Friday, October 26, 2007

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.

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