Kroger-Owned Fry's Store Coupon Jujitsu Ensnares Tesco-Owned Fresh & Easy Neighborhood Market in Arizona

Analysis

We've written extensively about Fresh & Easy Neighborhood Market's chronic use of its 25%-off (pictured above) and 20%-off deep-discount store coupons as a way to create and maintain sales in its 155 stores in California, Nevada and Arizona. [Click: here, here and here for a selection of those past stories.]

As a current example of that chronic use, the Tesco-owned grocer currently has three versions of the 25%-off and 20%-off store coupons in distribution - one good for $5-off purchases of $20 or more (expires on November 30); another good for $6-off purchases of $30 or more (good until November 22); and a third offering $10-off purchases of $50 or greater (expires on November 22). The coupons are available online, which means shoppers can download the discount vouchers and use one each time they shop at a Fresh & Easy store in November.

The thrust of our writing about the Fresh & Easy store coupons, which give customers a full 20%-25%-off their total purchase amount if they buy the minimum amount required to redeem the coupons, has been three-fold.

Price perception: First, we've suggested that by chronically using the store coupons - Fresh & Easy has used them regularly with only a couple slight pauses since November 2007 when its first stores opened - the grocer has established to its detriment a retail pricing policy and related shopper perception that says because Fresh & Easy nearly always has the coupons in circulation, the everyday prices at the stores are too high. But with the coupons the prices are low.

We believe on some level Fresh & Easy's senior management has learned this to be true because when it attempts to stop issuing the store coupons for more than a few weeks at a time, store sales drop considerably. Additionally, customers complain about the lack of coupons on Fresh & Easy Neighborhood Market's Facebook and Twitter sites, saying that without the store coupons being available they will be doing far less shopping at the stores.

For example, at one point in 2009 Fresh & Easy stopped issuing the store coupons for nearly two months, the longest period it hasn't had at least one version of the discount vouchers in circulation. As a result, sales at the stores dropped significantly, and customer complaints went through the social media site roof. The result: Fresh & Easy Neighborhood Market started issuing the store coupons again regularly, and hasn't stopped doing so since then. [See - May 20, 2009: Breaking Buzz: Tesco's Fresh & Easy Issues Another New Discount Store Coupon ($10-off $50 Though); We Told You the Coupons Would 'Be Back.' Also - May 1, 2009: Fresh & Easy Brings Back $6-Off Deep-Discount Store Coupon; Latest Version Good For Nearly One Month; New Promo Strategy Didn't Last Long; and May 7, 2009: 'They're Back' in Full-Force: Tesco's Fresh & Easy Adds New $6-Off Online Coupon to Just-Recently Direct-Mailed $6-Off Coupon; Tough to 'Terminate.']

Fresh & Easy's senior management has compounded this problem by refusing to accept manufacturers' cents-off coupons in the stores, saying publicly in its marketing communications that the reason it doesn't accept the coupons is because its everyday prices are already low.

This argument doesn't hold water though because if that were the case, then why would Fresh & Easy need to regularly issue the deep-discount store coupons, which offer a far-higher percentage discount than manufacturers' cents-off coupons do? The Fresh & Easy-issued store coupons are a discount off a shopper's entire purchase, while manufactures' coupons are a discount off a single item. Grocer's get reimbursed by the manufacturers for the item coupons, while the discount from Fresh & Easy's store coupons comes out of the grocer's profit margin, which leads to our second argument as to why the chronic use of the store coupons has become a trap for Tesco's Fresh & Easy Neighborhood Market.

Gross Margin: In October Tesco reported its Fresh & Easy chain has a negative-38% gross margin. To put that in perspective, most healthy grocers have a gross margin that's at least in the plus-20% level. In order for Fresh & Easy Neighborhood Market to break-even by the end of 2013, as Tesco says it will, the grocer has to get its gross margin up from the current negative-38% to something at least close to what a healthy grocer produces in order to make a profit. Doing so is a huge task for Tesco.

In our analysis, one of the key contributors, but far from the only one, to Fresh & Easy's negative- 38% gross margin is the chain's chronic use of the deep-discount store coupons, which as mentioned earlier reduce a shopper's total market basket of purchases by a whopping 20% if the customer buys the minimum dollar amount - the $30 minimum purchase to get the $6 off, for example. Even if a customer buys $60 worth of groceries and gets the $6-off, that's still a 10% bite out of the market basket - $54 instead of $60 for the hypothetical purchase.

Since the store coupons are in distribution nearly always, and since shoppers use the coupons so often, Fresh & Easy is taking constant hits to its margins simply by virtue of having established the store coupons as a regular feature of how it does business. (This goes hand-in-hand with having created the price-perception in the minds of customers, which we detailed above.)

A vulnerable promotional tool: Lastly, we've suggested that in addition to the two key factors outlined above, the chronic use of the deep-discount store coupons by Tesco's Fresh & Easy - rather than using them as an infrequent (once a quarter or so) promotional tool as is the industry norm - is such a simplistic form of promotion that it presents an opportunity for competitors in a given market, particularly big ones with high market share, to make a defensive move, accepting the Fresh & Easy coupons in their respective stores, therefore rendering what has become Fresh & Easy's primary promotional tool, the deep-discount coupons, a seriously blunted one.

Fry's store coupon Jujitsu

Last year in Arizona, where Tesco's Fresh & Easy has 28 stores in the Phoenix metropolitan region, Kroger-owned Fry's Supermarkets did just that - it periodically excepted the Fresh & Easy Neighborhood Market store coupons in its 120 Arizona stores, as we wrote about in this February 2009 piece - February 3, 2009 Competitor News: 'Grocer-Gone-Wild:' Arizona's Fry's and its 'Bring it On' 'Take All Competitors' (Including Tesco's Fresh & Easy) Store Coupon Move.

Fry's did a handful of one-week promotions in 2009, in which it accepted the Fresh & Easy store coupons, along with those of all its other competitors, touting the move in its weekly advertising circular and in other forms of media advertising and promotion.

The direct or default target of Fry's in accepting the store coupons was Tesco's Fresh & Easy, since none of the other grocery chains in the market issue similar store coupons on a regular basis. (A couple do so on occasion.) In the promotion, Fry's also offered to round-up all manufacturers' cents-off coupons to a $1 value, regardless of the coupon's face value.

Fry's offered the deal a couple times early this year, once again. But beginning mid-year, the supermarket chain, which is the number two market share leader in metropolitan Phoenix, just a couple points behind Walmart Stores, went full-bore, offering to accept all competitors store coupons, along with offering the $1 value for all manufacturers' cents off coupons, nearly every week. Fry's has continued the promotion nearly every week, including at present, during the last half of 2010.

Since Fry's only accepted the store coupons of its competitors infrequently last year, the resulting loss of sales at the Fresh & Easy stores that can be attributed directly to the Fry's defensive move in 2009 wasn't all that significant or regular.

However, that's changed. Because Fry's has been taking its competitors' (which means primarily Fresh & Easy since it's the only grocer in the market regularly distributing such coupons) store coupons nearly every week since the middle of this year, numerous customers who normally shopped at Fresh & Easy because of the coupons have been and are now taking the deep-discount vouchers to Fry's, which has resulted in a significant blunting of what is Fresh & Easy Neighborhood Market's primary offensive promotional tool - the deep-discount store coupons.

We know this to be the case for a couple reasons. First, Fresh & Easy Buzz has talked to managers and grocery checkers at over 25 Fry's stores in metro Phoenix since the middle of this year. The store workers tell us their tills are overflowing with Fresh & Easy store coupons, which are being redeemed by shoppers who download the discount slips of paper from the Fresh & Easy site, print them out, but then use the coupons at a Fry's store instead of at a Fresh & Easy market.

Additionally, because of the regular acceptance of the Fresh & Easy store coupons at Fry's this year, Arizona's numerous grocery deal and coupon blogs have been recommending to their readers that instead of using the vouchers at a Fresh & Easy store, they instead use them at Fry's, in large part because Fry's runs its $1 value manufacturers' cents-off coupon promotion at the same time. Fry's lets shoppers first deduct the Fresh & Easy coupon from their total grocery purchase amount before then deducting the manufacturers' item coupons, which means even greater savings, which is what the Arizona blog sites are all about. [For some examples of what the numerous popular Arizona consumer coupon/grocery deal blogs are saying about using the Fresh & Easy store coupons at Fry's, take a look: here, here, here, here and here.]

Here's an example of the savings shoppers can get using both the Fresh & Easy store coupon and the $1 value manufacturers' coupons at Fry's: A customer buys $50 worth of groceries. She then uses the $10-off $50 Fresh & Easy coupon, bringing her grocery order to $40. She then can use her manufacturers' cents off coupons against the $40 total. Remember all of the coupons at Fry's are worth $1, regardless of their face value. Therefore, let's assume she has $10 worth of the single-item manufacturers' coupons, each worth $1 at Fry's. As a result, her original $50 purchase, reduced to $40 after using the Fresh & Easy $10 coupon, is now a mere $30, a whopping savings of $20.

Without a doubt the loss on profit for Fry's on these transactions is significant. Fry's eats the $10 discount from the Fresh & Easy coupon, plus the amount from each manufacturers' cents off coupon over the face value. For example, giving $1 off on a 50-cent item coupon results in a loss on the amount of 50% for Fry's. The manufacturer only reimburses the grocer for the face value amount of the coupon plus a small handling charge.

However, because Fry's is a close second to Walmart in market share in the region, and because Kroger wants to protect its turf, along with the fact that Fry's is a small (but important) piece of Kroger's overall revenue base, it's decided it can take the hit in order to protect and it hopes grow that market share, despite what will obviously be a negative effect on the Fry's bottom line. Think of it as Fry's version of Jujitsu applied to a competitors promotional program, in this case Fresh & Easy's store coupons, which to date has been its most important promotional tool in terms of generating sales, and therefore its most vulnerable one.

Additionally, the point of this analysis isn't how accepting the competitor store coupons will affect Fry's bottom line. Rather, it's to empirically demonstrate the trap Tesco's Fresh & Easy finds itself in, regardless if it knows it or not, in terms of the vulnerability of its chief promotional tool, the deep-discount store coupons.

Broader implications of Fresh & Easy's store coupon trap

For example, if Fry's can accept the Fresh & Easy store coupons in Arizona, so can Kroger-owned Ralphs, Safeway's Vons or Albertsons in Southern California.

Further, in Northern California, where Fresh & Easy plans to open its first batch of stores in early 2011, one or more competitors could decide to follow the Fry's model and as a preemptive strike against Tesco's Fresh & Easy Neighborhood Market announce a couple weeks before the first stores open - or even worse start accepting the coupons a couple weeks before the stores even open, doing an old fashion competitor pantry-loading scheme - that it will accept the Fresh & Easy store coupons in its stores for a month, or two, or three, for example. Doing so would likely significantly hurt sales, something no grocer particularly wants to happen when it's just entering a market for the first time.

One might suggest the fact Fry's is accepting the store coupons is a good thing for Fresh & Easy, since we argue the discount vouchers are a key contributor to its double-digit negative gross margin. But also recall we argue that without the coupons, sales at the Fresh & Easy stores drop like a ton of 10 pound Gold Medal Flour bags, which is why the grocer continues to issue them on a regular and even overlapping basis, as is the case this month. In other words, It's a store coupon "Catch-22" for Tesco's Fresh & Easy in our analysis: Can't live with the coupons, can't live without them.

If our analysis is wrong, then the simple thing would be for Fresh & Easy to stop issuing the store coupons, at least in the Arizona market. After all, if it's true the reason the grocery chain doesn't accept manufacturers' cents-off coupons is because its everyday prices are already low, which Fresh & Easy executives have said is the case, then the same argument should hold for not issuing its own discount coupons, which lower a shopper's total purchase amount (and Fresh & Easy's margin) far more than even a big stack of manufacturers' cents-off coupons do.

But that's far from being the case in everyday practice, as we've noted in Fresh & Easy Buzz for nearly three years. Additionally, the fact Fresh & Easy has three different versions of the store coupons in distribution this month is ample evidence the grocer needs the coupons in order to maintain sales at the present level. If not, it would use the coupons much more cautiously.

From a merchandising perspective, Fresh & Easy has created a serious price perception problem for itself in the minds of customers with the chronic use of the store coupons. Based on our research and analysis, many of the grocer's regular customers factor-in the discount from the coupon as the de rigueur price they should pay for their purchases at Fresh & Easy. Take the coupons away for any extended period of time and those shoppers will likely adjust that mental calculus, perceiving the non-coupon cost of shopping at Fresh & Easy to be too high, compared to some of its competitors. That's what experience has shown thus far, based on our research and analysis.

Added struggle in Arizona

Ironically, we don't think Fry's acceptance of the store coupons is directly aimed at Fresh & Easy, at least not from the perspective that Kroger thinks the Tesco-owned chain is a direct threat in metropolitan Phoenix. After all, Fresh & Easy isn't even among the top six-seven grocers in terms of market share in the region. But Fresh & Easy is owned by Tesco, which is the third-largest food and grocery retailer in the world. And that fact might just be good enough for Kroger Co. to want to make sure Tesco has a very difficult time gaining any sort of foothold in Arizona with Fresh & Easy, along with letting it know that attempting to do so will come at a significant cost.

Tesco's Fresh & Easy recently closed six stores in metropolitan Phoenix, leaving it with the current 28 units, down from 34. Additionally, the grocer plans to focus its new store openings in 2011 primarily in California, as we've previously reported. It will likely open a handful of new stores in Arizona next year.

Tesco's 28 Fresh & Easy stores in metro Phoenix have been struggling overall in terms of sales before the pressure from Fry's defensive store coupon acceptance move. The fact that Fry's is taking the Fresh & Easy store coupons during the crucial Thanksgiving holiday season - we're told it will continue to do so for Christmas as well - is exerting even more pressure on Fresh & Easy Neighborhood Market's Arizona operations.

And since metropolitan Phoenix is arguably the most competitive food and grocery retailing market in the U.S., or close to it, and it's only getting more competitive, the outlook for Tesco's Fresh & Easy in the region is a fairly poor one at present. The fact Fry's is blunting Fresh & Easy's most-popular promotional tool, its deep-discount store coupons, makes Tesco's struggle in the market an even more challenging one.

[Editor's Note: This is part one of a two-part analysis piece. In part two we will offer some ways in which Tesco's Fresh & Easy may be able to escape from the chronic store coupon trap it appears to have set for itself.]

Walmart's Four 'Marketside by Walmart' Stores Set to Be Closed Soon Never Came Close to Weekly Sales of $100,000

Arizona Market Region Report - News & Analysis

In a September 9, 2010 story - Walmart Plans to Close Arizona 'marketside by Walmart' Stores, Dump Format By Year-End or Early 2011 - we broke the news Walmart Stores, Inc. would be dumping its 'marketside by Walmart' small-store fresh food and grocery format, including closing the four existing stores in Arizona.

We followed the September 9 story up with a piece on September 23 - Revisting 'marketside by Walmart': Format As We Know it On the Way Out But Some or All Of the Four Stores Could Be Converted - in which we reported Walmart was discussing potentially converting some or all of the 'marketside by Walmart' stores into a different small-format, most likely the version of its 20,000 square-foot 'Neighborhood Market by Walmart' prototype it plans to roll out to the tune of about 30-40 stores in 2011. [See - October 13, 2010: Simon Says: Walmart U.S. CEO Outlines Smaller Store Strategy and Plans; Walmart to Offer Groceries Online in USA]

The reason for the follow-up story in late September was because not only has 'marketside by Walmart' been neglected for over a year by Walmart Stores, Inc. - for example one of the managers of the four stores in Arizona is and has been running two units at the same time since early this year - but a decision as to whether or not to close all the stores or try to salvage one or more by converting to the new small-format the retailer plans to roll out next year has been up in the air.

On Wednesday, October 13, Walmart U.S. president and CEO Bill Simon confirmed half of our early September 2010 report at the retailer's annual investment community conference, saying the Walmart Stores' does not plan to expand 'marketside by Walmart' beyond the current four stores, commenting the retailer has learned a great deal from the stores and has been able to create a multi-million dollar fresh foods brand, 'marketside,' which it's selling in its Walmart supercenters and Neighborhood Market supermarkets, based on operating the stores. Simon didn't announce plans to close any of the stores or convert them to another small store format at the conference however.

It was the first time a Walmart Stores' executive has said publicly that the retailer would cease any further development of 'marketside by Walmart.' Earlier this year Walmart said publicly it wouldn't open any additional 'marketside by Walmart' stores this year - but did not say it wouldn't do so beyond 2010.

Based on the information we have at present, it's remains most probable Walmart will close all four of the Arizona 'marketside by Walmart' stores by the end of December and no later than the end of January 2011 or convert some or all of the four stores into a new small-format.

Average Weekly Sales: 'marketside by Walmart' Stores

None of the four 'marketside by Walmart' stores have or are doing even close to $100,000 in weekly sales, according to our excellent sources. The four metro Phoenix area stores are located in Gilbert, Tempe, Mesa and Chandler, Arizona. All four stores opened in May 2008.

The Gilbert unit has been doing the best of the four, averaging about $68,000 a week in sales, our sources say.

The other three metro Phoenix 'marketside by Walmart' units are all doing below $50,000 a week in sales, our sources say.

They estimate the Chandler, Arizona store is averaging $48,000-$49,000 in weekly sales; the Mesa unit $33,000-$35,000; and the Tempe store about $40,000 weekly.

Two of the stores are in the 15,000 square-foot range. The other two are between 16,000-18,000 square-feet. According to the most current FMI (Food Marketing Institute) statistics, the average U.S. supermarket has sales-per-square-foot of $11.35. All four stores have been and are doing way below the $11.35 per-square-foot industry average.

In our analysis, these average weekly sales numbers make it unlikely that Walmart will put a different small-store format in any of the current four 'marketside by Walmart' stores when it closes them at the end of this year or in early 2011, although the retailer may believe a different format can make a go of it at the locations.

We'll have more for you very soon. Stay tuned.

'Marketside by Walmart' - Follow the Story Below

>December 21, 2009: Wither Walmart's Small-Format 'marketside' Stores and Format?

>January 9, 2010: Walmart's 'marketside': What's 'In-Store' for 2010?

>September 9, 2010: Walmart Plans to Close Arizona 'marketside by Walmart' Stores, Dump Format By Year-End or Early 2011

>September 23, 2010: Revisting 'marketside by Walmart': Format As We Know it On the Way Out But Some or All Of the Four Stores Could Be Converted

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

[For a selection of additional past stories on Walmart's 'marketside' and 'marketside by Walmart' click here and here.]

Winco Foods is 'Moving Fast-Forward' With Metro Phoenix, Arizona Market Entry

Metro Phoenix, Arizona Market Report

News & Analysis

In this piece last week on April 27 - WinCo Foods' Entry Will Put the 'Ultra' in the Already 'Hyper-Competitive' Metro Phoenix, Arizona Market - we wrote this (in italics below), about Idaho-Based Winco Foods and the Metro Phoenix, Arizona market:

"We know (although they haven't confirmed it) that WinCo Foods is looking at multiple sites for stores in Metro Phoenix, and may already have decided on at least two additional locations, based on information from our sources. As a result, even if the neighborhood group is successful in getting the project killed when the Glendale City Council votes on it next month, the setback isn't going to stop Winco from entering the Metro Phoenix, Arizona market, with its mega-food and grocery stores."

In the piece we also noted the Arizona Republic newspaper reported that day on one for sure planned WinCo store site in Glendale, Arizona, a Phoenix suburb.

Today, Arizona commercial real estate executive Ed Beeh, the executive vice president of SRS Real Estate Partners in Phoenix, which is representing Winco Foods in the market, went on the record with the Phoenix Business Journal, sharing with the publication a second (in addition to the one reported on by the Arizona Republic, mentioned in our April 27 story) specific proposed Winco store location. [The Phoenix Business Journal story.]

Beeh told the publication WinCo Foods has purchased a former Walmart site near Seventh Avenue and Bell Road in north Phoenix for one of its 90,000 -to- 1000,00 square foot discount mega-supermarkets. He didn't provide any additional information about that location though - or mention any others. (This is one of the two additional but not specifically named locations mentioned in our April 27 post.)

However, Greg Laing, a commercial real estate executive in Metro Phoenix, who's firm Phoenix Commercial Advisors represents the Arizona-based Sprouts Farmers Market grocery chain, told the publication he believes WinCo also has contracts on store sites at the southeast corner of Alma School Road and the San Tan Freeway in Chandler, and at the northwest corner of Pecos Road and the San Tan in Gilbert. Fresh & Easy Buzz knows Laing to be a straight-shooter in Arizona commercial real estate circles. Therefore, we put stock in what he is saying.

Both Chandler and Gilbert are in Metro Phoenix.

Tesco's Fresh & Easy Neighborhood Market has stores in both Chandler and Gilbert , as well as in Phoenix.

All of this information tracks with what we started hearing from sources - and have been reporting, first on our twitter.com feed early this year, and more recently on the blog: That Winco Foods has made a major commitment to the Metropolitan Phoenix, Arizona market, and plans to open multiple stores in the region.

As we've also noted, Winco is looking for numerous store sites in the market region. And by numerous, we mean additional future locations beyond those mentioned thus far. (It takes Winco some time, like it does Walmart, to build one of its mega stores.)

As we said in our April 27 piece, Winco Foods will be a game changer in Metro Phoenix once it has a number of stores up and running, particularly in the discount segment, but also overall in food and grocery retailing.

Winco also poses an interesting competitive challenge in the market to Walmart. In the food and grocery retail categories, the two chains have very similar positioning, merchandising and pricing strategies and policies.

Like Walmart, Winco is an everyday-low-price, rather than a high-low, operator.

In the various Western U.S. markets where Winco and Walmart compete, the Idaho-based, employee-owned chain regularly does market basket price comparisons against its competitors, including Walmart, and then publishes the results, claiming to beat the brawny big box retailer from Bentonville every time.

WinCo Foods, which bills itself as "The Supermarket Low Price Leader," opened three new stores today - two units in the Utah cities of Ogden and Orem, and one in Sumner, Washington.

Walmart is the market share leader in Metro Phoenix and all of Arizona, however. And Winco will have its competitive legs challenged by the mega-chain in the market.

WinCo Foods also will be challenged by Kroger's Fry's (number two market share in Metro Phoenix) and Safeway (third) particularly, but also the numerous other food and grocery retailers with stores in Metro Phoenix, like Target, Costco, Walmart's Sam's Club, Bashas' and a host of others, including Tesco's Fresh & Easy, which has been putting a focus on price and value since late 2008-early 2009, to the present.

Most of these grocers already compete with WinCo Foods in one of the six western states - Washington, Idaho, California, Nevada, Oregon and Utah - where the supermarket chain has its current 74 stores. So they have a good idea what's coming. And you can bet they're concerned - and worried.

Linkage - Related Posts:

April 27, 2010: WinCo Foods' Entry Will Put the 'Ultra' in the Already 'Hyper-Competitive' Metro Phoenix, Arizona Market

December 29, 2008: Competor News: Winco Foods to Expand in California and Nevada in 2009; Put Aggressive Focus on Central Valley, Northern California and Northern Nevada.]

WinCo Foods' Entry Will Put the 'Ultra' in the Already 'Hyper-Competitive' Metro Phoenix, Arizona Market

Metropolitan Phoenix, Arizona Market Report: Analysis & Commentary

Early this year we posted a "tweet" on our Twitter.com site, in which we predicted Idaho-based grocery chain WinCo Foods was planning to enter the Arizona market, starting with a few stores - the first opening likely in 2011 - in the Metropolitan Phoenix market region.

Our knowledge came as the result of information we first started receiving from sources in December 2009 that WinCo had set its sights on the hyper-competitive Metro Phoenix market.

Additionally, before posting our tweet, we checked in with a source at WinCo Foods via e-mail. And although the source said they couldn't "confirm" WinCo was "planning" to open one or more stores in the region, they said they could tell us "WinCo is very interested in getting into the Arizona market," which is about as good of a non-confirmation, confirmation as you can get.

Glendale bound

Today, the Arizona Republic offers about as good of a non-WinCo Foods' spokesperson confirmation as a publication can get, in a story by staff writer Rebekah L. Sanders.

In the story, "Plan to put grocer at Glendale farm site irks neighbors," Ms. Sanders reports that a group of neighborhood residents in a semi-rural part of the Phoenix suburb of Glendale, Arizona, are objecting to a developer, and WinCo Foods', plans to locate one of the big (average 90,000 -to- 100,000 square foot) WinCo discount food and grocery stores on a vacant plot of land where the developer is planning a shopping center featuring the supermarket, four medium sized retail buildings, and 13 smaller shops. [Click here to read the Arizona Republic story.]

The project-area near Glendale is set to become a food and grocery retailing hot corner.

For example, Walmart is building a new (40,000 -to- 45,000 square foot) Neighborhood Market supermarket about one mile away.

Additionally, the CVS drug chain is building a new store nearby. CVS sells a fairly healthy selection of packaged food and grocery products, beverages (adult and non-adult) and perishables items in its drug stores. It also devotes about half of its weekly 12-page advertising circular to the promotion of consumables and non-foods packaged goods.

Evaluating the odds

Winco could be in for a fight from the neighborhood group in terms of gaining approval for its first Metro Phoenix store in Glendale, although the two members of the City Council, who's districts border the planned center, support the project, according to the Arizona Republic story. A similar group of neighborhood residents was successful in preventing retailer Target from building a 100,000-plus square foot store in the area a few years ago.

However, this was before Arizona's economy went into free-fall in 2008. With unemployment in the area at about 10%, it's going to be difficult for the City Council to say no to the project, particularly since WinCo employs about 300-400 workers in a single store. Those are 300 badly needed new jobs in the Glendale area. The odds: We put our money on approval by the council, perhaps with some minor changes to the current plan for the center.

What we know

We know (although they haven't confirmed it) that WinCo Foods is looking at multiple sites for stores in Metro Phoenix, and may already have decided on at least two additional locations, based on information from our sources. As a result, even if the neighborhood group is successful in getting the project killed when the Glendale City Council votes on it next month, the setback isn't going to stop Winco from entering the Metro Phoenix, Arizona market, with its mega-food and grocery stores.

WinCo Foods is a majority employee-owned company. In fact, just last week WinCo said it bought out the 10% of the company - the only part of Winco Foods owned by an outside investor - held by Seattle, Washington-based investment firm Endeavour Capital Management. WinCo said its employees now own 87% of the company, through its ESOP (employee stock ownership plan). The remaining 12% is privately-held by WinCo Foods under a different ownership structure.

WinCo is non-union, and since it's majority employee-owned - and the employee-owners have said no to being unionized more than once - we doubt that status will change in the foreseeable future, if ever, even though the United Food And Commercial Workers union (UFCW) has been trying to organize the owner-employees for many years.

WinCo puts the 'ultra' in 'hyper-competitive'

Metropolitan Phoenix, Arizona is arguably the most competitive food and grocery retailing market in the U.S. In our analysis it's not arguable.

WinCo Foods, which has 71 stores located in six western states - Washington, Idaho, California, Nevada, Oregon and Utah, and has opened about eight new mega-stores in the last 15 months - is one of the most competitive food and grocery retailing chains in the United States, particularly in the price-impact segment.

It's stores, which devote the majority of the 90,000 -to- 100,000 square feet to consumable and non-foods packaged goods - but not electronics, clothing and other general merchandise like Walmart and Target do in their mega-stores - are also destination markets, meaning that on average customers will come from many miles away to shop at them. This is one of the reasons why, with just 71 stores, WinCo has estimated annual sales of $4-$4.5 billion.

Once it gets just a handful of stores opened in Metropolitan Phoenix, we predict WinCo will begin to become a game-changer in the market. It will not only take sales from nearby - and not so nearby - Walmart Supercenters and Neighborhood Market supermarkets, but also from conventional supermarket chains like Kroger's Fry's, Safeway, Albertsons, Bashas', and even Tesco's Fresh & Easy and other grocers in the market.

This isn't to say Arizona and Metro Phoenix - and particularly market share leader Walmart -will be by any means be easy pickings for WinCo Foods.

And in terms of putting market share numbers up on the board, it will take numerous WinCo stores open and operating in the market before that can happen. Rather, in our analysis, WinCo will find, once it opens in the region, that the Metropolitan Phoenix food and grocery retailing market will be the most competitive - actually hyper-competitive - of all the markets it's in to date.

Let the fireworks begin. Stay tuned.

[Related story - December 29, 2008: Competor News: Winco Foods to Expand in California and Nevada in 2009; Put Aggressive Focus on Central Valley, Northern California and Northern Nevada.]

[Competitive related posts here. Past reports & analysis of the hyper-competitive Metro Phoenix, Arizona market here, here and here . Click the "older posts," "new posts" links at the bottom of each page at those above links as well.]

Sunday Feature: Pro's Ranch Markets' Set to Open Sixth 'Phoenix Ranch' Latino-Focused Phoenix Metro Region Supermarket in Mesa, Arizona On Wednesday

Latino Food & Grocery Marketing and Merchandising: Metropolitan Phoenix, Arizona Market Region

Metropolitan Phoenix, Arizona might be the most competitive food and grocery retailing market in the U.S.

The Phoenix market region might be close to becoming, or could already be, overstored when it comes to the number of stores that sell food and groceries relative to the region's consumer population. There's only so much "share of stomach," after all.

And the Phoenix Metropolitan region, along with the entire state of Arizona, is without a doubt hard hit by the current economic recession, housing foreclosure crisis and credit crisis. Additionally, for the first time in decades, according to the U.S. Census Bureau, Arizona isn't gaining residents but actually losing some.

But these circumstances aren't stopping family-owned Pro's Ranch Markets, which is headquartered in Ontario (Southern) California and has a regional office and a warehouse in Phoenix, Arizona, from opening another one of its Latino consumer-focused supermarkets in Arizona, specifically in the city of Mesa, in the Phoenix Metropolitan region. And like its current five supermarkets in and around Phoenix, Pro's Ranch Markets' new Mesa store will fly under the Phoenix Ranch Market banner, the retail brand it uses for its stores in Arizona.

The new Phoenix Ranch Market supermarket is located at 1118 E. Southern Avenue in Mesa. It's set to open at 10 a.m. on Wednesday, April 29, according to veteran grocer and Pro's Ranch CEO Mike Provenzano Sr, who heads up the family-owned chain that's run on a day-to-day basis by his four sons: Michael, Steve, Rick and Jeff. It's a family affair.

The new 61,320 square-foot Phoenix Ranch Market in Mesa is geared to Latino consumers. However, the store, like all of the grocer's other 11 supermarkets, also offers an ample selection of traditional "American" brands and products, and an abundance of fresh produce, meats, prepared foods and more, which appeal to consumers regardless of their ethnic background.

The Mesa Phoenix Ranch Market store will make 12 supermarkets in four states for the Provenzano clan and their extended family of employees to date.

In addition to the Mesa store set to open on Wednesday, the Provenzano family currently operates: five existing stores in the Phoenix Metro region (all under the Phoenix Ranch Market banner); four supermarkets in California's Central Valley (banners: Arvin Ranch Market, Delano Ranch Market, Bakersfield Ranch Market #1, Bakersfield Ranch Market #2); one store in El Paso, Texas (Pro's Ranch Market-El Paso) and one supermarket in Albuquerque, New Mexico (Pro's Ranch Market-Albuquerque). The Central Valley cities' names where the four stores are located are the same as the store names - Arvin, Delano and Bakersfield, California.

Pro's Ranch will be opening another new Phoenix Ranch Market supermarket in the Phoenix, Arizona Metro region next year. [See our June 26, 2008 story here: Phoenix, Arizona Metro Market Report: More Competition in an Already Hot Market as Pro's Ranch Markets Plans Two New Stores in Phoenix Metro Market.]

Pro's Ranch Markets also owns a Mexican restaurant in Phoenix, Arizona called Tradiciones.

A peek inside the new Mesa Phoenix Ranch Market

In addition to having aisles and shelves full of dry grocery, household and health and body care products geared to Latino shoppers, along with brands and items for shoppers of all ethnic backgrounds, the new Mesa store offers a wide-variety of in-store fresh foods and other specialty departments. Below is a peek inside the nearly-62,000 square foot Latino-focused Phoenix Ranch Market set to open on Wednesday, April 29, in Mesa, Arizona:

>The new Mesa store will have an in-store fresh bakery. The bakery will feature all varieties of authentic Mexican fresh-baked breads, desserts, pastries and more. It also will offer basic breads and items like donuts and the like.

Additionally, the in-store bakery will be staffed by cake decorating specialists who will prepare customized specialty cakes (birthdays, graduations, ect.) for customers.

>The supermarket has a large in-store Cocina (fresh, prepared hot foods; cocina means kitchen in Spanish) and a homemade tortilla factory, delivering hot bread and piping hot tortillas throughout the day. The in-store Cocina (see its menu sign above) really amounts to having a number of Mexican and Latin American-style restaurants all rolled up into one in-store area, offering numerous hot foods and dishes from throughout the region.

About the store's centerpiece Cocina and in-store tortilla-making factory, Mike Provenzano Sr.(who's often called "Mike Pro" for short by many in the grocery industry; hence the Pro's Ranch name) says: "The smell of fresh baked bread will greet you at the door. We will be making over 100,000 stone ground tortillas every day. This is home cooking at its finest."

>The store will feature a large meat department -- with both self-service meat cases and a full-service meat counter staffed by butcher's like the one pictured above, in one of the grocer's supermarkets -- that specializes in offering all of the types and cuts of meat used in Hispanic cuisine. "The meat market will also prepare carne asada for BBQ's and hand cut customer orders," Mike Provenzano Sr. says.

There's also an in-store Cremeria where many varieties of fresh, homemade sausages will be made and displayed for sale.

>There's a fresh juice and Aguas Frescas section in the store (part of the Cocina) where the drinks are made daily, along with an in-store fresh fruit bar for grab-and-go refreshments.

>Two other in-store fresh, prepared foods departments are: a complete seafood taco bar and a taqueria and torta meal station.

>And to top it all off, the supermarket has its very own in-store ice cream shop or station. The ice cream station will feature regular flavors of ice cream but specialize in the types and flavors of ice cream popular with Hispanic consumers -- and of course enjoyed by most all consumers, particularly in Arizona where Latino culture and cuisine is eaten by pretty much every resident, be they Italian, Irish, Asian or Heinz-57 American. About forty percent of Arizona's total population is Hispanic.

>The store will also have a complete check-cashing kiosk where customers can cash their checks. Latino consumers often prefer to cash their paychecks and other types of checks at the supermarket, rather than at a bank. Hispanic consumer-focused grocers like Pro's Ranch know this all too well. Therefore they not only welcome check cashing in their stores, they encourage it, and create special stations in the stores to make it easier for shoppers (and for the store' staff) to do so.

Focus on fresh

Latino consumers love fresh: produce, meats, bakery, seafood, dairy and more. Mike Provenzano Sr, says the new Mesa store will cater to this love of fresh foods in spades.

The fresh produce department is the centerpiece of the store. It will offer pretty much every type of fruit and vegetable Latino shoppers desire, along with numerous basic produce items consumers of all ethnic backgrounds, as well as Hispanics, desire.

It should be noted that Latino consumers, particularly second and third generation, and first generation who've been in the U.S. for sometime, adopt culinary likes just like Americans of all ethnic backgrounds do, along with retaining a love of traditional Hispanic foods.

They also love and buy brands like Coke, Colgate, Wesson Oil and the like that consumers of all ethnic backgrounds do. As a result, Hispanic consumer-focused retailer's like Pro's Ranch merchandise far more than strictly Mexican and Latin American brands and items in their stores.

And as a result of that fact, Latino consumer-focused format supermarkets are increasingly drawing consumers of all ethnic backgrounds, although Latino shoppers remain the core focus, to them for a variety of reasons: low prices, lots of fresh foods, specialty produce, meats and seafood not available at mainstream supermarkets, and the Mexican and other Latin prepared foods offered. Mexican food is about as mainstream as food can get in the U.S. -- especially in the Western U.S.

The fresh meat and seafood department at the new Mesa store is huge by traditional standards, and offers an extensive variety of items. Fresh Meat, fish and seafood (like produce) are signature departments in any supermarket worth its salt that caters to Latino shoppers.

And when it comes to fresh fish and seafood, Mike Provenzano Sr. is making a major claim about his new store in Mesa. He says the supermarket's expanded fish department will carry the largest variety of fresh fish and seafood of any store in Phoenix. If that turns out to be the case, we suspect the selection will appeal to shoppers of all ethnic backgrounds.

The new Mesa Phoenix Ranch Market store also offers numerous local touches, according to Provenzano Sr. The signature feature of those local touches from a store design perspective is a large wall mural of the early years of Mesa, Arizona that faces the checkout stands in the store's front end.

The store, like the grocer's other five stores in the Phoenix area, will carry a strong selection of produced-in-Arizona fresh foods, groceries and other items.

Mike Provenzano calls the new Mesa supermarket and its format an "upscale" market for the Mesa consumer. While Latino consumers remain his primary target, he clearly wants to draw shoppers of all ethnic backgrounds into the new supermarket.

"My family puts their heart and soul into these stores. My sons and I are proud of the communities we are in and want to give back to the neighborhoods that we work with," he says. "We take great care in building each store, providing the best food and service anywhere."

Food retailing as festive theatre

The Provenzano family and team believes food and grocery retailing and merchandising is as much festive theatre as it is mass marketing and merchandising.

For example, the small chain has its own official mascot, "Ranchie the Bull." "Ranchie" (pictured above with a produce clerk posing for a photographer) visits each of the 11 (soon to be 12) stores regularly, putting a particular focus on and giving most of his attention to the little shoppers in each supermarket.

In fact, "Ranchie the Bull" even has his own "kids' club" for Pro's Ranch Markets' youngest shoppers. [You can learn more about the "kids' club" here.

Rumor has it that "Ranchie" will be front and center and trolling the aisles for new and existing little members of his "kids' club" when the new Mesa store's opening on Wednesday.

Pro's Ranch Markets' also creates retail theatre in its stores by hosting numerous special events and promotions. They bring in Mariachi bands and Latin folkloric dancers, have food sampling activities throughout the store, and regularly do other special activities and hold special events designed to create a festive atmosphere in the stores, appealing to all of a shopper's senses.

Merchandising as theatre also is a key part of the retailer's strategy. A few of the techniques used include: building massive waterfall and other types of abundant displays in the produce department; having its tortilla-making machines visible so shoppers can watch workers making the tortillas; and using service meat and fish cases along with self-service, with attractive displays of meat and fresh fish and seafood displayed on ice.

By combining festive visual merchandising techniques with in store theatre like "Ranchie the Bull", Mariachi bans, festive decorations, food demonstrations and more, Pro's Ranch has been successful in building a pretty strong return customer base. The store prices are good -- but many shoppers also come back for the festive retail theatre. We suspect that many also return to see "Ranchie the Bull."

The Pro's Ranch stores also put a premium on customer service, both in the full-service departments, at checkout, in special areas like customer service and the check cashing kiosks, and throughout the store. Car carryout of shoppers' purchases is available if requested. Clerks are in the aisles to help shoppers. And the service departments like bakery, seafood and the like are well-staffed. It's one of the points of differentiation the grocer uses to compete against the mega-chains.

Service focus: Over 400 store employees

The grocer held a job fair in the Mesa store's parking lot on April 9-10 designed to hire about 400 employees for the new supermarket. That's a healthy number of employees, even for a 62,000 square-foot supermarket.

As an example, It takes about six small-format Fresh & Easy markets to equal the nearly 62,000 square-foot Mesa Phoenix Ranch Market. Each Fresh & Easy store employees 22-30 workers. So six Fresh & Easy stores combined (the square footage equal to the supermarket) at most employee 180 workers. That's less than half of what the new Phoenix Ranch Market will employee. That's an example of what we mean by a focus on service. The store is also expected to be very high volume.

A whopping 2,200 job-hunters attended the event to via for those about 400 jobs. CEO Provenzano Sr. said the grocer hired over 400 of the job seekers, nearly all of them from the neighborhood surrounding the store, to work in the new supermarket.

Mike Provenzano Sr. is a veteran grocer in California and the Western U.S. He's served in numerous leadership positions in the California Grocers Association (CGA) and has been a pioneer in advocating for and leading independent grocers in California, Arizona and elsewhere in the west.

He's also won food retailer of the year awards in California and Arizona for his store formats, merchandising and community service focus.

Excited about opening his first store in the city of Mesa, Pro's Ranch Markets' CEO Mike Provenzano Sr. says: "The Provenzano family is very excited to be embraced by the neighborhood and the community, and look forward to continue the strong relationship developed with our customers, highlighting each visit as a shopping experience. We are grateful to the City of Mesa, and the civic and neighborhood leaders for opening the doors to our family business."

Independent spirit alive in competitive Arizona

Arizona, and particularly the Phoenix Metro region which Mesa is a part of, might be a white-hot competitive food and grocery retailing market, but Mike Provenzano Sr. -- who ran mainstream supermarkets for many years before focusing on Latino consumer-focused grocery merchandising, and who understands and has taught his four sons through example that food retailing is festive theatre as well as mass merchandising -- is game, along with his four sons and the rest of the team, to stake millions of dollars on the new supermarket in Mesa and the next new store to open next year in the region.

Along with big chain-owned food and grocery retailing -- Wal-Mart, Kroger's Fry's, Safeway, Albertsons, Basha's, Costco, Target, Tesco's Fresh & Easy, Trader Joe's, Whole Foods Market and others -- independent grocery retailing is a factor and force in Arizona. And Pro's Ranch Market is staking a claim to that sector with the opening of its latest store on Wednesday.

Tesco's Fresh & Easy Neighbohrood Market has a store in Mesa.

Next format explosion: Latino-focused grocery retailing

With about 40% of Arizona's residents being of Hispanic heritage, along with the fact that Latino culture is a central part of Arizona's passed and present, there's still a strong niche in the state and in the Phoenix Metro market for new Hispanic-focused format retail stores and supermarkets, in our analysis.

Additionally, because Latino culture, including its cuisine, has such a central influence on all Arizona residents (consumers) regardless of their ethnic background, there's an added opportunity in Hispanic food and grocery product marketing and merchandising in the state and in the Phoenix Metropolitan market region.

This opportunity includes non-Hispanic format grocers that put a serious marketing and merchandising effort on attracting Latino consumers into their stores and offering them a selection of products and store departments that appeal to their likes and needs, be they Mexican-American, from Central America or elsewhere. (The majority of Latinos in Arizona are either from Mexico, or their parents or grandparents were born in that next door country. But their is a significant percentage of Arizona residents that come from other parts of Latin America as well.)

Wal-Mart believes that to be the case, which is why it has chosen Phoenix, Arizona as one of the first two states and market regions, the other being Houston, Texas, to launch the first two stores in its new Hispanic-focused format grocery market, "Supermercado de Walmart." The Phoenix "Supermercado de Walmart" unit will go into a current 39,000 square-foot Wal-Mart Neighborhood Market supermarket that the retailer is converting into its Hispanic-focused format Phoenix supermarket.

Latino-focused ethnic food and grocery retailing, like all forms and formats of food and grocery retailing in the Metropolitan Phoenix market continues to intensify and heat up.

We see Hispanic or Latino-focused retailing as the next exciting grocery retailing front to explode in Metro Phoenix, along with elsewhere in Arizona, despite the less than desirable factors we listed in the first three paragraphs of this story.

Stay tuned.

Competitor News: Arizona's White Hot Competitive Climate Plus the Recession Leads Bashas' to Close More Stores; Layoff 700 More Employees

Arizona Region Market Report

Arizona's family-owned Bashas' Markets supermarket chain announced today it plans to close additional stores in the state, along with laying off more employees.

Through its spokesperson Kristi Nied the 160-store hometown Bashas' chain said it will close five to ten underperforming stores in Arizona under its flagship Bashas' banner and its Food City Latino format banner. Three or more of the stores will be in the Metropolitan Phoenix region where Tesco's Fresh & Easy has 30 of its small-format, Fresh & Easy grocery and fresh foods markets.

Bashas' also says it will eliminate about 700 jobs. The number of layoffs could exceed the 700 by at least a couple more hundred if Bashas' ends up closing close to or the full 10 stores, a source in a position to know told us today.

The 700 eliminated jobs comes on the heels of the grocery chain laying off about 350 employees in late January of this year, as we reported and wrote about in this February 6, 2009 news and analysis piece: Arizona Market Region Analysis: Bashas' Worker Layoffs, Closing of Stores Could be the 'Canary in the Coal Mine' in Ultra-Competitive Arizona Market.

Additionally, in the summer of 2008, Bashas' laid off about 250 employees in what then was its very first round of worker firings, which it attributed to the severity of the economic recession in Arizona, along with the intense competition in the food and grocery retailing sector in the state. [June 8, 2008: June 8, 2008: Arizona Region Market Report: First Signs of A Weakening Might Be Starting to Show in the 'White-Hot,' 'Super-Competitive' Arizona Market.]

As we wrote about in this April 1, 2009 story [Competitor News: Bashas' Chain Launching 10,000-Plus Item Storewide Price Slashing Program This Week in its Arizona Supermarkets], Bashas' fired a competitive salvo in its home market of Arizona by slashing the prices on over 10,000 items in its 150-plus stores in the state.

Bashas' operates 150-plus stores in Arizona, where it is headquartered, under its flagship Bashas' banner (the majority of stores); Food City, its Latino-focused format banner; A.J.'s Fine Foods, an upscale and specialty banner; Eddie's Country Store; and Bashas' Dine (prepared foods focus). Bashas' also operates a small chain of liquor stores in Arizona called Sportsman's Fine Wine & Spirits.

The firing of the 700 employees announced today by Bashas' is its third since the summer of 2008. It appears that competition is such for the grocer that in addition to launching is price-slashing and promotional program just a few weeks ago, it still needs to cut costs on the expense side of the ledger, closing the five to 10 stores and laying off the 700 employees.

Since Fresh & Easy Buzz was saying nearly a year ago, like in this story, [June 8, 2008: Arizona Region Market Report: First Signs of A Weakening Might Be Starting to Show in the 'White-Hot,' 'Super-Competitive' Arizona Market], that something would have to give among one or more chains in Arizona in terms of what we call the white hot competitive food and grocery market in the state, coupled with the recession and housing foreclosure crisis, both which have hit the state particularly hard, we aren't surprised Bashas' is closing additional stores and laying off more employees. Although the 700 employees is more than we anticipated, on top of the about 500 already let go since the summer of 2008.

Unlike Wal-Mart, Safeway, Kroger's Fry's, and even Tesco's Fresh & Easy, all players in the Arizona market and all owned by public companies that are among the largest retailers in the world, Bashas' is a privately-held company that has all but just a few of its stores in Arizona. As a result, it doesn't have the kind of capital these publicly-held mega-retailers do to buffer it in the current super-competitive and economically-challenged climate in Arizona, particularly since the credit and financial crisis is far from over.

In addition, since all but a few of Bashas' stores are in Arizona, it doesn't have a significant presence in other states, like all the others do, that can offset its Arizona business. In other words, all of Bashas' food retailing eggs are basically in the Arizona basket, even though it is a multi-format operator in the state, which is a plus for the retailer despite its problems.

More will give, and more shoes will fall, in the Arizona market. The competition continues to heat up. The economy is far from improving as of yet in the state. And population growth, which has been the key to Arizona's, particularly the Phoenix Metro region's, pre-recession booming economy, is pretty much at a standstill.

Linkage - Select Related Posts:

>December 16, 2008: Food & Grocery Retailing in the Recession: Bashas' Broadening the Shopper-Base in its Hispanic Format Food City Stores; Shoppers Search for Value

>February 6, 2009: Arizona Market Region Analysis: Bashas' Worker Layoffs, Closing of Stores Could be the 'Canary in the Coal Mine' in Ultra-Competitive Arizona Market

>February 3, 2009: Competitor News: 'Grocer-Gone-Wild:' Arizona's Fry's and its 'Bring it On' 'Take All Competitors' (Including Tesco's Fresh & Easy) Store Coupon Move

>December 12, 2008: Fresh & Easy Looking For Gold in Gilbert: Second Store in the Arizona City Set to Open Jan. 7; A Third Fresh & Easy Market to Open In Fall, 2009

>December 12, 2008: Marketing & Promotions Report: Manufacturers' Coupons Becoming the 'New Black;' Use Among Consumers Soaring; Marketers Distributing More Than Before

>October 2, 2008: Arizona Market Report: Fresh & Easy Opens Two New Stores; Marketside Opens in Three Days; Analysis of One Of the Most Competitive Markets in the U.S.

>June 8, 2008: Arizona Region Market Report: First Signs of A Weakening Might Be Starting to Show in the 'White-Hot,' 'Super-Competitive' Arizona Market

>April 9, 2008: Arizona's Shopper and Employee-Beloved Bashas' Named One of 'The Best' Places to Work in the State For Second Year in a Row

[Follow Fresh & Easy Buzz around on Twitter.com at www.twitter.com/freshneasybuzz.]

Competitor News & Market Analysis: The Arizona Market Food Retailing 'Canary' Sings Again; Kroger Co.-owned Fry's Supermarkets Lays Off 90 Employees

Arizona Market Region Report: Food & Grocery Retailing in the Recession

Back in June, 2008, Fresh & Easy Buzz suggested in this piece [Arizona Region Market Report: First Signs of A Weakening Might Be Starting to Show in the 'White-Hot,' 'Super-Competitive' Arizona Market] that we were seeing the first signs of possible food and grocery retailer layoffs and potential store closings in Arizona with the announcement by Arizona-based Bashas' that it was firing numerous employees at its corporate headquarters.

Last month, the recession and related white hot competition in Arizona struck Bashas' again in the form of more layoffs and the closing of five if its Arizona stores, as we reported on in this February 6, 2009 piece: Arizona Market Region Analysis: Bashas' Worker Layoffs, Closing of Stores Could be the 'Canary in the Coal Mine' in Ultra-Competitive Arizona Market.

Well that food retailing canary made itself heard again just two weeks ago in Arizona. The Kroger Co.-owned 120-store Fry's supermarket chain in the state fired about 90 workers, according to Joe Ellen Lynn, Fry's corporate spokesperson. The layoffs were first reported by the Arizona Republic newspaper on March 13. We varified it with Fry's and other sources.

Fry's employees about 18,000 workers in Arizona, according to the chain.

The Fry's employees appear to have been all from the chain's corporate headquarters because United Food & Commercial Workers union Local 99, which represents Fry's store-level workers in Arizona, says none of its members who work for the supermarket chain have been laid off to date.

Headquarters staff and some other exempt employee positions such as regional field reps and the like are non-union positions.

Retailers, particularly supermarket chains, and especially unionized chains, almost always terminate headquarters and non-direct store-level employees as a first cost-cutting step when such reductions are needed or desired by senior management.

Based on our research, this appears to be what Fry's has done.

Arizona is struggling in the current recession. Unemployment is fast-growing. Residential real estate activity has come to virtually a complete halt. And commercial real estate activity, which was booming just a little over a year ago, is down dramatically.

Arizona also is one of the most competitive food and grocery retailing markets in the U.S., as we've frequently mentioned in Fresh & Easy Buzz.

Mix these two conditions together, the recession and white hot competitive food retailing climate in the state, and something has got to give, an argument we started making about one year ago.

We've seen this give first with Bashas' and now with Fry's.

Additionally, Tesco's Fresh & Easy Neighborhood Market has slowed the opening of a number of new stores in Arizona.

Safeway Stores, Inc. basically isn't planning any new stores in the state beyond those it might already have in the pipeline.

Fry's and Albertsons also are pretty steady-state in terms of new store plans at present in Arizona.

Wal-Mart though remains pretty much on schedule in terms of continuing to open new stores in the state, particularly its combined food and general merchandise mega-Supercenters.

That strategy is paying off for Wal-Mart in the food and grocery sector. The retailer has now grown its way to becoming the number one food-grocery sales market share leader overall in Arizona, but just by a couple hairs, which demonstrates the state's super-competitive market.

Wal-Mart is currently number one with a 24% market share, according to recently published research. Kroger's Fry's is right behind Wal-Mart, with an about 21.5% share. Safeway is third with about 18.5%. And Bashas' is neck-to-neck with Safeway, with Albertsons right in the game. It's the market share version of a win-by-the-neck horse race, in other words.

We first started suggesting slightly over a year ago that the Arizona market, particulary the Phoenix Metropolitan region market where Tesco's Fresh & Easy Neighborhood market has its grocery and fresh foods stores, was getting close to beign overstored. In mid-2008 we began suggesting Arizona was overstored, particulary adding the economic recession into the equation.

It's our analysis that the Bashas' and Fry's layoffs are the result of this retail saturation in the state. The economic recession, which is hitting Arizona like a hammer, is an added factor.

It's likely that if economic times were better, the Bashas' and Fry's layoffs could have been avoided -- maybe. But economic prosperity is never a constant. Therefore, overstoring must always be analyzed based on the economy being an independent rather than dependent variable. Independent variables are those subject to change. Dependent variables are constants.
It's our further analysis that more cutbacks will come among grocers in Arizona. We likely not only will see additional layoffs. but we suspect to see more store closings as well.

For example, Tesco's Fresh & Easy is bleeding cash. The question is how long the grocer is willing to do so. Right now we don't think openingadditional stores in Arizona will do much of anything to solve that situation. Same store sales growth is what's needed.

But since Tesco is moving to a much more price and promotional-focused and value proposition-oriented positioning of its Fresh & Easy stores, it's also at the same time becoming a stronger competitor to the major players like Wal-Mart, Fry's, Safeway, Bashas and Albertsons, as shoppers search all over for good deals. [Read our March 2, 2009 piece here: Fresh & Easy Buzz Redux: Much of the Value Proposition-Based Analysis and Suggestions We've Been Offering Now Being Adopted By Tesco's Fresh & Easy.] That value proposition-based positioning, if done fully and comprehensively, also might be what helps Tesco's Fresh & Easy to bleed far less cash over time.

In Fry's case, its parent company Kroger Co., just reported a solid 8% income gain in its latest quarter just ended two weeks ago.

But Fry's is facing serious competition, as all the others are in Arizona, despite its parent company doing well. This should be another indication about what we mean when we call the Arizona market a white hot one.

As such, we expect to see more shoes drop in the food and grocery retailing sector in Arizona between now and this summer. The recession isn't improving, and even the most optimistic forecast calls for only seeing some demonstrable improvement in the overall U.S. economy by the end of this year. (And remember, Arizona is one of the hardest hit states.)

At the same time, the competition is heating up even more so in the Arizona market region, particularly from an everyday price and price-promotional perspective. When this type of competition in a near or already overstored market happens like it is, something has to give among one or more of the players.

Linkage - Select Related Posts:

>April 1, 2009: Competitor News: Bashas' Chain Launching 10,000-Plus Item Storewide Price Slashing Program This Week in its Arizona Supermarkets

>February 3, 2009: Competitor News: 'Grocer-Gone-Wild:' Arizona's Fry's and its 'Bring it On' 'Take All Competitors' (Including Tesco's Fresh & Easy) Store Coupon Move

February 12, 2009: Consumer Use of Manufacturers' 'Cents Off' Coupons Continues to Grow: The Latest American Rage: Home Coupon-Clipping and Coupon-Trading Parties

>March 19, 2009: Ground Control to Shopper: Point-of-Purchase-Based Mobile Couponing the Next Hot Ticket; Kroger Co. Leading the Food Retailing Pack

>December 16, 2008: Food & Grocery Retailing in the Recession: Bashas' Broadening the Shopper-Base in its Hispanic Format Food City Stores; Shoppers Search for Value

>March 11, 2009: Fresh & Easy Buzz Redux: Tesco's Fresh & Easy Changes its Promotional Advertising Flyer to 'Weekly;' Something We've Been Suggesting For About A Year

>February 6, 2009: Arizona Market Region Analysis: Bashas' Worker Layoffs, Closing of Stores Could be the 'Canary in the Coal Mine' in Ultra-Competitive Arizona Market

>December 12, 2008: Fresh & Easy Looking For Gold in Gilbert: Second Store in the Arizona City Set to Open Jan. 7; A Third Fresh & Easy Market to Open In Fall, 2009

>December 12, 2008: Marketing & Promotions Report: Manufacturers' Coupons Becoming the 'New Black;' Use Among Consumers Soaring; Marketers Distributing More Than Before

>October 2, 2008: Arizona Market Report: Fresh & Easy Opens Two New Stores; Marketside Opens in Three Days; Analysis of One Of the Most Competitive Markets in the U.S.

>June 8, 2008: Arizona Region Market Report: First Signs of A Weakening Might Be Starting to Show in the 'White-Hot,' 'Super-Competitive' Arizona Market

>September 15, 2008: Wal-Mart Expanding its Discount Store-to-Supercenter Conversion Program As Part of its Strategy to Grab Even More Food and Grocery Sales Market Share

>September 29, 2008: Special Report: Wal-Mart, Inc. Studying Second Small-Format Food and Grocery Store Concept; the 'Bodega' or Modern Version of the Corner Grocery Store

>August 8, 2008: Analysis & Commentary: Wal-Mart's Marketside As Part Of it's Multi-Format Category-Killer Strategy Spells Trouble For Tesco's Fresh & Easy

>April 14, 2008: New Multi-Supercenter and Multi-Format Strategies Are Showing Wal-Mart to Be A More Agile Grocery Retailer in the U.S.

>November 19, 2008: Competitor News: Wal-Mart Lowering Prices on Holiday Items and Staples; New Formats Coming; Online Grocery Sales; Hundreds of New Stores FY 2009-2010

[You can follow Fresh & Easy Buzz around on Twitter.com at www.twitter.com/freshneasybuzz.]

Competitor News: Bashas' Chain Launching 10,000-Plus Item Storewide Price Slashing Program This Week in its Arizona Supermarkets

Arizona Market Region Report: Food & Grocery Retailing in the Recession

Bashas', Arizona's home state supermarket chain, is fighting back against the economic recession and stiff competition from numerous food and grocery retailers in the state by launching a major price-slashing initiative in its 100-plus Bashas' flagship banner supermarkets. Arizona-based Bashas operates about 156 supermarkets in the state (out of about 161 total) under the Bashas', Food City (Latino format) A.J.'s Fine Foods (upscale format), Eddie's Country Store and Bashas' Dine (prepared foods focus) banners. Bashas also operates the small Sportsman's Fine Wine & Spirits chain in Arizona.

Mike Proulx, Bashas' president and CEO, said starting this week the supermarket chain is slashing the everyday prices on more than 10,000 nationally branded and private label food and grocery items across all store categories and departments.

The current economic recession and the added competition from chains like Wal-Mart, Safeway, Kroger Co-owned Fry's, Albertsons, Costco, Tesco's Fresh & Easy Neighborhood Market and others in Arizona is what's behind the aggressive price-slashing value move by hometown chain Bashas'.

"In the 77 years that Bashas' has been in business, we've weathered countless economic downturns," Bashas' CEO Mike Proulx said in announcing the storewide price reductions. "Not only was our company formed during the height of the Great Depression, but we've survived the ups and downs of the supermarket industry, increased competition and national economic fluctuations. As Arizona's hometown grocer, we knew we needed to do something more for families looking to stretch their dollars during these tough economic times."

Bashas' is serious about trying to protect its turf in the white hot competitive Arizona market region, a state that has been hit among the hardest by the housing foreclosure crisis, credit crisis, unemployment and overall recessionary blues.

In addition to its massive category-wide price reduction move this week, Bashas' is going back to some of that old time food retailing religion in the form of offering shoppers a good old supermarket sweepstakes promotion.

The promotion is a win-free-groceries-for-a-year sweepstakes, for which one lucky winner will walk away with $5,200 in Bashas' gift cards, or the equivalent of $100 a week in free groceries for an entire year, according to Johnny Basha, the vice chairman of the company and a member of the Basha family, owners of the supermarket chain.

Additionally, fifty-three second-prize winners will each receive a Bashas' gift card worth $50. One winner will be chosen from each participating Bashas' store in metropolitan Phoenix and Tucson.

Contests and sweepstakes like this are making a comeback in the supermarket industry in these tough economic times, designed as ways to get shoppers into the stores. For example, Safeway Stores, Inc., which is a major player in Arizona food retailing, currently is running a customer sweepstakes-drawing around its "Ranchers Reserve" store brand beef line. The first prize winner receives a brand new pickup truck and Airstream travel trailer. There are numerous second prize winners as well.

Bashas' started offering the sweepstakes in its stores this week. Shoppers can enter until April 30. The grocer says the prize drawing will take place in May.

As we reported and detailed in this February 6 piece [Arizona Market Region Analysis: Bashas' Worker Layoffs, Closing of Stores Could be the 'Canary in the Coal Mine' in Ultra-Competitive Arizona Market] the Arizona-based chain laid off 203 employees as a way to cut expenses amidst the double whammy of economic recession and heavy competition in Arizona. those firings came on top of previous layoffs earlier.

The hometown Arizona-based supermarket chain also is closing five of its stores in the state.

Having made the layoffs and decided on the closing of the five less than desired performing stores, and thus focusing on the expense control side of the ledger, Bashas' now appears to be putting its focus on the demand or sales side, kicking off the major price-slashing program as a way to keep and gain shoppers in Arizona.

The primary, although not exclusive, focus of the price reductions on the 10,000-plus items is on essentials or basic everyday food and grocery products that shoppers by most frequently. That obviously makes sense as that's where the hottest competition among competing grocers currently is, not only in Arizona, but throughout the United States.

As we discussed in past stories in Fresh & Easy Buzz, Bashas has always been a tough competitor. Years ago when Safeway became a major player in Arizona many analysts were writing Bashas' off. They survived. When Kroger Co. came to town in a big way... ditto. And the biggest threat, Wal-Mart, hasn't rendered Bashas' a failure, although the brawny big box retailer from Bentonville, Arkansas is the most serious threat to Bashas and all of the other supermarket chains doing business in Arizona to date.

Bashas' is showing with the major price reduction program that it gets value -- that merely being the hometown grocery chain isn't enough in the current recession.

But it's also clear that the Arizona-based supermarket chain is struggling, based on the layoffs, store closings and felt need to reduce the everyday prices on so many items. Although such price reductions are hardly exclusive to Bashas' in the current econopmic climate -- many supermarket chains are making similar moves, although at 10,000-plus items Bashas' is about the most extensive we've heard of thus far.

Arizona is shaping up as competition central in U.S. food and grocery retailing in the recession. Tesco's Fresh & Easy certainly has its job cut out for it competing with these long time major players like Bashas', Safeway, Kroger, Wal-Mart and the others in the state.

Linkage - Select Related Posts:

>December 16, 2008: Food & Grocery Retailing in the Recession: Bashas' Broadening the Shopper-Base in its Hispanic Format Food City Stores; Shoppers Search for Value

>February 6, 2009: Arizona Market Region Analysis: Bashas' Worker Layoffs, Closing of Stores Could be the 'Canary in the Coal Mine' in Ultra-Competitive Arizona Market

>February 3, 2009: Competitor News: 'Grocer-Gone-Wild:' Arizona's Fry's and its 'Bring it On' 'Take All Competitors' (Including Tesco's Fresh & Easy) Store Coupon Move

>December 12, 2008: Fresh & Easy Looking For Gold in Gilbert: Second Store in the Arizona City Set to Open Jan. 7; A Third Fresh & Easy Market to Open In Fall, 2009

>December 12, 2008: Marketing & Promotions Report: Manufacturers' Coupons Becoming the 'New Black;' Use Among Consumers Soaring; Marketers Distributing More Than Before

>October 2, 2008: Arizona Market Report: Fresh & Easy Opens Two New Stores; Marketside Opens in Three Days; Analysis of One Of the Most Competitive Markets in the U.S.

>June 8, 2008: Arizona Region Market Report: First Signs of A Weakening Might Be Starting to Show in the 'White-Hot,' 'Super-Competitive' Arizona Market

>April 9, 2008: Arizona's Shopper and Employee-Beloved Bashas' Named One of 'The Best' Places to Work in the State For Second Year in a Row

[You can follow Fresh & Easy Buzz around on Twitter.com at www.twitter.com/freshneasybuzz.]