Southern California Market Report: Beverages & More to Join Trader Joe's and Fresh & Easy to Form Manhattan Beach Food and Beverage Retailing Triangle

A portion of the old Office Depot building, along with an adjacent warehouse, that Tesco remodeled and turned into its Manhattan Beach, California Fresh & Easy Neighborhood Market grocery store at 1700 Rosecrans Avenue will house a competitor of sorts to Tesco's Fresh & Easy, Fresh & Easy Buzz has learned.

Beverage and specialty foods category killer retailer Beverages & More (BevMo) plans to locate one of its discount spirits, wine, beer and specialty foods superstores next door to the 1700 Rosecrans Avenue Fresh & Easy grocery and fresh foods market, inside a portion of the building not used by the grocery chain for its market.

BevMo will join a Trader Joe's specialty grocery store, which is located at 1800 Rosecrans Avenue just across the parking lot from the Fresh & Easy store, as neighbors in what looks to be not only a one stop food and beverage shopping center but also is shaping up to be a very competitive corner of Manhattan Beach when it comes to food and beverages, especially beer, wine and spirits. We call it the Manhattan Beach food and beverage retailing triangle.

The city of Manhattan Beach Planning Commission recently voted to approve the Beverages & More store going into the 1700 Rosecrans Avenue location after some discussion about traffic concerns at the location, along with a review of the retailer's alcohol sales policy. After a discussion of BevMo's liquor sales policy and potential traffic concerns at the site, the planning commission voted to approve the chain's application to remodel a portion of the empty buildings next door to the Fresh & Easy, approving its permit. [You can view the planning documents here: http://www.citymb.info/agenda/2008/Ag-Min20080916/20080916-15.pdf.]

Beverages & More stores, which average about 10,000 -to- 12,000 square feet, are described by the retailer as "alcohol-beverage lifestyle superstores." The stores devote about half their square footage to spirits, wines, craft beers and non-alcoholic beverages. The alcoholic beverage items range from the lowest end, price-focused brands, to the highest-end premium spirits, wines and craft beers. The stores also sell lots of varieties of bottled waters, sodas and new age-style non-alcoholic beverages.

The other half of the stores are devoted to selling shelf-stable specialty, natural and gourmet foods; snacks (both mass market and specialty brands); national brand and specialty candies; and non-foods items related to beverages and lifestyle. The non-foods merchandising mix includes wine and drink glasses (glass and disposable), paper plates and napkins, bar accessories and related items.

The Beverages & More stores also have refrigerated cases where cheeses, deli items and a small selection of related specialty and gourmet prepared foods products are offered for sale.

The focus of the stores revolves around alcoholic beverages and specialty foods (the "More" in Beverages & More. There's an education/sampling center in each store where wine, spirits and craft beer tastings are conducted regularly. Often times specialty food product sampling is combined with the beverage tastings.

Education about wine, spirits and craft beers is a big part of the chain's marketing. Wine makers and other experts are brought in-store regularly for seminars, tastings and related events. [Read about BevMo's chief wine buyer at this link: Wilfred Wong / Beverages & More's drinker in chief.]

The positioning of the BevMo chain is to be the best one-stop source for alcoholic and non-alcoholic beverage items in terms of overall selection (from low-end to premium), along with offering the best prices and value on the category items. Specialty foods also are priced at everyday low prices. The objective is to be a category killer in the alcoholic beverage and specialty foods categories.

BevMo, which is headquartered in Concord in the San Francisco Bay Area, currently operates 93 alcoholic beverage and specialty foods superstores: 45 in Northern California, 39 in Southern California and 9 in Arizona. Locations are based in and around the major metropolitan markets of San Francisco, Sacramento, Los Angeles and San Diego in California; and Phoenix in Arizona. The Manhattan Beach store will be number 94 for the chain.

Some history

Beverages & More is currently owned by the investment firm TowerBrook Capital Partners LP, which acquired the chain in 2007 from another investment firm.

However, it has an interesting entrepreneurial history.

BevMo was founded in 1994 in Concord, California by Steve Boone, an entrepreneur who previously had founded the Liquor Barn alcoholic beverage category killer chain in 1979 in partnership with Safeway Stores, Inc. Safeway later sold the chain when the supermarket company was acquired and taken private by the KKR investment firm in a leveraged buyout. (KKR later took Safeway Stores, Inc. public, which is its current status.)

Boone put together an investment group and opened the first Beverages & More store in Walnut Creek (next door to Concord) in the San Francisco Bay Area in 1994, beginning his second act in the liquor category killer retailing business.

The BevMo stores have many similarities to Boone's Liquor Barn stores. However, the Beverages & More stores are more upscale in design. They also feature specialty foods which the Liquor Barn stores didn't.

Boone ran BevMo for a number of years, opening about 20 or so stores, all in the Bay Area. He later ran into some financial problems in terms of operating capital for the chain and it was eventually sold to an investment group which eventually began adding new stores and expanding into Southern California and Arizona. Since acquiring Beverages & More last year TowerBrook Capital partners LP has been growing the store count as well, focusing particularly in Southern California and Arizona in terms of new store openings.

The Manhattan Beach retail triangle

With the BevMo store slated to go in right next door to Tesco's Fresh & Easy -- along with the Trader Joe's right across the parking lot -- 1700-1800 Rosecrans Avenue is set to become a competitive mecca for the sales of alcoholic beverages and specialty foods.

Beverages & More puts a big emphasis on selling wine, for example, which also is something Fresh & Easy and Trader Joe's do. BevMo often runs hot promotions in the wine category. For example it recently concluded its annual "buy one bottle at regular price get a second bottle of equal value for 5-cents" sale. Each year during this promotion the retailer moves tens of thousands of cases of wine in its stores. The retailer offers similar promotions regularly.

One point of differentiation Fresh & Easy has is that it sells basic food and grocery items, along with prepared foods, natural and specialty foods, and alcoholic beverages. Since Trader Joe's focus is natural and specialty products at discount prices and BevMo's focus is alcoholic beverages and specialty foods, this is helpful to Fresh & Easy in this up-an-coming super-competitive location.

Of course, wine is an important category for Fresh & Easy. The retailer also needs to sell lots of prepared and specialty foods along with its basic groceries in its stores. That's where the bigger market basket (average ring) sizes and higher margins come from. Having a category killer like BevMo coming in right next door will likely kill some of these category sales for the Fresh & Easy store.

The Trader Joe's at 1800 Rosecrans, which also sells wine and craft beers and prepared foods along with its natural and specialty foods focus, does very well. Local sources tell us the store grosses about $500,000 in weekly sales. This isn't an unusual number for a Trader Joe's store even though they average only about 10,000 square feet. The retailer has among the highest gross sales per square foot of any food and grocery retailer in the U.S.

The 17000 Rosecrans Fresh & Easy location, which opened in early July of this year, also has been a good one for Tesco -- one of its best thus far actually. According to our estimates, which come from a very good source, the store has been averaging about $200,000 in gross weekly sales since shortly after opening. That's among the highest in sales of all of the current 96 Fresh & Easy grocery and fresh foods markets open to date.

Based on how well both the Trader Joe's and the Fresh & Easy are doing in their neighboring Rosecrans Avenue locations in Manhattan Beach, its rather safe to say it is a good food and grocery retailing location.

In fact, the Fresh & Easy store there appears to have thus far benefited from locating near the existing Trader Joe's unit. This isn't unusual in good locations. A new retailer can tap into an existing retailer's customer base and even expand the base. And since the Fresh & Easy store sells basic groceries and the Trader Joe's doesn't, that's a complementary aspect despite the fact the two retailers also have many categories in common from a competitive standpoint.

Perhaps the addition of the Beverages & More store in the mix will even further expand the customer base at what will become the 1700-1800 Rosecrans food and beverage retailing triangle in Manhattan Beach?

One thing though is for sure, shoppers will be able to competitively shop rather easily for that bottle of wine or 6-pack of beer, along with having a wide-variety of specialty and natural foods items to choose from at competitive prices with the addition of the new BevMo store to the neighborhood mix. Perhaps we should name the entire Manhattan Beach retail triangle -- Trader Joe's, Fresh & Easy and now BevMo -- "Booze and More?"

UK Telegraph Newspaper Reporter Visits the Manhattan Beach Fresh & Easy Grocery Store: Observes and Writes About What He Sees

The photograph above of the Fresh & Easy Neighborhood Market store at 1700 Rosecrans in Manhattan Beach, California was taken by Fresh & Easy Buzz roving photographer Reno Tom from in front of the Trader Joe's grocery store just across the parking lot. The two competing small-format grocery stores are as close as they appear in the photograph. You can click on the photo to enlarge it.

From the Fresh & Easy Buzz Editor's Desk: For many months now we've been writing about how [Tesco's] Fresh & Easy Neighborhood Market USA's small-format, convenience-oriented grocery stores in Southern California, Nevada and Arizona lack a sense of place, warmth, a feeling of retail excitement, localization, and a few other similar in-store characteristics that are crucial for any large-scale food and grocery retailing chain, especially a start up one, to succeed in the United States--and particularly in California where multi-format food retailing is extensive and highly competitive. We've also offered numerous positive suggestions for Tesco on how it can improve on this condition with its Fresh & Easy grocery stores.

We've based our analysis of the the 10,000 -to- 13,000 square foot combination basic grocery and fresh foods Fresh & Easy grocery markets' design and merchandising on numerous field visits to multiple stores in all three states. We've spent considerable time in multiple stores in the way an ethnographer spends time studying and learning about a foreign culture. In other words, we take a very thoughtful and methodological approach.

We've also interviewed hundreds of shoppers outside the Fresh & Easy stores since December, 2007, along with reading nearly every online review about the Fresh & Easy grocery markets on Internet review sites such as Chowhound.com, Yelp.com, Craigslist.com and a couple others. And, of course, we've received feedback from scores of Fresh & Easy Buzz readers on the stores.

We haven't interviewed shoppers in-person and read hundreds of online reviews because we've questioned our own observational analysis of the overall lack of a sense of place and retail excitement in and of the Fresh & Easy stores, but rather because like a good ethnographer we've also wanted to learn as much as we can about what others, particularly consumers, think of the store designs, how they feel shopping in them, and other key variables.

We've suggested strongly to members of the consumer press, who unlike members of the Fresh & Easy Buzz team haven't spent many years in the food and grocery industry, that the best way to analyze Tesco's Fresh & Easy stores is to get out and spent time in them observing and talking to shoppers. A few business reporters for newspapers located in Southern California, Metro Las Vegas Nevada and in Arizona have done just this, and have written some very informative and insightful stories about the Fresh & Easy stores.

However, the British press, which we understand has certain geographical constraints including having to cross the Atlantic Ocean in order to tour a Fresh & Easy store, hasn't in the main written much of anything about its hometown Tesco and its Fresh & Easy Neighborhood Market USA food retailing venture in America based on actually visiting, spending time in, observing and talking to shoppers in the Fresh & Easy stores. Field work.

That's why we were pleased to see an article in today's UK Sunday Telegraph by writer James Quinn in which he recently visited the Tesco Fresh & Easy grocery store in Manhattan Beach, California and reports on what he observed, including conversations he had with customers in the store.

We're even further pleased that Mr. Quinn visited the Trader Joe's (at 1800 Rosecrans) across the parking lot from the Manhattan Beach Fresh & Easy store at 1700 Rosecrans, which we were the first to report Fresh & Easy would become a neighbor of when it opened its store there on July 2, and writes about his observations of that store, comparing what he observed at the Trader Joe's to what he observed at the Fresh & Easy across the way.

Additionally, we're glad Mr. Quinn extended his field work to include a visit to the nearby Bristol Farms specialty supermarket, the name of which was inspired by Britain if you didn't know, and compares and contrasts his observations of the store to his observations and analysis of the Manhattan Beach Fresh & Easy market at 1700 Rosecrans.

There are numerous qualitative differences between food and grocery retailing in the United Kingdom and the United States, and even many significant differences on a regional basis in the United States, as we often point out in Fresh & Easy Buzz.

That's why adding local design elements and merchandising is such an important part of being a successful food retailer in America, as we've written about in relation to the fact that Tesco needs to localize certain design and merchandising aspects of its Fresh & Easy grocery stores to the communities and neighborhoods where they are located.

Although the British press has covered Tesco's Fresh & Easy Neighborhood Market USA extensively, there have been few and far between reports and stories based on a reporter actually visiting one or more Fresh & Easy grocery stores and observing and analyzing what they've found.

We aren't really faulting the UK press on this as much as we are merely stating an observable fact.

Like its U.S. counterpart newspapers, which have few UK-based correspondents, the British papers also have few U.S-based reporters. This is largely for economic reasons. The newspaper industry is struggling financially on both sides of the pond these days. Those in-country-based reporters the major British newspapers do have are kept busy in the main covering international affairs and U.S. politics from Washington and corporate America from Wall Street, along with a bit of Silicon Valley--and of course Hollywood.

Therefore, we're pleased to read Mr. Quinn's story based on his visits to the Manhattan Beach Fresh & Easy store, the Trader Joe's across the parking lot, and the nearby Bristol Farms specialty supermarket. It's arguably the most insightful piece we've yet to read in any UK newspaper on the realities Tesco faces competing with food and grocery retailers in the U.S. states of California, Nevada and Arizona. And that's no accident since there's often no substitute for field work when attempting to explain food retailing and retailers.

Below is the story from today's edition of the Telegraph:

Fresh & Easy at risk of going stale
17/08/2008
Tesco's chain faces serious obstacles in its bid to crack California. James Quinn checks out the reasons why

For Jan Perry, the recent ground-breaking at a near-barren construction site in the depressed southside area of Los Angeles was a turning point. After years of campaigning in her role as an LA councilwoman, fresh food was finally coming to the area, in the form of Tesco's Fresh & Easy, the British retailer's US convenience store venture.

"Having Tesco come along was a great opportunity," admits Perry. "Here in south LA, we have a plethora of liquor stores and fast-food restaurants, but what's frustrating is that the need is there for fresh produce and yet we haven't been able to get our own domestic grocery chains into the area."

A recent study showed that $400m a year leaks out of the area as residents go in search of fresh food, groceries and entertainment, and Perry estimates that 45pc of the area's 900 restaurants serve some form of fast food. "It will be very interesting to see if people will gravitate towards it," she says of the new store, which will open early next year.

Her positive perspective is everything that Tesco wanted to achieve when it launched F&E in southern California, Nevada and Arizona to much fanfare last autumn.

The new venture promised affordable, fresh produce for local communities, providing decent jobs and strong integration into local communities.

The business, run by Tesco's former marketing director Tim Mason, has now grown to 71 stores, with a move into northern California - taking in San Francisco and the Bay Area - planned early next year.

But not everyone sees F&E in such a positive light. The Los Angeles Alliance for a New Economy is suspicious of F&E's practices.

The Alliance, a citywide coalition of church, community and other interested groups, is concerned, among other things, about the impact stores such as F&E have on the city.

"When Tesco first came to America, we were pleasantly surprised. They were saying they wanted to do things differently," says Elliott Petty, the alliance's senior retail analyst from his office in downtown LA. "But, today, almost a year later, we've found they're a lot like others in the industry, opening stores in the exact same locations, neglecting others."

Petty rejects F&E's move to the southside of LA, saying the store is in an area going through "revitalisation with condos and lofts and a bunch of high-end developments".

"They didn't show up in the heart of south-central," he points out, suggesting that Tesco is favouring only wealthy communities.

An F&E spokesman rejects this claim, pointing out that as well as its southside store, it recently opened a store in LA's Compton, which has one of the highest murder rates in the whole of the US.

Petty is also dismissive of the company's pay incentives and opportunities for career progression - likening F&E to that pariah of the socially responsible, Wal-Mart.

"We want them to engage in the community, and talk to us," he pleads, saying the alliance has requested discussions on various occasions.

F&E has given no reason as to why the retailer doesn't seem able to speak to the alliance, but nevertheless rejects its claims.

"We have developed a very competitive pay and benefits package for all of our employees," the spokesman says, pointing out that more than 50pc of employees already live within four miles of their store, and stressing the retailer's career progression policies.

Unconvinced, Petty says the company's lack of willingness to talk to his or other community groups creates a potentially harmful "cloud of suspicion".

The store visits

A few miles to the south and the west of Petty's office, in a tranquil area on the edge of the mid-market Manhattan Beach, lies an F&E store that boasted the retailer's largest launch to date - with almost 2,600 customers on its first day - when it opened in early July.

But on the mid-week morning when I arrive, all is quiet. The 2,000 sq ft store (see editor's note below), very similar in feel to a large Tesco Express, does not look busy. At the back of the store is what is heralded by my F&E guide as the heart of the store - the "Kitchen Table", essentially a demonstration area run by a member of staff who chooses what items to display.

It's a nice idea, but far from original, as can be seen across the car park at rival retailer Trader Joe's whose "Snack Shack" concept looks very similar.

As we wander further around the store, in spite of the clearly fresh produce, it feels a little cold - and not just in temperature - despite a recent revamp by F&E.

There are nice, localised features - a small, child-height poster encourages youngsters to locate a hidden cuddly toy within the store in return for a prize - but they are few and far between. By and large, this is very much a store that has been designed to be rolled out, rather than one designed to entice customers.

At Trader Joe's the opposite is true. With a strong smell of cooking out front - coming from some beef being grilled at the Snack Shack - the shop is positively buzzing with customers. Gregarious staff chat away in a relaxed environment designed with a tropical surf shack in mind.

It's then that it becomes clear: the cheery staff-led atmosphere is what's missing in F&E. Because F&E's tills are entirely self check-out, there is little interaction between the retailer and the customer. Given the outgoing nature of most Americans - and in particular Californians - F&E might have just missed the point.

One block away, at larger rival Bristol Farms, a woman offering free samples of the latest oxygenated water pounces almost before customers get through the doors.

Although it's much larger than F&E it also has much more to offer shoppers. Like the nearby Whole Foods, which is just a two-minute drive away, it offers seating for people to eat their purchases from the deli, creating a sense of belonging to the shop that F&E does not.

By now it's lunchtime, which should be good news for F&E and its three neighbouring retailers.

As the other supermarkets fill up, I grab some food from a small Chinese eatery and, as I wait, I count the number of customers eating at outside tables: 32.

Keen to see how F&E is coping with the lunchtime rush, I wander back to the store to count the customers: 32.

Given this is a busy area with thousands of office workers within five minutes' driving distance of the shop, that seems incredibly low.

"This is a great store," says an elderly female customer who approaches me. "The problem is that around here - with all the competition - I'm just not sure if it's going to take off."

Fresh and Easy? Fresh, certainly, when it comes to its produce. But judging by my experience in Manhattan Beach, Tesco's dream of offering West Coast America something it didn't already have may not prove to be quite as easy as it first thought.

Fresh & Easy Buzz Editor's Note: In the above UK Telegraph story, the Manhattan Beach Fresh & Easy store is mentioned as being 2,000 square feet. That's a typographical or other error. The store actually is 13,000 -to- 14,000 square feet, approximately the same size as the Trader Joe's grocery store across the parking lot.

Brit-to-Brit: Village Independent Retailer, Postmaster, Tesco Watcher and 'Curmudgeon British Blogger' On Fresh & Easy After 'The Pause'

From the Fresh & Easy Buzz Editor's Desk: From the bucolic village of West Sussex in Southern England, independent retailer, village postmaster, student of food retailing, and long time Tesco PLC watcher Steve, who publishes the "Village Counter Talk" blog, writes about life as an independent retailer in the United Kingdom, along with offering his observations on the local as well as global food retailing scene.

Last week the retailer-writer the London Daily Telegraph has called "The Curmudgeon Blogger", who often writes about the UK's number one retailer Tesco, offered his views about Tesco's Fresh & Easy Neighborhood Market ending its self-imposed three month new store opening hiatus with the grand opening of store number 62 in Manhattan Beach, California.

The British blogger says he read Fresh & Easy Buzz's Wednesday, July 2 coverage of the Manhattan Beach Fresh & Easy store grand opening, which got him thinking about Tesco in the USA with its small-format Fresh & Easy grocery stores after the new store opening pause. And, of course, when bloggers think, they often write.

Read "Village Counter Talk's" British perspective on Tesco in the USA and its next wave of new store openings here. The retailer-postmaster-blogger also mentions in his piece he just spent a couple weeks in the Netherlands, using a part of that time to visit retail food stores. He offers a few comments on that experience as well in the post. Note: Terry Tesco in the blogger's piece refers to Tesco PLC CEO Terry Leahy. You don't earn a curmudgeon moniker for nothing.

UFCW Union Pickets Out in Force This Morning At Manhattan Beach Fresh & Easy Store Grand Opening

In this piece on Monday, June 30, "Breaking News: UFCW Union Launches Preemptive Anti-Tesco Fresh & Easy Brochure Distribution Drop on the Eve of Manhattan Beach Store Grand Opening," Fresh & Easy Buzz reported the UFCW union had launched a preemptive anti-Tesco Fresh & Easy Neighborhood Market brochure distribution blitz in the neighborhood where the new Manhattan Beach Tesco Fresh & Easy grocery store in Southern California opened this morning, on the eve of the store's grand opening celebration.

In the story, we also reported the UFCW union would have representatives and pickets out in force this morning at the grand opening of the store at 1700 Rosecrans in Manhattan Beach, which was attended by Fresh & Easy Neighborhood Market CEO Tim Mason and nearly every senior executive of the company, along with the mayor of Manhattan Beach (who helped Mr. Mason cut the grand opening ribbon), and numerous other dignitaries.

Well, the UFCW representatives we out in force early this morning, and remained in front of the store until the grand opening festivities ended; staying even a bit later after that in fact.

As you can see in the photograph at the top, the UFCW union folks picketing in front of the store this morning are carrying large green signs which read: "Don't be Fooled by Tesco's Fresh & Easy, which is the same headline used on the brochures. Below that is the listing for the unions Fresh and Easy Facts campaign website, which also appears on the brochures. [Note to the UFCW graphics department: white lettering on that particular color green background doesn't have the best visibility.] [Readers Note: If you click on the photograph at top to enlarge it, you can read the letters on the signs much better.]

[Photo Credit: Lindsay William-Ross/LAist blog.]

You can view a slideshow from today's Fresh & Easy Manhattan Beach store grand opening here, along with reporting on the event by the LAist blog. You also can read this piece published earlier today in Fresh & Easy Buzz about the Fresh & Easy store grand opening this morning.