opened in 2007.

Each of these store's fit the neighborhoods they're located in perfectly in most ways. Expect to see some of Gilmore's touches in the new Safeway small-format grocery stores set to start opening this summer in he South Bay Area. Most specifically, look for them to be designed with their respective communities and neighborhoods in mind, with unique local touches in each one.

Further, look for a combination limited assortment basic grocery but also natural and specialty foods (both fresh foods and dry) picked using Safeway's extensive knowledge--and consumer database--of the Bay Area market, along with Gilmore's knowledge of the more upscale and natural foods consumer which he gleaned while running Whole Foods in the market.

Read our March 5, 2008 piece, "New Details and Analysis About Safeway's Small-Format Summer SF Bay Area Surprise For Tesco's Fresh & Easy Neighborhood Market," for some good background and analysis. (click here to read the piece.)

Bags and laptop packed, checked out of the hotel room, and in a state of mind more focused on getting home than on business or Fresh & Easy, we listened to some Sinatra on the player, followed by some 60's rock--including a little "British Invasion" band stuff-- then some cutting-edge 2008 San Francisco sounds recommended to us by a young, hip San Franciscan...Going from a business and Fresh & Easy state of mind, to a music-infused, near-ethereal state of mind...at least until the following morning, when it would be off to another western U.S. state for quick trip.