Tesco Fresh & Easy Update: Northern California

Tesco inks deals for three new Fresh & Easy store locations in Northern California's San Francisco Bay Area, Distribution Center in Stockton

British grocer Tesco has locked-in three more locations for its Fresh & Easy Neighborhood Markets convenience-oriented grocery stores in Northern California, according to our sources. All three stores are in the San Francisco Bay Area. The stores are in San Francisco, Oakland and Farfield, which is located about 40 miles from San Francisco.

This makes four "done deal" store locations in the Bay Area region of Northern California we've been able to confirm thus far. Tesco won't confirm the four Bay Area locations but a spokesman does say the grocer is looking "hard" for ftore sights in the region.

We were one of the first to report over two months ago that Tesco's first Bay Area Fresh & Easy grocery market will be in San Jose, on Bird Avenue. We also reported at that time about Tesco's first Fresh & Easy location in the southern Central Valley, which will be a store in Bakersfield. Bakersfield is in the middle of the state, about 75 miles from Los Angeles (south) and about 150 from Sacramento (north).

Tesco currently has 15 stores open, ten in Southern California and five in Las Vegas, Nevada. On Wednesday, December 5, the grocer opens its first stores in Arizona.

The San Francisco Fresh & Easy store will be located in the city's predominantly African American neighborhood of Bayview-Hunters Point. City government and neighborhood sources in San Francisco told us Tesco signed an agreement last week to locate the store in an old Coca Cola bottling plant in the neighborhood.

Bayview-Hunters point is a low-to-moderate income neighborhood, and is considered the last "affordable" area in the city. (That's "affordable" by San Francisco standards, which are very high. A 1,200 square foot, two bedroom, one bath house in the neighborhood sells for about $600,000 on a good day.)

Tesco executives, Bayview-Hunters point community members, and city officials will hold a groundbreaking for the Fresh & Easy market on Thursday, December 13 at 11:30 a.m., our sources told us. Amy Cohen of the San Francisco Mayor's office of economic and workforce development has been working with neighborhood activists for a long time in an attempt to lure a grocery store to the neighborhood, which is underserved by retail food stores, especially those offering fresh fruits and vegetables. The group scored with Tesco.

One of Tesco's strategies (and promises) with its Fresh & Easy chain is to locate stores in what the retailer calls "food deserts," areas and neighborhoods in the U.S. that are underserved by grocery stores. In the case of Bayview-Hunters point, the British grocer is making good on this strategy--and promise.

The first Oakland store location will be at the site of the former Eugene International Market at the Jack London Gateway Shopping Center on Market Street. Our sources tell us Tesco has signed a lease for the site and plans to start remodeling the 27,000 square foot building soon. This buuilding has been vacant for a long time, and city officials and the center's management has been trying to fill it for some time.

Fresh & Easy stores average about 10,000 to 13,000 square feet. Our sources told us Tesco might sublease the other roughly 50% of the building to another retailer, such as a drug store.

Tesco has, however, leased buildings this size, or even larger, and made them smaller for their Fresh & Easy format. For example, some of the retailer's recently-opened stores in Southern California are in remodeled Albertsons' supermarkets. The stores were closed a couple years ago by the supermarket chain. These stores were over 27,000 square feet before Tesco "shrunk" them as part of the renovation process for its Fresh & Easy format. As such, Tesco might do the same to the Oakland building rather than subleasing the extra square footage out to another retailer.

The Oakland Market Street location, near downtown, is in neighborhood that until recently has been underserved by retail food stores. However, in just the past few months Trader Joe's has built a new store nearby, as has Whole Foods Market, Inc. These stores are the first for both specialty grocers in Oakland. The stores are about a 10 minute drive away from the Fresh & Easy sight.

There's also a Lucky supermarket--which is a former Albertsons' store that's name was changed to Lucky by Save Mart Supermarkets when the grocer purchased Albertsons' Northern California Division earlier this year--and a Pak n' Save warehouse-tye market nearby. Both stores are within about a 10 minute car ride from the Fresh & Easy location. Pak 'n Save is the warehouse store division of Pleasanton, California-based Safeway Stores, Inc. Even though the other stores mentioned are a close driving distance away, many of the neighborhood's residents either walk or use public transportation. Therefore, the Fresh & Easy will be a major plus for those neighborhood residents, who tend to be lower income consumers.

The map (above) shows Tesco's strategy to ring the Southern California region with Fresh & Easy stores. The grocer wants to have as many as 200 stores in the region in the next two years. Tesco plans on following this same "Starbucks-like" strategy in Northern California.

We wrote a piece on November 14 in which we were one of the first to report that Tesco plans to use Oakland as a retail beachhead of sorts in its push to build numerous stores in Northern California and the San Francisco Bay Area. (you can read our story here.) As we reported, Tesco is planning to build at least five Fresh & Easy stores in Oakland. We named all five locations in our November 14 piece. The Market Street location was one of those five. Further, we reported in the story the grocer was planning to build a distribution center in Northern California to serve its stores in the region. That distribution facility will be located in Stockton, which is about 30 miles from Sacramento and about 60 miles from San Francisco.

We don't have the exact location yet of Tesco's Fresh & Easy store location in Fairfield. However, we know the grocer plans to build one in the city, located on Interstate 80 between San Francisco and Sacramento, because it's applied for a liquor license for a retail food store to be located in Fairfield, California.

As we've been reporting for at least two months, Tesco plans on ringing the Bay Area with it's Fresh & Easy Neighborhood Markets, which sell a selection of basic Fresh & Easy private label and national brand groceries, along with fresh prepared ready-to-eat foods, fresh produce and meats, and other product offerings.

The stores are small: on average no more than 13,000 square feet. Pricing on the basic grocery items is low thus far in the stores the grocer has opened in Southern California and Nevada. Grocery item retails are far lower than those at traditional convenience stores, and as much as 5-10% lower than those at nearby supermarkets, based on price comparisons we did in Southern California.

Fresh & Easy's prepared foods selection runs from basic items like meat loaf, mac 'n cheese, and burgers, to upscale offerings like Beef Burgundy with Red Wine Sauce, Thai foods entrees and other high-end prepared foods. Currently, the retail prices on even the upscale prepared foods are very reasonable.

In addition to San Francisco, Oakland and Fairfield, we've reported earlier that Tesco was negotiating with a shopping center manager in the East Bay Area city of Danville to locate a store in the center in an empty Albertsons supermarket building. Our sources tell us the deal is nearly completed. However, we can't confirm it yet.

Other Bay Area cities where Tesco is on the verge of inking deals for Fresh & Easy store locations include: Pittsburg, Antioch, Concord, Walnut Creek, Dublin, Pleasanton and Livermore, all in the Easy Bay Area. Brad Nail, economic development director for the city of Pittsburg, says he's currently talking with Tesco represenatitives about locating two stores in the city.

In addition to the leased Bird Avenue location in San Jose, the grocer is currently looking at as many as three other locations in that city, which is the largest in the Bay Area, according to our sources. Additionally, Tesco is looking at sights in the cities of Menlo Park, Palo Alto, Mountain View, Burlingame, San Mateo, Daly City and South San Francisco. These cities are located in what's called the San Francisco Peninsula, which stretches from San Jose south up to San Francisco.

The Bay Area isn't the only Northern California region where Tesco is negotiating for Fresh & Easy store locations. Our Sacramento real estate sources told us the grocer is looking at multiple sights in the capital city--perhaps for as many as 5 or 6 stores. Tesco executives also are talking to real estate people and shopping center managers in the northern Central Valley cities of Stockton and Modesto.

Fresh & Easy locations also are being sought in the southern central valley city of Fresno, a fast-growing metropolitan region with a population of over a million people. Fresno is not far from Bakersfield, where the first southern Central Valley Fresh & Easy will be built, as we reported above.

Although nobody has actual numbers, based on conversations with our sources and other industry observers, and predicated on the fact that a retailer has to have a set amount of stores to make a regional distribution center like the one Tesco's plans to build in Stockton, we are hearing that as many as 100 Fresh & Easy stores could be build in Northern California in 2008-2009. If so, that number of stores will have a significant impact on grocery retailing in the region.

The Northern California region also will have a significant impact on Tesco's Fresh & Easy operation. It's a very strong union region in terms of supermarkets. All of the area's chains and most of its larger independents are union stores. Tesco should expect a well organized, strong movement in the Bay Area to get the region's Fresh & Easy stores unionized, especially in San Francisco and Oakland.

The Bay Area is also hometown turf for Safeway Store's, Inc. It's corporate headquarters is in the Easy Bay Area city of Pleasanton. Safeway's CEO Steve Burd has said the grocer is watching Tesco's Fresh & Easy format closely, and that the Pleasanton-based grocer is developing it's own plans for an Express-type grocery market should it feel any serious loss in sales from the Fresh & Easy stores in California.

Whole Foods Markets plans to build as many as 20 new supernatural stores in the Bay Area in the next five years. The grocer's most recent stores in the region have averaged between 55,000 and 68,000 square feet in size. Whole Food's strategy of huge, multi-departmental stores is the opposite of Tesco's less-is-more, convenience-oriented format.

The region also has numerous other serious food retailing players. Lucky Stores, Raley's/Nob Hill, Andronico's, Lunardi's, and many more, all offer a combination of basic groceries and fresh, prepared foods, albeit in a larger retail store format. There's no doubt Tesco will heat up the already competitive food retailing region with its Fresh & Easy format beginning next year.