Today's Target-Zellers Deal and 'The Neighbourhood Market'-'P Fresh' Food & Grocery Markets Connection

Analysis/Commentary

Readers of Fresh & Easy Buzz know we frequently report on, write about, and analyze Minnesota-based retailer Target Corp., particular as it pertains to its fairly new fresh food and grocery initiative, "P-Fresh.

"We're avid and aggressive "Target Watchers."

Our coverage of Minneapolis-based Target includes an ongoing research project in which we've been tracking, identifying, reporting on and writing about the growth of the chain's in-store "P-Fresh" food and grocery markets, which the retailer has been adding to many of its 1,500-plus discount format stores in the U.S., beginning in 2009.

Target Corp. has two retail formats: Its discount stores, which are the majority of its units, and its SuperTarget format stores, which are similar in size to a Walmart supercenter and include a full supermarket inside, like Walmart's supecenter format.

Target, which is the second largest retailer in the U.S. after Walmart Stores, Inc., currently has "P-Fresh" fresh food and grocery markets inside about 350 of its U.S. discount format stores, and plans to add the markets to another 400 units this year. And, as we pointed out here in 2010, California is the leading U.S. state in terms of the number of its discount stores, out of the 350, Target has added the "P-Fresh" units inside of over the last nearly two years. Over 100 of the 350 "P-Fresh" units are in California.

Because we're avid and aggressive "Target Watchers" here at Fresh & Easy Buzz, the retailer's announcement today that it's buying leasehold interests in up to 220 Zellers discount store locations in Canada, for $1.85 billion, didn't come as a surprise to us in the least bit.

Zellers is a discount/mass-merchant store format that's similar to Target's discount store format.

Target CEO Gregg Steinhafel said in a statement today the retailer plans to open 100 -to- 150 stores across Canada in 2013 and 2014.

It will renovate some of the Zellers locations, at an estimated cost of more than $1 billion, he said. Other Target stores in Canada will be built from-the-ground-up. Target announced its plans to enter Canada last year. [You can read today's announcement from Target Corp. here. Zellers' parent company, Canada's Hudson's Bay Company (HBC), also issued a statement on the deal today here.]

No surprise

Why weren't we surprised by today's announcement? Because Target Corp.'s interest in Zellers, which is owned by Canada's oldest company, Hudson's Bay Company (HBC), isn't a recent phenomenon. Target looked into acquiring the entire Zellers chain, and had talks with HBC's management at least as far back as 2006-2007.

The discussions between the Target Corp. and HBC/Zellers folks obviously didn't result in a deal back then for a number of reasons. One reason being Target Corp. determined at the time that the timing wasn't right for it to either enter Canada or make such a major acquisition. Target announced its plans to enter Canada last year.

However, the relationships formed at that time continued, right up until now. And although no deal was done back then, Target didn't walk away from its research on and investigation in Zellers empty-handed.

Zellers' 'The Neighbourhood Market'

One of the things Target executives found interesting when they toured Zellers stores, was that the general merchandise retailer was testing a concept in a few of its stores called "The Neighbourhood Market," a fresh food and grocery store-within-a-store.

Zellers, which first tested its in-store markets in 2000-2001, currently has "The Neighborhood Market,"which ranges in size from about 5,000 -to- 10,000 square-feet depending on the particular store its in, in 90 of its discount stores, located in a variety of provinces in Canada. [Click here to see the locations of the Zellers stores with "The Neighbourhood Market".]

The Canadian retailer's policy over the last few years has been to add the food and grocery markets inside every new discount store it builds and every existing store it remodels, which is something is started doing in 2002.

Pictured above: A "P-Fresh" in-store food and grocery market, located in a Target discount store in California. Pictured Below: An in-store "The Neighbourhood Market," in a Winnepeg, Canada Zellers' store. Note: Take a look at the near-identical departmental circular ceiling signs, at the top in both photographs. Kissing cousins.
The in-store markets, which are located in the front of the stores, offer a limited assortment of fresh foods - produce, meats, baked goods, dairy/deli, prepared foods - and shelf-stable packaged food and grocery items, just like Target's "P-Fresh" and Tesco's 10,000 square-foot Fresh & Easy Neighborhood Market stores in the U.S., the first of which opened in November 2007. There are currently 156 Fresh & Easy stores in California, Nevada and Arizona. The Tesco Fresh & Easy stores are freestanding units, however, not stores-within-stores, like Target's and Zellers' concepts are.

Zellers had its "The Neighbourhood Market" concept inside a number of its discount stores in Canada well before 2007 (by 2003-2004), however. In fact, word is Tesco did some scouting around in Canada, as well as the research it did in the U.S., prior to creating Fresh & Easy Neighborhood Market.

Fact: Tesco's original name for the chain was "Fresh & Easy Community Markets." But the United Kingdom-based retailer changed "Community" to "Neighborhood" sometime in 2006-2007.

Observation: If you're wondering why Zellers uses the British spelling and French English-usage spelling of "Neighbourhood," rather than using the North American spelling, "Neighborhood," a little research into the origins of Zellers parent company, Hudson's Bay, which is Canada's oldest company and the largest general merchandise retailer in the country, among other things, will make the choice of spelling clear. Also: Although English is the majority language, Canada officially remains a dual (English-French) language nation.

Kissing cousins

Target opened its first "P-Fresh" in-store markets in mid-to-late 2009.

Zellers has been adding its "The Neighbourhood Market'" to its department stores at a fairly rapid pace over the last few years. It has the markets in 90 of its discount stores so far. [Click here to see a list of Zellers stores that include the fresh food and grocery markets.]

Target executives first saw Zellers' food and grocery concept up-close a few years ago. Also keep in mind that Minnesota, where Target Corp. is headquartered, is really close to Canada.

Target created its "P-Fresh" concept and initiative - a fresh food and grocery store-within-a-store inside their Target discount format stores - in late 2008 and launch it in 2009. The "P-Fresh "stores" are much larger than Zellers' in-store markets, nearly three times the size. Both retailer's markets feature the same product categories. Target though offers a much more extensive number of SKUs than does Zellers. But the model is identical.

Additionally, Target's in-store "P-Fresh" signage and related graphics look very close to what Zellers uses - and it was first, remember - with its "The Neighbourhood Market."

Armed now with the information in this story, If you go visit a Target discount store in the U.S. that has a "P-Fresh" inside, then go visit a Zellers store in Canada, with a "The Neighbourhood Market" inside - we bet you'll see the connection - and perhaps even say: "Kissing cousins, they are."

The deal

Target is a better overall retailer, including in the food and grocery segment - although Target has plenty of room to get better at grocery merchandising - than Zellers is.

Target's format and stores are also much better overall.

Zellers has been remodeling some of its discount stores in Canada over the last couple years. But many consumers in the country feel the retailer has become outdated, both in how the stores look and how they are merchandised. And the rapid growth of Walmart-Canada has taken a toll on Zellers, which before Walmart headed north from the U.S. was the first-choice of many Canadian shoppers. In many parts of Canada, Walmart-Canada has made Zellers the second...or even third choice for many Canadian shoppers.

Under the terms of the deal, Target plans to make payments to HBC/Zellers for the leases through 2011. Zellers will sublease the sites from Target and keep running stores under its own banner "for a period of time," Target and HBC/Zellers said in the statements today. A good translation of "for a period of time" is: Once Target takes over all of the Zeller's stores out of the 220 it intends to in the 2013-2014 time period, the Zeller's chain and banner will cease to exist in Canada or anywhere else.

In our analysis the deal is a good one both for Target and for HBC/Zellers. Canadians travel to the U.S. regularly because of the close proximity of the two countries. After all, you can drive from parts of Canada into parts of the U.S. - like Minnesota - faster than you can fly from the west coast to the east coast. Many are very familiar with Target.

And, of course, we aren't suggesting Target wants Zellers for its in-store food and grocery markets. They are merely part of the package. It's a back story - and a connection not mentioned in any of the many stories being published on the deal.

Kissing Cousins united

Lastly, now that you know about the Target-Zellers in-store fresh food and grocery market connection, we're betting you know what we're going to tell you next?

Well... It's simply that Target's "P-Fresh" fresh food and grocery markets are going to be in all or most of those up to 150 stores it plans to open in Canada in 2013-2014, including the Zellers stores it takes over, along with any stores it builds from scratch.

And now you know...'The rest of the Target Corp.-HBC/Zeller's deal story.' Or at least the back story, as it pertains to food and grocery merchandising and retailing.

Mollie Stone's Markets Taking Over Closed 18th Street Delano's IGA Market in San Francisco's Castro District

Above: A display in the produce department at the Mollie Stone's store in Greenbrae, California. The photograph was taken in December 2010, shortly after the store's produce department was remodeled. Notice the cross-merchandising of the gourmet cheeses and Carr's Table Water Crackers, plus the free cheese samples, in front of the apple display. Such suggestive selling-oriented cross merchandising is both creative, visually pleasing and smart. For example, it ups the odds an apple-buying customer will buy cheese and crackers, along with whatever else she buys during her shopping trip, astronomically. In addition, If she buys just one of the packages of the random weight gourmet cheese and a box of the crackers in the display, it could add anywhere from a minimum of about $5 -to- as much as $10 to her total market basket purchase at the store. And when it comes to average market basket, the more dollars the better for grocers. [Photo courtesy of: David Bennett/Mollie Stone's Markets.]

Northern California Market Region - San Francisco Bay Area

In two stories published in late November 2010 about San Francisco Bay Area-based independent grocer Delano's IGA Markets and the forced closure of five of its seven grocery stores, we reported that another local multi-store independent grocer, Mollie Stone's Markets, was interested in taking over the Delano's IGA Market store at 4201 18th Street, in San Francisco's Castro District.

[Read the two stories - November 29, 2010: Veteran Grocer Harley DeLano's 'DeLano IGA Markets' Chain On the Verge of Closure in San Francisco Bay Area and November 30, 2010: DeLano's IGA Markets Closing Five Stores in San Francisco & Marin County; Fairfax, Davis Units to Remain Open (For Now).]

We can now report that Mill Valley-based (Marin County) Mollie Stone's Markets will be taking over the former Delano's IGA Market store, which is about 9,000 square-feet, on 18th Street, in San Francisco's Castro District.

Mollie Stone's plans to do some remodeling inside the Castro District store and have it open by March or April of this year, a senior employee at the eight-store privately-held chain told Fresh & Easy Buzz.

The 4201 18th Street San Francisco market will be Mollie Stone's ninth grocery store overall, and its third unit in San Francisco. (Click here to view the locations of the eight Mollie Stone's stores.) The eight Mollie Stone's stores are a mix of smaller, urban food and grocery markets, the San Francisco stores, and medium-sized supermarkets, the other five units, which are located in Marin County, on the San Francisco Peninsula, and in Palo Alto.

Mollie Stone's Markets is an upscale grocer, putting an emphasis on specialty, ethnic, kosher, natural and organic food and grocery items, along with fresh-prepared foods, quality meats, produce and baked goods.

But the grocer also merchandises a full selection of everyday food and grocery items in its stores, including a selection of its own "Mollie Stone's" private brand, along with the Western Family brand, which is distributed by its wholesaler, Unified Grocers.

In fact, Mollie Stone's, which was founded by Mike Stone and David Bennett in 1985, plays up this dual specialty-mainstream merchandising philosophy by calling its stores, "The Best of Both Worlds," which is also Mollie Stone's marketing positioning and advertising tag line. Partners and majority-owners Stone and Bennett, who celebrated Mollie Stone's Markets' 25th birthday last year, still head-up the chain.

Mollie Stone's Markets' also puts an emphasis on customer service. For example, most of the grocer's stores have full-service, butcher shop-style meat and seafood counters, as well as self-service counters.

Additionally, the stores have service-delis, which feature an extensive offering of ready-to-eat and ready-to-heat fresh-prepared foods, plus lunch meats, cheeses and other deli items.

Most of the eight Mollie stone's stores also have in-store bakeries.

One unique feature the grocer has in two of its stores - the San Bruno and San Mateo markets - is "Mollieland," a professionally-supervised in-store child care and play area, where mom can leave the kids while she does her grocery shopping.

The Castro District location should a prime one for Mollie Stone's, as the neighborhood's demographics score very high for specialty/natural/organic, along with gourmet and prepared foods.

As we suggested in our November 30, 2010 piece linked at the top, the Castro District location would have been a good one for Tesco's Fresh & Easy (it's even better for Mollie Stone's though because it knows how to neighborhood merchandise in San Francisco), especially if it merchandised the store in a non-cookie cutter fashion, and while offering its basic selection of products, skewed the product mix high in the specialty, gourmet, natural-organic and fresh-prepared foods categories.

But the store in the prime Castro District location on 18th Street isn't in the cards for Fresh & Easy Neighborhood Market - or any other grocer. Instead, as we said in our November stories would likely be the case, it will soon be a Mollie Stone's Markets food and grocery store.

Mollie Stone's knows of what Fresh & Easy Buzz writes when we say the 18th Street location in the Castro District has huge potential, despite its mere 9,000 square-feet.

Mollie Stone's has a store of about the same size or even smaller, at 2435 California Street at Fillmore, in San Francisco's Pacific Heights neighborhood. The store, which for decades prior to becoming a Mollie Stone's a number of years ago, was the locally-famed Grand Central Market, owned and operated by Mike Stone's father-in-law.

The small-box store, then and now, has among the highest sales per-square-foot of any supermarket in the Bay Area. As Grand Central Market in the mid-1990's, for example, it was doing over $300,000 in weekly sales, according to a former major vendor who serves as a correspondent for Fresh & Easy Buzz in the Bay Area. We're told the now Mollie Stone's Grand Central Market does more than that amount weekly. The store's small parking lot is so busy during prime shopping hours, Mollie Stone's has one or two people directing in-and-out auto traffic in the lot for much of the day.

Mike Stone and David Bennett kept the Pacific Heights store's history alive when they took it over by naming it "Mollie Stone's Grand Central Market," rather than changing the name to "Mollie Stone's Markets," which all of their other stores are called.

Delano's IGA Markets closed and vacated the Castro District store on 18th Street in December 2010. The building's landlord is Kroger Co.'s Ralphs Supermarkets division, which for many years operated a Cala/Bell Market grocery store in the building.

In 2006, Kroger's Ralphs' division, which is based in Southern California, sold eight of its Cala Foods and Bell Market banner small supermarkets in San Francisco and Marin County to Harley Delano and his son Dennis. The eight stores formed the basis of the DeLano's IGA Markets' chain. Harley Delano was the president of Ralphs' Cala Foods/Bell Market division from 1990-1999.

The Delano's later closed two of the eight stores, bringing the total store count down to six.

In 2010 they opened up a store in Davis, California, Westlake IGA Market, which brought the total number of stores they owned and operated back up to seven. Davis is near Sacramento. Now there are just two markets owned by the Delano's.

The Davis store and a store in the Marin County city of Fairfax, Fairfax IGA Market, remain open because unlike the six that were closed late last year because of financial problems, the two stores are owned by the father and son team under a separate ownership structure. Also, unlike the six closed stores the Delano name isn't used on the Davis and Fairfax stores.

Don't be surprised if Mollie Stone's Markets grabs at least one of the remaining four former Delano IGA Markets stores, all of which have now been closed.

[Related Story - January 12, 2011: First Northern California Fresh & Easy Neighborhood Market Stores Opening March 2; Nine More to Follow March-April.]

[Also - Read a selection of recent and past Fresh & Easy Buzz stories about the Northern California market region, including the San Francisco Bay Area, at theese green links: Northern California, Northern California Special Report and Fresh and Easy Northern California.]

First Northern California Fresh & Easy Neighborhood Market Stores Opening March 2; Nine More to Follow March-April

The Fresh & Easy store building at Cabrillo Highway and Linda Mar Boulevard in Pacifica, California (pictured above) has been completed for over two years. But the wood siding and signs were recently added by construction workers. The store's exterior has been completed, and workers have started getting the inside of the store ready for its March 9, 2011 opening. (The photo was taken by a Fresh & Easy Buzz correspondent on December 27, 2011.) See - December 27, 2010: First Look at the Pacifica, California Fresh & Easy Neighborhood Market Store, One of the First Opening in Northern California in Early 2011.

Tesco's Fresh & Easy Neighborhood Market announced today the opening dates for its first 11 stores in Northern California.

The first two Fresh & Easy stores are set to open on March 2, 2011. The remaining nine stores will open throughout March and into late April 2011.

Below are the 11 Northern California Fresh & Easy store locations and the opening dates:

March 2nd, 2011

>Bird Ave. & Minnesota Ave., San Jose, California

>Diablo Blvd. & Hwy 680, Danville, California

March 9th, 2011

>Cabrillo Hwy. & Linda Mar Blvd., Pacifica, California

Work on the exterior of the Fresh & Easy store at Clayton Road and Ygnacio Valley Road in Concord, California (pictured above), which is set to open March 16, is nearly completed, as of this week.

March 16th, 2011

>Clayton Rd. & Ygnacio Valley Rd., Concord, California

>Elmira Rd. & Nut Tree Rd., Vacaville, California

March 23rd, 2011

>Oakdale Rd. & Lancey Dr., Modesto, California

>Ygnacio Valley Rd. & San Carlos Rd., Walnut Creek, California

April 13th, 2011

>Rosewood Dr. & Santa Rita Rd., Pleasanton, California

April 27th, 2011

>Mission Blvd. & Rousseau St., Hayward, California

>Imola Ave. & Jefferson St., Napa, California

>Saratoga Ave. & Payne Ave., San Jose, California

In addition to the 11 stores opening between March and April of this year, Tesco corporate director and Fresh & Easy Neighborhood Market's CEO Tim Mason said today the grocer will be announcing the opening dates for two Fresh & Easy markets in San Francisco in the "coming weeks." The two stores are located at 32nd Ave. and Clement St. in the city's Richmond District, and Third St. & Carroll Ave., in San Francisco's Bayview District.

Fresh & Easy Buzz has reported since early 2010 that Tesco's Fresh & Easy Neighborhood Market would start opening its first batch of stores in Northern California in March 2011. The announcement by the retailer today confirms our extensive reporting.

Click on the following green links to read some of that reporting and analysis: Fresh and Easy Northern California, Fresh and Easy Sacramento Metropolitan Region, Fresh and Easy Sacramento-Vacaville, Northern California, Northern California Special Report.

More to come. Stay tuned.

A 'New York State of Mind': 'The Insider' On Walmart, Apollo Global Management, Tesco's Fresh & Easy and the NRF in New York City

The photograph pictured above, "A New York State of Mind," is by Mandy Wiltz. Click here to learn more about the photo and photographer-artist Mandy Wilz.

The Insider - Heard on The Street

"Some folks like to get away,
Take a holiday from the neighborhood.
Hop a flight to Miami Beach or to Hollywood.
But I'm takin' a Greyhound on the Hudson River line.
I'm in a New York state of mind.

I've seen all the movie stars in their fancy cars and their limousines.
Been high in the Rockys under the evergreens.
I know what I'm needin', and I don't wanna waste more time.
I'm in a New York state of mind.

It was so easy livin' day by day
Out of touch with the rhythym and blues
But now I need a little give and take
The New York Times, the Daily News

It comes down to reality, and it's fine with me cause I've let it slide.
I don't care if it's Chinatown or on Riverside. I don't have any reasons.
I left them all behind.
I'm in a New York state of mind..."

-'New York State of Mind.' Billy Joel
[The full lyrics are here. Listen to the song here.]

A 'New York State of Mind' - Walmart in the 'Big Apple'

As a student and analyst of Walmart Stores, Inc., particularly as it pertains to food and grocery retailing, 'The Insider' picked a good day to be in New York City - although I'm glad to be headed out since I didn't bring my extra-heavy jacket and another mega-blizzard is on the way.

The 'Big Apple' of American cities in the Empire State is buzzing today over the 'Big Apple' of the retail world's plans to open stores, ranging from large to small, in New York City. A good newspaper headline about the issue, which is one I've yet to see is: 'Gotham retailer invades Gotham City.'

Here's the scoop: Walmart has launched a new website [here] dedicated to promoting its plans to open stores in New York City, along with gaining support for those plans from residents of the 'Big Apple.'

The website includes an online petition, which the retailer is asking New Yorkers to sign, as a way to show their support for Walmart stores in the city.

The website, along with much activity on Walmart's Facebook page and Twitter feeds, is part of an aggressive multi-platform advertising and public/community relations campaign the Bentonville, Arkansas-based 'Big Apple' of U.S. and global retailers is launching to win support for its proposal to open numerous stores of various sizes in a number of the New York City's boroughs.

Walmart has also decided skip tomorrow night's New York City Council meeting, where the retailer's plans to open stores in the city, along with the potential impacts of those plans, will be discussed.

Walmart Stores, Inc. has in principle the support of New York City Mayor Michael Bloomberg, who has said the retailer will bring new jobs and affordable goods to the city.

But the mega-retailer has angered New York City Council Speaker Christine C. Quinn, who's quoted (italics) in a story by the New York Times regarding the Walmart's decision to skip tomorrow's council meeting as saying: "If you’re [Walmart] proud of who you are, if you’re proud of your product, if you think you’re the best thing since sliced bread, why wouldn't you come and tout it? They’re not showing up because they don’t have the stuff they say they have. They don’t have the data to refute what myself and others are saying."

Speaker Quinn, the leader of the council, wasn't a supporter of Walmart's New York City plans prior to its decision to skip tomorrow's hearing.

One thing is for sure, the Walmart in New York City issue is just getting started. The city's newspapers, television stations and radio stations are filled with reports on the topic. Just a few examples include reports in: The Daily News, The Brooklyn Eagle, New York Times, Crain's NY, The Village Voice, Brooklyn Paper, The Gothamist and DNAinfo. Television stations such as WNYC and NY1 reports, along with others, also did reports on Walmart in New York City today, as did CNN and Fox News, which means the story is becoming national since they are the two leading national cable news outlets.

Organized labor and its allies on the New York City Council, along with a coalition of small business people, including independent and mom and pop grocers plus others, are leading the charge against Walmart's being granted city approval to open stores in the 'Big Apple.'

Walmart says it's bought ad spots from at least a dozen New York City radio stations and over 30 newspapers, including a number of the media outlets linked above that are reporting on the story, in order to help it tell its story in a media blitz over the next couple weeks.

"What should be clear, especially in this week's activities, is that we are not going to be idle while others try to tell our story for us, and build that story on misinformation, Walmart spokesman Steven Restivo said in a statement. "We know we have a good story to tell. And quite frankly, we owe it to New Yorkers to be proactive in telling it."

The debate and fireworks have started on what's going to be the most challenging of the three urban store initiatives Walmart Stores has announced so far.

The retailer has had a success in Chicago, where it launched its first urban store initiative last year, winning support from Chicago Mayor Richard Daley, and even getting an agreement from the United Food & Commercial Workers (UFCW) that it wouldn't fight to keep Walmart out of the city, in return for its agreeing to offer hourly wages in the urban stores at rates above what it normally pays.

Walmart's second urban store initiative and campaign, which it launched late last year in Washington D.C., also looks positive for the retailer in terms of its gaining approval for a number of stores in the district.

There is some opposition to the retailer's plans and proposals. But it doesn't even register on the retailer Richter Scale compared to the uphill battle Walmart Stores, Inc. faces in New York City. But then, among other reasons - that's why its called the 'Big Apple.' Everything is bigger in New York City, including battles over mega chain retailers opening stores in the city.

A 'New York State of Mind' - Apollo Global Management

While the buzz in New York City's boroughs is focused on Walmart, the investment bankers and traders on Wall Street are talking turkey today about the possible buyout of Sara Lee Corp., by a consortium of private equity firms led by Apollo Global Management and its founder and chief deal-maker Leon Black.

The deal would be huge: A current consensus of Wall Street analysts put the value of a buyout of Sara Lee Corp. as of today at about $12.6 billion, or around $19.33 a share. Sara Lee Corp. stock closed at $18.01 a share today.

Downers Grove, Illinois-based Sara Lee, which is a global company, is best known for its food and drink brands, which comprise the company's number one and two largest business units. Sara Lee's largest and most profitable business unit is its international beverages segment, which focuses on coffee and tea brands like Senseo, Douwe Egberts and Pickwick, which are top-sellers in Europe, Australia, and Brazil.

The company's second largest business unit includes the popular U.S. meat brands Ball Park (hot dogs and sausages), Hillshire Farm (lunch meat) and Jimmy Dean (sausages and more), as well as the Sara Lee frozen desserts brand.

The private equity firm consortium being led by Apollo Global Management could also make an offer for one or more parts, such as the drinks' and food business units, of Sara Lee rather than the whole company. Or they could acquire all of Sara Lee and then sell off some of its parts. For example, it's being reported today by a number of financial publications that Brazilian meat processing company JBS is part of the Apollo-led group. If so, I smell an interest in Ball Park franks, Hillshire Farms' lunch meat and Jimmy Dean sausage, all meat brands owned by Sara Lee Corp. (You can see a list of all of Sara Lee's brands here.)

Sara Lee's board is in the process of deciding if it wants to sell the whole company or continue selling off some of its parts, which it's started to do: Its selling the North American bread and bakery unit to Mexico's Grupo Bimbo for $925 million, in a deal that's expected to close by the end of the first quarter of 2011.

Yesterday, Apollo Global Management, which owns City of Commerce, California-based food and grocery retail company Smart & Final and its Henry's Farmers Market chain, reported that its profit for the three month fiscal period that ended in September 2010 rose over the same fiscal quarter a year earlier, as the value of investments in the firm's $14.7 billion Fund VII increased.

Economic net income, which is the key metric private equity firms generally report and that Wall Street analysts follow regarding the firms' performance, for the three months ending in September rose to $315.3 million, up from $173.3 million for the same period a year earlier, Apollo said in a statement.

Additionally, economic net income from private equity was $213.7 million, up from $71.8 million a year earlier, which Apollo said in the statement was partly attributable to an increase in the value of its portfolio investments in fund VII, a $14.7 billion fund that it finished raising in December 2008.

Private equity firms create various funds like Apollo's Fund VII, then put a pool of investors together to fund it. Monies from the funds are then used for various corporate acquisitions, buyouts and investments.

Apollo, which isn't publicly traded, doesn't normally report quarterly income figures. But the private equity firm plans a public offering soon. Therefore, its been periodically reporting its financial information to the U.S. securities and exchange commission in anticipation of the filing, and being listed on the New York Stock Exchange.

Apollo and the Sprouts & Henry's deal talks

Readers might recognize the name Apollo Global Management from my two most recent columns about the talks between Apollo-owned Smart & Final/Henry's Farmers Market and Sprouts Farmers Market - January 7, 2011: Sprouts Farmers Market-Henry's Farmers Market Deal Negotiations Continue; End-Game Could Be Near and January 5, 2011: Will 2011 See Sprouts Farmers Market Acquiring Henry's Farmers Market? 'The Insider' Says it Could Be in The Cards - along with a having read a January 8, 2011 news and analysis story in Fresh & Easy Buzz [Smart & Final-Henry's Tell Employees About Deal Discussions With Sprouts Farmers Market; Confirming 'The Insider's' Reports] about the potential acquisition or merger.

Regarding the deal talks and negotiations, here's an update: First, discussions continue between representatives of Apollo/Smart & Final/Henry's and Sprouts Farmers Market over a possible acquisition of Henry's by Sprouts, or some sort of merger between the two grocery chains. But no deal has been reached.

Below (in italics) is a statement the editor of Fresh & Easy Buzz obtained today from Kim Rockley, a corporate spokesperson for Arizona-based Sprouts Farmers Market:

"There have been many similar rumors over the years about bringing Sprouts and Henry’s together, which is understandable given their common heritage. While there have been some discussions between the organizations in recent months, at this time there is NO deal in place to merge Sprouts and Henry’s. Our primary business focus right now is getting the new year off to a fast start, including the opening of the 55th Sprouts store, in Fort Worth, TX on January 26."

If you read my two columns, along with the report from Fresh & Easy Buzz (all linked above), you'll see what's been reported is that discussions have been going on between the respective parties over a deal - either an acquisition of Henry's by Sprouts Farmers Market or some sort of merger deal involving the two grocery chains - but not that a deal has been done. In fact, the reports go out of there way to make the fact clear.

The statement from Sprouts clearly verifies our reports that discussions have been going on. Beyond that we haven't drawn any further conclusions. In fact, that the statement says there is no deal in place, also confirms what I've been writing in my column.

And - the deal discussions between the respective parties are continuing.

A 'New York State of Mind' - No 'Big Apple' (or Chicago or Florida) For Tesco's Fresh & Easy

When Tesco crafted its original strategic plan for its El Segundo, California-based Fresh & Easy Neighborhood Market fresh food and grocery chain in 2006-2007, the plan, in terms of market region launches, went something like this: Southern California, Arizona, Nevada (late 2007 launches) and Northern California (launched into by 2009), followed by Chicago (2010), with New York and Florida as strong future, potential markets, with possible launch dates of mid-to-late 2011 or 2012.

As recent as late-2008-to-early-2009, Tesco's Fresh & Easy conducted what it calls "trend spotting" exercises, which, in addition to serving other uses, are designed to identify primarily headquarters employees who might be interested in transferring to new market regions as the fresh food and grocery chain prepares to enter the markets. Included in the exercises at the time were the following market regions: Northern California, Chicago, New York and Florida.

Chicago was the planned market launch after Northern California, which was supposed to be in 2009 but was postponed and is now set for this year, before the end of the first quarter.

But that was then and this is now. According to my sources, Chicago, New York, Florida and any other state not within delivery distance from the Fresh & Easy Neighborhood Market distribution center in Riverside County, California is off the table for 2011-2012.

Instead, Tesco plans to open all of what outgoing Tesco CEO Terry Leahy, incoming Tesco CEO Philip Clarke (in March 2011) and Tesco corporate director and Fresh & Easy Neighborhood Market CEO Tim Mason have said will be 245 new Fresh & Easy stores between now and the end of Tesco's 2012/2013 fiscal year, exclusively or primarily in its existing market regions - California, Nevada and Arizona. There are currently 155 Fresh & Easy markets in the three states. Tesco said it plans to have 400 Fresh & Easy stores be the end of fical 2012/13.

Tesco might open some of the 245 new stores it says it plans to open over the next two years in one or two states near California, Nevada and Arizona. However, the probability of it doing so are extremely slim in my analysis, because current plans call for all of the stores to draw product from the Riverside County distribution center, something Tesco said it planned to do when it reported its half-year results in October 2010.

Potential Western states like Colorado, New Mexico, Idaho, Oregon or Washington are just to far away to be served properly by the Riverside facility, even if Tesco doesn't think so. Fresh & Easy Neighborhood Market is going to have a difficult enough time servicing the Northern California stores from the Riverside County distribution center, which it plans to do starting in a couple months.

The reason Tesco needs the 400 stores, all pulling product from Riverside, is because the estimated volume from 400 stores is what it projects is needed to operate the Southern California distribution facility efficiently. It hopes that added efficiency will help it to stop operating the massive 800,000-plus sqaure-foot facility at such a loss, which is currently the case.

If Tesco were to expand to markets like Chicago, New York, Florida or elsewhere in the U.S. between now and the end of its 2012/13 fiscal year, at which time it says it will at least break-even with Fresh & Easy, the retailer would have to invest huge sums of money in building distribution centers, not to mention stores, along with investing more money for associated cost like labor expenses and marketing/promotional budgets.

Tesco's chances of breaking-even with Fresh & Easy Neighborhood Market in the time period are slim enough without market region expansion. With it the losses would be unbearable, particualry to incoming Tesco CEO Philip Clarke, who had no real hand in launching Fresh & Easy because he was in charge of the company's European and asian operations at the time, a position he will vacate when he becomes CEo in March.

The upshot: Look for all of the new Fresh & Easy stores Tesco opens this year to be in California, Nevada and Arizona, with all but a few being in California.

Right now, I won't go too far beyond that - as I'm not even sure incoming CEO Clarke will keep Fresh & Easy around for all of 2011. But I will offer this: You aren't going to see any Fresh & Easy stores opening in Chicago, New York or Florida in 2011 or 2012.

A 'New York State of Mind' - NRF Show in the 'Big Apple'

Lastly, as if enough isn't happening in the 'Big Apple,' the National Retail Federation (NRF) is holding its annual 'Retail's Big Show' Convention and Expo' at the Javits Convention Center in the city, through tomorrow.

This year marks the trade group's 100th annual convention and show, a milestone event. And befitting 100 years, the event is packed with seminars, presentations and exhibitors, including many with a focus on food and grocery retailing, as is the case each year.

There's so much going on in fact that I'll save a discussion of my observations for a future column. But until then a good place to learn about what's happening at the NRF show is at the trade association's website [here], which includes live-blogging by NRF staff members on some of the presentations going on.

As for 'The Insider,' I've departed the 'Big Apple' - for now.

But, I must say - I'm still in a 'New York State of Mind..."

But at this moment I'm moving much more to the beat of the less-old -school version of the song rather than to Billy Joel's hit tune. The version I'm referring to is the one by Jay-Z and Alcia Keys, called an 'Empire State of Mind.' (Watch the video and listen to the song here.)

Sprouts Farmers Market to Open Second Northern California Store in Roseville No Later Than Mid-April

Shoppers packed the Sprouts Farmers Market store, above, in Sunnyvale, California on grand opening day, June 2, 2010. The store is Sprouts' first in Northern California. It's also the grocer's milestone 50th store.

Phoenix, Arizona-based Sprouts Farmers Market, which we've reported (here) is in talks to acquire the Henry's Farmers Market chain from its owners, Apollo Global Management/Smart & Final, plans to open its second store in Northern California no later than mid-April of this year, Fresh & Easy Buzz has learned. The grocer hasn't yet announced the store's opening date.

The store, which we've reported on and written about previously, is in the Stanford Ranch shopping center in Roseville, California, which is in the Sacramento, California metropolitan area.

Sprouts is renovating a vacant building in the center, which previously was home to a Linens N' Things home furnishings soft goods store, for what will be its second farmers market-style format, natural and organic products-focused grocery store in the Northern California region.

Sprouts Farmers Market opened its first store in Northern California, a 30,865 square-foot market at 111 E. El Camino Real in Sunnyvale, on June 2, 2010. Sunnyvale is in the famed Silicon Valley, near San Jose, in the South Bay Area region. [See - June 5, 2010: Sprouts Farmers Market Opens First Northern California Store in Sunnyvale; Strikes Up Partnership With Local Non-Profit Farm

As we've previously reported, Sprouts has a third location, in the East Bay Area city of Dublin, which it also hopes to open in 2011.

The grocery chain is also searching for numerous additional store sites throughout Northern California, putting a focus on the San Francisco Bay Area and the Sacramento metropolitan region.

Timing is key

The timing of the early-to-mid April opening of the Sprouts Farmers Market store in Roseville co-insides with the opening date of Boulder, Colorado-based Sunflower Farmers Market's first Northern California store, which just happens to be in Roseville. The Sunflower Farmers Market stores are very similar in format and customer-positioning (not to mention name) to Sprouts Farmers Market.

The Sunflower Farmers Market store in Roseville is set to open in early 2011, according to CEO Mike Gilliland. [See - December 7, 2010: Sunflower Farmers Market Confirms Our Report It's Headed to Northern California; Roseville Store to Open April 2011 and December 9, 2010: Launching Sunflower Farmers Market Into Northern California is a 'Second Act' of Sorts For Founder-CEO Mike Gilliland.]

Like Sprouts, Sunflower Farmers Market has plans to open numerous stores in Northern California. Also like Sprouts Farmers Market, Sunflower is focusing its search for additional Northern California store locations in the Sacramento metropolitan and San Francisco Bay Area regions.

Henry's makes three - maybe

Smart & Final-owned Henry's Farmers Market, which opened its first store in Northern California at 8211 Laguna Boulevard in Elk Grove near Roseville in August 2010, has also been considering opening a store in Roseville. However, in light of the current negotiations between Sprouts Farmers Market and Henry's owners, private equity firm Apollo Global Management/Smart & Final, we can't report at this time that those plans remain in consideration.

Henry's Farmers Market currently has a proposal for a second Northern California store before the planning commission in Walnut Creek, California, which is in the Easy Bay Area, not far from Dublin, where Sprouts' planned third Northern California store is located. As far as we've been able to learn, those plans are still going forward at Henry's.

The planned Walnut Creek Henry's location would be a perfect fit for Sprouts Farmers Market, should the grocer's talks to acquire Henry's Farmers Market, which continue to go on this week, result in the privately-held, Arizona-based chain's buying Henry's.

New stores 'sprouting' up all over the region

The Sacramento region, including Roseville, is set to see an influx of new food retailing players and grocery stores this year, and into 2012.

In addition to new arrivals Sprouts, Henry's Farmers Market (summer 2010), which could soon be a combined Sprouts-Henry's, and Sunflower Farmers Market (in April), Tesco's Fresh & Easy Neighborhood Market currently has over 20 planned store sites in the Sacramento region (see our list here.) [Also see - November 22, 2010: Tesco's Fresh & Easy Neighborhood Market Plans Five New Stores in Northern California's Sacramento Region.]

Tesco's Fresh & Easy plans to open its first 12 stores in Northern California (none of the 12 are in the Sacramento region though) starting in March-April of this year. (click here for additional details on Fresh & Easy in Northern California.)

However, based on our most recent information, we don't expect the Tesco-owned fresh food and grocery chain to open any of its Sacramento-area stores until, at the earliest, late 2011. And it's possible the first stores in the region won't open until early 2012. [See - December 27, 2010: First Look at the Pacifica, California Fresh & Easy Neighborhood Market Store, One of the First Opening in Northern California in Early 2011 and December 14, 2010: Fresh & Easy Neighborhood Market to Open 5800 Third Street 'Flagship' Store in San Francisco Later in 2011 Than Originally Announced.

Additionally, Whole Foods Market, which has a store in Roseville and one in Sacramento, plans to open its third store in the Sacramento metro region this year, in Folsom.

Whole Foods is also scouting for additional store sites in the Sacramento region as part of a major new store growth initiative for Northern California, which its been undertaking for a few years, and accelerated in 2009-2010. [See - May 9, 2010: A Whopping 15 of Whole Foods Market's 41 New Stores in Development are in California - And Nine of The 15 Are In Northern CA

Further, as we reported earlier today, Walmart is close to acquiring its first smaller-format store location in Northern California, at Highway 65 and Second Street in the city of Lincoln, which is near Sacramento, and has plans to grab additional sites in the Sacramento region for the small-supermarket-style food and grocery stores. [See - January 10, 2011: Walmart 'Gets Real' With Smaller-Format Grocery Store Initiative in California; First Stores On Tap.]

One of the numerous Sacramento-area Fresh & Easy Neighborhood Market store sites is in Lincoln. Additionally, Tesco has two future Fresh & Easy stores planned for Elk Grove, where Henry's Farmers Market opened its Northern California flagship store in August 2010. [See - August 17, 2010: Henry's Farmers Market 'Beats' Fresh & Easy Neighborhood Market to Northern California Despite Multi-Year Head Start; Elk Grove Store Opens Tomorrow.]

Add to the mix popular discount retailer Target Corp., which is focusing aggressively on the Sacramento region with its "P-Fresh" food and grocery store initiative in Northern California. Target currently has "P-Fresh" grocery markets in 12 of its discount format stores in the Sacramento area, including in Elk Grove, Roseville and Lincoln, and has plans to add the markets inside additional general merchandise stores in the region this year. [See our September 26, 2010 story for details on Target's "P-Fresh" in Northern California: While Tesco's Fresh & Easy Neighborhood Market Postponed, Target Opened 42 'P-Fresh' Fresh Food and Grocery Markets in Northern California.]

Locally-based and family-owned supermarket chain Raley's, which has its corporate headquarters in West Sacramento, California, is the market share leader in the Sacramento region, followed by another family-owned chain, Modesto, California-based Save Mart Supermarkets, which operates supermarkets under its Lucky banner and discount warehouse stores under its FoodMaxx banner in the region. Safeway Stores, Inc., which is headquartered in the East Bay Area city of Pleasanton, about 90 minutes from Sacramento, is a close third in market share rankings in the Sacramento metro market, although its number one in all of Northern California.

Raley's, which has 134 stores and about $3.4 billion in annual sales, operates stores under the Raley's (super stores), Bel-Air (supermarkets) and Food Source (discount warehouse stores) in the Sacramento market region.

Sprouts' 'sprouting' new stores

Sprouts Farmers Market, which has 54 stores in Arizona, Colorado, California and Texas, currently has five new stores set to open this year. More new locations are set to be announced later this year.

In addition to the Roseville, California Sprouts market opening in April 2011, the four other announced new stores set to open this year are in Southern California - Westlake Village and Redondo Beach - and Texas - Fort Worth and Carrollton.

The Forth Worth store, which is at 4650 SW Loop 820 in the Overton Park Plaza shopping center, is set to open this month, on Wednesday, January 26.

Of course, if the discussions with Apollo Global Management/Smart & Final over acquiring the 46-store Henry's Farmers Market chain result in a deal for Sprouts Farmers Market, the Arizona-based chain, owned by members of the Boney family, the same family that started the Henry's chain, will nearly double its store count to over 100 units.

The Henry's Farmers Market stores are in California and Texas. The California stores - 36 in Southern California and one unit in Northern California - operate under the Henry's Farmers Market banner. The nine stores in Texas are under the Sun Harvest Farmers Market banner.

Meanwhile, regardless of which direction the deal negotiations end up going - they're looking positive for a deal right now, according to our sources - regarding a possible Henry's Farmers Market acquisition by Sprouts, the Arizona-base chain plans to continue to grow its store-count significantly in Northern and Southern California, along with in Texas (current major focus, along with California), Arizona and Colorado - plus potentially adding a couple new Western U.S. states - over the next few years.

Reader Resource

>Read our 2010 'Northern California Market Region Special Report' series here for a current primer on food and grocery retailing in the region. See the numerous linked stories at the end of the piece at the link.

Walmart 'Gets Real' With Smaller-Format Grocery Store Initiative in California; First Stores On Tap

Walmart in California - 2011
Breaking Buzz - Plus Analysis

Bentonville, Arkansas-based Walmart Stores, Inc., the largest retailer in the world with annual sales approaching half-a-trillion dollars, is taking the first concrete steps to turn its plans to open smaller and small-format food and grocery stores in California into reality.

Southern California

Walmart, which also happens to be the top seller of food and groceries in the United States, has bought a 32,000 square-foot building in Downey, California, which it plans to most-likely convert into a version of its 20,000 square-foot (selling space) 'Neighborhood Market By Walmart' prototype food and grocery store, which it's been testing in Rogers, Arkansas for the last couple years, Fresh & Easy Buzz has learned, although the store could have a different name.

The building, at 12270 Paramount Boulevard in Downey, is currently occupied by Alin's Party Depot, which sells a variety of party-oriented consumer goods. The retailer lost its lease on the building last year and is set to close and vacate the store at the end of this month.

Northern California

In addition to the Downey location in Southern California, Walmart is close to either purchasing or signing a lease for a vacant 30,000-32,000 square-foot building at the other end of the state, in Northern California. The location, at Highway 65 and Second Street in Lincoln, California near Sacramento, formerly housed an independent supermarket, Rainbow Market.

Tesco has plans to open a store in Lincoln, perhaps as early as the end of this year. The locations is at Lincoln Boulevard and Sterling, and isn't too far from the site Walmart is preparing to acquire.

Fresh & Easy Buzz has been reporting on Walmart's plans to open smaller-format grocery stores in California, including in the northern part of the state, since late 2007, when the blog was started. Most recently, in this July 6, 2010 story - Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store - we offered details and analysis about the retailer's plans in Northern California for 2010-2011, based on information provided by our sources.

Three months after we published our story, Walmart announced in October 2010 it's plans to open 30-40 smaller and small-format food and grocery stores, but not any more of its 'marketside by Walmart' format stores, in the U.S., as a test. So far the retailer has announced or confirmed plans for smaller stores in metro Chicago, Washington D.C. and New York City - but not California. Walmart has so far received approvals for the stores in Chicago.

However, as we said in our July 2010 piece, and are reporting today in this story, smaller format food and grocery markets from Walmart Stores, Inc. are coming to California - and soon.

In the July 2010 story we also reported that Walmart has been searching for numerous sites for the smaller-format stores, most being in the 20,000-30,000 square-foot range, throughout Northern California, with a focus on the Sacramento region, parts of the Northern Central Valley, and the San Francisco Bay Area.

The Sacramento region has been getting a particular focus from Walmart and its local commercial real estate firm since the summer of 2010.

According to our sources, among the specific Sacramento-area locations Walmart is looking closely at, in addition to the former Rainbow Market in Lincoln, include a former Nugget Market store at Florin Road and Greenhaven Drive in Sacramento, and two vacant Albertsons supermarkets, one at 6184 Sunrise Mall Road and the other at 6454 Tupelo Drive, in the Sacramento suburb of Citrus Heights. Nugget Markets is a local chain based in Woodland, California, which is about 12 miles from Sacramento, and located next door to Davis, home of the University of California at Davis campus.

Walmart is also close to agreeing with landlords for other locations in the Sacramento region, as well as in parts of the San Francisco Bay Area, where the retailer has a near-zero food and grocery retailing presence in terms of market share.

Speaking of Davis, California, our sources also tell us Walmart has a potential interest in the small-format Davis IGA Market in the university city should its owners, the Delano family, have to sell or close the store. The Delano family closed five of the seven stores they operated in Northern California late last year, as we reported on in November. See - November 29, 2010: Veteran Grocer Harley DeLano's 'DeLano IGA Markets' Chain On the Verge of Closure in San Francisco Bay Area; and November 30, 2010: DeLano's IGA Markets Closing Five Stores in San Francisco & Marin County; Fairfax, Davis Units to Remain Open (For Now). The Davis IGA Market is in a moderate income neighborhood and is the only grocery store in what is the eastern part of the city of about 60,000 residents.

The Delano's own the Fairfax and Davis stores under a different ownership structure than they did the San Francisco Bay Area markets they were forced to close, which is why the two units remain open. However, Kroger Co., which leased the store buildings to the Delano's, has filed a lawsuit seeking over $1 million in back rent from the grocers. As such, it's not clear if the father and son team will be able to keep the Davis and Fairfax stores open.

Downey 'smaller-mart' store format

Based on the information we've been able to obtain thus far, we aren't 100% sure (nor are we sure Walmart knows itself) what the precise format of the Downey, California smaller-format grocery store will be.

However, according to our research and information, it likely will be a version of the Rogers, Arkansas 'Neighborhood by Walmart' prototype store (pictured above and below), which includes an in-store pharmacy, fresh bakery, and cafe/deli/prepared foods department, as well as offering fresh produce, meats and a strong but limited selection packaged food and grocery items.

For those of you reading this who haven't seen the Rogers' prototype store, think of the format as a smaller version of Walmart's Neighborhood Market supermarkets, which average about 40,000 square-feet, but with smaller in-store departments and fewer grocery SKUs, along with some significant design and merchandising differences.

Based on the building's 32,000 square-feet, depending on the sizes of the back-room area and the in-store pharmacy (if it includes one, which is most-probable), we estimate the smaller-format Walmart store to be, in terms of selling space, in the 20,000-30,000 square-foot range. This fits well with the selling space area of the Rodgers, Arkansas prototype store, as well as with the smaller and small-format size stores Walmart said in October 2010 it planned to focus on. [See - October 13, 2010: Simon Says: Walmart U.S. CEO Outlines Smaller Store Strategy and Plans; Walmart to Offer Groceries Online in USA and October 11, 2010: Walmart to Outline its Urban-Focused Smaller-Format Grocery Store Plans Wednesday; What Might Be In-Store?]

Not long after the Alin's Party Depot party goods' store vacates the building in Downey at the end of the month, Walmart plans to start renovations on it, likely opening what will be the retailer's first smaller-format food and grocery store in California before the end of 2011.

Tesco's Fresh & Easy - Downey

Tesco opened its first small-format (about 10,000 square-foot) Fresh & Easy Neighborhood Market store in Downey, at 8320 Firestone Boulevard (Downey and Firestone), on April 7, 2010. [See - March 29, 2010: Tesco's Fresh & Easy Set to Hit 150-Plus Store-Count Mark on April 7.]

The Walmart smaller-store location at 12270 Paramount Boulevard is just minutes away from the 8320 Firestone Boulevard Fresh & Easy Neighborhood Market store, as you can see here.

The smaller-format Walmart food and grocery market will be at least twice the size of the Fresh & Easy store and, although it won't be a 'marketside by Walmart' format or banner store like the four in metro Phoenix, Arizona, the "smaller-mart"will carry a full-selection of Walmart's'Marketside' private brand fresh food and fresh-prepared foods products, according to our information.

Tesco's Fresh & Easy - Sacramento

The Sacramento area, along with the San Francisco Bay Area are the two key major market region focuses for Tesco in Northern California, where it plans to start opening its first batch of stores in a couple months. none of the first stores set to open are in the Sacramento area. [See - December 27, 2010: First Look at the Pacifica, California Fresh & Easy Neighborhood Market Store, One of the First Opening in Northern California in Early 2011 and December 14, 2010: Fresh & Easy Neighborhood Market to Open 5800 Third Street 'Flagship' Store in San Francisco Later in 2011 Than Originally Announced, for example.]

The Sacramento market region is a major focus for Tesco's Fresh & Easy though. In addition to the original 19 planned store locations the retailer announced in the region in January 2008, Tesco recently added five new Sacramento-area future Fresh & Easy Neighborhood Market locations to its Northern California store portfolio, as we reported here - November 22, 2010: Tesco's Fresh & Easy Neighborhood Market Plans Five New Stores in Northern California's Sacramento Region.

Based on what we know at present, Tesco won't open the first Fresh & Easy stores in the Sacramento area until, at the earliest, late 2011. More probably, based on what we know right now, an early 2012 date is in the cards.

Walmart's target cities and types of neighborhoods for its smaller-format stores in the Sacramento region look to be in many cases the same ones as Tesco's for Fresh & Easy, based on our research and reporting.

Walmart in California - 2011

Although we expect Walmart to open just a handful of smaller-format food and grocery stores in California this year, if those initial stores do well, we could see dozens of the "smaller marts" open in the Golden State in 2012, particularly in parts of Southern and Northern California, like Los Angeles and the San Francisco Bay Area, where Walmart has had trouble gaining approval for its supercenters, along with struggling in some instances to get city and county government approvals for discount format stores it wants to convert into hybrid supercenters.

The smaller-store stores Walmart will open in California starting this year aren't upscale food and grocery markets, nor will they be located in high-income neighborhoods. Instead, the stores are targeted to lower-to-upper-middle-income shoppers, and will be in cities with moderate income levels in the main, which is the strategy Tesco is following with its small-format Fresh & Easy stores.

In addition to its smaller-store initiative in California, which is fast on the way from concept to reality, Walmart also has other major initiatives set for California beginning this year, including new supercenter openings, development and growth. [See - May 6, 2010: Going Smaller & Getting 'Hybrid': Walmart's Smaller Supercenter in Vacant Retail Buildings Strategy Began in 2008, as an example.

Fresh & Easy Buzz will be covering Walmart in California - as well as elsewhere in the U.S. and globally - extensively this year, as we have since 2008. Look for the header - 'Walmart in California - 2011' - like the one at the top of this story, for extensive coverage of the largest food and grocery (and overall) retailer in the U.S,. in the largest state in the U.S. - California - throughout 2011.

Smart & Final-Henry's Tell Employees About Deal Discussions With Sprouts Farmers Market; Confirming 'The Insider's' Reports

Breaking Buzz

Henry's Farmers Market, which is owned by City of Commerce, California-based Smart & Final, on Friday (January 6, 2011) notified headquarters office workers, store managers and employees at its 46 stores in California and Texas that the company's owner, private equity firm Apollo Global Management, is in discussions regarding the sale of the Henry's chain to Arizona-based Sprouts Farmers Market, Fresh & Easy Buzz has learned.

Friday morning, Smart & Final's CEO, George Golleher, instructed senior executives at Henry's Farmers Market, which has its own separate headquarters in Irvine, California, to communicate to the employees that Apollo and Smart & Final are negotiating a possible sale of Henry's to Sprouts, but that a deal has not yet been completed, according to our multiple sources.

As part of the communication on Friday, the Henry's Farmers Market employees were told by the executives not to discuss the information with members of the media or anyone else but to instead refer any questions on the possible sale of the chain to Sprouts Farmers Market to Randall Oliver, Smart & Final's corporate spokesman.

Fresh & Easy Buzz's 'The Insider' columnist broke the news about a potential acquisition deal between Sprouts Farmers Market and Apollo/Smart & Final for its Henry's Farmers Market chain in a January 5, 2011 column, which you can read here: Will 2011 See Sprouts Farmers Market Acquiring Henry's Farmers Market? 'The Insider' Says it Could Be in The Cards. Also see 'The Insider's' column from yesterday for an update - January 7, 2011: Sprouts Farmers Market-Henry's Farmers Market Deal Negotiations Continue; End-Game Could Be Near.

In yesterday's column 'The Insider' noted that "selected Henry's Farmers Market" employees had been notified about the deal talks with Sprouts between January 5 and January 7. That universe of employees has now been extended to store-level managers and employees, as of Friday, January 7.

The Friday communication to Henry's store employees by Smart & Final confirms 'The Insider's' reports that deal discussions are indeed going on between Apollo/Smart & Final and Spouts Farmers Market regarding the possible acquisition of Henry's by Sprouts.

Employees of Phoenix, Arizona-based Sprouts Farmers Market haven't been notified by company executives about the talks with Apollo/Smart & Final, according to our sources, which isn't a surprise since it would be the company making the acquisition and thus its employees aren't in the same position the Henry's employees would be in if a deal does happen.

A number of Sprouts employees are aware of the negotiations though, evidenced by a number of e-mails we've received from them following the publication of the January 5 column by 'The Insider,' who says he's currently working on a follow-up column about the deal negotiations and possible acquisition of Henry's Farmers Market by Sprouts Farmers Market.

The negotiations between representatives of Apollo/Smart & Final and Sprouts Farmers Market are ongoing. Sources tell us they will continue next week.