Wednesday, October 31, 2007

Daily Green Report

November is for Vegans: World Vegan Day, Vegan Month, National Vegan Week All in November
Tomorrow (November 1, 2007) is World Vegan Day. The event, sponsored by the UK-based Vegan Society and other international vegan groups, is designed to promote the vegan lifestyle and raise the profile of veganism.

A number of vegan organizations internationally are planning various events in and around World Vegan Day tomorrow. The celebration actually began on October 27, and will go until November 4. This week-long series of events has been deemed National Vegan Week to encourage countries throughout the world to hold their own week-long national celebrations as well as participate in the international World Vegan Day. (You can review a list of World Vegan Day Events here. You can see what actions the organizers are asking people to take here. These actions include signing a World Vegan Day petition and poll.)

Not only is there World Vegan Day and National Vegan Week, but the entire month of November is being celebrated as Vegan Month, sponsored and promoted by the UK-based Vegan Society. Read all about Vegan Month and the various actions and activities planned for November by the Vegan Society here.

Numerous vegan food producers, retailers and others will be celebrating World Vegan Day and Vegan Month by holding promotions and other events.

One company that's going vegan in a big way for the international event is UK-based natural health and beauty care and cosmetics company Lush. Although all Lush products aren't vegan, all are made using vegetarian ingredients. Most of the wildly successful natural product company's health, beauty and other products are suitable for use by vegans, the company says, and Lush was recently licensed to use The Vegan Society logo on all their Lush and B brand natural products. These products also are animal cruelty-free.

For World Vegan day Lush and its employees are going all out. All staff members plan on adopting a vegan diet for the day, even the meat-eaters among them. Many of the staffers will dress for the day in giant vegetable costumes (November 1 is the day after Halloween as well, so its a nice tie-in) at their workplaces.

One food event of note, a food fair in London, England on November 17, is designed to introduce non-vegans to the variety and quality of vegan foods available. The food fair is sponsored by the Vegan Society and numerous vegan food companies, retailers and restaurants, such as Natural Balance Foods, Soy Foods Ltd., Zedz Foods, Rosie's Products, Oasis Natural Foods Products, Pogo Cafe, Food For Thought, and dozens of others. You can read more about the food fair and the sponsors here. The event will feature prepared foods from these sponsors as well as displays of scores of products being produced by food companies using 100 percent vegan-approved ingredients.

Promoters of a vegan lifestyle, such as The Vegan Society and others, not only point to the health benefits of eating vegan but also to its Green benefits. Among the Green benefits of a vegan lifestyle, they point to the fact that it takes much less land to produce vegetables than it does to produce animals for meat.
Vegans also argue that veganism is more environmentally sustainable than a meat-based lifestyle; that its much "greener" to grow plants for food than to produce them for animal feed; that growing plants to eat rather than feed to animals conserves water, reduces energy consumption and results in less carbon released into the environment, among other environmental benefits. Vegans also believe raising and killing animals for food is cruel. (Read more here about the positive health and environmental arguments vegan groups make. Read more here about the Vegan Society's point of view about animals, veganism and the environment.)
Research: The Vegetarian and Vegan Market
A survey done a couple years ago by market researcher Mintel predicted the retail market for vegetarian foods (those foods that directly replace meat or other animal products) would nearly double by this year (2007) from 2003. Sales in 2002 were about $1.5 billion annually and Mintel projects vegetarian category food sales to be about $2.8 to $3 billion by the end of 2007. Based on current category sales figures the market looks like it should end-up at about $3 billion in annual sales by year-end.
There is a difference between vegetarians and vegans. Vegans don't consume any fish, dairy, eggs or honey in addition to not eating meat or poultry. Vegetarians, on the other hand, can eat these products if they choose, as long as they don't eat meat, and still be called vegetarians.
Some vegetarians choose not to eat dairy, eggs or honey but don't always self-identify themselves as vegan. As such, the two classifications, vegan and vegetarian, are closely related but have qualitative differences, especially to vegans.
The Mintel survey also found that non-vegetarian and vegan consumers were turning to plant-based foods like soy and to fresh vegetables and fruits as a way to diversify their diets, which is a key factor in nearly doubling the market over this short time span.
Mintel also found grocery stores, restaurants and food manufacturers are responding to the growth in the category with new products (food manufacturers), increased shelf-space and more frequent promotions (food retailers), and additional plant-based and vegetable offerings (restaurants). In other words, both consumer demand and increased availability are fueling the category's growth. You can read a complete summary of the Mintel survey here.

Tuesday, October 30, 2007

Tesco Fresh & Easy Update

Metro LA Blog Reports 'Soft Openings' at Some Southern California Fresh & Easy Neighborhood Markets
The Metroblogging Los Angeles blog, a Southern California-based news and information publication, is reporting that Tesco has quietly started to hold "soft openings" at a few of its Fresh & Easy Neighborhood Markets in Southern California, Arizona and Nevada.
A soft retail store opening in one in which the retailer doesn't publicize the store's opening. It's a trail opening before the store's actual official grand opening. A soft opening allows a retailer to test operations and fine tune them before the store officially opens.

Metroblogging Los Angeles said today it has a "mole" inside Tesco's Southern California Fresh & Easy operations who says the store in Hemet, in Southern California's desert region, opened almost 2 weeks ago "softly." We obtained the phone number to the Hemet Fresh & Easy and have placed a few calls to the store. However, we get a ringing phone but thus far nobody has answered it. The source also told Metroblogging Los Angeles,the Hemet store is exceeding sales expectations since the soft opening nearly two weeks ago. We will continue our efforts to confirm that the store is actually open.

The blog quotes this same source as telling them there will be five more soft openings in the next few days: "At least one for certain in Los Angeles proper and one each in Arizona and Nevada," according to the source. The potential exists for the number of stores having soft openings in the next few days to go from the five to as many as ten, according to Metroblogging Los Angeles' source.

The first six Fresh & Easy stores set to officially open are all in Southern California, in the cities of Los Angeles, Anaheim, West Covina, Arcadia, Upland and Hemet, the store the source says had a "soft opening" almost two weeks ago.

(We've discovered and confirmed with Tesco the specific locations of four of these six stores, and Tesco has announced one store's location (the Upland store) on its Website. If you want to know those specific store addresses just search "Fresh & Easy" in the search box at the top of our blog.)

We're working on confirming the "soft openings," and will update you on what we find as we have our own inside sources assisting us with our investigation. Since the first six stores open in nine days it wouldn't be unusual for such early "soft openings" to occur.

The Hemet, California Fresh & Easy Neighborhood market is located at 1709 West Florida Avenue. If you are nearby, check it out and let us know if the store is open.

Tesco Fresh & Easy Update:

Hurray For Hollywood: Tesco Fresh & Easy Neighborhood Market Under Construction on Famous 'Hollywood Walk of Fame'

British retailer Tesco is building one of its Fresh & Easy Neighborhood Markets on Hollywood Boulevard, right along the iconic Hollywood Walk of Fame. (You can see the "stars" on the sidewalk in front of the "coming soon" sign in the photograph above.)

The sidewalk stars, depicting famous Hollywood movie, television, radio and other show business personalities, stretch along the sidewalk on Hollywood Boulevard from Gower Street to La Brea Avenue, and along nearby Vine Street, from Yucca Street to another famous street-- Sunset Boulevard. Millions of tourists visit the neighborhood each year.

Locating one of the upscale, Fresh & Easy Neighborhood Markets on The Hollywood Walk of Fame is a brilliant move by Tesco. First, it's a very busy location. During the day the area is filled with workers, tourists and others, and at night the neighborhood is packed with people having dinner, going to a club or other venue, and generally congregating. There's lots of street life and activity in the area day and night.

Building the store in the neighborhood also is a smart move from a marketing and publicity standpoint. The neighborhood is home to the Kodak Theatre, where both the Academy Awards and Emmy Awards are held annually. The theatre also hosts entertainment performances and events nearly every night.

Next to the theatre is the upscale Hollywood & Highland Center, a mixed-used shopping, dining, residential and entertainment lifestyle center. It draws ten of thousands of people day and night to the neighborhood.

World famous Grauman's Chinese Theatre is located on Hollywood Boulevard. Millions of tourists visit the famous movie palace each year. Additionally, the Hollywood Chamber of Commerce hosts two or three celebrations each month on The Walk of Fame, in which they award and unveil a new sidewalk star for a showbiz celebrity. These events are attended by thousands and covered by the international print and broadcast media.

Having a Fresh & Easy store at this high profile location will reap huge media attention for the brand and for Tesco, in addition to providing what we believe will be excellent sales opportunities for the retailer. The fresh, prepared foods and natural and specialty foods focus of the Fresh & Easy format will be hugely popular in this location. The neighborhood demographics couldn't be better overall.

There's no word when the Hollywood Walk of Fame Fresh & Easy Neighborhood Market will open. The store still has considerable construction to be completed so we doubt if it will open until sometime near the end of the year at the earliest.

Note: Photograph curtesy of our friends at the Curbed LA blog

Monday, October 29, 2007

Monday Memo: Wal-Mart

Tales From the Big Box Boneyard: Group Launches Pre-Halloween Wal-Mart Horror Story Spooktacular

The folks over at Wakeup, a group dedicated to changing a number of the ways in which retailer Wal-Mart does business, is celebrating Halloween (which is Wednesday, October 31) with a new feature they call Tales From the Big Box Boneyard.

The group says "Wal-Mart and it's addiction to cheap, unsafe Chinese goods has been all over the news recently. This month, at least 40 people were sickened with the kind of tainted beef sold at Wal-Mart stores, prompting the second largest beef recall in history. Toxic chemicals like melamine have been found in Wal-Mart's pet food, and its shelves are stocked with lead-laced children's toys," the group says.

"It sounds like a cheap horror novel but, unfortunately, its all true," the group says on their website in introducing the Tales From the Big Box Boneyard feature. Further, they say "The situation is critical, and now is the perfect time of the year to spread the word. So, in keeping with the spirit of Halloween, and Wal-Mart's terrifying product safety record, we've decided to host a feature called Tales From the Big Box Boneyard.

Wakeup is encouraging consumers to write them at the website with their most disturbing Wal-Mart horror stories. After Halloween the group will feature what they deem to be five of the most "ghastly tales" (and their authors) on their website. Wal-Mart shoppers can post their comments/stories at a link on the website here.

The group says they aren't looking for anything specific in terms of the stories but "the more shocking, terrifying and stomach turning the better," they add. "It is Halloween after all, and we know there is no shortage of horror stories from the aisles of Wal-Mart," Wake up says. Ouch.

As an example of their assertion, the group has a dozen articles culled from recent newspapers posted on their website, which they say more than proves the point that there's no shortage of Wal-Mart product and other horror stories out there. Not all of the 12 stories the group has posted are about dangerous product purchases at Wal-Mart stores. Some involve political or other social issues as well.

We will share the group's first example with you. It's a product safety issue example, to say the least. Then you can go here if you want to read the other examples the group has posted on its website.

Below is one example from the group's website, taken from an article in the Salt Lake Tribune newspaper (10-02-07). We've fact-checked the quotes we used below from the Wakeup website against the original Tribune article. We have corrected anything from the group's website that isn't properly attributed from the Tribune article. (See our note after the article quote below.)

From: Salt Lake Tribune, 10-02-07, "That's Not Ratatouille: Utah woman finds rodent head in her can of green beans." Story summary below:

"Earlier this month, a Utah woman was preparing lunch for her children when she noticed something peculiar floating in the green beans she had bought from Wal-Mart. It was the severed head of a mouse.

No, it's not Stephen King's remake of the Pixar classic. It actually happened to Marianne Watson. 'I'm quesy just talking about it,' she said in an interview with the Salt Lake Tribune. 'Thank goodness it ended up on the top and not the bottom, so I didn't serve it [to my family].'

Now, her refrigerator is a makeshift morgue where she keeps the frozen head of the offending mouse, as the matter could take up to two years to be fully resolved.

Fair and Balanced notes:

>Wal-Mart spokeswoman Diesha Galbeth told the Tribune, "food safety is a top priority, and we are investigating this situation thoroughly. Our store has inspected similar product on our shelves and feel confident that this complaint is an isolated incident."

>The green beans, packed and marketed by Allen Canning, were in a can. As such Wal-Mart couldn't know there was a rodent head inside. Allen Canning is an American company and says the canned green beans in question were grown and canned in the U.S. and not in China or any other foreign country.

>Wal-Mart representatives have talked with Ms. Watson about the situation.

>Ms Watson says in the Tribune story she would consider shopping at Wal-Mart again, but doubts she would buy the Allen brand. "Until I'm reassured that it's just an isolated incident, I won't," (buy the Allen brand) she says. On their website, Wakeup has changed this quote (either by omission or intentionally) from the Tribune story.

On their website they print: "When asked if she would consider returning to Wal-Mart, Watson said, 'Until I'm reassured that it's just an isolated incident, I won't.' " That's not what Ms. Watson said to the Tribune, as our quote taken directly out of the Tribune story shows. In fact, the way Wakeup has changed it (either by omission or on purpose, we'll let you be the judge) changes the meaning of Watson's words. She said she would consider shopping at Wal-Mart again. Not that she won't, as the omission or changes on the website say.

Because of this omission or intentional quote change on the group's website, we checked all of the quotes we used above against the actual story in the Tribune. We've used only those quotes that we verified from the original Tribune article.

We suspect Wal-Mart would prefer something other than this feature from the group as a Halloween surprise. And, as our readers know, and what a quick "Wal-Mart" search in our blog "search box will show, is that we write positively about Wal-Mart often as well as being critical when we feel it's warranted.

We generally give the retailer high marks for its environmental initiatives, overall retail pricing structure, new focus on natural and organic foods and some other issues. However, we also aren't here to shill for anybody, and we don't. In the case(s) of it's Chinese imported products policy, its employee wages and benefits policy, and a number of other issues, we give Wal-Mart low grades. There's much room for improvement, and we take every opportunity to encourage the mega-retailer to do so.

In the case of the abundance of imported Chinese goods with lead content, we simply say to the retailer: "For heaven's sake use your huge buying power and position as the world's number one retailer to get the lead out." There's no excuse for so many lead-based products in Wal-Mart stores. If Chinese products have lead, just don't buy them and offer them for sale. Imagine if a U.S-based manufacturer tried to sell a Wal-Mart buyer a product, such as a child's toy, that contained lead? We think Wal-mart would likely ban that vendor from its Arkansas buying offices once the lead content in the product was discovered.

We aren't a member of nor do we support or not support Wakeup We're neutral on the group. We're merely writing about their side of the issue and balancing it with Wal-Mart's side as we did in the case of the rodent head in the canned greens beans story above.

In our view zealots on either the left or the right are very seldom right. We prefer reasoned discussion and thought. (We aren't saying anyone here is a zealot by the way.) As such we like to bring both sides of an issue to the table when possible. Wakeup has some very valid points (but also tends to criticize Wal-Mart using a very broad brush overall), and sometimes it takes a feature like the group's Tales From the Big Box Boneyard to stimulate action and get a response from a huge corporation. As such, we hope the group is willing to enter into a reasonable dialogue with Wal-Mart rather than merely bash the retailer if that opportunity arises. Also, we think Wal-Mart should be open to talking with the group if that conversation can be open, civil and reasonable.

Meanwhile, we expect there will be some interesting stories posted on Wakeup's website after Halloween. In closing, I hope we don't seem too trite after writing this piece to, in the spirit of Halloween, say: "Trick or Treat."

Monday Morning Java

Analysis: The Futility of the FTC's New Appeal of the Whole Foods' Acquisition of Wild Oats Markets

Last week the U.S. Federal Trade Commission (FTC) filed an appeal with the U.S. Federal Court for the District of Columbia seeking to block the acquisition of Wild Oats Markets, Inc. by Whole Foods Market, Inc. even though Whole Foods is well on its way to merging the former supernatural retailing rival it acquired into its corporate culture and retail operations.

At the end of August, 2007, the U.S. Federal Court in Washington D.C. approved the merger despite an original objection filed by the FTC (which was dismissed by a federal judge) and an appeal after that, which the same judge also dismissed, ruling in Whole Foods' favor at the time, and paving the way for the acquisition/merger to go through.In their August appeal, asking for a temporary injunction against the merger, the FTC sighted anti-competitive arguments for not allowing Whole Foods to acquire Wild Oats. Essentially the FTC argued the merger/acquisition would result in a serious lack of competition in the supernatural grocery retailing sector by giving Whole Foods a monopoly over the selling of natural and organic grocery products in the category.

In its ruling, the United States District Court for the District of Columbia rejected this argument by the FTC. The court said that "premium natural and organic supermarkets (how the FTC refers to Whole Foods and Wild Oats) was not a relevant product market. A relevant market is one in which a hypothetical, multi-store monopolist , owning all stores in the category (and eliminating competition among them), would raise prices," the court stated in its ruling. Based on a number of economic studies it reviewed the court said a Whole Foods/Wild Oats' merged company would not meet its test of a monopolist, and as such it ruled against the FTC's August, 2007 pre-merger appeal and for Whole Foods. ( you can read the D.C. federal court's ruling here as well as testimony from FTC experts and Whole Foods and court experts here.)

However, almost two months after the federal court ruling in favor of Whole Foods, and over a month after the supernatural grocer first began integrating Wild Oats' operations and stores into the Whole Foods retailing system, the FTC is back with an unusual new appeal. The appeal is unusual in that the federal regulator very seldom, if ever, has filed a new appeal once the federal court has made a final ruling on an acquisition or merger, and once the acquiring company is well on its way to integrating the purchased company into its operations.

This time around the FTC is still arguing against the merger based on anti-trust grounds, saying the deal will stifle competition and raise prices. The FTC is sighting what it says its research demonstrates is a high estimated "diversion ratio" between Whole Foods banner stores and Wild Oats stores. In other words, when Wild Oats goes out of business, 50% of its customers automatically go to Whole Foods stores, the FTC says. This means a "diversion ratio" of half, which economists say is very high, if true. The FTC sights this argument as evidence of anti-competition, saying the 50% "diversion ratio" figure amounts to a monopoly in the supernatural retail grocery category. The commission also argues this "monopoly" will then result in Whole Foods eventually raising prices.

This argument was used by the FTC however (along with expert testimony) in its original appeal, so we're hard pressed to see why the commission thinks it will work with the court this time around, by merely giving it more weight and emphasis. Most anti-trust legal experts agree with us, saying it's highly unlikely the FTC will be successful with their new appeal.

Last Monday, when the FTC filed its latest case, it said a new appeal also is warranted in part because Whole Foods continues to operate many of the Wild Oats stores separately. We really aren't sure what significance the FTC puts in this fact.

First off, Whole Foods has only been integrating the Wild Oats stores into its retailing system for about a month. Some Wild Oats stores are being rebranded as Whole Foods stores, others are being closed, a number still have the Wild Oats banner, and some are even getting new names, like a former Wild Oats store in Boulder, Colorado (Wild Oats' former corporate headquarters), which Whole Foods has rebranded as Alfalfa's Market, a name the grocer obtained the rights to in the acquisition. (Alfalfa's was a popular Boulder-based chain of natural foods stores that Wild Oats acquired in the 1990's.)

Second, Whole Foods has told its stockholders it plans on changing most if not all of the Wild Oats banner stores remaining to the Whole Foods banner--and a few more to banners like Alfalfa's when it makes marketing sense. Public corporations aren't likely to tell their shareholders facts like this unless they mean it. There's no upside to doing so for Whole Foods. Lastly, even if Whole Foods keeps a number of stores under the Wild Oats banner, so what. Food retailers create and eliminate store banners/brands all the time. The Wild Oats brand is intellectual property Whole Foods acquired in the merger and we see nothing wrong with them using the name in any manner the grocer sees fit to do.

We don't understand how still having stores operating under the Wild Oats banner is evidence of anti-competitive behavior or "price raising," which are the FTC's chief arguments from an anti-trust perspective against the merger. Is the FTC saying Whole Foods' continuing to operate stores under the Wild Oats banner is part of a master plan by the grocer to acquire its rival but keep stores under its name because they believe they can control the category by having both? Doesn't make since. Wouldn't work if the grocer wanted it to.

Let's examine the logic (or lack thereof) of the FTC's argument. First, the FTC is saying Whole Foods already is a monopolist because of the merger. As such store names should hardly matter. Second, Most companies pay a premium in an acquisition because of the brand equity a company offers. In fact, seldom does an acquiring company eliminate the brands it obtains in a acquisition at all. Therefore, the FTC argument just doesn't make much sense. And it surely isn't the basis for an new appeal in our view. We asked for some elaboration from the FTC but they aren't commenting on the appeal; not even to the New York Times and Wall Street Journal, according to editors at both papers.

Whole Foods Market, Inc. has filed a motion, asking the D.C. appellate court to dismiss the FTC case as moot because the two companies (Whole Foods and Wild Oats) completed the merger transaction on August 28, 2007 after being given the green light from the federal court. The FTC is asking the appellate court for an expedited review. Most anti-trust lawyers are saying the appeal is considered a long shot. We agree.

We also think this dog is long dead and that the FTC should spend its time on more productive and important endeavors. The natural, organic and premium food and grocery industries are moving so fast, and are far too dynamic, for Whole Foods to gain a monopoly. There are far too many retail formats--with more coming online seemingly every month--to allow Whole Foods to stifle competition and raise retail prices on category products in any significant way.

Additionally, Whole Foods has an organized consumer opposition movement that refers to the grocer as "Whole Paycheck," among other negative epitaphs. Should the grocer raise its retail prices more than a couple percentage points at any one time, based on the natural increases in cost of goods, inflation and the like, it will find itself with an "anti Wal-Mart type" opposition movement, which is the last thing Whole Foods wants, especially post the Wild Oats acquisition. In other words we think the market as it is at present will be an strong enough check on Whole Foods' retail pricing behavior.

Does Whole Foods benefit having acquired Wild Oats? Yes. Does the grocer benefit to the extent it will allow it to be a monopolist? No. Whole Foods now owns the supernatural retailing category. We have no doubt of that. However, the point is that there are plenty of other retail formats--upscale national, regional and independent supermarket chains, mass merchandisers like Wal-Mart and Target, Trader Joe's and the many similar specialty grocers in the U.S., and more--where natural, organic and premium foods and grocery products can be purchased by consumers. Whole Foods may own the supernatural retailing category, but it doesn't own anywhere near the exclusivity in retail sales of products in these categories.

In fact, the supernatural retailing category is slowely blurring and going away. Why? Two reasons. First, the channel-blurring between natural foods supernatural stores, supermarkets, mass merchandisers, specialty grocers and others who sell natural and organic foods is making the supernatural category less relevant. In the past, when the only places a shopper could find natural and organic foods was at Whole Foods, Wild Oats or other natural foods stores, the category had meaning. Since that's no longer the case today--you can even buy a limited assortment of natural and organic foods at drug stores and traditional convenience stores--the entire concept of the supernatural category is being turned on its head and being rendered less meaningless and significant.

Second, the retail food industry is constantly evolving. New formats like Tesco's Fresh & Easy Neighborhood Markets (upscale, convenience-oriented grocery markets featuring fresh, prepared foods and natural, organic, basic and specialty groceries), Trader Joe's new larger stores with more fresh natural and organic foods, H.E.B's huge new 112,000 square-foot Cypress Market banner (which carries as many natural and organic groceries as a Whole Foods store), Safeway Stores Lifestyle format (which is evolving into a Whole Foods-like store but with basic groceries as well), and many others, are constantly redefining food retailing.

In an industry as fast moving as natural, organic and premium food marketing and retailing, there really isn't much time for a retailer like a Whole Foods to become a monopoly. The fact is, only a month or so after the merger, Whole Foods is already looking over its shoulder at the food retailers mentioned above, and many others. It's a dynamic industry. And the next hot format (or more likely format combinations) could change the retail landscape considerably.

Whole Foods also is considerably smaller than most supermarket and mass merchandising chains that sell natural, organic and premium foods. Safeway, Kroger and Supervalue, for example, are five to six times the size of Whole Foods in terms of gross sales and store count. H.E.B., Publix, Wegmans (and a number of others), all upscale grocery chains and major players in the natural and organic grocery retail space, are two to three times bigger than Whole Foods in terms of annual sales. And Wal-Mart, the world's largest retailer and a major player in natural and organic grocery sales, does over $300 billion in annual sales with stores located globally, compared to Whole Foods annual sales of about $6.5 billion.

As these huge, major food retailers (and numerous others) move more and more into natural and organic grocery retailing, as they're doing, it would be a big mistake to discount the notion that Whole Foods itself might become a takeover target. We don't think an acquisition offer or hostile attempt is on the radar screens of these mega-food retailers now or in the near future for a number of reasons. However, it's potential isn't lost on them (or not discussed behin closed doors). Nor is the potential of either a friendly or not so friendly acquisition lost on Whole Foods' management.

Saturday, October 27, 2007

Tesco Fresh & Easy Update: News & Analysis

New Retail Regions: Tesco Aggressively Seeking Fresh & Easy Store Sites in Northern and Central California

On Friday, October 19 we reported here that Tesco had secured its first store location in Northern California in the Bay Area city of San Jose. That store will be located in a former Albertsons supermarket building in San Jose's Willow Glen district.

According to commercial real estate and municipal official sources we talked to, Tesco will completely renovate the building to decrease it's square-footage and make it suitable for its 10,000 to 13,000 square-foot Fresh & Easy Neighborhood Market format. These sources also told us plans call for the store to open in the summer of 2008.

Talking with the same and additional sources in the San Francisco Bay Area yesterday (10-26), we learned Tesco is aggressively looking for Fresh & Easy store sights throughout the nine-county Bay Area (including in San Francisco), as well as in other Northern California regions and in the Central Valley, which is located mid-way between Southern California and Northern California.

In addition to the San Jose location, which is a done deal according to our sources, Tesco has inquired with the East Bay Area city of Danville's Economic Development Department about possibly locating a Fresh & Easy store in that city's Green Valley Shopping Center. The shopping center in the upscale, high-income community, is currently without an anchor retail food store since an Albertsons supermarket closed there in 2006.

Jill Bergman, Danville's economic development director, recently said Tesco has talked to her about tenant improvements to the center's vacant Albertsons store but hasn't filed any applications regarding the store as of yet. Commercial real estate sources also told us Tesco has been talking with the building's owner and shopping center representatives about locating a Fresh & Easy store there.

Our commercial real estate sources also told us Tesco is busy looking in other cities in the East Bay Area, including Pleasanton, Livermore, Walnut Creek, Concord and others. They also told us Tesco is interested in a number of other empty Albertsons store buildings in that region as well as in the South Bay Area, where San Jose is, and the San Francisco Peninsula county of San Mateo.

A commercial real estate agent in San Francisco told us he recently talked to a business associate who said Tesco representatives told him they plan on opening more than one Fresh & Easy store in the city of San Francisco if they can find suitable locations in the dense, urban city.

The Bay Area and other Northern California regions aren't the only areas north of Southern California where Tesco is aggressively looking to locate store locations for its Fresh & Easy convenience-oriented grocery markets.

Last week, the Bakersfield Californian newspaper reported that Tesco is in serious negotiations with a property management firm to locate a Fresh & Easy Neighborhood Market in Southwest Bakersfield, at a shopping center at White Lane and Buena Vista Road, south of the city's Stockdale High School.

Bakersfield is located in the center of California in Kern County, about a 100 miles from Los Angeles to the south, and about 250 miles from Sacramento to the north. Tesco wants to locate the store at that particular location and has a zoning change application before the Bakersfield City Council. The change of zoning would allow retail food stores to locate in the shopping center (which currently isn't the case for some reason) and pave the way for the Fresh & Easy store there, according to the newspaper report.

Natural~Specialty Foods Memo's Analysis:

If Tesco moves aggressively into Northern California--which we believe it will based on our information and analysis--it will add an interesting competitive twist to food retailing in the region, especially in the Bay Area, which currently is home to about seven million residents.

Safeway Stores, Inc. has its U.S. corporate headquarters in the Easy Bay Area city of Pleasanton and is the food retailing market share leader in the nine-county Bay Area. Recently, Safeway has been opening up very upscale versions of its "Lifestyle" format Safeway banner stores in the Bay Area. These new stores average about 45,000 to 65,000 square-feet in size and feature numerous prepared foods offerings, including in-store restaurants, cafes with fresh baked goods and gourmet coffee, wine departments with tasting bars, gourmet olive bars, and other upscale features. Huge selections of specialty and natural groceries and expansive fresh produce departments also are part of the mix in these stores.

Whole Foods Market, Inc. also is a major upscale player in the Bay Area with about 21 stores at present. The retailer has opened three new, large natural foods lifestyle-oriented supermarkets in just the last two months, with more new stores on the way. The supernatural grocer plans to built at least 21 new stores in the next 3-5 years in the Bay Area. Upscale quality, prepared foods are a major feature in Whole Foods' Bay Area stores, like they are in Tesco's Fresh & Easy format stores.

The Bay Area also is home to numerous upscale multi-store and single store independent retailers. Many of these grocers have been national pioneers in upscale, natural and specialty foods retailing. Among these independents are Mollie Stones Markets, Andronico's, Lunardi's, Draeger's, Cosentino's, Zanotto's, Berkeley Bowl, and a number of others. All offer high quality prepared foods in their stores, which are collectively located all over the nine-county Bay Area.

Tesco's Fresh & Easy format has some major differences from these upscale supermarket and supernatural foods retailers however, despite the fact that prepared foods play a major positioning point in what all of them do. First, the Fresh & Easy format is smaller--about 10,000 square-feet--and designed to bridge the gap between huge superstores and traditional convenience stores.

Second, It's upscale, but also offers basic groceries and non-foods offerings. Fresh & Easy stores also will have fresh produce and meats, perishables of all kinds and other offerings one would expect in a neighborhood grocery store. This helps them in that they can supply basic needs to shoppers (like all the supermarkets mentioned above do) and not become just a tertiary retailer in the region.

Lastly, Fresh & Easy is non-union. All of the major supermarket chains and independents in the Bay Area (except Whole Foods and Wal-Mart) are union shops. The average retail clerk, with one year's full time experience (journey level), makes about $20.00 per hour in wages and has a full health benefits package which adds another $10-$12.00 an hour to their compensation in terms of the high-quality value of their benefits package.

However, like Whole Foods and Wal-Mart (which has only a handful of Supercenters in the region), Tesco's Fresh & Easy will be a non-union shop. With the exception of management staff, all of the retail associates in the Fresh & Easy Neighborhood Market stores set to open in Southern California, Nevada and Arizona, will be part-time. They will work at least 20 hours a week and no more than about 35 hours a week. Their average salary will be $10.00 hour, according to Tesco. Fresh & Easy store's part-time associates will have a health care policy but it will be nowhere near as good as what the unionized supermarket retail clerks have. In fact, the union retail clerks health policy is one of the best in the U.S.

We suspect Tesco to basically try to maintain their current employment policy and wage structure for Northern California, although the retailer likely will have to increase the hourly wage by at least two or three dollars an hour in order to attract employees in the Bay Area, which has a very low unemployment rate, and was recently ranked number one as the region with the highest salaries in the U.S. The Bay Area is a much more competitive labor market than Southern California, Nevada and Arizona are.

Even if Tesco has to pay two, three or four dollars an hour more, it's still at an advantage from a labor standpoint compared to the unionized retailers. Of course, the Bay Area is a heavy union region, and shoppers support union supermarkets like Safeway, Lucky Stores, the independents mentioned above, and others who pay their employees well. In fact, it's likely Tesco will be welcomed to the Bay Area with an organized campaign against their lower wages. There is such a campaign currently going on in Southern California against Tesco but its fairly small. Expect a larger, better organized campaign in the Bay Area, which is the most liberal region in the U.S.

Either way, established Bay Area retailers like Safeway and Whole Foods won't sit back and let Tesco take significant market share with its Fresh & Easy stores in the region. In fact, Safeway CEO Steve Burd has already said the chain is studying Tesco's format and is prepared to open its own Safeway convenience-type stores if the retailer believes Tesco is becoming a threat with its Fresh & Easy format in the Western U.S.

Whole Foods also is in the process of converting a former Wild Oats store in Boulder, Colorado into a new retail concept for the grocer called "Whole Foods Express." We think this development is in part a reaction to Fresh & Easy. We also believe Whole Foods won't hesitate to roll its "Express" stores out in places like the Bay Area and Southern California if they determine Tesco is taking market share from them with its upscale, convenience-type stores.

Tesco's Fresh & Easy Neighborhood Market format could do very well throughout the Bay Area and elsewhere in Northern California however. In the Bay Area's suburbs there's a huge base of time-pressed dual income families who like the concept of being able to get fresh, prepared foods, fresh produce and meats, basic, specialty and natural groceries in a fast and convenient way, without having to shop a large store.

In both the suburbs and cities like San Francisco, Oakland and San Jose, there also is a large, single professional population who doesn't cook often or at all and spends a sizable amount of their disposable incomes at restaurants and for prepared foods to go.

Trader Joe's has markets throughout the Bay Area and Northern California and is adding more stores at a rapid clip. Their smaller store, upscale format is very successful in the region. The Bay Area also is a "foodie" region. Its consumers have an appreciation and like for quality foods, and if Tesco is able to offer the same quality upscale fresh, prepared foods at its Fresh & Easy markets as it does at its stores in the UK, the offerings should go over well with the region's quality food loving population, helping to make Fresh & Easy stores a success.

Fresh & Easy Store Opening Update

Coming Up: The first six Fresh & Easy Neighborhood Markets will open at 10:AM on November 8 in Southern California cities of Los Angeles, Anaheim, West Covina, Upland, Arcadia and Hemet. Five Fresh & Easy markets will opn in the Las Vegas metropolitan area on November 14. On November 28 another store will open in the Orange County (Southern California) of Laguna. Stores will open in Arizona before the year is over, as well as additional Fresh & Easy markets in Southern California (including San Diego) and Nevada.

A Little Background Reading: This article from today's (10-27-2007) London Daily Telegraph newspaper talks about the numerous British retailers of all types who have ventured to the U.S., only to fail. As the article says, "The U.S. has long been a graveyard for UK retailers." However, in the piece Tesco says it will be different than all of the others who've ventured into the U.S. retail market, only to fail and close shop. The story provides some good background to our piece.

Friday, October 26, 2007

Tesco Fresh & Easy Update

Tesco Announces Las Vegas-Area Store Openings
Five Fresh & Easy Neighborhood Markets to Open on November 14

Tesco today announced the opening of its first five Fresh & Easy Neighborhood Market stores in the Las Vegas, Nevada metropolitan region. The five stores will open at 10:AM on November 14, just six days after the grand opening of its first six stores, all located in Southern California.
The five Las Vegas metro region Fresh & Easy Neighborhood Markets to open on November 14 are located in the following neighborhoods (street and cross street):

>Tropicana & Durango
>Tropicana & Jones
>Lake Mead & Del Webb
>Bermuda & Silverado Ranch
>Warm Springs & Eastern

These five stores will be the first to open in Nevada. The first six Fresh & Easy stores to open will do so on November 8 in the Southern California cities of Los Angeles, Anaheim, Arcadia, Hemet, West Covina and Upland.

Tesco also has announced new Fresh & Easy stores will open in San Diego, California and the Phoenix, Arizona metropolitan area by the end of this year.

The opening of five stores all on the same day (November 14) will give Tesco an immediate presence in Las Vegas. Opening five stores at one time rather than just one creates the beginning of a retail store critical mass which is Tesco's goal for the regions--Southern California, Northern California, Nevada and Arizona--the retailer is targeting initially. One Tesco executive referred to it as a "Starbucks like" retail strategy some months ago. By this he means the critical mass strategy Starbucks has employed, resulting in the fact that today in most major U.S. metropolitan regions you find Starbucks stores within just a few miles of each other.

Fresh & Easy Neighborhood Market stores average 10,000 to 13,000 square-feet in size. They feature fresh, prepared foods (including grab-and-go selections) as their centerpiece. The stores merchandise a selection of basic groceries, specialty and natural foods and products, fresh produce, meats and other perishables. Fresh & Easy is positioned as a "neighborhood" grocery store where consumers can get what they need in a store more convenient than a traditional U.S. Supermarket but much more extensive in product selection and quality than a traditional convenience store.

Tesco says it currently has about 100-120 Fresh & Easy stores either being built or in the development pipeline for California, Nevada and Arizona. More stores are to follow that initial surge, as well as expansion to other states in the U.S.
Tesco has constructed a huge 800,000 square-foot distribution center in Riverside County in Southern California. Distribution of grocery, perishable and non-foods items will be distributed from this facility to all of the Fresh & Easy stores in the Western U.S.
The distribution center has a full-service kitchen facility, where the upscale, prepared foods will be made for all of the retailer's Fresh & Easy stores. Tesco has constructed one of the largest solar power roof array systems on top of the center's buildings. The renewable solar power generated from the system is estimated to be able to provide about 30% of the electricity used to power the facility.

Friday Feature

Food Retailing in Southern California's Inland Empire:

Stater Brothers Markets, Corporate Citizenship, Ethical Retailing, Buying Local, and Tesco's Fresh & Easy Neighborhood Markets' Invasion.

Southern California's Inland Empire region comprises a huge swath of geography. The region's two counties, San Bernardino and Riverside, contain among the oldest cities in the Southern California--San Bernardino, Riverside and Ontario. These three cities, the largest in the Inland Empire, were established in the 19th century and for many decades were centers of agriculture, including citrus fruit growing, dairy farming and milk production, vitroculture and wine-making.
In the 1950's this growing region got was given the name the Inland Empire as a way to distinguish the growing area from the Los Angeles metropolitan region, an area the Inland Empire's pioneers and movers and shakers believed they had been in the shadow of for far too long. The Inland Empire name was coined based on geography (it's located about 37 miles inland from the Pacific Ocean) and promise. That promise being that the rural, agriculture region would one day rival nearby Los Angeles as an "Empire" of industry and commerce.

Southern California's Inland Empire region (San Bernardino county in yellow and Riverside County in brown on the map above) is the fastest growing area in California, according to the state's Department of Finance. The two-county region is projected to add about 110,000 people per-year for the next four years, for a total population of 4.4 million in 2010.

Since the inception of its Inland Empire name in the 1950's, the region has grown significantly commercially and in population. Beginning in the 1980's the Inland Empire started shifting from a primarily agricultural-oriented economy and region to an urban one. People flocked to the area because of its relatively affordable housing compared to communities in the Los Angeles metropolitan region and coastal Southern California.

Industry did the same. Large tracts of industrial land available at cheap prices lead manufacturing, distribution, warehousing and other industries to locate their operations in the Inland Empire. Retail, service and other commercial development followed this housing and business boom, providing additional jobs and goods and services for the rapidly growing region. Today, about 4 million people live in the Inland Empire counties of San Bernardino and Riverside, making the region the 14th largest metropolitan area in the U.S., and one of the fastest growing over the last 10 years.

The region has seen good and bad times since the 1950's when the term "Inland Empire" was coined--and the promise of a Southern California rival to Los Angeles was born. One of the major employers and focal points of the Inland Empire for decades was Norton Air Force Base, a major U.S. Navy installation. Fifteen years ago Norton Air Force Base closed, creating not only a major economic blow to the region, but a symbolic and spiritual one as well. Its a shock the people and economy of the area are just getting over today in 2007.

Throughout the good and bad times in the Inland Empire, there's been one local, corporate constant: family-owned and managed Stater Bros. Supermarkets. Stater Bros. is, and has always been, more than a food retailer in the region. The grocer, which today is the largest employer in San Bernardino and Riverside counties, has been the Inland Empire's primary booster and corporate benefactor--a contributor to every charity you can think of, a major financial supporter to higher education institutions (the business school at California State University, San Bernardino was funded by and is named for Stater Bros. CEO Jack Brown) and more.

Even more important, Stater Bros. has been a symbol of enduring corporate commitment to the region. When times were tough (like after the base closing) and other Southern California-based grocers closed numerous stores, Stater Bros. stayed the course, telling neighborhood residents it was their hometown grocer and it would remain so during bad times as well as good. Not many retailers, or corporations of any type, would take this position even in their hometown region.
last week local guy Stater Bros. reinforced its symbol as the Inland Empire's premier company and corporate citizen by opening its huge, new state-of-the-art corporate headquarters and distribution center in San Bernardino. The new facility is the largest supermarket distribution center in the U.S. It will serve Stater Bros. 164 stores throughout the region, and has the capacity to serve many more as the grocer builds new stores and continues to grow its business beyond its current $3 billion-plus in annual sales.

The 2.3 million square-foot corporate headquarters and distribution center is monumental--physically and symbolically--as not only is it huge but it also sits on part of the land of the former Norton Air Force Base; the facility which caused so much loss when it closed 15 years ago. What Stater Bros. has done by locating its headquarters facility on this land is to say to Inland Empire residents: "look to progress, to the future." It's optimism personified, a statement by the company that it's more than the leading retailer in the region. Rather the grocer has become an integral socioeconomic anchor in the region. It's an example of what the British (who coinded the term) mean when they talk about "ethical retailing."

In Stater Bros.' case the grocer has really gone beyond that definition. Perhaps an analogy will help in terms of how we see Stater Bros.' relationship to the residents of the Inland Empire. If county government is "first base" in terms of the region's citizens, and local, municipal governments are "second base"--we essentially see Stater Bros. as third base--and entity in the region that's not only become the leading employer and retailer but a social and cultural force for region-wide and community betterment as well.

As the Inland Empire has grown and prospered since the base closing 15 years ago, it's also become a key place on the radar screen of leading regional, national and international food retailing chains, looking for new regions to open stores in. Whole Foods hasn't located a store in the region yet--but they are looking. Southern California's gourmet grocery Bristol Farms (now owned by Supervalu) hasn't opened one of its wildly popular upscale, gourmet supermarkets in the Inland Empire yet--but they're looking too. The same with Los Angeles'-based upscale grocer Gelsons. The upscale retailer has no stores yet in the region--but is looking closely.

One retailer however, United Kingdom-based Tesco Pls, has seen the promise of the Inland Empire. (Perhaps the region's having the name "Empire" in it has something to do with it?) Tesco, which is bringing its new, Fresh & Easy Neighborhood Markets to the Western U.S. beginning on November 8, is staking its biggest claim in the Inland Empire, where it has announced it will initially open 48 stores in two years (and perhaps more after that). The 48 stores will comprise about 500,000 square feet of retail space in the counties of Roverside and San Bernardino. (The first six Fresh & Easy stores will open in Southern California on November 8. Three of those first six stores to open will be in Riverside and San Bernardino counties, two in Orange County and one in Los Angeles.)

A prototype of Tesco's Fresh & Easy Neighborhood Market. Tesco is building 48 stores in the Inland Empire over the next two years.

Tesco's Fresh & Easy grocery markets are smaller, upscale convenience-style grocery and fresh foods stores. The stores' average about 10,000 to 13,000 square-feet in size. The Fresh & Easy Neighborhood Markets will feature an extensive selection of fresh, prepared foods, including lots of upscale, ready-to-eat items. The stores' also will offer a limited but ample selection of basic groceries, natural and specialty foods, fresh produce and meats, and other offerings, in a format designed to supply shoppers with what they need in a store that's more convenient to shop than a traditional U.S. supermarket, and more extensive in product selection and more upscale than traditional U.S. convenience stores.

In addition to making the Inland Empire region the primary focal point of its Fresh & Easy stores, Tesco also has built its own "state of the art" U.S. headquarters and distribution center in the region. The 820,000 square-foot facility is in Riverside County. Among the facility's features is the installation by Tesco of the largest solar power system and solar array installed on a commercial building to date in the U.S. Tesco's solar power system is estimated to be able to supply about 30% of the distribution center's electricity needs.

Tesco's Fresh & Easy U.S. headquarters and huge distribution center stretches for acres and acres at its Riverside County site, making it a focal point in the Inland Empire that, at least in the physical sense (especially with the solar panels), shows a foreign corporation's symbolic demonstration of its optimism and promise for the region. Tesco's decision to locate its U.S. headquarters in the region, and the rapid development of almost 50 stores in just two years in the Inland Empire counties of Riverside and San Bernardino alone, is a major commitment by the British retail giant to the region. Tesco is the third largest retailer in the world.

However, a major U.S. headquarters' facility and super-aggressive retail store building and operating program does not a complete corporate commitment make for Tesco in the Inland Empire, where the example of Stater Bros. as the region's corporate and food retailing citizen extraordinaire looms large. Rather, Tesco will need to step-up to the plate and follow the Stater Bros. example to some degree we believe if it wants to not only be a success in the region, but also if it wants to demonstrate that its brand of "ethical retailing," which it is a major advocate of at home, is something the retailer believes in abroad in the U.S.

Nowhere will that demonstration of corporate citizenship by Tesco be more important than in the Inland Empire, where Stater Bros.' CEO Jack Brown, who was born and raised in the Inland Empire and started his grocery career there as a boxboy, has lead his company to become the socioeconomic "third base" in the Southern California region, as well as its leading food retailer and employer.

Wednesday, October 24, 2007

Mid-Week Roundup

Research Roundup: Specialty and Premium Foods
Three New Studies Show a Consumer Flight to Premium Taste and Quality

Consumers are flocking to product lines like Safeway's private label O' Organics line, which combines premium quality and organic ingredients, to create a premium taste product with healthy attributes.
Three just-released studies show consumers are looking for quality when it comes to their food choices and are increasingly opting for premium specialty foods.

The first study, by market research firm Mintel, concludes that consumer demand for quality and taste, as well as an increased interest in international food traditions, are the key drivers for the specialty foods market in the U.S. Almost 73% of U.S. consumers currently report purchasing specialty foods. That's up from 64% just one year ago, according to the Mintel survey released this month. Mintel surveyed 1,092 consumers in July, 2007 for the survey. The results were just released this week.

For the survey, Mintel defines specialty foods as those products that are of premium quality such as "high-end" chocolates, coffee, oils and other premium goods. These foods are generally considered unique (hence specialty) and may be produced by small or local manufacturers, imported, or have exotic ethnic flavors. Other specialty products included in Mintel's definition are coffee and tea, specialty beverages, cheese and olive oils, among other premium products. The products in the categories that fit into Mintel's definition are referred to by the study as "premium," "fancy" and "gourmet." They also are often more expensive than there regular or basic counterparts (premium condiments, coffee, teas, chocolates and the like which are higher priced than basic grocery items in the respective categories).

According to the study, taste is the primary reason consumers buy specialty foods and beverages. Awhopping 88% of survey respondants reported taste as their number one motivation for buying the premium products. Two thirds of the respondents also sighted "personal indulagance" as a key reason for buying specialty food items. They said they buy the premium goods for the pleasure of giving themselves a treat.

Specialty Foods Consumer Characteristics and Demographics

In terms of specialty foods consumer demographics, the new study found the typical specialty foods shopper tends to be younger and more affluent than the average consumer. Further, they also are more likely to buy products that are natural, organic, kosher and halal, in part sighting a perception that these types of foods offer higher quality attributes. Again we see her what we call the Natural~Specialty foods convergence--the coming together of the specialty and natural and organic foods categories do to the similar consumer demands for cleaner and healthier foods combined with a desire for premium taste.

The specialty foods category also is heavily influenced by international travelers. These consumers visit many places in the world and develop new food traditions based on the foods the sample while visiting various contries in the world. When they return home to the U.S. they look for--and demand--these new foods and ingredients in their local food stores. This also introduces retailers to new ethnic foods which results in introducing customers to them once the retailer merchandises the new international products.

The ethnic diversity in the U.S. also is a key means of introducing new foods to consumers, according to the new Mintel study. Hispanics, Asians, Eastern Europeans and others all desire foods from their homeland when they migrate to the U.S. They not only introduce retailers to these foods by requesting them but have also spawned a huge ethnic retailing industry. These immigrants also introduce other U.S. consumers to their food traditions which creates an even bigger market for ethnic specialty foods.

Other Survey Findings

>Of the 1,092 consumers surveyed by Mintel in July, 2007, 61% reported buying Hispanic food products and 55% said they buy Asian products.

>Consumers said 46% of the specialty foods they buy are sourced locally and 29% of the foods are sourced internationally. Mintel doesn't provide a definition of what is "local," whether it means within a 100 mile radious of the shoppers home, produced in the same state they live in, or if "made in the USA" is considered local. As such we question the 46% figure somewhat. Saying specialty foods are produced locally also requires the consumers surveyed to have rather good knowledge of the origins of the specialty foods they buy. We aren't sure that is the case as the majority of products don't have origin information on them--and if they do we aren't fully convinced shoppers retain that information.

>Consumers said only 11% of the specialty foods they purchase are from artisanal producers. This doesn't suprise us in that artisinal-produced specialty foods is still a small niche market and various considerably by region in the U.S. For example in California and parts of the East Coast and New England, there are numerous artisanal food producers. However in other parts of the U.S. there a very few. Also, retailers--especially conventional supermarkets--aren't yet selling many artisanal foods. Generally it's stores like Whole Foods, Trader Joe's, upscale supermarkets, farmers markets and specialty stores that stock artisanal foods in any quantity. As such access to these specialty foods is a key driver we believe in the 11% figure.

Based on the survey results Mintel says the current hot button trends in the specialty foods market for manufacturers and retailers are: premium taste, organic, natural, single-sourced, handmade and artisanal. These attributes show no sign of losing popularity, Mintel says in its new survey report.

Hartman Group Study: Consumers Redefining Premium Quality

Another new study bby the Hartman Group concurs with the Mintel survey that premium taste and quality are currently driving the specialty foods market. The Hartman report also says it would be a mistake for food marketers to assume premium quality is only something more upscale and affluent consumers are seeking, or that it is about mere personal indulgence. Rather, the report says it's consumers themselves, not the specialty foods industry, that is redefining premium quality and driving the flight to such premium taste in the U.S.

In the report, "Premium Food Experiences: Understanding the Consumer Redefinition of Quality," the Hartman Group says premium quality from the consumers vantage point means five key things:

>Consumers are seeking distinct flavors

>Consumers are seeking more fresh and less processed foods

>Consumers have a keen interest in purchasing more locally produced foods

>Consumers are seeking artisanal and hand-crafted specialty foods

>Consumers have a willingness to pay more for premium taste and quality as long as it is reasonable
You can read a complete summary of the survey, including narratives from consumers interviewed, here The article is written by Blain Becker of the Hartman Group, who conducted the study along with others at the firm. much of what the Hartman research found mirrors the Mintel study. However, there also are some differences, and things not covered in the Mintel report. We recommend reading the article linked above by Hartman's Becker.

New Report: Flight to Premium Quality in Frozen Food Category

It's not just packaged and fresh specialty foods that are experiencing a flight to premium quality, according to a new study of U.S. consumers by the market research firm Research and Markets. A just-released research report from the firm, covering the frozen processed foods category--which includes ready-to eat dinners/meals, red meat and poultry products, fish/seafood, vegetables, frozen potato products, desserts, bakery products, pizza's and soup and noodles.

The report says there is a move in the U.S. towards high quality premium foods. It sights what it calls the "Starbucks factor," and says the success and expansion of the coffee king's coffee shops demonstrates the trading up in the coffee category of U.S. consumers, who just a few years ago were fine with drinking low-quality coffee. The same is happening across all food categories, including frozen foods, the report says.

Other key inflencers in this trend towards consumers trading up to premium quality include the success and expansion of Whole Foods Market, Inc., Food shows (and their popularity) on the Food Network, PBS, Bravo and other networks, and the overall celebrity chef phenomenon, which has created "a nation of foodies; consumers who seek out the best," according to the new study.

The just released report also says healthier, more convenient and indulgent frozen specialty foods will see significant growth now and in the years to come. Additionally, the report says artisanal-produced specialty frozen foods are a key growing market for manufacturers and retailers.

Another sign of the flight to premium taste and quality in the U.S. is the fact that those retailers who have introduced premium, natural and organic private label or store-branded product lines are doing the best in terms of private label sales among all retailers, according to the report. Research and Markets sights the huge success of Safeway Stores O Organics specialty foods line as an example of creating a product line which hits on both the flight to quality and natural trends among U.S. consumers today. The report also points to the huge success of specialty retailer Trader Joe's private label premium, natural and organic store brands as an example of the premium and healthy trend in the U.S.

With these examples above, we again are seeing the convergence between natural and specialty foods products (and the industries). Retailers like Safeway and Trader Joe's are combining premium taste attributes with natural and organic ones to create private label product lines that appeal to the growing number of U.S. consumers who want these combined attributes in the products they buy. You can read more about the specialty frozen foods market study here.

We also aren't surprised the flight to premium quality foods extends from fresh and dry packaged goods products to frozen as well. In fact, if it didn't we likely would not be looking at an overall trend--which we believe it is--but rather only a category-specific one. We are seeing the combination of a flight to premium quality and desire for such foods that also are healthier and more natural.

Unlike in the recent past, U.S. consumers no longer want to trade off taste for health. They want their organic cereal and cookies to have the taste of gourmet cereal and cookies. They also want premium specialty foods that offer unique taste experiences. Much of this has been influenced by fusion restaurants, where ethnic cuisines like Asian and Cuban are combined, and where traditional Hispanic foods are given added taste with a "California Cuisine" flair, for example. Sushi bars have introduced U.S consumers to premium, fresh fish, and once exotic tastes like wasabi. Farmers' markets across the country have shown consumers what "real" fruit and vegetables can taste like and they want that same premium taste available to them in their local supermarket.

The flight to premium taste and quality demonstrated in these three surveys offers a myriad of opportunity to specialty and natural foods manufacturers, marketers and retailers. Combining such attributes as premium taste with natural or organic is a hot button for many consumers. Artisanal produced foods and locally grown also offer great sales opportunities. Natural and specialty foods consumers are converging more and more in the U.S. Understanding that will be key for food marketers looking to succeed in today's and tomorrow's competitive market.

Natural~Specialty Foods Memo's Product Marketing Roundup

A Woman's Place is At the Top: Specialty Food manufacturer and market Glory Foods has named its first female president. Her name is Jacqueline Neal. Glory foods is well-known in the specialty foods industry for its home-cooked, Southern-style canned vegetables and side dishes, frozen entrees, side dishes and bagged vegetables. Ms. Neal has extensive experience in the food industry, including stints with Heinz, Quaker Oats, Nabisco, Kraft Foods and others. She not only should add much to Glory Foods with her extensive experience at major packaged goods companies, but having a woman's touch in the top spot at the specialty foods company should also provide additional insight since woman still make up the majority of food shoppers.

A New Definition of a "Hot" Presidential Candidate: San Francisco, California-based Dave's Gourmet has launched a new line of hot sauces with labels featuring caricatures of the 2008 candidates for United States president. There's Rudy, Hillary, Barack and others, all looking out at you from the hot sauce label. Dave, owner of the specialty foods company, is even getting in on the act himself. He has a caricature of his own face on one of the labels, describing himself as a "write in" candidate for President in 2008.

To spice things up a bit Dave's is holding its own "Presidential" competition via its website here. Here's how it works: Each bottle of Presidential hot sauce that's purchased counts as a vote for that candidate. If you buy one Hillary Clinton caricature bottle and three Barack Obama bottles that means you gave Barack three votes and Hillary one. Dave says he encourages "ballot stuffing" as well. The more you buy the more you vote.

Currently the company's website has Hillary Clinton in the lead with 13% of the hot sauce vote, followed by Obama with 11%, none of the above with 10%, And Rudy Giuliani with 9%. The top four is pretty close, although Hillary seems to have a fairly solid lead. There is a five-way tie for fifth place however between Fred Thompson, Mitt Romney, Al Gore (is he running?), John McCain and hot sauce Dave himself. John Edwards isn't doing so hot--he brings in the rear at 7%, second to last to Newt Gingrich (6%), who even though he hasn't announced he is running has his own hot sauce and the honor of placing last in the voting. Dave's is giving the profits from the sales of the Presidential candidate hot sauces to charities involved in cancer research. Now, that's hot.

Tea for Two: U.S. immigrant Ahmed Rahim used to manage two tea houses in Prague in the Czech Republic. Shortly after he came to the U.S. he and his sister Reem started a tiny specialty tea company called Numi Tea in his Oakland, California apartment. Today, just eight years later, Numi Tea is one of the fastest growing specialty, natural and organic tea companies in the world. It sells its teas not only in the U.S. but throughout the world, including in China, a country where consumers know their teas. Rahim is going back to his tea house roots a bit. Numi is moving into a new facility in Oakland and the brother and sister team decided to include a public tea house in the facility. You can read about the Rahim's, Numi and the new tea house and facility here. It may sound cliche but it has to be said: There's is a true American success story.

Beer and Clamato: For ages many Hispanic (and other) consumers have combined beer with tomato or Clamato juice to make a beer cocktail. Until now they had to buy the beer and tomato or Calamato juice separately and mix their own cocktail. Not any more. Anheuser-Bush is currently testing a beverage called Chelada, which is a combination of Budweiser beer and Clamato Juice, which is a tomato juice and clam juice product that's been on the market for decades. The folks at Bud know this combination is big with many Latinos and are betting the ready-to-drink combination will be a big hit with what is currently the fastest growing ethnic group in the U.S. Bud also plans to sell the beverage in Latin and Central America and perhaps elsewhere. Read more here.

Tanka Bars and Bites: Seldom in the vast world of niche marketing do we see a food product targeted to native Americans in the U.S. Asian Americans, Afro-Americans, Latino's, Woman and others---yes--but creating a product and targeting it to Native Americans is new and rather interesting marketing strategy in the food industry. And that's just what motivated Karlen Hunter, among other reasons, to create the Tanka Bar, which is a modern version of a traditional food called Wasna, a mix of meat and berries that plains Indians used to pack into Buffalo horns to sustain them on long journeys. Hunter, CEO of Native American Food Company, and a member of the Lakota Indian tribe, hopes the Tanka Bar and its sister product Tanka Bites, a bite-sized version of the Tanka Bar, will be a healthy alternative for young people who are more likely to grab a snack of potato chips or candy.

"We want to show them (young native Americans) that this is our original fast food," Hunter recently told the New York Times. Her message--and product--are timely in that Native Americans are among the highest sufferers of obesity and diabetes in the U.S. Her marketing message is creative and culturally relative as well. "In Indian country we don't say, 'this is good for you'...that will turn them away. We say, 'in traditional times our people could run great distances eating this food. So taste it. It tastes good.' "

The Tanka Bar and Tanka Bites are made primarily from Buffalo meat and cranberries. The Buffalo meat is softer than beef jerky and the cranberries give the bar a slightly fruity taste. The initial run of 1.5 million bars and bites has sold out. Hunter says her dream is to make the product "the first national break-out product made on an Indian reservation." The bars and bites are produced on a Lakota reservation where Hunter lives and works. To make the products the first reservation-produced national break-out product, Hunter also wants to get non-Native Americans to buy the products. Among her marketing tools are Myspace and Facebook sites which introduce the bars and bites, discuss their origins and heritage, and talk about their nutritional benefits. Read all about the bars and bites and their heritage and other facts here.

Natural~Specialty Foods Memo's Retail Roundup

Retail Innovation: Illycaffee's Push-Button Cafe

Triest, Italy-based premium coffee producer, marketer and retailer Ilycaffee has found an innovative, inexpensive and quick way to build and open a cafe with essentially the push of a button. Ilycaffee has taken the "Push Button House," designed by Adam Kalkin, and turned it into a rapid-construction cafe for hard to build locations or places where the retailer wants to set up and operate a cafe temporarily. In fact that's what the premium coffe company going to do with there first "Push-Button Cafe" when they set it up in New York City's bustling Columbus Circle between November 28 and December 29 of this year.

Manhattan, and Columbus Circle, are teaming with holiday shoppers and others during this period of time. A great opportunity for a retailer like Illycaffee to sell thousands of gallons of specialty coffee drinks and lots of deserts in a prime location without the investment of actually building or leasing a permanent "brick and mortor" store in the area. That's if they could even find a location in the high-rent, retail mecca of Columbus Circle where the temporary cafe will be located.

Illycaffee's Push-Button Cafe opens at the push of a button in 90 seconds and go anywhere.

The "Push-Button House" is an innovation designed by Kalkin to be used in areas where there has been a natural disaster, such a Huricane Katrina, or the current wildfires in Southern California. It's also designed for lower-income people (or anyone who wants to live in one frankly) who can't afford a traditional house but wants to own rather than rent. It's essentially a "house in a box." It comes prefabricated in a container. And with the push of a button it transforms into a living space in about 90 seconds. It has a kitchen, small dining room, bedroom, bathroom, living room and even a small library. You can read more about the "Push-Button House" and view pictures of it here.

As you can see in the pictures above and below, the "Push-Button Illycaffe" has pretty much everything a "brick and mortar" cafe would have. It's also rather attractive. We find this concept not only innovative but effective as well. Food retailers can use it to extend their brands to places they currently aren't: fairs, sporting events and a myriad of other venues. Manufacturers could use it to sell their products direct to the public, as could small start-up and artisanal food and beverage companies on limited budgets.

The uses are as varied as the retail imagination is. It's also great for test marketing and special events or seasonality retailing like Illycaffee is doing. In many ways its a serious lemonaide stand concept for grown-up and start-up retailers. Once word gets out on what Illycaffee is doing we expect others to adapt the "Push-Button House" for their own retail uses like Illycaffee has.

Retail Briefs

Whole Foods' New Market Hall Store: In mid September we wrote about the new Whole Foods Market "Market Hall" style store which was set to open in Oakland, California on September 26. The store, a first-of-its-kind design for Whole Foods, opened on the 26th to much acclaim from shoppers, suppliers and Oakland city officials. We recently read an excellent profile and review of the Oakland "Market Hall" store, which we have visited, written by Julie, a blogger for the sfist, a San Francisco Bay Area-based blog. You can read her piece on the new Oakland Whole foods Market Hall here. She has great pictures of the European-style food hall format store as well.

Columnist Dissed For Liking Whole Foods: Liberal San Francisco Chronicle columnist Mark Morford likes the new Whole Foods Market Hall store in Oakland. In fact, he likes Whole Foods in general and recently said so in his Chronicale column. (You can read the column, "Is it OK to love Whole Foods?" here.) In response to his positive column on the supernatural grocer Morford receives an email box full of angry and nasty responses from readers who have a distain for Whole Foods. These anti-Whole foods folks essentially acused Morford of "selling out" his "Liberal" credentials by giving the grocer an overall favorable nod despite having some intellegent critiques of how they do business.

Morford didn't take the nasty detractors sitting down though. He does what a writer should do. He took fingers to keyboard and wrote another column (10-12-2007) about those who dissed him for liking Whole Foods. In that column (read it here) Morford said most of the letters he recieved were in agreement with his point of view on Whole Foods or were a i reasonable and polite disagreement with his opinion. There was a segment of letters however which Morford takes off on.

These letter writers he says are absolutist, extreme and voracias Liberals. Morford asks: "Does the Extremism of some progressives spell danger to delicious evolution?" His answer: "Well, yes." But read his 10-12 column for yourself as it's witty, satirical and biting. He makes a number of larger political and social points using his writing about Whole Foods--and the "Whole-Paycheck-label-crowd's" letter-writing responses to his column--as not only the chief topic at hand but as a metaphor for the larger issues of public discourse and debate. The column is pretty humorous as well.

FTC Re-opens Whole Foods' Merger Wound: Federal agencies just don't like losing court battles. That was the case when the U.S. Federal Trade Commission (FTC) lost its first try to stop the Whole Foods' acquisition of Wild Oats Markets, Inc. A judge ruled in favor of the acquisition/merger but the FTC then went back to court and tried again. The same judge once again ruled in favor of the acquisition, which then went through in September.

Now the FTC is back again, this time appealing the ruling with a new court motion designed to overturn the merger on anti-trust grounds despite the fact that Whole Foods is well on its way to integrating Wild Oats into its operations. In fact, it's this integration the FTC aims to stop with its appeal. This is an unusual move by the FTC, attempting to stop a merger not only after it has gone through, but at a point where the acquiring company is well on its way to integrating the company it has purchased into its culture and operations. You can read more details about the FTC's appeal here and here. For a satirical take on the FTC's new court filing to stop the Whole Foods' acquisition of Wild Oats take a look at this dialogue from the Wonkette Blog. The topic: "The FTC hates Hippies."

H.E.B's New Natural-Specialty Cypress Market: H.E.B's newest retail format, its 112,000 square-foot upscale Cypress Market, made its debut yesterday when the first store opened in the Cypress neighborhood in Houston, Texas. The huge store features the largest meat market (full-service and self service) in the area. It features aged prime, all-natural and organic meats. The store also has a giant fresh fish and seafood department. The department will get fresh fish deliveries seven days per week in order to ensure optimum freshness, according to H.E.B. A large selection of both wild, farmed and locally-fished seafood and fresh fish are offered in the upscale department.

The store's produce department is expansive and upscale. It features over 900 varieties of fresh fruits and vegetables, including more than 100 varieties of certified organic produce. Cypress Market also features a huge wine department which includes a temperature controlled wine cellar and tasting room. The wine department features at least 2,000 different varieties of wines from throughout the world, according to an H.E.B. executive. The store's bakery is equally as expansive and upscale. It features a wood-burning hearth oven. Artisan, craft and organic breads are baked in the bakery multiple times daily. The store also has an international cheese shop that includes a cheese aging cave. The cheese shop offerers over 400 varieties of cheeses from throughout the world.

The store also features a Central Market "Cafe on the Run," which has numerous upscale meals for takeout or catering. There also is a full-service eat-in restaurant nearby in-store. Other ser vice highlights include a tortilleria where homeade tortillas are made, an eat-in sushi bar which also offers sushi to go, a cafe/coffee bar with an in-store coffee bean roaster.

The store also has the "Cooking Connection," an in-store department staffed full time by a professional chef and assistants. The department oeprates numerous "H.E.B. Showtime Cooking Stations" located throughout the store. Store culinary professionals will interact with shoppers every day of the week, consucting over 30 in-store demos or tastings each week, according to an H.E.B spokesperson.

Specialty, gourmet, ethnic, natural and organic grocery products and non-foods play a major role in the store. The shelves are full of premium specialty, international, natural and organic groceries. There also is a large store-within-a-store natural and organic health & beauty care and nonfoods area. A "Healthy Living Department" features row upon row of natural and organic bulk foods.

H.E.B. is one of the pioneer retailers of natural and specialty foods with its Central Market format. This format inspires the specialty and natural product offerings in the Cypress Market, which takes the Central Market concept to its next level in terms of upscale, premium, natural and organic retailing. The store also offers a huge selection of basic groceries and an expanded basic non-foods offering in its 112,000 square-feet. Everything from small appliances and kitchenware (basic and upscale) to various types of furniture and other offerings. H.E.B says on of the goals is for the Cypress Market to not be just an upscale specialty market but also a complete destination retail shopping center for consumers. It is.

Mid-Week Roundup Ender
Unmentionable Cuisine: We happen to be big believers in the concept of cultural relativism when it comes to food choices. That one regions food choices, like eating beef from cattle, can be considered unmentionable in another culture. We also are major advocates of fresh, all natural foods, procured locally whenever possible.

However, we aren't sure if the cuisine being offered by Britian's Famous Wild Boar Hotel restaurant might not just be taking the concepts of natural, fresh and locally procured just a little to far. The restaurant, located in Crook, near Windermere, in Cumbria UK, is preparing and serving up pancakes made from grey squirrels to diners, according to a story in the London Daily Mail (10-16-2007). And the price is right--as an introduction to the squirrel pancakes, which head chef Marc Sanders describes as "Peking duck-style squirrels wraps, the restaurant is currently offering them to diners for free as an introduction to the new dish on its menu.

Head Chef Marc Sanders diplays his creation: Grey Squirrel Peking Duck-style wraps or panckaes.

The grey squirrels also are locally procured. They're caught on the hotel's 72 acre wooded grounds. Hotel general manager Andy Lemm says the grey squirrels are everywhere on the grounds. "Our diners seemed to enjoy the squirrel pancakes," Lemm told the Daily Mail, "and I thought they tasted rather nice, a bit like rabbit," he added.

Grey squirrels are killing off red squirrels in the UK. As such the reds have become an endangered species while the government has encouraged hunters and others to eliminate the greys. Britian's Lord Inglewood, a conservationist, warned Brits that the red squirrel would soon become extinct if grey squirrels are allowed to go on increasing. Red squirrels are native and the greys aren't.

Lord Inglewood also suggested one way to deal with the problem would be to foster a market for grey squirrel meat. He told Brits that Americans eat grey squirrel and even have a number of recipes for the meat, including what he discribed as the most popular dish in the U.S., Brunswick Stew, which the Lord says "is casseroled squirrel."

He wants famous British chefs like Jamie Oliver to promote grey squirrel-based dishes for school dinners. (Really, the Lord told the Daily Mail that, we couldn't make it up.)

Meanwhile, chef Marc Sanders decided to take the Lord up on his suggestions by creating the squirrel pancakes and putting them on the hotel's menu. The hotel's general manager also had a hand in the dish since he was looking for a way to help rid the grounds of the grey squirrel infestation.

Fresh, all natural, locally procured--the grey squirrels do hit all the hot buttons with today's foodies. And we must say the squirrel Peking-style pancakes do look attractive in the picture. Perhaps what was once unmentionable cuisine will become tomorrow's new trendy food dish. We're not sure though, those grey squirrels are rather cute. And a wise man once told us never to eat meat from an animal that's much cuter than you are.

We would give the squirrel pancakes a go as the Brits say. Would you? Let us know if you would in the comments link below.