Friday, February 8, 2008

Retail Memo: Tesco Fresh & Easy Insight: A New Store Blooms in Compton, CA.; F&E's Chicagoland March; a Sacramento Neighborhood and F&E Get Hitched

Prince Andrew, Duke of York, addresses a crowd at this morning's grand opening of the Fresh & Easy grocery market in Compton, California.
A New Fresh & Easy neighborhood grocery market opens in a struggling Southern California city trying to chart a new future--and offers shoppers a 'Royal' welcome on grand-opening day.

Making good on its promise to not only open its small-format, neighborhood grocery stores in middle-class and upper-income suburban communities but in low-income "food deserts" as well, Tesco's Fresh & Easy Neighborhood Market opened its 43rd grocery store this morning in the hard-scramble, low-income Southern California city of Compton.

The residents of the Southern Los Angeles County city of Compton (which is infamous for being the birthplace of the Crips and the Bloods street gangs) who attended this morning's Fresh & Easy store grand opening were not only surprised by the store's bright decor and extensive product selection, featuring shelves full of everyday grocery items right next to specialty and organic groceries, fresh meats and produce, scores of fresh, prepared foods items and more, they also were shocked to be greated by another British import: British Royal Family member Prince Andrew was at the 10,000 square foot grocery store to meet, greet and welcome shoppers on opening day.

Prince Andrew, Duke of York, who in his youth the British press called "Randy Andy" for his amorous appetite, is now the United Kingdom's (UK) Special Representative for Trade and investment. He attended the Fresh & Easy store grand opening in that official capacity to praise Britain's Tesco for opening a store in the lower-income neighborhood, and to tout his country's retailing talent.

"Congratulations number 43 (the 43rd Fresh & Easy), and good luck with the rest. This is just one small example of what the UK can do in the retail industry," Prince Andrew said in making a brief speech as part of this morning's grand opening ceremonies."

Under the leadership of mayor Eric Perrodin, the city of Compton is working hard to overcome its reputation as the home to gangs and poverty, and to in the mayor's words, "Birth a new Compton." In fact, as part of the store's grand opening ceremony, the mayor presented Prince Andrew with a "Birthing a New Compton" T-shirt and baseball cap, which are marketing tools used in the city's effort to redevelop and improve the community.

The new Compton Fresh & Easy store is a big part of that effort by the mayor, other city officials, business people and communtiy residents. Like many other lower-income cities, Compton has had a difficult time getting grocers, especially those who sell lots of fresh and nutritious foods, to build stores in the community. The city is what Tesco identified in its research, prior to launching the Fresh & Easy format, as "food deserts" in the USA, those mostly urban, inner-city regions (but also in suburbs and rural areas) which have a dearth of grocery stores that offer a selection of basic groceries, along with lots of fresh foods at reasonable prices.

Compton city officials worked hard and closely with Tesco executives to make the brand new store, built from the ground-up, a reality. The store took only one year to build because the city made it a top priority, Kofi Sefa-Boakye, the city's redevelopment agency director said at the grand opening. He praised Fresh & Easy executives and said the store is going to be a big asset to the city and its redevelopment efforts. He added the store would bring in about $200,000 annually in property tax payments to the city's coffers, in addition to providing a sorely-needed grocery store for the community, along with providing new jobs.

The store will employee 22 workers, all part time except for store management, at a starting salary of $10 hour. Fresh & Easy CEO Tim Mason told us all store employees will work a minimum of 20 hours a week so they can qualify for the company's health plan. Employees pay into the health plan as well, and have co-payments for medical office visits and prescription drugs.

Mayor Perrodin, who was first elected in 2001 and made making a "new" Compton his chief campaign goal at the time, said the city had only one full-service grocery store before today, when the new Fresh & Easy opened its doors at 10am. Since the city has a population of nearly 100,000 people, that's a sad and amazing fact. Most Compton residents drive or take public transportation to other nearby cities to do their grocery shopping, a fact Fresh & Easy was well aware of and which was important in the grocer's decision to build a store in the city.

There was a huge crowd at the store this morning waiting for CEO Mason, Prince Andrew, Mayor Perrodin and others to cut the grand opening ribbon so they could go inside and get a look at their new 10,000 square foot grocery store. In fact, if today's crowd is any indication, the store should do a thriving business, despite the fact that many Fresh & Easy stores opened in other parts of Southern California are seeing rather meger store counts thus far.

More than one shopper remarked how happy they were to see the store open. A mother of four said her family of will be regular customers of the new grocery market. Another customer said he makes a 25 minute drive twice a week from his house to shop at a supermarket in a nearby city. "The Fresh & Easy is five minutes from my house," he said. "I'll shop here at least three or four times a week, and maybe more."

Grocery stores, especially those offering a quality selection of fresh and other food and grocery products at reasonable prices, are becoming key to cities throughout America in their redevelopment efforts. There's a trend towards increased urban housing in the U.S., and a desire on the part of a growing number of people of all ages to live in cities again after decades of suburban flight. However, these same people are used to high-quality supermarkets, and they want the same food shopping choices available to them in the city.

In the case of impoverished or lower-income cities like Compton and others, the simple fact is food retailers have in the main either closed existing stores in these cities, especially in the inner-city, or refused to build new stores in them for a variety of reasons--some valid, others not. This is where we think Fresh & Easy's real opportunity is.

Despite the fact they have lower-incomes, inner-city residents tend to spend a higher percentage of their income on food and groceries. Additionally, given the opportunity, they also will purchase fresh prepared foods, organic products and other specialty groceries. The problem is: They haven't had much opportunity to do so in the form of conveniently available grocery stores in their neighborhoods that offer such quality and variety.

Although thus far the vast majority of Tesco's Fresh & Easy grocery markets are in middle and upper-income suburbs, we suggest the grocer focus more on their "food desert" strategy. There's a huge, untapped market in cities throughout the U.S. for neighborhood grocery stores that offer a good selection of reasonably-priced everyday grocery items and more specialty-oriented offerings.

There also are numerous rural communties of ample size in need of neighborhood-style grocery stores. Residents in these rural cities often drive 20 miles or more to shop at bog-box stores. Given an alternative like Fresh & Easy, which sells basic grocery products as well as specialty items, we think many of these residents would flock to such stores located in their cities. We think the "food desert" strategy can, in the long run, be equally--or even more profitable--for Tesco in the U.S. than the middle/upper-income suburban strategy.

Is Tesco's Fresh & Easy Neighborhood Market preparing to march on to Chicago from it's Western U.S. base? We believe so, but not for a while.

On November 27, 2007 we were one of the first publications to report that Tesco's Fresh & Easy Neighborhood Market was looking beyond the Western U.S. states of California, Arizona and Nevada, to Chicago, New York and Florida, as new markets for its Fresh & Easy small-format, convenience-oriented grocery stores. (Read our November 27, 2007 piece, "Eastward-Bound for Fresh & Easy," here.

In that piece, we particularly focused on Fresh & Easy's search for a location for a Midwestern region distribution center in the Chicago, Illinois area, as well as its scouting of various locations in and around Chicago for retail store sights.

Today's Chicago Sun-Times newspaper, the city's major daily, is confirming what we and others wrote about three months ago, and adding some new information of its own. Most specifically, today's Sun-Times story says a knowledgeable source told the paper a specific potential Fresh & Easy store site is in the Chicago suburb of Arlington Heights.

Since one of our sources for the November, 2007 piece is a very knowledgeable Chicago-area commercial real estate broker, we tend to feel rather certain Fresh & Easy is looking to the Chicago region, along with New York and Florida, as its next step beyond the Western U.S. Further, we believe Chicago will be first, then perhaps New York and Florida after. We base this on our source's information regarding the talks Fresh & Easy has had (not with him) about the possible distribution center locations in the Chicago region.

Additionally, there have been some quality reports in the British papers, in addition to today's report in the Sun-Times, that mirror what we're being told. We don't see Fresh & Easy starting to build anything in Chicago until mid-to-late 2009 however. The retailer still has many new stores to open in Southern California, Arizona and Nevada this year and into 2009.

It's also going into Northern California beginning later this year, and into 2009. The grocer has 18 store leases already signed in the San Francisco Bay Area, with many more on the way in the coming months. Based on information from our sources, we think the retailer would like to have about 40 -to- 50 stores open and operating in Northern California by the end of 2009.

There's also the matter of sales and store traffic count, which based on our observations, conversations with numerous store-level workers, suppliers and others, aren't all that great to date in the 43 Fresh & Easy stores which have been open. With such a rapid new store-opening clip--about three stores a week since early November--Tesco needs to take some time soon to step-back a bit and do some evaluating and make some changes before the growth-pace outstrips their ability to do so in our view.
A long-struggling Sacramento, California neighborhood has made dramatic quality-of-life improvements, with more on the way--and Tesco's Fresh & Easy Neighborhood Market will become part of the solution when it opens a new store in the neighborhood next year.

The Oak Park neighborhood in Sacramento, California's Midtown district is in the process of being transformed from a once rundown, "undesireable" neighborhood in the city, to one in which its residents and others in this city of 500,000 are calling an "up-and-comer."

Midtown is one of Sacramento's oldest districts. It's near the city's downtown core and not far from the California state capital building. It's streets are lined with fifty-plus year-old large shade trees, and there are many victorian-style homes in the area.

The Oak Park neighborhood, which is in Midtown, was once a thriving place, especially in the Sacramento of the 1950's and early 1960's. However, it eventually became rundown: the crime rate soared, drugs came to the neighborhood, and businesses, along with working and upper-class families left for the suburbs.

Beginning in the mid-1990's however things started to change thanks to a dedicated group of residents, small business people and a few supporters on the Sacramento City Council and in the City Manager's office. A group called the Oak Park Neighborhood Association, comprised of residents and small business owners, was formed and the group began to lobby city hall for attention. The group also reached out to real estate agents and others, encouraging them to market the neighborhood as a desireable residential location in the city.

The timing was good from a residential point of view in Sacramento. Housing prices were skyrocketing in the city's more "desireable" neighborhoods. Oak Park was a relative bargain. Then, many people discovered the neighborhood's gorgeous but rundown victorian houses and jumped at the chance to buy these houses and renovate them. This activity, along with the opening of a few new, small businesses started a slow but sure turnaround for the neighborhood.

This revitalization of Oak Park has picked up steam in the last couple years, although much remains to be done, especially in the view of the neighborhood association which got the ball rolling in the mid-1990's.

At the top of the group's agenda has been launcnching a major effort over the last few years to get retail businesses to locate stores in the neighborhood so that residents don't have to drive across the city to shop. Chief among their goals has been to get a high-quality grocery store into an empty building in the core of the neighborhood called the Made-Rite property.

Last night at a meeting of the Oak Park Neighborhood Association it was announced that the goal of the activists had been achieved: a 10,000 square foot Fresh & Easy Neighborhood Market store will go into the empty Made-Rite property building and serve as a local neighborhood grocery store for residents in the growing and prospering neighborhood. The store is scheduled to be open in early 2009, a member of the association told us.

While Sacramento's Oak Park neighborhood isn't quite a "food desert" on the order of Compton, California, which we discussed in our lead story above, it is a neighborhood underserved by food stores and one on the road to rivitalization.

The Fresh & Easy store will become an integral part of Oak Park's experiment in better urban living. A new urban loft residential development called 4th Avenue Lofts is currently being constructed in the neighborhood, the classic Guild Theatre has been renovated, new retail stores are opening, as are restaurants and even an upscale wine bar. The older, tree-lined neighborhood is becoming one of the city's most desireable places to live, especially among young professionals, artists and even suburbanites who are moving back into the city.

Having the Fresh & Easy store come in though is key to what the neighborhood association wants the area to become, a member of the group told us. What Oak Park's residents want is a neighborhood of their own, with a mix of people of all ethnicities and income levels, lots of local shopping choices, a lively street life, and a better quality of life than has previously been the case.

The residents of Oak Park have achieved much of what they want already--and have more to look forward to coming up. Tesco's Fresh & Easy has an opportunity to be a major part of this ongoing quality-of-life improvement--and to gain the loyalty of the neighborhood in the process.

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