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.]

A Can-Do 'Canstruction' Project in Arizona: Building Giant Structures of Art Out of Food Cans to Fight Hunger

The 2009 'Best Meal' top-winner in Arizona's 'Canstruction' project to fight hunger was 'CAN You Dig It?' (the canned goods'-constructed bulldozer pictured above) by the Form Design/Kendle Design Collaborative/Ryan Companies designer-builder group. More about it here. Do you "Dig it?"

Arizona Market Region

Since 2007, the Society for Marketing Professional Services Arizona, the Arizona chapter of the national Society of Professional Marketing Services, has held its "Canstruction" to fight hunger canned food design-build competition in Metropolitan Phoenix.

The project combines the competitive spirit of a design-build competition with a unique way to help feed the hungry.

Competing "Canstruction" teams, led by architects, engineers and contractors, showcase their talents by designing and building giant structures made entirely out of canned foods, according to the Arizona organization.

The canned goods structures aren't mere "structures," by the way. Rather, they're works of real canned foods art.

All of the canned goods and materials used in the competition are provided by the designer-builder groups and competition sponsors. Additionally, some of the canned foods are donated by the food companies that make them. The Society for Marketing Professional Services Arizona runs the competition on an all-volunteer basis.

After the event is judged, all of the canned food items used to build the structures are donated to Arizona's St. Mary’s Food Bank Alliance, which is considered to be the first food bank in the world.

The 2010 "Phoenix Canstruction Competition" started on February 19, when all of the "build teams" started constructing their canned goods structures beginning at 9 pm. Yes, it's was an all-nighter. The teams have just 12 hours to build their structures, meaning the build must be completed by nine the following morning.

Beginning the very next day, February 20, and running until February 27, all of the canned food-constructed structures were on display at the Fiesta Mall in Mesa, Arizona, which is a suburb of Phoenix. The structure-building takes place at the mall.

The winners of the canned goods design-build contest were judged on February 24.

Three days later on February 27, the impressive structures built completely out of canned goods were torn down, with all of the canned foods donated to St. Mary's Food Bank. (Read more and view a video here.) The canned food from the structures amounts to the largest-single donation for the Arizona food bank for the year.

This year Tesco's Fresh & Easy Neighborhood Market, which has 31 of its 148 small-format Fresh & Easy fresh food and grocery stores in Metropolitan Phoenix Arizona, was one of the three lead-sponsors of the local "Canstruction" competition to fight hunger. All of the sponsors are listed here.

The competition presents awards to the design/build teams in a variety of categories.

For example, this year's winner in the "Best Meal" category is the SmithGroup/DPR/JJRFloor design team's "Giving is Winning" masterpiece (pictured above), which took as its inspiration the 2010 Vancouver Olympics. Below is how the team describes its creation:

"In honor of the 2010 Vancouver Winter Olympics (February 12-28), the SmithGroup/DPR/JJRFloor design team has created a nutritious structure of the official 2010 Winter Olympics logo: Ilanaaq the Inunnguaq, backed by a wall of the symbolic Olympic rings. Based on the stone landmarks or cairns (called Inukshuk) that were built by native peoples of the Arctic region, Ilanaaq is an actual stone structure that is located on Whistler Mountain in British Columbia. Ilanaaq is the Inuktitut word for “friend” and our team has created him and the Olympic wall out of tuna, soup, ravioli, green peas, olives, chili, and more. Comprised of over 5900 cans that will feed many thanks to our generous sponsors, Giving really is Winning for 2010 the SmithGroup/DPR/JJRFloor design team."

Another winner is the "Freedom from Hunger" canned goods structure (pictured above) built by the Arrington Watkins / Dibble Engineering / Paragaon Structural Engineers / LSW Engineering / CADsoft Consulting / Gilbane Building Company design/build team. The team describes its structure this way:

"Similar to the historic 'tearing down' of the Berlin Wall that divided East and West Germany, our can structure symbolizes breaking down the 'wall of hunger' that separates those who are hungry from the food they so desperately need."

You can view pictures of all the winning 2010 canned foods structures, in the various categories, here, along with photos of some of the 2009 competition's winners.

The Society for Marketing Professional Services Arizona, the group which runs the competition each year, was founded in 1983 and currently has more than 200 marketing professionals from the architecture, engineering and construction industry in Arizona, as members.

The Arizona "Canstruction" competition is one of many held throughout the world.

The the Society for Design Administration, (SDA) a design and building industry professional organization, created, runs and sponsors "Canstruction," which it calls "the most unique food charity in the world." Competitions are held throughout North America and in other parts of the world like Australia. Local SDA chapters, like Arizona's Society for Professional Marketing Services, run the competitions locally.

Local businesses, such as Tesco's Fresh & Easy in Arizona, sign on as local sponsors to the various "Canstruction" competitions in the numerous cities where they're held each February.

Local residents are also encouraged to bring canned and packaged food items when they come and view the structures on display, such as was the recent case at the Fiesta Mall in Mesa, Arizona. The community members' food donations are given to local food banks, along with all the canned goods from the deconstructed structures, once the event is over.

The very first "Canstruction" design-build competitions took place in 1992-1993 in Denver, Colorado; Seattle, Washington; and New York, operated by the SDA chapters in those respective cities.

Each year since then, more local SDA chapters, like the Phoenix association, have initiated "Canstruction" competitions to support local food banks and help those in need in their communities.

According to the SDA, since 1992-1993, ten million pounds of food from the annual competitions has been donated to aid in the fight against hunger.

From where we sit, "Canstruction" is about as big of a locally-based, community-minded, business-supported and volunteer-run "CAN-DO," "win-win" as you "CAN" get. We congratulate all those involved in the competitions - in Arizona, throughout the U.S., and all over the world.

Friday Frolic: Liberty Market Top 'Food Star;' Phoenix Ranch Market Chain and Asian Grocer Among Newspaper's '50 Stars of Arizona Food World' List

Arizona Region Market Report

Gilbert, Arizona's independent Liberty Market supermarket (pictured at top) has been picked as the Number 1 "food star" in the Arizona Republic newspaper's just-published 2009 list of what it calls the "50 Stars of Arizona's Food World."

Liberty Market is just one of three Arizona food retailers to make the list. The other two are the Latino-focused Phoenix Ranch Markets chain and Lee Lee Oriental Supermart, an Asian specialty format supermarket in Peoria, Arizona.

The daily newspaper published its "Top 50" list in yesterday's (May 21) edition.

Here's what the Arizona Republic says about Liberty Market, it's top "food star."

Liberty Market
"Since 1935, Liberty Market has been a Gilbert fixture. For decades, it was the only grocery store in town. Then it became the grocery store no one went to, and now the market-restaurant is the Gilbert headquarters of chic, cozy eats: gourmet olives and cheeses for sale, wood-fired pizza to order, pressed sandwiches, fizzy Italian sodas and red velvet cake. Think La Grande Orange, suburban style. It's the creation of Joe Johnston, the brains behind Coffee Plantation and another Gilbert landmark, Joe's Real BBQ. 230 N. Gilbert Road, Gilbert. 480-892-1900." [Web site: libertymarket.com.]

Fresh & Easy Buzz last wrote about Gilbert, Arizona's Liberty Market in this October 17, 2008 piece: [Phoenix, Arizona Metro Market Report: Gilbert, Arizona Independent Liberty Market Fears Not the Tesco and Wal-Mart Invasion of its City.]

Tesco's Fresh & Easy Neighborhood Market, which now has five of its small-format, convenience-oriented combination grocery and fresh foods Fresh & Easy markets in the Phoenix Metropolitan region city of Gilbert where Liberty Market is located, and about 30 stores in Arizona, didn't make the Arizona Republic's food star list. The newest Fresh & Easy unit in Glibert (number five), at Higley & Queen Creek in the city, opened on March 26.

Wal-Mart also has one of its four small-format combination grocery and fresh foods Marketside food markets in Gilbert, Arizona. [October 3, 2008: Wal-Mart Opens First Four Small-Format Marketside Fresh Food and Grocery Stores Tomorrow Morning in Gilbert, Chandler, Mesa and Tempe, Arizona.] Marketside isn't an Arizona "Top 50" food star either, according to the newspaper.

In addition to the retail food markets, the newspaper's "Top 50" list includes restaurants-chefs, a public market, pubs, food companies, wineries, individual foodies and other purveyors of all varieties of foodstuffs.

[You can view the Arizona Republic's complete "50 Stars of Arizona's Food World" list here.]

Here's what the Arizona Republic says about Phoenix Ranch Market, its number 18 selection, which is owned by Southern California-based Pro's Ranch Markets:

Phoenix Ranch Market
"This high-energy California-based grocer packs its markets with tortillas made fresh daily, thirst-busting aguas frescas, vats of crema, a seafood bar with as many as 10 varieties of shrimp and an 80-foot case stocked with traditional Mexican meats. The produce department offers the best local selection of fresh and dried chiles. Too busy to cook? Stop by the expansive takeout restaurant for carnitas, Guerrero-style tacos, red-chile beef or seafood tostada. 1602 E. Roosevelt St., Phoenix, 602-254-6676; 5833 S. Central Ave., Phoenix, 602-276-3800; 5802 W. Thomas Road, Phoenix, 623-247-0362; 6730 W. Camelback Road, Glendale, 623-247-4200." [Web site: prosranch.com.]

The Phoenix Ranch Market stores are located in and around Phoenix, Arizona.

Fresh & Easy Buzz recently wrote about the newest Phoenix Ranch Market Latino-focused supermarket, which is in Mesa, Arizona. You can read our story here: [April 26, 2009: Sunday Feature: Pro's Ranch Markets' Set to Open Sixth 'Phoenix Ranch' Latino-Focused Phoenix Metro Region Supermarket in Mesa, Arizona On Wednesday.] The Mesa Phoenix Ranch Market store is now open.

The Arizona Republic also gave a "Top 50" nod to the Lee Lee Oriental Supermart in Peoria, Arizona (number 25).

Here's what the newspaper writes about the Asian specialty supermarket:

Lee Lee Oriental Supermart
"No, you're not in Asia - you're in Peoria. But it's easy to lose your bearings wandering the aisles of amazing Lee Lee Oriental Supermart. Just about every Asian country is represented, from Indonesia to Singapore, the Philippines to Thailand. The range of products is breathtaking. The high-quality produce section can stop you in your tracks, both for the staggering variety of greens, fruit and vegetables and for the astonishingly low prices. Check out the live fish and handsome seafood counter. The meat case displays animal parts you'd never see at your neighborhood American supermarket. And the shelves are packed with noodles, oils, vinegars, sauces, pastes and beverages. Lee Lee is like the Grand Canyon: You have to spend some time here to truly appreciate it. So make sure you stop and smell the Chinese long beans. 7575 W. Cactus Road, Peoria, 623-773-3345; 2025 N. Dobson Road, Chandler, 480-899-2887."

The downtown Phoenix Public Market, a collection of numerous retail fresh foods, specialty grocery and prepared foods purveyers all under the same roof, is also one of the "Top 50" on the list. [Web site: phoenixpublicmarket.com.]

Arizona's food banks also get a mention as one of the state's "food stars," and rightly so. The Arizona food banks, like those in many other states, have seen some of their busiest times in history over the last year as the recession and unemployment has hit Arizona hard.

The "Top 50" list is an interesting mix of businesses and individuals, all having a single focus, which is to bring food to Arizona residents in a variety of ways and formats, focusing on doing it the best way they can.

And it's interesting, but not a surprise, to note that the three food retailers named to the "Top 50" list are all independents. After all, when it comes to features and offerings like product selection, specialty focus and fresh, prepared foods, independents have historically lead the way among American grocers.

That's good -- and likely rather tasty -- food for thought as we enter the Memorial Day holiday weekend.

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.]

Family Dollar Discount Store Chain Increasing Amount of Store Square Footage Devoted to Merchandising Food-Grocery Items in Stores Beginning in May

Arizona Region Market Report
Alternate-Format Food & Grocery Retailing

Beginning next month, discount dollar store chain Family Dollar will start expanding the amount of space it devotes in its stores to merchandising food, grocery, household and related packaged goods items.

North Carolina-based Family Dollar operates 6,600 (in 44 states) of its small-format (7,500 -to- 10,000) square feet) dollar discount stores in the United States, including numerous stores in Arizona, one of the three states where Tesco operates its small-format (10,000 -to- 13,000 square foot) Fresh & Easy combination grocery and fresh foods markets. The other two states are California and Nevada.

The decision to expand the amount of square footage devoted to consumables and groceries in its stores beginning in May is all about consumer trends and sales in the current recession for Family Dollar, which is one of the U.S. retail chains that's currently benefiting from a flight to value retailers by shoppers in the current economic downturn in the U.S..

"Right now our customers are focused on needs, and so that's why we're focused on driving consumables," Kenneth Smith, Family Dollar's chief financial officer, said last week on Wednesday, April 9 in a Web-based conference call discussing the retailer's second-quarter financial results. "That's (consumables, groceries, essentials) where the action is today."

Family Dollar stores' s just-reported second-quarter financial results bare out the fact that consumables and essentials are where it's at for the retailer.

The dollar-discounter said a 13% increase in sales of consumables — including food, household-oriented packaged goods products, health and body care and pet food — drove second-quarter revenues up by 8.7% to $1.99 billion, compared $1.83 billion in the same quarter in 2008. As a percent of total sales, consumables increased to a whopping 61% at Family Dollar.

Gross margins are also looking rather good for the small-format, dollar-discount chain. For the second-quarter it reported its margins were up by 1% to 33.7% of sales.

Income for Family Dollar also is on the rise. The chain's Q2 net earnings improved 32.9% to $84.1 million, or 60 cents per share, up from the same period in 2008 when it reported $63.3 million and 45 cents per share.

It's clear the dollar-discount chain, which has Arizona stores in Phoenix, Tempe, Avondale and Tolleson, with additional units planned for the state, is benefiting from what we've identified and term a significant consumer flight to value-based retailers when it comes to much if not all of their food and grocery shopping in the current recession.

Fresh & Easy Buzz has learned that Family Dollar will carve out as much additional space in its stores for consumables, grocery, household cleaning and related "supermarket-type" items as it can. The retailer believes with its lower-cost, small-format store structure, combined with its huge buying power (the 6,600 stores), it can offer food and grocery items it currently isn't selling in its stores at prices that come in on a regular basis as the lowest in most of the market regions where it has its stores.

Family Dollar chairman and CEO Howard Levine said last week that he thinks the chain's combination of offering value (dollar store format and pricing) and convenience (the smaller footprint store size) positions the chain to continue doing well as it devotes the increased store square footage to consumables-groceries and the related packaged goods items, with at the same time continue to focus on value with its general merchandise product selection.

"In today’s challenging economic environment, families of all incomes are looking for ways to save money. Our strategy of providing both value and convenience continues to resonate well with consumers, and, as a result, we continue to capture more shopping trips and gain market share," Levine in a statement.

Family Dollar is the latest, but far from the only of what we call "alternative-format" retailers, to increase the amount of space (and number of SKUS) for food and grocery items in its stores.

For example, we've written about and offered analysis on drug chain Walgreens' major move to position its stores as offering more "affordable essentials" items, including dramatically expanding the number of food, grocery, household packaged goods, health and body care and related SKUS in its drug stores located throughout the U.S. Walgreens has hundreds of drug stores in California, Nevada and Arizona.

[Here are links to those stories: March 2, 2009: Walgreens Promotes Former Tesco Fresh & Easy Exec Bryan Pough to VP Merchandising Position; Move Fits Drug Chain's Current Strategic Focus...January 22, 2009: January 22, 2009: Neighbors by Location Only: Will Mega-Drug Chain Walgreens' New Focus on Consumables and 'Affordable Essentials' Rob Sales From Tesco's Fresh & Easy?...December 22, 2008: December 22, 2008: Breaking News: Mega-Drug Chain Walgreens Hires Former Tesco Fresh & Easy USA VP of Operations Brian Pugh For New VP of Format Development Position.]

The dollar store retailing format segment in general is doing well, particularly in consumable and grocery sales, in the current economic downturn. As an example, the California-based "99 Cents Only" chain has already expanded the number of food and grocery SKUS it carries in its stores, which prior to that expansion was already a significant amount, across numerous categories.

Dollar stores were popular before the recession hit. But they've become even more popular since the recession started, and even more so as it has intensified. Many consumers who never bought consumable and related grocery items before at dollar or 99-cent stores are now doing so, which helps explain the double-digit sales growth at chains like Family Dollar.

Tesco's Fresh & Easy Neighborhood Market, like Target and others before it, has realized the popularity of dollar stores, and of 99-cent and $1 pricing. Like Target and others Fresh & Easy now has what it calls "Under $1 sections" in its small-format grocery and fresh foods stores.

Alternative-format retailers -- retailers that aren't positioned mainly as a supermarket or grocery stores but still sell limited assortments of food and grocery items -- like drug chains and dollar-99-cent store chains have numerous stores in the U.S.; the power of location. (Walgreens has over 10,000 units in the U.S. Add that to Family Dollar's 6,600 and you have about 17,000 stores represented by just two chains in these segments.)

Therefore, by adding even just a few hundred new SKUS in the food and grocery categories to their respective stores, such chain's can have a significant overall competitive influence on food and grocery format-centered retailers (supermarkets, ect.) because of this power of location; having so many stores in so many places and markets.

And in this recession there is a growing trend by various alternative-format retailers to increasing the variety and number of consumables and consumer packaged goods SKUS they offer in their stores.

For example, in the drug chain segment the CVS chain and Rite-Aid both are putting an increased emphasis on consumables and grocery items, particular in the number of items featured and discount-price promoted in their weekly advertising circulars.

Even big box home retailers like Home Depot and Lowes are offering more consumables, particularly bottled water and soda pop, on promotion in their stores. And these chain's are offering far more SKUS in the household cleaning products category than they were before the recession hit. They have to because the housing foreclosure crisis and recession took the bloom off the rose off what until early 2008 was a booming home improvement trend in the U.S. among consumers -- a trend that benefited home stores like Home Depot and Lowes significantly.

And, according to this April 3, 2009 report in Natural~Specialty Foods Memo [Retail Memo - Alternate Formats: Toys 'R' Us Testing Store-Within-Store 'R Market' Grocery Departments in Three Chicago-Area Toys 'R' Us Toy Stores], even the Toys "R" US chain is testing limited assortment food and grocery sections in three of its toy stores in the Chicago, Illinois Metro region.

It's our analysis that additional alternative-format retailers will continue to expand the amount of square footage devoted to food and grocery items in their stores, along with expanding the variety and number of SKUS they merchandise in the stores, during this economic recession.

We also believe many of the retailer's that do so will most likely keep the expanded food and grocery selections once the recession ends.

We even expect that a few other U.S. retailers that don't at present offer any food and grocery items for sale in their stores, like the Toys "R" Us example, will began offering limited assortments of consumables and groceries, particularly essentials, this year as a way to attempt to draw shoppers into their often empty stores, whatever the format, increase sales, and overall compete during a time when general merchandise, soft, hard and durable goods retailers are struggling in a very serious way.

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 Market Region: Overstored? We think so. Ultra-competitive? Yes indeed. Economically battered? Yes -- without a doubt.

Beginning in early 2008 Fresh & Easy Buzz first put forth the proposition that the Arizona food and grocery retailing market -- particularly the Phoenix Metropolitan region which is one of the three market regions for Tesco' Fresh & Easy Neighborhood Market and where the grocery and fresh foods chain has been opening numerous new stores since November-December, 2007 -- was close to becoming or already was overstored (more stores selling food and groceries than the market can take.) We've continued to put forth this proposition since then in a variety of stories related to the Arizona market.

As a companion proposition, we've been suggesting for many months that the perfect (bad) storm of the housing foreclosure crisis (Arizona is one of the top five states in the U.S. in terms of per-capita foreclosures), the financial and credit crisis, and the ever-deepening economic recession (and the massive monthly job losses that have been a part of it) would soon start taking its toll on grocers in Arizona, combined with this near or already overstored phenomenon, expressing itself in three ways: the postponement of new store openings, worker layoffs, and eventually the closing by one or more grocery chains of existing stores.

Employee layoffs, new store opening postponements

The first sign, from a worker layoff perspective, that the combination of overstoring and a very bad economy in Arizona (the state has one of the highest unemployment percentages in the U.S., for example) were beginning to take a toll on the state's food and grocery retailing industry appeared in the summer of 2008 when the Arizona-based Bashas supermarket chain fired about 203 employees, 100 at their corporate headquarters and the remaining others at store-level. Bashas President Mike Proux said at the time doing so was necessary in order for the grocer to remain competitive in the highly-competitive market and economically struggling state.

Then in the fall of 2008 a number of grocery chains with operations in Arizona postponed the openings of a number of new stores they had planned to open in the state this year. These grocers include: Tesco's Fresh & Easy, Wal-Mart (although in its case just a couple units) Kroger Co. and Whole Foods Market, Inc. The reason for doing so is the combination of a bad economy and a super-competitive market -- and in our analysis the overstoring in Arizona. The ultra-high level of competition is and continues to be enhanced by the poor economy, as grocers must slash prices and increase the value of their respective promotions in order to compete for shoppers' food dollars.

Bashas employee layoffs, store closings

Now another shoe has dropped in the Arizona market, again involving Bashas, which has about 156 supermarkets in Arizona and employes 13,000 workers.

Bashas laid off another 350 workers, almost all at store-level, during the last week of January, saying it needed to do so because of the recession and the super-competitive food and grocery retailing climate in Arizona. The 350 laid off employees represent 3% of Bashas total employee payroll.

"It's no secret that we're battling on several fronts for the future viability and profitability of the company, and we're facing fierce competition and the economic recession," Kristy Nied, a spokeswoman for Bashas' said in a statement last week attributed to the company's president.

This week Bashas has taken another cost-cutting move. The Arizona-based grocery chain is closing five of its stores in the state, saying it has to do so in order to lower its costs and continue to compete as best it can in the white-hot competitive Arizona market.

Three of the five stores Bashas will close are in the Phoenix Metropolitan region, the region where Tesco's Fresh & Easy has its 30-plus stores and the market region we've been saying is the most overstored in the state.

Two of the Phoenix Metro market stores are flagship Bashas banner supermarkets. The third store being closed is one of the chain's Food City banner Latino consumer-centered format supermarkets.

Bashas also is closing another one of its Food City banner supermarkets. That store is located near the Arizona city of Yuma. The fifth store the supermarket chain is closing is its Ike's Farmers Market banner store in Tucson. That store, a one and only, is Bashas' natural and organic foods-centered format test store.

The grocer created the Ike's Farmers Market format as its entry into the natural grocery store retailing segment in its home state as a counter to the numerous natural foods chains that have entered the market with numerous stores in the last few years. These players include Whole Foods Market, Inc. Colorado-based Sunflower Farmers Market and Arizona-based Sprouts Farmers Market.

Bashas says its closing the Ike's Farmers Market test store not so much because it isn't pleased with the format but rather because the Tucson location isn't a good one for the store or the format. The grocer further says it may try the Ike's format in another part of the state in the future.

But, generally speaking, when a chain closes the only store of a new format (the test store), it usually results in the elimination of that new format completely. We don't suspect Arizona shoppers will be seeing a new Ike's Farmers Market store popping up in the state in the near future at the very least. In other words, the Ike's Farmers Market format may not be going into lifelong retirement, but if not, it's likely to be a very long period of hibernation.

Overstoring and economic recession

Thus far Bashas is the only grocery chain in Arizona we are aware of that's laid off employees and plans to close stores due primarily to the combination of the severe economic recession and the ultra-competitive nature of the food and grocery retailing market in the state. But they might not be the only grocer to do so in the near future.

What is a fact though is that many grocery chains with substantial business (and store count) in Arizona are pulling back.

For example, we know that Safeway Stores, Inc., which operates over 100 supermarkets under the Safeway banner in Arizona, currently has no plans to acquire sites for new stores in the state under the present economic and ultra-competitive climate in the market. Instead the grocery chain, which is the fifth-largest seller of food and groceries in the U.S. in terms of annual sales, is focusing its resources on making its existing stores in the state more competitive through offering lower everyday prices and stronger promotions, along with other programs.

Tesco's Fresh & Easy Neighborhood Market, which has slowed the opening of new stores in all three of the markets it's in -- Metro Phoenix, Arizona, Southern California and southern Nevada, as well as postponing its planned Northern California market region launch -- also is taking a serious look about how it should go forward in Arizona, both in terms of its existing stores and the opening of new stores, many of which are currently in the pipeline and were previously set to open throughout this year. Some are still opening. Others are being postponed.

As we've suggested since early 2008, before the recession took full bloom, the Arizona food and grocery retailing market was then near or already overstored.

Additionally, because Wal-Mart Stores, Inc. has been opening so many of its combination food and general merchandise Supercenters, Sam's Club membership warehouse stores and Wal-Mart Neighborhood Market supermarkets -- plus its first four small-format Marketside grocery and fresh foods markets last year -- in the state over the past five years, adding serious competitive heat to food retailing in Arizona, the competitive nature of the market has been given an added jolt of enhanced competition not seen prior to Wal-Mart becoming a major player in the state, which it wasn't a mere four or five years ago.

In our analysis of the Arizona food and grocery retailing market, the combination of so many stores being in the state, along with the severe economic recession, has created a ultra-competitive environment among retailers. This high-level of competition is forcing grocers to compete super-aggressively on price, which means reducing gross margins, which means reducing income. As a result, at some point something has to give. This something is what we're seeing with Bashas -- the elimination of jobs and now the closing of the five stores.

Since we believe the recession is going to last at least for the rest of 2009 -- and even if it doesn't last the rest of the year the economy won't likely show much improvement before the end of 2009 because unemployment growth and other such conditions keep occurring for months after a recession is over (lagging indicators in economists' jargon) -- we expect to see some combination of more postponements of new store openings in Arizona, additional store closings, and more job reductions in the food retailing sector, and not just from Bashas.

Wal-Mart, Safeway and Kroger, the "big three" chains in the Arizona market in terms of overall U.S. annual sales (Wal-Mart is number one, Kroger number three and Safeway number five), should be able to stay the course, particularly Wal-Mart which actually is benefiting in the market, like it is elsewhere in the U.S., from consumers switching to its stores from supermarket chains for their food and grocery shopping needs.

However, the rest of the players in the Arizona market aren't as fortunate. Most will have to at a minimum postpone most new store openings and cut costs at store-level significantly if they want to avoid layoffs and store closures. This includes Tesco's Fresh & Easy Neighborhood Market, as well as numerous others, both chains and independents.

For example, the private equity firm Cerebus, which owns the Albertson's stores in Arizona, will likely be closing 3 -to- 6 underperforming Albertsons units in Arizona in the coming months.

Cerebus owns 80% of the failing automaker Chrysler, and has been racing through billions of dollars in cash every month, despite the recent billion of dollars of government bailout money given the car maker, keeping the company alive. As a result, it has very little operating capital available for the other companies it owns, such as Albertsons LLC, which operates the Arizona Albertsons banner supermarkets, as well as those in a couple other markets. Most of the Albertsons banner stores, like the Southern California chain, are owned by Supervalu, Inc., the fourth-largest food and grocery retailer in the U.S., after number three Costco.

Super-competition good for shoppers though

Meanwhile, the ultra-competitive climate among grocers in Arizona is good for the state's food and grocery shoppers in this severe recession. Retailers are offering the hottest promotions in decades in the market, including triple and even quadruple coupon offers on manufacturers' "cents off" coupons, deep discount store coupons ranging from 10% -to- 20% off total grocery purchases, and numerous buy-one-get-one (item) free and $1 an item offers each week.

Most major Arizona grocers also have lowered everyday prices across all product categories in their stores significantly over the last six months, and are offering far more items at temporary price reductions in-store than they were just a year ago, in addition to the numerous deals featured in their advertising circulars each week, along with the coupon offers and other promotions.

More competition to come

It's our analysis that the high-level of competition in the Arizona market is only going to get stronger, particularly on a price-competitive basis, between now and the end of the year. When this form of competitive evolution (or perhaps devolution is a better term) happens for a prolonged period of time, even in the food and grocery industry which is the most recession- resistant (but not recession-proof) of all retailing sectors, the players have to adapt (cut costs) in order to survive. And just as in the evolutionary process in nature, not every player will always survive.

Tesco's Fresh & Easy and the Arizona market

The primary reason Bashas is thus far the only supermarket chain doing business in the Arizona market to fire a substantial number of employees and close existing stores is because the homegrown grocer has all of its food retailing eggs in a one state basket -- Arizona.

All but a handful of Bashas 160 supermarkets are in Arizona, which is suffering among the worse of all 50 U.S. states with housing foreclosures and unemployment, along with all of the other economic negatives that come with those dual negatives. Therefore, since nearly 100% of the grocery chain's sales come from the Arizona market, which is being battered economically, and since the supermarket chain has no significant sales in other states not being hit as severely by the recession as Arizona is, it doesn't have a buffer to protect it like Wal-Mart, Safeway and Kroger, which have stores throughout the U.S., do.

As a result, with all of its eggs in the Arizona food and grocery retailing market basket, Bashas really has no choice but to cut back by laying off workers and closing stores once it's exhausted all of the other avenues to cutting costs in a market impacted severely by the dual forces of economic recession and ultra-competitiveness.

Tesco is in a fairly similar strategic position with its Fresh & Easy chain. All of the grocer's about111 stores are located in just three markets -- Metro Phoenix, Arizona, Southern California and Metropolitan Las Vegas, Nevada. The Las Vegas region is in just as bad of shape as Arizona is in terms of housing foreclosures, rapidly-rising unemployment and other negative recessionary factors. Southern California is in better shape than Arizona and Nevada -- but only slightly better.

As a result of having all of its food retailing eggs in just three baskets, two of which, Arizona and Nevada, are among the most recession-afflicted states in the U.S., and a third region, Southern California, that's not far behind, Tesco is taking a major hit on three of its market fronts.

Unlike say Safeway, which has stores in Northern California's Bay Area and in the Seattle, Washington region -- two regions in the west certainly hurt by the recession but not nearly as much as Arizona, Nevada and Southern California are -- Tesco's Fresh & Easy has no such U.S. market region buffers to assist it. Instead Tesco happens to have chosen three states, and markets, for all of its Fresh & Easy stores that are being impacted among the most severely by the current recession. Of course Tesco couldn't have known this when they decided on these three states, all doing well at the time, when it decided where to launch its Fresh & Easy chain in late 2006/early 2007. The luck of the British, it seems. The only good news for Tesco in this regard is that it is a global retailer, which means it can buffer its U.S. business with its global sales. But not forever.

As a result of this U.S. geographical retailing determinism, Tesco's Fresh & Easy finds itself not only doing business in three of the states hardest hit by the recession, but in two of the most highly competitive market regions in the U.S. in this recession -- Southern California and Metropolitan Phoenix, Arizona -- as well. About 40% of the Fresh & Easy stores are in Southern California. The other about 60% are split near-equally between Metropolitan Phoenix, Arizona and southern Nevada.

This reality leaves an already struggling Tesco Fresh & Easy with even harder decisions than it would normally have if these market regions weren't so hard hit by the recession. That's one reason the grocer has postponed a number of new store openings in all three of the market regions.

But the big question for Tesco's Fresh & Easy is if doing that will be enough? It's going through cash in a way that is a big worry to both Tesco plc CEO Sir Terry Leahy, who is based at company headquarters in the United Kingdom, and to Tesco PLC shareholders.

By this time in its development, Tesco's sales target for the Fresh & Easy stores was to be average weekly gross sales of about $200,000 per store, per week. Based on our sources, maybe 30% -to- 40% of the Fresh & Easy markets are hitting that target at present. In addition, a number of the stores are static at about $90,000 -to- $130,000 in average weekly sales. This includes some units, such as the store in Hemet, California which was the very first Fresh & Easy market to open in late October, 2007.

This begs the question: 'Should Tesco's Fresh & Easy Neighborhood Market close those stores that have been open at least a year and are nowhere close to being able to hit the $200,000 weekly sales target in the near future'? We are referring to those stores that are doing say $90,000 -to- $130,000.

That's a question we know Tesco Fresh & Easy's senior management is asking itself, particulary as it pertains to the ultra-competitive Arizona market. We estimate there are at least five Fresh & Easy stores (the five aren't all in Arizona, but divided between all three markets) that are doing so poorly that they could be closed tomorrow and not have any appreciable effect on overall gross sales. In fact, closing those five stores would likely help a bit to stem Fresh & Easy Neighborhood Market's overall cash burn rate. (There are many more than five stores with sales in this $90,000 -to- $130,000 in weekly sales range. But we are saying we only "know" of five specific ones that could be closed right now per our reasoning above.)

As a result, it wouldn't surprise Fresh & Easy Buzz if Tesco closes in the neighborhood of five stores between now and the next few months. And if doing so would not hurt overall sales significantly, as our information suggests, and in fact would help stem some of the chain's losses -- why not do so? Closing five stores though would mean putting about 100-150 store employees out of work. So if it happens we hope they are offered jobs at other or new stores.

Of course Tesco need not close any Fresh & Easy stores at all if it doesn't want to. After all, Tesco plc is a huge, global corporation and retailer -- the third-largest in the world -- and can investment finance the Fresh & Easy chain for another couple years if it desires to, can't it, waiting for those underperforming stores to improve and hit that $200,000 a week in sales down the road, right?

That's a question United Kingdom-based Tesco plc CEO Sir Terry Leahy -- influenced by cash on hand and bottom line concerns, along with investor behavior -- will have to ultimately answer though.

Food & Grocery Retailing in the Recession: Bashas Broadening the Shopper-Base in its Hispanic Format Food City Stores; Shoppers Search for Value

Competitor News: Arizona Region Market Report - and Beyond

Arizona-based, family-owned supermarket chain Bashas uses a multi-format food and grocery retailing strategy in the state.

The hometown supermarket chain, which operates about 160 stores in Arizona, has its namesake banner Bashas supermarkets, which consist of both superstores and conventional supermarkets. This banner is the bullwork of the grocery chain's business in the state.

But Bashas strategy also includes covering niche markets with its additional food retailing formats. These include the retailer's AJ's Fine Foods banner, which are supermarkets that focus on merchandising specialty, gourmet, natural, organic, premium and fresh, prepared foods in an upscale retail setting.

AJ's Fine Foods, which pioneered specialty and gourmet food and grocery retailing in the state, was a popular multi-store independent for many years in the Metro Phoenix market. Bashas acquired it a number of years ago and has selectively added new stores.

In addition to its flagship Bashas banner and its AJ's Fine Foods upscale supermarkets, Bashas also operates a small chain of upscale wine and spirits stores, Sportsman's Wines. The current four-store mini-chain (two stores in Scottdale, one in Phoenix and one in Glendale) was acquired by Bashas not too long ago from the family that founded and operated the popular Phoenix Metropolitan region upscale wine and spirits mini-chain for a number of years.

In acquiring Sportsman's, Bashas saw a number of synergies between it and its AJ's Fine Foods upscale target consumer, which was part of the grocer's motivation for buying it. Bashas also acquired Sportsman's it has said as a way to improve the supermarket chain's overall expertise in wine and spirits merchandising, as well as to open new stores and build the business in and of itself. This upscale segment isn't doing all that well for Bashas at present, as is the case with pretty much all upscale food retailers in this recession.

Bashas also is testing a natural foods store in Arizona, Ike's Farmers Market. That store is located in Oro Valley, Arizona.

But it's not just conventional superstore/supermarket, upscale specialty and natural foods formats Bashas includes in its multi-format strategy in Arizona. The grocery chain also operates Food City, which is a format and banner targeting the state's extensive Hispanic or Latino population, which comprises about 40% off all Arizona residents.

Basha's currently operates 61 Food City supermarkets, with store number 62 set to open soon in El Mirage, Arizona. The stores are full supermarkets with a focus on the fresh foods, groceries and non-foods Hispanic consumers buy and use most often. Food City stores also carry a strong selection of basic food and grocery items just like those found in all supermarkets. After all, Latino consumers have particular food preferences, but they also purchase many of the same brands and products Americans from all ethnic backgrounds buy.

Among the special features the Food City stores offer are huge fresh produce and meat departments. Many of the stores also have full-service pharmacies in-store. In addition, the stores offer a full check-cashing service because many Hispanic consumers, as well as others, don't use banks but rather prefer or have to cash their payroll checks at a supermarket or discount store like Wal-Mart, essentially using the stores as their financial instituion.

It's estimated that in both California, Nevada and Arizona, for example, as many as 25% of people don't use banks but rather use supermarkets and discount stores for their "banking" services such as payroll check cashing. Tesco's Fresh & Easy stores don't cash payroll checks or take paper, personal checks. Just cash, debit and credit cards. All 104 Fresh & Easy markets are in California, Nevada and Arizona.

As a result of not cashing payroll checks, Tesco is missing out on this huge, potential customer base in its Fresh & Easy stores. Wal-Mart, Kroger, Safeway, Bashas --the leading food and grocery retailers in these three states -- not only all cash payroll checks, they encourage it as policy because of all of the business it brings to their stores.

When it comes to basic food and grocery items, It is just this aspect of its Food City stores -- that they sell lots of basic food and grocery products at discount prices -- that Bashas is using in a new merchandising and marketing program designed to position the stores to a wider customer base -- everybody -- that's looking to save money in this severe economic recession, which has hit Arizona particularly hard.

In fact, in just the last month Bashas has added more basic or mainstream food and grocery items to its Food City banner stores, products that appeal to a wider audience, and focused on further discounting these "American-style" food and grocery items.

The new approach and program designed to increase business in the Food City supermarkets appears to be baring some recessionary shopper fruit, according to a recent piece in the Arizona Republic, written by staff writer Cathryn Creno, who covers the Arizona food and grocery retailing industry for the paper. Additionally, Fresh & Easy Buzz recently was in a couple Food City stores and observed an ethnically diverse consumer base shopping the supermarkets.

You can read the Arizona Republic story here.

Bashas isn't eliminating its Hispanic shopper niche in the Food City banner stores. Rather it's attempting to broaden the shopper base during the current bad economic times, which is creating in what our research has found are some profound changes in consumer food and grocery shopping patterns of behavior, particualrly in the Western U.S., where numerous different retail formats selling food and groceries exist.

For example, we're finding consumers shopping alternative formats much more than ever before in recent history in this recession.

Many shoppers are seeking out food and grocery bargains at dollar and 99-cent stores and salvage grocers and others, for example. Salvage grocers (also sometimes called "scratch & dent" grocers) are those that primarily sell slightly damaged or blemished food and grocery products, as well as manufacturers' close-outs.

Berkeley, California-based Grocery Outlet, which operates a chain of franchised salvage-type supermarkets (including stores in California, Nevada and Arizona), has reported this year its sales are up by at least 10-15%, and its owner-operators report seeing new faces in their stores daily.

Many shoppers also are seeking out ethnic supermarkets looking for bargains. These include Hispanic consumer-oriented stores like Food City and Asian foods-focused discount supermarkets as well.

The 99-Ranch Asian supermarket chain for example says its seeing more and more non-Asian shoppers in its big supermarkets located in California and elsewhere in the U.S. than it's ever seen before. The stores offer both basic food and grocery items and Asian foods at discount prices. The stores fresh meat and produce departments, which offer lots of value-priced items, have become particularly popular with non-Asian shoppers over the last few months, the company says, and we have observed having visited a number of the stores recently and seen shoppers of various different ethnic backgrounds in the markets.

As we wrote about yesterday in this piece [ Food & Grocery Retailing in the Recession: Wal-Mart CEO Describes Changes in Consumer Behavior-More Cheap Basics, More Cooking at Home; More Leftovers], Wal-Mart CEO Lee Scott said on the NBC news program "Meet the Press" on Sunday that the mega-chain is seeing shoppers buy more cheaper, basic food and grocery items in its U.S. stores, including purchasing more frozen foods when they are on sale in place of fresh, prepared foods, for example. Wal-Mart's research he said shows consumers are buying these items on sale and storing them rather than purchasing more expensive fresh foods on a weekly basis.

Scott's observations are echoed by numerous supermarket chain executives we've talked with in the last month. They say there's a clear trend people are cooking and eating more at home. That they are buying more food ingredients instead of highly processed and fresh, prepared foods.

These industry executives also tell us price (and discounting) is King right now. They are seeing more "cherry picking" of weekly advertising circular specials and in many cases reduced market basket sizes which they attribute to shoppers buying from two or more supermarkets depending on a given week's ads.

Our research shows there's a "search for value" among U.S. shoppers right now. Additionally, with the drop in the per-gallon price of gasoline below $2.00, shoppers are more willing to drive around to different stores for deals than they were just a little over a month ago when gas was over $4 gallon.

This "flight to value" means food and grocery retailers, regardless of the format stores they operate, must tighten their belts and emphasise the value proposition, with a particular focus on selling basic food and grocery items for the best prices possible in their stores. Retailers also must focus their weekly promotions on more basic items and get creative in promotions.

Shoppers are still looking for indulgent and premium products but are buying them more as irregular treats rather than on a regular basis like they were doing as recently as the first quarter of this year.

Right now it's all about the basics. For example"

>Leftovers have taken on new status in households, something else Wal-Mart Stores, Inc. CEO Lee Scott said shoppers are telling Wal-Mart.

>Manufacturers' cents-off coupons are becoming gold. Weekly supermarket advertising circulars are getting read rather than tossed in the garbage can. Unlike all of its major competitors in the Southern California, Nevada and Arizona markets, Tesco Fresh & Easy Neighborhood Market stores don't accept manufacturers' cents off coupons. [Read more here: Marketing & Promotions Report: Manufacturers' Coupons Becoming the 'New Black;' Use Among Consumers Soaring; Marketers Distributing More Than Before.]

>Consumers who never set foot in a 99-cent store are doing so; and buying food and grocery items in these stores.

>Non-profit retail food cooperative markets, where in return for paying an annual fee and/or volunteering hours to work in the stores, owner-customers receive 20% or more off the price of groceries, are booming.

>Wal-Mart is seeing a substantial cohort of higher-income consumers shopping in its Supercenters and Sam's Club stores. Additionally, the retailer's sales and income for the last two quarters demonstrate it's thriving in the down economy, according to CEO Scott and Wal-Mart USA president Eduardo Castro-Wright.

Price and value is top of mind among food and grocery shoppers. The challenge for retailers right now is to position their respective stores in the minds of these consumers as the place to shop in order to get that value.

And as we've been writing about, our analysis is doing so is job one for Tesco's Fresh & Easy Neighborhood Market right now -- to create a real value proposition for its 104 stores in Southern California, Nevada and Arizona, and do it fast -- and then hammer home that value proposition regularly in-store and through marketing programs in a regular, repetitive, consistent, concise and clear way.

Tesco's Fresh & Easy model seems designed to achieve this but the execution by Fresh & Easy USA corporate just hasn't been and isn't there. We wonder why since United Kingdom-based Tesco plc. is a proven global retailer?

Is it because the U.S. is the toughest market the retailer has faced to date? Is it because Tesco flubbed with Fresh & Easy? Or is it a senior management problem at Fresh & Easy Neighborhood Market in Southern California. Or, perhaps, a combination of all three?

We've argued that's it's all three, along with a couple other details. But most of all, Tesco's Fresh & Easy Neighborhood Market has failed to date to capitalize on what we believe could be its greatest strength, particularly in the recession, which is the creation of a solid value proposition, followed by a tight merchandising and marketing program designed to implement it. There's no time to do so like the present, after all.

Despite Arizona Becoming the Land Where Retail Giants Are Opening Scores of Stores, Independents Fear Not - We Profile Two Such Entrepreneurs

Arizona Market Food Retailing Report: Small-Format Grocery and Fresh Foods Markets

Tesco is opening numerous small-format Fresh & Easy grocery and fresh foods markets (about 30 so far) in Arizona.

Wal-Mart operates over 30 of its Neighborhood Market smaller-format supermarkets in the state, and recently entered the market with its first four (and soon to be fifth) small-format Marketside combination grocery and fresh foods stores. More new stores of both formats are opening in Arizona.

Then there's Trader Joe's, which operates nearly 30 of its famous specialty markets in the state.

But these aggressive retailing giants, all operating their own versions of small-format, neighborhood oriented grocery and fresh foods markets, aren't stopping some independent food retailing entrepreneurs from opening their own new small-format fresh food and grocery concept markets in Arizona -- in these two particular cases in Tucson.

And, both new stores have a similar focus: They are neighborhood markets that put a major emphasis on locally-produced food products, fresh produce, convenience, natural and organic foods (but also conventional basics) and in-store fresh, prepared foods and beverages.

Local Harvest Marketplace - Tucson

Natural foods industry veterans (from the product marketing side) Philip and Sherry Ostrom-Luna recently opened there new small-format, natural and fresh foods market, Local Harvest Marketplace, at 3954 East Speedway Boulevard in Tucson.

Local Harvest Market features fresh produce, natural and organic groceries, ready-to-eat and ready-to-heat prepared foods all with a local focus, meaning most of the store's offerings are products produced locally in Arizona or nearby. The emphasis is on products produced and marketed by local companies, artisans and purveyors.

The market's prepared food and beverage offerings are extensive. There's a salad bar, sandwich bar, fresh smoothie bar, fresh juice and cider bar and cafe. All of the prepared food and drink items on the menu are prepared in-store using natural and organic products produced locally.

Local Harvest Marketplace also has an outdoor dining patio where customers can sit and eat and drink the store's fresh, prepared foods offerings. The store's owners say they will soon extend their fresh produce sales out into the patio, offering a farmers market for shoppers, featuring all sorts of local produce, from the afternoon and evening. They also plan to invite local artisans and craft makers to display and sell their handcrafted items at the open air market. Plans also call for having free entertainment on the patio in conjunction with the farmers market concept on Saturdays each week.

Since the market's emphasis is on local food, grocery and prepared foods items, they feel the patio farmers market will offer an additional opportunity to offer a greater selection especially of seasonal local fresh produce. Inviting the local artisans to sell their handmade items at the open-air farmers market also will enhance the local positioning and emphasis of the independent market they believe.

Maynard's Market & Kitchen - Tucson

A second new independent grocery and fresh foods market, Maynards Market & Kitchen, is set to open on December 12 in the Historic Depot in Tucson at 400 North Tool Avenue. The store is named after the famous San Francisco, California artist Maynard Dixon who lived for a time in Tucson. Some of his artwork graces the walls in Tucson's historic Depot building where the new market is located.

Below is how Maynards Market & Kitchen describes its format and philosophy:

THE CONCEPT IS SIMPLE. BUY LOCALLY WHEN YOU CAN. BUY RESPONSIBLY WHEN YOU CAN'T. WITH A SLANT FOR THE LOCALLY GROWN AND PRODUCED, MAYNARDS MARKET WILL CARRY AN ARRAY OF REGIONAL PRODUCTS ON OUR SHELVES AND AT OUR FARMERS MARKET. BUT WE DON'T STOP WITH VEGETABLES AND CHEESES. MAYNARDS IS A NEIGHBORHOOD MARKET WITH FRESH JUICES, PASTRIES AND COFFEES. HEALTHY GRAB AND GO AND SIMPLE NECESSITIES FROM ASPIRIN TO TISSUE. AND OF COURSE, GOOD WINES.

The new market is a combination basic grocery store and fresh and natural foods market, as the mission statement above describes. The store puts an emphasis on local products like Local Harvest Marketplace does but doesn't offer only food, grocery and non-foods items produced locally. Note the aspirin and tissue, for example.

The positioning of the new store is to be a neighborhood-oriented market where shoppers can get their basic essentials, along with being a more specialty and natural foods market where shoppers can find lots of organic and locally-grown fresh produce, in-store prepared fresh foods and specialty items.

The grocer is asking local residents for their ideas on its Web site prior to the store's opening on December 12, and plans to seek regular customer input as part of its operating philosophy. The market also wants to feature as much fresh produce and food and grocery products as is possible from local growers and purveyor.

Local dreams and independent means

Both Local Harvest Marketplace and Maynards are tapping into the increasingly popular local foods movement in the United States. While the current recession may have pushed aside "local" as a key priority for many consumers in favor of price at this particular point in time, it remains a fast-growing movement and concept. In addition, in many cases, including fresh produce, local actually is cheaper than non-locally produced foods.

Local is an important concept in Arizona because the state produces lots of fresh market crops as well as has numerous specialty and natural foods companies. The concept is growing from one that originally touted primarily eating locally-produced foods for the quality and taste factors to a much larger concept of buying and eating locally-produced because of the economic benefits doing so brings -- more jobs in the region, tax money for local governments, greater economic development, ect.

The fact that the entrepreneurs we've profiled in this piece have and are opening their respective small-format, independent food and grocery markets in the current recession shows the dynamism of food retailing in the U.S. It also shows food retailing entrepreneurs are willing to stake their money and future on a retail concept they believe in -- in these cases neighborhood stores with a local focus -- even though grocery retailing giants Tesco (Fresh & Easy) and Wal-Mart (Marketside) are opening their own versions of small grocery and fresh foods markets all around them.

Welcome to the Phoenix, Arizona Metropolitan region food and grocery retailing market, which is fast becoming one of the most interesting, dynamic and competitive markets in the U.S.

Reader Resources

Related posts from Fresh & Easy Buzz:

>Friday, October 17, 2008: Phoenix, Arizona Metro Market Report: Gilbert, Arizona Independent Liberty Market Fears Not the Tesco and Wal-Mart Invasion of its City

>Wednesday, April 30, 2008: Raising Arizona and Getting Local in the Neighborhood: State's First 100% Locally-Produced Wine Offers Win-Win for Tesco's Fresh & Easy Arizona Stores

>Monday, October 27, 2008: Category Management Report: Fresh & Easy Conducting Wine Category Review and SKU Rationalization; We Offer Some Analysis

>Wednesday, October 8, 2008: Putting the 'Neighborhood' in Neighborhood Market: 'Localism' and Tesco's Proposed Fresh & Easy Neighborhood Market in Sacramento's Oak Park

>Friday, March 14, 2008: Is Tesco's Fresh & Easy Neighborhood Market Venture Fledgling Even Further? More Analysis and Commentary

Arizona Region Market Report: A Fresh & Easy Buzz Flashback - Tesco to Locate New Fresh & Easy One Mile Outside Downtown 'Food Desert' Tempe, Arizona

On August 11, 2008 we wrote this story, "Arizona Region Market Report: Which Food Retailer Will Seize the Opportunity Offered by the Lack of a Grocery Store in Downtown Tempe, Arizona?" In the piece, which you can read completely by clicking on the title above, we explored the fact downtown Tempe, Arizona (pictured above) is underserved by supermarkets that offer basic groceries and fresh foods at affordable prices despite having gone through a resurgence in recent times. That resurgence is ongoing today.

The city of Tempe, Arizona, which is located in the Phoenix Metropolitan region, has been trying to lure a grocer to open a store in the city's downtown for a number of years. Downtown Tempe has few supermarkets that offer a selection of basic groceries and fresh foods at affordable prices, making it what's commonly referred to as an urban "food desert."

It appears our piece written a little over three months ago was rather prescient. Well, close to it. Just one mile away from being very prescient in fact.

According to the city of Tempe, it looks like Tesco's Fresh & Easy Neighborhood Market has plans to open one of its small-format, convenience-oriented grocery and fresh foods markets close to the city's downtown core, about one mile away.

The grocery chain plans to open a Fresh & Easy store in what soon will be a vacant building at the southeast corner of Mill Avenue and Broadway Road in the city. The location is right on the outskirts of downtown Tempe.

Tesco's Fresh & Easy has applied for a beer and wine off sale liquor license at the location. Additionally, the retailer plans to go before the Tempe City Council on Thursday night with a proposal to remodel the soon to be vacant building, according to the city of Tempe.

The off sale beer and wine permit application shows the proposed Fresh & Easy market's address as 83 E. Broadway Road. That building is currently occupied by a Walgreens drug store. But a spokesperson for the city of Tempe says the Walgreen's is relocating this Thursday into a newly constructed building just down the way from the current store at the same intersection, just in the southwest corner. Therefore the building will become vacant for Tesco to remodel into one of its 10,000 -to- 13,000 square foot Fresh & Easy grocery and fresh foods markets.

Walgreen's is making the move because it wanted a larger and more modern store in the neighborhood.

While the proposed Fresh & Easy market isn't actually in the "food desert" downtown core of Tempe, being only one mile away will offer downtown residents a much more convenient location for grocery and fresh foods shopping than is currently available to them downtown.

Additionally, since one of the publicly stated strategies by Tesco for its Fresh & Easy stores is to locate a percentage of the stores in "food desert" communities and urban neighborhoods, opening a store just one mile from downtown Tempe, which is underserved by supermarkets, helps the grocer better fulfill this strategy than it has to date.

Only two of the current 102 Fresh & Easy markets in Southern California, Metropolitan Las Vegas, Nevada and Metro Phoenix, Arizona are located in what can be called underserved or "food desert" neighborhoods. Those stores are both in Southern California -- one in Compton the other in the Eagle Rock district of Los Angeles. The grocery chain is building a third store in a neighborhood underserved by food and grocery stores in a South Los Angeles low-income neighborhood.

Tesco has one Fresh & Easy market in Tempe. That store, at Baseline and Kyrene roads in the city, opened in September of this year. Their are currently about 30 Fresh & Easy grocery markets in the Phoenix, Arizona Metropolitan region.

It's not surprising Tesco's Fresh & Easy would locate the store on the outskirts of downtown Tempe in a building being vacated by Walgreen's. Fresh & Easy Neighborhood Market has located many of its current stores next to or near Walgreen's drug stores in all three of the markets its in. The grocer also has modeled its "critical mass" retail strategy -- opening numerous stores within a couple miles of each other -- after Walgreen's, which uses that strategy nationally in the U.S., which we were the first publication to point out and write about.