Got Milk? Getting it For Shoppers is Much Less Expensive Now Than it Was A Year Ago in California, Nevada and Arizona; Tomorrow it's Even Free

California, Nevada and Arizona Region Report - Milk

Fresh, whole milk (the kind that comes from cows) is currently selling on average for 40% -to- 50% less for a gallon than it was a year ago in California, Nevada and Arizona, the three states where Tesco has its current 116 Fresh & Easy Neighborhood Market grocery and fresh foods stores.

Today it's easy to find a gallon of milk priced everyday at $1.99 in supermarkets in the three states. Not so a year ago.

Hot deals on fresh cold milk at Fry's supermarkets in Arizona

Some supermarkets, like Kroger Co.-owned Fry's in Arizona, are even offering gallons and half- gallons of fresh milk at loss-leader promotional prices in their weekly advertising circulars. For example, this week Fry's is advertising gallons of whole milk for $1.47, and half gallons for 88-cents each, in its Arizona supermarkets. Fry's is the number two food and grocery sales market share leader in Arizona, just a couple points behind number one Wal-Mart.

Discount coupons for fresh milk in California

In California, the California Milk Advisory Board (CMAB), which promotes the state's about 2,000 dairy farmers and the fresh milk and value-added dairy products they produce, distributed full-color, full-page free-standing inserts (FSI's) in March and again this month, advertising and promoting California-produced milk and dairy products.

The March FSI included a coupon good for 50-cents off a gallon or half-gallon of California-produced fresh, whole milk, along with a second coupon good for 30-cents off any dairy product made with milk from California's dairy farmers.

This month's CMAB full-page FSI also features a coupon good for 50 cents off gallons and half- gallons of fresh milk, along with a coupon good for 50-cents off any one pound package of butter, as long as it is made in California and has the association's "Real California" seal on the package, showing the product is made from milk from California's dairy farmers.

The California Milk Advisory Board (CMAB) has also made the coupons available on its Web site. The trade group pays retailers the face value of the coupon plus a three -to- five cent per coupon handling charge for redeeming the milk coupons in the stores.

Tesco's Fresh & Easy Neighborhood Market doesn't except manufacturers' coupons like the milk board is distributing. Therefore shoppers can't take advantage of and use the 50-cents off fresh milk and other California-produced dairy products' coupons in the Fresh & Easy stores.

And Tesco's Fresh & Easy can't gain the added sales the 50-cent coupons are bringing to food and grocery retailers in California. The milk board included the FSI's in the Sunday editions of every major daily newspaper in California in March and this month. That's millions of the coupons distributed.

About half of Tesco's 116 Fresh & Easy grocery and fresh foods markets are located in Southern Californa (and three in Bakersfield.) The other half are roughly equally divided between southern Nevada and Metropolitan Phoenix, Arizona.

California is the number one producer and processor of fresh milk and most value-added dairy products in the nation.

Free Milk from Shamrock Farms at Bashas in Arizona tomorrow

Arizona's Shamrock Farms, which is the largest family-owned branded dairy company in the southwestern United States, is taking fresh milk promoting to a new level tomorrow, Saturday, April 11. The local Arizona-based dairy company is teaming up with local supermarket chain Bashas' in a mega-free Shamrock Farms brand milk giveaway at four Bashas' supermarkets in the state.

Shamrock Farms will give away 10,000 half-gallons (5,000 gallons) of its new Shamrock Farms Essentials and Essentials for Kids fresh milk at the four Bashas' stores tomorrow. The dairy company also will be handing out coupons good for 65-cents off future purchases of the half gallon containers of the milk; the same coupons current available on the company's Web site. The value-added, nutrient-rich Essentials line comes only in half gallons.

The four Bashas' stores where Shamrock Farms will be giving away the free milk tomorrow are:
>Seventh Street and Missouri in Phoenix, Arizona
>Power and Chandler Heights roads in Queen Creek, Arizona
>Power and McDowell roads in Mesa, Arizona
>Lake Pleasant Road and Beardsley in Peoria, Arizona

The dairy company will distribute 2,500 free half-gallons of the milk at each of the four stores; one gallon per person or family.

The milk freebie event starts at the stores at noon according to Shamrock Farms. It ends when all of the 2,500 half gallons of free milk have been distributed; but no later than 5pm. We doubt if the Shamrock Farms' folks will need to stay at the stores anywhere close to 5pm. We suspect the milk will be gone in an hour or two at each store. "Free" is a magic marketing word.

Shamrock Farms, which is a division of the Shamrock Foods Company, says those consumers who don't get a free half-gallon of its new Essentials nutrient-fortified fresh milk at one of the four Bashas' supermarkets tomorrow will get a second chance for a freebie.

The company says it will again be handing out free half-gallons of the milk on March 18 at the Metro Phoenix March for Babies event. That event is at Phoenix's Wesley Bolin Plaza, 1900 W. Washington Ave., in front of the state Capitol building. It starts at 7am on March 18.

Founded in 1922, Shamrock Farms is the largest family-owned and operated dairy in the Southwest U.S. The company produces and distributes a full line of dairy products, including fresh milk, sour cream, cottage cheese, whipping cream, ice cream, and more. The dairy processor and marketer is well known in Arizona and throughout the southwest for its spokesbovine -- Roxie The Cow.

The fresh buzz on fresh milk prices

The reason for the dramatically lower retail prices and unusual promotions, like the generic 50-cent off coupons good for any brand of milk produced in California being distributed by the California Milk Advisory Board CMAB), is because the supply of milk in the state is up while the demand is down. OR the demand is down based on the level of supply. It goes both ways.

For example, California's dairy farmers are currently being paid about 60% less for their milk than they were a year ago. They're struggling.

In fact it has gotten so tough on dairy farmers in California's San Joaquin Valley, which is the highest per-capita milk producing region in the U.S., that the Modesto, California-based Western United Dairyman, a state dairy farmer trade association, is working with the region's dairy farmers on a cow kill program. Under the program dairy farmers are killing off many of their cows, selling them to meat processing companies.

The hope of the cow herd-reduction program is that by reducing the number of milk-producing cows, the supply of milk will thereby be reduced, leading to the dairy farmers receiving a higher price for their milk from the milk processing companies because supply and demand will then be in a more equal balance.

Milk production is down by 5.8% in California, compared to the same time last year, according to the Western United Dairymen. The nearly 6% reduction in milk supply hasn't helped increase the milk price paid to the state's dairy farmers though, which is why the group wants to reduce the supply further through the herd reduction program.

Additionally, the California Milk Advisory Board is distributing the fresh milk and dairy products coupons for two primary reasons.

First, the trade group is trying to increase sales, and thus demand, for fresh milk produced by California's dairy farmers.

Second, the trade group says about 20% of all fresh fluid milk sold in California comes from out of state dairy farmers with about 80% coming from California dairy farms.

The milk board hopes to reduced that 20% (out of state produced milk) by whatever percentage it can. Even taking a 5% bite out of the 20% of out of state milk sold in California would translate into a substantial boost to California's milk producing dairies, the trade group says.

Milk prices: Plus for consumers, retailers; minus for dairy farmers

Meanwhile though, consumers in California, Nevada and Arizona -- and throughout the U.S. -- are saving big bucks on fresh milk right now, compared to what they were paying a year ago.

And if you include the supermarket promotions, like Fry's in Arizona, the cents off coupons, not to mention the free giveaways like tomorrow's Shamrock Farms event at the four Bashas' stores, the savings on fresh fluid milk is even greater.

That's one grocery shopping (and pocketbook) silver lining for consumers, as well as for food and grocery retailers since they are making basically the same profit margins as a year ago, in this current recession.

But like is always the case, it comes at a price for another group. In this case that group is dairy farmers, not just in California but throughout the U.S. They are receiving the lowest payments for the milk they sell to milk processors in recent memory.

But, at least tomorrow at the four Bashas' supermarkets, there won't be any crying over free milk. But we bet there will be lots of competition among consumers to be one of the first 2,500 hundred people in line at each of the four stores to get their free half-gallon of milk.

Competitor News: Smart & Final Appears Pleased With its Eight Hybrid 'Extra' Format Stores, More On the Way in 2009

Pictured above: The Smart & Final 'Extra' food and grocery market in the southern California city of Bellflower.

Market Report: California, Nevada and Arizona

Los Angeles, California-based Smart & Final Stores LLC is expanding the number of it's new hybrid supermarket-warehouse-style "Extra" format stores, the first of which opened in August in Southern California, Fresh & Easy Buzz has learned.

Smart & Final currently operates eight "Extra" stores - six in Southern California and two in Northern California's Bay Area. The stores are nearly double the size of the retailer's non-membership warehouse stores -- 25,000 -to- 35,000 square feet, compared to about 17,000 -to-18,000 square feet for the traditional non-membership warehouse-style stores.

The "Extra" stores also carry about 4,500 more items -- including many more in single-unit sizes -- than Smart & Final's non-membership warehouse-style stores do, which cater to small businesses and restaurants, as well as individual consumers.

The "Extra" stores' target customer is the individual supermarket and grocery store consumer rather than the institutional customer.

In addition, the "Extra" format puts a greater emphasis on fresh foods, including produce (the fresh produce departments are in the 4,000 -to- 5,000 square foot range), meats, deli and prepared foods, compared to the non-membership Smart & Final warehouse-type stores.

The "Extra" Stores are designed to be more appealing to shoppers than Smart & Final's warehouse stores are. This includes enhanced interior packages and colors, more traditional style shelving, improved and more colorful in-store signage and more shopper-appealing merchandising and displays. They are a hybrid but look more like a traditional supermarket in design than they do a traditional warehouse store.

Smart & Final appears pleased enough with the performance of the current eight stores that it's planning to open a number of new "Extra" format stores in 2009 in Southern California, Northern California, and in other states in the Western USA where it operates its 242 non-membership warehouse stores in. Those states are, in addition to California: Oregon, Washington, Arizona, Nevada and Idaho. The retailer also operates stores in northern Mexico.

Look possibly for an "Extra" format test store in Arizona and one in Nevada in 2009 -- and likely additional stores in both states before next year is out. These are two states where Smart & Final operates but has yet to open any of the new format stores. Tesco's about 104 stores are located in Southern California, Southern Nevada and in the Pnoenix, Arizona Metropolitan region.

In the first half of 2009 Smart & Final will likely open as many as five new "Extra" food and grocery stores in Southern California. In addition, the retailer will likely open at least one new "Extra" store in Northern California's San Francisco Bay Area, in the city of Brentwood, and another in the Central Valley city of Stockton, which is about 35 miles from Brentwood.

We've also have learned Smart & Final is looking for additional locations for 2009 in Southern California and in Northern California, including in the Bay Area and the Sacramento region.

The retailer also has plans to convert some of its existing Smart & Final banner non-membership warehouse format stores into Extra stores in 2009. Its likely some of these stores could be in Arizona and Nevada, along with in California, in addition to the company converting some its traditional non-membership warehouse format stores in Oregon, Washington and Idaho into the new format on a case-by-case basis.

We believe Smart & Final could open as many as 25-35 new "Extra" stores, many of them conversions of existing non-membership warehouse format stores, mostly in California, but also in Arizona, Nevada and the other western states, in 2009.

Smart & Final becoming a multi-format food and grocery retailer

In addition to its five month old "Extra" format, the first store of which opened in August of this year in Southern California, Smart & Final Stores owns the Henry's Farmers Market natural and organic foods stores in Southern California and the Sun Harvest Markets natural foods stores in Texas, which it operates as a separate division from Smart & Final, with its own headquarters in San Diego, but also has integrated into the company where synergies makes sense. There are currently 36 total stores, about 26 Henry's banner stores (all located in Southern California) and about 10 Sun Harvest banner natural and organic foods markets, which are all located in Texas.

Smart & Final acquired the Henry's/Sun Harvest stores from Whole Foods Market, Inc in 2007. The stores were part of Whole Foods' acquisition of Wild Oats Markets, Inc. Wild Oats operated the Henry's and Sun Harvest stores, which were sort of a hybrid natural and specialty foods format, separate from its flagship Wild Oats' banner natural and organic foods stores.

The Henry's and Sun Harvest markets didn't fit into Whole Foods Market's strategic plans for Wild Oats, plus it wanted to raise some cash to aid in its acquisition, so the natural foods grocery chain sold the stores to Smart & Final, which itself is owned by investment firm Apollo Management LLC, which bought Smart & Final in May, 2007. Apollo/Smart & Final acquired Henry's and Sun Harvest from Whole Foods just a couple months later.

The Henry's Farmers Market and Sun Harvest stores were rather run down by the time Wild Oats sold to Whole Foods. However, since acquiring the stores from Whole Foods last year, Smart & Final has invested money in them and improved them dramatically, focusing the stores back into a more focused natural and organic foods format and vastly improving how the stores look, along with their merchandising, product selection and pricing. Smart & Final is in the processes of remodeling a number of the Henry's and Sun Harvest stores and plans to open a few new Henry's Farmers Market units in Southern California next year, according to its Web site.

At 20,000 -to- 35,000 square feet the Smart & Final "Extra" stores qualify as small-format, even though they aren't small-format for the retailer.

The size, which is about twice as big as a Tesco Fresh & Easy Neighborhood market store which average 10,000 -to- 13,000 square feet, allows them to be used in numerous settings, from suburban to urban.

Like Fresh & Easy they also offer a limited sku count, although the "Extra" stores carry more items than a Fresh & Easy store does.

Also similar to a Fresh & Easy, the "Extra" stores put an emphasis on offering everyday low prices and feature fresh foods as well as shelf-stable groceries.

Another similarity: United Kingdon-based Tesco, which owns and operates Southern California-based Fresh & Easy Neighborhood Market USA, has for many years operated as one of its numerous retail formats in the UK a banner and format named -- "Tesco Extra."

With the development of its five month old Smart & Final "Extra" format and the retailer's new plans to grow the number of stores from the eight it now operates in California into many more -- not just in California but elsewhere in the west where it operates stores -- including Nevada and Arizona where in addition to Southern California Tesco's Fresh & Easy has its 104 combination fresh food and grocery markets -- Smart & Final is adding yet another competitive food and grocery retailing format, element and set of stores into the already super-competitive Western USA food and grocery retailing industry mix.

Just when the pundits say the market has reached maturity, more new formats and stores come along.

Despite the economic recession, which we think will get worse before it gets better and which we believe will last for all of next year, there will continue to be new store -- and format -- development in the Western U.S., albeit at a much slower pace than in 2007 and 2008, in our analysis.

This increased competition from existing and new format players like Smart & Final's "Extra," combined with the economic recession, could result in some shaking-out among the retail players in California, Nevada and Arizona, leading to some store closings as well as diminished sales and incomes for those food and grocery retailers who don't adapt, or aren't sufficiently capitalized to weather the storm.